Tally of Costs to Rescue Laguna Honda Hospital Soars to $125 Million

Laguna Honda’s Decertification Second Anniversary Disaster

Will 120 of Laguna Honda Hospital’s Beds Be Eliminated?

Will There Be Patient “Cohorting”? When Will Admissions Restart?

Ignore Public Documents That Cost $40 Million as Just “Hearsay”

by Patrick Monette-Shaw

• • • • • • • • • • April 26, 2024 • • • • • • • • • •

Traditional second-anniversary gifts are made of cotton because they symbolize the strength, weave, and comfort between two parties.

Interestingly, paper US currency is made of 25% linen and 75% cotton, with red and blue fibers distributed randomly throughout to make forgeries more difficult.

A reasonable question is how much cotton is involved in the $125 million to date in the running tally of known costs to rescue Laguna Honda Hospital (LHH)? That much cotton would represent an enormous anniversary gift.

Another reasonable question is whether and how much of the $125 million may have essentially been spent to accumulate second- and third-hand “evidentiary hearsay”?

Nobody wants to see our beloved Laguna Honda Hospital shut down because it is too expensive to save. But ever since LHH was decertified on April 14, 2022, and new admissions to LHH were instantly halted, it is almost as if the Board of Supervisors handed external consultants and San Francisco’s Department of Public Health (SFDPH) carte blanche using the City’s dime to spend however they saw fit.

When I first began to tally the associated costs to rescue Laguna Honda, there were four main categories. On July 14, 2023, they totaled about $64.1 million, which grew 17 days later, on July 31, 2023, to $64.9 million.

Rapidly, costs soared by at least another $39 million by September 15, 2023. Since mid-September, the running tally in documented expenses to rescue Laguna Honda nearly doubled from $64.9 million. The known costs to date have now crept up to at least $125 million — and counting — described in further detail in this article to preserve the historical record.

Few other nursing facilities nationwide that get decertified, like Laguna Honda Hospital, have the luxury of spending that level of money to save the facility and do not have the luxury of municipal tax dollars to bail them out.

By comparison, San Francisco’s emergency warning siren system was shut down in December 2019 due to the possibility of electronic hacking. Here we are four-½ years later, and the $5 to now $20 million needed to bring those sirens back online still has not happened! [The longer San Francisco waits, the higher the costs will be to replace the siren system.]
Following the wildfires that all but destroyed Lahaina on Maui on August 8, 2023, Board of Supervisors president Aaron Peskin indicated publicly he had identified funding to restore the siren system. Here we are eight months later, and Peskin has done nothing towards getting the siren system fully funded, but he found time to throw his hat into the ring to run to replace Mayor Breed in November’s election.

Why has the City found at least $125 million to rescue Laguna Honda but cannot fund repairs of its emergency siren system to warn the City’s 810,000 residents in the event of wildfires and tsunami disasters? Where has $125 million gone in just two years? And why hasn’t that spending accomplished LHH’s recertification by now?

Public documents reveal that the $125 million in known costs to date have grown from four categories of spending to seven main categories, as shown in Table 1 below (or online). Unfortunately, another $27.3 million in additional costs may potentially occur, shown on rows 8 and 9 in Table 1, pushing total spending to rescue LHH to $152 million. Those two rows need brief explanations.

The $8 million on Line 8 in Table 1 is the remaining balance from $18 million (authorized on Civil Service Contract #PSC 40941-22/23) approved by the Civil Service Commission on September 6, to hire external consultants to assist with the Laguna Honda recertification. SFDPH issued a fourth contract for $9.92 million to Health Services Advisory Group (HSAG) against that $18 million PSC authorization number, leaving a balance of just over $8 million. SFDPH could theoretically issue another consulting contract against that remaining authorization without seeking further approval.

The $19.2 million of potential “non-personnel services” costs on Line 9 in Table 1 is a little murkier. On March 5, SFDPH’s Chief Financial Officer, Jenny Louie, presented SFDPH’s Second Quarter FY 2023–2024 Revenue and Expenditure Projection Report to the Health Commission. Louie’s report noted LHH had a $21.2 million “Non-Personnel Services” revenue shortfall she attributed to being a “recertification-related expenditure deficit.”

A subsequent public records request revealed the $21.2 million “expenditure deficit”involved $10.6 million in recertification consulting and recertification training services contracts, $8.6 million in staffing “registry” costs, and $2 million in “other operating expenses” for things such as equipment rental and maintenance, and translation services. To track the actual running costs of LHH’s recertification expenses, the $2 million in “other operating expenses” has been added to Table 4, “Miscellaneous Expenses” below.

