The appointment of health insurers to the board of Hawaii’s first health insurance exchange stirred controversy earlier this year when consumer groups warned of a conflict of interest. Now a second group being formed to take on health care reform in Hawaii is raising similar questions because its funding so far has come exclusively from health insurers and hospitals.

The first controversy surrounded the formation of the Hawaii Health Connector, a nonprofit established by the state to match uninsured individuals to subsidized health care plans. The Connector, known in other states as a health insurance exchange, is the first major piece of the federal health care reform. The Connector has three health insurance representatives on its 15-member board, which was appointed by Gov. Neil Abercrombie and approved by the Legislature.

The second group, the Hawaii Healthcare Project, which held a meeting Wednesday attended by Abercrombie, is a public-private partnership with the goal of becoming a catalyst for change to rein in escalating medical costs and improve the overall health of the population.

It has 60 members from a wide variety of occupations, but all its funding to date has come from the industry’s dominant players.

The Hawaii Medical Service Association contributed $200,000. Ohana Health Plan gave $100,000, and Kaiser Permanente Hawaii donated $80,000. Hawaii Pacific Health and The Queen’s Health Systems, the state’s largest hospital operators, gave $50,000 each.

"There’s a conflict brewing that even the people leading the (Hawaii Healthcare Project) have been reluctant to confront," said Dr. Stephen Kemble, who sits on the project’s executive committee. "The major players are putting money into this hoping to preserve their place in the health care industry, but we cannot make health care in Hawaii truly comprehensive and cost-effective and keep all the current players happy. Something’s got to give at some point."

The Hawaii Healthcare Project hopes to raise $1.3 million to fund its work over two years. The project is being managed by the Hawaii Institute for Public Affairs, run by Abercrombie’s former campaign manager Bill Kaneko.

"Our ultimate goal is good public policy, dependent on good research and collaborative dialogue," said Kaneko, adding that HIPA serves as a neutral convener. "We’re doing this on a shoestring budget. We assume all the risk if we don’t raise sufficient funds, then the project gets scaled down. If you look at the players it’s a broad cross-section. If you look at the stakeholder base, they’re outnumbered like 4 to 1. … If they wanted to control the process, this is the wrong forum to do so."

But there is concern that the industry’s dominant players paying for the Healthcare Project, formerly known as the Hawaii Healthcare Transformation Initiative, will have greater influence on how a new health care system is ultimately redesigned.

"Basically HMSA not only dominates the Hawaii Health Connector but the transformation initiative also," said Larry Geller, president of the Kokua Council, an organization advocating good government. "It’s not completely illogical that they be there, but to dominate it and have control over it is troublesome to me. Even if they did their best, they would construct the health system in their own image."

The funds raised for the project will pay for staff and administrative expenses related to convening hospitals, health plans, unions, businesses and consumer advocacy groups, to study ways to better coordinate the delivery system, base payments on patient outcomes rather than volume, and expand the use of health information technology to reduce medical errors and increase efficiency, as well as shape public policy.

Hawaii’s health expenditures totaled $8.8 billion in 2009, according to the Kaiser Family Foundation. Nearly 18 percent of America’s gross domestic product is spent on health care, or $1 of every $6 spent in the United States, prompting the federal government and states to make significant changes, said Frances Miller, a Boston University law professor emerita specializing in health policy and part-time professor at the University of Hawaii at Manoa.

"All the stakeholders (are) interested in what this thing comes up with in terms of transforming health care in the state. A lot of them are making money out of the status quo now," Miller said. "They want to be at the table so they can affect the outcome. The question is, is it going to be in the public interest for them all to be involved in every step of the game? Everybody wants things to be better, but they don’t want things to be better at their expense, so you just need to keep your eyes on what they’re doing with respect to cost containment. They obviously want to shape the reform. They know they’re going to have to take a hit, but they want to shape it so that the cut isn’t too deep."

The Healthcare Project is planning a fall conference to announce an effort "to get greater public buy-in," said Beth Giesting, the state’s "healthcare transformation coordinator" and co-chairwoman of the Healthcare Project.

"This is a critical and timely initiative and we just couldn’t come up with any state dollars to fund it in the time frame because of the economy," she said.

The nonprofit HIPA raised more than $2 million from the HMSA Foundation in 2000 for a similar initiative known as the Hawaii Uninsured Project, after talk of repealing the state’s Prepaid Health Care Act that requires employers provide health insurance for full-time workers. The project’s research found that repealing the law would’ve increased the uninsured count and uncompensated care at hospitals, ultimately quieting business groups seeking a repeal of the law.

In 2001, federal and national grants enabled the project to begin operating independent of the HMSA Foundation, according to the project’s website.