Upgrade of County Hospitals Beset by Woes, Audit Finds

Los Angeles County’s $2-billion effort to upgrade its aging public hospitals and other health facilities has been plagued by confusion, delays and huge cost overruns, according to county documents and officials.

The problems have been caused by mismanagement, a lack of coordination and oversight by various county departments, and a host of other shortcomings, according to those sources.

Some projects designed to upgrade, rebuild or replace county medical facilities have been launched without an independent assessment of whether they were necessary or without evaluating essential information such as population trends and client needs, according to one critical audit made available late Thursday by the county auditor-controller’s office.

Also, the audit concluded that “no county department has clear oversight responsibility for the entire process of developing and building capital projects, or is required to ensure a formal independent review is performed to verify each capital project’s need, scope, cost, etc., prior to requesting Board [of Supervisors’] approval.”

The audit uncovered serious problems at a number of county hospital projects:

* At Rancho Los Amigos Medical Center in Downey, requests for additional county money to pay for cost overruns were inappropriately split into less-costly pieces in order to escape scrutiny by county supervisors, who must approve any change orders of more than $100,000. Managers admitted to the auditors that they split some change orders “because they believed the lengthy board approval process would likely delay” a construction project at the hospital.

* At Harbor-UCLA Medical Center near Torrance, county project managers awarded some inspection contracts without competitive bidding--and without justifying why.

* And at Martin Luther King Jr./Drew Medical Center near Watts, project redesigns and lax oversight contributed to delays and cost overruns in the rebuilding of the trauma center, whose cost has jumped from an initial estimate of $5 million more than seven years ago to $67 million and counting. Because no one was watching the trauma center budget closely enough, almost $10 million earmarked for emergency medical equipment was spent instead on project redesigns.

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For years, a hodgepodge of county agencies has had a hand in the complex effort to upgrade, rebuild or replace hospitals and other health facilities. The Department of Health Services determines what work needs to be done. The chief administrative office recommends how to pay for it. And the Internal Services Department helps manage project construction with assistance from private construction management firms.

Supervisors and other top officials often are not fully informed about critically important decisions, such as how money should be spent on projects and what the final cost should be, some critics charge. County officials also don’t look closely enough at what private contractors are doing to ensure that the county is getting its money’s worth, auditors found.

The audit is the third report in the last six months to find fault with the way the county has been managing its capital improvement projects for hospitals and other health facilities, according to sources.

The Harvey Rose Accountancy Corp. concluded that the county’s management of capital improvement projects “lacks the supporting analyses required for a sound business plan.” The county Economy and Efficiency Commission found that officials need to “revise and clearly define” how they will coordinate the many planning, financing and construction issues relating to health facilities.

“The system is in need of improvement across the board,” said J. Tyler McCauley, assistant county auditor-controller in charge of audits.

Health Director Mark Finucane could not be reached for comment, but health officials told auditors they concurred with the audit’s findings. In his formal response to the auditors, Finucane said many reforms are already underway and agreed that the county’s chief administrative office should assume central oversight of the capital improvement effort.

“Someone needs to be overseeing this, and we are moving in that direction,” Chief Administrative Officer Sally Reed said Friday in an interview. She noted that some of the Internal Services Department’s functions have been transferred to the Department of Public Works.

Even so, McCauley said in an interview that some departments are balking at reform efforts and that “more work needs to be done.”

Internal Services Director William F. Stewart could not be reached for comment. But he told the auditors that he disagreed with many of their specific findings about cost overruns, delays and other problems that were blamed on his department.

Auditor-Controller Alan T. Sasaki defended the audit, concluding it by saying: “We believe that our report accurately reflects the conditions / circumstances at that time.” The audit was conducted in December.

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In addition to having a number of aging, and in some cases, unsafe buildings, the health department is in the midst of its worst-ever financial crisis. At the same time, health officials are trying to engineer a radical shift from a system based on inpatient hospital care to one emphasizing preventive medicine at walk-in clinics.

About $2 billion has been budgeted for health facility capital improvement projects over the next few decades. As much as $1 billion could be spent on rebuilding or replacing County-USC Medical Center, the nation’s largest public hospital. And mega-projects are slated for all five of the other county hospitals--although current plans call for some to be turned over to private operators in the coming years.

County supervisors are awaiting a plan by Finucane before deciding how to proceed with the improvement projects.

In the meantime, myriad problems have been found with the estimated $200 million in capital improvement work that has already been completed or is underway.

The most recent audit examined three of those projects to help gauge the effectiveness of the entire system.

Relatively good marks were given to a project at Harbor-UCLA to expand the Primary Care Diagnostic Center. The $16.6-million job was completed with few major problems, auditors said.

But problems were identified in projects at King/Drew and Rancho.

Auditors cited the rebuilding of the King/Drew trauma center as an example of a project launched without an independent assessment to determine if it was needed and what it would cost. That’s why the project increased in size and scope, and its price tag soared to $67 million, the auditors found.

Over the last six years, the proposal has grown from a single-story trauma center to a six-story multiuse building with a helipad, auditors said.

Of the $15 million budgeted for emergency medical equipment, $9.6 million was used to pay for project redesigns, according to the audit. The design changes were approved by the county supervisors, who were never told that they would come at the expense of needed medical equipment, auditors added.

Some county officials contested these findings, saying the project was expected to cost at least $56 million all along and that auditors were oversimplifying the use of money earmarked for medical equipment that was used instead for design changes.

The trauma center project has had at least three separate project managers, the latest of whom said he didn’t know $9.6 million of the budget had ever been set aside for equipment purchases. But, the audit concluded: “We believe the current project manager should have known.”

Harbor-UCLA and King/Drew were cited for failing to seek competitive bids before awarding contracts to inspect buildings. When confronted, one unidentified project manager from Internal Services told auditors that he gave an inspection firm a noncompetitive contract because the firm was “one of only a few certified” by the state. State officials told auditors, however, that “there were 15 to 20 [licensed] inspectors in the Los Angeles area.”

In addition to large management problems, the auditors also found a lack of oversight of smaller financial matters.

For instance, they said, the county pays too much for some equipment, including sophisticated medical apparatus, by allowing private contractors to charge a 16.5% fee for making such purchases.

Sometimes, the auditors found, county officials paid bills to contractors without verifying their accuracy. In addition, they said, the county fails to routinely inventory expensive computers, printers and copiers, or tag them as county property.

The county even used $35,000 from projects at King/Drew and Rancho to pay for earthquake inspections at other buildings--including the Van Nuys courthouse--and for inspections actually performed for free by state and federal officials, auditors found.

And the lack of controls over small contracts allowed $40,000 in architectural services to be approved even though auditors later found a handwritten note showing that the “true fee” was $22,500. The other $17,500 was a “cushion for extras,” the audit concluded.