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Health Commission Meeting
The Health Commission approved the "Settlement" before it was made public. Heath Commission President Dan Bernal, SFDPH Director Dr. Grant Colfax, LHH Interim CEO Roland Pickens

Has the City permanently lost another 120 skilled nursing beds?

Laguna Honda’s Settlement Agreement

•••••••••• November, 2022 ••••••••••

On October 17th, the Gray Panthers and Supervisor Melgar’s Office arranged a ZOOM meeting with City Attorney David Chiu. There were questions about the October 12th announcement of a Laguna Honda Hospital (LHH) Settlement Agreement between the City, the federal Centers for Medicare & Medicaid Services (CMS) and the California Department of Public Health (CDPH). Prime among them was the loss of 120 LHH beds.

Because LHH was decertified by CMS, it must abide by current CMS rules to regain certification. In 2016, CMS mandated that shared rooms have no more than 2 beds. But the 2010 LHH rebuild installed 120 3-bed rooms. These are now forbidden. Converting 3-bed rooms to 2-beds has sacrificed 120 LHH beds.

Cavid Chiu
City Attorney David Chiu

When asked about recovering these essential Skilled Nursing beds, David Chiu explained; “the Settlement Agreement is silent on the 120 beds.” Why? Well, the matter was not discussed during negotiations with CMS! Chiu alluded that regaining the beds could be “up for discussion” in the future.  When doubts were raised, Chiu warned; “scuttling the Settlement over this (120-bed) issue would be wrong.”  Why “wrong”? Well, his staff had done their best through very tough negotiations.

Suspiciously, Chiu’s Deputy Attorneys, Henry Lifton and Julie Van Nostern declined to share a copy of the Settlement. Days later, in a self-exalting email titled “Great News for Laguna Honda!” - “Paid for by David Chiu for City Attorney 2022” - Chiu touted the favorable aspects of the Settlement. So, why withhold the actual document if it contains “great news?”

At the October 18th Health Commission meeting (at 0:8:25) Interim LHH CEO Roland Pickens shared selected items from the Settlement. Then the Commissioners resorted to a Closed Session with City Attorney Chiu before announcing their approval of the Settlement and its referral to the Board of Supervisors. Meaningful public input was impossible as no outsiders had seen the Settlement. And yet, section 41 of the Settlement declares; “All Parties consent to the public disclosure of this Agreement, and information about this Agreement.” Days later, through a public records request, the Westside Observer obtained a copy.


No one who currently or in the past 24 months has been an employee of LHH” can fulfill this function. Neither can the under-qualified, Flow Project executives who were hustled from SFGH and DPH to fix the LHH coop. Pathetically, they had to hire licensed Nursing Home Administrators to compensate for their dearth of knowledge.”

Money Exchanged for Obedience

The 23-page “Settlement and Systems Improvement Agreement” extends CMS payments to LHH until November 2023 - about $200 million over the year. Also, it halves the $408,000 in fines levied against the hospital to $204,000. Thankfully, it postpones mandatory patient discharges until February 2023. (Among 57 prior mandated discharges, 9 patients died within days or weeks, resulting in a pause and a CDPH investigation.) If LHH achieves recertification before February 2023, it won’t have to depopulate its wards. And if it makes progress in correcting its deficiencies, mandatory patient discharges may be postponed further by CMS. Apparently, CMS recognizes that LHH is too big to close and its patients too fragile to relocate. That’s the good news.

In exchange, the City will dismiss its lawsuit, appeals and forceful claims that CMS had “improperly” decertified LHH. The City will absorb City Attorney’s fees.

The bad news is that CMS did not modify any of its 26 deficiency citations against LHH. Further, LHH “will not admit new residents unless LHH obtains Medicare or Medicaid certification.” That’s a tighter yoke than CMS simply refusing to pay for new admissions, as it’s done for 7 months. Meanwhile, San Franciscans needing skilled nursing care at LHH are being denied.  Too, the DPH Flow Project, with its obligatory admission of unstable patients from SFGH, is blocked. As part of its Revised Closure Plan, “LHH will continue conducting thorough individual assessments of residents for the purpose of determining appropriateness of transfer or discharge.” But, mandatory transfers won’t happen before February, 2023. Beyond this smack-down, the Settlement wraps a compliance straightjacket around LHH. It demands “substantial improvements and…substantive personnel and resource investments” to meet regulatory requirements.

LHH’s Regulatory Straightjacket

LHH must continue cooperating with an onsite Federal Facilitator, appointed and paid by CMS, who intrusively monitors LHH’s compliance with regulatory requirements and the terms of the Settlement.

LHH must hire outside Quality Improvement Experts, experienced in assessing Skilled Nursing Facilities. Shamefully, LHH’s own “leaders” are deemed unfit and are barred.  Citing conflicts of interest, the Settlement states, “No one who currently or in the past 24 months has been an employee of LHH” can fulfill this function. Neither can the under-qualified, Flow Project executives who were hustled from SFGH and DPH to fix the LHH coop. Pathetically, they had to hire licensed Nursing Home Administrators to compensate for their dearth of knowledge. Fortuitously, LHH had already contracted with certification experts from the Health Services Advisory Group. CMS accepted them as Quality Improvement Experts. As my colleague Patrick Monette-Shaw reported, LHH boosted this group’s contract to a whopping $7 million!

