Gran Jurado del Condado de Los Angeles
2004-2005
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Hallazgos & Recomendaciones
2 hallazgos
F1:
To continue to give MLK’s leaders the authority, support, and resources, necessary to meet all challenges in transforming MLK into providing the highest level of health care delivery.
F2:
To continue to conduct an extensive nationwide search and do whatever necessary to recruit leaders of stature and excellence to lead MLK into the 21st century. DCFS AND AGENCY BOARD OF DIRECTORS
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1
No vinculadas a hallazgos específicos.
R2:
Whenever possible, new vehicle purchases will be clean fuel vehicles.
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Hallazgos & Recomendaciones
6 hallazgos
F1:
Who: Your Name: Address: City, State, Zip Code: Telephone Number:
F2:
What: Subject of Complaint. Briefly state the nature of complaint and the action of what Los Angeles County department, section, agency, or official(s) that you believe was illegal or improper. Use additional sheets if necessary.
F3:
When: Date(s) of incident:
F4:
Where: Names and addresses of other departments, agencies, or officials involved in this complaint. Include dates and types of contact, i.e., phone, letter, personal. Use additional sheets if necessary.
F5:
Why/How: Attach pertinent documents and correspondence with dates.
F6:
Signed: Date: 10 CONTINUITY COMMITTEE Clairene Almond, Chairperson Dennis Brusseau Beverly Clemence Hal D. Hichborn Mary Alice King William Korb Akasia Minamoto Ernest Oestreich Elyse Ruth CONTINUITY
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Hallazgos & Recomendaciones
6 hallazgos
F1:
There is a wide range of opportunities for jurisdictions to collaborate to improve the effectiveness and efficiency of real estate acquisition and disposition. Agencies can share information on common problems and challenges. They can undertake joint efforts to make constructive changes in County ordinances and State laws. They can share resources to save money and time. They might even consider collective efforts to establish government service centers that include an array of municipal, county, and special district services. These would allow more residents to undertake “one-stop shopping.” As a long term goal, agencies could plan to establish a Joint Powers Agreement that would allow them to acquire the highly paid negotiators, expert real estate attorneys, and lease analysts that would give their clients a more level playing field when attempting to “make deals” with commercial owners and brokers.
F2:
Other municipal jurisdictions provide examples of working examples of collaboration. As cited in earlier sections of the report, the City of Chicago and Cook County, the Province of Alberta, Canada, and San Bernardino County have all found ways to collaborate successfully in the acquisition and disposition of property. Their examples show that effective collaboration is possible, and that it can carry substantial benefits.
F3:
Collaborative efforts undertaken simultaneously by the professional and elective members of government are stronger and more lasting. Although it can be a challenge to achieve, joint efforts between elected officials and career staff members will produce the most effective and lasting cooperation between government agencies. In planning these efforts, it is critical to obtain the support of senior elected and appointed officials.
F4:
There are legislative, political, legal and institutional barriers to collaboration. In some cases, state or local legislation will need to be changed to support efforts at collaboration. Disputes between different governments or distrust between them can make it difficult to build bridges of trust and cooperation that are essential to the kind of collaboration that can make a significant positive difference to real estate asset management. Not all of the agencies understand each others’ missions. Some of them do not understand the motives that drive their colleagues. In other cases, there are policy or other disagreements that limit the ability of career staff to openly collaborate. On a more mundane level, information systems are likely to have differing structures, or to 87 utilize incompatible technology. And there is always the “not invented here” issue to overcome, as is the case for almost all proposals for change. Collaboration initiatives must be carefully designed to overcome these obstacles, and those who wish to establish genuine collaboration must be both persistent and patient.
F5:
Collaborative efforts will work best if they begin with voluntary efforts to discuss areas of common interest, with specific actions being developed from those discussions. One of the more effective ways to overcome the obstacles described earlier is to begin where there is a consensus, and where the smallest number of people can make the largest difference. In the area of real estate asset management, that critical point appears to be regular voluntary coordination meetings between senior real estate asset managers from the major municipalities and agencies within Los Angeles County. This appears to be feasible, and it can be done voluntarily. More important, it is a step upon which further, more complex forms of collaboration can be built. Initially, such meetings could be set up so that they include those agencies willing and able to participate. As time goes on, membership can be expanded to include a wider cross-section of agencies. The cost of the meetings can be kept low, especially if one or more organizations agree to act as host. Benefits should accrue within a reasonable period, as one agency learns about the plans of others, or is able to take coordinated action.
F6:
There are significant opportunities to use technology to reduce the administrative effort needed to comply with the existing Government Code notification requirements. All of the agencies we examined were diligent and professional in meeting the requirements of the law and the dictates of their mandate. They did report some concern about the best way to ensure that all of the cognizant individuals in all appropriate agencies were notified about the availability of surplus property. It is not always easy to determine whether a property is of interest, without consulting a broad range of agencies which might want it. Further, it is not always easy to be certain that the notification process has penetrated the “noise” of the flood of incoming communications. The most significant effect of this requirement is that the notification must be published 60 days before other action is taken. This builds in an automatic delay in the disposition process that adds to the time and effort required to complete the disposal transaction. At the same time, there is a small but lingering doubt – even when all of the prescribed actions are taken – as to whether the appropriate agencies have in fact been notified. Current law and practice may not include a number of agencies in the notification process such as special purpose districts and authorities e.g., the Metropolitan Transportation Authority (MTA), The Metropolitan Water District of Southern California, and the Southern California Regional Rail Authority (Metrolink). All 88 involved recognize that there is no single place to look for available municipal property, so that an agency interested in acquiring land would necessarily need to find the appropriate real estate asset manager in several jurisdictions to complete a search. The challenge is made more demanding by the fact that in most agencies there is a relatively small turnover of property. It is, in fact, difficult for most jurisdictions to divest themselves of real estate, in part because there is an extensive review process. If there were a central repository for this information, it would provide a single point for the posting of notifications of surplus property and a convenient, “one stop shop” for agencies that are both interested in acquiring such property and eligible to do so. Current technology strongly suggests that this could be accomplished through the establishment of a jointly supported website. At minimum, this website would include in its scope the properties either wanted or needed in Los Angeles County. Given time, it should be extended to cover the entire State. 89
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R1:
Governing bodies responsible for policy and oversight relating to Real Property issues should instruct and encourage Asset Managers to pursue opportunities to increase collaboration. All of the models for collaboration could positively affect real property management by governmental entitles located within the County. The governing bodies responsible for giving direction to real property asset management – especially the Los Angeles County Board of Supervisors and the City Councils of Los Angeles and Long Beach – should encourage these collaborative efforts by directing the managers to investigate and pursue increasingly formal opportunities for collaboration. Specifically: Begin with formal quarterly meetings. Managers and Directors responsible for Real Property management of large jurisdictions should meet quarterly to discuss common issues, and to inform one another of major real property strategic directions for their areas. In this fashion, it will be possible to consider formal and informal ways of collaborating on projects in the early development stages. 90 Evaluate and introduce policies which foster intergovernmental cooperation for Real Property management. Governing bodies should consider implementing policies such as: ¤ Requiring their responsible departments to request comments from other entities on proposals for specific transactions that would benefit from intergovernmental cooperation ¤ Authorizing joint use of service agreements, brokerage arrangements, and other contracts ¤ Holding annual public meetings with counterparts in other jurisdictions to discuss and review common real estate strategic and property management issues and directions
R2:
