Part 1 of the Two-Part Series
Laguna Honda’s Mismanagement Costs Reach $64.1 Million
Costs to Rescue Laguna Honda Hospital Soars. Again.
• • • • • • • • • • July 17, 2023 • • • • • • • • • •
Various costs related to Laguna Honda Hospital’s mismanagement over the years and its efforts to obtain Federal recertification continue to climb. Expenses — now reaching $64.1 million — will likely climb significantly. Yet its multiple problems can only be described as a hot mess.
New Contracts Totaling $11.4 Million Raise Questions, Including a $4.1 Million “Air Traffic Control” Contract Amendment to Triage Incoming Requests for Information from Mayor Breed
Costs associated with Laguna Honda Hospital's (LHH) mismanagement involve at least four major “buckets” of spending: Consultant contracts trying to assist LHH obtain recertification; lost Medi-Cal revenue budgeted to cover LHH's operations; State and Federal fines, penalties, and lawsuit expenses involving substandard care of LHH’s patients; and miscellaneous expenses, including neglected repairs to LHH’s physical buildings, hiring of crucial additional staff, and professional association fees.
By the time LHH gains its recertification, costs will likely escalate to between $80 million and $100 million.
This two-part series addresses each of the four main buckets of associated expenses. Part 1 of this article explores the $52.7 million between the consulting contracts and lost Medi-Cal revenue. Part 2 addresses the additional $11.4 million in expenses, likely to rise before Part 2 is published.
Within a month of being decertified in April 2022, LHH and the San Francisco Department of Public Health (SFDPH) set out on a spending binge. They hired consulting firms to help LHH straighten out the hospital's mismanagement and assist with efforts to get LHH recertified by the U.S. Centers for Medicare and Medicaid Services (CMS).
SFDPH initially awarded a combined $9 million in May 2022 to three consulting firms to help rescue LHH and prevent its closure following its April decertification, as shown in Table 2. The initial $9 million rapidly ballooned to $16.3 million.
Two contracts totaling $11.4 million — the $7.3 million contract awarded to Health Services Advisory Group (HSAG) in January 2023 and the $4.1 million contract awarded to Moss Adams approved in 2023 — are problematic, raising questions
that remain unanswered.
Seeking to create the first three contracts — with Health Management Associates (HMA), Health Services Advisory Group (HSAG), and Tryfacta, Inc. — as somewhat open-ended, SFDPH proposed that each of the three contracts could extend to $10 million each — with each having flexible terms of up to ten years. But San Francisco’s Board of Supervisors balked. They weren't willing to allow SFDPH to increase the contracts without additional Board of Supervisor oversight and pre-approval, especially not for ten-year contract terms.
That hasn’t stopped SFDPH. A little over a year after the contracts were enacted, they've increased to $30 million anyway. SFDPH may ask for additional contract amendments in short order or seek additional new contracts.
Concerns about oddities in the contracts include:
• Health Management Associates (HMA) Contract HMA’s initial contract and its first amendment totaling nearly $5.9 million, was to develop a preliminary assessment of factors that led to LHH's decertification. That included performing two unofficial “mock surveys” designed to mimic official Federal and State survey inspections. HMA sought to help identify LHH's deficiencies and lack of compliance with Federal nursing home standards.
The first mock survey was conducted in June and July 2022, revealing 96 deficiencies. Each could have resulted in actual State citations during an actual survey recertification survey. Such deficiencies would prevent LHH from being recertified. [The Westside Observer reported on that first mock survey in March 2023.]
The second mock survey initially planned for September 2022 was postponed. It was never conducted. It's unknown if the canceled second mock survey reduced HMA's $5.9 million contract.
Has HMA reported to or briefed the Board of Supervisors or the Health Commission in the first six months of 2023? Its contract theoretically ended on June 30, 2023. Because LHH is so far behind schedule to become recertified, will HMA seek an additional contract amendment at an additional cost through the end of 2023? Has the need for HMA's services ended, or is HMA still advising LHH?
