A Crisis of In-County Skilled Nursing Bed Capacity
Laguna Honda Cows to Trump — the 120-Bed Spin Control
Monette-Shaw
$53.6 Million on Consultant Contracts.
$230 Million in Lost Medi-Cal Revenue.
$8.2 Million in Fines, Penalties and Lawsuit Settlements.
$8 Million in Five Employees’ Salaries.
Then City Abandons 120 Beds?
• • • • • • • • • • August 2025 • • • • • • • • • •
The loss of 120 beds at Laguna Honda Hospital (LHH) for the indefinite foreseeable future — at least three-and-a-half years remaining in the Trump administration, plus perhaps another four to eight years should Democrats fail to win the White House in 2028 — involves a lot of gaslighting, when not pure spin control, from the Federal government.
But our local media and Department of Public Health and its Health Commission are not helping.
The loss was a predictable — but entirely avoidable — result of, and directly related to, LHH’s decades-long “culture of silence.” All driven by City managers and employees lacking experience, training, or licensure running a skilled nursing facility, exacerbated by performance failures of Laguna Honda’s “governing body,” the Health Commission.
A San Francisco Chronicle article on July 24 and an SFist article on July 25 failed to adequately describe the cause of the 120-bed loss. They did not thoroughly examine the vacuous reasoning behind the Federal government’s denial of the City’s waiver to save the beds, which are critically needed — now.
For its part, SFist asserted LHH had “reputational fallout” from two patient illicit drug overdoses in 2019, and 276 incidents of noncompliance since its recertification in 2023, but had received only six citations for the 276 incidents. SFist’s 499-word article grossly understated the problem. Neither the Chronicle nor SFist mentioned that LHH has had at least 290 “scope-and-severity citations from inspections by state and federal inspectors, approximately 2,586 Facility-Reported Incidents (FRI’s) since 2016, and by LHH’s own (but undercounted) admission, at least 49 verified deficiencies between 2024 and 2025 alone.
As for the Chronicle, it reported largely the same nonsense in its skimpy 522-word article (as if the Chron couldn’t afford to buy more ink), but tossed in for good measure that indeed, state inspectors had identified “moderate to very serious” deficiencies at LHH in 2022. Both news outlets repeated the City’s spin control that pursuing legal action to fight CMS’s second waiver denial would “be costly, time consuming, and unlikely to yield a timely or favorable result.”
Both media outlets severely understated the severity of LHH’s actual sustained deficiencies, fines, financial administrative penalties, lawsuit settlements, and costs of City Attorney time and expenses. And both news articles neglected to mention that LHH had very, very serious deficiencies, including 27 “Immediate Jeopardy” and “Actual Harm” citations since 2019, and fines and administrative penalties long before 2022 and 2023, dating back to the patient sexual abuse scandal in 2019.
Although my Westside Observer colleague, Dr. Theresa Palmer, wrote a key article in the Observer in July, it didn’t focus on historical details.
Laguna Honda Hospital’s Waiver Request Denied – Again
LHH dragged its feet before submitting its waiver request to save 120 of its skilled nursing facility beds. Had the waiver been submitted in 2023 or 2024, it could have been approved before the Donald Trump Administration, and we’d still have LHH’s 120 beds.
Part of the delay was because LHH gaslighted the public into believing that the Centers for Medicare and Medicaid Services (CMS) had initially claimed that no more than two residents could share a common bathroom.
Shamefully, it took LHH 26 months during decertification to retrain its obdurate and entrenched managers and nursing staff on how to run a skilled nursing facility. Both the CEO and its hired consultant wrote — after decertification — that LHH staff still threatened to jeopardize recertification, including such minor things as not properly donning face masks and gloves.
Another factor in the delay was that, after recertification from the California Department of Public Health (CPDH) in August 2023 and from CMS in June 2024, LHH delayed new admissions, waiting to ensure that staff sustained the required improvements. New admissions finally began, slowly and methodically.
Five months later, on November 27, 2024, the first waiver request was submitted. CMS rejected the first waiver request in January 2025.
The revised waiver request, submitted on April 11, 2025, argued that Laguna Honda was certified before 2016 and offers rooms that are larger than required, the CMS rulemaking in 2016 didn’t apply to LHH, because the 2016 final rule change had clearly stated, “existing facilities with larger rooms are effectively grandfathered into compliance” with Code of Federal Regulations §49083.90(d)(1) about the maximum number of patients per room.
Concerns about the CMS proposed rulemaking in an October 4, 2016, Federal Register extract included comments from skilled nursing facility providers, including their misunderstanding of the revised rules on page 9 (68695), which stated:
“Comment: A number of commenters responded to our request for comments in ways that suggest misunderstandings of either current requirements or the proposed requirements. Notable misconceptions include the [mistaken] belief that existing facilities would have to limit occupancy to two residents per room, even if that would reduce bed count.”
