Supervisors Plan to End Effort to Privatize Hospital


A majority of the county Board of Supervisors said Tuesday that they will reverse course and vote to back off from privatizing the prestigious Rancho Los Amigos Medical Center--one of the most controversial building blocks of the county's efforts to overhaul its troubled health care system.

Some county supervisors said that their decision--and a recent independent audit report that has prompted it--underscore a growing consensus that such privatization efforts are not the way to cure the many ills facing the county's overall public health care system.

"I don't think that privatization is a viable option for any of our facilities," said Supervisor Yvonne Brathwaite Burke. She was one of three supervisors who confirmed in interviews with The Times that they will vote to reverse the county's efforts to turn over the operation of Rancho Los Amigos to private health care operator Catholic Healthcare West Southern California.

Burke and fellow supervisors Don Knabe and Gloria Molina said they were basing their decisions on a Sept. 10 audit report by the independent Peat Marwick LLP accounting firm, which said the proposed deal does not make financial sense for the county. In the past, the supervisors have voted twice to pursue privatizing the Downey-based long-term rehabilitation facility, and have been in talks with Catholic Healthcare for more than a year.

The Peat Marwick report said the county Health Services Department's original projections that it could save as much as $40 million over seven years through privatizing Rancho are no longer valid. Due to funding decisions by the federal and state governments--and the details of the proposed contract with Catholic Healthcare West--the county's savings would now only be about $9 million, and much of that is speculative, according to the audit.

The deal under negotiation "does not appear to be viable in terms of cost savings to the county," Peat Marwick concluded. "Accordingly, we believe the county should seek other alternatives."

Privatizing Rancho was designed as a key component of an effort to cut as much as $120 million this year alone from the county health system, which is still considered to be extremely expensive and inefficient.


Like the county's other five hospitals, which provide care for more than 1 million county residents who are poor or uninsured, Rancho has sustained tens of millions of dollars in cuts since the summer of 1995.

Health Services Director Mark Finucane confirmed Tuesday that he too has changed his position on Rancho, and will now support having the hospital stay a county facility despite his strong support for the privatization in the past.

"We have explored all of those options people have asked us to explore . . . and the short answer is keeping Rancho as part of the county system is a wise policy and a wise business decision," Finucane said in an interview.

Finucane also said the state and federal governments made changes in their health care policies over the summer that provided the county with an additional $26 million in funding--but only if it kept Rancho as a public facility.

By not turning Rancho over to the private sector, Finucane and the supervisors said, they will probably have to come up with additional cuts in the hospital network this year--potentially several millions of dollars worth. The supervisors are set to take up the issue as early as Sept. 30.

Arlene Withers, regional vice president for Catholic Healthcare West Southern California, said she had not been informed by any supervisors of their change of mind, but added that both sides in the long-running negotiations "are in a period of reflection and re-looking at the arrangement."

"We are both committed to continuing to find ways to work with each other," Withers said. "If there is disappointment it is because we have not yet found the right mechanism for joining the forces of both of our organizations to add value to the community."

Catholic Healthcare West is a not-for-profit health care provider that runs five acute-care facilities in Southern California and about 30 others elsewhere, Withers said.

If the group took over Rancho, it would be the first time a county hospital in Los Angeles was turned over to the private sector. Rancho has 1,800 employees--many of whom would lose their union jobs under such a privatization. The center, ranked ninth in the country in a recent survey of rehab centers, specializes in the treatment and care of those with spinal cord and brain injuries.

Finucane denied that his reversal signals a fundamental change in the direction of the health care system. But the county also has changed course in its other major privatization effort--at High Desert Hospital in Lancaster. The supervisors supported that action, but backed off when no firm expressed interest in operating the hospital without a guaranteed profit that would have required a significant subsidy from the county.

The privatization of Rancho was meant to have appeased the White House and federal health care authorities, who have provided the county with almost $1 billion in funds to overhaul its health care system, Finucane conceded.

But Finucane also said he has alerted the Health Care Financing Administration of Peat Marwick's conclusions, and that he has been told that federal officials "are OK" with such a reversal of course.

"They don't want us to privatize for privatization's sake," Finucane said. "What they want us to do is explore alternative ways of delivering service. And [only] if they work, for us to pursue them."


Indeed, Finucane said, Rancho Los Amigos will need to change its ways and act more like a private hospital in order to survive, most notably by dramatically increasing its census count and filling about 40 chronically empty beds in the 210-bed facility.

Finucane also said that although the county has given up on a wholesale transfer of High Desert to a private operator, the department is actively pursuing "half a dozen public-private relationships."

Supervisor Knabe, who represents the district that includes Rancho, has been a staunch opponent of the hospital's privatization since being elected to the board in November 1996 and taking office in January. On Tuesday, he said he was elated at the prospect of keeping Rancho as a public facility.

Molina said the Peat Marwick report--and other factors--underscore a fiscal reality that the county hadn't anticipated when it voted for such a move toward privatization in the summer of 1995, when it nearly went bankrupt.

Such privatization efforts, she said, were supposed to be a panacea for the health department's woes, allowing the county to shift from an expensive, hospital-based system to one that contracted out parts of the apparatus to efficient private sector groups that might want to make some profit while also contributing to the common good.

But Molina said the Rancho experience, as well as the unsuccessful effort to privatize High Desert have shown that the moves are rarely if ever worth the money--and effort.

"I'm in favor of it if it works for the county," Molina said of privatization, citing successful efforts to form public/private partnerships in some county outpatient health clinics. "But the private sector will step in [only] if there's a profit to be made, and that's the problem with privatization. . . . It really isn't a solution to a lot of the county's financial woes."

The supervisors originally voted for the privatization of Rancho as part of a series of recommendations by their blue ribbon Health Crisis Task Force in 1995.

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