Malpractice Reforms Alive in the Hawaii Legislature – But Not for the Reasons Many Might Expect

By Andrew Walden


Malpractice reform is still alive in the Hawaii State Legislature — but not for the reasons many might expect.

With Hawaii physicians leaving the state and hospitals suffering a shortage of personnel, doctors have pointed to high malpractice insurance rates as a major factor in Hawaii’s medical crisis.

In spite of this, malpractice tort reform appeared to die on February 14 as Senator David Ige’s (D-Pearl City-Aiea) Senate Health Committee refused to pass bills out of committee which would have limited malpractice awards for non-economic damage.

But reform was quickly resurrected in the House with Rep. Josh Green (D-Kona) inserting tort reform language favored by Governor Linda Lingle into a house bill by Rep. Angus McKelvey (D-West Maui).

Interestingly enough, neither Representative is leading the way on the hottest health care issue of the season–proposals to allow construction of Malulani hospital on Maui.

McKelvey is an opponent of Maui’s proposed privately funded Malulani hospital calling a bill to allow Malulani’s construction, “a slap in the face to West Maui�.

Speaking to Hawaii Free Press’, Green criticizes Malulani’s application for a Certificate of Need as “substandardâ€? claiming that Malulani’s proposal would have paid nurses and physicians less than the existing Maui Memorial Medical center –an assertion which Malulani supporters dismiss as “ridiculousâ€?. Yet Green and McKelvey are leading the way on tort reform.

Why is reform still alive? A clue comes from Rep. Green. Asked by Hawaii Free Press what is the most important message the public needs to get about malpractice tort reform, Green indicated that the threatened closure of Oahu’s Kahuku Hospital came in large part because of the soaring cost of the hospital’s malpractice insurance. Said Green, “it went from $70,000 to $430,000.�

That is the change from 2002 to 2004, cited in The Honolulu Advertiser. In 2005, according to Pacific Business News, Kahuku’s malpractice insurance went even higher–costing $456,000.

Kahuku, located in Sen. Clayton Hee’s North Shore Oahu district, began in 1929 as a plantation clinic and is owned by a private foundation. Kahuku has been running a deficit of $1.5 million in recent years. About $1 million of this has been subsidized by the state, equivalent to 15% of Kahuku’s $6.6 million annual budget. In contrast to Kahuku, Hawaii Health Services Corporation (HHSC) hospitals are State subsidized at an average of 40% of their annual operating budget.

Senator Roz Baker (D-Maui) explained the legislature’s lackadaisical attitude to Pacific Business News February 11, 2005: “All of the hospitals have challenges and the Legislature has tried to assist as many as they can. There’s probably lots that would vie for most needy. We’re sympathetic; we want to try to help them out but there’s only so many resources…â€?

Kahuku’s remaining $500,000 annual loss weighed down the hospital’s finances until this November, hospital directors, faced with legislative indifference and mounting insurance costs voted to file Chapter 7 bankruptcy by December 31, giving up its licenses and Certificate of Need, closing the doors for good and selling off the hospital’s assets to pay $3.5 million in debts.

With the next-nearest hospital almost one hour away, and rural North Shore roads often blocked by flooding, a high stakes game of chicken ensued between hospital administrators and the legislature. About 3,000 petition signatures were gathered from the 22,500 people living in Kahuku’s service area.

According to the December 9, 2006 The Honolulu Advertiser:

“In response to an overture from legislators, the hospital’s board of directors yesterday temporarily suspended action on a Chapter 7 bankruptcy filing to give the state time to acquire the rural hospital or affiliate it with the Hawai’i Health Systems Corp. “However, the board, acting under tight deadlines, gave the state less than two weeks to meet two conditions.

“First, by Dec. 15 the board wants a memorandum of understanding stipulating the state’s intent to acquire or affiliate as well as agreement to:

* Fund ongoing operations at the hospital.
* Cover the cost of a Chapter 11 bankruptcy filing, which is estimated to be more than $250,000.
* Pay for the merger of the hospital into HHSC, which manages the state hospitals.

“Further, the board wants the letter signed by the Lingle administration, key lawmakers and the area’s representatives, said Eric Beaver, hospital board president.

“The board also wants the release of $500,000 in emergency funding — as promised by the state — by Dec. 20, he said.

“‘If the memorandum of understanding gets executed and those two conditions are met, we’re comfortable going through Chapter 11,’ Beaver said.â€?

With Hee open to charges of robbing his constituents of their hospital, legislators chickened out just in time to prevent Kahuku’s closure. Unlike Chapter 7, Chapter 11 Bankruptcy allows Kahuku to continue operating, retain its licenses and Certificate of Need and negotiate with creditors.

Spinning as fast as he can, Hee arrogantly told The Honolulu Advertiser on December 9, “That suggests that they (the Kahuku Board) are as interested in a healthcare facility at Kahuku as we are. I’m sure we’ll do the best we can, and I expect we’ll get it done.â€?

With Kahuku being folded into Hawaii Health Services Corporation, suddenly legislators who in the past couldn’t be bothered to increase Kahuku’s subsidy from 15% to 22%–while subsidizing HHSC hospitals 40%–have acquired an interest in cutting Kahuku’s and Hawaii Health Services Corporation’s costs.

Malpractice insurance increases amount to as much as 72% of Kahuku’s annual budget shortfall—hence the legislature’s interest in malpractice tort reform.

Trial lawyers—and their political contributions– have a lot of influence with the legislature’s Democratic majority.

It is OK for out of control lawsuits to chase doctors out of the state, but let them take a chunk out of the state’s bloated bureaucracy and the legislature wakes up.

If legislators are unable to craft a bill which applies only to malpractice insurance for hospitals—or only to HHSC hospitals–doctors may get some relief.

Doctors and their patients are lucky that the HHSC is being dragged down by malpractice insurance costs, but the devil is in the details and the legislative process will require close scrutiny up to the last minutes of the session.
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