City struggled to fix Laguna Honda after patient abuse scandal

Documents show Medicare refused to cover costs for new patients for nearly 30 days as penalty

Months after state investigators found Laguna Honda Hospital out of compliance with regulations protecting patients from neglect following an abuse scandal, city officials said they had corrected all the problems and welcomed a follow up inspection.

But the hospital failed to pass the re-inspection and that resulted in additional penalties, including Medicare refusing to cover the costs of any new patients, according to documents obtained by the San Francisco Examiner using the Freedom of Information Act.

The hospital subsequently passed a second re-inspection a month later.

The documents provide a closer look at the challenge city officials have had in reforming Laguna Honda in the aftermath of the scandal that has impacted 130 patients.

During the first re-inspection, investigators found that the hospital had failed to interview nurses as promised to identify “burn out” and to give them a chance to privately address concerns they might have with their coworkers — even though a lack of supervision and a culture of silence was blamed for the abuse.

They also cited the hospital for more recent patient neglect.

Medication was improperly discarded, resulting in a patient taking unprescribed drugs, the documents show. And one patient left the facility without permission and was discovered days later collapsed in a park requiring hospitalization.

By not passing the initial re-inspection, the hospital incurred more daily fines. Not only that, but the federal Medicare program ceased covering costs for new patient admissions for a 27-day period, until the hospital was brought back into compliance last month, the documents show.

Department of Public Health spokesperson Rachael Kagan told the Examiner that the hospital did not turn patients away during the duration of the payment denial penalty but continued to admit them, 21 in all, “to meet the needs of the community.”

She said that the hospital would foot the bill.

“We estimate the amount of reimbursement that will not be received for these residents is around $126,000,” Kagan said. “This shortfall will be covered by the Laguna Honda budget.”

The 780-bed medical facility provides care for low-income seniors and adults with disabilities. The facility is both a general acute care hospital and a skilled nursing facility.

In addition to the denial of payment, the federal agency, the Centers for Medicare and Medicaid Services (CMS), under the US Department of Health and Human Services, hit Laguna Honda with more than $1.1 million in civil penalties for operating in non-compliance with health and safety regulations for the period of Feb. 6 — when The City first reported the abuse — to Oct. 15, the documents show.

But since The City didn’t contest the penalty, they received a 35 percent discount. The total fine was $733,000.

A Department of Public Health official had estimated the fine was $780,000 during the Board of Supervisors Government Audit and Oversight Committee hearing on the patient abuse scandal last month. But Kagan confirmed the $733,000 fine as now accurate.

The fact that the hospital had failed the initial re-inspection in September or lost its Medicare reimbursement for a temporary period was not mentioned during the committee hearing.

The California Department of Public Health, which oversees these types of facilities in the state, first found Laguna Honda out of compliance in a July 12 report, following an investigation of the facility after the reported patient abuse.

City officials first discovered evidence of abuse in February, when a Laguna Honda employee made a sexual harassment complaint against another employee. In the course of investigating that complaint, evidence of hospital staff abusing patients was uncovered.

The alleged abuse, said to have occurred during a three-year period ending in January, included staff taking humiliating photos of patients and sharing them via text messages. There is also evidence they drugged patients, putting their lives at risk.

The investigation has produced over 150 pieces of evidence, including cell phone photos and videos, according to city officials. The six employees alleged to have committed the abuse are no longer employed at the hospital. They could face criminal charges.

The hospital was warned in a Sept. 3 letter from CMS that if they didn’t come back into compliance by Sept. 18, it would impose the “Denial of Payment for New Admissions,” an enforcement penalty the agency uses against skilled nursing facilities in violation of federal quality of care standards to “ensure prompt compliance.” CMS relies upon the findings of CDPH when assessing its penalties.

The City had an opportunity to avoid the penalty.

Hospital officials had implemented a “plan of correction” submitted to CDPH to bring the hospital back into compliance. However, when state health investigators returned about eight weeks later to conduct a survey between Sept. 3 and Sept. 6, they found several deficiencies at the hospital and determined Laguna Honda remained in non-compliance.

Hospital officials had reported to CDPH they had implemented one “corrective action” on “July 15 and ongoing” to have nurse managers check in with the nurses to identify staff “burn out” and ask them privately if they have any concerns about their colleagues.

But state investigators found the hospital had, in fact, failed to do this.

For example, in one unit just 12 of 43 nurses were interviewed according to the corrective action plan. In another, just five of 55, according to CDPH’s Sept. 6 survey report.

During interviews with CDPH investigators, the hospital’s manager of administration and director of quality management both said they were unaware of how many nurses were interviewed, according to the report.

When the data was shown to the hospital’s risk manager the response was: “Yes, I get it… the numbers should be higher after the findings related to supervision of staff…it has been a lot of work…”

Kagan said that the lack of compliance on the first re-inspection “is not an unusual aspect of the process, which is designed so that facilities like LHH collaborate with CDPH to implement appropriate safeguards for residents.”

Dr. Derek Kerr, a physician at Laguna Honda for more than two decades before being wrongfully terminated in 2009 for exposing wrongdoing as a whistleblower, said that while “complying with state surveys often involves negotiations” these findings “didn’t look good.”

Having interviewed so few nurses was “not good because the scandal involved a failure of nursing supervision,” Kerr said.

“Maybe nurse managers have too much to do. Still, nurse managers themselves should have implemented this process without direction from the top. What are they managing if they don’t talk with their staff?” he said.

State investigators also cited the hospital for failures related to July and August incidents.

A patient suffering from diabetes and a decline in cognitive functioning from years of drug abuse, left the facility without permission on an August afternoon and was later hospitalized after being found collapsed in a park three days later, according to the report.

The lack of adequate patient supervision “placed the resident at risk for serious injury or death,” the report said.

The report also said that Laguna Honda failed to have a policy for the proper disposal of prescribed drugs hidden in foods and was improperly discarding medicine in trash receptacles without closed covers. These shortcomings resulted in one patient with a medical history of dementia, schizophrenia, and excessive drinking taking non-prescribed medications, the report said.

The problem was discovered after a urine test was ordered in late July when the patient was “disrobing which was not a behavior … exhibited in the past.”

The report suggested the patient may have also taken the ice cream from another patient in a shared locked unit that had hidden in it the prescribed opioid pain-killer Hydrocodone.

It would take a second re-visit by state investigators, known as surveyors, on Oct. 14 and Oct. 15 before Laguna Honda would come into compliance and have the CMS sanctions lifted, the documents show.

But Laguna Honda remains under investigation by CDPH.

Since Oct. 15, Kagan said that the hospital continues to “collaborate” with CDPH, “including in relation to on-site visits, regarding various aspects of the recent abuse and employee misconduct allegations as well as more routine facility-reported incidents.”

The patient abuse scandal found 30 patients were victims of abuse like drugging, sexualized conversations, physical or verbal abuse. Another 100 patients were subject of privacy violations when photographed or videoed, or had their names disclosed in recordings. City officials first disclosed the abuse to the public on June 28, but had estimated only 23 patients were impacted at that time.

“LHH remains committed to working with CDPH to address any concerns that arise out of these issues, and LHH is in substantial compliance with regulations,” Kagan said. “We do not know when CDPH will complete its investigations into the various aspects of the employee-related misconduct reported earlier this year, including both the abuse and the privacy violations.”

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