Privatizing Hospitals: a Simple Cure?

As it struggles to save its mammoth public health system from a budget crisis, Los Angeles County is under pressure to emulate nearby counties that have saved large sums of money by turning over public hospitals and clinics to outside contractors.

In Santa Barbara, two private medical centers have taken the place of the old county hospital, now used for office space. In San Diego and Orange counties, the University of California owns and operates onetime county hospitals, and private firms run primary-care clinics that once were government managed.

But officials in these counties say selling or contracting out health facilities is far from a panacea. Private medical providers that have taken over county services also are experiencing severe financial troubles, they say. And cuts in federal and state funds that fuel local health care systems have led to reductions in services for the low-income--the very people for whom counties are required by law to weave medical safety nets.

“It’s not nirvana down here either,” said Dr. Robert K. Ross, director of the San Diego County Health Services Department. Despite privatization, “the safety net in San Diego County has bigger holes than the safety net in Los Angeles County.”

Although San Diego County has saved about $50 million since 1970 by leasing and later selling its hospital to the University of California, it has still had to go further to hold down costs, tightening eligibility criteria that have left some working poor people without county-subsidized care, Ross said.

Moreover, San Diego County two years ago excluded undocumented immigrants from its health system, saving an estimated $7.5 million. Los Angeles County still provides care to residents without citizenship papers at a cost of about $160 million annually, according to the county.

Los Angeles County, facing the likely closure of public clinics and hospital outpatient units, is hearing increasingly that privatization would cut bureaucracy, save tax dollars and help preserve the county’s $2.5-billion medical system, which serves hundreds of thousands of poor and uninsured people each year. Privatization advocates contend that the county should either sell its health facilities or enter into “public-private partnerships” that would put county services under private management. (The county owns and manages County-USC Medical Center, Harbor-UCLA Medical Center and other hospitals that are staffed by university medical schools).

Last month, a special task force recommended that the county find a private operator for its respected Rancho Los Amigos Medical Center in Downey, which rehabilitates victims of spinal-cord injuries and stroke. A group of 15 nonprofit and church-owned hospitals wants to take over care for thousands of county inpatients. And Tuesday, the county asked for proposals that would place its public health clinics in private hands.

“I think it’s way beyond ‘should’--the county must privatize,” said David Langness, vice president of the Healthcare Assn. of Southern California, whose membership of mostly private hospitals wants to explore privatization deals. “It has no options left. It can no longer run a public health system.”

Although private medical providers in the past tended to shun the poor and uninsured, intense competition and plunging hospital and doctor fees have changed that. With more than half their beds empty in some cases, private hospitals are hungry for patients covered by Medi-Cal, the state’s health care program for the indigent.

“They’d bid against each other for (Medi-Cal patients),” said Peter L. Coye, who represents the private-hospital group that wants to take over care of some county hospital patients. “You’d be surprised what doctors and hospitals will do these days.”

The privatization call is being echoed elsewhere in the country, especially by Republican politicians. Massachusetts Gov. William Weld has turned over patients from 10 state hospitals and other facilities to private care-givers, and New York Mayor Rudolph Giuliani has proposed privatizing city hospitals.

But it remains to be seen whether privatization can work in Los Angeles County, which has the second-largest health system operated by local government in the country, and offers an eye-popping array of services.

Its six hospitals admit 152,000 patients and record 1.7 million outpatient visits annually. Its 39 public-health clinics are visited 1.3 million times each year by those in need of prenatal care, immunizations and treatment of tuberculosis and sexually transmitted diseases. Its doctors deliver 27,000 babies per year.

County health workers inspect restaurants and nursing homes and dissect dead animals for signs of rabies. They treat people with severe burns or the AIDS virus, and coordinate a countywide system of trauma centers. The county even funds a decompression chamber on Santa Catalina Island for sick scuba divers.

Advocates say privatization saves money by cutting unionized labor costs. It also eliminates costly bureaucracies and duplication of effort without compromising the quality of medical care, they say.

“You have two or three different tiers in the delivery system doing the same thing,” said Steven A. Escoboza, director of Santa Barbara County’s Health Care Services Department. “From a systems standpoint, that’s not very efficient. . . . Most public health systems are that way.”

Escoboza’s county closed its hospital 10 years ago and turned over care of the poor and uninsured to two private hospitals. The quality of care now, he contends, is “at least as good” as that provided by county employees.

Since Orange County turned over its hospital to UC Irvine in 1976, the county has saved “probably hundreds of millions of dollars,” a county health official said. The move also saved the state the cost of building a new teaching hospital for the UC Irvine medical school.

But some officials in counties that have privatized say that process has not protected them against rising patient loads and dwindling federal and state reimbursements that together have carved large gaps in their medical systems. Orange County has “a skeletal health care system . . . compared to most others,” said Ronald DiLuigi, assistant director of the Orange County Health Care Agency.

Health officials said that because they have little money with which to increase payments to private contractors, the private sector is forced to eat the rising costs of indigent medical care--creating a powerful incentive for such patients to be cut out of the system.

In 1989, UC Irvine Medical Center--which cares for the poor under contract with Orange County--created an uproar by posting security guards to turn away pregnant women from its maternity ward for several days.

UC Irvine said the unit was too crowded to handle more patients--most of them Spanish-speaking--but administrators at other local hospitals said UC Irvine was trying to pressure the state to increase its Medi-Cal payments.

The group of 15 nonprofit and church-run hospitals that proposes taking over nearly one-third of Los Angeles County’s annual patient load says it could have saved the county $407 million in the 1993-94 fiscal year.

Coye, the group’s executive director, said that private hospitals--especially nonprofit and church-run hospitals--already supply about 50% of the care to those with no insurance in Los Angeles, and that the private sector could actually handle all county patients.

County officials say an “enormous number” of private institutions have expressed interest in acquiring medical business from the county.

Private hospitals worry that their facilities will be deluged by the poor if the county sticks to its current plan and closes six comprehensive health centers and 28 smaller clinics by Oct. 1. By taking over county clinics and treating minor ailments before they turn serious, private hospitals hope they can prevent their emergency rooms and other inpatient facilities from being overrun.

Hospitals “are going to lose more if [the clinics] just close,” said Langness of the health care association. “They want to be able to manage the loss rather than have it inflicted on them.”

But opponents say privatization is not the financial fix that advocates claim. Outside providers are likely to try to save money by keeping uninsured people out of their waiting rooms, these critics say.

E. Richard Brown, director of UCLA’s Center for Health Policy Research, said the studies he is aware of show “no evidence” that privatization saves the public money.

The reason, said Brown, is that private hospitals pay market rates for doctors and nurses. Thus, the only way for private hospitals to cut costs is by reducing staffing levels, which may hurt patient care, he said.

Private hospitals also may be reluctant to take injured gang members, the homeless and drug and alcohol abusers, he said, because such clients may frighten or alienate privately insured patients.

Moreover, if the county rushes to sign deals with private hospitals, then closes down its own facilities, it may find itself over a barrel if private providers demand more money in the future.

Dan Savage, spokesman for Service Employees International Union Local 660, which represents many county health workers, said letting private providers “skim” Medi-Cal patients would badly damage the county system, since Medi-Cal reimbursements from the state and federal governments are the county’s main financial pillar.

County health czar Burt Margolin, recently appointed to attempt to hold the county’s health network together during the budget crisis, said that while privatization may offer some opportunities for the county, he is concerned that private providers will try to take advantage of the situation to acquire Medi-Cal patients “without offering true support for the indigent.”