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.

“The goal is to increase outpatient access and decrease all inappropriate use of our emergency rooms,” said Shirley Lee, a DHS analyst working on the partnerships.

Indeed, uninsured and Medi-Cal patients with mild ailments who show up in county emergency rooms are responsible for much of the strain that the public health care system now faces.

So far, the public-private partnerships are slightly ahead of schedule. The county has contracted for private companies to either co-manage or assume total operational control of 26 clinics and 13 health care centers, which are somewhat larger than the clinics. It has also contracted with companies to give county indigent patients access to another 68 private clinics.

A similar arrangement under which private-sector companies would run or partially run full-size hospitals is being contemplated by county officials, with County-Rancho Los Amigos Medical Center in Downey and County-High Desert Hospital in Lancaster the first likely candidates for such contracting.

One move from public- to private-sector care that the county did not seek, and in fact has only grudgingly accepted, is the two-model plan for shifting Medi-Cal patients from fee-for-service treatment to more cost effective managed care.

The two-model plan was mandated in 1993 by the state to each of California’s 58 counties as a way to contain ballooning health care expenses.

“People here at the time protested to the state 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,” Finucane said. “But the state wouldn’t bend.”

The public half of the plan a non-profit HMO called L.A. Care Health Plan opened for business in April, after months of delays in acquiring its HMO license from the state. L.A. Care contracts with one public and six private managed care companies to give service to the county’s 1.6 million Medi-Cal patients.

So far, about 200,000 Medi-Cal patients have been enrolled in the program, including people who voluntarily enrolled in one of the seven plans and those who were defaulted into the system by the county.

The state has since halted the default enrollment process, claiming there has been inadequate public education for Medi-Cal patients to make informed enrollment choices.

The private half of the two-model plan, to be administered by Foundation Health Systems of Rancho Cordova, Calif., is scheduled to begin enrolling new Medi-Cal patients this summer.

While the public-private partnerships have been promising, one significant aspect of health care reform has made little headway.

By far the largest single health care facility in Los Angeles in the aging County-USC Medical Center. It provides about one-third of all emergency and trauma care in L.A. County and costs more than $800 million a year to operate, a huge amount considering the county’s total proposed public health expenditures for 1997-98 are $2.3 billion.

Officials have known for three decades that the sprawling medical center needs to be replaced, and damage incurred during the 1994 Northridge earthquake only underscored that need.

Officials even agree that, as the county shifts patients into managed care and outpatient treatment, the massive inpatient capacity at County-USC is becoming increasingly superfluous.

But since an initial replacement plan agreed to in 1990 (and since scrapped), the Board of Supervisors has taken no decisive action on the replacement of County-USC.

Since the budget crisis of 1995, the board has done little more than study the issue, with three of the five supervisors now seemingly wed to different plans.

Even the largest proposed replacement facility, one with 750 inpatient beds, would be $6 million a year cheaper to run than the current medical center, according to Finucane. And each month that passes, total projected costs for a replacement facility inch up another few million dollars.

That has led to frustration among some industry officials. “We’ve studied this enough,” said Brian Johnson, president of the L.A. County Medical Association. Johnson, who favors a 750-bed model, said one way or another the board should make up its mind.

There are indications it may, soon.

In June, the Department of Health Services will hold a workshop, at which the supervisors will be presented with the findings of the latest round of studies on the County-USC replacement issue. The supervisors requested those studies back in January. Several board members say they expect a vote to follow within weeks, or by late summer at the latest.

The board has the decision in front of them, Finucane said, “and they’re going to have to decide, I would think pretty quickly, about what to do.”