Saving St. Francis

When a deal to sell their hospital fell through, a band of physicians got together to buy it themselves. Will they be able to turn things around?

Hawai‘i narrowly avoided health care catastrophe this year, when the two St. Francis hospitals on O‘ahu—one in Liliha and one in ‘Ewa—faced the possibility of closing down. As St. Francis is the only center in the state currently performing heart, kidney, liver, pancreas and bone-marrow transplants, this would have created a serious void in our medical system. It has been recognized as the major-organ transplant center of the Pacific since the 1960s, when it performed its first kidney transplant. Yet, despite this solid reputation, fiscal troubles nearly shuttered St. Francis.

The doctors who spearheaded the movement to buy St. Francis. From left to right: Dr. Danelo Canete, Dr. Genevieve Ley, Dr.Alan Cheung and Dr. Collin Dang

Early last year, the current owners of the hospitals, the nuns operating as St. Francis Healthcare System of Hawai‘i (SFHSH), announced their intention to sell. St. Francis was in debt—the amount has now climbed to $36.5 million, attributed to the narrow margins all hospitals currently face. St. Francis’ Catholic mission added to the financial strain, because the hospitals were willing to treat patients who were unable to pay for services. The 2002, almost-statewide nurses’ strike also hit St. Francis particularly hard: It was the only Hawai‘i center to temporarily close its doors for two months during the strike, and, when it reopened, many of the doctors and patients who went elsewhere never returned.

Fortunately, these vital facilities may be saved, and by their own doctors. About 125 of them have joined together as the Hawai‘i Physician Group to buy the two hospitals, which, combined, have a 340-bed capacity. The purchase will make St. Francis and St. Francis West the only physician-owned general hospitals in Hawai‘i, and the largest such operation in the nation. More importantly, say the doctors, the purchase will solve the current fiscal trouble, provide for significant upgrades to the facilities within the first year and improve the overall quality of medical care.

The state is scheduled to review the group’s proposal this month, and the doctors could take over as soon as September. First, though, they must also get approval not only from the state attorney general but from the Vatican, since St. Francis hospitals are Catholic. While there are no guarantees, the ownership transfer is expected to be approved. The plan includes renaming the hospitals, which are slated to become the Hawai‘i Medical Center East (Liliha) and Hawai‘i Medical Center West (‘Ewa).

Dr. Danelo Canete, who has been with St. Francis since 1971, spearheaded the doctor/investor group, which began about a year and a half ago. After St. Francis Healthcare System of Hawai‘i’s earlier negotiations with other health care corporations fell through, Canete came up with the purchase idea with several other St. Francis physicians.

Dr. Danelo Canete, in scrubs, fields a phone call.

According to Canete, the doctors in the purchasing hui will each invest between $60,000 and $1 million. They will purchase the hospitals for under $100 million, with the help of a partner, the Kansas-based Cardiovascular Hospitals of America (CHA), which already manages successful doctor-owned specialty hospitals on the Mainland.

Canete orginally developed a relationship with CHA while he was exploring other business opportunities in medicine, both in Hawai‘i and internationally. Once he approached CHA with the initial proposal, and it agreed to proceed with a partnership and bid, it was relatively easy to convince other doctors already loyal to St. Francis to jump on board. (CHA will own 51 percent of the new company, the doctors 48 percent and the nuns the remaining 1 percent share.)

Canete and the rest of the committee aren’t stopping within St. Francis, but are also recruiting the best physicians they can find from other hospitals to join them. He expects their numbers to easily rise to 150 doctors by the time of the actual takeover.

“This is my office,” says Canete, proudly holding up his Treo PDA/phone while sitting in his actual office in his cardiology clinic in Liliha. The accommodations are modest, with an uncluttered, dark wood desk in the center and Kim Taylor Reece portraits on the walls. Canete estimates he will spend about two to three hours each day, or 25 percent of his time, on his administrative responsibilities as CEO and president of Hawai‘i Medical Center, while the rest will be spent continuing his cardiology practice. He plans to keep things “lean and mean until we know we can do this right.”

In fact, the change will only be one of ownership and not of services, and all 1,500 current employees will be retained. CHA already has a successful management model, which focuses on empowering employees—whether they are surgeons, nurses or maintenance staff.

“This is the model that’s going to work and be copied,” Canete continues. “Every single employee has access to me or any of the leadership. I think we will be able to deliver the brand of medicine that doctors want to practice, because they now will have a board that knows what they are talking about and can respond to them almost immediately. Like a SEAL team, we can fight this fight better than an army of people that treat doctors like a commodity.”

Clutching the PDA he refers to as “my office,” Dr. Danelo Canete checks the monitors in the operating room.

Another of the group’s leaders, Alan Cheung, M.D., is slated to be the chief surgical officer of HMC East and one of two doctor-managers at each hospital. He calls the move into ownership the opportunity of a lifetime. In contrast to the traditional model of doctors working at hospitals owned by lay people, “We have physicians and administrators basically as one,” explains Cheung. “We can see what’s good for our patients, what’s good for our employees. And we can see what services to expand, what equipment to purchase and have it all in line with our physicians’ and patients’ needs.” Physicians, he feels, are ready to take the risk to implement the things they believe in.

