Medicaid Demonstration Project in Los Angeles County, 1995-2000

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EXECUTIVE SUMMARY

Under the Medicaid Demonstration Project for Los Angeles, Los Angeles County agreed to fundamentally restructure its Department of Health Services (LACDHS) and its approach to delivering indigent care in return for federal funds. LACDHS attempted to reduce its traditional emphasis on emergency room and inpatient care by building an integrated system of communitybased primary, specialty, and preventive care. As part of the Centers for Medicare and Medicaid Services (CMS)¹ evaluation of this waiver, the Urban Institute conducted site visits in 1997 and 2001. 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 more efficient. It appears that LACDHS succeeded in developing public-private partnerships to deliver ambulatory care, reduced inappropriate emergency room use and made considerable strides in expanding and integrating community-based primary care through the use of Referral Centers and community-based planning. Moreover, the County has lowered the number of inpatient beds and reengineered its hospitals to become more efficient.

Although progress was made, by 1999 the County recognized that it was not going to meet many of its restructuring targets and that it could not operate beyond 2000 without a continuation of waiver funding. Rather than simply reverting to the financial crisis atmosphere of 1995, the County applied for and received an extension of their waiver. This could be viewed as a sign that the waiver restructuring had failed to meet its objectives, but stakeholders and observers suggested a somewhat more positive assessment. The changes that took place combined with an increased level of cooperation between LACDHS, unions, and community groups were all viewed as signs that the County's large indigent population was better served in 2000 than might have been expected in light of the pre-waiver financial crisis.

Despite the financial relief that the waiver extension provides, some critical issues remain. Absent broad federal or state health reforms that substantially reduced the number of uninsured in Los Angeles, LACDHS officials have been skeptical about achieving selfsufficiency after the waiver. The LACDHS consensus is that the system would have been "near collapse" without an extension of the waiver. If the federal government follows through on its plan to end waiver funding in 2005, LACDHS could be "near collapse" again without significant restructuring 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 and allowed it to begin to rebuild its ambulatory care system and undertake a variety of other reforms aimed at improving efficiency and patient care, but it did not create a stable financial environment for the future. Whether or not this changes as a result of actions to be implemented during the waiver extension will depend on the willingness and ability of both the State and County to make fundamental reforms in both the financing and operation of LACDHS.

1. Formerly the Health Care Financing Administration (HCFA).

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Disclaimer: The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.