[Note: An additional $10.65 million in separate personnel staffing costs attributed to hiring temporary as-needed “registry” staff confirmed by responses to other public records requests are included in Table 2 and Table 4 below, distinct from and beyond the $8.6 million in registry costs included in the $19.2 million potential “expenditure deficit.”]

For the time being, the remaining $19.2 million on Line 9 in Table 1 remains a potential additional cost of getting Laguna Honda recertified. That’s because it isn’t clear whether the $19.2 million was magically “realized,” or “amortized” and somehow balanced out after just being a temporary budget difference between anticipated funding sources that were eventually earned and only temporarily considered a shortfall or deficit. So they’re listed as potential costs in this running tally in case they are duplicate expenses included elsewhere in the known $125 million in costs.

Alternatively, it’s not clear if the $19.2 million in non-personnel services shortfall expenses were not included elsewhere in the accounting in this article and were not “resolved” in SFDPH’s budgeting gymnastics as having been covered by other surpluses and savings from other SFDPH budget areas that were pressed into service to pay for, resolve, and erase the “recertification-related expenditures” deficit to arrive at a balanced budget revenue and expense report. In other words, did the $19.2 million in non-personnel services expenses actually occur but had never been identified beforehand with an authorized budget allocation authorized explicitly for LHH’s recertification and were simply paid for using other areas of SFDPH’s budget?

The $19.2 million in potential costs has been segregated from the actual known costs to date because they potentially may or may not involve duplicate items elsewhere accounted for in other tables in this article. They may actually refer to excess spending above and beyond budgeted expenses. This would require the services of a forensic accountant to get SFDPH or the City to tell the truth about the total expenditure required to rescue Laguna Honda. I readily admit I am not an accountant.

Unfortunately, if the $27.3 million in additional potential costs come to pass, we’ll reach $152.3 million in spending to rescue Laguna Honda.

Whether LHH’s mismanagement resulted in “only” $125 million or increased to $152.3 million in costs to save our beloved 150-year-old “alms house,” it suggests additional senior management replacements still need to occur. Stronger and more meaningful oversight mechanisms must be implemented to correct the “governing body” oversight mechanisms in place that utterly failed to prevent Laguna Honda’s decertification two years ago.

Laguna Honda Hospital’s entire mismanagement fiasco and enormous associated expenses must never recur — ever again!

The Consultant Contracts

When LHH was decertified on April 14, 2022, SFDPH sprang into action and quickly issued three contracts to bring in outside consultants to help straighten out the 18-year history of LHH’s mismanagement. The first three contracts started at a relatively benign $9 million cost, shown in Table 2 below (or online). The consultants began work on May 9, about three weeks following LHH’s decertification.

By the end of 2022, the first three contracts had quickly grown to $16.3 million via contract amendments.

Although the Westside Observer first reported on July 14, 2023, that in the first year following LHH’s decertification, SFDPH and LHH had issued $30.5 million hiring a consultant to help “fix” Laguna Honda, only two months later a fourth contract with Health Services Advisory Group (HSAG) was issued for $9.92 million (just under the $10 million threshold that would have sparked another Board of Supervisors hearing to approve HSAG’s fourth contract).

That pushed contracts with external consultants to $40.4 million during the first two years of LHH’s decertification.

For some corroboration of the $40 million estimate awarded for consultants to date, a declaration was filed by LHH’s Chief Quality Officer, Nawzaneen Tali, in Superior Court on March 18. Another lawsuit involving Laguna Honda acknowledged that $28.8 million has already been paid to the consultants, with another $8 million in unpaid invoices waiting for payment, totaling approximately $36.8 million in consultant contracts to date. Consultants may well invoice the $3.6 million difference of the full $40.4 million shown in Table 2 in coming months for work performed during the five-½ months between March 18, when Tali prepared her Declaration through the end of August. [After all, few contractors with lucrative City contracts forgo billing in full. Not to sound jaded.]

It’s expected that the $40.4 million amount will increase again soon. That’s because Table 2 above shows HSAG’s fourth contract is set to expire just four months from now, at the end of August. The Health Commission has already been forewarned that HSAG’s contract will need to be extended for less-intensive assistance monitoring LHH’s compliance with CMS’ regulations after August 2024, whether or not LHH gains recertification by then and patient admissions actually resume.

