A partnership forged between San Luis Obispo County and a nonprofit health-care agency to provide medical services for thousands of underinsured residents may be in jeopardy.

“Today marked a very negative milestone,” Ron Castle, Community Health Centers of the Central Coast chief executive officer, said on Monday after the first day of the county’s 2011-12 budget hearings.

Under the proposed $449.6 million budget, CHC is facing a budget cut of $800,000, which could lead to reduced services, clinic closures and the loss of a “safety net” for the county’s medically underinsured, according to Castle.

After the county closed San Luis Obispo General Hospital in 2003, the then-Board of Supervisors contracted with CHC the following year to operate the six county-run health clinics.

Part of that initial five-year contract with CHC, which was recently renewed, included the agency taking over medical care of individuals who qualify for services under the County Medical Services Program, otherwise known as CMSP.

State law requires that California’s numerous counties ensure medically indigent adults — low-income individuals between 21 and 64 who qualify for medical services under federal guidelines — are provided with care at a cost borne by each individual county.

When the partnership with CHC was initially formed, the county underwrote the agency $5.1 million for the contracted services.

That amount has been reduced by $2 million over the years, and the recommended budget for CHC for this fiscal year is $2.2 million, which only would cover the cost of caring for CMSP patients.

Castle said the health agency can no longer afford to backfill cuts the county has consistently made to CHC’s budget and still provide the level of service that it does for those who don’t qualify for CMSP.

“We have to provide care, but we are not at a point where we can operate at a deficit,” Castle said. “We know we will be impacted (with these cuts).”

In the 2003-04 fiscal year, CHC had 100,000 patients. Today, that number has increased to more than 180,000 uninsured and underinsured individuals.

“They were able to grow significantly with our grants,” said Jeff Hamm, county Health Agency director.

Funding that the county provides to CHC every year isn’t a fee for the services that the nonprofit delivers but rather a grant.

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“They keep the clinics open and provide the services,” Hamm said about the county’s contract with CHC.

Castle maintains that if the county slashes its funding to CHC, several thousand county residents would be left without the medical safety net the county promised to provide when it closed General Hospital, and that CHC will be forced to reduce services and close clinics.

“You need to understand what is at stake here,” Castle told the supervisors. “It’s not just about CMSP. There are people here that will fall through the cracks.”

County officials seem to believe that CHC hasn’t taken steps to reduce operating costs, as the county has done during the last five budget cycles and plans to continue for at least the next two fiscal years.

Supervisor Bruce Gibson questioned how a $1 million budget cut would force CHC to close clinics and cut back on services when the agency has a multimillion dollar operating budget and Castle’s annual salary is almost $300,000.

“I have a really hard time believing that CHC has made efforts to reduce patient costs,” Gibson said.

CHC has an annual operating budget of about $60 million and also operates clinics in Santa Barbara County. Grants from the county equal about 5 percent of CHC’s 2010 budget.

Castle said the discussion shouldn’t be about his salary or CHC’s operating budget but about the “county’s failure to follow up on patient care.”

“We are the good guys here,” he said. “You have slashed our budgets and we’ve maintained the services.”

Five percent of CHC patients are covered by CMSP, with the majority covered by CenCal Health Medi-Cal. That group makes up 40 percent of the nonprofit’s patients.

The supervisors tentatively approved the recommended $2.2 million budget and directed Health Agency staff to negotiate with CHC how to proceed. The current $3 million contract with CHC expires in three years.

“We didn’t go into partnership to run CMSP,” Castle said after the hearing. “We did it to provide a home for (the county’s) patients. We need to take a hard look and see if this relationship is good for our organization.”

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