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HomeMy WebLinkAboutMINUTES - 07172001 - D.2 ' TO:- BOARD OF SUPERVISORS �£'s ` Contra FROM: JOHN SWEETEN, County Administrator 1 a R,Stt•. Costa .t, DATE: JULY 17, 2001 •,e _ County SUBJECT: RESPONSE TO GRAND JURY REPORT NO. 0103 ENTITLED "HEALTH SERVICES FINANCIAL MANAGEMENT PERFORMANCE" SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOMMENDATION: ADOPT report as the Board of Supervisors' response to Grand Jury Report No. 0103 entitled, "Health Services Financial Management Performance". BACKGROUND: The 2000-2001 Grand Jury filed the above-referenced report on May 29, 2001, which was reviewed by the Board of Supervisors on June 5 and subsequently referred to the County Administrator and the Health Services Director, who prepared the attached response that clearly specifies: 1. Whether the finding or recommendation is accepted or will be implemented; 2. If a recommendation is accepted, a statement as to who will be responsible for implementation and a definite target date-, 3. A delineation of the constraints if a recommendation is accepted but cannot be implemented within a six-month period; and 4. The reason for not accepting or adopting a finding or recommendation. CONTINUED ON ATTACHMENT: YES SIGNATURE: ,/iiCOMMENDATION OF COUNTY ADMINISTRATOR RECOMME ATION OF BOARD COMMITTEE ✓APPROVE OTHER 4 \ SIGNATURE(S): ACTION OF BO D N July 17, 2001 APPROVE AS RECOMMENDED OTHER XXX The Board AD TED the response to Grand Jury Report No. 0103 "Health Services Department Financial Management erformance"; and DIRECTED the County Administrator and Health Services Director to provide opportunities to meet with the Grand Jury for future discussions. VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN XX UNANIMOUS(ABSENT -------- ) AND ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE AYES: NOES: SHOWN. ABSENT: ABSTAIN: ATTESTED July 17, 2001 CONTACT: JULIE ENEA(925)335-1077 JOHN SWEETEN,CLERK OF THE BOARD OF SUPERVISORS AND COUNTY ADMINISTRATOR CC: PRESIDING JUDGE OF THE SUPERIOR COURT COUNTY ADMINISTRATOR HEALTH SERVICES DEPARTMENT BY 1t)!A1t4*- PUTY Response to the Contra Costa Grand Jury Report No. 0103 Health Services Department Financial Management Performance Finding 1: The fiscal year 1999/00, the Health Services Department exceeded its authorized budget by approximately $10 million, requiring augmentation by the Board of Supervisors from the General Fund. This budget overrun was equivalent to approximately 22% of the funding already supplied from the County's General Fund to the Health Services Department. Response: Disagree. The finding is factually erroneous. The Department did not exceed its authorized budget. The Adopted 1999/2000 Budget for the Health Services Department authorized an expenditure amount of $484.6 million, offset by $439.2 million in revenue and a County General Fund contribution of $45.5 million. The Department operated within that budgeted amount and ended the fiscal year with a surplus of$127,000. It is important to note that in the last 18 years, the Department has never had a negative mid-cycle budget surprise. The budget issues are identified well in advance and presented to the County Administrator's Office and the Board of Supervisors for policy discussions and deliberations during the budget hearings. Upon adoption by the Board of Supervisors, the Department aggressively pursues the budget goals adopted by the Board of Supervisors. Finding 2: In fiscal year 2000/2001, the Health Services Department anticipates a budget overrun in excess of $17 million that will also need to be satisfied by diverting General County funds from other uses. This budget overrun is equivalent to approximately 30% of the funding already supplied the Department from the County's General Fund. Response: Disagree. The finding is factually erroneous. The Department does not anticipate a budget overrun. In preparation for budget deliberations for the FY 2000/01, the Department advised the Board of Supervisors during a special workshop at a regular public meeting on March 28, 2000 of a potential $10.4 million funding need that would occur in the 2000/01 fiscal year. This early reporting of anticipated budgetary needs is part of the responsibility of the Department's financial management team, and enabled the Board to make informed decisions regarding priorities for funding in the FY 2000/01 budget. A detailed summary of the workshop is included in our response to Finding No. 8, however, the major highlights of the presentation included: A discussion of the cost of providing care to uninsured patients A review of the County General Fund contribution to the Department. A discussion of how the Department has been dealing with shortfalls of one nature or another for the past ten years due to the lack of a State and National Health Care Policy Working with the Department and the County Administrator, the Board of Supervisors