Of some interest, the main contractor — Health Services Advisory Group (HSAG) — has earned a total of $26.9 million in contracts. HSAG has been paid to produce approximately 507 pages of reports sent to
Centers for Medicare & Medicaid Services (CMS) and the California Department of Public Health (CDPH). But shockingly, in a long-drawn-out lawsuit against Laguna Honda Hospital, City Attorney David Chiu had the chutzpah to advise the Superior Court on March 18, 2024, to treat HSAG’s nine “Root Cause Analysis Reports,” seven monthly “Monitoring Reports,” and extensive “Action Plans” as merely double or triple hearsay.

Why did the City pay $27 million to a contractor to develop 507 pages of mere “hearsay” evidence evaluating the causes of LHH’s mismanagement problems? Can chutzpah be measured?

Fines, Penalties, and Lawsuit Expenses

The Westside Observer’s first report on July 14, and a second report on July 31, 2013, reported that LHH’s fines, penalties, and lawsuit expenses shown in Table 3 stood at $4,860,171.

But just a month later, on August 31, 2023, the Board of Supervisors and the Mayor settled a case awarding Andrew Coutts $190,000, increasing total fines, penalties and lawsuit expenses to slightly over $5 million shown in the updated Table 3 available online.

The total for Table 3 would be far higher than the $5 million shown, except that City Attorney David Chiu’s office is slow walking release of the costs of City Attorney time and expenses fighting the Coutts settlement and the Public Guardian / Public Conservator settlement shown on lines 2 and 4 in the “Lawsuits” section of Table 3. Chiu may be slow-walking the release of his time and expenses data in those two cases as a legal strategy involving a third case involving the Tommy Thompson class action lawsuit, which has not reached a settlement amount yet shown on Line 5 in the “Lawsuits” section.

All of the sections highlighted in yellow in Table 3 remain subject to significant cost increases as lawsuits settle completely, and when the City Attorney’s Office (CAO) eventually completes its representation of LHH after it regains full recertification from CMS. That’s because the City Attorney has been providing highly specialized ongoing legal representation for two-½ years, and the CAO’s legal services to prevent LHH from being completely closed have been accumulating in a single accounting code tracking money for the City Attorney’s multi-year time and expenses. The CAO more than likely won’t release its cumulative time and expenses for a year or two after LHH obtains its recertification, and the CAO closes out what is essentially a single multi-year billing account code.

When that happens and the CAO stops representing LHH’s “decertification”-related nightmare, it is predicted that the CAO’s time and expenses will be somewhere between an additional $10 million to $20 million, if not more — expenses that could have been avoided entirely had LHH simply stayed in substantial compliance with federal nursing home regulations and had never been decertified at all.

Miscellaneous Projects and Staffing Expenses

Back in July 2023, Table 4 below showed, at the time, just $7.2 million across 16 miscellaneous itemized projects. Of those 16 items, one has now been moved to a new table (Table 5), and another five items have been moved to another new table (Table 6). In their place, six additional items have been added to Table 4 (available online). Total costs have almost doubled from $7.2 million to $13.6 million, including extensive — but likely not all — staffing expenses.

A few items in Table 4 deserve attention:

· Expenses for external recruiting companies listed on Row 5 are likely significantly higher but haven’t been more thoroughly investigated.

• It’s not yet known if SFDPH issued a contract against the $6 million approval it obtained from the Civil Service Commission to hire Respiratory Therapists needed for round-the-clock staffing in LHH’s small five-bed medical acute unit. It’s difficult to believe LHH has not hired those respiratory therapists or a temporary staffing agency to provide them since LHH’s recertification hinges on adequate staffing of its in-house medical acute unit.

• Although Row 7 includes some $1.15 million in expenses for “travelling,” “per diem,” or “registry” Nursing staff, it’s probably severely under-reported.
That’s due to several factors: First, the $3.5 million consultant contract listed in Table 1 with Tryfacta was for a short six-month period through the end of December 2022, which excluded all of 2023 and to date in 2024. That contract specifically stated it was primarily for hiring Registered Dieticians and Dietetic Technicians, not Registered Nurses, Licensed Vocational Nurses (LVNs), Personal Care Assistants (PCAs), or Certified Nursing Assistants (CNAs).

Second, LHH’s “governing body,” the Health Commission, issued at least two contracts for staffing of CNAs, PCAs, and LVNs with two temporary “traveling” staffing agencies — Cross Country Staffing and Maxim — in June 2023 but with contract start dates of December 2023 that total $14.5 million in contracts for staffing at Laguna Honda Hospital. Those two contracts didn’t mention Registered Nurses (RNs). Three other contracts the Health Commission approved during 2023 for RNs totaled an additional $16.9 million but indicated they would be to staff operating rooms, emergency rooms, critical care units, and medical/surgical units — not Laguna Honda Hospital RNs. For all we know, once the contracts were issued, SFDPH may have creatively “flexed” the use of those contracts to help staff RN positions at LHH, beyond the scope of those contracts.

