Hawaii patients could face fewer choices for primary care — and longer waits for services — as the state’s largest insurer reverses a decade-old payment model, prompting fears that some clinics may close or scale back.

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The Hawaii Medical Service Association told providers in May it will shift from value-based, fixed monthly payments back to a traditional fee-for-service system effective July 1.

The abrupt change has alarmed doctors and clinic operators, who warn the transition could destabilize already fragile primary care practices and ultimately reduce access to care, especially in rural areas.

HMSA said the shift responds to post‑COVID-19 changes in patient use, including more emergency and urgent care visits. But providers say the 60‑day timeline is too abrupt to manage, triggering widespread alarm that practices could close, worsening Hawaii’s primary care shortage and limiting patients’ options.

“There’s panic across the state,” said Dr. Kelley Withy, who oversees the annual Hawaii Physicians Workforce Report and documents the shortages. “Private practice doctors are terrified and worried they are going to have to leave the state. It’s already very difficult to make it work in private practice, and this will just make it harder.”

Withy said adapting to the change would require a new billing strategy, a challenge that is compounded when providers do not know the fee schedule or reimbursement rates, leaving budgets upended.

For patients, it could mean losing long-standing providers or struggling to find new ones. Hawaii already faces significant primary care shortages, and some doctors say the change could accelerate an exodus or consolidation into larger health systems.

Carly Kaleo Correa, who runs Waimea Primary Care on Hawaii Island, said she felt completely blindsided by HMSA’s decision. She said the clinic was launched based on the insurer’s value-based model, as the majority of its 1,800 patients are covered by HMSA.

Under a value-based model, also known as “capitated pay,” healthcare providers receive an upfront, fixed amount per patient per month instead of being paid per service provided, whether it be a checkup, blood work or an X-ray.

The fixed amount is received regardless of how often patients are seen — or if they are seen in person at all — at the clinic. Additionally, there are bonuses for reaching certain targets, such as having a certain percentage of patients complete colonoscopies as recommended.

Correa, an advanced practice registered nurse, said it takes at least five to 10 years to set up a practice oriented around a value-based model.

“Maybe we’re not completely happy with it,” she said, “but we’ve learned how to adapt to it and it’s currently working. It’s taken years to pivot our model around that.”

To switch back to fee-­per-service, Correa needs to know whether to adjust staffing or train for the new billing system, but she said many of her questions for HMSA remain unanswered and the handbook is vague.

HMSA’s fee-for-service model this year is not the same as in 2016, Correa said. “I have been frozen,” she said. “I have not made a single change.”

Correa and other providers have retained Honolulu attorney Eric Seitz to potentially file a class-action suit.

According to Seitz, “There are many people in the health industry who are extremely concerned about the impact, in particular, of HMSA’s changing the manner in which it reimburses doctors and which will likely force them to move or get out of private practice when we already have a near disastrous situation in terms of primary care providers.”

Seitz said he is reaching out to HMSA to see if the insurer would agree to put off the changes but is prepared to move forward with filing a lawsuit if necessary.

HMSA officials did not comment on the potential litigation.

The transformation

HMSA, an independent licensee of the Blue Cross Blue Shield Association, insures more than 750,000 people statewide. In 2016, it launched “payment transformation,” a pilot program in partnership with more than 100 primary care providers that was touted as revolutionary.

The Primary Care Payment Model, a value-based system, replaced the traditional model by which providers are paid per service, which tended to favor quantity over quality. Upfront payments were to range from $20 to $80 per patient per month, depending on the patient’s complexity.

HMSA promoted it as a way providers could offer more comprehensive health services in fewer office visits, and the transition was phased in over months.

But the model was blasted by doctors as harmful to patient care and likely to push practices out of business. A 2020 report by the Aimed Alliance found most primary care providers disliked it. Many said they were losing money while burdened with more administrative work.

As to why is HMSA ending the program now, CEO Dr. Mark Mugiishi said during a recent conversation with the Hawaii Medical Association that times have changed.