In response to the commenter’s concerns, the Federal Register’s clarifying response also stated on page 9:
“The “two persons per room” requirement applies only to those facilities that receive approval to be constructed or reconstructed, or are newly certified after this rulemaking. Existing facilities with larger rooms are effectively grandfathered into compliance.”
In its revised waiver request, LHH rightly noted CMS’s insistence — that LHH was not grandfathered to the pre-2016 rule change — was an arbitrary and capricious interpretation of the Federal Register’s clarification on this issue.
LHH’s April 11 resubmitted waiver request rightly discussed that the CMS 2016 final rule did not define the term “newly certified.” The US Department of Health and Human Services’ (HHS) commentary in both the proposed and final rules made clear that the intent was to apply the rule prospectively, not retrospectively, to existing facilities that were then currently certified in 2016 to participate in Medicare and/or Medicaid.
CMS has essentially been quibbling about the difference between “newly certified” and “recertified.” When LHH submitted its waiver requests in both November 2024 and April 2025, it was seeking to be recertified, not newly certified. CMS’s denial of LHH’s 120-bed waiver request amounted to an end-run around the intent of CMS and HHS in 2016 that facilities with more than two residents per room were grandfathered, and, therefore, exempt from the revised rulemaking.
It’s almost as if CMS itself had misunderstood the Federal Register’s explanation of the intent of the rulemaking in 2015 and 2016, with CMS creatively ignoring LHH’s long-standing certification as an “existing facility” and that LHH was essentially seeking recertification as a grandfathered facility, not seeking first-time certification.
In its July 7 denial letter, CMS suddenly raised a new issue about the number of deficiencies, addressed below, that essentially amounts to more gaslighting from the Trump Administration.
More CMS Gaslighting Spin Control
In its July 7, 2025 rejection letter, CMS mischaracterizes the controlling federal regulation by adding:
“CMS may permit variations of the various resident bedroom requirements listed at 42 C.F.R. §483.90(e)(1)(i) and (ii) in individual cases where a facility can demonstrate that the variance is in accordance with the special needs of the residents and will not adversely affect resident health and safety.”
First, CMS ignores the fact that §483.90(e)(3) specifically authorizes the California Department of Public Health (CDPH) to grant the 120-bed waiver request, because it is also a “nursing facility,” an issue LHH addressed in its March 11 resubmitted waiver request. CMS claims it is the “sole arbiter” of this decision. It is just more gaslighting.
More importantly, CMS ignored the sound rationale in the April 11 waiver resubmission — whether residents’ health and safety would be adversely affected. The hospital has well documented that it would not.
We haven’t heard a peep out of the Supervisors, who have now high-tailed it out of town for their month-long August recess. They are complicit in this mess, too, because they have only held three hearings on the crisis at Laguna Honda since it was decertified in 2022.”
§483.90(e)(1)(i) stipulates there can be no more than four residents per bedroom, except that facilities “newly certified” by CMS after November 28, 2016, can have no more than two residents per bedroom. For its part, 42 C.F.R. §483.90(e)(1) (ii), simply states that bedrooms must measure at least 80 square feet per resident in multiple resident bedrooms, and at least 100 square feet in single resident bedrooms. LHH documented that its rooms exceed the minimum square footage requirements.
In its July 7 letter, CMS lurches into deceitful spin control:
“Review of the text of § 483.90(e)(3) demonstrates that CMS has the discretion to permit variances on a limited basis for an individual bedroom as needed to best assist a specific resident to attain their highest practicable state, with that variance expiringonce the specific resident was no longer present.”
Although §483.90(e)(3) does stipulate that in “individual cases” a facility must be able to demonstrate that the variation to the number of residents per room is in accordance with the special needs of the residents and must not adversely affect residents’ health and safety, CMS wrongly asserts §483.90(e)(3) includes language allowing CMS to withdraw the “variance” to the rule (the waiver), or that the waiver will expire, when a given resident is no longer there.
There’s nothing in §483.90(e) that provides any such thing about the waiver expiring when a given resident moves on. In addition, it is thought that the clause “in individual cases” was intended to refer to individual facilities that may apply for a waiver request, rather than to individual patients.
It appears CMS raised this claim for the first time in its July 7 denial letter, and didn’t allow an opportunity to rebut in LHH’s formal written waiver resubmission on April 11.