adopted a realistic budget for the Health Services Department under very limiting funding constraints, and the Department successfully operated within the budget established by the Board of Supervisors. Finding 3: Expectations by the Health Services Department indicate funding from Federal and State sources will not increase sufficiently to keep up with escalating health care costs or may even decrease. Response to Grand Jury Report 0103 Page 2 Health Services Department Financial Management Performance July 17, 2001 Response: Agree. Financing for indigent and uncompensated care has not been adequately addressed at the State and federal levels. As long as the County is mandated under Section 17000 of the Welfare and Institutions code to provide health care services, it will struggle with obtaining appropriate financing for the health care needs of its residents. Finding 4: The Health Services Department anticipates demand for its services will continue to increase as the county population and in-migration to the County increases. Response: Agree. In a report issued by the California Association of Public Hospitals (CAPH) in April 2001, it was reported that 54% of all hospital outpatient visits by uninsured patients occur at public hospitals and health systems. As the population of the County continues to increase and as the State economy continues to slow, it is probable that more residents will rely upon the County Hospital and Clinics System to provide their health care. Finding 5: The following table reflects findings of actual and budgeted dollars for the Health Services Department from the County's 2000-2001 budget - proposed by the Department, recommended by the Finance Committee and approved by the Board of Supervisors for expenditures from the County's General Fund. (Detailed explanations for each budget unit are contained in the County Budget documents). See Grand Jury Report for table. Response: Partially disagree. Portions of the table are factually incorrect. The column entitled 'Actual 1998-1999' does not sum correctly. While the table purports to display Net County Cost, in fact Net County Cost and Gross Appropriations are co- mingled in several instances. For example, total expenditures (in millions) for the Homeless program in 1999-2000 was $2.2, while the Net County Cost was $0.8, not $2.2 as indicated in the table. The following table contains the correct figures from the County's books. Net County Cost ($ in millions) Final Budget Final Budget Final Budget Description 1998/99 1999/2000 2000/01 Detention $ 6.5 $ 7.2 $ 7.1 Public Health $11.6 $ 11.9 $11.9 Conservatorship $ 1.0 $ 0.9 $ 1.0 Environmental Health $( 0.1) $ 0.1 $ 0.1 CCS $ 1.1 $ 1.1 $ 1.0 Enterprise Subsidy $13.8 $ 17.8 $29.5 Substance Abuse $ 1.5 $ 1.4 $ 2.1 Mental Health $ 3.2 $ 4.1 $ 4.6 Subtotal $38.6 $44.5 $57.3 Homeless Programs $ 0.8 $ 0.8 $ 1.7 HSD Total $19.4 45.3 59.0 Response to Grand Jury Report 0103 Page 3 Health Services Department Financial Management Performance July 17, 2001 Finding 6: There is a pattern of substantial and continuing increases in the County's net cost to support the Health Services Department. The Approved Budget for FY 2000-2001 increased by 126% over Actual Expenditures of two years ago and increased by 66% over the last fiscal year when the projected $17 million budget overrun is included. Response: Partially disagree. The numbers cited by the Grand jury are factually incorrect. The following table identifies the Gross Appropriations and the Net County Cost (NCC) (excluding the Homeless Program) for the years in question. Fiscal Gross NCC as a Percent Year NCC Appropriations Gross Appropriation 2000/01 $57,302,529 $524,452,057 10.93% 1999/00 $44,515,256 $482,416,290 9.23% 1998/99 $38,479,589 $465,326,778 8.27% The establishment and funding of budget priorities is the jurisdiction of the Board of Supervisors. The Board of Supervisors acknowledges both the trend of increasing County General Fund support for health services and the lack of commitment at the State and federal levels for financing health care. Additionally, the Board recognizes the need to control operational costs, but also places a high priority on providing quality health care to County residents. The increases in net County costs reflect cost- of-living adjustments for County staff and Community Based Organizations, increases in employee benefit costs such as retirement and group insurance, increases in the cost of pharmaceuticals and other medical supplies, increased usage of Institute for Mental Disease (IMD) beds, augmented Board and Care Homes due to the lack of viable alternative facilities within the County, and increases in overhead charges from General Services, Human Resources, and Data Processing. Finding 7: The "Proposed" budget as submitted by the Health Services Department for FY 2000- 2001 was reduced by $6.3 million or a reduction of approximately 11 % compared to the budget approved