Third, SFDPH is introducing a Resolution to the Board of Supervisors Budget and Finance Committee on April 24, 2024, seeking approval of a third retroactive contract amendment valued at an additional $1.5 million to increase a separate contract with Tryfacta, Inc. to a total contract amount not to exceed $11.4 million for Nursing registry services. That’s because the Tryfacta contract was overspent by $1.5 million due to the use of the nursing registry during the COVID-19 surge (in 2020) and LHH’s retraining efforts in Fiscal Year 2022–2023 (that ended on June 30, 2023). SFDPH asserts that LHH’s recertification efforts required increased use of registry temporary staffing to provide direct patient care to fill in while LHH nursing staff were attending hospital-wide retraining classes. If the Board of Supervisors approves the $1.5 million retroactive amount, SFDPH claims it can close out the Tryfacta contract.
The upshot is that the $1.15 million in expenses for temporary nursing staff registry contracts listed in Row 7 of Table 4 — inadvertently revealed on page 7 in a declaration filed by LHH’s Chief Quality Officer, Nawzaneen Tali in a lawsuit against LHH — is under-reported, when not pure fiction. After all, LHH has at least 820 nursing staff (including RNs, LVNs, PCAs, and CNAs, along with various nurse managers and nursing supervisors). It’s not possible to have pulled those 820 Nursing staff from performing their direct patient care duties to attend multiple training and retraining sessions over an entire two-year period and spent only a mere $1.15 million hiring temporary employees to fill in while regular employees were attending training classes.

We’ll probably never get LHH to admit the total amount it may have spent during its two-year decertification to hire additional Nursing registry staffing. It’s likely to have been more like $5 million to $20 million extra during that two-year period.

Behavioral Health Response Team

Also, by the middle of September, it became clear the four major categories of spending in July 2023 needed to expand by adding the Behavioral Health category.

Table 5 (available online) shows that at least 51.6 full-time equivalent (FTE) staff had to be added to help manage the behavioral health cohort of hard-to-place patients deposited into Laguna Honda with substance abuse and mental health diagnoses, because other LHH staff were unable to safely care for. Two-thirds of the 52 additional staff were private security staff, not City employees.

It’s unclear to what extent the rows highlighted in blue shading were one-time expenses or whether they represent ongoing annual expenses for future years.

A decision about whether to split LHH into two types of facilities—a long-term care skilled nursing facility that LHH has served as for 150 years and a separate “behavioral health facility”—by placing the skilled nursing patients in one of LHH’s patient towers and the “behavioral health” patients in the other patient tower to physically separate them somewhat to prevent adverse interactions has not yet been finalized. Comingling the two patient populations in the same facility is referred to as “cohorting.”

Although some potentially interdisciplinary “study group” at SFDPH has been analyzing this issue as a pending policy decision for over a year, the study group’s report that was supposed to have been presented to the Health Commission has yet to materialize. LHH’s former “interim-CEO,” Roland Pickens, has gone silent on this issue. He hasn’t kept the Health Commission informed about the status of that pending “analysis” for months. And the Health Commission hasn’t inquired why that report has been delayed.

Will that “cohorting” decision be made after LHH gains its CMS recertification and re-opens for patient admissions? Those admissions have been halted for two years.

To the extent any plan to reconfigure LHH to handle patients with primary mental health diagnoses in a “mental health rehabilitation facility” crammed into one of LHH’s two patient towers comes to fruition, costs above the $4.3 million shown in Table 5 above will soon occur, likely substantially.

“Emergency Repairs” Costs

Also, by the middle of last September, it became clear the four major categories of spending needed to expand to a sixth main category for “emergency repairs” to LHH’s facilities. It’s not clear that all of the projects listed in Table 6 are actually required by CMS in order to grant recertification of LHH to participate in the Medicare and Medicaid provider program.

In actuality, these projects are not so much “emergency repairs” as they are long-neglected, long deferred-maintenance repairs, including construction problems from the rebuild of the new LHH facilities that opened in June 2010.

The “emergency repairs” consist of at least 16 separate projects shown in Table 6 (or online).

