Two years ago this month, the Los Angeles County Department of Health Services was a miserable place to be.

A $1.2 billion projected budget shortfall about half of it stemming from the Department of Health Services had the county in a panic.

The Board of Supervisors recommended closing County-USC Medical Center, 5,000 proposed layoffs at public health facilities spawned angry street demonstrations, and DHS Director Robert Gates was forced out of office by the supervisors, who had lost confidence in his abilities.

What a difference two years can make.

Thanks to a federal bailout, and under the direction of Gates' successor as DHS director, Mark Finucane, the county is knee-deep in a five-year effort to shift manpower and financial resources from inpatient hospital care to outpatient services.

Following the dictates of managed care, the county is placing increased emphasis on illness prevention, and on getting patients into the appropriate facility so, for example, people with the flu aren't showing up in emergency rooms for treatment.

"I don't want to say (the public health system overhaul) is over and done with," said Bob Holt, director of physician advocacy at the Los Angeles County Medical Association, "but certainly the county is moving in the right direction."

The change in health care delivery was not entirely voluntary. To qualify for $364 million in federal assistance, the county must demonstrate that it is steadily downsizing inpatient hospital capacity by one-third and boosting access to outpatient treatment by 50 percent.

That translates into the county operating about 1,000 fewer hospital beds by the end of the century than the 2,600 it had in 1995. It currently has about 2,050 beds, meaning it is more than half way toward its goal.

It also means the county should see about 4 million outpatient visits a year by the end of the decade, compared to just over 2 million when the restructuring began in 1995.

It is a feasible but difficult goal to reach, county and private-sector officials say.

"It's going to take us the full five years to not only redirect, but begin to move after that redirection towards a very different health department than there was a few years ago," Finucane said.

Much of the county's success will rest on how well its so-called public-private partnerships pan out. So far the progress is encouraging.

Under the partnerships, the county is contracting with independent health care companies to either jointly run, or assume full management of county-owned clinics and comprehensive health centers. The county has also signed deals with private-sector clinics to treat indigent patients.

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