• Health Services Advisory Group (HSAG) Contracts, A little over a month after awarding HSGA its first contract for $1.8 million in May 2022, SFDPH raced to tack on a $5.2 million amendment by June 15, 2022, pushing HSAG’s first contract to $10,436 shy of $7 million.
On June 15, 2022, HSAG's contract amendment to its first contract essentially funded using HSAG consultant staff to perform quality improvement tasks. It also filled the roles of LHH's Nursing Home Administrator (NHA) and Assistant Nursing Home Administrator (ANHA) consultants at $400 per hour. It also funded an Infection Preventionist position and a Discharge Transfer Coach position at $325 per hour. LHH could have actually hired employees to perform those positions at a far lower cost. The initial contract and its amendment were for May 9 to December 22, 2022.
HSAG's third contract, awarded on January 30, 2023, for $7.3 million, essentially extended the first contract that ended in December 2022 to cover the period from January 1 through December 31, 2023. The contract justification initially claimed the contract would continue using HSAG consultant staff to perform LHH’s NHA, ANHA, Infection Preventionist, and Discharge Transfer Coach positions. Following questions raised by one of the five Health Commissioners, SFDPH and LHH asserted the third contract was not for a fixed amount. They would only be based on monthly invoices as needed and billed, suggesting that HSAG might not use the entire $7.3 million.
Initially thought to have been somewhat benign, HSAG’s January 2023 $7.3 million contract awarded in January 2023 became problematic in May, raising troubling questions.
However, after LHH was warned twice not to sustain any more “Immediate Jeopardy” deficiencies and citations —risking complete termination of CMS funding and possible complete closure — LHH racked up another “Immediate Jeopardy” citation on May 8, 2023. At that point, LHH’s acting CEO, Roland Pickens, raced to submit a letter to the U.S. DHHS and CMS on May 14 claiming that LHH would roll out a new “Consistent Care at the Bedside Initiative” (CCBI) by “soliciting” to hire an additional consultant for $7 million ($1 million monthly for May to December).
Significantly, LHH rolled out the CCBI project precisely because it admitted in its May 14 letter to DHHS and CMS it recognized “some LHH staff demonstrate [bedside] practices that will jeopardize recertification” because of “instances where some LHH staff are at times unable to consistently and reliably deliver safe, regulatory-compliant, and policy-compliant care at the bedside.”
Pickens' May 14 letter specified “[LHH] would solicit and hire additional consultants at a cost of over $1 million per month to observe and advise frontline staff and management on every floor, in every unit, for each shift” for the new bedside consistent care initiative” — borne out of provoking an “Immediate Jeopardy” on May 8 and offered as a “fix” to show CMS “[LHH] was serious about ... a final push toward regulatory compliance.”
LHH has 13 patient units (wards), and there are three shifts, which suggests there might be 39 consultants - “monitors” hired to cover the three shifts on each of the 13 units. But Pickens seems to have done an about-face a month and a half later, informing the full Health Commission on June 20 that HSAG would provide one “monitor” per unit with previous “Director of Nursing” equivalent job experience splitting their time across the three shifts, saying monitors will observe “… some days they will work day shift, other days they will work night shift, and other days they will work on evening shift” (at approximately 0:58:24 on videotape).
That's a significant departure from what Pickens claimed to CMS and the U.S. Department of Health and Human Services in his May 14 letter: it would hire consultant monitors for “every floor, every unit, on each shift.” So which is it? Monitors on every unit on each shift? Or every unit, but on random shifts?
It’s unclear whether having the CCBI “monitors” working on random shifts will help retrain all staff who are jeopardizing recertification. Or if the random monitors will reach all staff not consistently providing regulatory-compliant bedside care.
There is no new consultant and no new $7 million contract. Instead, a public records request revealed that SFDPH and LHH would seemingly use and repurpose the same $7.3 million HSAG was awarded in January 2023, using HSAG consultants to staff the “CCBI” project.
