French Hospital Medical Center in San Luis Obispo was investigated by the California Department of Public Health over the level of care they provided to newborn babies last fall.
In a report obtained by KSBY News, investigators said a failure in the hospital's state licensing "had potential to put infants at risk."
Hospital administrators insist their only wrong-doing was not filing the correct paperwork.
A complaint lodged with the state Department of Public Health was found to be substantiated after an investigation on October 1 of last year.
A Statement of Deficiencies report obtained by KSBY News, shows French Hospital was operating as a Level II Acute Care Nursery but "failed to have a state license" to do so.
Hospitals can reach up to a level IV, which treats the most critical infants.
The Director of Nursing is quoted in the report as saying the nursery accepts "infants greater than 32 weeks."
The Licensed Nursery Nurse said infants are provided with oxygen therapy, IV therapy, feeding tubes, nutritional fluids into the vein and transfusions, which are services typically performed in a level II nursery, according to the report.
At the time of the investigation, the hospital only held a Level I or Basic status with the state, which allowed them to care for infants 35 weeks and older.
The Chief Nursing Officer acknowledged in the report "these services are not on the current state license."
The Director of Nursing told the investigator the indication on admission policy that it is a level II nursery is a "typo."
We took the report to French Hospital CEO Alan Iftiniuk.
"So it was a technical issue, it was not a patient safety or quality issue, it was a technical issue," Iftiniuk responded.
He said months prior to the investigation, doctors, nurses, equipment and "extensive" training were all put in place to start accepting babies 32 weeks and older.
But in all the planning and prepping, administrators failed to get state approval.
"We needed to do an application to CDPH. It's called a Program Flex," Iftiniuk said. "That box did not get checked, unfortunately."
In the one month prior to the investigation that the unlicensed level II nursery was operating, staff says one baby was treated.
The state ordered the hospital to stop accepting 32-week-old infants until it obtained its accreditation for level II status. In a Plan of Correction issued by the hospital, also obtained by KSBY News through a Public Records Act request, it stated all "patients under the age of 35 weeks gestation will be stabilized and transferred to a higher level of care."
Iftiniuk insists no patients were ever at risk, but one glaring statement by the state investigator says otherwise: "this failure had the potential to put infants at risk."
When asked to respond to the statement, Iftiniuk said, "because it didn't go through the state for their final approval."
Hospital administrators have since applied for the correct licensing and were approved. As of January 6, three months after the investigation, the hospital is now up and running as a Level II Acute Care Nursery.
Iftiniuk told KSBY News and the CDPH'S investigation confirmed that no babies were being treated in the Acute Care Nursery at the time of the investigation.