4). 2.2 Develop recommendations for enabling legislation that requires the Board of Supervisors to appoint a Task Force comprised of DHS representatives and other health care professionals, practitioners and consumer representatives to develop a slate of nominees for appointment to the Health Authority Board of Directors, consistent with the composition outlined in Recommendation 2.1. 2.3 Develop recommendations for enabling legislation that requires the creation of Healthcare Consumer Advisory Commissions in each of the County's regional service areas or networks with one role being nominations to the two consumer representative positions on the Health Authority Board of Directors. 2.4 Develop recommendations for enabling legislation that establishes an ongoing nomination and appointment process for the Health Authority Board of Directors, where: (a) nominations are made by the Board of Directors for the five hospital and health care professional slots, by DHS’ medical school affiliates for the two physician members, and by the recommended Healthcare Consumer Advisory Commissions for the two consumer representatives; and, (b) all nominations are confirmed by the Board of Supervisors. COSTS AND BENEFITS There would be no direct costs to implement these recommendations, although staff time will be required to provide analytical support to the Board of Supervisors. The benefits of implementing these recommendations would be that the Health Authority Board would include members who possess appropriate hospital and health care system management, finance and other business expertise, as well as members who represent consumer interests. By segregating ongoing member appointment responsibilities between consumer groups, medical school affiliates and the Health Authority Board of Directors, a less politicized and more balanced organization should be in place, better reflecting the diverse interests of the community. 3. HEALTH AUTHORITY FINANCE AND PERFORMANCE REQUIREMENTS Summary of Findings: v Executive Summary • Only 34.2 percent of the Department of Health Services $2.4 billion hospital and ambulatory care net operating budget is funded from direct patient revenues. The remaining 65.8 percent, or $1.6 billion, is funded from intergovernmental transfers from the federal and State governments, designated tax revenues, grants and subsidies received from the County. The substantial portion of income received from the federal, State and County governments are received by DHS to fund health services for the County's medically indigent and uninsured population. • The creation of a health authority will not relieve the County of the significant financial responsibility it bears for the care of the medically indigent and will not alone resolve the fiscal problems facing DHS. While net operating costs could be lowered by implementing service efficiencies and initiatives to maximize revenues, it is likely that a significant operating deficit will continue unless the County redefines service responsibilities presently included in California Welfare and Institutions Code § 17000, case law and policy of the Board of Supervisors. Even with such a redefinition, challenges to the County's ability to fund medically indigent service demand will likely continue as the federal and State governments attempt to reduce their costs through Medicaid reform. • To provide financial stability to the health authority, adequate financial provisions must be incorporated in the operating agreement with the County. A coordinated care approach, using standard rates for each covered patient or episodic treatment category, that can be adjusted each year based on changes in patient population and service profile, is recommended. The rate should incorporate planned cost reductions from efficiency improvements and redefined services, and cost enhancements for investments in areas such as information technology. • To ensure that a desired level of service quality and cost- effectiveness is achieved, the operating agreement should include specific performance and financial goals for the health authority and measurements to use for periodic reports to the Health Authority Board of Directors and the County on actual accomplishments. vi Executive Summary RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors: 3.1 Clearly and effectively define a patient benefits package and the population for whom the health authority will provide services, within the context of State law, case law and local priorities, to be included in the operating agreement between the County and the new health authority. 3.2 Direct the CAO to work with the Department of Health Services representatives to establish a funding mechanism that will reasonably finance the health authority’s operations. At a minimum, the health authority should retain all patient revenues and other resources that result directly from the services that it provides, as well as dedicated tax revenues and maintenance of effort guarantees for sufficient County General Fund subsidies to finance its operations. 3.3 Direct the CAO to work with County Counsel and the Department of Health Services representatives on the development of an operating agreement for services that provides revenue and cost-based incentives for (a) the County to provide sufficient resources to the health authority using a coordinated care standard rate per patient or episodic treatment approach, and (b) the health authority to use those resources effectively, as demonstrated by reductions in cost per patient over several years. 3.4 Direct the CAO to work with Department of Health Services representatives to establish baseline costs based on current operations, and to determine the planned timing of cost reductions and efficiency improvements and needed investments in areas such as information technology so that the standard rates used in the agreement between the health authority and County can be adjusted each year, in accordance with this plan. 3.5 Direct the CAO to work with the Department of Health Services to develop (a) hospital and health care system financial and performance goals and measurements, for inclusion in the operating agreement between the County and the health authority; and, (b) systems to measure actual financial and service quality performance of the health authority, including cost measures, patient outcome and satisfaction measures and improvements in efficiency. These goals and measurements should be regularly reported to managers, the Health Authority Board of Directors and the County Board of Supervisors, supplemented by periodic analysis of results by an independent party. vii Executive Summary COSTS AND BENEFITS There will be initial costs to implement the service quality and performance monitoring system, primarily in County staff time. However, we did not estimate that cost within the scope of this study. The health authority will be provided with greater assurance that sufficient funding will be provided by the County for designated levels of service. The County will have greater assurance that it will receive high quality, low cost services for the indigent and uninsured population that the health authority will be serving. 4. HUMAN RESOURCES Summary of Findings: • The Department’s hospitals had a 12.7 percent position vacancy rate for the first five months of FY 2004-05, with even higher rates for key classifications such as nurses and technicians and specialists. These vacancy rates, measured in full-time equivalents, are one indication of potential human resource management problems in areas such as recruiting, hiring and/or compensation. A review of the Department’s and County human resources processes and systems indicates that all of these areas are affecting the Department’s ability to hire and retain staff. A fiscal impact of this situation is the use of Registry personnel to fill vacant positions. For Staff Nurses, the Department will spend an estimated $9 million in FY 2004-05 for Registry positions compared to the cost of in-house County employees. • Adherence to County civil service rules means that the Department’s recruitment and hiring processes are lengthy and time consuming. Review and approval of job bulletins, selection criteria, position information, and classifications can delay the hiring process. • To address some of these concerns, DHS has begun to reengineer its human resources function. Many responsibilities have been centralized within the Department. The DHS Director has sought and received increased authority for making compensation and hiring decisions; and, much of the hiring process has been automated with the development of an in- house system available to program managers. Despite these achievements, the process is still governed by County civil service requirements and many DHS managers continue to viii Executive Summary assert that the Department’s human resources system is ineffective and cumbersome. • With the creation of a health authority, many of these inefficiencies could be eliminated. Current restrictions placed upon DHS by the County Charter, Civil Service Rules, and employee bargaining agreements could be lifted; compensation levels could be strategically set by the health authority board within the context of the health authority's singular mission and budget; the recruitment and hiring process could be streamlined and made more efficient; and, the rules associated with employee disciplinary actions could be reconsidered. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors: 4.1 Direct the CAO and DHS to collaborate on development of a human resource plan for transition to the health authority, with detailed recommendations regarding timelines and alternatives for addressing the various labor and collective bargaining issues identified in this report. 4.2 Direct the CAO to expedite negotiations with employee bargaining groups to implement the proposed Flexible Staffing Pilot Program, in an effort to immediately reduce outside Registry costs. 4.3 Direct staff to include goals for key human resources measures in the operating agreement between the County and the health authority, including reducing turnover and vacancy rates, improving hiring cycle time and achieving compensation parity with the hospital and health care market, with the results reported annually to the Board of Supervisors. The Department of Health Services should: 4.4 Continue efforts to improve the internal human resources organization, process, resources and tools for effectively administering human resources processes prior to the date of transition to the health authority 4.5 Conduct an analysis of the existing classification and compensation system and identify specific changes needed under the new health authority. 4.6 Develop a proposed expedited hiring system for implementation under the health authority. ix Executive Summary COSTS AND BENEFITS There would be unspecified costs to implement an effective human resources function within the Department of Health Services. The human resource process within DHS should continue to improve until the health authority is created. The new health authority would be provided with critical information regarding labor and collective bargaining agreements, needed changes to civil service processes and other critical human resource concerns. The net result should be faster and more flexible hiring processes, fewer vacancies and turnover and reduced costs from decreased use of Registry personnel. 5. HEALTH SERVICES PROCUREMENT Summary of Findings: • In FY 2004-05, the Department of Health Services procured goods and services worth up to $1.7 billion. Procurement occurred in a structure featuring formal rules codified in State law, the County charter, County ordinance and Board of Supervisors policies, emphasizing maximum opportunity for vendors to bid to provide goods and services, and focusing on competition as the primary way to achieve the lowest prices. • Department staff criticized the rigidity of this process, complaining that the plethora of rules slows down the procurement process unnecessarily, and does not achieve substantially better prices than could be achieved for lower dollar value items by more informal processes that permit informal negotiations with vendors. In addition to these interview comments, a review of a limited number of service contracts negotiated by the DHS Contracts and Grants unit revealed instances where technical violations of procurement rules led to contract protests, and significant delays in the award of contracts. DHS staff estimates that approximately 80 percent of all service contracts issued are subject to protest over the award and related delays. • Because the rigid procurement system that currently exists is defined in State law, the County charter, County ordinance and Board of Supervisors policies, establishment of a health authority would provide the opportunity to eliminate some of those strictures, establishing a more flexible procurement system, while still providing some centralized control of procurement to prevent abuses. x Executive Summary RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors: 5.1 Direct DHS staff to develop recommendations for enabling legislation that exempts a new system of health care governance from the requirements for a County purchasing agent in State law, and from the procurement requirements of the Los Angeles County Code and Board of Supervisors policies. The Department of Health Services should: 5.2 Develop procurement procedures to be implemented under the health authority that eliminates a rigid focus on formal bidding processes and that emphasize maximum vendor access in favor of a more flexible system that focuses on getting goods and services quickly, at reasonable prices. 