There was no mention in either HSAG’s first contract, its amendment, or HSAG’s third contract that either of the two contracts would focus on a “Consistent Care at the Bedside Initiative” at $1 million per month to improve the quality of care provided to LHH's residents.
Necessary progress toward substantial compliance with Federal regulations showing dismal effect, LHH threw this new $7 million CCBI program at the problem, hoping that might spur progress.
Reasonable questions about the contract include: Why wasn't the “CCBI” project necessary in June 2022, at the outset of corrective actions, to help LHH gain recertification? Why did it suddenly become an issue in May 2023, only six days after LHH had racked up another “Immediate Jeopardy” violation on May 8? Alternatively, when HSAG was awarded its third contract in January 2023, why wasn't the need for the “CCBI” project identified then? Was this initiative dreamt up to spend down the $7.3 million contract awarded in January 2023 to ensure HSAG would be rewarded with the spending?
It’s also unclear whether HSAG invoiced any of the funding awarded in January to perform LHH's NHA, ANHA, Infection Preventionist, and Discharge Transfer Coach positions or whether those funds were sitting there encumbered but unused, and so were repurposed to fund the CCBI project — just to somehow spend down the money.
That mismanagement of LHH should never have happened because LHH has been licensed as a “distinct-part SNF” for decades. SFDPH and its governing body, the San Francisco Health Commission, had to have known the difference because distinct-part SNFs receive a significantly higher patient financial reimbursement rate.”
SFDPH awarded HSAG's second $2.7 million contract to perform “Quality Improvement Expert” (QIE) duties on behalf of LHH. These duties were required as a mandatory provision of CMS’ “LHH Settlement Agreement,” adopted on November 10, 2022. The QIE produces “Root Cause Analysis” (RCA) and corresponding “Action Plan” corrective milestone reports following each successive “90-Day Monitoring Survey” site inspection. The QIE’s first RCA report clearly and rightfully revealed that LHH was decertified for running Laguna Honda as an acute-care hospital rather than a Skilled Nursing Facility (SNF). It was not following CMS regulations applicable to nursing homes.
That mismanagement of LHH should never have happened because LHH has been licensed as a “distinct-part SNF” for decades. SFDPH and its governing body, the San Francisco Health Commission, had to have known the difference because distinct-part SNFs receive a significantly higher patient financial reimbursement rate. That has been a significant bone of contention for other free-standing SNFs in San Francisco. They receive significantly less Medi-Cal reimbursement for performing essentially the same level of patient care. Distinct-part SNFs are facilities affiliated with a hospital. LHH is licensed for 11 acute care beds plus 769 skilled nursing beds, as the Health Commission surely must know. Given those 769 beds, the Health Commission should have known LHH needed to follow the correct licensing regulations.
The QIE must also submit monthly “Monitoring Reports” to CMS summarizing the progress towards substantial compliance with nursing home regulations. LHH is paying for the QIE contract, but the QIE reports to CMS, not to LHH or SFDPH.
The QIE was thought to be the only contractor responsible for developing and approving the “Action Plan” milestones. That may not be true.
All told, HSAG was awarded $16.9 million in lucrative contracts to help LHH regain its CMS recertification.
Tryfacta, Inc. Contract The $3.5 million contract with Tryfacta is to fill as-needed positions that LHH cannot fill for staff vacancies. That contract hasn't been particularly controversial.
Moss Adams Contract The Moss Adams contract is the most bizarre of LHH’s four principal consultants. Initially awarded in December 2021, the contract grew to just under $10 million in approximately one year. How much of the $10 million is to assist LHH's recertification efforts is unclear.
A third Moss Adams contract amendment that SFDPH signed on January 15, 2023, was eventually granted. It wasn't presented to the Health Commission for approval until April 4. The amendment was problematic even before it was first discovered in April. SFDPH suppressed the news that the contract involved LHH since June 2022. It was not made public or shared with the Health Commission. That contract, and its beleaguered history, raise troubling questions.
