In 1995, Los Angeles County faced one of the most serious fiscal crises of any county in the United States. The culprit: ballooning costs from a government-run health care apparatus that included six hospitals and 39 health centers and clinics. New York City- -which owns a dozen hospitals and employs more health care workers than the total number of city employees in Boston, Cleveland, San Diego, and Seattle combined--is also experiencing major problems with its health care system.
Maricopa County, Arizona, supervisors think they have a cure: getting county government out of the health care delivery business. In what could become a model for other troubled city and county health care systems, Maricopa County--which includes Phoenix--privatized its entire $620 million-a-year health care system in late March. The county hospital and a dozen clinics were turned over to S.K. Ching and Associates, a private firm based in Los Angeles.
Maricopa County had spent about $46 million a year on direct health care costs and millions more on indirect costs, but generated only $26 million in revenue. Under the terms of the contract, Ching will pay $12.5 million a year in rent for the Maricopa Hospital and the clinics and will receive a fee of $33 million a year to provide care for the uninsured poor. The contract also allows the county to share in any year-end profits. Tom Rawles, the county supervisor who spearheaded the privatization efforts, estimates the county could save between $80 million and $100 million over the life of the lease without lowering service quality. The savings would come from reducing the county's indirect costs and from the profit-sharing arrangement. "The same people will go to the same facilities and will be treated by the same doctors," says Rawles. "The only thing different is that we have found a new, a better, more efficient way to deliver services."
The county also expects the contract to lead to substantial physical improvements to the health care facilities. Ching has to make $25 million in capital improvements over a five-year period. The firm will have total control over the county's health operations, enabling the company to set fees, close programs, and negotiate purchases free from a host of cumbersome public-sector bureaucratic and legal restrictions. "It took us six weeks and six signatures just to hire a nurse," says Rawles. "Government can't move fast enough to be in the health care business."