5.3 Develop procurement policies for the health authority to increase the value of goods and services that individual health care facilities can purchase on their own with less formal bidding requirements based on an analysis of current purchasing amounts and financial risk so that formalized bidding is used only when there will be substantial benefits or price advantages resulting from the additional time and administrative requirements. 5.4 Design a consolidated procurement structure to be established under the health authority that includes a centralized procurement office overseeing all components of the system, including the Contracts & Grants Division, that would process bids above the newly established threshold for formal bidding, provide organization-wide oversight and monitoring of compliance with the Health Authority’s new regulations to ensure that procurement abuses are not occurring, and would be headed by a purchasing manager established at the same management level as a health system director of nursing, or director of clinical care. 5.5 Develop a system for ensuring and reporting to management and the Health Authority Board of Directors that competitive bidding is used when appropriate and advantageous to the organization and that procurement abuses are not occurring. 5.6 Determine the number of positions that should be transferred from the Internal Services Department to the new health authority for the new centralized procurement function, recognizing that fewer formal bids will be required in the new system and that more items will be standardized and purchased through a Group Purchasing Organization. xi Executive Summary 5.7 Determine the number of positions that will be needed for the Contracts and Grants Division under a new more streamlined contracting procedure. COSTS AND BENEFITS There would be no costs to implement these recommendations. A new system of procurement, based on a new system of health care governance, would be more flexible, allowing the health care system to get the items needed for patient care more quickly, at reasonable prices, by eliminating rigid bureaucratic rules and processes. Benefits would include reduced cycle time for procurement and reduced administrative costs as fewer staff would be needed to process purchases without all of the procurement rules and regulations and processes with which DHS must now comply. There should be some cost reductions from a reduced need for the current ISD staff that processes DHS purchase orders since fewer procurements would be subject to formal bidding procedures and in the Contracts and Grants division since the service contract procedure would be streamlined. 6. INFORMATION TECHNOLOGY Summary of Findings: • The Department of Health Services’ past approach to information technology has been decentralized, with each hospital and department developing its own systems and protocols. As a result, it is not possible to track patient records across the Department as there are no common patient identifiers and no common methods for recording patient transactions. • The Department has recently developed a system for centrally collecting and standardizing some patient data from each cluster after it is entered into each independent system, allowing for better management monitoring of patient outcomes and quality of care across the system, and has been used to develop some new clinical protocols. Further integration of the Department’s information systems is a key component to managing the Department as a single system, consistent with the Department’s strategic plan. • The Department completed a business automation plan in 2005 that sets its strategic information technology objectives and goals and assesses strengths and weaknesses of the current information technology resources. The key weaknesses identified are the level, mix, compensation, and skills and abilities of the Department’s information technology staff. As xii Executive Summary one indication of staffing limitations, vacancies in the Department’s information technology classifications averaged approximately 14 percent in FY 2003-04, and were even higher for core classifications such as Systems Analysts and supervisors. • Under a health authority, the new organization would be free of County constraints on classifications, compensation and hiring processes. The organization could redesign or establish new classifications more appropriate to its needs and adjust compensation accordingly. At the same time, the organization should establish a stronger management function centrally by converting the current Chief, Information Systems in Health Services Administration to a chief information officer, responsible for overall information technology development and maintenance for the entire organization. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors direct the Department of Health Services to: 6.1 Expand the current business automation plan into a five year strategic information technology plan for the health authority linked to the priorities and principles of the 2002 DHS strategic plan and detailing current hardware, software and utilization throughout the Department, future priorities, proposed projects, costs and benefits of projects, funding sources and project selection criteria. 6.2 Determine the unit cost for the highest priority, most cost-effective information technology projects to include in the payment rate that the health authority will receive from the County. 6.3 Design and implement a skills assessment process for current information technology staff and compare results to skills needed as detailed in the five year strategic information technology plan. 6.4 Begin preparation of new or redesigned job specifications for information technology positions for the health authority, including creation of a chief information officer classification. 6.5 Conduct or obtain existing information technology salary survey data to determine market rate compensation levels for new or redesigned classifications. 6.6 Prepare a formal plan, including an implementation schedule, for restructuring the information technology function under the health authority with a centralized chief information officer responsible for overall xiii Executive Summary direction and priority setting for the function and overseeing centralized and decentralized staff, with the latter responsible for day to day operations at hospitals and other facilities. 6.7 Participate in the funding for a fully integrated, comprehensive information technology system for the health authority, that will be able to provide cross-system data on patient care and costs that will be necessary to monitor health authority performance. COSTS AND BENEFITS The primary cost of implementing these recommendations will be staff time. One-time direct costs could be incurred if an appropriate salary survey cannot be obtained and needs to be commissioned to assess current salaries for information technology positions. Benefits of the recommendations would include preparation of a plan to guide future information technology investments under the health authority, consistent with the 2002 strategic plan, a more consistent approach to information technology across the organization, an improved information technology staffing plan that will enable the organization to achieve its goals and improved information to assess performance and patient outcomes. 7. COUNTY SUPPORT SERVICES Summary of Findings: • The FY 2004-05 Countywide Cost Allocation Plan (CCAP), allocates nearly $1.4 billion in County costs to departments for services that are provided centrally, such as payroll, accounting, building maintenance, facility rent and use, utilities, insurance, legal and other general support activities. DHS was charged approximately $203.9 million for these services in the current year plan. Approximately $185.6 million was direct charged and the balance was allocated to the Department using a variety of allocation methods. • A separate health authority would not be required to use County support services, but would likely continue to use many of them at little or no cost savings. In addition, many of the costs presently charged to DHS such as rent, facility use and utilities would still be incurred even if the services are no longer provided by the County. In some instances the combined cost for both the health authority and the County could increase because the County would be unable to sufficiently lower its costs to offset losses in income from the health authority. • Nonetheless, some County overhead costs charged for support services provided to DHS could be eliminated, by providing the xiv Executive Summary services in-house or through less costly contractors. Costs for some external County oversight and control services that would no longer be required under a separate health authority could also be eliminated. • Conservatively estimating reductions in overhead costs for some County support services, savings could amount to an estimated $10.8 million per year. However, this is a relatively small amount of savings when compared with the projected cumulative DHS operating deficit of over $1.3 billion. • After an initial transition period, the health authority should be given the option to (a) continue to purchase services from the County, (b) purchase services from contractors, or (c) provide services in-house. Each alternative should be fully analyzed for the potential to produce savings for the health authority and the County, but should primarily be chosen based on business considerations for the health authority. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors direct the Chief Administrative Officer to: 7.1 Conduct a thorough analysis of current County costs to support DHS services. The analysis should include: A comprehensive accounting of costs, such as rental expenses, utility charges, judgments and damages, insurance and security services, that would likely offer little opportunity for health authority savings; An analysis of services, such as legal and information systems, where some limited health authority savings could be achieved; and, An analysis of services, such as auditing, accounting, budgeting, financial management and employee relations, where more substantial savings may be possible. 7.2 Conduct a thorough analysis of County cost impacts that might result from possible health authority decisions to discontinue the use of County services and possible offsets under the health authority. 