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The last alms house: Laguna Honda faces daunting overhaul to satisfy federal regulators

Exterior of Laguna Honda Hospital and courtyard in San Francisco, Calif. on May 16, 2022. | Camille Cohen
Exterior of Laguna Honda Hospital and courtyard in San Francisco, Calif. on May 16, 2022. | Camille Cohen

Perched on the southwest slope of Mt. Sutro and looking like a giant medieval abbey, the 156-year-old Laguna Honda Hospital and Rehabilitation Center looms as a reminder of the distinctive path San Francisco has taken to care for its own residents.

Known locally as “the last alms-house”—alms-house is what it really used to be called—Laguna Honda is an outsized example of the kind of facility county governments all over America used to support, but don’t anymore.

It houses about 700 people—the elderly, injured, drug-addicted and others with long-term problems. It’s known as a place for “anyone who had fallen, or, often, leapt, onto hard times” and required a long stay in a care home, according to Virginia Sweet in the 2012 book “God’s Hotel,” one of many tributes from over the years.

But San Francisco in recent times has not held up its end of the bargain: A months-long federal crackdown against purported deficiencies in sanitation, record-keeping, administration and patient monitoring is now threatening the hospital with closure as soon as this fall. On May 13, the hospital sent letters to regulators announcing a closure plan, and soon after notified patients that they might be evicted.

Hospital administrators, who were aware of the problems since last October but downplayed them for months, are still in the early stages of taking the measures needed to overhaul Laguna Honda and meet the demands of the federal government’s Centers for Medicare and Medicaid Services (CMS), which provides about two-thirds of the hospitals $300 million annual budget.

Laguna Honda officials acknowledge that the hospital is still well short of what is required. It has yet to reach a so-called “systems improvement agreement” with the federal government allowing Laguna Honda to preserve funding during upgrades. It has yet to undergo a study detailing problems. And it just is now hiring a team of consultants to help carry the work, said Laguna Honda spokeswoman Zoe Harris.

 “If you’re going to change processes, educate employees, and create processes that force a facility to change the way it functions, it’s very difficult to do that,” said Andrew Martin, an analyst with ECRI, a national patient safety nonprofit based in Pennsylvania. “It may be an entire culture change they need to undergo.”

A shuttle departs from Laguna Honda Hospital and Rehabilitation Center in San Francisco, Calif. on Monday, May 16, 2022. | Camille Cohen

Inspections that began in October had turned up problems such as drug paraphernalia and inadequate infection prevention, as well as difficulties with administration and patient monitoring.

The city responded to accelerating federal warnings by downplaying the seriousness of the situation, with press statements saying the inspectors found only minor deficiencies, accompanied by pledges that the city would keep the facility open.

When the U.S. announced in mid-April it would halt Medicare and Medicaid dollars,  the city issued a statement the same day complaining that regulators had cited new, “technical” issues that had not come up before and included things such as “an instance of a staff member not properly storing a face shield.”

But under Medicare’s process for determining whether or not hospitals qualify for funding, if follow-up inspection turns up new problems, that means the facility is not in compliance with the rules, even if it had addressed an earlier round of issues. To ensure that funding continues, Laguna Honda must upgrade to a standard where new rounds of inspections don’t find additional shortfalls, Martin said.

Monday’s eviction warning, while shocking to residents, also had an upside: it was a signal the city was taking seriously the procedural steps required for Medicare recertification.

Now, Laguna Honda says, the U.S. has agreed to extend Medicare and Medicaid payments for four months with the possibility of a two-month extension after that.

The hospital is now finalizing a proposed $1.8 million contract with Health Services Advisory Group, a Phoenix consultancy with expertise in hospital turnarounds. According to Martin and other experts on helping hospitals regain Medicare certification, a facility facing shutdown must typically negotiate an agreement with CMS whereby it can continue to receive funding while completing an overhaul.

It must set aside money for an independent monitor, commission an outside study to determine how far the institution has to go to satisfy federal demands and undertake a brutal overhaul that could inspire pushback from employees and management.

Laguna Honda does not yet have a special agreement to keep funding flowing while improvements are made, but “staff is meeting regularly with CMS and CDPH to provide updates on progress and receive feedback,” Harris said in an email.

What it will take to meet federal standards, how much that will cost and how much time the city will have to get there will be determined as San Francisco completes discussions with consultants and with federal officials.

“Recertifying a hospital is a unique undertaking that many healthcare administrators and staff do not have experience in doing,” she said. “Our top priority is recertifying the hospital and keeping patients safe and cared for at Laguna Honda.”