CMS Moved the Goalpost
Unfortunately, when CMS denied LHH’s second waiver application, it suddenly switched the goalposts, a bait-and-switch largely abandoning its previous objections about the number of patients that could share a bathroom or share bedrooms. In its place, CMS introduced a new concern apparently not previously raised in verbal conversations, which would have allowed LHH officials to address those concerns before submitting the revised appeal.
CMS’s new focus was the 1,600 allegations of noncompliance, including allegations of abuse, neglect, and resident rights violations, along with facility-reported incidents (FRIs) and anonymous complaints in the six years prior to LHH’s decertification in April 2022. The “six years prior” included the three years before LHH’s patient sexual abuse scandal in 2019.
CMS added, as the primary basis for a second denial, that hundreds more allegations of violations followed the re-entry into Medicaid (Medi-Cal), and its Medi-Cal recertification in August 2023, and then its Medicare recertification in 2024.
This tactic deprived LHH of an opportunity to address the issues in its April 11 resubmitted waiver request.
LHH has a long history of problems.
LHH Gaslights Its Deficiencies
A week after the July 7 denial letter, LHH responded on July 14 with a carefully worded press release.
It’s not known whether LHH or the City Attorney has formally responded in writing to CMS yet.
LHH’s press release claimed CMS mischaracterized LHH’s regulatory compliance, disputing the inclusion of pre-2022 decertification reports and anonymous complaints not verified through formal survey findings, asserting that only six of 276 incident reports since December 2023 resulted in an actual deficiency.
Referring to the 1,600 incidents dating back to 2016, the press release also asserted:
“Compared to other large skilled nursing facilities in California (299 beds or more), Laguna Honda ranks in the middle tier for reported incidents and well below the median for survey deficiencies. This reinforces that Laguna Honda’s performance is consistent with sector norms.”
Even though LHH employs a much larger contingent of Nursing staff than other nursing facilities, in part because it’s a municipally-funded facility, it has generous salaries and pension plans.
LHH’s contingent of 768 Nursing staff should have been better able to prevent the larger number of facility-reported incidents — particularly since its Nursing employees had remained at full staffing levels — even though its patient census had dropped by 40% during its decertification.
While Laguna Honda vigorously disputes CMS’s mischaracterization of its performance, it is nonetheless somewhat true.
The press release indicates the City will not appeal CMS’s denial or pursue litigation at this time. It says that while Laguna Honda and SFDPH strongly disagree with CMS’s decision, it’s a strategic choice not to pursue “costly, time-consuming, and unlikely to yield a timely or favorable result—especially given CMS’s broad discretion and the current political climate” in Washington.
Were the Board of Supervisors or the Health Commission consulted?
The press release asserts local health departments like SFDPH must focus on protecting the broader system of care in the face of ongoing federal and state threats to millions of dollars in other Medicaid funding San Francisco depends upon. LHH’s press release claimed that instead of litigation, LHH and the City are prioritizing proactive efforts to expand skilled nursing capacity across the system and continuing to engage with CMS and the State about potential “alternative pathways.”
To date, we haven’t heard what specific “proactive efforts” SFDPH currently has underway, if any.
And on July 14, LHH released a comparative analysis claiming only six of 276 incident reports resulted in an actual deficiency. The analysis clearly stated that, of a total of 267 incidents it had a total of 49 deficiencies. LHH’s “new math” somehow converted its admission of 49 deficiencies down to just six.
The Westside Observer’s former columnist, Lou Barberini — a trained CPA — has noted: “When a San Francisco agency reports in percentage terms rather than actual [raw] numbers, you can be assured they are hiding something.”
Tsai’s and Chow’s July 14 Remarks
A partial verbatim transcript extract from the July 14, 2025, JCC meeting at which the announcement was made that CMS had denied LHH’s 120-bed waiver request for a second time was extremely disturbing. The transcript includes extensive comments made by the Director of Public Health, Daniel Tsai, and Health Commissioner Edward, Chow, MD.
Tsai indicated that the City — presumably including the Mayor and City Attorney — with or without the approval of the Board of Supervisors — had decided to cave in and buckle to the bullies running the Donald Trump administration, and not pursue filing a lawsuit at this time to compel CMS to approve LHH’s 120-bed waiver request, even though protecting LHH’s skilled nursing beds is part of the continuum of care for San Francisco’s, most vulnerable elderly and disabled residents who rely on Medi-Cal for skilled nursing facility level of care.
Tsai said, in part:
“We are not conceding on the merits of our arguments [in our revised April 11 appeal] … But we are not intending at this point to pursue further appeals or [legal] actions. Just to be very wise about where and how we’re engaging with the Federal government, given the magnitude of cuts that are coming all around us at this point and that we need to be prepared to fight.”
