Dr. Katie Min was 36 when she took over her father鈥檚 primary care practice in the Queen鈥檚 Physicians Office Building in Honolulu鈥檚 Punchbowl neighborhood in 2022. Min鈥檚 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鈥檚 largest insurer gave her 60 days鈥� 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鈥檚 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 鈥� particularly for smaller practices operating on thin margins already.
Min estimates she鈥檒l 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鈥檚 determined to find a solution.
鈥淪ome of these patients have been cared for by my family for 50 years,鈥� she said. 鈥淚鈥檓 honestly getting a little tearful about it.鈥�
Regardless, the announcement has sent shock waves through the medical community, particularly among those on the front lines of treating patients 鈥� primary care doctors , 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 Hawai驶i Pacific Health rolled out a major proposal to transform the state鈥檚 healthcare system through a partnership called One Health Hawai驶i.
In fact, Hawai驶i Pacific Health has said One Health would expand the current payment model throughout One Health鈥檚 provider network. Hawai驶i Pacific Health has also pointed to its doctors鈥� 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鈥檚 top medical officials said he鈥檚 gotten more than 100 calls from doctors alarmed by HMSA鈥檚 announcement. The president of Hawai驶i鈥檚 doctors鈥� association calls it a major change with short notice.
Min says she doesn鈥檛 know what to do. She says it鈥檚 not about wanting to make a lot of money, but simply wanting to treat patients and perpetuate the medical practice started by her grandfather.
鈥淚 don鈥檛 want to seem like all I care about is money,鈥� she said. 鈥淚f I did, I wouldn鈥檛 be a primary care doctor. I would have gone into radiology.鈥�
HMSA has little choice, says Jenny Smith, HMSA鈥檚 president and chief operating officer.
The health care landscape has changed dramatically in the decade since the insurer started its so-called 鈥減ayment transformation鈥� 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鈥檛 working.
She said the change has nothing to do with the One Health proposal. Hawai驶i 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 鈥溾�� believe this approach is the future of healthcare.鈥�
Smith also said HMSA had been in talks with leaders of doctors鈥� groups about the change for more than a year, so doctors shouldn鈥檛 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.
鈥楥ommunity Is Going To Feel The Shock鈥�
The announcement comes at a pivotal time. The One Health deal would create a vertically integrated health system with two of Hawai驶i health care鈥檚 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 Hawai驶i entity would nonetheless link the state鈥檚 largest health insurer with one of its largest health care providers to create the state鈥檚 dominant system.
Key to HMSA and Hawai驶i Pacific Health鈥檚 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鈥檚 provider network. In addition, the pitch goes, HMSA members would still be able to choose their own doctors, even if the doctors weren鈥檛 part of One Health, as long as the doctors were part of HMSA鈥檚 provider network.
But one provider says the reality is that HMSA鈥檚 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 Hawai驶i Pacific Health.
Kaleo Correa is a nurse practitioner who runs Waimea Primary Care on Hawai驶i Island. Her practice cares for more than 1,800 patients, she said, about half of whom are Native Hawaiian. She鈥檚 written a comprehensive critique of HMSA鈥檚 change to its payment model.
鈥淚ts sole function,鈥� she says, 鈥渋s to create economic duress that destabilizes independent practices prior to corporate consolidation.鈥�
Although Correa and Min are part of a doctors鈥� group affiliated with Hawai驶i Pacific Health, they, along with some of the others in the group, are independent. Hawai驶i Pacific Health also operates Hawai驶i Pacific Health Medical Group, which employs physicians who are salaried employees, generally working out of HPH clinics and hospitals, including Straub Benioff Medical Center, Kapi驶olani Medical Center for Women & Children, Pali Momi Medical Center, and Wilcox Health on Kaua驶i.
As salaried employees who don鈥檛 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鈥檚 doctors鈥� group, which is called Hawai驶i Health Partners.
Correa said financially distressed doctors may feel pressured to seek employment with 鈥� and bring their patients to 鈥� the Hawai驶i 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 Hawai驶i Medical Association forum that 鈥淲e鈥檙e anticipating the community is going to feel the shock,鈥� 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.
