Critics question state funding for hospital projects.

They cite L.A. area's oversupply of hospital beds

If all goes as planned, Los Angeles County-USC Medical Center will by 2001 open a gleaming new hospital in Boyle Heights to replace four aging and earthquake-damaged facilities.

Building the new hospital is not a matter of debate. However, a partial source of funding for its estimated $1.3 billion construction cost - provided through Senate Bill 1732 - is generating controversy.

Passed into law in 1989, SB 1732 allows hospitals with Medi-Cal recipients comprising more than 30 percent of their total patient load to receive funding from the state for improvements, with an emphasis on bringing facilities up to existing earthquake codes.

The new County-USC facility, through the Department of Health Services, will receive 50 to 55 percent of the cost from SB 1732 funding, according to health services officials. That translates to $650 million to $705 million.

SB 1732 had a five-year sunset clause with the application deadline having ended on Dec. 31 1994. As many as 20 California hospitals will receive such funding, according to industry observers.

According to experts, the outlay for hospital reconstruction statewide will eventually total $2.5 billion to $3 billion. Government officials were unable last week to say how much of the funding had been distributed to date.

Altered landscape

But times have changed since SB 1732's passage. Managed care has become dominant in Southern California. And managed care's greater emphasis on outpatient treatments cut the average length of hospitalization in Southern California by 10 percent between 1989 and 1993, according to the Healthcare Association of Southern California, a Los Angeles-based trade group that represents hospitals.

The number of hospitals in Southern California has also been dropping - from 292 in 1991 to 275 in 1993. And dozens of other hospitals statewide have shut down during the past five years, according to statistics. The average occupancy rate for Los Angeles County hospital beds between March 1993 and March 1994 was 53 percent, according to the Hospital Council of Northern and Central California.

Although break-even rates differ from facility to facility, health care experts generally agree that a 60 to 65 percent occupancy rate is the financial break-even threshold for most hospitals.

Even as the shakeout continues, most industry experts agreed that between one-third and one-half of the remaining hospital beds statewide are surplus.

"It seems clear there is a surplus of beds, and hospital occupancy rates have been dropping very markedly," said Paul Torrens, a faculty professor at the UCLA School of Public Health.

Given the current scenario, several health experts have asked, where is the need to add new beds or rebuild existing ones?

"The overlying issue is not so much institutional need as the requirement to look at this from a broad public perspective, and Los Angeles County has 2.5 to three times the beds needed. It makes no sense to rebuild hospitals," said Russell C. Coile, president of the consultancy Health Forecasting Group in Santa Clarita, and author of several books on the economics of health care. "There is a broadly distributed capacity in the county, and if we closed every county facility tomorrow, the services would still be available locally without a tremendous amount of subsidy."

Harlan Menkin, president of Menkin Strategies, a consulting firm in San Diego, agreed: "SB 1732 is a bad piece of legislation, an expensive piece of legislation, and it will help to support the rebuilding of hospitals that won't be needed, with taxpayers' funds."

Prominent critics

Menkin said he came to his conclusions while doing research for San Bernardino-area private hospitals in connection with the rebuilding of San Bernardino County Medical Center, a $436 million project.

In a report on the subject, Menkin quoted several prominent industry officials critical of SB 1732, including John Mayerhofer of the Berkeley-based consulting firm New Century Healthcare Institute. Mayerhofer, who is considered one of the state's foremost authorities on hospitals, did not return phone calls seeking comment.

Menkin was concerned enough about the subject to send a memo to state Treasurer Matt Fong last March, urging the repeal of the legislation. Fong spokesman Start Devereux acknowledged receiving Menkin's memo, but declined direct comment. "We get a lot of memos," he said.

Kent Johnson, vice president of finance for the California Association of Hospitals and Health Systems, a Sacramento-based trade group, acknowledged that there has been serious debate among CAHHS members over SB 1732 funding. But Johnson noted that it is a "very complex issue."

"There are a lot of reasons for thinking this type of funding is inappropriate, and a lot of reasons for such funding to occur. Both sides have valid points," he observed.

Pro-funding stance

Officials with the Los Angeles County Department of Health Services, which operates County-USC, discounted the anti-funding arguments.

"We're downsizing from 2,000 beds to 946. I would hardly call that an expansion of unneeded beds," said Larry Colvin, the project's director of facilities and implementation. "We'll actually be saving money because we'll be far more efficient."

Harvey Kern, a County-USC spokesman, noted that the hospital takes in patients that private facilities would rather avoid: "The facilities in our community won't take care of our patients. We take care of neonatal patients in the intensive care unit. We take care of very-high-acuity patients, patients with severe cases of trauma. This is a tremendous community resource, and it never ceases to amaze me."

While UCLA professor Torrens agreed with the anti-SB 1732 argument in principle, he also said he believes reconstructing the hospitals is more responsive to the health care needs of the public.

"It's difficult for the county to turn its patients over to someone else," he said. "Not so many of the private hospitals want the county stuff because the patients are not necessarily insured. Instead of downsizing like the private hospitals, the county facilities are getting more and more crowded all the time."