Hawaii Pacific Health, HMSA discussing possible merger

Some major changes are potentially afoot for Hawaii's health care market in the face of labor demands and rising costs.

Two of Hawaii's largest players, Hawaii Pacific Health, which runs four hospitals including Kapi‘olani Medical Center for Women & Children on Oahu, and Hawaii Medical Service Association, the state's largest health insurer, are exploring a partnership.

The two confirmed they have been in talks about joining forces, with the goal of addressing affordability, expanding access, and improving long-term financial stability.

"HPH recognizes that affordability is becoming increasingly out of reach for families across the nation, and in Hawaii, the situation is even more severe," said HPH in a statement. "Our state's geographic isolation and some of the highest costs of living in the country have created overwhelming financial pressures for families. These challenges extend directly into health care as costs rise and infrastructure is stretched thin. While Hawaii is recognized as one of the healthiest states in the nation, without decisive and meaningful change, it will become unsustainable."

HPH said it is actively engaging in discussions with HMSA, an independent licensee of the Blue Cross and Blue Shield Association, to "explore bold, transformative solutions that require structural changes."

Christine Hirasa, HMSA's vice president of communications, said the health insurer is faced with balancing cost and access, while continually searching for ways to keep premium costs sustainable for its members.

"Health insurers across the nation and here in Hawaii are facing increased pressure as the total cost of care for the entire health care industry continues to rise at a rapid pace," she said. "As HMSA is always exploring solutions to make health care more affordable, we are looking at new possibilities with HPH to provide more affordable coverage and increase access to quality care. HMSA believes in an open system of care delivery, and we are committed to making sure our members always have freedom of choice when selecting their provider."

Growing mergers

Nationally, health care mergers and acquisitions have been a growing trend for the past 30 years, according to KFF, a nonprofit health policy think tank.

An increasing share of community hospitals are affiliated with larger health systems, and an increasing share of physicians are also affiliated with hospitals or health systems, KFF said.

There have been both horizontal mergers - a consolidation between entities offering same or similar services - and vertical mergers - a consolidation between entities offering different services along the same supply chain.

Vertical mergers include a growing number of health systems, for instance, acquiring physician practices. Another example is CVS Health, a retail pharmacy chain which acquired insurer Aetna in 2018, and more recently, care provider Oak Street Health.

There are several possible scenarios for the vertical merger of HPH and HMSA, according to Jamie Godwin, a senior analyst at KFF, with varying factors, both positive and negative.

There could be better coordination of care, cost savings from economies of scale, and more financial stability. Those cost savings could either be held onto as a profit, reinvested into technology or the hiring of more nurses - or be passed along to members as lower premium growths.

That would depend on Hawaii's market and regulations, he said, and there's not enough empirical evidence on hospital-insurer mergers to predict the impact on premiums or out-of-pocket spending.

At the same time, Godwin said, there have been a growing number of hospital-insurer disputes, some leading to very public battles. A health care system and insurer uniting under the same umbrella could find ways to economize and avoid this tension, he said.

But consolidation also could mean reduced competition, a better bargaining position for the newly consolidated entity that could then seek higher premiums, and fewer choices for patients.

"One of the outcomes of consolidation is, generally, there are fewer choices for patients," he said.

Consolidation also could lead to fewer employment options for physicians, nurses and health care workers, and that could reduce wage growth over time.

Additionally, "With a vertically integrated arrangement, all of a sudden you're thinking about it from the perspective of the insurer. The insurer wants to pay less per given service. They want to save money."

There could also be a competitive disadvantage for other players in the market. One potential scenario is that HMSA-covered patients can be treated at an HPH hospital for a lower co-pay or shorter wait time, and certain hospitals could get more referrals than others.

Vertical mergers have not been regulated much, to date.

"This is kind of an area in regulation and antitrust that is not as well developed as horizontal mergers," said Godwin. "With vertical mergers there's less precedent for regulators to intervene."