7.3 Estimate the net countywide cost or savings (i.e., the combined finances of the County and the health authority) that might be achieved with the creation of a health authority, considering fixed support services costs that the County might still incur even if the health authority no longer uses the support service. 7.4 Work with the Department of Health Services to identify and report back support service overhead costs that could be eliminated by DHS providing xv Executive Summary the services in-house or contracting to a lower cost contractor for services now provided by County departments, and, to identify other cost reductions that would be achieved for external verification and monitoring of DHS operations that would no longer be needed under a separate health authority and is now performed by departments such as County Human Resources, the Chief Administrative Office and the Auditor- Controller. The Board of Supervisors, with input from the County Counsel, the Department of Health Services and other County departments, should: 7.5 Develop legislative provisions that ensure the most cost effective partnership between the County and the health authority. At a minimum, these provisions should require that: The health authority be required to purchase support services from the County during a transition period lasting no less than two years; and, The health authority be required to give a one year notice when it intends to discontinue the use of County support services. COSTS AND BENEFITS There would be no direct cost to implement the recommendations, although staff would be required to conduct the recommended analyses and report to the Board. Taxpayer interests would be protected, while providing the health authority with the eventual autonomy that would be required to operate in an efficient and effective manner. The County would be provided sufficient notice to plan for transition when the health authority determines that County services are no longer required. While further analysis is recommended for more precise quantification, annual savings to be realized by the health authority for reduced overhead costs for support services and reduced oversight and monitoring by external County departments could amount to as much as $10.8 million per year. 8. TRANSFER OF COUNTY ASSETS AND LIABILITIES TO THE HEALTH AUTHORITY Summary of Findings: • The County has invested significant resources in facilities and equipment used by DHS to provide hospital and health services. Many of these facilities are in need of significant rehabilitation or replacement. For example, the County is presently involved in a major construction effort to replace the LAC+USC Medical Center, which will cost an estimated $820.6 million. As a result, xvi Executive Summary complex legal and financial decisions need to be made as part of creation of a health authority regarding asset ownership, responsibilities for debt repayment and the ongoing maintenance and improvement of the County's infrastructure. • The County has significant long-term unfunded liabilities for employee retirement obligations and prior workers compensation, general liability and medical malpractice self- insurance program claims against DHS. These obligations amounted to nearly $920 million as of June 30, 2004, and do not include unfunded liabilities for retiree health care benefit costs which are in the billions of dollars. • Since these unfunded liabilities are the result of policies and decisions made by the County over the years, they should be retained as an ongoing County expense, not an expense of the new health authority, until they are fully paid. In fact, some of the County’s self-insurance policies reflect exemptions from State Controller insurance guidelines to ensure federal grant reimbursement to local agencies and therefore would probably not be allowable for new health authority. As a result, the health authority will most likely have to fully fund the insurance liabilities that it incurs starting the day of its inception. The operating agreement between the County and the health authority should be structured and external approvals obtained to ensure that all existing and future liabilities are fully funded and that the County can effectively leverage federal and State funding. Unless the County can successfully obtain such external approvals, there is a risk that the substantial unfunded liability that exists at the time of separation would become a General Fund cost and would not be considered eligible for reimbursement from federal and State grants. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors direct the Chief Administrative Officer, the Auditor-Controller and County Counsel to collaborate to: 8.1 Develop strategies and recommendations for either (a) transferring ownership of health and hospital facilities to the health authority; or, (b) retaining ownership of all health and hospital facilities, but defining rights and obligations regarding facility use, rehabilitation, maintenance, expansion and replacement. 8.2 Determine federal and State requirements regarding the funding of retirement and insurance liabilities under the health authority that must be xvii Executive Summary complied with for the County to be able to leverage all available federal and State funding for the health authority. 8.3 Seek authority from the federal and State governments to permit the County's unfunded liability to be partially financed by federal and State grants made to the health authority. 8.4 Develop estimates and report back on the financial implications to the County of (a) fully funding the LACERA pension plan, (b) repaying pension obligation borrowings, (c) establishing appropriate post-retirement health care benefit reserves, and (d) fully funding the unfunded liabilities for the County’s self insurance programs. This analysis should assume that the County would be required to proportionately fund its share of all current and future pension and insurance costs through its operating agreement with the health authority. 8.5 Include a reduction in hospital and health system insurance costs, including general liability, medical malpractice and workers compensation, as a goal in the operating agreement with the new health authority, to be measured and regularly reported back to the Health Authority Board of Directors and the Board of Supervisors. The Department of Health Services should: 8.6 Determine the costs and impacts of alternatives to the current post- retirement health benefits that could be established under a new health authority. 8.7 Establish systems and reporting mechanisms to be established under the new health authority that would track and report insurance costs, including liability, medical malpractice, and workers compensation. COSTS AND BENEFITS Although there are no direct costs associated with the implementation of these recommendations, staff time will be required to perform the analysis and report on the results to the Board of Supervisors. The County Board of Supervisors would have a clear understanding of the significant financial consequences related to the formation of a health authority. Health authority representatives would have a more comprehensive understanding of the financial obligations that should be retained by the County and assumed by the new entity. xviii Executive Summary 9. HEALTH AUTHORITY LEGISLATION AND TRANSITION PROCESS Summary of Findings: • The Department of Health Services, the Chief Administrative Office and County Counsel will all be very involved in the analysis and preparations for implementation of a health authority to govern Los Angeles County’s hospital and health care system. To formalize and facilitate these efforts, the Board of Supervisors should appoint a health transition team comprised of representatives of those departments, health care professionals from within and external to the County system and consumer representatives. The main task of the transition team should be preparation of a health authority implementation plan. This approach, used in other jurisdictions, would bring cross-departmental cooperation, accountability and continuity to the process. • The transition team’s tasks should also include development of draft State legislation needed to authorize creation of the health authority. The legislation authorizing creation of a health authority in Alameda County should be used as a model, with some modifications specific to the needs and principles of a health authority in Los Angeles County. The Alameda County implementation plan could also be used as a model, though it was prepared after the enabling State legislation was adopted, so should be expanded for Los Angeles County to include tasks that the County should perform to prepare for drafting the legislation. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors: 9.1 Appoint a health authority transition team comprised of representatives of the Department of Health Services, County Counsel, the Chief Administrative Office, health care professionals from within and external to the County system, consumer representatives and other County representatives as needed, responsible for preparation of a detailed transition plan needed for implementation of a separate health authority in Los Angeles County. 9.2 Direct the transition team to identify the areas where outside counsel or other expertise will be needed to assist with certain implementation issues and report back to the Board of Supervisors with the estimated costs and timelines for procuring such services. xix Executive Summary 9.3 Assign responsibility and due dates for each implementation plan task and classify each as one of the following: 1) issues to be resolved prior to drafting of enabling legislation; 2) issues to be resolved prior to drafting of necessary County Code and Charter amendments; 3) issues to be resolved prior to transfer of authority to the health authority; and, 4) issues to be resolved after transfer of authority to the health authority. 9.4 As part of the implementation plan, direct the transition team to prepare draft State legislation to enable creation of a health authority in Los Angeles County, including each of the components outlined in Exhibit 9.1 of this report. 9.5 Determine a sponsor in the State legislature to introduce the proposed legislation. COSTS AND BENEFITS The primary costs of implementing these recommendations will be County staff time for participation on the transition team. The use of outside counsel and possibly other experts needed to assist in this effort will result in direct County costs of an amount that cannot be determined at this time. The benefits of implementing these recommendations will include a process for transition to a new health authority that is well planned and executed, with all key areas addressed and decided on based on thorough analyses of all key issues. This will assist the health authority smoothly begin it operations and start achieving its mission as soon as possible: the cost-effective provision of high quality health care services to the indigent and medically needy. xx
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Implementation of the Clean Fuels Policy shall depend on the financial resources available to the County. Departments shall pursue funding available from a variety of sources and may work with other public/private agencies to share resources, coordinate efforts, and apply jointly for available funds.
