In the fall of 1995, Mark Finucane was hired by L.A. County to serve as director of its beleaguered Department of Health Services. Earlier that year, the county faced a $1.2 billion budget shortfall, half of it stemming from the DHS. A federal-state bailout, known as Medicaid Waiver 1115 or the Medicaid Demonstration Project, saved the day, but brought with it demands by the Clinton administration to downsize the county’s inpatient bed capacity by one-third. Finucane was hired to accomplish that.

In the less than two years he has been on the job, Finucane has earned high marks not only for his integrity and hard work but in the success of the so-called public-private partnership program he has overseen. But he continues to butt heads with some supervisors over a replacement facility for Los Angeles County-USC Medical Center.

Question: What’s the status of L.A.’s Medicaid Demonstration Project?

Answer: It’s going well. We’re about to enter our third year of a five-year project. It has not only helped stabilize the financing of the health care system, given where we were in the fall of 1995, but it has provided the impetus for a major restructuring of the health care system. And we’re right in the middle of that now.

Q: After the remaining three years, will you be where you need to be with the transformation?

A: It’s going to take us the full five years to not only redirect, but to move after that towards a very different health department than there was a few years ago. But I think by anyone’s measure what’s been accomplished is quite a big change, and I think that’s the general feeling from state and federal officials.

Q: What comes next?

A: When you’re in the middle of a five-year demonstration project you have to think, “OK, what happens at the end of the five years?” What are you going to do? As luck would have it, today is the kick-off meeting of a group I’ve put together which is tasked with the post-waiver world. I need to be ready in a year with a comprehensive plan to present to the Board of Supervisors and federal and state officials to show them what happens once the five-year waiver period ends.

We’re looking to do some imaginative things. What form that will take is simply too early for me to say. There are two waivers right now in Los Angeles County: the waiver we have called the 1115 Waiver, and a managed care waver, called the 1915 waiver, the so-called two-plan model. (L.A. Care Health Plan is the public half of a two-part, public-private HMO system designed to shift Medi-Cal patients into managed care. Foundation Health System is the private half.)

One thing I think we should consider is combining those two waivers into a national demonstration project. That’s one idea. It would combine the two into a very, very large service delivery system with its emphasis on managed care.

It’s an idea in its infancy. I’ve talked about it with state and federal officials, with local officials. But there’s not any meat on the bones yet.

Q: Why has it taken so long to agree on a replacement for County-USC Hospital?

A: Building a public hospital at any time seems to take about 20 years from the time you start thinking about it to the time it happens. There’s always pretty extensive debate about whether to, or whether not to.

I think it has been even longer here, which is over 30 years, in part because we have a lot of hospitals to think about. LAC-USC was just one of them. And after Proposition 13 passed, paying for new construction really was a major barrier to moving forward quickly. Then, when the county was poised to replace LAC-USC, it had this terrible financial crisis. So we took a couple of blows along the way that prevented the Board of Supervisors from making a decision.

But right now they have the decision in front of them. And they’re going to have to decide, I would think pretty quickly, about what to do with the medical center.

Q: But the board’s still pretty well divided. You’ve got Supervisor Gloria Molina on one side who wants a 750-bed hospital, and Michael Antonovich on the other who wants something around 390 beds. They don’t see eye to eye.

A: Yeah, you’re right. In fact, I often refer to the board members right now as a microcosm of Los Angeles, because Mike says we never should build more than 385 beds, which we could do with the $585 million we have waiting to spend.

Q: That’s the amount the county received in federal repair money from the Northridge earthquake.

Right. Which is a substantial amount of money for a down payment. But you have Mike saying, “OK, take that money, build whatever you can and that’s the end of our story.”

But what I hope every board member does in making this decision is to look at three things with some element of equal weight. One, what are our fiduciary responsibilities? You can’t just go out and decide to build something regardless of your money.

The second goes without saying, and that’s that they’ll always view in part what they’re doing from a political standpoint. In other words, what will people think of this decision?

And third, I hope that all five would look at the basic need of the community we’re responsible for.

Using those three tests, I hope they’d come up with well, I’ve recommended 750 beds, which I think is a responsible recommendation.

Q: You reckon we can afford a 750-bed hospital.

A: A 750-bed hospital, when it’s finished, will be $6 million a year cheaper to run than that hospital you can see out the window (County-USC).

Q: Was the earthquake damage the best thing that could have happened to County-USC?

A: There’s no question about it that it was, not a blessing in disguise, but that the tragedy resulted in providing $585 million for us to replace this hospital, which is a great deal of money. Whoever you talk to, I think virtually everyone agrees we can afford to build this (750-bed hospital). It’s the operation of it that has us all concerned.

Q: What lessons have you learned from L.A. Care? It’s been a bit of a bumpy ride so far.

A: The ride was bumpy early on between L.A. Care and L.A. County’s health department, but we were really just negotiating. There was nothing personal about it. But there were a few other bumps that haven’t gone away, and I dare say won’t go away for a long time.

The two-plan model was a model imposed on Los Angeles. It was not sought by Los Angeles. People here at the time protested to the State of California that, in a place as big and diverse as Los Angeles, to impose the same model as you do in a place like Contra Costa County, which is small, is not reasonable. But the state wouldn’t bend.

Secondly, the capitation rates the state has been providing are ridiculously low. (Capitation is a per-patient, monthly fee paid to a physician or hospital by a funder like the state. The flat fee is paid whether or not a patient gets any treatment in a given month, but must cover all expenses the health care provider incurs once a patient gets sick.)

We get seventy-five bucks a month to take care of an (Assistance for Families with Dependent Children) eligible member, when that same AFDC person in Tennessee probably gets $120 a month, and in New York probably gets $210.

Your capitation rates have to be the average of what your fee-for-service rates are in the local health planning area. And California has not increased its outpatient reimbursement rates since 1985. California, depending on whose analysis you take, either is 48th or 51st in the nation (Washington, D.C. is included in national rankings) on spending for the Medicaid-eligible. That’s ridiculous.

Q: It seems you’re saying that the low capitation rates mean either the level of care will suffer or the L.A. system is going to go bankrupt down the road. Is that right?

A: I can’t tell you what the mishap will be, whether it’s bankruptcy or some providers fleeing. I can’t tell you what the walls are that all of us are going to hit in the future, but we’re going to either fly over them or we’re going to crash into them.

I hope that before anything seriously damaging happens to the clientele or the providers, that the state begins to assert a little more leadership and support and resources into this whole managed care experiment. So far it’s been tough sledding