Kaiser Permanente is an example of a health care system that has benefited from vertical acquisitions.

Last year, Kaiser's new nonprofit arm, Risant Health, acquired Giesinger Health System and its 10 hospitals in Pennsylvania, followed by Cone Health in North Carolina.

It was part of Kaiser's strategy to acquire "like-minded, nonprofit, value-­oriented community-based health systems" in order to manage costs through shared infrastructure. The two acquisitions have boosted Kaiser's financials, according to a "Health-­Leaders" analysis, bringing in a net income of $12.9 billion.

Unique market share

Hawaii Pacific Health, a nonprofit health care system that operates four medical centers - Kapi‘olani, Pali Momi, Straub Benioff, and Wilcox - has a unique market share.

It offers a full spectrum of care, from primary and urgent care to complex specialties through more than 70 locations, including urgent care centers and clinics across the state.

HPH also operates Kapi‘olani, the only specialty hospital for women and children in the state, with 24-hour emergency pediatric care and high-risk perinatal care and Straub Benioff in Honolulu, which offers the only specialized burn center in Hawaii and the Pacific.

Straub Benioff is redeveloping its medical center in Honolulu as a "campus of the future," with a boost from a $100 million donation from Salesforce CEO Marc Benioff.

HMSA, founded in 1938, covers more than half of the state's population of about 1.4 million. It has more than 760,000 members, and offers a diverse number of plans for individuals, families, and employers from a large network of providers.

HMSA has faced a number of lawsuits in recent years - from ones questioning its status as a nonprofit provider to others challenging its contract terms and prior authorization processes. But it remains Hawaii's largest and most experienced insurance provider.

Shared goals

Ultimately, HPH said its shared goal with HMSA is "to improve care delivery, elevate the patient experience, expand access, and ensure long-term financial sustainability."

"We are grounded in a commitment to an open system where individuals have the freedom to choose the health insurance they trust and receive care from the providers and medical facilities they prefer," said HPH in a statement. "This effort is not about any one system or organization - it's about building a resilient, inclusive health care ecosystem that serves our entire community. While these discussions are preliminary, they are urgently needed. Together, we are laying the foundation for healthier communities – for generations to come."

Other health systems, including Kaiser Permanente and The Queen's Medical Center, said they would monitor developments as more details emerge.

"The well-being of Hawaii's people will always remain our highest priority, and we stand with the health care community in supporting innovations and partnerships that help our communities thrive," said Kaiser in a statement. "We will continue to monitor developments and welcome the opportunity to engage in further dialogue as more details emerge."

Kaiser said it has proudly served the people of Hawaii for more than 65 years as an integrated health plan and care delivery system, providing high-quality, affordable care to members across the state.

"Our value-based model, rooted in our mission to improve the health of the communities we serve, has proven to be effective not only in Hawaii, but also for 12.6 million members across the country over the past 80 years," said Kaiser.

The Queen's Health Systems said working to ensure all the people of Hawaii have access to high-quality health care services is deeply rooted in its 165-year-plus history and mission set forth by its alii (royal) founders.

Queen's acquired Wahiawa General Hospital and Kahi Mohala last year, and recently announced a partnership with the state to jointly develop a new outpatient care center alongside its new hospital in Kailua­-Kona to better serve Hawaii island.

"With that at our core, we know that any news about a possible merger that could alter the ability of individuals and families to continue receiving primary and specialty care from their trusted providers will be of great concern to our community," said Queen's in a statement. "Hawaii already has a concentrated health care market, and a major structural change could significantly reduce competition in both insurance and care delivery, and negatively impact patient access, consumer choice and cost of care, especially for vulnerable populations."

Queen's continued with, "We will continue to share our concerns on this possible merger as more details become available. For Queen's, the health and well-being of Hawaii's people will always remain the highest priority, and we support practical, collaborative solutions that don't require consolidation of this scale."