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Departments shall report to the Board by March 1st each year on the composition of their fleet and the number of vehicles powered by clean fuels. RESPONSIBLE DEPARTMENT _______________________________________________________________ Internal Services Department Chief Administrative Office DATE ISSUED/SUNSET DATE _______________________________________________________________ Issue Date: January 10, 1995 Sunset Review Date: January 10, 2004 Review Date: February 19, 2004 Sunset Review Date: January 10, 2007 SEAWATER DESALINATION PROJECT
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HEALTH SERVICES PROCUREMENT Summary of Findings: • In FY 2004-05, the Department of Health Services procured goods and services worth up to $1.7 billion. Procurement occurred in a structure featuring formal rules codified in State law, the County charter, County ordinance and Board of Supervisors policies, emphasizing maximum opportunity for vendors to bid to provide goods and services, and focusing on competition as the primary way to achieve the lowest prices. • Department staff criticized the rigidity of this process, complaining that the plethora of rules slows down the procurement process unnecessarily, and does not achieve substantially better prices than could be achieved for lower dollar value items by more informal processes that permit informal negotiations with vendors. In addition to these interview comments, a review of a limited number of service contracts negotiated by the DHS Contracts and Grants unit revealed instances where technical violations of procurement rules led to contract protests, and significant delays in the award of contracts. DHS staff estimates that approximately 80 percent of all service contracts issued are subject to protest over the award and related delays. • Because the rigid procurement system that currently exists is defined in State law, the County charter, County ordinance and Board of Supervisors policies, establishment of a health authority would provide the opportunity to eliminate some of those strictures, establishing a more flexible procurement system, while still providing some centralized control of procurement to prevent abuses. x Executive Summary RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors: 5.1 Direct DHS staff to develop recommendations for enabling legislation that exempts a new system of health care governance from the requirements for a County purchasing agent in State law, and from the procurement requirements of the Los Angeles County Code and Board of Supervisors policies. The Department of Health Services should: 5.2 Develop procurement procedures to be implemented under the health authority that eliminates a rigid focus on formal bidding processes and that emphasize maximum vendor access in favor of a more flexible system that focuses on getting goods and services quickly, at reasonable prices. 5.3 Develop procurement policies for the health authority to increase the value of goods and services that individual health care facilities can purchase on their own with less formal bidding requirements based on an analysis of current purchasing amounts and financial risk so that formalized bidding is used only when there will be substantial benefits or price advantages resulting from the additional time and administrative requirements. 5.4 Design a consolidated procurement structure to be established under the health authority that includes a centralized procurement office overseeing all components of the system, including the Contracts & Grants Division, that would process bids above the newly established threshold for formal bidding, provide organization-wide oversight and monitoring of compliance with the Health Authority’s new regulations to ensure that procurement abuses are not occurring, and would be headed by a purchasing manager established at the same management level as a health system director of nursing, or director of clinical care. 5.5 Develop a system for ensuring and reporting to management and the Health Authority Board of Directors that competitive bidding is used when appropriate and advantageous to the organization and that procurement abuses are not occurring. 5.6 Determine the number of positions that should be transferred from the Internal Services Department to the new health authority for the new centralized procurement function, recognizing that fewer formal bids will be required in the new system and that more items will be standardized and purchased through a Group Purchasing Organization. xi Executive Summary 5.7 Determine the number of positions that will be needed for the Contracts and Grants Division under a new more streamlined contracting procedure. COSTS AND BENEFITS There would be no costs to implement these recommendations. A new system of procurement, based on a new system of health care governance, would be more flexible, allowing the health care system to get the items needed for patient care more quickly, at reasonable prices, by eliminating rigid bureaucratic rules and processes. Benefits would include reduced cycle time for procurement and reduced administrative costs as fewer staff would be needed to process purchases without all of the procurement rules and regulations and processes with which DHS must now comply. There should be some cost reductions from a reduced need for the current ISD staff that processes DHS purchase orders since fewer procurements would be subject to formal bidding procedures and in the Contracts and Grants division since the service contract procedure would be streamlined.
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INFORMATION TECHNOLOGY Summary of Findings: • The Department of Health Services’ past approach to information technology has been decentralized, with each hospital and department developing its own systems and protocols. As a result, it is not possible to track patient records across the Department as there are no common patient identifiers and no common methods for recording patient transactions. • The Department has recently developed a system for centrally collecting and standardizing some patient data from each cluster after it is entered into each independent system, allowing for better management monitoring of patient outcomes and quality of care across the system, and has been used to develop some new clinical protocols. Further integration of the Department’s information systems is a key component to managing the Department as a single system, consistent with the Department’s strategic plan. • The Department completed a business automation plan in 2005 that sets its strategic information technology objectives and goals and assesses strengths and weaknesses of the current information technology resources. The key weaknesses identified are the level, mix, compensation, and skills and abilities of the Department’s information technology staff. As xii Executive Summary one indication of staffing limitations, vacancies in the Department’s information technology classifications averaged approximately 14 percent in FY 2003-04, and were even higher for core classifications such as Systems Analysts and supervisors. • Under a health authority, the new organization would be free of County constraints on classifications, compensation and hiring processes. The organization could redesign or establish new classifications more appropriate to its needs and adjust compensation accordingly. At the same time, the organization should establish a stronger management function centrally by converting the current Chief, Information Systems in Health Services Administration to a chief information officer, responsible for overall information technology development and maintenance for the entire organization. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors direct the Department of Health Services to: 6.1 Expand the current business automation plan into a five year strategic information technology plan for the health authority linked to the priorities and principles of the 2002 DHS strategic plan and detailing current hardware, software and utilization throughout the Department, future priorities, proposed projects, costs and benefits of projects, funding sources and project selection criteria. 6.2 Determine the unit cost for the highest priority, most cost-effective information technology projects to include in the payment rate that the health authority will receive from the County. 6.3 Design and implement a skills assessment process for current information technology staff and compare results to skills needed as detailed in the five year strategic information technology plan. 6.4 Begin preparation of new or redesigned job specifications for information technology positions for the health authority, including creation of a chief information officer classification. 6.5 Conduct or obtain existing information technology salary survey data to determine market rate compensation levels for new or redesigned classifications. 6.6 Prepare a formal plan, including an implementation schedule, for restructuring the information technology function under the health authority with a centralized chief information officer responsible for overall xiii Executive Summary direction and priority setting for the function and overseeing centralized and decentralized staff, with the latter responsible for day to day operations at hospitals and other facilities. 6.7 Participate in the funding for a fully integrated, comprehensive information technology system for the health authority, that will be able to provide cross-system data on patient care and costs that will be necessary to monitor health authority performance. COSTS AND BENEFITS The primary cost of implementing these recommendations will be staff time. One-time direct costs could be incurred if an appropriate salary survey cannot be obtained and needs to be commissioned to assess current salaries for information technology positions. Benefits of the recommendations would include preparation of a plan to guide future information technology investments under the health authority, consistent with the 2002 strategic plan, a more consistent approach to information technology across the organization, an improved information technology staffing plan that will enable the organization to achieve its goals and improved information to assess performance and patient outcomes.
