Federal Official Signals County Health Support
By LAURENCE DARMIENTO
Staff Reporter
Los Angeles County’s financially ailing public health system will have to be downsized, but the federal government won’t allow it to collapse when its current bailout expires in three years, a key Bush administration health official has told the Business Journal.
Tom Scully, who administers nearly $400 billion in federal health programs, including Medicaid and Medicare, is the focal point of negotiations involving county, state and federal officials working to resolve a county health deficit that will reach $700 million to $800 million in three years.
The county has already begun making some cuts, but Scully, in his first public comments on L.A.’s health crisis, said he’s not looking for the draconian cutbacks that some in the county feared.
“L.A. County is going to have to make some tough calls, and I don’t think we are going to be able to take them off the hook on that,” said Scully, director of the Centers for Medicare & Medicaid Services, part of the Department of Health and Human Services. “On the other hand, in the long run, we are very interested in the sound structure of an L.A. County public health system.”
Scully will play the primary role in deciding future federal funding for the county. He cheered local officials by saying L.A.’s current bailout, which descends to zero over the next three years, is inadequate.
“There is no question the L.A. County
waiver is probably underfunded for the next three years,” he said.
Scully also said he would prefer to consolidate negotiations over the county’s budget problems with separate discussions ongoing at the state level. Such a move likely would raise the priority of L.A. County’s problems among state officials, but it could also pit L.A. against other areas of the state.
Told by a reporter of Scully’s comments, Los Angeles County officials expressed satisfaction of the federal government’s willingness to assist L.A., as long as the county was willing to try to reduce the deficit.
“I am impressed that he said the waiver is underfunded. That is an incredible admission,” said Supervisor Zev Yaroslavsky, chairman of the Board of Supervisors. “We have already made some tough calls, and there are some more tough calls to come in. But there is a big difference in $800 million worth of cuts versus $300 million.”
Hospitals closing
Last month, the Board of Supervisors decided to close down 11 clinics and High Desert Hospital in the Antelope Valley, among other cuts.
The move was made to slash $150 million from the county Health Department’s $2.9 billion budget, but supervisors warn they may have to close down two more hospitals and make other cuts unless the county receives new financial assistance when its $900 million federal bailout runs out.
As it is, the first round of cuts is being fiercely opposed by the county’s labor unions, heath care advocates, doctors and others who fear how it will affect the county’s huge population of 2.5 million uninsured residents.
Scully: ‘One of our issues is going to be if the state wants new money they have to start focusing on L.A.’s problems too’
Scully, a Bush appointee, criticized the past bailout technically a “waiver” of rules that funnel Medicaid funding to state and local governments that was issued by the Clinton Administration in 2000.
The waiver gave Los Angeles County $250 million in each of its first two years before tailing off to $185 million this year, $86 million next year, and zero in the 2005-2006 fiscal year.
(The waiver actually renewed a previous one granted in 1995, when the department first faced a fiscal crisis.)
The idea of the descending amounts was that Los Angeles County would institute reforms in its public health system that would wean it off the additional federal funding in the later years. That has not happened, although the county is considering a broad set of reforms by new director Thomas Garthwaite, including a consolidation of services and cuts in expensive hospital care, that would cut the $700 million to $800 million deficit nearly by half.
“They basically gave the county a ton of money in the first couple of years, all kinds of new money, on the theory they would become so efficient they would start saving money the years after that, which was probably wishful thinking,” Scully said.
Scully said he believed any new federal assistance should be structured so that there is a given amount of base funding that is slowly increased to account for such factors as medical inflation.
‘Reasonable’ approach
Garthwaite called his comments “reasonable” and consistent with what he and other Los Angeles County officials have heard in private meetings with Scully over the past few months.
Garthwaite said he was encouraged to hear Scully speak publicly. “He is trying to align policy with good health care results,” he said. “My experience is he is trying to do the right thing.”
Scully also indicated that he wants to negotiate any federal assistance in conjunction with state assistance currently being worked out. This would be a departure from the approach of the Clinton Administration, which treated Los Angeles County separately from the state.
California is negotiating with Scully to extend a separate statewide waiver, called the Selective Provider Contracting Program, that provides hospitals serving uninsured and poor residents more than $1 billion annually.
Scully said he wants the state negotiations to include Los Angeles County, rather than handling the county as if it was a “separate state.” He called that bad public policy.
“L.A. County is struggling, so I am sure the state’s attitude may well be (that county officials) cut their own deals and sink or swim,” he said. “I think one of our issues is going to be if the state wants new money they have to start focusing on L.A.’s problems too. In the next two months we hope to start engaging with them on the overall view of California.”
This approach may be a mixed bag for Los Angeles, which no matter what the final form of any waiver must keep state officials on board, since all Medicaid waivers have to be applied for by the state.
Election year
Recently, county officials have begun to grumble privately that the state is dragging its feet on approving the county’s waiver application, perhaps because Gov. Davis does not want to deal with the matter in the midst of his re-election campaign while facing a $24 billion state budget deficit.
The longer it takes for the county to get some form of new waiver, the more cuts supervisors say they will have to make in the public health care system although the cuts are reversible.
Linking the county’s fate with the state could potentially force the state to kick in dollars to help out Los Angeles County, despite its own enormous budget gap.
But it also would pit the county against other areas for scarce state health dollars, because under federal law Medicaid waivers but must be “budget neutral” and only provide flexibility in how states and local governments spend the money.
“What Scully is doing is putting L.A. in competition with the rest of the state. That is going to create problems for L.A. County with the rest of the state if budget neutral means budget neutral,” said Jim Lott, executive vice president of the Healthcare Association of Southern California, a hospital trade group.
Health care experts also note that “budget neutrality” does not necessarily prevent new federal dollars from going to states, depending on how various fiscal assumptions are set.
Yaroslavsky said that while the county would prefer to negotiate a new waiver with the federal government separately from the state, he agreed that if Scully wants to link the two, that could well push the issue forward.
“There is a palpable reticence on the part of the state right now to sitting down with our people to discuss our waiver negotiations,” he said. “What Scully is saying is that the state has to engage the county.”
State officials did not return calls for comment on Scully’s remarks, but earlier in the week Gail Margolis, the director of the state’s Medi-Cal program, denied California was stonewalling the county.
“The county presented the barest sketch of an outline to us in June. If we don’t have sufficient detail we won’t get anything approved,” Margolis said.