by the Board of Supervisors. Response: Partially disagree. The Finding does not include an explanation of the reduction. The $6.3 million reduction in "proposed" subsidy represents the difference between the amount the Health Services Department requested in additional financing and the amount the Board of Supervisors agreed to fund. The variance was addressed through the Department's balancing plan, approved by the Board, which included such items as closing the Home Health Agency, implementing the Nurse staffing program at the Regional Medical Center, and other actions delineated in our response to Finding No. 8. Finding 8: The Health Services Department Budget anticipates an overrun of $17 million for FY 2000-2001. This represents an increase of 29% over its approved county portion of the budget. Response: Disagree. The Department does not anticipate an overrun of the 2000-2001 budget and is operating within the Board-approved budget. To reiterate our response to Finding No. 2, the Health Services Department identified budget issues in March 2000 and was directed to return to the Board with a plan to cut costs. The plan comprised the following actions: Response to Grand Jury Report 0103 Page 4 Health Services Department Financial Management Performance July 17, 2001 On June 21, 2000, the Contra Costa Home Health Agency was closed. On August 1, 2000, the Department entered into a contract with Crestwood Behavioral Health Care for skilled nursing services to transfer patients from facilities called Institutes of Mental Disease as a cost saving measure. Other cost containment efforts in the Department to ensure a balanced 2000/2001 budget by year-end included: (a) Strict adherence to hospital and health center staffing guidelines (b) Limited use of overtime and registries (c) An ongoing review of Purchasing practices such as: 1. Renegotiated the Professional Hospital Supply agreement (est. annual savings of$100,000). 2. Expanded the recycling program to include glass, plastics and cans to reduce disposal fees (est. annual savings of$20,000). 3. Renegotiated purchasing agreement for Intravenous Solutions (est. annual savings of$20,000 per year). 4. Reviewed major equipment maintenance agreements to ensure no unnecessary coverages were being purchased. 5. Implemented a "Just In Time" forms inventory system (est. annual net savings of$20,000, plus hospital now has use of 3,000 sq. ft. of space previously used to store forms on-site). 6. Reviewed and verified that the hospital's current group purchasing agreement for pharmaceutical supplies continues to result in the lowest pricing available to the hospital. (d) A continuance of the targeted hiring freeze (in place for eighteen months) (e) Implementation on October 1, 2000 of a Nurse Management system based on patient acuity The 2000/2001 First Quarter Budget Report to the Board of Supervisors indicated that the Department was on track for meeting the budget goals. The 2000/01 Second Quarter Report indicated the same, and the May 2001 Third Quarter Report validated the Department's efforts. Finding 9: The Audit Trail Listings (a detailed listing of all budget items) for the Health Services Department for FY 2001-2002 Budget reflects the overwhelming majority of line items are subject to an across-the-board cost increase based on inflation with no reason given. Response: Partially disagree. The 2001-2002 budget has not been published; therefore, we must assume the findings actually refer to the 2000-2001 budget year. The purpose of an annual budget cycle is to review and adjust as necessary budget line items based on known factors at the time the budget is prepared. During annual budget deliberations, the County Administrator's Office reviews the Health Services Department's budget requests in detail and the Board of Supervisors reviews them at a summarized level focusing on program needs Countywide. It is not unusual for the County to adjust most, if not all, line items during the annual budget process. Conclusions 1 The Health Services Department is a very large and complex organization, with many programs and responsibilities. Continuous budget overruns of the magnitude experienced in the last two years cannot be sustained without damaging other important activities, services, and infrastructure for which the County is also responsible. Response to Grand Jury Report 0103 Page 5 Health Services Department Financial Management Performance July 17, 2001 Response: The Health Services Department has very little discretion in setting the priorities for the services it delivers. The County has a legal mandate to be the safety- net provider of health services to the community. This responsibility is the major distinction between the public healthcare system and the private healthcare industry. When the cost of a good or service (e.g., prescription drugs) exceeds the reimbursement the County receives, the County does not have the option