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COUNTY SUPPORT SERVICES Summary of Findings: • The FY 2004-05 Countywide Cost Allocation Plan (CCAP), allocates nearly $1.4 billion in County costs to departments for services that are provided centrally, such as payroll, accounting, building maintenance, facility rent and use, utilities, insurance, legal and other general support activities. DHS was charged approximately $203.9 million for these services in the current year plan. Approximately $185.6 million was direct charged and the balance was allocated to the Department using a variety of allocation methods. • A separate health authority would not be required to use County support services, but would likely continue to use many of them at little or no cost savings. In addition, many of the costs presently charged to DHS such as rent, facility use and utilities would still be incurred even if the services are no longer provided by the County. In some instances the combined cost for both the health authority and the County could increase because the County would be unable to sufficiently lower its costs to offset losses in income from the health authority. • Nonetheless, some County overhead costs charged for support services provided to DHS could be eliminated, by providing the xiv Executive Summary services in-house or through less costly contractors. Costs for some external County oversight and control services that would no longer be required under a separate health authority could also be eliminated. • Conservatively estimating reductions in overhead costs for some County support services, savings could amount to an estimated $10.8 million per year. However, this is a relatively small amount of savings when compared with the projected cumulative DHS operating deficit of over $1.3 billion. • After an initial transition period, the health authority should be given the option to (a) continue to purchase services from the County, (b) purchase services from contractors, or (c) provide services in-house. Each alternative should be fully analyzed for the potential to produce savings for the health authority and the County, but should primarily be chosen based on business considerations for the health authority. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors direct the Chief Administrative Officer to: 7.1 Conduct a thorough analysis of current County costs to support DHS services. The analysis should include: A comprehensive accounting of costs, such as rental expenses, utility charges, judgments and damages, insurance and security services, that would likely offer little opportunity for health authority savings; An analysis of services, such as legal and information systems, where some limited health authority savings could be achieved; and, An analysis of services, such as auditing, accounting, budgeting, financial management and employee relations, where more substantial savings may be possible. 7.2 Conduct a thorough analysis of County cost impacts that might result from possible health authority decisions to discontinue the use of County services and possible offsets under the health authority. 7.3 Estimate the net countywide cost or savings (i.e., the combined finances of the County and the health authority) that might be achieved with the creation of a health authority, considering fixed support services costs that the County might still incur even if the health authority no longer uses the support service. 7.4 Work with the Department of Health Services to identify and report back support service overhead costs that could be eliminated by DHS providing xv Executive Summary the services in-house or contracting to a lower cost contractor for services now provided by County departments, and, to identify other cost reductions that would be achieved for external verification and monitoring of DHS operations that would no longer be needed under a separate health authority and is now performed by departments such as County Human Resources, the Chief Administrative Office and the Auditor- Controller. The Board of Supervisors, with input from the County Counsel, the Department of Health Services and other County departments, should: 7.5 Develop legislative provisions that ensure the most cost effective partnership between the County and the health authority. At a minimum, these provisions should require that: The health authority be required to purchase support services from the County during a transition period lasting no less than two years; and, The health authority be required to give a one year notice when it intends to discontinue the use of County support services. COSTS AND BENEFITS There would be no direct cost to implement the recommendations, although staff would be required to conduct the recommended analyses and report to the Board. Taxpayer interests would be protected, while providing the health authority with the eventual autonomy that would be required to operate in an efficient and effective manner. The County would be provided sufficient notice to plan for transition when the health authority determines that County services are no longer required. While further analysis is recommended for more precise quantification, annual savings to be realized by the health authority for reduced overhead costs for support services and reduced oversight and monitoring by external County departments could amount to as much as $10.8 million per year.
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TRANSFER OF COUNTY ASSETS AND LIABILITIES TO THE HEALTH AUTHORITY Summary of Findings: • The County has invested significant resources in facilities and equipment used by DHS to provide hospital and health services. Many of these facilities are in need of significant rehabilitation or replacement. For example, the County is presently involved in a major construction effort to replace the LAC+USC Medical Center, which will cost an estimated $820.6 million. As a result, xvi Executive Summary complex legal and financial decisions need to be made as part of creation of a health authority regarding asset ownership, responsibilities for debt repayment and the ongoing maintenance and improvement of the County's infrastructure. • The County has significant long-term unfunded liabilities for employee retirement obligations and prior workers compensation, general liability and medical malpractice self- insurance program claims against DHS. These obligations amounted to nearly $920 million as of June 30, 2004, and do not include unfunded liabilities for retiree health care benefit costs which are in the billions of dollars. • Since these unfunded liabilities are the result of policies and decisions made by the County over the years, they should be retained as an ongoing County expense, not an expense of the new health authority, until they are fully paid. In fact, some of the County’s self-insurance policies reflect exemptions from State Controller insurance guidelines to ensure federal grant reimbursement to local agencies and therefore would probably not be allowable for new health authority. As a result, the health authority will most likely have to fully fund the insurance liabilities that it incurs starting the day of its inception. The operating agreement between the County and the health authority should be structured and external approvals obtained to ensure that all existing and future liabilities are fully funded and that the County can effectively leverage federal and State funding. Unless the County can successfully obtain such external approvals, there is a risk that the substantial unfunded liability that exists at the time of separation would become a General Fund cost and would not be considered eligible for reimbursement from federal and State grants. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors direct the Chief Administrative Officer, the Auditor-Controller and County Counsel to collaborate to: 8.1 Develop strategies and recommendations for either (a) transferring ownership of health and hospital facilities to the health authority; or, (b) retaining ownership of all health and hospital facilities, but defining rights and obligations regarding facility use, rehabilitation, maintenance, expansion and replacement. 8.2 Determine federal and State requirements regarding the funding of retirement and insurance liabilities under the health authority that must be xvii Executive Summary complied with for the County to be able to leverage all available federal and State funding for the health authority. 8.3 Seek authority from the federal and State governments to permit the County's unfunded liability to be partially financed by federal and State grants made to the health authority. 8.4 Develop estimates and report back on the financial implications to the County of (a) fully funding the LACERA pension plan, (b) repaying pension obligation borrowings, (c) establishing appropriate post-retirement health care benefit reserves, and (d) fully funding the unfunded liabilities for the County’s self insurance programs. This analysis should assume that the County would be required to proportionately fund its share of all current and future pension and insurance costs through its operating agreement with the health authority. 8.5 Include a reduction in hospital and health system insurance costs, including general liability, medical malpractice and workers compensation, as a goal in the operating agreement with the new health authority, to be measured and regularly reported back to the Health Authority Board of Directors and the Board of Supervisors. The Department of Health Services should: 8.6 Determine the costs and impacts of alternatives to the current post- retirement health benefits that could be established under a new health authority. 8.7 Establish systems and reporting mechanisms to be established under the new health authority that would track and report insurance costs, including liability, medical malpractice, and workers compensation. COSTS AND BENEFITS Although there are no direct costs associated with the implementation of these recommendations, staff time will be required to perform the analysis and report on the results to the Board of Supervisors. The County Board of Supervisors would have a clear understanding of the significant financial consequences related to the formation of a health authority. Health authority representatives would have a more comprehensive understanding of the financial obligations that should be retained by the County and assumed by the new entity. xviii Executive Summary
