San Francisco’s Laguna Honda Hospital faces potential closure after affected person overdoses set off state overview

Federal regulators have threatened to pull critical funding from San Francisco’s Laguna Honda Hospital after two patients overdosed at the facility last year, a dramatic measure that could force the hospital to shut down.

Officials with San Francisco’s health department, which runs Laguna Honda, said Wednesday that the hospital had fallen out of regulatory compliance, putting its funding from Medicare and Medicaid in jeopardy. Laguna Honda, one of the largest skilled nursing facilities in the country, is run by the city and cares for more than 700 patients, including people with dementia, drug addiction and other complex medical needs, who live on the hospital’s campus.

The hospital has until April 14 to remedy a number of issues identified by state health officials — including the presence of contraband found on Laguna Honda’s campus — in order to stave off a potential financial calamity that could displace hundreds of medically fragile patients.

State officials said they were working with Laguna Honda to bring the hospital into compliance and avoid closure.

“There’s a commitment from (Department of Public Health) and the city to keep Laguna Honda open,” Roland Pickens, director of the San Francisco Health Network, told The Chronicle. “But it would be very difficult financially to remain open without the reimbursement” payments from the Centers for Medicare and Medicaid Services.

Laguna Honda began a correction plan with the California Department of Public Health in October, after state officials found the hospital “in a state of substandard quality of care,” according to a statement from the San Francisco Department of Public Health.

The finding came after staff at Laguna Honda reported two overdoses at the hospital in July, neither of them fatal. Hospital officials disclosed these incidents to the state, adhering to a self-reporting requirement that Laguna Honda implemented in 2019, after a state investigation turned up evidence of patient abuse.

By documenting the overdoses, Laguna Honda triggered an extended survey by the state, which led to the state’s conclusion in October that the hospital had fallen out of compliance. With the correction plan in place, hospital staff had six months to fix deficiencies and enhance safety measures, including steps to eliminate drug paraphernalia or illicit substances from the campus.

Although Pickens and Laguna Honda CEO Michael Phillips said in an interview that the hospital worked diligently to retrain its staff and remind workers to be on the lookout for banned items, state regulators witnessed violations when they inspected the site. In January, state regulators concluded that one hospital worker was not following protocols. This month, inspectors discovered a patient was smoking in a communal bathroom, while another patient on oxygen had a lighter.

On March 22, the state put Laguna Honda in immediate jeopardy for noncompliance with federal regulations and standards, a severe designation that officials lifted five days later after the hospital quickly responded with restrictions on visitors bringing in items and increased safety searches, among other reforms. Laguna Honda officials are contemplating new security infrastructure, such as scanning machines at entrances to screen visitor packages for prohibited materials.

Still, the six-month window is closing for the hospital to substantially finish its corrective plan, while also resolving the problems uncovered at the subsequent site visits.

The looming deadline puts strain on an institution that managed to avert a deadly coronavirus surge in 2020, but is still grappling with the abuse scandal of 2019, which Pickens and Phillips said had no bearing on the current remedial plan. Last year the city agreed to pay $800,000 to settle one of three lawsuits filed by patients alleging they were abused by staff. One of the cases is a class action, involving multiple plaintiffs.

Phillips, the CEO, pointed to the challenges that plague Laguna Honda.

“We care for some of the most vulnerable residents in the city of San Francisco,” he said, many of whom have histories of substance abuse, which may persist as they undergo treatment. Since the hospital is not a locked facility, people can come and go as they please, opening the possibility that they may procure drugs outside and then return to campus, Phillips said.

“Despite our best efforts, illicit substances will eventually find their way onto our campus,” Phillips said. “We’re continuously looking for ways to improve our protocols so that we can find more innovative ways to identify these substances and keep them away from our residents.”

Staff at the hospital struggle to balance patients’ privacy and freedom of movement with the need to sustain a safe environment and take a hard line on illicit substances or materials. Phillips and Pickens said their discussions with regulators have been amicable and collaborative, but that the state is still obliged to follow a process that puts the hospital at risk of shutting down.

“It’s a perfunctory process that was triggered by the October incident,” Pickens said, suggesting that if the state had been quicker to validate all of the hospital’s reforms, “perhaps we wouldn’t be so close to the April 14 deadline.”

Laguna Honda relies on payments from Medi-Cal and Medicaid to fund most of its services, since most patients are low- or extremely-low-income and burdened with complicated medical needs. It was unclear where patients would go if the hospital is unable to stay afloat.

“As you can imagine, there’s a shortage of skilled nursing beds throughout the country,” Pickens said. “California and San Francisco are no exception. It would take quite a while, if it ever came to trying to find new placements for those 700 patients at Laguna.”

He hopes for what he says is a more likely scenario: All agencies collaborate to bring Laguna into compliance by April 14.

In a statement, California Department of Public Health officials said, “Resident and worker safety remains our highest priority, and we continue to coordinate closely with Laguna Honda Hospital and Rehabilitation Center, and our local and federal partners to help ensure the facility meets the regulatory requirements to provide safe and appropriate care to all residents and patients,” the statement read.

Phillips contended that, in spite of past missteps, Laguna Honda has done everything it can to earn the public’s trust.

“As you can imagine, there are thousands of interactions with caregivers and patients throughout any given day,” he said. “There are multiple opportunities for bad outcomes. And yet, in the vast majority of cases, there are no bad outcomes. There are just a small handful of these things that happen, and we report them, as we are required to do.”

Rachel Swan is a San Francisco Chronicle staff writer. Email: rswan@sfchronicle.com Twitter: @rachelswan