Painful Hospital Cutbacks Ahead

As last week’s quick passage of Los Angeles County’s budget shows, the public health crisis that nearly pushed the county into insolvency two years ago has, for the moment at least, abated.

In fact, the Clinton administration is pleased enough with the county’s pledge to radically restructure its health care system that, Monday, it is expected to announce plans to support the effort with as much as $600 million more in federal aid over the next three years.

“The county has made some very fundamental, laudable progress over the past few years,” U.S. Health Care Financing Administration chief Bruce Vladeck said in an interview.

The federal funding pledge is the culmination of two years of exhaustive efforts by county officials. They have been trying to prove to the Clinton administration how important it is for Washington to continue helping overhaul the way the nation’s largest county provides health care for a growing number of poor residents. The pledge is an extension of the $364-million bailout check that the president gave the county in the fall of 1995 as it teetered on the edge of bankruptcy.

The funding, Vladeck said, is a major victory for Los Angeles County and a significant vote of confidence in its leadership. According to the federal official, the restructuring, while still a work in progress, ultimately could become a model for urban municipalities nationwide.

So why aren’t the Board of Supervisors and county Health Services Director Mark Finucane celebrating?

Because the county’s public health system still is a mess with a projected $125-million deficit for the coming fiscal year. Worse, it is serving more than 1 million fewer patients a year than it did before the crisis peaked.

What’s more, the federal government’s largess comes with many strings attached; most significant is a requirement that the county dramatically downsize and reconfigure its network of insupportably expensive public hospitals.

And that work has hardly begun, county officials concede.

“It is going to be organizationally tough and politically tough, but they are going to need to do it to keep the place running,” said Vladeck, who added that the supervisors have backed away from some tough decisions on the hospital system in recent years.

“We believe their commitment,” Vladeck added. “But now they have to do it.”

That, however, will prove far easier said than done.

As part of its pact with the federal government, Vladeck said, the county is supposed to cut more than $100 million from the hospital side of the health care equation in each of the next three years, while plowing significant money and resources into the growing network of outpatient clinics.

That’s almost $2 million a week. At the same time, Finucane and the county’s five elected supervisors are faced with the continuing controversy over whether to privatize two county hospitals--the Rancho Los Amigos Medical Center and the High Desert Hospital--since the county’s restructuring plan stresses reliance on turning over chunks of its expensive and inefficient health care system to private operators.

Expensive Delays and Decisions

So far, those efforts have pitted supervisors against each other, and almost nothing has been done. The delays are costing county officials money they admit they don’t have, because they built the projected savings of privatization into their budget. And the delays are throwing a monkey wrench into the entire restructuring effort, health officials concede.

And there is a far thornier problem on the immediate horizon that will have an enormous impact on the entire restructuring process for decades to come: How much money should the county spend to replace the nation’s busiest public hospital, the County-USC Medical Center just east of downtown? And how many beds should the new trauma center have, especially with a glut of thousands of private hospital beds throughout Los Angeles that the county could lease?

All of those upcoming decisions will involve bitter political contention, not only because the powerful county labor unions are circling the wagons in an effort to protect their employees, but because they will pit the county supervisors against each other. All five seem to publicly support a downsizing of the hospital system--except when it means cutting back at the facility in their district.

“Now is not the time to be overjoyed, because we have a long way to go,” said Board of Supervisors Chairman Zev Yaroslavsky.

“There will be resistance, no question about it--institutionally and politically,” he said. “But we need to do it the right way the first time. There can be no mistakes. You’re not talking about filling a pothole here. You’re talking about people’s health.”

Finucane agrees, saying the pressure to succeed is enormous, but that the consequences of failure weigh even more heavily.

“It is a constant thought that nags all of us,” Finucane said. “Is what we are doing fiscally responsible, but is it also humane? . . . If you do something wrong, you can hurt a lot of people.”

In an effort to mitigate the pain that downsizing will inflict on the growing numbers of poor and indigent patients served by the public hospitals, Finucane and the board have commissioned reams of studies. Last week, the board voted to bring in nationally renowned experts such as the APM Inc. management consulting group for additional guidance.

And Finucane has just hired Dr. Raymond G. Schultze to direct the “re-engineering” project. A member of the board-appointed Health Crisis Task Force that in 1995 helped the county avert the collapse of its hospital system, Schultze recently headed a successful reorganization effort at the UCLA Medical Center.

Finucane also has set up 150 internal task groups working on various parts of the restructuring effort, and meets regularly with health care representatives from the private sector in an effort to forge public-private partnerships that he says are critical to the success of the endeavor.

“He’s not just flying around in the dark,” the county’s chief administrative officer, David Janssen, said of Finucane.

Perhaps more than any other local or federal official involved in the county’s efforts to overhaul its health care system, Finucane knows how hard it will be to make substantive changes in such a huge system without devastating human consequences.

Complicating Factors

In a health care system as highly leveraged as Los Angeles County’s, every dollar that county officials cut from their budget could mean the loss of three or four dollars provided by the state and federal governments. That will mean almost daily requests for exemptions and approvals each time county officials want to cut a program or lay off a specialist, Finucane said.

In addition, the county’s restructuring program--believed to be the most comprehensive ever attempted in a large urban area--comes at a time when the entire health care landscape is being transformed. That effectively makes such an overhaul about as easy as replacing a car’s engine while the vehicle is moving.