Momentously, these Quality Improvement Experts must conduct a Root Cause Analysis for every deficiency identified in CMS and CDPH surveys since the near-fatal drug overdoses in July 2021. That includes in-depth analyses of staff training in identifying contraband, and protecting residents from contraband. Also to be analyzed are LHH’s interventions to keep residents safe from “illegal drug use”, possession of drugs, and other contraband. Moreover, behavioral health services must be examined for their management of “mental and substance use disorders.”

These analyses must generate recommendations that will cure LHH’s deficiencies. They must be reported to CMS by December 1st, 2022. CMS must OK them. From these recommendations, LHH must develop and fund an Action Plan by January 6th, 2023. Again, CMS must approve. LHH’s Action Plan must be “fully implemented by May 13, 2023” along with a “list of milestones and completion dates for each corrective action.” There’s scant wiggle room in this coercive framework. Indeed, “If LHH refuses to implement any material aspect of the Action Plan…it…shall be grounds for CMS to terminate the Agreement and to discontinue discretionary federal funding to LHH.”


Perhaps, the analyses by the Quality Improvement Experts will reveal that LHH has been skirting its Admissions Policy - by accepting patients who endanger themselves and others by using and distributing drugs like fentanyl and methamphetamine.”

Every month, LHH’s Quality Improvement Experts must submit detailed progress reports to CMS, including a “description of complaints received by LHH from any source.” Moreover, CMS and CDPH will conduct unannounced inspections every 3 months to ensure compliance with Medicare and Medicaid regulations. On top of these, CDPH will continue its routine surveys in response to complaints and facility-reported incidents. If these inspections find potentially harmful deficiencies, additional Root Cause Analyses and Action Plans will be required. If LHH fails to eliminate potentially harmful deficiencies by February 2023 - or if it breaches the terms of the Settlement - a Closure Plan will be imposed with mandatory patient evacuations. LHH’s only reprieve from this regulatory bondage is a complex “meet-and-confer and dispute escalation procedure” to hash out disagreements with CMS.

Perhaps, the analyses by the Quality Improvement Experts will reveal that LHH has been skirting its Admissions Policy - by accepting patients who endanger themselves and others by using and distributing drugs like fentanyl and methamphetamine. But the Health Services Advisory Group is hardly an independent agent as it is lavishly remunerated by LHH. Critiques by such consultants can doom future contracts. So, it’s unlikely that their Root Cause Analyses will challenge the damaging DPH Flow Project.

Settlement a Done Deal

Following an update on LHH’s recertification efforts ( at 2:22:39), the Board of Supervisors unanimously approved the Settlement on November 1st. A glimmer of hope came after Supervisor Rafael Mandelman asked about the “inappropriate mixing of folks who should not be in the facility.” In response, LHH CEO Roland Pickens said that proposals to “cohort and separate the two populations” were being considered. That would require “more resources either at LHH or somewhere else.” He also announced that LHH is keeping its license for the 120 beds currently banned by CMS. LHH “hopes to again occupy them” after future negotiations with CMS.

The Wages of Non-Compliance

The Settlement includes many other technical requirements that will severely challenge LHH managers and staff. Each of these requirements creates potential pitfalls and penalties. The intense scrutiny LHH faces is both stressful and threatening, not to mention disruptive to patient care. The Settlement falls short of “great news” for LHH. It shows that regulators do not trust LHH – at all. Essentially, it reminds LHH and the DPH who’s boss.

Wilmie Hathaway
Chief Medical Officer
Dr. Wilmie Hathaway

This October, LHH’s Chief Medical Officer, Dr. Wilmie Hathaway, bailed out. More departures are likely given the pressure-cooker that LHH has become. None of this would have happened had LHH abided by its own Admissions Policy and declined to admit patients for whom it could not provide adequate care.

In 2004, the DPH strained to justify the Flow Project amid public outcries. It fantasized a $1.7 million annual savings by scrapping LHH’s admission screening procedures and foisting SFGH’s unruly non-paying patients upon the hospital – without extra resources. Whatever the DPH Flow Project “saved” is being wiped out by; the cost of consultants (now totaling $14.3 million), the compelled hiring of more staff, additional training requirements, the blockade on admissions, increased security costs, legal fees, fines, onerous inspections, overtime expenses and reputational damage.

In 2004, zealous Health Commissioners viewed LHH as a "silo" because its Admissions Policy excluded dangerous patients. They wanted to "break silos" to facilitate patient flow from SFGH. Long-Term Care Ombudsman, Benson Nadell, warned them that “Laguna Honda is a regulatory silo.” Hopefully, today’s Commissioners understand what that means.

Dr. Derek Kerr is a San Francisco investigative reporter for the Westside Observer and a member of SPJ-NorCal. Contact:

November, 2022

Derek Kerr
Dr. Derek Kerr

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