Dr. Katie Min was 36 when she took over her father’s primary care practice in the Queen’s Physicians Office Building in Honolulu’s Punchbowl neighborhood in 2022. Min’s father had taken the practice over from his father, who had started it in the 1940s.
Now after three generations, Min says the multigenerational practice is facing an existential financial threat after the state’s largest insurer gave her 60 days’ notice that it was radically changing
its reimbursement model for primary care doctors.
Starting on July 1, the insurer will stop paying a set monthly fee for each patient under a doctor’s care and revert to the way it paid doctors a decade ago: fees for individual services rendered. While some doctors preferred the older model, the rapid change to a system many had already adapted to is destabilizing — particularly for smaller practices operating on thin margins already.
Min estimates she’ll lose at least $50,000 annually for her practice, which will put her practice on the ropes financially when factoring in another big blow that came in late 2025, although she says she’s determined to find a solution.
“Some of these patients have been cared for by my family for 50 years,” she said. “I’m honestly getting a little tearful about it.”
Regardless, the announcement has sent shock waves through the medical community, particularly among those on the front lines of treating patients — primary care doctors who are already in alarmingly short supply, particularly on neighbor islands.
The payment model that HMSA is changing was hailed as a smashing success just a few months ago, as HMSA and hospital giant Hawaiʻi Pacific Health rolled out a major proposal to transform the state’s healthcare system through a partnership called One Health Hawaiʻi.
In fact, Hawaiʻi Pacific Health has said One Health would expand the current payment model throughout One Health’s provider network. Hawaiʻi Pacific Health has also pointed to its doctors’ group, which Min belongs to, as a case study of how the payment model works well, keeping patients healthy and doctors happy.
HMSA is now changing that.
In the balance for residents is access to primary care doctors for hundreds of thousands of HMSA members. The insurer says a main goal is to improve access to care. Doctors are leery.
One of the state’s top medical officials said he’s gotten more than 100 calls from doctors alarmed by HMSA’s announcement. The president of Hawaiʻi’s doctors’ association calls it a major change with short notice.
Min says she doesn’t know what to do. She says it’s not about wanting to make a lot of money, but simply wanting to treat patients and perpetuate the medical practice started by her grandfather.
“I don’t want to seem like all I care about is money,” she said. “If I did, I wouldn’t be a primary care doctor. I would have gone into radiology.”
HMSA has little choice, says Jenny Smith, HMSA’s president and chief operating officer.
The health care landscape has changed dramatically in the decade since the insurer started its so-called “payment transformation” program a decade ago, Smith said. It includes a payment model in which doctors receive monthly allowances for treating patients, plus bonuses for meeting performance milestones. The payment transformation model simply isn’t working.
She said the change has nothing to do with the One Health proposal. Hawaiʻi Pacific Health declined interview requests for this article and instead issued a statement saying its primary care physicians have already demonstrated the benefits of value-based care and they “… believe this approach is the future of healthcare.”
Smith also said HMSA had been in talks with leaders of doctors’ groups about the change for more than a year, so doctors shouldn’t be caught off guard.
Despite a big investment in primary care by HMSA, Smith said, access to primary care doctors has declined since the Covid-19 pandemic, leading patients to seek treatment in more expensive emergency rooms and urgent care clinics. In addition, she said, the allowance-based payment model has produced data gaps that make it hard for HMSA to track outcomes and deal with regulatory compliance issues.
The bottom line, Smith said, is this is a critical issue for the insurer. Under the payment model, HMSA has been paying more in medical claims than it brings in through revenue from members and employers. As a result, HMSA has had to draw from investment income to make ends meet.
The announcement comes at a pivotal time. The One Health deal would create a vertically integrated health system with two of Hawaiʻi health care’s major players and have at its core the very payment model that HMSA is now ditching.
Although different from other vertically integrated systems like Kaiser Permanente, the proposed One Health Hawaiʻi entity would nonetheless link the state’s largest health insurer with one of its largest health care providers to create the state’s dominant system.
Key to HMSA and Hawaiʻi Pacific Health’s sales pitch for One Health is an idea that no doctors would be forced to join One Health in order to be part of HMSA’s provider network. In addition, the pitch goes, HMSA members would still be able to choose their own doctors, even if the doctors weren’t part of One Health, as long as the doctors were part of HMSA’s provider network.
