SPECIAL REPORT * County thought getting U.S. to extend the ’95 health care bailout would be fairly easy. But recent events show . . .

In 1995, it took thousands of layoffs, newspaper headlines blaring about an imminent health care disaster and the calling in of numerous political chits to secure a $1-billion federal bailout of the Los Angeles County health system.

The rescue came because the federal government waived Medicaid regulations that would have prevented the county from being fully reimbursed for care given at outpatient clinics rather than at more costly hospitals.

This time it was going to be different. With budget surpluses in the county, Sacramento and Washington and Democrats controlling the Board of Supervisors, the statehouse and the White House, the conventional wisdom was that the waiver would be extended months before its June 30 expiration date.

But battles over money and questions of whether the county has truly fixed its Department of Health Services are once again hurtling the nation’s second-largest public health system toward the brink.

Without the waiver of Medicaid rules, officials say, the county may be forced to close dozens of outpatient clinics, lay off doctors and nurses or otherwise scale back services to its nearly 3 million uninsured residents.

The county hopes to receive more than $1 billion over five years if the waiver is extended.

Many say they expect some form of waiver to be granted before the end of the month, although some county officials have been increasingly pessimistic.

“It’s like a poker game,” said Alejandro Stephens, president of Service Employees International Union, Local 660, which represents many county workers. Each layer of government “wants to see what the other side is going to do first.”

If the negotiations are a poker game, here are how the hands look:

* Los Angeles County has offered to contribute up to $60 million annually toward the cost of the programs covered by the waiver.

* State government has a far better hand: a $13-billion surplus. But Gov. Gray Davis, a fiscal conservative, is believed to be wary about spending too much of that on an ongoing cost like a health care bailout. And he faces additional pressures--other counties may ask why politically powerful Los Angeles should get special financial help from the governor.

* As always, the federal government has the strongest hand--but because Los Angeles and the state are in good financial shape, it doesn’t want to carry the load alone. Meanwhile, the federal agency that decides on the waiver has felt increasing heat from Congress over giving bailouts to well-connected entities such as Los Angeles County.

The question, one Sacramento source said, is “Who blinks first?”

In September 1995, President Clinton--up for reelection the next year--granted the waiver at a dramatic news conference on the tarmac at Santa Monica Airport.

The federal decision was about more than freeing up hundreds of millions of dollars in federal funds to patch gaping holes in the county’s health budget that would have otherwise forced the closure of public hospitals. The waiver was intended to shift the county’s focus from care at costly hospitals to treatment at more patient-friendly and less expensive outpatient clinics.

This time around, the county made the opening move.

Although it had failed to meet many of the reform goals it set when it won the first waiver, it pushed for a five-year extension and four amendments that would create new outpatient programs and nearly double the package’s original $1-billion price tag. What’s more, county officials argued that parts of the waiver should become permanent.

They say Washington raised a few questions about the county’s failures to meet its goals: why it had not saved nearly as much money as it had projected or moved enough patients into community clinics. The federal Health Care Financing Administration also stripped the amendments from the county’s proposal and said it would consider them only after hammering out the terms of the basic waiver.

But discussions were proceeding smoothly, county officials say, with an April 15 target date for a decision on the waiver. Then, in late March, “the tone changed considerably,” county health Director Mark Finucane said.

Officials at the financing agency wanted the county to wean itself off federal dollars. Their demands coincided with congressional hearings on allegations that the agency violated its own rules in forgiving Medicaid debts of public health agencies in Los Angeles County and New York City. An investigation by the General Accounting Office had found that the financing agency’s former director, Bruce Vladeck, pressured subordinates into approving the deals.

County officials say they believe that scrutiny from Republicans has made the financing agency want a tougher deal on Los Angeles County’s waiver. Spokesman Chris Peacock said his agency is committed “to do what’s right in a way that best serves the people who rely on Medicaid . . . regardless” of political pressures.

Finucane said he believes that Washington wanted the state, with its massive surplus, to chip in more money. The state balked.

There has not been a meeting since March. Meanwhile, the Board of Supervisors declared that negotiations had reached an impasse and started preparing for budget cuts, and the state in its new budget offered what officials say is the equivalent of $30 million more in health funding for the county. Finally, a meeting involving all three levels of government is scheduled for Monday in Washington.

Now, Finucane said, the question of who pays for what “has drowned out all other discussion.”

Finucane, who for months would not speak in detail about negotiations, has been increasingly vocal on the subject, as have his bosses on the Board of Supervisors. This contrasts with state and federal spokespersons, who both say they are optimistic but otherwise decline to discuss ongoing negotiations.

Strategy is part of the reason for the differences. Just as in 1995, a crisis atmosphere ratchets up the pressure on Sacramento and Washington to close the deal, as did a union rally Thursday in Los Angeles in which labor leaders and health officials gave dire predictions of clinics closing should bureaucrats in the two capitals let the waiver fall through.

Another reason is that the county has the most to lose if the waiver is not renewed, or is only extended for a few years. It will be county facilities closing, county patients going untreated and county workers losing their jobs.

Still, the county, like Washington and Sacramento, has yet to reveal all it can do. It has $49 million from the national settlement of lawsuits against the tobacco industry, which has already been pledged to health care, and a $48-million surplus it could devote to the health system. But so far, that is not on the table.

“We’re negotiating,” Finucane said, “and if I were the board, why would I put any more money up in addition to what’s on the table?”

A source close to the discussions said brinkmanship and threats must be seen as part of the process.

“Look at labor negotiations, look at football stars,” the source said. “You always have this sort of thing . . . even if everybody’s trying to get to the same place.”