Clash of Titans: Hawai'i's Healthcare Leaders Disagree on Best Path Forward

The healthcare landscape in Hawai'i could get a radical makeover if regulators approve a combination of the state's largest health insurer with the second-largest hospital system, creating an integrated behemoth with combined annual revenues topping $6 billion.

Already the plan has come under sharp attack by competing medical providers and consumer advocates alike, just months after the Hawaii Medical Service Association (HMSA), a member of the Blue Cross Blue Shield Association, and Hawai'i Pacific Health (HPH) announced their plan to join under a parent organization to be called One Health Hawaii.

HMSA, which is already the largest organization in the state by revenues and insures 53% of the state's population, would join forces with a hospital group that has four medical centers with more than 600 beds. Combined, the two nonprofit organizations have more than 9,140 employees.

What will all of this mean for the cost of healthcare in the Islands, for the existing employees and for the companies trying to compete against a new giant that combines service providers with an insurer that approves or rejects medical procedures and costs?

Hawaii Business Magazine invited the top players in the combination — they eschew the terms merger or takeover — to answer these questions at a summit of Honolulu executives. For the parties that would become One Health Hawaii, there are projected cost-savings, efficiencies and better health outcomes.

"A platform that integrates the consumer, the seller, and the supply chain... creating the best experience and the lowest prices. Imagine that experience in healthcare; that's what we hope for our family and friends," said Mark Mugiishi, CEO of HMSA, comparing the promise of One Health Hawaii to Amazon's operational efficiency.

For his part, HPH President and CEO Ray Vara framed the proposed combination as a necessary response to a "broken" and "unsustainable" landscape where health systems are losing money and employer costs are skyrocketing. "The current status quo state, without significant disruption or intervention, is much more scary," he said.

The exchange in mid-February, which was moderated by Hawaii Business Editor-in-Chief Jennifer Ablan, was characterized by blunt views in a city whose executives generally pride themselves on collegial behind-the-scenes airing of differences.

"I feel that this is like the Trojan horse story," Jason Chang, president and CEO of The Queen's Health Systems, warned. "Sounds great, it's a gift — but once it's behind the doors, you don't know what's inside, and there's a tremendous amount of risk."

Chang also took issue with Mugiishi's comparison to Amazon. While acknowledging the online retailer's success, he urged the audience to consider the collateral damage. "Look at what happened to all the local vendors and local retailers around Amazon," he countered.

He instead proposed healthcare leaders revisit "Plan B," an alternative model that favors inclusion over integration. The solution to Hawai'i's healthcare woes "can't be isolationist," Chang concluded. "You have to work with everybody. I'm proposing that Plan B is the better option."

National Trends, National Backlash

To be sure, what's happening in Hawai'i is part of a national trend that has led to consolidations of insurers with healthcare providers, pharmacy benefit managers and others, with mixed results. That trend has also sparked a bipartisan backlash in the face of rising costs and threats to competition.

Massachusetts Sen. Elizabeth Warren, a Democrat, and Missouri Sen. Josh Hawley, a Republican, introduced legislation that would break up companies that own health insurers and medical providers.

On a recent PBS episode of Firing Line with Margaret Hoover, billionaire Mark Cuban, who has made a personal campaign of increasing transparency in the healthcare sector, said large insurance companies "game the system" by owning healthcare providers and others in the healthcare service chain. "Literally what those companies do defines the cost of healthcare in this country," he said.

"Right pocket, left pocket, it doesn't matter," Cuban added. "They don't care which company they profit in as long as that profit is somewhere in their vertical integration."

Similar concerns are taking hold in Hawai'i, which already has one vertically integrated healthcare group, Kaiser Permanente Hawaii, a unit of the California-based parent. One Health Hawaii would leapfrog that with an even larger market share.

Warnings About Prices, Layoffs

Chang, representing Queen's, argued that such integrations typically lead to higher prices and reduced choice. He also warned that in a market of only 1.4 million people, such a move could isolate other providers.

"Vertical integration means you take two organizations... and you put them together, which then creates a firewall — a wall between everybody else," Chang said. "If you think about the disruption that's needed in Hawai'i today, it's not to create segregation, it's actually to create more partnerships across the entire span."

Vara countered that Chang was referencing for-profit integrations that differ from the proposed local nonprofit model. HMSA and HPH are already nonprofit organizations, as would be the proposed parent.

"In those markets where you have nonprofit, local organizations coming together... you find results consistent with what we're talking about — bending the cost curve, creating better access, minimizing administrative burden and creating capacity that otherwise doesn't exist," Vara said.

The discussion grew tense when Vara pointed out that a similar alternative had been on the table years ago — and that Queen's opted out of it. Chang responded candidly: "That was my predecessor. And I would say that if we could really go back and do that again, that was the wrong move. We should not have walked away from that table." However, that deal "still excluded everybody else in the community." His remark drew attention to past missed opportunities, while underscoring how long the integration debate has been simmering.