Notably, in early September 2023 — after returning from its month-long summer recess last August — the Board of Supervisors quibbled over and altered the order of priority of eight of the 16 repair projects. That’s because the Board’s Budget and Legislative Analyst (BLA) — the Harvey Rose Consultancy corporation — had originally prepared a BLA report recommending eight priority LHH repair projects. But for some reason SFDPH and/or Laguna Honda decided to quibble with the Board of Supervisors, and several of the projects the BLA had recommended were swapped out with a final list of eight LHH projects the Board of Supervisors ended up passing as an “Emergency Declaration” in Resolution #422-23.

See public testimony submitted to the Board of Supervisors that compared the names of the eight projects the BLA had analyzed and had recommended, vs. the eight projects the Board of Supervisors eventually approved — with the Board of Supervisors’ clear proviso that the repair costs were not to exceed $28.4 million!

Three of the projects the BLA recommended — a “Hospital HVAC Controls” project, “Pharmacy HVAC Upgrade” project, and a “Kitchen Floor Replacement” project, each with stated estimated costs — were replaced by three other projects the Board of Supervisors added: a “Fire Alarm Separation” project, “HVAC 3B” project, and a “Pharmacy Room Compounding Room Repairs” project, all having estimated costs of zero dollars! How could the Board of Supervisors have allocated funding to three explicitly-named projects without knowing what they would likely potentially cost? (That’s a question to ask Supervisors Peskin, Chan, and Melgar.)

Indeed, the kitchen floor replacement project that the BLA recommended for funding — but which the Board of Supervisors completely eliminated from their final Resolution — should have been fixed over a decade ago!

That’s because the pathetically-low $15.3 million the City recovered as a settlement of the Anshen + Allen and Stantec LHH rebuild architectural partners lawsuit was deposited into the City’s General fund, but notused to immediately repair LHH’s kitchen floor, even though the defective kitchen floor had been a prominent complaint in the lawsuit. Alternatively, since Stantec was not released from any further lawsuits and liability from “latent defects,” LHH’s defective kitchen floor should have been repaired long before now using a “latent defect” funding source and not need taxpayers footing the bill using more scarce Capital Improvement Funds, or the $28.4 million in emergency repair funds the Board of Supervisors passed.

The kitchen floor replacement project had been identified as a critical project shortly after the LHH replacement hospital opened in 2010 and severe mold soon appeared in LHH’s brand-new kitchen, as a result of poor architectural design of the kitchen floor using glass in the floor tiles. It has taken over a dozen years to begin replacement of LHH’s kitchen floor after it was identified as a problem as early as 2011. All along, LHH had declined to provide an estimated date on when the floor replacement would begin or might be completed in order to ensure LHH successfully passes CMS and CDPH recertification inspections.

When the Board of Supervisors claimed the spending would involve a “not-to-exceed” amount of $28.4 million, it was wrong in September 2023, and it’s wrong now. That’s because the March 18 Tali declaration also reported on page 7 that LHH has already spent $3.3 million in capital repair costs and is planning to spend another $26.7 million on repairs “necessary for recertification.” That totals $29.97 million, not the $28.4 million not-to-exceed amount the Board of Supervisors approved in September 2023.

Table 6 above shows those facility repair costs will more probably cost $39 million, and certainly not the $28.4 million the Board of Supervisors (including Supervisor Connie Chan, Chair of the Board’s Budget Committee; Board President Aaron Peskin; and District 7 Supervisor Myrna Melgar) believe.

A Costly Anniversary Gift

The entire $125 million to $152.3 million in expenses to rescue Laguna Honda Hospital outlined in this article might have been avoided entirely, — including significant unknown millions in costs for registry staffing to replace nurses while they were undergoing training and retraining, massive costs in City Attorney time and expenses during the past two-½ to three years, and outstanding lawsuit settlements remaining against the City. The more probable costs to rescue Laguna Honda probably approach somewhere between $175 million and $200 million.

These millions in expenses represent a sad anniversary gift, now that we’ve reached the second anniversary of LHH’s decertification on April 14, 2022.

Neither LHH’s senior managers nor the Health Commission, who contributed to this waste of City resources have been adequately held responsible or to account.

Sadly, as of this writing, LHH has not been recertified, patient admissions have not restarted. So patients needing skilled nursing care are displaced into out-of-county facilities, and San Franciscans still haven’t been told whether LHH will also lose 120 of its 769 skilled nursing beds demanded by CMS — which would not have even been on the table had LHH never been decertified in April 2022.

Much of this may have been set in motion during the disastrous 2019 patient sexual abuse scandal under former CEO Mivic Hirose’s culture of silence mismanagement, and her self-admitted failure to enact a culture of patient safety.

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 monette-shaw@westsideobserver.com.

April 26, 2024