South Maui Triage

Maui Memorial and Malulani battle over who has a better plan for the future

January, 2005

In this corner, Maui island’s only hospital – Wailuku-based Maui Memorial Medical Center – a state-subsidized institution under the Hawaii Health Systems Corp. (HHSC) with 196 beds, built in 1952, undergoing a $42-million renovation with plans for another 45 beds by 2007. In the other corner, Malulani Health Systems Inc., which is proposing a 40-acre, $180-million, 100-bed hospital in Kihei headed by Dr. Ron Kwon, estimated to open in 2009. The prize: a piece of the estimated $200 million in hospital revenues for the Maui market. This month, the state and the public will have their first look at Malulani’s business plan and judge for themselves. Acting as referee is the State Health Planning and Development Authority (SHPDA), which will approve Malulani’s certificate of need application and pave the way to receiving necessary permits, based on whether the project can demonstrate sufficient demand for its proposed services, and whether Malulani would adversely impact the existing hospital, Maui Memorial.

Wesley Lo, CEO of Maui Memorial, doesn’t mince words, calling Malulani a “vanity hospital.” He says Malulani will “serve to siphon off profitable services to the detriment of health care services for the rest of the community.” Siding with Maui Memorial is the physicians’ organization Maui Medical Group.

Kwon, who has worked at Maui Memorial for 20 years, says the need for Malulani is obvious: “We need a full-service hospital, because Maui Memorial is 52 years old, drastically needs renovations … and the state doesn’t have the $250 million it would cost to bring the hospital up to current standards.” He says he has public support: an October Maui News online poll showed 70 percent of the respondents welcomed Malulani as a much-needed alternative to Maui Memorial. Malulani also won the support of the 784-member Hawaii Independent Physicians Association in November.

The battle between Maui Memorial and Malulani highlights three factors that feed into hospital economics: covering costs while ensuring community access to needed services, alignment with a larger hospital network and the presence of physicians who are open to integrating complementary and alternative medicine (CAM) with Western, technology-based medicine.


Given Maui’s estimated 18-percent population growth over the next 10 years, no one disputes the need for more health care facilities in South Maui. The argument is over what Maui needs and who is in the best position to provide it. Kwon says the privately owned North Hawaii Community Hospital, a pioneer in blending Western medicine with complementary therapies, was in a similar position when it was established on the Big Island in 1996: “[HHSC’s] Kona and Hilo Hospital fought North Hawaii, even though there was a clear need for that end of the island.” North Hawaii’s chief executive officer Stan Berry says Maui Memorial’s resistance is understandable: “Hospitals have very high fixed overhead, millions of dollars invested in planned equipment and personnel, and the more patients we can see, then we can spread those costs over a bigger base. So the economics of health care improve, the larger you get.”

Lo says Maui Memorial’s plans are based on a SHPDA study on the demand for services on Maui. “Just with our new expansion alone, we will meet acute-care-bed needs through 2020,” says Lo. He says that the $42-million renovation will increase the number of beds from 196 to 231, plus add more services and technology. If Malulani goes up, Lo says, “We will also lose $10 million as a Medicaid Sole Provider, and that amount could easily climb to $20 million.”

Kwon calls those figures a smokescreen: “That subsidy comes from Medicare, and it’s a subsidized care to indigents. If we are also providing care for indigents, we reduce that burden and the need for that subsidy diminishes. If the subsidy is really more like $2 million to $5 million, that’s less than 2 percent of the annual revenues of HHSC. It’s a drop in the bucket.”

Kwon says his plans for Malulani are based on a study conducted by the Voluntary Hospital Association (VHA), a 2,200-member consortium of nonprofit hospitals that collects detailed financial data from its members, which include Hawaii’s hospitals. Taking the worst-case scenario, setting reimbursements at lower Medicare levels instead of commercial insurance levels, adding indigent care and maximizing costs, Kwon says, VHA evaluated Malulani’s business plan and found that it would cost $1.2 million per bed to build a fully digital, state-of-the art facility. Malulani asked VHA to cushion the per-bed cost at a higher rate ($1.5 million) and had the findings audited by the brokerage firm A.G. Edwards, which subsequently offered to finance the project. Evidence, says Kwon, that “funding is not the issue, it’s the politics. And it’s kind of sad, because what does that have to do with providing choices in health care and providing top-quality facilities?”


