Watts Health Center Faces Fiscal Crisis : Symbol of Hope Is Forced to Cut Back

Since it opened nine years ago, the privately operated Watts Health Center at 103rd Street and Compton Avenue has been one of the community’s jewels, a gleaming, conveniently located building offering subsidized medical care and free transportation.

The center also has a symbolic presence. “From frustration to realization,” reads a lobby plaque that contains three chunks of molten glass from store windows burned during the Watts riots in 1965. In those days, there were no public health centers or hospitals in Watts; the nearest county health center was about 14 miles away.

Emphasizing preventive health care--a traditional void in poor communities--the Watts center has offered a growing number of programs aimed at providing prenatal care, preventing teen-age pregnancy, screening for sickle-cell anemia and high blood pressure, and educating patients about nutrition.

It has been able to do this while keeping health charges low because its parent organization, the Watts Health Foundation, has pumped in millions of dollars earned through its health maintenance organization, which sells prepaid health plans.

But in recent weeks the steady growth of the health center has been reversed by a financial crisis that--for patients with few options--seems certain to mean more time spent in waiting rooms and fewer services.

An unanticipated shortfall in the Watts Health Foundation’s 74,000-member HMO, its prime source of revenue, forced the foundation last month to lay off nearly 25% of its 800 employees. Its 1987 budget was quickly slashed from $124 million to $106 million. The $6 million allocated for the Watts Health Center last year was cut in half.

Two weeks later, the foundation filed for protection from its creditors under Chapter 11 of the federal Bankruptcy Code. And recently, the state Department of Corporations, expressing doubts about the foundation’s solvency, ordered it to stop soliciting new HMO members.

The effects quickly trickled down. The health center, which had been open 12 hours a day, six days a week, is now open only eight hours a day, five days a week. Its new mental health department, regarded as crucial in a community plagued by drugs and street-gang violence, has been closed.

The preventive health care programs are continuing, officials say, but the days of their expansion are over until the foundation negotiates with its creditors over how to pay its debts of $28.8 million, barely below its assets of $31.8 million.

For the moment, the short-staffed center seems capable of continuing to handle the 500 patients a day who pass through its doors. But, said Clyde W. Oden, president of the foundation, “We expect to have some problems.”

To have to take a step backward after two decades of impressive growth has caused “a personal hurt,” said Oden, who began working at the health center two years after it was started by community activists and health professionals in 1967, in a cluster of prefabricated trailers in the shadow of a public housing project.

“It’s tragic,” said Gloria A. Nabrit, executive director of a South-Central Los Angeles mental health center, who has watched the Watts center expand. “All of us are hopeful, but usually there is a snowball effect” on a business that has to confront such financial problems.

Oden said he is confident that the foundation and its health center will survive, and said the cuts do not affect the 43 medical centers that serve members of the prepaid health plan.

He and others paint a picture of an organization victimized by its own generosity and growth that occurred too quickly to be properly managed.

The foundation serves an unusual dual aim--trying to succeed in the highly competitive, bottom-line-conscious field of health care organizations while maintaining its original commitment to low-cost care for the disadvantaged, including those who simply walk in sick off the street with no money to pay.

Only a handful of nonprofit corporations have tried this balancing act, said Dan Hawkins, director of policy analysis for the National Assn. of Community Health Centers. “It’s one giant step from managing the patients’ care to being at risk for the (financial) totality of that care,” he said.

Alice Harris, a resident of Watts for nearly three decades and an early supporter of the center, said the foundation’s compassion led it to spend more money on community health needs than was justified by revenues generated by the HMO.

“We were going beyond the call of duty . . . and somewhere down the line it catches up with you,” said Harris, a member of the health center’s citizens advisory board. “We knew there would be days like this.”

Poor and Elderly

Most of the members in the foundation’s United Health Plan are poor or elderly people whose fees are paid by government-funded Medi-Cal and Medicare programs. About 15,000 members are enrolled through their employers.

That type of membership represents what health professionals call “adverse selection”--people who because of their age or income tend to develop more severe health problems. The Watts HMO aggressively recruited new members, often from the pool of people who visited the Watts health center, and offered a liberal benefits package.

Foundation officials knew that the kinds of people signing up for the Watts HMO were more expensive to take care of than the average HMO member. But precisely how expensive wasn’t clear until the foundation’s new computer system went on-line early this year, Oden said.

Additional Costs

In addition, the new computer analysis found that the HMO had been forced to swallow about $8 million in additional costs in 1985 and 1986 because of confusion among plan members. Many plan members who had Medicare cards continued to present those cards--rather than United Health Plan cards--to doctors. As a result, they ran up millions of dollars in unauthorized medical bills that Medicare insisted be paid by the health plan, even though United Health Plan officials contended they were not covered.

Oden said that the foundation, attempting to be sympathetic to the low-income status of most of its members, did not press its members for repayment of these costs. At the same time, the foundation was pouring $11 million in surplus revenue from its HMO into the Watts health center’s programs in 1985 and 1986.

“Later, we found out that what we thought was a surplus actually wasn’t,” Oden said. “We had a false sense of security. . . . We were seeing more claims coming in, but that was hidden by the growth of our plan. . . . That rapid growth caused us not to be able to see these problems as closely as we should have.

“I call this an ‘O-ring’ problem,” he said, referring to the rocket booster flaw that was blamed for last year’s space shuttle disaster and forced a reappraisal of the nation’s space program. “Only this one will have a happy ending.”