On April 23, 2021, SFDPH released a Request for Proposals (RFP #10-2021) to obtain “Lean Consulting Services,” seeking consultant services to support the implementation and the spread of “LEAN” as a management strategy. It proposed to streamline processes and create a more patient-focused system of care. The RFP was issued a full year before the hospital was decertified in April 2022. The RFP made no mention that the Lean consulting services would include or involve LHH.
On December 11, 2021, SFDPH first contracted Moss Adams, LLP, for Lean consulting work for SFDPH writ large (#1000024026). The initial contract, approved by the Health Commission, was for a not-to-exceed $2,147,119 award. It didn't state that it included consulting for LHH. The gig was initially for two years ending December 10, 2023. The initial budget was for “Hoshin Kanri,” Lean transformation, “Kaizen,” and other services, including a Hoshin initiative focusing on COVID “transition,” a Hoshin initiative for “Mental Health San Francisco,” and other Lean “coaching” services. The Hoshin Kanri method is meant to eliminate the waste from inconsistent direction and poor communication.
The initial contract provided no actual scope of work for Laguna Honda Hospital. It was not mentioned — throughout the contract — but it declared Hoshin strategy services for LHH “can be added for an additional cost.”
Three months after LHH was decertified in April 2022, a first amendment to the Moss Adams contract was awarded on June 10, 2022, increasing the initial $2.1 million contract by $2,068,961 to a new not-to-exceed $4,126,080 total. Included in the $2 million contract increase was a new Hoshin initiative titled “LHH Transition,” which was budgeted at $1,638,967. The scope of work for the LHH component amending the contract stated:
“[to] support Laguna Honda’s recertification efforts in the Centers for Medicare and Medicaid Services Provider Participation Program, the goal of our work is to support [LHH’s] Incident Command leadentaining critical processes related to information flow in the Incident Command structure. The specific functions [include] implement, deploy, and facilitate Hoshin strategy deployment, [including rship in establishing and maiwith ] an overarching ‘air traffic control’ that supports [LHH’s] Executive Sponsor and [the two LHH] Incident Commanders in making sure that targets are clearly set and communicated, work is coordinated and well organized among the Incident Command Sections and Branches, risk processes are clearly understood and utilized, communication holes identified and filled, and driving the timely completion of deliverables and milestones, as well as a regular cadence of streamlined reporting to ensure a high functioning system. Included in Hoshin facilitation is an Executive Advisory function to serve the Executive Sponsor [LHH’s acting CEO, Roland Pickens] in identifying strategic issues and risks and make recommendations for how to mitigate those risks.”
The “air traffic control” process is described elsewhere as “establishing critical processes within the Incident Command structure, in particular, to handle and triage communication processes for inbound requests for information from key external stakeholders — “the Mayor’s Office and SFDPH leadership.”
For readers unfamiliar with the management concepts of “Lean,” “Kaizen,” “Hoshin Kanri,” and “True North,” a half-page tutorial, or primer, on the concepts is available on this author's website.
On December 20, 2022, SFDPH issued a “Program Budget Revision” amendment to the Moss Adams contract to reallocate funds within the $4.2 million amended contract, clarifying that the contract was for $4,126,080, not $4,216,080 as had been listed in the first Amendment. The “Hoshin LHH Initiative” for Laguna Honda was increased by $116,565 to a revised total of $1,755,532.
Then a DPH Contracts Report oddly dated May 4, 2023, was presented to the Health Commission's “Finance and Planning Committee” meeting on April 4, 2023 — which is when the public first learned that the Moss Adams contract had been amended nine months earlier in June 2022 to include supporting the LHH recertification effort.
Page six of the April 2023 Contracts report increased Moss Adams' contract by $5,861,213 to a total contract of $9,987,293 — which is just $12,707 shy of a $10 million contract that typically requires Board of Supervisors approval. Is the Board of Supervisors aware of this nearly $10 million contract boondoggle?”
