NEWS ANALYSIS : Despite Bailout, County Still Faces Quagmire

Buying time with a federal bailout, Los Angeles County now faces a daunting task of immense proportions in moving the nation’s second-largest public health system from the New Deal of the 1930s to the new reality of the 1990s.

Despite the $364-million quick fix that President Clinton announced Friday, the county still faces a deep and profound fiscal quagmire that will threaten its financial stability and health care safety net for years.

The reason is simple: The county cannot afford to maintain the same sprawling network of major hospitals, health centers and more than three dozen community clinics that provide a wide array of services to millions of residents who have nowhere else to turn for medical care.

Although the rescue plan welded together in Washington and unveiled by the President on a campaign-style swing through vote-rich Southern California affords the county some symptomatic relief, it does not cure the underlying ills that threatened to bankrupt the county and cripple its health system.

Health care nationally has been moving from expensive hospital treatment to less costly outpatient and preventive care, but the county continues to operate a top-heavy system built around six major hospitals with satellite health centers and clinics.

“The whole system is constructed to reflect the old paradigm, which is you pay for patients while they’re in hospital beds and you won’t pay when they are in other settings,” said David Langness, spokesman for the Healthcare Assn. of Southern California, which represents private hospitals.

Turning around this $2.1-billion health system with so many elements in so many places faces serious obstacles, not the least of which are powerful unions who represent thousands of health workers threatened with layoffs, demotions or transfers, and an entrenched bureaucracy long accustomed to doing things the way they have always been done.

Within hours of the President’s visit, Supervisor Zev Yaroslavsky served notice that the mammoth Department of Health Services cannot continue to “resist change and undermine change.”

Yaroslavsky firmly told Walter Gray, a deputy director of the department: “There has to be a clear, unmistakable message that we are not going back to the way things were.”

The point wasn’t lost on Gray, who has appeared often before the board as longtime Health Services Director Robert C. Gates prepares for retirement.

“There is no one in the Department of Health Services that does not recognize that we are not going back to the way things were,” Gray told the supervisors. “We all believe strongly that changes have to made.”

But it was the same department that when faced with an enormous $655-million deficit in June, failed to provide the county’s chief administrative officer, Sally Reed, with a solid recommendation on which hospital or hospitals should be closed.

Ever since she recommended closing County-USC Medical Center the department has been scrambling to deal with the spreading health crisis that threatened to force closure next weekend of all six health centers, 28 community clinics and most outpatient services at county hospitals.

Reflecting a lack of confidence in the department, the supervisors established a health crisis task force and then appointed its chairman, former Assemblyman Burt Margolin, as health czar to steer this battleship away from the rocks.

It was Margolin, more than anyone else, who articulated the vision that culminated in agreement between federal, state and county officials in Washington on Thursday.

On Saturday, Margolin joined 50 top health department officials and hospital and clinic personnel at an all-day meeting to review details of the federal bailout and how to turn the process of shutting down the health system into one of restructuring it.

Now that the restructuring is at hand, there is much room for improvement, observers say.

For one thing, Langness said, the Board of Supervisors needs to select a successor to Gates quickly, while there is still momentum for reform and before another budget crisis hits.

“The county is very, very good at what it does,” he said. “But it needs to do some things differently. We can’t wait. We can’t be lulled into a false sense of security by the [federal bailout] funds.”

Langness cited a county policy of running tests on patients and then putting them in hospital beds overnight until they have surgery the next day--a policy driven by Medicaid reimbursement rules, which pay the highest rates for hospitalized people. In a more cost-effective system, he said, patients would be tested at a clinic or doctor’s office and then sent home before being admitted to a hospital the next day.

Langness also urged the supervisors to hire an independent auditor to sift through the books of the county Health Services Department.

“The supervisors have resisted that because--how shall I put this?--it lights up a heretofore fairly dark area,” he said. “Once that light comes on, it’s hard to hide.”

An independent accounting of the county’s budget woes, he said, will help restore its credibility with state and federal lawmakers who may be asked to help speed reform policies.