afforded to the private health care industry of denying the good or service. The County may not remove itself from unprofitable lines of business. The County is, in fact, the provider of these types of services, to the very recipients whom private organizations often choose not to serve. The Grand jury, throughout its report, refers to "budget overruns', implying that the difference between the Health Services Department's income and expenditures increases during the year beyond what was initially budgeted. This is not correct, as the fiscal year progresses, expenditures are adjusted to stay within budget levels. In addition, revenues and grant opportunities are aggressively pursued to both enhance the delivery of health services and minimize the obligation for health care costs to the County General Fund. Conclusion 2• The Grand Jury could find no significant effort by the Health Services Department to critically examine its internal organizational structure and processes, maximize the recovery of the reimbursable costs from Federal and State sources and from clients who are not entitled to free services, reduce costs and provide services within the Approved County Budget. Response: To the Board's knowledge, the Grand Jury neither interviewed nor requested information from the Health Services Director, the Chief Executive Officer of the Hospital, the Chief Executive Officer of the Health Plan, the Mental Health Director, the Public Health Director or the County Administrator. Given the opportunity, these individuals could have informed the Grand jury that the Health Services Department management team meets on a weekly basis to review and balance the needs of an underserved and medically needy population against the limited financing available from local, State and federal levels, within the parameters set by the Board of Supervisors. The County and the Department are mandated by Section 17000 of the Welfare and Institutions Code to "...relieve and support all incompetent, poor, indigent persons and those incapacitated by age, disease or accident, lawfully resident therein, when such persons are not supported and relieved by their relatives or friends, by their own means, or by State hospitals or other state or private institutions." The Health Services Department's management team understands the challenge of carrying out this mission with less than adequate funding. Past requirements to close facilities and curtail needed services instilled throughout the organization an acute awareness of the need to regularly review areas for quality and cost improvement potential to ensure that scarce dollars are used effectively. Among other things, the Department has streamlined its purchasing process; modified its physician pay plans; implemented a nurse acuity system, a pharmacy care management system and numerous automated systems to more effectively deliver needed medical services. Conclusion 3: The Health Services Department is relying almost totally upon Federal and/or State Governments for a solution to the financial crisis and may be discouraging efforts to Response to Grand Jury Report 0103 Page 6 ' Health Services Department Financial Management Performance July 17, 2001 look within itself for discretionary cost saving measures to eliminate annual budget overruns. Response: See response to Conclusion No. 2. Conclusion 4: It seems clear that the Health Services Department will not be able to continue providing the level of health services they now do without causing significant budget reductions in other critical county activities, services, and infrastructure. The inevitable alternative would be to raise county taxes. Response: See response to Conclusion No. 1. In addition, the Board of Supervisors has little control over the level of tax proceeds and no ability whatsoever to raise "county taxes". Proposition 13 fixes property taxes, the major source of County revenue, to a 2% per annum increase in valuation. Increases in other taxes or the levying of special assessments must be approved by a two-thirds majority of the voters. Like most County departments, the level of services provided by the Health Services Department is directly related to population size and demand for services. We can expect, therefore, that as the County's population increases, the cost of providing services to this population will increase accordingly. However, as long as the two increase at approximately the same rate, a larger tax base should ensure that a given individual's taxes will not be affected by increased service volume. If revenues continue to decline while costs increase, the conclusion will likely be correct. Conclusion 5: The Health Services Department has not scaled back departmental costs to a level that can be reasonably met within existing and anticipated funding from Federal, State and County sources. Response: The Health Services Department balances its service delivery on an annual basis