HEALTH CARE SYSTEM SINKING AUDIT PROJECTS $841 MILLION DEFICIT BY 2007.

Byline: Troy Anderson Staff Writer

Los Angeles County's health department will be hard-pressed to reduce an $841 million deficit expected by 2007, according to a state audit released Thursday.

The state Auditor's Office issued the grim forecast in spite of the health department's $185 million surplus this year, the passage of a voter-approved property tax last November to support health services, and recent state and federal government bailouts.

County Supervisor Zev Yaroslavsky said the audit confirms that, despite service cutbacks and other actions the county has taken to trim health spending, more federal money will be needed to continue caring for millions of people.

``It's another way of saying the county health system is not out of the woods and will be perpetually in the woods until there is a permanent solution to the fiscal challenges it faces,'' Yaroslavsky said.

``The feds are going to demand that we make our system more efficient, end duplication of services, focus on patients and not make the health department an end to itself, as an employment program,'' Yaroslavsky said.

He said the county has to downsize Martin Luther King/Drew Medical Center without cutting services, cut 100 beds at County-USC Medical Center and spin off Rancho Los Amigos National Rehabilitation Center as a nonprofit facility.

In 2001, when the Department of Health Services began a series of 21 budget-cutting proposals, it estimated the reductions would result in annual savings of $358 million by 2005. To date, the health department has made 15 of those cuts, saving $38 million in the last fiscal year, state Auditor Elaine Howle wrote.

The actions include converting High Desert Hospital in Lancaster to an outpatient clinic, closing 16 health clinics, making public health and administrative cuts and reducing payments to 100 private clinics.

But because of preliminary injunctions issued by a federal judge, the county has been barred from closing Rancho Los Amigos in Downey and cutting beds at County-USC.

The county has appealed the judge's orders preventing the closures. County officials have been in negotiations with the law firms that filed the lawsuits, but Yaroslavsky said those talks have stalled.

``The county cannot allow this injunction to stand,'' Yaroslavsky said. ``We think it will not only have adverse implications for the county's health system, but the private health system as well.''

Even if the department is able to successfully make all the proposed cuts, it will still face a budget deficit of $345 million in 2006 - growing to $768 million in 2007 - mostly because of the expiration of $900 million in federal bailout funds in 2005, Howle wrote.

Kathryn Barger, chief of staff to Supervisor Michael D. Antonovich, said the county is waiting for the state to release a report that would allow the county to negotiate with the federal government for more flexibility on a reimbursement program aimed at making up the shortfall for hospitals that treat indigent and uninsured patients.

Also, the county is working on legislation in Sacramento and Washington, D.C., that would allow the county to use its $3.3 billion in funds in more creative ways, focusing more on providing outpatient care to the county's 2 million uninsured residents rather than waiting until they get so sick they show up at much more expensive hospital emergency rooms.

Troy Anderson, [phone]

troy.anderson(at)dailynews.com