Healthy Investment

Ignore Davis, Fang, O'Donoghue, and Roselli; here's how renovating Laguna Honda could save taxpayers $500 million

The federal and state auditors who recently criticized Laguna Honda did not comment on cosmetics. They were more concerned with crowded wards, the use of drugs and physical restraints to control patients, and a lack of space for sit-down dining and personal storage. The auditors also criticized the hospital's outmoded nursing manuals and what they said was its dearth of interesting recreational activities.

Despite these criticisms, the quality of medical care at Laguna Honda is consistently judged to be excellent by regulators. And, as a one-of-a-kind skilled nursing institution, Laguna Honda has been exempted from the federal government's requirement, adopted in 1980, that hospital rooms contain no more than four patients. Given that Laguna Honda has been operating an open-ward system for decades, hospital administrators ask the reasonable question: "Why are the auditors coming down so hard on us this year? Why not last year?"

One answer is that public health systems across the country are being restructured to interlock with managed care systems run by privately owned health maintenance organizations. Increasingly, the federal government has pressured San Francisco to move a sizable chunk of its $600 million public health budget into new, "public-private partnership" health networks.

Federal dollars that had been funding long-term institutional care for the elderly in governmental facilities are now being channeled toward privately run nursing homes.

But neither the federal push to decrease public health care costs through managed care, nor HCFA's concern about conditions at Laguna Honda, means that Washington wants a new $500 million skilled nursing facility to be built in San Francisco. In fact, federal regulators say that their Laguna Honda concerns can be addressed at far less than the cost of building a new hospital.

"The overcrowding issue at Laguna Honda pops its head up every five or six years," says Janice Caldwell, associate regional administrator for HCFA. Every year for 18 years, Caldwell's office has told Laguna Honda to reduce its ward census. Unfortunately, says Caldwell, Laguna Honda officials have failed to focus on the "baby steps" that could have been taken toward creating smaller wards.

"I never said they had to build a new hospital," Caldwell insists.
Contrary to popular belief, there are several viable alternatives to building a brand-new Laguna Honda. And it is quite possible that renovating the hospital to alleviate HCFA's concerns could be funded by state and federal grants, rather than San Francisco's taxpayers.

In 1990, the state Department of Public Health commissioned a study that showed Laguna Honda's open wards could be reconfigured into 1-, 2-, 3-, and 4-bed rooms, for about $2 million per ward, or a total of $62 million.

Today, hospital officials claim that remodeling the wards would trigger an expensive remodeling of the rest of the hospital to meet current health and safety codes. But public records -- including the codes themselves -- do not support such an argument.

Schematics from the 1990 study show that up to 25 residents could be served by each of Laguna Honda's renovated wards, even as federal dining and storage requirements were met. If such a renovation were undertaken, Laguna Honda's patient population would have to be reduced by about 10 percent. But the hospital is already in the midst of a program that would reduce population by about that much.

Caldwell says she keeps mentioning renovation to San Francisco officials as an acceptable alternative to a new hospital, but they still seem to prefer the new facility.

Laguna Honda's executive administrator, Larry Funk, is dead-set against the ward renovation idea. He says reducing the number of ward patients lethally impacts the funding stream. In reality, the reduction is unlikely to be significant because funding reimbursements are based on overall operating costs, not simple body counts.

The irony of Funk's unbending allegiance to the concept of building a new hospital is that, under a "plan of correction" he has proposed to temporarily assuage HCFA, ward populations would be reduced to 25 patients -- a number that could probably be served by relatively inexpensive renovation of the hospital's open wards.

There are other ironies in the sudden push for a brand-new hospital. Funk admits that deferred maintenance has been the hospital's policy for years; hence the shabbiness of certain areas. In fact, city audits show that money intended for preventative maintenance and capital improvements has been diverted over the years into operating costs. Even so, Laguna Honda remains an extremely solid structure. Its 1-foot-thick, reinforced concrete walls -- and foundation anchored in bedrock -- are proof against all but the most lethal of earthquakes.

Renovating that sturdy facility to ease federal concerns about patient crowding and privacy would cost somewhere between $60 million and $100 million, according to public records. And those funds need not necessarily come from the pockets of San Francisco taxpayers.

Laguna Honda is not currently eligible for state "disproportionate share" health care funds, doled out to cities judged to have above-normal public health needs. But with minimal effort, the state's own records say, Laguna Honda and San Francisco General Hospital could be put under the same medical license, allowing Laguna Honda to seek new capital funding for a renovation plan that might not suit all the political constituencies pushing for a new hospital, but might well save the city's taxpayers half a billion dollars, plus interest.

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