based upon the variable funding available at the State, federal and local level. The Department works closely with the County Administrator and the Board of Supervisors throughout the year to identify potential budget concerns and seek guidance and affirmation of the Board's direction. Recommendation 1: Initiate a comprehensive management audit of the Health Services Department by an independent firm. This independent management audit should focus on operational and organizational effectiveness. Response: The recommendation requires further analysis. All things being equal, any organization can benefit from qualified independent reviews of efficiency and effectiveness, provided they are targeted and strategic, and provided that resources are available and costs are reasonable. Further analysis of this recommendation may lead to specific programmatic reviews. However, limited County resources prevent the Board of Supervisors from ordering wholesale audits of County departments and programs without a competent demonstration of specific problems. The Health Services Department has utilized a number of independent firms to review service areas it has identified as high cost or low productivity areas. Recent examples include: ➢ A six-month operational effectiveness review of the Richmond Health Center was recently completed by Results Corportation. As a result, Rapid Action Response to Grand Jury Report 0103 Page 7 Health Services Department Financial Management Performance July 17, 2001 Teams have been put in place to address issues such as staffing levels, the registration process, Nurse and Doctor teams, medical supply preferences, etc. ➢ An assessment of the scheduling flow of the Operating Room as made by William M. Mercer, Inc., and changes were subsequently made to improve patient care and to fully utilize available resources. ➢ William M. Mercer, Inc., also assisted the Hospital in providing the appropriate number of staff for rendering anesthesiology services. A review of the Department's case management activities was recently conducted by Vivian Rittenhouse (C & R Healthcare Associates) with suggesied changes to the way services are delivered. Recommendation 2: Perform the management audit in logical organizational parts so that implementation of any change would not be delayed pending completion of the total audit. Response: The recommendation requires further analysis. See response to Recommendation No. 1. The Health Services Department will continue to utilize management reviews on a selective basis where the potential cost savings outweigh the expense of a consultant firm. Recommendation 3: Approve a realistic budget for the Health Services Department and require the Department operate within that budget. Response: The recommendation has been implemented. The Department has always operated within its Board-approved budget. Recommendation 4: Require the independent audit firm make quarterly oral and written presentations to the Board of Supervisors until the Health Services Department is operating with the approved budget. Response: The recommendation will not be implemented because it is not warranted. The recommendation is based on the faulty premise that the Department does not operate within its approved budget (see responses to Findings 1 and 2). The County Administrator currently makes quarterly reports to the Board on the status of the County budget, all major departments, and all departments that deviate from the established budget plan. These reports provide an early warning signal for potential problems in future periods and allow the Board to continually assess its priorities. Recommendation 5: Consider requiring the Health Services Department utilize "zero-based" budget justification procedures in preparing its Proposed FY 2002-2003 Budget to assist in identifying those line items requiring reduction and/or controls in order to operate within its authorized budget. These "Zero-based" budget justification procedures require each line item of the budget be reduced to zero and any proposed expenditure be fully justified as to need and amount. Response: The recommendation will not be implemented because it is not warranted and would decrease the efficiency of the budget process. Zero-based budgeting is a time-consuming approach to budgeting practiced widely in the late 1970s and early 1960s, but later abandoned by most governmental agencies because of its inefficiency. In the case of the Health Services Department, 'zero based budgeting' would require the analysis of over 30,000 budget line items supporting programs and activities that Response to Grand Jury Report 0103 Page 8 Health Services Department Financial Management Performance July 17, 2001 are predominantly mandated. Instead, the County reviews multi-year expense and revenue trends in an effort to identify, clarify and justify expense and revenue projections that are inconsistent with our trend analyses.