Los Angeles County Department of Health Services July 25, 2004

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1. List of chapters. Our Understanding of the SituationInterviews ConductedGating Issues Regarding a Contracting Approach or Public/Private Partnership for KDMCPreliminary Discussions with DOC and CHWConclusions and Recommendations. 2. Our Understanding. . Navigant Consulting, Inc. (

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´╗┐Los Angeles County Department of Health Services July 25, 2004 Observations Regarding Contracting Out/Privatizing the Operations of King/Drew Medical Center S HATTUCK H AMMOND P ARTNERS LLC

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Table of Contents Our Understanding of the Situation Interviews Conducted Gating Issues Regarding a Contracting Approach or Public/Private Partnership for KDMC Preliminary Discussions with DOC and CHW Conclusions and Recommendations

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Our Understanding Navigant Consulting, Inc. ("Navigant") was locked in by the County of Los Angeles Department of Health Services (LAC DHS) starting Nov. 1, 2004, to give between time administration, evaluate and execute a turnaround plan to address significant quality issues at King/Drew Medical Center ("KDMC"), and help with selecting a perpetual administration group. Navigant finished its appraisal in February, distinguishing more than 1,000 prescribed changes and building up an activity get ready for every proposal. The profundity of the issues at KDMC, their longstanding nature and the test of enlistment in such an open emergency have made worry that the issues at KDMC might be too profoundly implanted for the present turnaround plan to prevail under the present structure or that the structure itself keeps the accomplishment of a qualified administration group. The Board of Supervisors passed a movement at their May 10 th, 2005 meeting coordinating the LAC DHS to explore the practicality of contracting with an outsider for the operations of KDMC (significantly "privatizing" the operations) as a potential reinforcement, or option, choice to the turnaround arrange right now being executed.

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Shattuck Hammond Engagement LAC DHS drew in Shattuck Hammond to audit exchanges that have happened with LAC DHS and other supplier associations; meet with DHS, Navigant, KDMC ranking staff and others to decide potential issues in regards to a KDMC outside contract course of action; survey important reports; take part in preparatory examinations with two intrigued supplier associations; and set up a composed answer to LAC DHS. After finishing our underlying arrangement of meetings with, among others, LAC DHS, and KDMC and Navigant faculty, it got to be distinctly clear that there are a progression of complex "gating" issues that the County must research before it is conceivable to continue in deciding the suitability of a contracting course of action with an outsider or other "privatizing" alternative. Consequently, it is difficult to give the Board an appraisal of the practicality of a private contracting choice by August 2 nd . We trust that the procedure to examine completely, structure, arrange and at last execute such an answer with an outsider would take six to twelve months. Subsequently, David Janssen and Dr. Garthwaite requested that Shattuck Hammond suspend our engagement subsequent to finishing gatherings with two potential accomplices and set up this outline report of our perceptions.

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Interviews Conducted Shattuck Hammond met with the accompanying people: County of Los Angeles Dr. Thomas Garthwaite and Paula Packwood (DHS Director and Chief of Staff) David Janssen and Sharon Harper (CAO and Chief Deputy) Leela Kapur, Ed Morrissey (County guide) Anita Lee, Sheila Shima and Allan Wecker (CAO, County Counsel, DHS CFO Office) Navigant Consulting Hank Wells (Interim CEO, KDMC) Kae Robertson (KDMC Project Manager) King/Drew Medical Center Tony Gray (CFO) Drew University Thomas Yoshikawa (Provost & Acting President) King/Drew Advisory Board Hector Flores, MD (Chair)

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Interviews Conducted (cont'd) also, we had exceptionally preparatory discussions in regards to a potential contracting or other key game plan for the operations of KDMC with the accompanying delegates from Daughters of Charity and Catholic Healthcare West: St. Francis Medical Center/Daughters of Charity ("DOC") Gerald Kozai (CEO of St. Francis) Conway Collis (Chief Gov't Affairs Officer for Daughters of Charity) Catholic Healthcare West ("CHW") Wade Rose (VP, Public Policy & Advocacy) Susan Hollander (VP, Public Policy & Advocacy) Gary Connor (VP, Financial Operations Group) Tom Hennessy (VP, Operations) Mary Roos (Health Management Associates, specialist to CHW) Steven Perlin (Health Management Associates, expert to CHW) Doug Elwell (Health Management Associates, advisor to CHW)

