Modesto surgical hospital to temporarily close due to removal from Medicare program

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Stanislaus Surgical Hospital said Monday it will suspend operations indefinitely and lay off employees, due to a federal agency decision not to renew its provider agreement for serving Medicare and Medi-Cal patients.

The temporary closure of the 23-bed hospital at Oakdale Road and Orangeburg Avenue is effective Saturday, a spokesperson said in a statement Monday. The Centers for Medicare and Medicaid Services is terminating the provider agreement with Stanislaus Surgical effective Sept. 15 because the hospital is not in compliance with conditions of participation in the programs, a CMS legal notice said.

“It is extremely unfortunate the hospital is losing its Medicare certification despite months of concerted efforts to work with the federal government,” the hospital’s statement said.

The hospital’s leadership disagrees with the action and “will continue to weigh options for long-term direction, including a potential appeal,” the statement added. There was no information on how long an appeal would take.

The hospital’s human resources director notified Stanislaus County officials on Monday the facility is starting to lay off 160 employees. The layoffs are anticipated before Sept. 15. The list of staff members includes registered nurses, admissions and office staff, nursing assistants, housekeepers, supervisors, physical therapy assistants, midlevel providers and imaging technicians.

The letter to the county said the hospital will work with other Modesto-area healthcare providers to find new jobs for affected employees. Patients are being rescheduled for procedures or surgeries at other facilities.

Last year, the Modesto hospital reportedly provided radiology services, surgeries and preventative screenings to 1,800 patients per month; between 60% and 80% of the patients were covered by Medicare or Medi-Cal.

According to the CMS notice published Aug. 30, the provider agreement is being terminated because the surgical hospital is not meeting Medicare requirements under three categories: “Basis and Scope,” pharmaceutical services and infection prevention measures. The hospital won’t receive payments for serving Medicare patients on or after Sept. 15, which will make the physician-owned facility financially unstable.

Findings of health and safety problems that put patients at risk

The owners of Stanislaus Surgical previously announced in April the hospital was likely to close May 1 after numerous health and safety issues were documented in critical regulatory surveys. But political support from Rep. John Duarte, R-Modesto, and other Central Valley politicians resulted in deadline extensions to meet the Medicare requirements.

A CMS notice in April said the Modesto hospital was not complying with nine conditions of participation in Medicare.

Officials with the hospital and its parent organization, Physicians Surgery Centers, were not made available Monday to discuss the unresolved issues with CMS.

The federal decision in April to remove the for-profit hospital from Medicare was based on inspections in August 2023 and February that uncovered health and safety problems that jeopardized patients. Many of the allegations detailed in reports totaling 562 pages focused on equipment sterilization, infection control processes, anesthesia services and lack of qualified staff to assist patients who suffered serious complications after surgeries.

Inspections found the hospital didn’t have a “code blue” or rapid-response team for patients in medical emergencies.

At the urging of Duarte and others, CMS reversed the April 11 decision and granted more time for the hospital to submit an acceptable plan for addressing the deficiencies and come into compliance. The federal agency promised an unannounced inspection before July 31 to see if the hospital was substantially complying with the requirements and had made sufficient progress.

The Centers for Medicare and Medicaid Services didn’t have a comment Monday to elaborate on its decision.

The facility’s 40-year history

Stanislaus Surgical Hospital began in 1985 as an ambulatory surgery center founded by a private group of surgeons. The facility was licensed as an acute care hospital, without an emergency department, in early 2000. For some years, the short-stay hospital was known for letting overnight patients order chef-prepared meals from a gourmet menu.

Sacramento-based Sutter Health became majority owner of the hospital in 2016. The hospital became part of Physician Surgery Centers LLC of Woodland Hills in 2022.

“(Stanislaus Surgical) has provided a unique patient experience to the community for over 20 years, earning us a five-star satisfaction rating from those patients,” the hospital’s statement said Monday. “We are proud of the care we have delivered.”