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HEALTH AUTHORITY LEGISLATION AND TRANSITION PROCESS Summary of Findings: • The Department of Health Services, the Chief Administrative Office and County Counsel will all be very involved in the analysis and preparations for implementation of a health authority to govern Los Angeles County’s hospital and health care system. To formalize and facilitate these efforts, the Board of Supervisors should appoint a health transition team comprised of representatives of those departments, health care professionals from within and external to the County system and consumer representatives. The main task of the transition team should be preparation of a health authority implementation plan. This approach, used in other jurisdictions, would bring cross-departmental cooperation, accountability and continuity to the process. • The transition team’s tasks should also include development of draft State legislation needed to authorize creation of the health authority. The legislation authorizing creation of a health authority in Alameda County should be used as a model, with some modifications specific to the needs and principles of a health authority in Los Angeles County. The Alameda County implementation plan could also be used as a model, though it was prepared after the enabling State legislation was adopted, so should be expanded for Los Angeles County to include tasks that the County should perform to prepare for drafting the legislation. RECOMMENDATIONS Based on the above findings, it is recommended that the Board of Supervisors: 9.1 Appoint a health authority transition team comprised of representatives of the Department of Health Services, County Counsel, the Chief Administrative Office, health care professionals from within and external to the County system, consumer representatives and other County representatives as needed, responsible for preparation of a detailed transition plan needed for implementation of a separate health authority in Los Angeles County. 9.2 Direct the transition team to identify the areas where outside counsel or other expertise will be needed to assist with certain implementation issues and report back to the Board of Supervisors with the estimated costs and timelines for procuring such services. xix Executive Summary 9.3 Assign responsibility and due dates for each implementation plan task and classify each as one of the following: 1) issues to be resolved prior to drafting of enabling legislation; 2) issues to be resolved prior to drafting of necessary County Code and Charter amendments; 3) issues to be resolved prior to transfer of authority to the health authority; and, 4) issues to be resolved after transfer of authority to the health authority. 9.4 As part of the implementation plan, direct the transition team to prepare draft State legislation to enable creation of a health authority in Los Angeles County, including each of the components outlined in Exhibit 9.1 of this report. 9.5 Determine a sponsor in the State legislature to introduce the proposed legislation. COSTS AND BENEFITS The primary costs of implementing these recommendations will be County staff time for participation on the transition team. The use of outside counsel and possibly other experts needed to assist in this effort will result in direct County costs of an amount that cannot be determined at this time. The benefits of implementing these recommendations will include a process for transition to a new health authority that is well planned and executed, with all key areas addressed and decided on based on thorough analyses of all key issues. This will assist the health authority smoothly begin it operations and start achieving its mission as soon as possible: the cost-effective provision of high quality health care services to the indigent and medically needy. xx INTRODUCTION The Harvey M. Rose Accountancy Corporation is pleased to present this Analysis of Implementing a Health Authority for the Los Angeles County Hospital and Health System. This study was conducted in accordance with the Harvey M. Rose Accountancy Corporation task plan submitted and approved by the FY 2004-05 Los Angeles County Civil Grand Jury in December 2004. PROJECT PURPOSE AND SCOPE The purpose of this analysis as defined by the FY 2004-05 Los Angeles County Civil Grand Jury, is to determine the necessary steps for Los Angeles County to take to create an independent health authority. This Health Authority would provide a governance entity through which hospital and health services currently provided by the Los Angeles County Department of Health Services and other County departments could be provided more efficiently and effectively. Whereas other County analyses and studies have considered whether or not a health authority should be created, this audit commences with the premise that the question to answer is not whether to create a Health Authority, but rather how best to create a Health Authority After reviewing the current state of the Departments of Health Services and Mental Health and various alternatives available, the FY 2004-05 Los Angeles County Civil Grand Jury concluded that creation of a separate health authority is the recommended course of action for Los Angeles County. Creation of a singular purpose health authority governing board comprised of individuals with training and expertise in hospital and health care operations would provide the opportunity to realize improvements in the areas that have been affecting the County’s hospital and health system for years: operational efficiency; quality of care; and, fiscal stability. The Grand Jury defines a health authority as, “a separate public entity existing independently of local government and governed by a separate board, often with involvement of local government.” One such model that the Grand Jury reviewed was Denver Health, the primary safety net health system that provides medical services to uninsured, Medicaid and insured patients in the City and County of Denver. The scope of the study included all components of the Los Angeles County Department of Health Services (DHS), the Department of Mental Health (DMH), the Board of Supervisors as the governing body over the County’s hospital and health system and other County departments that provide support services to DHS and DMH, particularly County Human Resources, the Internal Services Department, the Auditor-Controller and the Chief Administrative Office. The focus of the study was the County’s hospital and health system but the components of that system were not defined at the outset of the study. Instead, the recommended components of County government to be placed under the governance of a separate health authority were defined as part of this analysis, as discussed in Section 1 of this report. Introduction PROJECT METHODS The Analysis of Implementing a Health Authority for the Los Angeles County Hospital and Health System was conducted in accordance with Government Auditing Standards, 2003 Revision by the Comptroller General of the United States, United States General Accounting Office1. This publication provides guidance to auditors who perform audits and financial analyses of governmental entities. The standards provide an “overall framework for ensuring that auditors have the competence, integrity, objectivity and independence in planning, conducting and reporting on their work.” Methods used to complete the study included interviews with all key managers and staff at DHS and DMH and directors or representatives of the Chief Administrative Office, the County Department of Human Resources, the Internal Services Department, the Auditor-Controller, the Los Angeles County Employees’ Retirement Association (LACERA) and external stakeholders. Previous studies on alternative governance structures for the hospital and health system in Los Angeles County and elsewhere were reviewed and other jurisdictions that have established health authorities or alternative governance structures were reviewed and contacted for interviews in some cases. Budget, staffing and workload data were collected from DHS and DMH to assess the current state of both departments and for analyses of how governance by a health authority might affect operations. Key business processes were mapped and analyzed to determine if they could be streamlined under a health authority. Sample cases were reviewed from DHS’ hiring records and procurement and contracts records. The current and planned state of information technology at DHS was reviewed and analyzed. Focus groups were conducted with managers from the County’s hospitals and comprehensive health centers. Board of Supervisors’ agendas, transcripts and media coverage were reviewed from the 1990s through the present. The County’s cost allocation plan as it pertains to DHS was reviewed in detail with Auditor-Controller staff. Retirement, insurance and County asset records were reviewed and analyzed to determine the impact in these areas from conversion to a health authority. PROFILE OF THE LOS ANGELES COUNTY DEPARTMENT OF HEALTH SERVICES Los Angeles County, covering 4,061 square miles, had a recorded population of 9,871,506 persons in 2003, representing 28 percent of all Californians. This population is greater than all but eight of the 50 states in the United States according to Census Bureau data. In 2000, the Census Bureau documented that 14.4 percent of families and 17.9 percent of individuals living in Los Angeles County had incomes below the poverty