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"Gating" Issues Regarding a Contracting Approach As noted above and outlined on the accompanying pages, there are arrangement of complex issues that we trust the County must comprehend and take a position on before the plausibility of an outsider contracting approach or other organization structure can be evaluated or sought after. Lawful Issues Financial Issues Employee Issues Medical Staff Ethical Religious Directives ("ERDs") Transition of Operations to put it plainly, before the County can take part in important exchanges with different gatherings who possibly would consider contracting or banding together to work KDMC completely, the County should first have a reasonable comprehension of what lawful, money related different obstacles exist, and have an unequivocal comprehension of what its own particular destinations are in such a course of action (e.g., what wicker bin of administrations would be given and definitely what populace the private accomplice would be in charge of; what the monetary star forma for the substance would look like and what sort of budgetary hazard the County is set up to hold up under, and so on.)

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Legal/Statutory Issues Legal Issues County guide laid out for Shattuck Hammond various potential legitimate issues in regards to a potential contracting approach in view of their examination to date. Of the things they talked about with us, we trust the County's commitment under Section 17000, and the ambiguities related with that commitment, speak to a potential gating issue for the County. Under for all intents and purposes any situation in which an outsider would contract with the County to give care to the poverty stricken and Medi-Cal populaces, we think it will be vital for the County to distinguish particularly what wicker container of wellbeing administrations will be given and what populace will be secured under the agreement. Doing as such will require unequivocally characterizing the way of the County's commitment under Section 17000. A more point by point examination of the legitimate structure for an open/private organization or contracting course of action is required.

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Financial Issues Financial Issues The organizing and transaction of a practical contracting course of action or other open/private association with an outsider will require the improvement of a solid arrangement of monetary ace formas for the rebuilt operations of KDMC and in addition an evaluation of the money related effect on the County's financial plan. To fulfill this, the County should gage the amount it will pay for the administrations, and what the way of its progressing budgetary duty will be. Besides, given the condition of flux of the current Medi-Cal installment framework, and also the complexities and vulnerabilities with respect to the structure of future DSH installments, the County needs to decide the amount it will be paid later on for the care of KDMC's patients, and what affect a proposed contracting plan or other open/private structure will have on the County's financing. In light of our exchanges, we trust the proposed contract course of action should protect the private accomplice significantly from money related hazard related with the operations of KDMC. In addition, we comprehend that KDMC requires critical capital venture for conceded upkeep and additionally consistence with SB 1953 (seismic overhaul). The potential capital range is amongst $60 and $150 million. Plainly no outsider contractual worker will accept this accountability and that LAC should support this necessity.

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Other Potential Gating Issues Employee Issues Any private accomplice will require the capacity to decide on a representative by-worker premise who among the present staff at KDMC it will procure. The private accomplice should have the capacity to enlist as indicated by its own particular wage and advantage structure, outside of the common administration work framework, and the County should convey any expenses for the end of representatives not contracted by the private accomplice. Therapeutic Staff A couple of people trusted that KDMC in any frame ought to remain a scholarly related foundation. Some portion of this originates from the group history of the organization and part of this originates from the common sense of pulling in/securing doctors to KDMC. In rundown, it was evident that there should be a structure set up to secure going to doctors, and a scholarly connection may be a piece of that arrangement. Having said this, it is not clear from our dialogs whether Drew University is critical to a KDMC arrangement. One individual shared his view that a private administration and enhanced nature of care at KDMC could really help Drew University.

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Other Potential Gating Issues (cont'd) Ethical Religious Directives ("ERDs") The County ought to know that Catholic-supported associations like DOC and CHW must work their healing centers as per built up ERDs. How this may affect the administrations that could be given under a contracting or private/open association structure are vague, yet this is an imperative issue that the County must get clearness on right on time all the while. CHW noticed that it has tended to this issue effectively with various non-Catholic people group based doctor's facilities in its framework. Move of Operations Depending on what choices are made with respect to workers and restorative staff, and in addition choices in regards to the future clinical impression at KDMC, it might be important for the private accomplice generously to close the office for a timeframe and afterward incrementally re-open divisions and projects once staff have been contracted and new arrangements and pr