Cheung began practicing at St. Francis 14 years ago, but his connection to it began much earlier. As a 10-year-old, Cheung had a bout of walking pneumonia and received care at the Liliha outpatient clinic, back when the nursing staff were nuns. Later, as a premed student at the University of Hawai‘i, he returned to work as an emergency-room aide, caring for patients and even cleaning dirty bedpans and bloody instruments. Cheung went on to medical school at Harvard, and also did his residency and training on the Mainland. But when the opportunity arose to return home and join St. Francis, which was looking at the time to add liver and pancreas transplants to the existing kidney and heart programs, the choice was easy.

He acknowledges, however, that the takeover, and the new role of owners who have to make the hospitals profitable, will be no piece of cake. Together with CHA, which will handle the majority of the administrative responsibilities, the doctors plan to use the initial capital infusion from the purchase to significantly improve the physical plant and update hospital equipment. The doctors will continue to recruit others to join them and bring their patients to the HMCs, and will also work on improving the organization and skills of all the doctors and other employees.

The Catholic mission of the sisters of St. Francis, which has been an integral part of the hospitals’ goals since their inception (Liliha opened in 1927 and ‘Ewa in 1990) will continue, and, in fact, was part of the purchase agreement. As before, abortions will not be performed at the hospital. Doctors will still treat underprivileged citizens in communities such as Kalihi, Wai‘anae and N-an-akuli. “St. Francis has been a unique medical institution in Hawai‘i,” Cheung says. “That appeals to me, taking care of patients who other centers may not be willing to take care of.”

(left) Dr. Genevieve Ley teaches a class for pre-med students. (middle) Dr. Alan Cheung examines X-rays. (right) During a post-operative dictation, Dr. Alan Cheung checks his pager.

The SFHSH will keep a 1-percent, non-voting share in the hospitals, and will also remain the landlord of the HMCs, as only the buildings, not the land, are being sold. Sister Agnelle Ching, the new SFHSH CEO, will have the one non-voting seat on the newly constituted board of managers.

The doctors’ impending purchase, not surprisingly, appeals to many patients. “We’re very, very pleased that the doctors are taking over St. Francis,” says Tony Sagayadoro, program coordinator for the minority outreach division of the Organ Donor Center of Hawai‘i. Sagayadoro was the recipient of a successful kidney transplant at St. Francis six years ago. “[The doctors] are the professionals, who can better manage the hospital. They are the ones caring for the patients—they know exactly what the patients need.”

St. Francis has played a major role in Hawai‘i healthcare for decades, but there are many things that need to be improved. For example, HealthGrades, a national, independent health care ratings company, currently ranks St. Francis as only a one-star medical center, while the top rating is five. (The company bases its reports on things such as awards received, patient safety and cost of hospital stay.) CHA is a five-star operation, and part of the new partnership is focused on getting HMC to that level as soon as possible.

The doctors realize the financial and professional risks they’re taking. After all, the Straub Clinic & Hospital was once an entirely physician-owned operation, but its doctors were unable to make it profitable and were bought out in 1997. Straub is now owned by Hawai‘i Pacific Health, which also runs Kap‘iolani Medical Centers on O‘ahu, in addition to other facilities in the state.

“In the beginning, as we discussed this, we asked ourselves, ‘Why should we do this?’” says Dr. Genevieve Ley. Ley has been at St. Francis since 2001, and is slated to be the chief medical officer for HMC West and one of its two doctor-managers. “Straub couldn’t do it; it had to merge with Kapi‘olani,” she continues. “So what makes us think we can do this? Our attitude was, ‘I don’t know exactly what happened with Straub, but we’ll try it again.’

“If we fail,” Ley says, “I think it will be very discouraging to the medical community. But if we are successful at it, we can show the other hospitals in the state—and the nation—that, yes, it can be done, a physician-owned general hospital can be successful.”

The doctors also risk losing their referral bases and being associated with a failing venture should they not be able to turn the hospitals around. Still, more than a hundred-strong are willing to take these risks.

Shown with a group of her students, Dr. Genevieve Ley (right) is slated to become a chief medical officer if St. Francis is sold and restructured.

“Quality care is cheaper care in the long run,” says Cheung. “If you can minimize mistakes, do things right the first time, the patients will benefit. Quality care can’t help but attract additional patients to this facility. And if the hospital makes money at the same time, then everybody benefits. As investors in this organization, we can look for the better good. It doesn’t matter to me if another surgeon, perhaps, has more patients and is willing to bring them to this hospital—we’ll all benefit from that.”

Canete has set up an online chat room for the doctors, so that all the ideas on how to make the hospitals successful can be discussed openly. With so many physicians, there have been many opinions on the subject, and all acknowledge that there are many challenges—some still unclear at this point—yet to come.

“This is uncharted territory for us,” says Ley, sitting in a chair in her own waiting room. “We know that either we stand together, or we fall together. As doctors, we’re used to leading, but we’ll have to work as a unified entity. And in many instances, we’ll have to put our egos aside. We always have our thoughts as to what should be done. [But] I don’t know if it’s so much, ‘This can be done.’ I think it’s more, ‘We have to do it.’”