But one provider says the reality is that HMSA’s payment model change will create so much financial distress for independent practices that some will have little choice but to close their practices or sell out to a large player like Hawaiʻi Pacific Health.
Kaleo Correa is a nurse practitioner who runs Waimea Primary Care on Hawaiʻi Island. Her practice cares for more than 1,800 patients, she said, about half of whom are Native Hawaiian. She’s written a comprehensive critique of HMSA’s change to its payment model.
“Its sole function,” she says, “is to create economic duress that destabilizes independent practices prior to corporate consolidation.”
Although Correa and Min are part of a doctors’ group affiliated with Hawaiʻi Pacific Health, they, along with some of the others in the group, are independent. Hawaiʻi Pacific Health also operates Hawaiʻi Pacific Health Medical Group, which employs physicians who are salaried employees, generally working out of HPH clinics and hospitals, including Straub Benioff Medical Center, Kapiʻolani Medical Center for Women & Children, Pali Momi Medical Center, and Wilcox Health on Kauaʻi.
As salaried employees who don’t have to cover rent, staff and other costs from insurance reimbursements, employed doctors are more insulated from the payment model change than independents who are merely part of HPH’s doctors’ group, which is called Hawaiʻi Health Partners.
Correa said financially distressed doctors may feel pressured to seek employment with – and bring their patients to – the Hawaiʻi Pacific Health Medical Group or another medical group, rather than staying on their own.
Smith said HMSA has no desire to destabilize doctors financially. Although she recently acknowledged during a Hawaiʻi Medical Association forum that “We’re anticipating the community is going to feel the shock,” Smith also said HMSA has plans to mitigate the impacts. Those include higher reimbursements for doctors on neighbor islands and a program to help those struggling to make the change.
The change upends HMSA’s longstanding way of paying primary care doctors. Under the current model, HMSA pays providers a fixed amount per month, typically around $20 to $40, for each patient under the doctor’s care. It doesn’t matter if the patient visits the doctor every week or once a year; the doctor gets the same payment per patient per month, like a monthly allowance.
In addition, doctors can receive bonuses for reaching certain performance milestones, like making sure patients get regular mammograms and colonoscopies.
After using a capitation payment model for nearly a decade, HMSA plans to switch back to a fee-for-service model for primary care doctors.
This model is central to One Health’s vision of “risk-sharing” and “value-based care.” The idea is to give doctors an incentive to keep patients healthy rather than churning them through needless office visits simply to rack up reimbursements.
In order to make ends meet under this so-called capitated payment model, doctors must have large panels of patients, typically around 1,500 to 2,000 or more under their care, while also dealing with the administrative burden of tracking value-based care performance metrics.
While some providers have complained about this payment model, Hawaiʻi Pacific Health has said it works, keeping doctors happy and patients healthy. In fact, One Health plans to use an expanded, “global capitation” model, which would apply not only to primary care doctors, but also to specialists.
As proof the concept will work, Hawaiʻi Pacific Health’s chief executive, Ray Vara, has pointed to Hawaiʻi Health Partners, HPH’s doctors group, which Min and Correa are members of.
Hawaiʻi Health Partners has been working under a global capitation payment system with HMSA for years, and it’s saved money while improving outcomes for patients, Vara has said.
But Smith said the payment model isn’t working for HMSA.
In a letter dated May 1, HMSA notified primary care doctors that it would switch to a radically different payment model, known as fee for service, effective July 1. HMSA will start paying doctors based on office visits by patients rather than capped monthly allowances.
That means primary care doctors who adapted to the monthly allowance payment model suddenly will have to pivot to something entirely different.
Dr. Jack Lewin oversees Hawaiʻi’s health care systems as administrator of the Hawaiʻi State Health Planning and Development Agency.
“I’ve heard from at least 100 doctors” about HMSA’s announced change, he said. In Lewin’s opinion, HMSA’s “short-term gain is going to be crippling for the primary care doctors specifically.”
“The primary care doctors are dying on the vine,” Lewin added. “They can’t make it.”
Dr. Nadine Tenn Salle, who represents doctors as president of the Hawaiʻi Medical Association, said the big, abrupt change “can create substantial challenges for independent and community-based practices.”
Doctors have adapted to the capitation model for nearly a decade, Tenn Salle said. They’ll now have to change all of that with 60 days’ notice.