In today’s health care climate, no hospital can survive on its own. On the Neighbor Islands, with their limited populations and resources, it’s even more critical to be affiliated with a larger hospital network. Thus, the hospital’s structure and relationship with a larger entity is a huge factor in its future success.

Maui Memorial is hampered by dueling mandates: corporate (watching the bottom line) and social (ensuring access). Lo says, “If there are disadvantages [to our structure], it is in the fact that our charge is extremely broad, as we are responsible for providing care for the entire continuum, including unprofitable services, and to all types of people, including the needy, indigent or uninsured.”

Kwon says, “They were put in an impossible situation … you can’t do both.” Kwon believes that Malulani’s nonprofit structure provides stability without the constraints of HHSC’s state mandates. Says Kwon: “For our long-term survival and success, it makes sense for us to link up with an established entity. Not only because … that would also help us with funding, but also creating expertise and projects like information technology for a fully digital hospital. We can build it brick by brick, but it’s a lot faster if we can buy it, lease it or have a contractual arrangement with an existing system that already has those things in place.”

However, says Kwon: “The difficulty is crafting an appropriate partnership agreement, whereby, granted, we get the services and expertise, but we also maintain control … That’s like the little fish telling the whale, ‘We’re going to swim together, but I get to tell you where we’re going.'” Difficult, but not impossible, he says. “Maui is such a draw that I don’t think we’re going to have a problem finding the right fit.”

Berry says North Hawaii Community Hospital partners with nonprofit Adventist Health (the owner of Castle Medical Center on Oahu) through a management agreement: “We get all the services of a corporate office, we get the shared expertise of really top people in their field without paying the full cost, only part of it.” On the other hand, he says, because the hospital is not owned by Adventist, “We don’t have the advantage of getting capital from [them].” As with most hospitals, he says, “[We do] not break even, we depend upon donations and foundation gifts to completely close the gap between what we collect and what we spend.” Still, he says, “I think an affiliation is essential for a hospital today, whether it’s managed or owned. I think it needs to be in a system.”


The tension between Malulani and Maui Memorial also represents the hospital sector’s shift from purely Western medicine toward more holistic, culture-based healing practices, according to Dr. Ira Zunin, founder of the Hawaii State Consortium for Integrative Healthcare, a nonprofit that brings together different health care sectors to promote integrative medicine. “The conventional medical system as we know it is in crisis and crumbling before our eyes,” says Zunin. “The effort at managed care from 1988 to 1998 did ration care, but it didn’t change the cost of medical care, or [slow down] the rate of medical inflation at all.”

The National Institutes of Health has reported that, over the past year, 36 percent of U.S. adults aged 18 years and over use some form of CAM. Including prayer specifically for health reasons, the percentage rose to 62 percent. Widespread use has also been helped by insurance coverage, says Zunin, “HMAA and UHA now cover this as a core benefit, and then Kaiser and HMSA both have rider options.”

North Hawaii Community Hospital was the state’s first hospital built with the idea of providing acute-care and specialty services alongside complementary treatments such as naturopathy and massage therapy. Kwon says Malulani will duplicate this blending of practices on a larger scale. For its part, Maui Memorial says it has had CAM providers on staff for four years.

But it takes more than sharing office space to create an integrated medical system, says Zunin. “The truth is that, to this very day, there are very, very few referrals by the admitting physicians to complementary providers.” At Maui Memorial, Lo says, “Physicians and CAM practitioners are learning to work together, although I understand it is a slow process.” NHCH’s Berry says having a physician as a gatekeeper makes sense: “Most people who get admitted to a medical surgical unit nowdays are pretty sick. And so a physician needs to be a leader of the healthcare team that decides what’s appropriate. Our physicians are very open to having acupuncturists come in, having massage therapists work with their patients. They just need to be aware of what’s going on.”

In the end, Zunin says, there’s only one type of medicine, and that’s good medicine: “My own feeling is that the people of Maui will be (better) served to have two hospitals. Maui Memorial is not in a position to cover the needs of all the people at this time. Maui Memorial will be stronger as a hospital even with the presence of Malulani.”

As for Kwon, he’s not ruling out a change of heart at Maui Memorial. He says Maui Memorial officials vigorously fought plans for a proposed cancer treatment center, then abruptly changed their tune when SHPDA granted the center’s certificate of need. If Malulani’s certificate is approved, Kwon predicts HHSC officials will respond the same way: “It’s just the way they do things.”

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