Moreover, the state and federal governments will be experimenting with overhauls of their own--of the welfare system and of Medicaid and its state version, MediCal. As a result, the county could be hit with potentially hundreds of millions of dollars in additional health care costs.

“You are balancing your budget while doing 17 other things,” Finucane said. “It is a very, very tumultuous time.”

Finucane and Rene Santiago, his liaison to the Clinton administration on the restructuring, prefer the term “re-engineering” to cuts and layoffs. What that means, Santiago said, is that the department will try to consolidate functions and find other “efficiencies” and reforms that can save money while at the same time improving the delivery of services and averting layoffs.

“We are trying to do things smarter this time around,” said Santiago, “instead of just cutting services to fit the budget,” as in the last two years.

That emphasis on savings rather than cuts will be especially important for county supervisors such as Gloria Molina, whose East Los Angeles district includes many of the area’s poorest residents.

Operating Under Pressure

“We are watching [the restructuring] like hawks,” Molina said Friday. “We have been promised a number, saying we can find this kind of savings . . . and if we don’t fulfill that, our health department budget is out of whack. But we’ve also been promised that the system will be made more efficient, not just less expensive.

“I’m not saying I distrust Finucane,” Molina said. “I’m just saying it is a huge number to achieve, and I am not willing to forsake services to achieve those savings.”

The huge number Molina refers to is the $125 million in savings that Finucane has promised to find within his $2.3-billion budget during the upcoming year.

Of that, $75 million will come in the form of “efficiencies,” mostly in the hospital system. These include $2 million saved through consolidation of hospital pharmacies; $12 million through making more aggressive purchasing deals--some with other hospital systems; $1 million by combining laboratory services; $1.4 million by eliminating some supervisorial positions; and $6.3 million through the hiring of private billing agents.

What will make those cuts so hard to achieve is the fact that the department already has slashed services and staffing across the board by about $300 million since 1995--much of that in the hospitals. That means as many as 1,200 employees could be laid off, or long-vacant positions eliminated, to reach the target, Finucane said.

To achieve even more significant savings will require the reconfiguration of the overall hospital system.

And so far, those efforts have remained highly politicized, with Finucane stuck in the middle.

The health director serves at the discretion of the board, and is well aware of the fact that his predecessor, Robert Gates, was nearly run out of town by supervisors angry with his lack of progress in reforming the system.

And though Finucane has shown considerable adroitness in maintaining the support of the supervisors in more than a year on the job, the upcoming decisions on what to do with the county’s hospitals are sure to test those relationships.

Supervisor Don Knabe is already angry that Finucane has insisted on pressing ahead with the privatization of Rancho Los Amigos, a nationally renowned long-term rehabilitative care facility in Knabe’s district.

That effort initially was expected to save the county as much as $40 million a year. But more updated estimates, according to independent financial analysts and a citizens advisory panel, show far smaller potential savings. County labor unions oppose the privatization, saying it will unnecessarily cost hundreds of rank and file jobs.

Last week, the supervisors voted to delay for a year their efforts to privatize High Desert Hospital in Lancaster, saying they haven’t been able to find the right private sector medical providers who are willing to enter into such a partnership.

Meanwhile, Finucane’s initial decision to support a new County-USC hospital with only 600 beds outraged Molina, who said that at least 750 beds are needed to handle all of the poor and indigent residents who rely on the medical center. When Finucane, citing newer studies, changed his mind to support a 750-bed facility, that angered Yaroslavsky and Supervisor Mike Antonovich, who said that as few as 350 beds are needed.

Supervisor Yvonne Brathwaite Burke has privately expressed concern that the cuts proposed by Finucane will unfairly hit the hospital in her district, Martin Luther King Jr./Drew Medical Center. Health officials deny that.

And last, but not least, Antonovich is unhappy that Finucane hasn’t hammered out more fiscally conservative operating agreements with the medical schools affiliated with the county’s three teaching hospitals, which Antonovich said amount to a taxpayer giveaway of significant proportions.

But while the supervisors and Finucane spar over how to best configure the health system, they must keep in mind that the Clinton administration is watching intently from 2,300 miles away--and could pull the plug on the whole venture if it doesn’t like what it sees.

“By extending [the funding] for three years, it does not mean we are going to close our eyes and go home,” Vladeck said. “We will still be watching them, to make sure they are proceeding as promised.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Health Challenges

In order to get as much as $600 million in continued federal funding for the overhaul of its troubled health-care system, Los Angeles County has pledged to dramatically downsize and reconfigure its huge network of public hospitals. Here are some of the obstacles--and potentially controversial decisions--awaiting officials:

*

* Cutting up to $100 million a year from the hospital budget

Health Services Director Mark Finucane says much of the fat has been cut, but significant savings must still be achieved through such reforms as changing procedures for purchasing medical and lab supplies, bringing in private sector billing specialists to maximize reimbursements and changing staffing ratios to prevent high-paid nurses and doctors from doing non-patient-related work.

*

* Replacing County-USC Medical Center

County supervisors have not been able to agree on how many beds a replacement facility to cost $1 billion or more should contain.

*

* Privatizing two hospitals

Some officials question whether money could be saved by privatizing the Rancho Los Amigos Medical Center in Downey. Also, supervisors voted last week to delay for a year efforts to privatize High Desert Hospital in Lancaster, saying they haven’t been able to find the right private sector medical providers.

*

Overnight Hospital Stays

Goal for 2000: 1,583

*

Outpatient Visits to County Clinics

(in millions)

Goal for 2000: 3.9 million