NEWS ANALYSIS : Medicare Waiver Seen as Key to Cure for County Health System

Amid Los Angeles County’s increasingly desperate efforts to secure federal and state bailouts for its medical network, health czar Burt Margolin is pushing for long-term reforms that would haul the teetering system out of the age of expensive hospital care and into the era of more cost-effective outpatient treatment.

Critics for years have blamed federal rules for encouraging local officials to put as many patients as possible in hospital beds, where Medicaid reimbursements are richest. In Los Angeles County, they say, this has helped produce a hospital-heavy system that is a costly dinosaur at a time when medicine is moving toward managed care and “wellness” programs.

Margolin and other county officials are pleading with state and federal officials for short-term financial fixes to help bridge the county’s mammoth budget deficit. But at the same time, Margolin is seeking a waiver of Medicaid regulations that would allow county officials to convert the health network into a five-year national demonstration project for outpatient care.

The waiver would allow money specifically targeted for hospital care to be used for outpatient services. Supporters say the waiver could stretch the county’s underfunded health care system to serve significantly more of the region’s 2.6 million residents who lack health insurance--a population that has doubled in the past decade.

“The Medicaid waiver becomes absolutely critical to a restructuring agenda because we can’t do serious restructuring . . . unless there’s greater flexibility in how Medicaid dollars are spent,” Margolin said.

However, with only two weeks remaining before a county deadline to close about 75% of its big outpatient clinic network, the waiver proposal is bogged down in sharp disagreements between county and federal officials.

The plan also has become entangled in union politics, with the influential Service Employees International Union, which represents many county health workers, lobbying President Clinton to guarantee union jobs if federal funds are released to the county--a move that may jeopardize a separate Margolin effort to keep clinics open by turning them over to private operators.

*

There is broad agreement among health policy experts that the county should focus more on outpatient and preventive care, which help keep patients out of expensive hospital beds. In Los Angeles County, the average hospital stay lasts nearly five days and costs about $10,000.

“If you make it easier to get clinic and preventive services, you can prevent a lot of the reasons that people go into hospitals,” said Michael Cousineau, associate director of UCLA’s Center for Health Policy Research.

With state and local governments desperate to control health care costs while extending coverage to growing ranks of the uninsured, federal officials in recent years have approved 12 Medicaid waivers and are reviewing a dozen more applications. Only one application--from Montana--has been rejected by the Clinton Administration.

Federal officials say waiver demonstration projects have allowed states to extend care to more than 2.6 million uninsured people across the nation. A waiver granted in January to Ohio, for instance, will allow an additional 500,000 people to receive medical services.

Critics say Medicaid, an offspring of President Lyndon B. Johnson’s “Great Society” program of the 1960s, has long created “perverse incentives” for the county and other local governments to admit people to hospitals.

But Margolin wants to change that, and is negotiating hard with officials of the U.S. Health and Human Services Administration for a waiver, which county officials say could yield nearly $200 million for the county this year.

The money could be used to reopen whatever clinics or hospitals are closed, or possibly to pay private medical providers to run county clinics. The county plans to close all six comprehensive health centers, 28 of 39 neighborhood clinics and as many as four of six hospitals Oct. 1 unless it gets an infusion of state and federal funds.

Besides supplying immediate cash, the waiver could trigger a long-term makeover of the system that would extend care to more low-income people for the same amount of funds, Margolin said.

Given the flexibility to spend Medicaid funds--the county’s biggest funding source--on outpatient care, the county could downsize its expensive hospitals, including the $800-million-a-year County-USC Medical Center.

“You might have a County-USC, for instance, that’s significantly smaller than the current County-USC but that serves its community by having one new comprehensive health center, maybe two, open in the surrounding community,” Margolin said.

The waiver also would dovetail with state plans to move millions of people covered by Medi-Cal, the state insurance program for the needy, into managed care programs. Los Angeles County is among a dozen counties where pilot Medi-Cal managed care programs are being put into effect.

State officials support the waiver request, partly because it would smooth the way for Medi-Cal managed care locally, said John Rodriguez, the state’s Medi-Cal chief.

But according to Margolin, federal officials balked at the county proposal in meetings this week, and negotiations have stalled.

Margolin said federal officials sought restrictions that would drastically reduce the $50 million the county had hoped to receive this year in Medicaid matching money.

The county also wanted a bigger cut of federal funds that are paid to hospitals that serve a high volume of the poor. The county had sought $146 million this year in such funds--an amount already plugged into its jerry-built budget--and more each year for the next four years. But federal officials agreed to a higher payment for this year only, he said.

An exasperated Margolin said federal authorities also refused to let the county apply those funds to clinics as well as hospitals. That switch is vital to his strategy of moving toward more ambulatory care.

*

A federal official familiar with the discussions denied that an impasse had been reached, and noted that county officials will meet again with federal representatives Wednesday in Washington.

Clinton Administration officials are under pressure to grant the waiver from county supervisors, members of Congress representing Los Angeles and the powerful Service Employees International Union, which wants assurance that union members will not lose their jobs if federal funds are provided to the county.

Union President John Sweeney--a leading contender for the national AFL-CIO presidency--has met with President Clinton a number of times on the waiver, most recently after the Alameda County AFL-CIO Labor Day picnic in Pleasanton, said a Sweeney aide. The union has 1.2 million members nationwide, including 300,000 in California, a key primary state for Clinton in next year’s election.

E. Richard Brown, director of UCLA’s Center for Health Policy Research, said political reasons will factor into the Clinton Administration’s decision on the waiver, even if it has financial concerns.

With the 1996 election looming, the President has a strong interest in taking action so he can “come to L.A. and be able to say, ‘We saved the L.A. County health system,’ ” Brown said.

Dan Savage, a spokesman for SEIU Local 660, which represents county workers, denied that union job protections would torpedo Margolin’s efforts to privatize county clinics. The health czar is mulling dozens of bids from private hospitals and doctors groups to take over clinics across the county.

Savage said his union has been contacted by some bidders who are “more than willing to talk to us.”

David Langness, spokesman for the Healthcare Assn. of Southern California, which represents mostly private hospitals, said medical employers are unlikely to be put off by the issue of paying union-scale wages to county workers, who he said make slightly less than their private-sector counterparts in the Southern California health industry.

However, he said, private employers are likely to balk at the “whole idea of strikes, work stoppages, etc., which in health care are difficult things to deal with.”

* MAIN STORY: A1