That seems to contradict Tsai’s earlier statements during an earlier, April 14, 2025, meeting — after explicitly stating San Francisco needs more skilled nursing facility beds — that:
“… we said in the [April 11 waiver appeal] letter very clearly that from a legal standpoint, we think the Federal government needs to grant us this waiver for the 120 beds, and we outlined the legal reasons why.”
Tsai effectively said that despite having a very strong case to pursue legally, the City had decided to throw in the towel and temporarily abandon LHH’s 120 critically needed beds.
Tsai also stated that CMS had made clear, apparently only in verbal discussions off-line, that the waiver request was “the last stop on the bus” and CMS was the sole arbiter of the decision, claiming it was not delegable to the State of California at CDPH. That’s patently untrue, first, because LHH cited in its resubmitted appeal that Federal regulations allow CDPH to grant a variance to the 2016 two-person per room rule in the case of a nursing facility.
And second, the waiver appeal letter also stated that as late as January 1, 2025, LHH had met with CMS staff, who agreed they met the variance requirements, and granting the waiver wouldn’t adversely affect LHH residents’ health. Despite meeting the variance requirements, CMS is still punishing LHH anyway.
This is another example of the Trump Administration getting away with simply moving the goal posts.
For his part, Chow said that in the face of the hundreds of millions of dollars in Medicaid funding cuts the State of California is facing, he agreed that Tsai’s conclusion not to pursue litigation to save LHH’s 120 beds makes sense. Chow asserted the priority at the moment is that it’s very important “we don’t fight too many battles on too many fronts, and it’s important to pick the battles carefully to [‘protect’] the most vulnerable areas so patients who do need care are able to get it.”
Chow implied that LHH was fortunate to be recertified. He stated San Francisco should be pleased we have 500-plus beds at LHH, as if Chow couldn’t recall or calculate that losing 120 of its beds still leaves 649 — not 500 — SNF beds at LHH. There are patients now who need SNF care in-county, but aren’t able to get it.
Should San Francisco’s City Attorney pursue litigation to save LHH’s 120 beds?
Can the City Attorney only focus on fighting to preserve hundreds of millions in Federal government revenue the City rightly fears it will lose from Trump’s cuts in Medicaid reimbursement for vulnerable safety-net patients in other programs — and abandon fighting to save Laguna Honda’s 120 beds, which yield approximately $32.6 million annually in Medicare and Medi-Cal revenue reimbursement each year. After all, over a three-and-a-half-year period, LHH will lose approximately $114.1 million in Medicare funding from losing 120 of its beds, which is desperately needed to help pay the salaries of LHH’s 768 budgeted Nursing staff positions in various job classifications.
$300.5 Million Decertification Costs Subset
Ever since LHH was decertified in April 2022, I have tracked various costs related to the disaster of CMS’ threat to close down Laguna Honda completely. Those costs now total at least $384 million, but it’s an ongoing work still in progress.
Hope for the Future?
As another chart shows, San Francisco is down to having just 2,156 skilled nursing beds in-county, after losing 1,173 such beds since 2009, involving the loss of 386 such beds since 2015. That exacerbates the number of San Franciscans “granny dumped” into out-of-county skilled nursing facilities, across the past three to four years, which will be explored in an upcoming September Westside Observer article.
But wait, there’s more. We haven’t heard a peep out of the Supervisors, who have now high-tailed it out of town for their month-long August recess. They are complicit in this mess, too, because they have only held three hearings on the crisis at Laguna Honda since it was decertified in 2022.
The fewer steps Director Tsai and San Francisco’s City Attorney take to protect the supply of skilled nursing facility beds in San Francisco, the more responsibility they will bear for the loss of even more SNF beds in our City, and the skyrocketing out-of-county discharges there will be for San Franciscans who need SNF level of care following hospitalization for acute care.
LHH’s long decades of a culture of mismanagement now includes mismanagement in abandoning saving 120 of LHH’s beds. This can’t wait until a nebulous “at some future point” — assuming some change in the Federal government — or an even more nebulous “proactive efforts and alternative pathways.”
Currently, there’s little hope LHH’s 120 beds will be saved anytime in the future, or that Director’s Tsai prayers for “alternative pathways” will come to fruition. Growing old in San Francisco includes dying from side effects, that Barbara Ehrenreich’s book, “Natural Causes,” addressed.
Monette-Shaw has been a columnist for San Francisco’s Westside Observer newspaper for almost two decades, and is a member of the California First Amendment Coalition (FAC) and the ACLU. He operates stopLHHdownsize.com. Contact him at monette-shaw@westsideobserver.com.
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 is a Childless (and catless) Cat Daddy, and voter for 50 years. He operates stopLHHdownsize.com. Contact him at monette-shaw@westsideobserver.com.
August 2025