“The issue is not whether practices can eventually adapt — most will,” she said in a statement. “The concern is that a roughly 60-day transition creates measurable short-term instability for independent practices, particularly in pediatrics, primary care, and Neighbor Island communities.”
HMSA’s Smith denied that HMSA is imposing a swift change. HMSA has been talking about the change with doctors’ organizations for the past 15-18 months, she said.
“It shouldn’t be an all of a sudden unknown,” Smith said, although she acknowledged HMSA didn’t notify individual doctors until May 1.
For Min, the change is an unwelcome surprise. She not only estimates she’ll lose $50,000 to $75,000 annually for her practice, but it comes on the heels of a $35,000 drop in Medicare reimbursements in September.
Some of her friends have responded by moving to a concierge model, where patients directly pay doctors $200 to $300 per month, reducing the need to have large panels of patients to make ends meet. Instead of needing 1,500 patients, a concierge doctor might need 600 or fewer to make ends meet, allowing them to spend more time with the patients.
Min says the thought of being able to spend more time with patients is appealing, but she has no plans to go the concierge route.
It would mean casting potentially hundreds of patients adrift amidst a primary care doctor shortage.
Plus, Min says, there’s an issue of equity.
Thinking as a patient instead of a doctor, Min says she and her own family of four couldn’t afford to pay an extra $200 per month each for medical care. Min’s family already lives frugally, she said. They don’t eat out and shop for groceries at Costco. Min drives an eight-year-old Honda CR-V. Her husband is the stay-at-home caregiver for their two kids, ages three and five.
“You’re creating a two-tiered health care system,” she says of the concierge model. If her primary care provider went with the concierge model, she says, “I would have to find another PCP.”
Another option, she said, is to schedule more office appointments on top of the roughly 15 patients she normally sees each day. These days, Min said, she typically spends an hour or so on the phone each day with various patients, answering follow-up questions and providing advice. Compensation for that work comes from her monthly allowance per patient under the current payment model.
But that will change under the new model, she says, and she’ll likely have to schedule office visits with at least some of the patients she helps with phone calls.
She’s also thought about reducing her overhead by relocating her practice into office space shared with other doctors, but that would mean leaving the office where her father and grandfather treated thousands of patients over the years.
But all of the changes take time.
In the meantime, she wonders, “Am I going to be able to pay my mortgage in July?”
One thing that particularly bothers Min and Correa, who runs Waimea Primary Care on Hawaiʻi island, is what they perceive as a lack of support in contract negotiations from Hawaiʻi Health Partners, the doctors’ group affiliated with Hawaiʻi Pacific Health.
Such doctors’ groups work not only to coordinate care among their network of doctors to improve patient outcomes; they also consolidate the power of member doctors when negotiating contracts with insurers like HMSA.
In the case of Hawaiʻi Health Partners, Correa says, one of its representatives, Lauren Wong, said she knew the problems the abrupt payment change would cause – and conveyed it to HMSA.
During a conversation on May 13, which Correa recorded and shared with Civil Beat, Wong couldn’t answer questions about why HMSA was imposing the change so suddenly. But Wong told Correa she had conveyed to HMSA that the change would cause financial stress for independent doctors, which Wong recognized are “small businesses that are providing support and care to communities,” particularly in rural areas.
Wong also recognized that the 60-day timeframe was too fast.
“There are going to be practices who probably have been in (operation for) generations that are no longer going to be in existence because of this shift,” Wong recalled telling HMSA.
Wong was not available for comment, according to an automated email response to an interview request.
In this light, Correa says, HMSA’s abrupt change amounts to an act of bad faith – and one that could benefit Hawaiʻi Pacific Health ahead of the proposed One Health deal.
“While executives verbally sympathize with independent clinics, HPH’s corporate growth strategy depends directly on those clinics failing,” Correa says. “Once those practices face financial ruin, HPH can step in as a ‘savior’ — offering to buy out the bankrupt clinics, absorbing the doctors as corporate employees, and folding their patient panels directly into HPH facilities.”
Smith said the change has nothing to do with the One Health deal.
For her part, Min is determined not to sell out.
“I’m going to do everything I can,” she said, “to keep things afloat.”
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This story was originally published by Honolulu Civil Beat and distributed through a partnership with The Associated Press.
