Doctors in pricey San Francisco have a decided financial advantage over their peers in equally expensive Honolulu when it comes to treating elderly patients insured by Medicare. The feds pay San Francisco doctors a lot more for exactly the same office visit.
Now, thanks to the recent One Big Beautiful Bill Act, Hawaiʻi doctors soon will face the same disadvantage when they’re treating low-income people served by Medicaid — despite promised funding from the Legislature to shore up Medicaid payments.
The result is an impending financial cliff that could significantly impede access to health care for more than a quarter of the state’s population, including many of its most vulnerable residents.
Medicare providers already have been feeling the pain of reimbursement rates that fail to account for Hawaiʻi’s high cost of living, putting a strain on doctors and hospitals that care for elderly Medicare patients, said Dr. Jack Lewin, administrator of Hawaiʻi’s Health Planning and Development Agency.
The Legislature has pledged funds to raise Medicaid reimbursements, Lewin said. But Congress banned that practice when it passed the One Big Beautiful Bill Act, which President Donald Trump signed into law in July. Starting in 2028, Hawaiʻi will have to begin reducing Medicaid reimbursements to match Medicare’s inadequate reimbursements, Lewin said.
To Lewin, there’s nothing beautiful about the federal law.
“It just adds more pain coming soon,” Lewin said.
Lewin, Gov. Josh Green and Hawaiʻi’s congressional delegation are working to resolve the issue with Hawaiʻi’s Medicare reimbursements, which would also fix the impending Medicaid issue, Lewin said.
In the meantime, Lewin said, Hawaiʻi health care providers are struggling. The proposed One Health deal between HMSA and Hawaiʻi Pacific Health, which proponents say will shore up the state’s health care system, wouldn’t be necessary if the feds paid Hawaiʻi doctors the same as doctors in other high cost-of-living locations.
“That proposal would likely not be on the table,” Lewin said, “if we had the adjusted reimbursements that we need.”
Federal Law Limits State’s Ability To Help Medicaid
Although Medicare and Medicaid both receive funding from the federal government, they’re separate programs serving different populations. Medicare covers older people and is entirely funded by the feds. Medicaid covers low-income people with money from the federal government and states.
As of March, some 315,000 Hawaiʻi residents were covered by Medicare, with about 169,000 of them opting for Medicare Advantage plans funded by Congress but administered by private insurance companies. Approximately 429,000 Hawaiʻi residents were covered by Medicaid as of January, according to the Hawaiʻi Department of Health.
That leaves about half the state’s 1.4 million residents relying on government programs that are stingy when it comes to compensating doctors. Combined with an aging population and physician shortage, the low reimbursements set the stage for a deepening crisis, said Lewin, a former president of the American Medical Association and director of the Hawaiʻi Department of Health.
“Medicare reimbursements we get do not accurately reflect the cost of doing business and providing care.”
U.S. Rep. Jill Tokuda
The problem lies with the way Congress sets Medicare reimbursement rates, using a complex formula that factors in baseline treatment costs and geographic variables. The geographic factors are supposed to account for the value of the physician’s work and the cost of running a practice, including rent, utilities and staff, in various locales. The cost of medical malpractice insurance plays a small role in the formula.
The basic problem in Hawaiʻi is that Congress’ formula doesn’t fully account for the painful realities of Hawaiʻi’s nation-leading living costs. Hawaiʻi’s costs of housing, gasoline and food rival those in the nation’s most expensive places, but the formula doesn’t reflect that.
In fact, the formula puts a lower value on the work Hawaiʻi doctors put in for particular procedures than the national average — and only slightly more than the same procedures in low-cost states such as Alabama, Indiana, South Dakota and Vermont. Never mind that it costs a fortune for the Hawaiʻi doctor merely to live here. The physician work index doesn’t account for that.
The result is the value placed on the work of Hawaiʻi doctors is 9.5% lower than that of their peers in San Francisco and 50% lower than counterparts in Alaska.
According to the formula, the cost of running a medical practice in Hawaiʻi also is considerably lower than in other high-priced locales. The formula recognizes that it costs a lot more to run a doctor’s office in Hawaiʻi than in, say, Alabama. But according to the formula, running a practice in San Francisco costs 24% more than in Hawaiʻi.
Finally, Hawaiʻi tort reform laws have reportedly reduced the costs of medical malpractice insurance, which hurts Hawaiʻi doctors when Medicare considers how much to reimburse them, although the insurance piece accounts for only 4% of the weighted formula.
All of this gets factored into what Medicare pays Hawaiʻi’s doctors, creating a big gap between them and their counterparts doing the same work in other pricey markets.
When a Medicare patient in Honolulu goes for a routine, moderately complex, 40-minute follow-up appointment, for example, the feds reimburse the Hawaiʻi doctor $202. A doctor in San Francisco gets about $235, roughly 16% more. Multiplied over the course of the year, it can add up to tens of thousands of dollars less for the Hawaiʻi doctor. Hospitals face the same sort of discrepancy.
“The bottom line is, the Medicare reimbursements we get do not accurately reflect the cost of doing business and providing care in an island state like Hawaiʻi,” U.S. Rep. Jill Tokuda said.
State And Federal Leaders Trying To Solve Problem
The situation could soon get worse. While the federal government covers the entire cost of Medicare, the state pays a portion of Medicaid reimbursements. Hawaiʻi lawmakers have stepped in to boost Medicaid reimbursements 20% higher than the Medicare rate and planned to raise it further to 50% higher, Lewin said.
But that’s going to change thanks to Congress, which has mandated that Medicaid reimbursement rates can’t be higher than Medicare rates, even if the states are footing the bill.
The effect of the law won’t be immediate, Lewin said. The state will have to lower Medicaid reimbursements incrementally, he said, only reaching the Medicare level by 2030.
Asked about Congress’ move to limit Hawaiʻi’s funding for Medicaid, state Sen. Angus McKelvey, vice chair of the Senate Health and Human Services Committee, called the One Big Beautiful Bill Act “one big barrel of bullshit.”
The bill isn’t all bad for Hawaiʻi. The measure includes $189 million to fund rural health care programs in 2026, with additional $189 million awards annually through 2030, part of a $50 billion national investment.
But that additional money doesn’t make up for Hawaiʻi’s inadequate Medicare reimbursement rate. In May, U.S. Sens. Brian Schatz and Mazie K. Hirono and U.S. Reps. Tokuda and Ed Case introduced bills in both houses of Congress to fix the problem.
The Protecting Access To Care in Hawai‘i Act would increase payments to doctors up to 38%, putting Hawaiʻi on par with Alaska, which gets special consideration because of its remote location.
The Green administration is also working on the issue. Lewin’s office has commissioned a study to show Congress both the initial cost of raising Hawaiʻi’s reimbursement rates and long-term benefits of having more doctors providing access to preventative care for Medicare patients. Green is also seeking support from the Trump administration as he negotiates land leases with the U.S. military, Lewin said.
Ultimately, Lewin said, with medical treatments for half of Hawaiʻi’s patients being paid for with government funding, the low reimbursements affect everyone needing health care in the state, as well as the doctors who treat them.
“The public side of this is pulling everyone down,” he said, “and we’re heading toward a state of non-viability.”
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Civil Beat’s community health coverage is supported by the Atherton Family Foundation and reporting on economic inequality is supported by the Hawaiʻi Community Foundation as part of its work to build equity for all through the CHANGE Framework; and by the Cooke Foundation.