Page six of the April 2023 Contracts report increased Moss Adams' contract by $5,861,213 to a total contract of $9,987,293 — which is just $12,707 shy of a $10 million contract that typically requires Board of Supervisors approval. Is the Board of Supervisors aware of this nearly $10 million contract boondoggle?
The April amendment increasing the Moss Adams total contract to $9.99 million represents a 365.1 percent change increase over the initial $2.1 million contract. The Contracts Report stated, in part:
“This contract amendment will make a substantial addition to service hours in support of Laguna Honda’s recertification efforts in the Centers for Medicare and Medicaid Services Provider Participation Program. In those efforts, Moss Adams services will support the Incident Command leadership in establishing and maintaining critical processes related to information flow in the Incident Command structure. This will include streamlined and documented process for Incident Command structure and reporting; Communication triage process for inbound requests from key external stakeholders (e.g., Mayor’s Office and DPH Leadership.”
And shockingly, the “Service Description” in the April Contracts Report and the second Moss Adams contract amendment both state:
“The primary outcome of the comprehensive system is remediation of all Plans of Correction (POCs), including the RCA [Root Cause Analysis reports], Action Plan [corrective action “milestones”] and other initiatives, to sustain survey readiness both through recertification and on an ongoing basis.”
Wait. What? Wasn’t the development of the RCA’s, Action Plans, etc. adequately funded with the $2.7 million contract awarded to HSAG as LHH’s “Quality Improvement Expert”? Why does LHH need two consulting firms to develop these documents? Does LHH need to throw another $4.1 million contract at Moss Adams to develop work its QIE should perform?
In addition, Contract Amendment #2 — signed on January 15 but not presented to the Health Commission’s subcommittee for three months until April 4 — stated that Moss Adams will assist with “Leadership development of coaching competency for 4 Nurse Directors and 6 Nurse Managers.” One problem is that a revised organization chart released on July 12 shows that LHH has at least 13 Nurse Manager positions and at least 4 Nurse Director positions — plus at least three different Director of Nursing (DoN) positions and another five Nursing Operations Supervisor positions. So only a small handful of LHH's senior Nursing leadership team are being trained on Lean and Kaizen “coaching” skills. And there was no mention that Moss Adams will be training LHH’s new Nursing Home Administrator or its two new Assistant Nursing Home Administrators.
No explanation has been offered as to why the Health Commission had not even been publically informed about the LHH component before April 2023.
Indeed, during the April 4 Finance and Planning Committee meeting, Commissioners Chow and Guillermo complained that the Health Commission and its LHH-Joint Conference Committee (LHH-JCC) had never been told that Moss Adams was assisting with LHH's recertification. The pair of Commissioners asserted on April 4 that it was the first time they heard about this particular contract being expanded to include consulting for Laguna Honda Hospital.
And both Commissioners specifically asked that SFDPH, via LHH’s acting CEO, Roland Pickens, schedule a presentation to the LHH-JCC to discuss what Moss Adams’ Lean consulting contract is doing for LHH's recertification.
The LHH-JCC has not scheduled an agenda item on the Moss Adams contract at either its April 11, May 9, June 13, or July 11 meetings, so now, four LHH-JCC meetings later, and there's been no opportunity for the public to know about this contract.
Of the now nearly $10 million Moss Adams contract, the LHH portion shown in one summary in Amendment #2 indicates the LHH portion is now $4,137,632, including $746,130 in travel expenses. The LHH portion appears to have grown by $2.5 million — up from $1,68,967 since June 2022, representing a 152.5 percent change increase. Elsewhere, a different summary claims the LHH portion is only $3,391,500.
But as discussed below, the $10 million contract includes $3.3 million in expenses not apportioned to specifically-named projects, so the actual amount apportioned to the “LHH Hoshin Initiative” may be significantly higher. After all, Amendment #2 added $5,861,213 to the existing contract, which amendment was pitched in the “Contracts Report” as “making a substantial addition to service hours in support of Laguna Honda’s recertification.”
