Back in 1995, when the L.A. County Health Department threatened to drive the entire county into bankruptcy, supervisors were publicly outraged and painted a picture of gloom and doom. More than 2,000 employees were laid off amid dire warnings that the county’s safety net might collapse, sending the sick and infirm into the streets.

The feds wound up bailing out the county provided that it save nearly $300 million over the three-year period ending 18 months from now.

But last week, Health Director Mark Finucane said the county would wind up short of its goal by a whopping $212 million.

What happened? County officials acknowledge publicly and privately that they hadn’t a clue of what they were up against.

“We did not realize what it would take to turn this battleship around,” said David Janssen, the Health Department’s chief administrative officer. “The goals that were set were not appropriate for the public health system of Los Angeles.

For fiscal 1997-98, the county was supposed to save $97.4 million, but it actually saved just $3 million. This year, the department was supposed to save $83 million, but it will only reach half that amount. And next year it set out to save $163 million, but will squeeze only $30 million.

Several of the supervisors still speak of overhauling the health department’s bloated bureaucracy as they did three years ago mostly through more outpatient care and the consolidation of administrative and other staff services. But that’s a lot easier said than done, said Finucane.

“There is a lot of bureaucracy and that is not easily overcome,” he said.

An example of that, he noted, is the department’s plan to save money by standardizing pharmaceuticals. The idea was to give physicians a list of drugs they could prescribe for various ailments, much like what health maintenance organizations do for doctors in their networks.

But the layers of Health Department officials, doctors and staff that had to scrutinize the new policy led to excruciating delays. Even if such a drug list were approved, getting everyone to agree on the content could prove impossible.

Similar logjams have been encountered with other policy changes.

Some inside county government even question whether the supes themselves have a firm grasp of the issues. During an interview last week, for example, one supervisor spoke of the need to consolidate the Health Department’s clinical laboratories something that the county has already done.

Indeed, some reforms have been successfully implemented, such as the creation of public-private partnerships. But in general, progress has been glacial. And the projected $212 million shortfall, outlined by Finucane during a supervisors session last week, provides little indication that any of this is having much effect.

“I am somewhat concerned that we are not making the progress that we should have made,” said Supervisor Don Knabe, chairman of the county board. “There is plenty of opportunity to overhaul the system. It is a huge system, there is no denying that, but it seems like the buck keeps getting shifted. The problem is that they have yet to fully implement the plan. We don’t want a repeat of 1995.”

In 1995, the federal government promised L.A. County almost $1 billion in reimbursements for indigent care through 2000, coming in annual payments of about $200 million.

The bailout was contingent on the county restructuring its health care system, and achieving the goal of saving $294 million, among other things. If those conditions were met, Washington could extend the annual payments (called a “waiver”) beyond 2000. If they were not met, funding could be cut off, leaving the county hundreds of millions of dollars in the hole.

“We depend on the federal government for everything,” said Supervisor Zev Yaroslavsky. “We have an obligation to show that the waiver is creating momentum. The way we are going, we run the risk of having the waiver and being on the verge on insolvency. Then (the federal government) would lose total confidence. The tough decisions to reorganize are not being made.”

In spite of that, federal officials show little sign of impatience.

“We have not had any indication that they will not comply with the waiver,” said a spokeswoman from the Health Care Financing Administration, the federal department that oversees the county’s compliance. “We realize that they have had problems, but they are showing us considerable progress as well.”

Specifically, the spokeswoman cited the county’s shift from the more expensive fee-for-service system and toward the less expensive managed care model.

County officials concurred with that assessment, pointing out that the number of outpatient clinics has been increased, from 45 in 1997 to 149 today. The number of hospital beds has been reduced by 28 percent over that same period.

“We think we have been complying with the waiver, the savings are still there,” said Janssen. “We don’t think getting the waiver extended will become a serious dilemma. But there is still work that needs to be done.”

That’s putting it mildly.

Conditions the county must meet to continue getting federal funding include instituting more controls of pharmaceuticals and reducing redundancy in administrative staff and operations. Those recommendations were developed by the county with assistance from two outside firms, Arthur Andersen LLP and American Practice Management Consultants.

But because the Health Department moves at a snail’s pace, many of the recommendations were either not realized or may never have been attainable in the first place, county officials say.

For example, one idea for obtaining millions in savings involved the health department dumping its antiquated phone system. But that would cause the county to lose its high-volume phone service rate, leading to increased costs that would more than offset any savings.

Then there was a potential to save $17 million by renegotiating labor contracts with unions also a long way from being ironed out.

So after all the rhetoric and failed plans, what’s going to happen?

The department likely will be more aggressive about implementing reforms, so it can qualify for further extensions. The idea is to have the federal government extend its waiver for another five years, according to county officials.

However, everything rides on the performance of the department. “We would have to deal with Draconian cuts if we don’t get the waiver,” said Knabe. “We have to have our house in order to be successful.”