County May Lose Medicaid Waiver Funds

Los Angeles County officials Tuesday found themselves confronting a possibility that until recently seemed unthinkable: losing the keystone of their budget, a $1-billion federal waiver of Medicaid rules that has kept public hospitals open and the county out of bankruptcy.

President Clinton announced the waiver in 1995 in a dramatic, last-ditch act that saved the county from insolvency. The waiver expires June 30 and the county has been pushing the federal government to renew it for five years and make parts of it permanent. County officials were confident enough of their progress to predict earlier this year that the deal would be closed by this week.

But with the waiver trapped in a logjam in three layers of government, supervisors asked county health and budget staff Tuesday to draft a contingency plan in case the waiver expires and the county must plug a deficit in its health department that could ultimately grow to $700 million.

“There’s a lot of folks . . . who have been lulled into believing this [the waiver extension] is an inevitable thing,” Supervisor Zev Yaroslavsky said. “This is anything but inevitable.”

If the waiver is not renewed “it would be devastating,” said Gloria Molina, who heads the Board of Supervisors. “We would have to close a good deal of our hospitals, we would have to lay off hundreds of our employees, and we would have to deny services” to some of the county’s growing uninsured population.

Chris Peacock, a spokesman for the Health Care Financing Administration, the federal agency that decides whether to extend the waiver, said he could not comment on the specifics of ongoing negotiations with the county. He said the continuing meetings with county and state officials had been “productive.”

Privately, county sources say they still expect to get some form of a waiver from the Clinton administration by June 30.

“Can you imagine them not extending it in the middle of the [Democratic] convention?” said one aide. Not only is the convention in Los Angeles, observers note, but several supervisors are close to Vice President Al Gore, the presumed Democratic nominee for president.

But county officials, who last year hoped to make parts of the waiver permanent, may have to drastically lower their expectations. The federal government has signaled that it may only renew the waiver for three years--meaning it would remain in place in the upcoming budget year, but be phased out over the next two. That would leave the county to scramble for cash to close its perpetually yawning health department deficit, which annually runs into hundreds of millions of dollars.

County officials blame the current delay on Sacramento, where the Davis administration is hesitant to contribute any of its $10-billion surplus to the federal efforts to keep Los Angeles County solvent.

“If we’re not together on this, that gives us a problem,” Supervisor Don Knabe said.

Federal health officials, mindful of California’s flush economy, want the state and county to kick in more money this time around, county officials say. The county has offered to chip in $60 million of the $130 million it is slated to receive annually from the nationwide settlement of lawsuits against the tobacco industry. But the state has not offered any money yet.

The hesitancy of the Democratic administration in Sacramento to pay for health care in predominantly Democratic Los Angeles has irked county officials.

“This was never a problem with [Republican former Gov.] Pete Wilson,” said one supervisor’s aide. “Never.”

A spokesman at the state’s Health and Welfare Agency said he would call back with a response to the county’s complaints Tuesday, but never did.

Though the state’s reported slowness has caused the greatest consternation at the county Hall of Administration, the federal government’s suggestion that the waiver may only be extended for three years could also have a serious impact.

Under that scenario, county health officials have projected that the county would face a nearly $300-million deficit in the coming year and a $700-million deficit in three years, after the waiver expires. That could cause as many as 4,000 layoffs and a drastic cutting of county health services--slashing up to 1.2 million outpatient visits and 35,000 admissions to county hospitals, according to county documents.

County officials have stated in writing that the three-year option is too harsh.

Even if the waiver is extended for five years, officials say, the federal government has signaled that it wants an “exit strategy” from the county--a plan to wean itself off dependency on the waiver money. That would mean the county will need to find another source of revenue to fund its six public hospitals and dozens of health clinics.

The waiver was granted in 1995 with the intention of moving the county away from pricey inpatient hospital care and toward a more preventive, outpatient-based way of delivering medical services.

A central facet of the waiver is how it shifts federal rules to allow Washington to reimburse the county for outpatient treatment, rather than just inpatient treatment.

Though the county has expanded its outpatient services, it has failed to meet two other key terms of the waiver. It has fallen nearly $200 million short of cost savings it predicted it could find in the health department, a prediction county officials now say was unrealistic. And the county has fallen 1 million behind in the number of patients it treats outside its hospitals. Health officials attribute that to the fact that even as the waiver goals were set, the county lost hundreds of thousands of patients.

Still, supervisors last year flew to Washington to lobby for extending the waiver for five years, and for expanding it with new programs to pay for treating ill children in public schools. They also asked that parts of the arrangement be made permanent.

They believed the waiver would be in hand by the time they are scheduled to return to Washington this year, in May. But delays in securing an agreement have sent the county scrambling for negotiating leverage.

Supervisor Mike Antonovich on Tuesday proposed that the county draft a contingency plan by next week so supervisors could use the presumably dire scenario to lobby the federal government for aid.

County staff said it would take a month to prepare such a document.