One Health Envisions Using Model HMSA Is Ditching
The change upends HMSA鈥檚 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鈥檚 care. It doesn鈥檛 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鈥檚 vision of 鈥渞isk-sharing鈥� and 鈥渧alue-based care.鈥� 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, Hawai驶i Pacific Health has said it works, keeping doctors happy and patients healthy. In fact, One Health plans to use an expanded, 鈥済lobal capitation鈥� model, which would apply not only to primary care doctors, but also to specialists.
As proof the concept will work, Hawai驶i Pacific Health鈥檚 chief executive, Ray Vara, has pointed to , HPH鈥檚 doctors group, which Min and Correa are members of.
Hawai驶i Health Partners has been working under a global capitation payment system with HMSA for years, and it鈥檚 saved money while improving outcomes for patients, .
But Smith said the payment model isn鈥檛 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 Hawai驶i鈥檚 health care systems as administrator of the Hawai驶i State Health Planning and Development Agency.
鈥淚鈥檝e heard from at least 100 doctors鈥� about HMSA鈥檚 announced change, he said. In Lewin鈥檚 opinion, HMSA鈥檚 鈥渟hort-term gain is going to be crippling for the primary care doctors specifically.鈥�
鈥淭he primary care doctors are dying on the vine,鈥� Lewin added. 鈥淭hey can鈥檛 make it.鈥�
Dr. Nadine Tenn Salle, who represents doctors as president of the Hawai驶i Medical Association, said the big, abrupt change 鈥渃an create substantial challenges for independent and community-based practices.鈥�
Doctors have adapted to the capitation model for nearly a decade, Tenn Salle said. They鈥檒l now have to change all of that with 60 days鈥� notice.
鈥淭he issue is not whether practices can eventually adapt 鈥� most will,鈥� she said in a statement. 鈥淭he 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.鈥�
HMSA鈥檚 Smith denied that HMSA is imposing a swift change. HMSA has been talking about the change with doctors鈥� organizations for the past 15-18 months, she said.
鈥淚t shouldn鈥檛 be an all of a sudden unknown,鈥� Smith said, although she acknowledged HMSA didn鈥檛 notify individual doctors until May 1.
Unwelcome Surprise For Doctors
For Min, the change is an unwelcome surprise. She not only estimates she鈥檒l 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鈥檚 an issue of equity.
Thinking as a patient instead of a doctor, Min says she and her own family of four couldn鈥檛 afford to pay an extra $200 per month each for medical care. Min鈥檚 family already lives frugally, she said. They don鈥檛 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.
鈥淵ou鈥檙e creating a two-tiered health care system,鈥� she says of the concierge model. If her primary care provider went with the concierge model, she says, 鈥淚 would have to find another PCP.鈥�
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鈥檒l likely have to schedule office visits with at least some of the patients she helps with phone calls.
She鈥檚 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, 鈥淎m I going to be able to pay my mortgage in July?鈥�
One thing that particularly bothers Min and Correa, who runs Waimea Primary Care on Hawai驶i island, is what they perceive as a lack of support in contract negotiations from Hawai驶i Health Partners, the doctors鈥� group affiliated with Hawai驶i Pacific Health.
Such doctors鈥� 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 Hawai驶i Health Partners, Correa says, one of its representatives, Lauren Wong, said she knew the problems the abrupt payment change would cause 鈥� and conveyed it to HMSA.
During a conversation on May 13, which Correa recorded and shared with Civil Beat, Wong couldn鈥檛 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 鈥渟mall businesses that are providing support and care to communities,鈥� particularly in rural areas.
Wong also recognized that the 60-day timeframe was too fast.
鈥淭here 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,鈥� 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鈥檚 abrupt change amounts to an act of bad faith 鈥� and one that could benefit Hawai驶i Pacific Health ahead of the proposed One Health deal.
鈥淲hile executives verbally sympathize with independent clinics, HPH鈥檚 corporate growth strategy depends directly on those clinics failing,鈥� Correa says. 鈥淥nce those practices face financial ruin, HPH can step in as a 鈥榮avior鈥� 鈥� offering to buy out the bankrupt clinics, absorbing the doctors as corporate employees, and folding their patient panels directly into HPH facilities.鈥�
Smith said the change has nothing to do with the One Health deal.
For her part, Min is determined not to sell out.
鈥淚鈥檓 going to do everything I can,鈥� she said, 鈥渢o keep things afloat.鈥�
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