level. The Los Angeles County Department of Health Services has the responsibility and obligation under California Welfare & Institutions Code to provide some level of health care to the 1 Now the Government Accountability Office. Introduction indigent and the County of Los Angeles has chosen to provide health services to the uninsured and under-insured. The following description of the Los Angeles County Department of Health Services is posted on the County’s website2: The Los Angeles County Department of Health Services (DHS) is the second largest public health system in the nation providing direct patient care and public health services for its 10 million county residents. DHS is the major source of medical care for the more than 2 million residents without health insurance and provides the vast majority of all uncompensated medical care in the county. DHS has an annual budget of more than $3 billion, employs more than 22,000 individuals and is governed by the Los Angeles County Board of Supervisors. In its 2003-04 Annual Report, the Department of Health Services described itself as follows: The Department operates the nation’s second largest public health system, with five hospitals, one multi-service ambulatory care center, six comprehensive health centers, a network of more than 100 public and private primary care clinics, and 11 public health centers. The department is responsible for providing a full range of health services, such as communicable disease control and treatment; preventive and investigative public health functions, including the prevention of infectious diseases; trauma and emergency medical care; primary, specialty, and hospital inpatient services; training of health care professionals; environmental management programs, such as restaurant inspections; substance abuse and treatment; HIV/AIDS prevention and treatment services; and enforcement of all state and county laws related to public health. The County hospital and health system and Department of Mental Health, with budgeted staff exceeding 24,000 positions, constitute a complex, organization and combined set of programs and divisions. The Department of Health Services expects to provide approximately 600,000 inpatient bed days during FY 2004-05 and to provide approximately 3.5 million ambulatory care visits across the medical, mental health, alcohol and drug and public health service programs. Patients and clients accessing services across the system may or may not recognize the various providers they encounter as members of a single system; and integration of the various programs is challenging, given the enormity of the services alone. The Los Angeles County Charter, Section 22, establishes that the Director of Hospitals as the authority under the Board of Supervisors to supervise the County’s hospitals as well as other health institutions and activities, as indicated by ordinance or law. The organizational chart of the County of Los Angeles reflects a structure where the Board of Supervisors, as established by ordinance, appoints the Director of Hospitals, currently referred to as the Director of Health Services. 2 http://lapublichealth.org/phcommon/public/unitinfo/unitdirview.cfm?unitid=68&alphalist=all 3 Introduction Fiscal Year 2004-05 Final Approved Budget Table I.1 depicts the Fiscal Year 2004-05 Final Approved Budget of the Los Angeles County Department of Health Services at the broadest level possible, based on a budget summary schedule provided by the Department. The primary categories include budgeted expenditures, budgeted revenue, the subsidy required from the County General Fund and other sources to continue to operate, and total funded positions. Table I.1 Fiscal Year 2004-05 Final Approved Budget Los Angeles County Department of Health Services ($ in millions) Comprehensive/ Commty. Health General Hospitals Centers Fund Other Total Expenditures $2,204 $205 $1,018 $45 $3,472 Revenues 1,501 110 794 6 2,410 Subsidy 1 704 95 225 39 1,063 Positions 16,660 1,694 5,897 86 24,337 Source: DHS Finance Department 1 Subsidy is defined as the required General Fund contribution to maintain operations in a fiscal year. The budgeted subsidy of the Los Angeles County Department of Health Services has grown 39 percent since FY 2001-02, when it equaled $763,744,000. This increase and the projected additional subsidy necessary when the federal waiver expires, represent what many consider to be a pending crisis in Los Angeles County. Hospitals The Hospitals budget of the Department of Health Services includes five hospital sites and one ambulatory care center that constitutes 61 percent of the entire DHS budget, an amount equal to $2.204 billion in FY 2004-05. The DHS Hospital sites range significantly in size and the scope of services provided, ranging from a Rehabilitation Center to a large County/University hospital. Ultimately, the responsibility to maintain these hospitals rests with the Board of Supervisors, which acts as the governing body of the entire Health System. In addition to the hospitals within the Los Angeles County Department of Health Services, there is an extensive network of over 100 private and not-for-profit hospitals across Los Angeles County according to the California Office of Statewide Health Planning & Development. Table I.2 Fiscal Year 2004-05 Budgeted Financial Data 4 Introduction LA DHS Hospital Locations Rancho Harbor/ MLK Jr./ Los Olive High LAC+USC UCLA Drew Amigos View Desert Total Budgeted Expenditures (in millions) $925 $409 $359 $186 $269 $57 $2,204 Budgeted Subsidy (in millions) $323 $96 $107 $68 $72 $38 $704 Subsidy as Percentage of Total Budget 35.0% 23.4% 29.7% 36.7% 26.7% 66.9% 31.9% Budgeted Positions 7,071 3,092 2,887 1,393 1,830 388 16,660 Expected Average Daily Census 745 332 204 191 171 - 1,643 Expected Ambulatory Care Visits 498,689 273,637 167,861 54,294 180,368 61,100 1,235,949 Source: DHS Finance Department Comprehensive and Community Health Centers The Los Angeles County Department of Health Services provides ambulatory health care through its regional clinics, operated by both DHS and private and not-for-profit agencies. There are over 100 clinic locations according to the DHS web site where clients can access primary care health services. A major focus of the Department has been to increase clinic visits and better integrate the clinic, specialty and inpatient systems within the County. Introduction Table I.3 Comprehensive and Community Health Centers by Region Fiscal Year 2004-05 Budgeted Financial and Expected Utilization Data by Region ($ in millions) San Southwes Fernando Antelope Northeast Coastal t Valley Valley Total Budgeted Expenditures $98 $25 $32 $33 $17 $205 Budgeted Subsidy $48 $11 $10 $15 $10 $95 Subsidy as Percentage of Total Budget 49.2% 45.5% 31.5% 46.3% 60.3% 46.4% Budgeted Positions 759 182 342 288 123 1,694 Expected Ambulatory Care Visits 397,417 108,867 145,475 125,084 52,868 829,711 Source: DHS Finance Department General Fund Units In addition to the hospital and ambulatory care services of the Department of Health Services, General Fund departments provide various public health, managed care and substance abuse services. The Department of Mental Health is not included in the DHS budget and constitutes an independent budget unit. Table I.4 displays the Final Approved FY 2004-05 Budget information for the programmatic DHS General Fund Departments. Table I.4 Fiscal Year 2004-05 Budgeted Financial Data for DHS General Fund Departments Budgeted Budgeted Subsidy % Expenditures Subsidy (in Budgeted (in millions) millions) Total Budget Positions AIDS Services $87 $16 18.3% 238 Alcohol & Drug $151 $4 2.5% 210 Children's Medical $86 $25 28.5% 953 Public Health $299 $125 41.7% 2,675 Health Svs. Admin. $261 $50 19.2% 1,440 Office of Managed Care $128 $(0) -0.1% 191 Juvenile Court Services $6 $6 98.6% 190 Total $1,018 $225 22.1% 5,897 Source: DHS Finance Department Department of Mental Health 6 Introduction The Department of Mental Health (DMH) in Los Angeles is a separate General Fund Department that is not organizationally located within DHS. DMH acts as a “purchaser” of inpatient mental health services from private and community hospitals, including four DHS hospitals. Table I.5 Department of Mental Health Budget Information Approved Fiscal Year 2004-05 Budget from County Approved Budget Document ($ in thousands) FY 2004-05 Final FY 2002-03 Actual FY 2003-04 Actual Approved Adjusted $977,014,628 $985,299,937 $1,013,876,000 Expenditures* Revenue 861,422,020 851,337,225 907,984,000 County Contribution 115,592,608 133,962,712 105,892,000 Positions 2,801.0 2,856.6 2,861.6 * Includes Intrafund transfers Source: County of Los Angeles Final Approved Budget (lacounty.info/budget.html) Proposition 63, which went into effect on January 1, 2005 will provide additional financial resources to the Department of Mental Health. Portions of allocated Prop 63 funds may ultimately support innovative and necessary mental health programs and services in other County Departments, including Alcohol and Drugs, Probation, DHS inpatient units and correctional medical care. ALTERNATIVE GOVERNANCE OF PUBLIC HOSPITAL AND HEALTH SYSTEMS ELSEWHERE In a 2002 survey by the National Association of Public Hospitals and Health Systems, only 40 percent of respondents reported that they were operated directly by their local or state government. The survey report states that local government control, “… offers little flexibility and often imposes civil service requirements, procurement rules and sunshine laws. These requirements provide health systems little autonomy, affecting their ability to plan strategically and to react proactively in competitive situations.” In California and across the United States, alternative governance structures have been established in an effort to sustain the provision of healthcare services to indigent, uninsured and underinsured persons. While a thorough comparison of other jurisdictions with Los Angeles County was not part of the scope of this 7 Introduction study, the report includes