Medicaid Demonstration Project in Los Angeles County, 1995-2000: Progress But Room for Improvement

CONTRACT NO: 500-95-004006613-008-05FINAL REPORTThe Medicaid Demonstration ProjectIn Los Angeles County, 1995-2000:Progress, But Room For ImprovementOctober 2001Stephen ZuckermanAmy Westpfahl LutzkySubmitted to:Submitted by:Office of Strategic PlanningThe Urban InstituteCenters for Medicare and Medicaid Services 2100 M Street, NW7500 Security BoulevardWashington, DC 20037Baltimore, MD 21244Project Officer: Project Director:Paul BobenTeresa A. CoughlinThis report was produced as part of the “Evaluation of Medicaid Health ReformDemonstrations,” under contract to the Centers for Medicare and Medicaid Services, HCFA-500-95-0040. The nonpartisan Urban Institute publishes studies, reports and books on timely topicsworthy of public consideration. The views expressed are those of the authors and should not beattributed to the Urban Institute, its trustees, or its funders.Support for this research was provided by the Centers for Medicare and Medicaid Services 1The Medicaid Demonstration Project in Los Angeles County, 1995-2000:Progress, But Room for ImprovementEXECUTIVE SUMMARYUnder the Medicaid Demonstration Project for Los Angeles, Los Angeles County agreedto fundamentally restructure its Department of Health Services (LACDHS) and its approach todelivering indigent care in return for federal funds. LACDHS attempted to reduce its traditionalemphasis on emergency room and inpatient care by building an integrated system of community-based primary, specialty, and preventive care. As part of the Centers for Medicare and MedicaidServices (CMS)1 evaluation of this waiver, the Urban Institute conducted site visits in 1997 and2001. This report is based on findings from both of these site visits.The restructuring under the Demonstration Project focused on two key areas:(1) improving access to county-funded ambulatory services and (2) making hospital care moreefficient. It appears that LACDHS succeeded in developing public-private partnerships todeliver ambulatory care, reduced inappropriate emergency room use and made considerablestrides in expanding and integrating community-based primary care through the use of ReferralCenters and community-based planning. Moreover, the County has lowered the number ofinpatient beds and reengineered its hospitals to become more efficient.Although progress was made, by 1999 the County recognized that it was not going tomeet many of its restructuring targets and that it could not operate beyond 2000 without acontinuation of waiver funding. Rather than simply reverting to the financial crisis atmosphereof 1995, the County applied for and received an extension of their waiver. This could be viewedas a sign that the waiver restructuring had failed to meet its objectives, but stakeholders andobservers suggested a somewhat more positive assessment. The changes that took placecombined with an increased level of cooperation between LACDHS, unions, and communitygroups were all viewed as signs that the County’s large indigent population was better served in2000 than might have been expected in light of the pre-waiver financial crisis in 1995.Despite the financial relief that the waiver extension provides, some critical issuesremain. Absent broad federal or state health reforms that substantially reduced the number ofuninsured in Los Angeles, LACDHS officials have been skeptical about achieving self-sufficiency after the waiver. The LACDHS consensus is that the system would have been “nearcollapse” without an extension of the waiver. If the federal government follows through on itsplan to end waiver funding in 2005, LACDHS could be “near collapse” again without significantrestructuring and re-engineering efforts or a significant increase in state or local revenues.In the end, the Demonstration Project pulled LACDHS out of its 1995 financial crisis andallowed it to begin to rebuild its ambulatory care system and undertake a variety of other reformsaimed at improving efficiency and patient care, but it did not create a stable financialenvironment for the future. Whether or not this changes as a result of actions to be implementedduring the waiver extension will depend on the willingness and ability of both the State andCounty to make fundamental reforms in both the financing and operation of LACDHS. 1 Formerly the Health Care Financing Administration (HCFA). 2I. INTRODUCTIONIn the summer of 1995, the Los Angeles County Department of Health Services(LACDHS) faced the largest budget shortfall in its history. With a $655 million deficit in anoperating budget of $2.3 billion, the County was forced to cut back on services and close or planfor the closing of a number of its health care facilities. Consequently, the State of California andthe County sought assistance from the federal government regarding longer-term solutions to theCounty’s financial difficulties. In September 1995, President Clinton announced a federal fiscalrelief pack