Langness said County-USC Medical Center should be downsized and decentralized to provide more outpatient care--while retaining its well-regarded core services for those with severe burns, the AIDS virus and gunshot and other traumatic injuries.

But, he said, “its administrative culture won’t allow that. It’s very top-down, very centralized, very inpatient-focused.”

Dr. Brian Johnston, incoming president of the Los Angeles County Medical Assn., a private physicians group, complained that the Health Services Department has not paid enough attention to its own doctors and outside medical experts when putting health policies into effect.

He said he strongly supported Margolin’s recommendation to set up a county health authority, made up of health experts, that would guide broad policies approved by supervisors.

“In the past, every time the Department of Health Services has gotten a bailout, they’ve paid no attention to the rest of us who want to make changes,” he said. “We’re not going to do that anymore. If necessary, we’ll be insistent and perhaps even rude.”

Johnston said the county health system must be “rationalized” to eliminate inefficiencies such as having different formularies at each of the six county hospitals. A formulary is a manual that determines what drugs are in stock at a hospital.

“The savings on [consolidated purchases] can be very substantial,” he said. “If you have a lot of purchasing power like the county should, they could be saving a great deal of money.”

Johnston and others said that Civil Service rules were more of a hindrance to reforming the county system than its unions.

He noted that after layoff and demotion notices were distributed to nearly 5,200 county health workers recently, employees with less seniority faced being displaced, regardless of their skills. That led to a situation where many trauma nurses at County-USC were facing layoffs and replacement by nurses who have worked at far less stressful clinics for many years.

Johnston added that County-USC, the nation’s biggest public hospital, should not be rebuilt, as county supervisors have planned. Rather, he said, the hospital should be downsized to about 400-500 beds from its present 1,100.

Michael Cousineau, associate director of UCLA’s Center for Health Policy Research, said private hospitals and physicians should be taxed to provide more care for the county’s vast pool of uninsured people. He also urged that small businesses be required to pay for health insurance for their workers.

“The private sector has to take a bigger role,” he said. “They have to understand the limits of Medicaid,” he said, referring to the federal program that provides medical care for the poor and disabled and is the county’s biggest source of funds.

In a continuation of the Byzantine flow of health dollars from Washington to Sacramento and to the county, the aid package calls for the county to receive an estimated:

* $40 million in federal money to match county spending for care of the uninsured working people at county clinics.

* $92 million through a complex agreement between the county and the state over hospital care for the medically indigent.

* A recalculation of $82 million in federal aid to hospitals that treat a large number of poor patients.

* $25 million in grants for public health programs, including immunizations

* $125 million from a one-time accounting change that temporarily allows the cash-strapped county to defer sending its scarce dollars to Sacramento in order to receive federal funds.

“Some of this money is one-time money, some of it is ongoing money,” Yaroslavsky said. He stressed that there is not enough money next year to keep the county’s system going at the rate as in the past.

“We are going to be forced financially to downsize our system and to make it more efficient. They are going to wean us off the bureaucratically top heavy health system we have had into a more efficient system.”

On Saturday, Margolin’s chief of staff acknowledged the complications ahead.

“There are so many elements that it is difficult to turn this thing around,” said Jonathan Freedman, Margolin’s chief of staff. “We were in closure mode and now we have to figure out how to reverse that and restore services that were going to be closed. . . . We want to restore services and not close doors.”

Freedman said the county is still pursuing public-private partnerships with hospitals and medical groups interested in taking over some of the county’s community clinics.

On Saturday, he said the county initially was likely to privatize seven to 10 clinics. Freedman added that contract language being negotiated would call for private firms to offer any new positions to laid-off county workers.

But health officials must walk a fine line between making the contracts agreeable to the partners as well as the powerful Service Employees International Union over such issues as wages and seniority.

At a board meeting before the agreement was reached, union leaders pointedly urged the supervisors--particularly the three Democrats--to remember who walked their precincts and carried their campaign signs.