“The world has changed and the model has fatigued, and it’s not giving us the desired impact anymore,” he said.

HMSA said care patterns shifted after the pandemic. Many patients delayed care and, due to challenges accessing primary care, ended up visiting emergency rooms and urgent care clinics, which are more costly. At the same time, healthcare costs increased.

These changes made it more difficult to accurately measure access, utilization and performance under the current payment model, HMSA said in a letter, so it was “evolving its payment model approach to reflect today’s health care environment and ensure long-term sustainability.”

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Jenny Smith, HMSA’s president, said during the Hawaii Medical Association conversation that the move would improve data accuracy.

When association President Dr. Nadine Tenn Salle asked why there was such a short turnaround time, Smith said conversations with provider groups began a year ago.

“It’s not a brand-new conversation to have,” Smith said, “and we started that last year, part of listening from their points of views and what worked, what didn’t work well, what we wanted to see moving forward.”

Still, she said, HMSA anticipated the community was “going to feel the shock.” One mitigation HMSA is offering is a 15% differential, or higher pay, for neighbor island practices.

Smith said in a statement that HMSA’s goal is “a simpler, more transparent approach” aligning with today’s regulatory requirements. “In particular, our health care regulators have made clear that, going forward, submission of data and information based on claims, accurately reflecting services rendered to patients, will ensure that the State of Hawaii receives appropriate federal funding for healthcare.”

This includes funds for Medicare, Medicaid and Affordable Care Act programs, which make up half of the state’s healthcare spending.

Smith added that HMSA is committed to working with providers and supporting them through the transition.

Primary care woes

Primary care doctors, meanwhile, continue to struggle with rising costs and lower reimbursements than other medical specialties.

Many question HMSA’s sudden shift, which they said would impact independent physicians in rural areas the most and potentially accelerate consolidation. Those that hired extra staff to adapt to the value-based model, for instance, will be left with the financial burden of transitioning back to the fee-for-service model.

Regardless of which payment model insurers use, the bottom line is that private practices cannot survive if they are not adequately reimbursed, according to Dr. Esther Yu Smith.

Smith, who runs a primary care clinic in Kailua-Kona, said she opted to go with fee-for-service because the value-based model did not work for her.

The fee-for-service model, however, does not cover a lot of work done for patients and there’s no guarantee of getting paid. Specific codes have to be entered, she explained, and sometimes “documenting the codes actually takes longer than providing the service.”

At the same time, HMSA’s rejection of claims has gone up significantly in the past year, she said.

Dr. Jack Lewin, administrator of the State Health Planning &Development Agency, said he’s received more than 100 letters of complaint regarding HMSA’s change, along with phone calls.

Primary care doctors are the backbone of the healthcare system, Lewin said, and if payments are too low — regardless of the billing model — then Hawaii’s doctor shortages will continue to worsen.

“It doesn’t matter which payment model we have,” he said. “It has to be adequate to support an independent practice and for the doctor and doctor’s staff to be able to afford to live here.”

Timing questioned

Correa of Waimea Primary Care said having her own practice allows her to spend more time with patients.

“The average amount of time providers spend with their patients is about 10 minutes,” she said. “We spend 30 minutes with our patients, and this allows us to focus on wellness and preventative care and build a relationship based on trust.”

She cares for multiple generations within a family and sometimes even does home visits. She fears having to leave patients behind if she can’t pay her overhead and has to close.

Her patients include Kai Koga, who discovered the Waimea clinic when she moved to Hawaii Island from Honolulu seven years ago. Her husband, artist John Koga, and son, who has a form of autism, also are patients there.

Koga said finding a primary care provider is challenging in the area, and she likes the personalized approach. The clinic has been willing to go the extra mile for her son, she said, and she would not know where to go if it closed.

Many providers question the timing of HMSA’s move months after announcing its intention to integrate with Hawai’i Pacific Health, one of the state’s largest healthcare systems.

The partnership is undergoing regulatory review by the U.S. Department of Justice. While meeting with stakeholders, HMSA and HPH executives have promoted value-based care.

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