Sword Over Health Funds

We all know how vital public hospitals are, but it’s been tempting, in the seven years that Los Angeles officials have been predicting their imminent fiscal collapse, to tune out the doomsayers.

The taxpayer-funded network of public and private hospitals and clinics that constitute California’s health safety net is not always a model of cost-efficiency. In addition, Gov. Gray Davis has been reluctant to support Los Angeles County’s new plan to cut costs by closing 11 public health clinics and an Antelope Valley hospital; that sad but probably unavoidable move would mean sizable layoffs of the very union members who have so steadily supported Davis.

Both the state and the county deserve some blame. But Tom Scully, the Bush administration official who holds the Medicaid purse that California must tap to keep its safety net intact, seems poised to punish California and Los Angeles County for the wrong reasons.

Last month, Scully sent auditors to investigate possible abuses in the way Sacramento funded its Medicaid program, called Medi-Cal. Afterward, Scully sent us an e-mail that said, “California has pulled some serious financial tricks on us--that we only recently figured out. I like their [Medi-Cal] program--and it does some very good things--but they have to start playing by some set of rules someday.”

California health officials worry that Scully will claim they violated federal laws by reallocating, rather than returning to Washington, more than $150 million a year in Medicaid savings generated by the state’s notoriously low managed-care payment rates to doctors. Since the mid-1980s, the state has funneled those savings to hospitals that serve a higher-than-average share of penniless patients.

Some states have abused the Medicaid system by channeling extra dollars to railroads, freeways or prisons. But California is not one of them. The Medicaid diversion has been approved by presidential administrations that include Scully’s own.

California does need to get going on painful clinic and hospital consolidation. The state’s mind-boggling deficit may require more: curtailing the coverage it provides. The most draconian path would be the one Utah has taken, all but cutting off Medicaid access to many specialists. The milder alternative would be Oregon’s, covering only those treatments that it deems most medically necessary.

The head of L.A. County’s health department, Thomas Garthwaite, recently described a plan to electronically track every patient. That would save money by reducing duplicated care, ensuring that people at county hospitals and clinics live in the county and evaluating which treatments help patients the most. This is smart dollar-stretching.

California’s funneling of Medicaid savings back to hospitals serving a higher-than-average share of indigents is not bad government. It’s the sort of innovation Scully has called for. The state should be rewarded, not penalized, for it.