CAO Assails Hospital’s Tobacco Initiative

Warning it could be a “death knell” to local governments across the state by inviting special-interest raids on county treasuries, Ventura County Chief Administrative Officer Harry Hufford issued a report Monday condemning a private hospital’s effort to strip the county of its $260-million tobacco settlement.

Hufford called the Community Memorial Hospital-sponsored ballot initiative a “transparent” attempt to ultimately shut down Ventura County Medical Center, which the neighboring private hospital views as a threat to its business. The two hospitals are within a few blocks of each other in Ventura.

Hufford today will formally present his 29-page report to the Board of Supervisors, whose five members are scheduled to vote on whether to place the proposed initiative on the November ballot.

County Clerk Richard Dean said supervisors risk a lawsuit if they fail to certify the initiative. Supervisors are “not in a position to judge whether this is good or bad,” Dean said.

But at least two board members said Monday that with so much at stake--including the board’s budgetary powers--they are seriously considering waging such a protest to force the fight into the courtroom.

“My druthers would be to vote to keep it off the ballot,” said Supervisor John Flynn. “If you wait, you’re saying to voters, ‘This thing is OK, go ahead and vote for it.’ And it’s not OK.”

“I’d frankly like to just fight it, and say let’s go to court,” said board Chairwoman Kathy Long. “But the concern is, are we taking away the voters’ rights?”

The proposed initiative would block the county from tapping its share of a settlement with the tobacco industry that is estimated to bring the county about $260 million over the next 25 years. The money would instead go to seven private area hospitals.

In recent weeks, county leaders had suggested they would stay out of court unless voters passed the measure in November. But Hufford’s refusal Monday to say how he will advise supervisors, and the strong language he uses in the report, suggests he may not discourage a court fight now.

Long said an alternative that could be discussed today is placing a counter-initiative on the ballot to keep the tobacco money for county government, with a significant portion dedicated to the public hospital.

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Whatever the board does, Long said, “I think we’ll end up in court either way.”

County leaders have speculated that Hufford’s report would lay out the county’s litigation strategy. While it does not explicitly threaten legal action, the report strongly suggests that the initiative violates state budget laws.

County Counsel Jim McBride told the board earlier this year that he believes the proposed measure is unconstitutional. At that time, some supervisors vowed to take their case to the state Supreme Court if necessary.

Community Memorial’s executive director, Michael Bakst, said the nonprofit hospital would take “appropriate actions” if supervisors tried to keep the measure off the ballot.

He called Hufford’s report a “nonsensical regurgitation of old arguments” made by the county in a years-long battle. In 1996, Community Memorial waged a successful political campaign to prevent the county’s hospital from building a $56-million outpatient center. Bakst has argued for months that the tobacco proposal has nothing to do with that fight.

But in his report, Hufford states that Community Memorial’s primary benefit from a successful initiative would be to block any capital improvements at the county hospital, long considered a rival.

Hufford estimates that Community Memorial spent at least $3 million of its “nonprofit funds” to prevent the county hospital from issuing bonds to build a modern high-rise outpatient center.

“After Community Memorial had spent so much money and time impeding the county’s efforts to make capital improvements by blocking the financing, the prospect that the county could use tobacco settlement funds to finance them was undoubtedly too much to swallow,” Hufford states in his report.

“The obvious solution for Community Memorial Hospital?” Hufford continued. “Take the money away from the county so it cannot afford to make any capital improvements to Ventura County Medical Center, making it more likely that your board could ultimately be forced to close the county’s hospital to inpatients.”

If the county hospital’s inpatient unit were shut down, Hufford estimates it would cost taxpayers an additional $28 million a year, both from the loss of state and federal money and from the cost of contracting for the same care at private hospitals.

Without a county hospital, the burden of caring for indigent and uninsured patients would fall most heavily on St. John’s Regional Medical Center in Oxnard, Santa Paula Memorial Hospital and Ojai Valley Community Hospital, his report states.

“It is conceivable the latter two might collapse under the burden,” Hufford concludes. “Community Memorial presumably seeks to occupy a monopoly position for hospital care in western Ventura County, and the closure of Ventura County Medical Center would help it achieve that goal.”

As for the language in the initiative itself, Hufford asserts that a provision allowing private hospitals to use their share of tobacco money to pay off “bad debts” is ill-defined and would essentially create “the equivalent of welfare for the private hospitals.”

Hufford reasons that the term “bad debts” is essentially left to the discretion of the private hospitals and that it could encompass more than just indigent or uninsured patients. Under the terms of the initiative, nonpaying patients--no matter how wealthy--would also be covered, he states.

“The initiative creates a moral hazard for them because it rewards them for weak or inefficient collection practices, for bad administration and even for bad medical care,” Hufford said of private hospitals.

The CAO went on to warn of the initiative’s broader implications.

“If this initiative were adopted and survived legal challenge, it could prove to be the death knell for local government in California,” the report said. Since the 1970s, when Proposition 13 began a long drain on counties’ finances, local budgets have eroded, Hufford said.

“Now, this initiative proposes to interfere with the county’s budgeting and appropriations process by carving off a piece of the county treasury for a special interest. If it were successful, there would be nothing to stop any number of other special interests from doing the same thing.

“Your board’s budget and appropriation process could be fatally impaired; you could be left with a penniless general fund and thus no money with which to finance essential services,” he said.

Baskt called that argument “an audacious attempt to make us believe government should be run on the basis of windfall.

“How silly,” he said. “Do you really mean to tell me . . . that we’re running a $1-billion budget based on $10 million a year of windfall? It just doesn’t wash.”

Since unveiling his plan in March, Bakst has said the intent of the Community Memorial initiative is to ensure that the tobacco money is spent on health care for children, the elderly and the working poor.

But in his report, Hufford contends that the initiatives provides no legal assurances that the tobacco settlement dollars would go to care for the needy.

“Although the initiative is cleverly phrased so it implies that hospitals would have to use the money to provide additional hospitalization to the poor, no means are provided to require that it be so used,” Hufford states. “In fact, the hospitals could use the money to pay shareholder dividends, increase executive compensation or do anything else they wish.”

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The county has maintained the public hospital cares for an overwhelming majority of the indigent countywide--about 83%, according to a 1997 study. Hufford in his report refers to the county hospital as “the safety net health care provider to almost all of the working poor and indigent in the county.”

On Monday, the Camden Group, an El Segundo-based consulting firm hired by Community Memorial, released a study that found that the county serves only about 54% of “uninsured and nonpaying patients.”