Santa Cruz County health agency proposes ending in-house X-ray and most phlebotomy services to close budget gap

Santa Cruz — County Health Services Agency (HSA) officials presented a proposal June 10 to reorganize clinic laboratory and radiology services, saying rising operating costs are outpacing revenue and that outsourcing some services is needed to keep core primary and behavioral health clinics open.

HSA Interim Director Jen Herrera told the Board of Supervisors the county’s federally qualified health centers (FQHCs) serve more than 13,000 patients and delivered about 100,000 appointments last year, but revenues — largely paid through a bundled FQHC prospective payment (PPS) rate — have not kept pace with salary and supply cost increases. "Our expenses for healthcare services are outpacing our revenues," Herrera said. "This proposal is one of multiple tactics to increase our efficiency and our sustainability." (Jen Herrera, interim director, Health Services Agency; first referenced 4982.25s)

Why officials proposed changes

HSA said changes would preserve the agency’s core mission — comprehensive, affordable primary and integrated behavioral health care — by reducing overhead tied to maintaining in-house radiology equipment and expanded phlebotomy staff. The agency proposed keeping CLIA‑waived point‑of‑care testing and maintaining agreements with commercial laboratories and imaging providers for more complex testing and X‑rays, while reducing on‑site specimen‑collection staff so outside labs bill directly for those services.

Officials gave numbers: the county performed roughly 2,270 X‑ray exams and 15,027 lab draws in fiscal 2023–24. The combined radiology program costs are about $525,000 a year; laboratory costs total about $1.5 million annually. HSA said 71% of those costs are salaries and benefits. Staff also reported 2 full‑time radiology positions and 5.6 lab FTEs across the two health centers. (Raquel Ramirez Ruiz, senior health services manager; Julian Wren, administrative services manager; first referenced 5334.56s, 5768.105s)

Labor and clinician concerns

Several county clinic staff and labor representatives opposed the plan during the required public hearing under state law. Jeff Zajac, a senior lab assistant (phlebotomist), said county phlebotomists perform work beyond draws and are a flexible response resource in outbreaks and disasters; he warned privatizing those jobs would reduce accountability and claimed the budget proposals were a step toward privatization. "This is an undercover way of attacking our social equity by privatizing our so‑called lab," Zajac said. (Jeff Zajac, senior lab assistant, Health Services; first referenced 6151.005s)

Other clinicians asked whether the net $2 million annual savings HSA cited accounts for lost clinic visits and downstream revenue if patients stop coming because they must travel elsewhere for imaging or routine draws. "What if this savings of $2,000,000 costs us much more in lost revenue?" asked a county clinician. Several union representatives warned that experienced, long‑tenured phlebotomists and radiology staff would be hard to replace via contractors and that the county would lose disaster‑response capacity. (Jason Johnston, clinician / Union member; Liam McLaughlin, Local 521; first referenced 3153.2048s, 6430.215s)

Implementation and mitigations

HSA said it is negotiating partnerships with commercial laboratories and imaging providers to preserve patient access, maintain an electronic interface so results flow into medical records, and help with transportation through existing vouchers and the Central California Alliance for Health. The agency said it will prioritize coordinating scheduling and referrals and will explore on‑site specimen collection done by commercial labs. Personnel said the county has offered affected employees placement assistance and that some positions may be filled elsewhere in county government; personnel director Ajita Patel said several placements were in process. (Ajita Patel, personnel director; first referenced 7617.06s)

HSA acknowledged a potential gap while contractors ramp up. "We might have about a month where there'll be a gap between continuity of those services," Dr. Sandoval (behavioral health representative) told supervisors; she said staff are planning protocols to avoid disruption of critical care during the transition. Herrera and staff said the change is one of several steps being taken to stabilize the division’s finances. (Dr. Sandoval, Behavioral Health; first referenced 4350.3447s)

Board and next steps

Supervisors questioned alternatives and asked staff to document other options tried, including partial staffing reductions and bids for contracted services. Several supervisors said they want more transparency about prior efforts to improve billing and revenue cycle processes before committing to service cuts. The public hearing was held under state law; no final board action on the HSA redesign took place at the June 10 meeting. County staff said the issue will return for further budget consideration in the afternoon budget hearings and to the board before final change orders are implemented. (Action: public hearing held; final decision deferred)

Why this matters

If adopted without safeguards, HSA’s plan would shift some services away from an in‑house county safety‑net clinic model — a change clinicians and union members argue may reduce access for unhoused people and other high‑need patients who rely on familiar clinic locations and staff.

The board’s next scheduled formal action on the agency budget and clinic redesign was set for later the same day during the county’s budget hearings; HSA said staff will continue negotiations with potential contracting partners and pursue steps to minimize patient disruption.