SFPDPH extended the Moss Adams contract period in Amendment #2 to December 31, 2024. It's unknown why the contract is needed through 2024.
Additional Moss Adams Contract Oddities
The rapid growth during the 14 months between December 2021 and January 2023 in the Moss Adams contract merits a closer examination.
Table 3 raises disturbing questions:
- The $3.4 million shown in Table 3 for the LHH Hoshin Initiative does not include $746,130 in anticipated travel expenses for the LHH component shown in a different table in Amendment #2, which brings the LHH subtotal to $4.1 million.
- Between the COVID Transition Hoshin Initiative and Mental Health SF Hoshin Initiative, the initial combined $996,035 was reduced by $282,817 to just $713,218 during subsequent contract amendments reallocating funds within the budget.
- Between items “C,” “D,” and “E” — “Implement and Deploy,” “Improve,” and “Enable and Lean Management” — the initial budget of $996,035 soared by $3.3 million to a total of $4,192, 40% of the now $10 million total contract.
- Shouldn’t those three components have been itemized for each of the three separate Hoshin Initiatives (items “A,” “B,” and “F”)?
- Since the Moss Adams staff performing this consulting gig are headquartered in Seattle, WA, why did the travel budget soar by $1.6 million, from $70,248 initially to $1.7 million?
- The “Contingency” amount initially budgeted at $230,048 dropped by $208,473 to just $21,575 between December 1, 2021 and January 15, 2023. Does that mean over $200,000 in contingency fees have already been spent?
- Given that the April 4 Contracts Report informed the Health Commissioners that the Moss Adams contract was being increased by $5.9 million mainly to support LHH's recertification efforts, is it realistic to believe the LHH Hoshin Initiative portion of the contract is only $4.1 million — or would the LHH portion be realistically and significantly higher if the separate $4.2 million in the non-itemized “overhead” (items “C,” “D,” and “E”) of the budget was accurately apportioned and itemized among each of the three Hoshin Initiative projects (items “A,” “B,” and “F”)?
- And if so, how much more might the total Consultant Contracts costs shown in Table 2 of this article increase to show a more accurate amount of the Moss Adams contract is being spent to support recertification?
Obviously, scheduling a briefing on the Moss Adams contract during a Health Commission LHH-JCC meeting might better educate both the Health Commissioners and the public by providing answers to questions raised in this article.
And another pertinent question to ask is: Does Mayor London Breed need an “air traffic control” Hoshin Kanri contract to field her incoming information inquiries to LHH’s “Incident Command” structure and new “Executive Sponsor” (Roland Pickens’ new job title now that LHH has a new CEO, Sandra Simon)?
Lost Medi-Cal Revenue
As Table 1 above reports, SFDPH acknowledged in its May 12 Third Quarter Revenue and Expenditures report for Fiscal Year 2022–2023 (through March 31, 2023) that LHH has a $22.3 million loss in Medi-Cal revenue, given the halt on new admissions starting in April 2022.
That lost revenue is strange since SFDPH has repeatedly assured the Board of Supervisors that Medi-Cal revenue to LHH typically involves approximately $200 million annually.
Therefore, why SFDPH only reports a shortfall of $22.3 million in lost Medi-Cal revenue seems ridiculously underreported. The Fourth Quarter report through June 30, 2023, will become available in August or September to learn whether the total amount of lost Medi-Cal revenue has increased.
Part 2 of this article will explore the State and Federal fines, penalties, and lawsuit expenses, plus the additional miscellaneous expenses, that total approximately $11.4 million — which will likely increase during the next few weeks.
Monette-Shaw is a columnist for San Francisco’s Westside Observer newspaper and a member of the California First Amendment Coalition (FAC) and the ACLU. He operates stopLHHdownsize.com. Contact him at firstname.lastname@example.org.
June 15, 2023