Another panelist, Vicky Hanes, COO of Hawai'i Island Community Health Center, shifted the conversation to the front lines of care. She said primary care receives less than 5 cents of every healthcare dollar spent in the country. Spending more money on preventative care would result in less demand for the much more expensive care that is the mainstay of the companies in the proposed merger, she said. Her center is one of 13 primary care providers across the state.

"I think a part of this conversation is about, where are we bending that cost?" Hanes asked. "I think if you can focus on bringing resources into the primary care system... giving them good preventative care, all visits, giving them all of their care gaps, getting all of that stuff checked out so we don't end up in a situation where we're totally upstream in the hospital, high-cost procedures, specialty care up the wazoo, that's the conversation I want to bring to the table."

HMSA and HPH have projected that the partnership could generate over $2 billion in savings over a decade. HMSA's Mugiishi said that as a nonprofit, One Health Hawaii is designed so that savings are reinvested back into the community: "It gets reinvested, number one, in bending the cost curve so that you, the employers, have a slower rate of increase of your premium dollars."

Mugiishi said that the "unleashed value" of the deal lies in a planned aggressive shift toward prevention. "The value that is going to be unleashed is in the proper coordination of care that happens at the primary care level that makes sure that people with chronic diseases don't progress, people who are healthy don't progress to chronic disease," he explained. "That's where you actually save money. So, if you take that care coordination and you invest in that, that's where you're going to find the largest amount of the savings."

'Sustain the Ecosystem'

Beyond premiums, Mugiishi argued this capital would allow for strategic investments to "sustain the ecosystem," such as expanding the provider footprint on neighbor islands and utilizing technology to bridge the urban-rural gap to specialists like neurologists.

However, for Chang, the "pencil out" simply doesn't justify the optimism. "The devil is in the details," he warned. While HMSA and HPH tout billions in potential savings, Chang argued that a realistic analysis suggests the savings are significantly lower — a discrepancy he fears will eventually be bridged by service cuts and layoffs.

In follow-up interviews, the three executives furthered their cases as to whether One Health Hawaii will be miraculous or disastrous for the Islands' healthcare landscape.

Vara, pushing back on Chang's assertion that the projected $2 billion in savings isn't possible without service cuts and layoffs, says that HMSA and HPH hired Deloitte Actuarial Services to perform a third-party evaluation to confirm that their calculation of savings is accurate. "And that has been submitted as part of our business case. That's gone to our regulators as part of the approval package," says Vara.

Chang warns that One Health Hawaii could financially destabilize non-HPH providers by luring commercially insured patients — the only profitable segment of the market — away from the rest of the system.

"No health system in the United States makes money on Medicare and Medicaid," Chang explains. "It's always an investment. What we profit from is commercial business."

Chang argues that even a small shift in market share could have catastrophic results for community services because the stability of Hawai'i's healthcare depends on a fair distribution of Medicare, Medicaid and commercial patients across all providers. Without that balance, he fears care providers will be forced to make cuts to specialty departments.

"Let's say they shift 5% [of commercial business] away from Queen's. That's $45 million," Chang says. "All of a sudden, it strains all the other programs... Behavioral health, for example, is a $15- to $20-million investment we make every year. These moves slowly erode our ability to support these critical services."

Mugiishi insists that One Health Hawaii is not designed to bankrupt the competition. He acknowledges that non-HPH providers currently provide 67% of the state's care — a burden HPH cannot carry alone. "There is just no scenario in which we could allow non-HPH providers to become financially unviable. We need them," he says. "We 100% will make sure that they do not collapse."

Despite these assurances, Chang views vertical integration as "extremely risky." He instead advocates for a "horizontal model" — a legal structure where all providers bear risk collectively. "Everyone participates in an even way," Chang says. "If we don't do a good job managing the most expensive, highest-need patients, we all take the loss evenly. And if we do well, we all benefit evenly."

Mugiishi, however, points to significant legal hurdles, noting that "horizontal integrations have very strict antitrust rules under the Sherman Act." This, he argues, makes it structurally impossible to integrate Queen's and Hawai'i Pacific Health in that manner. While he expresses a future willingness to explore other risk-bearing entities that allow for "value-based care across the whole ecosystem," he defends the current path. "We have to start somewhere," Mugiishi says, "and we started a couple years ago with Hawai'i Pacific Health when everybody else wasn't interested."

Though they have opposing views on the best way forward, there is a shared consensus that the status quo is failing, and the need for reform is urgent.

"What we don't disagree on," Vara concludes, "is the current system is unsustainable, and change is necessary. It's human nature — especially in an environment like we operate in — that people are going to have different opinions."

Whether those opinions can eventually coalesce into a unified healthcare strategy for the Islands remains the $2 billion question.

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