Government funding cuts pose big threat to Queen of Angels.

On the face of it, Queen of Angels/Hollywood Presbyterian Medical Center belies the stereotype of an inner-city hospital catering chiefly to Medi-Cal, Medicare and indigent patients.

Rather, it's the picture of a modern, thriving health care facility: The hallways are as highly polished as patent leather the rooms newly painted, the staff quietly friendly and competent and the equipment state-of-the-art.

"We have the best radiology department in the county, bar none," says hospital president Robert Steward.

In fact, Queen of Angels is one of only a handful of health care facilities in the county that has digital filmless X-ray technology. But as healthy as the 70-year old Queen of Angels looks, even with a bottom line displaying rosy-looking net income levels, it's living on borrowed time.

A significant part of its revenue comes from what are known in the health care business as "dish" funds. These funds are intergovernmental transfers - a blend of state and federal monies - disbursed annually to hospitals designated as Disproportionate Share Hospitals (DSH) because they take care of disproportionately high numbers of low income patients.

Problem is, those funds are slated to be discontinued in two years because of government cuts.

"They're going to be in a lot of trouble when that happens," said Jim Lott, senior vice president of the Healthcare Association of California, a trade group the represents hospitals and integrated health systems.

For the last three years, Queen of Angels has received about $20 million annually in DSH funds, more than six times the hospital's 1996 estimated net income of $2.9 million.

Seven years ago the hospital was in dire financial shape and DSH funds were at least partly responsible for keeping it in business, administrators said.

The funds were also used to buy the hospital's high-tech medical hardware.

"We're hoping that there'll be 'son of dish,'" Steward said, "because if this facility were to close it'd be devastating to the surrounding community."

An estimated 750,000 people live within a three-mile radius of the hospital, located at the comer of Vermont and Fountain Avenues in the heart of east Hollywood. Sixty percent of the hospital's patients are on Medi-Cal and over 30 percent are on Medicare.

Queen of Angels is also one of the few stand-alone hospitals left in the county, unclaimed in the recent wave of hospital acquisitions in Los Angeles County.

"It's going to be very tough for any stand-alone to survive in Los Angeles in the long term," said Steve Balalian, chief operating officer of Centinela Hospital Medical Center itself recently acquired by a large national health care corporation. "Hospitals need to be part of a network. They need the economies of scale."

Despite the pessimistic prognosis, Steward and hospital chief executive officer Sy Graff have a plan that they said can help the hospital have a healthy future. In response to the state government's plan to shift all Medi-Cal patients into managed care, Queen of Angels/Hollywood Presbyterian is starting up its own HMO, the Care 1st Health Plan.

"We're a volume business here," noted Graff, "so we need to capture a large number of patients into our HMO who will then designate our doctors and our hospital as their choices."

Graff estimates that Care 1st needs to sign up 250,000 Medi-Cal patients and the hospital must maintain an in-patient occupancy rate of above 70 percent if it is to survive. Currently, occupancy rates countywide average less than 50 percent, but for the past four years Queen of Angels has kept their rate at or above Graff's 70 percent target.

While Queen of Angels/Hollywood Presbyterian doesn't have the sophisticated network of clinics that Centinela Hospital has (see related article), for the last four years it has been developing a de facto network of low-cost clinics.

The Greater Hollywood Health Partnership, a network of more than 20 churches, serves over 35,000 patients yearly charging $10 for doctor's appointments, X-rays, all lab tests and prescriptions.

The program has given the hospital a high visibility among the area's large Latino, Armenian and Asian populations and may tip the balance when Medi-Cal HMO patients make their choice of a hospital.

"What makes a hospital like this survive is the nuts and bolts work they do," said Lois Friss, Ph.D. a now-retired professor of the School of Public Administration at the University of Southern California and author of a recent study on hospital economics.

At A Glance

Queen of Angels/Hollywood Presbyterian Medical Center

Founded: 1924 Queen of Angels, 1926 Hollywood Presbyterian.

No. of doctors on staff: 700 Net income 1995: $3.1 million Net income 1996 (est): N/A DSH(*) funds 1996 (est): $20 million

* Disproportionate Share Hospitals. DSH funds are federal and state monies given to hospitals that treat a disproportionate share of poor and uninsured patients.