February 08,2007

Letter Questions Medicare Funds for Specialty Hospital

Death in West Texas Specialty Hospital Raises Questions about Medicare Payments

Washington, DC – U.S. Senators Max Baucus (D-Mont.) and Chuck Grassley (R-Iowa) and Rep. Pete Stark (D-CA) today reiterated their concerns about physician-owned specialty hospitals. In a letter to Leslie Norwalk, Acting Administrator for the Centers for Medicare and Medicaid Services (CMS), they asked officials to account for any Medicare dollars that may have gone to a physician-owned specialty hospital in West Texas during a congressionally imposed 18-month moratorium on Medicare payments to these hospitals. Baucus is Chairman and Grassley the Ranking Republican on the Senate Finance Committee, which oversees Medicare and Medicaid. Stark is the Chairman of the Ways and Means Health Subcommittee, which oversees Medicare.

The legislators are making their inquiry following the January 23 death of a patient at the West Texas hospital. The patient suffered respiratory arrest after an elective spinal surgery and, after a 911 call by the specialty hospital, had to be transferred by ambulance to a local community hospital for emergency services.

The government “clearly must take action and ensure that physician-owned facilities that hold themselves out to the public as ‘hospitals’ have the requisite staff and abilities to ensure that basic lifesaving measures can be employed,” wrote Grassley, Baucus and Stark in a letter sent today to CMS.

Working together, Baucus, Grassley and Stark have tried to stem the growth of physician-owned specialty hospitals. The legislators have criticized these facilities because, motivated by profit, they focus on only the most remunerative services, without providing the full range of services hospitals are expected to provide. In 2003, Congress approved the legislators’ moratorium on Medicare payments to new physician-owned specialty hospitals as part of the Medicare Prescription Drug, Improvement, and Modernization Act. When this statutory moratorium expired in June 2005, Baucus and Grassley pressed CMS to suspend its enrollment of new facilities. Subsequently, in the Deficit Reduction Act of 2005, Congress prohibited CMS from approving new specialty hospitals until August 2006, when CMS delivered a plan for addressing this issue.

In May 2006, the Senate Finance Committee held a hearing about the dangers posed by specialty hospitals and heard testimony about the death of a patient at a physician-owned surgical hospital in Oregon that had also opened during the statutory moratorium. There, too, the specialty hospital requested 911 emergency services following a surgery. A March 2005 hearing highlighted a report from the Medicare Payment Advisory Commission and prompted Grassley and Baucus to introduce the Hospital Fair Competition Act of 2005. This bill would have prohibited physicians from referring Medicare and Medicaid patients to new specialty hospitals in which they have an ownership interest.

With their request for detailed information from CMS about any Medicare dollars that may have illegally gone to the West Texas hospital, Baucus, Grassley and Stark said that they are trying to set the payment situation right and to further assess CMS’ actions with regard to specialty hospitals.

“I am deeply saddened and also completely outraged to hear of another death of a patient at a specialty hospital,”Baucus said. “It really seems to me that if you call a place a hospital, it should have the facilities to handle an emergency, but all this facility could do was call 911. This is a strong reminder that doctors’ financial stakes in a hospital can cloud judgment and blur priorities, and we can’t let that happen. Patient safety is my number one priority and I am going to continue to work to make sure that when patients enter a hospital, they can be certain they will receive the care they need.”

“The fundamental problem with physician-owned specialty hospitals is that decision-making is more likely to be driven by financial interest rather than what is best for the patient,”
Grassley said. “You see that in the cherry picking of patients and policies where emergencies are to be dealt with by calling 911 to get to the local community hospital. The Centers for Medicare and Medicaid Services have identified some steps they can take to require the disclosure of physician investment, and that should give the agency the basis to take action against doctors who violate physician referral laws. But the law needs to go further and ensure that patients are informed when their physician’s ownership interest in a specialty hospital may influence where treatment is provided. Patients deserve to know whether their doctor stands to profit personally from the hospital and whether that hospital is adequately prepared for an emergency if treatment does not go as planned.”

“The tragic death of another ‘specialty hospital’ patient highlights the manner in which physician-owned facilities seem to be eroding the quality of health care in America,”Stark said. “These facilities present themselves as ‘hospitals,’ but perform only the most profitable of operations. In so doing, they suck money out of already-strapped community hospitals. When one of their customers demands emergency care, ‘specialty hospitals’ dump the unprofitable patient back onto the very community hospitals they’re helping to bankrupt. If ‘specialty hospitals’ are unable to provide adequate care to Medicare beneficiaries, we should shut them down.”

The text of the letter follows here.

February 8, 2007

Via Electronic Transmission

Leslie V. Norwalk, Esq.
Acting Administrator
Centers for Medicare and Medicaid Services
Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201

Dear Acting Administrator Norwalk:

The Committee on Finance has exclusive jurisdiction over the Medicare program in the Senate, and the Committee on Ways and Means has jurisdiction over the Medicare program in the House of Representatives. Accordingly, we have a responsibility to the more than 40 million Americans who receive health care under the program. We take this responsibility seriously and conduct oversight into the activities of executive branch agencies, including the Centers for Medicare and Medicaid Services (CMS), to ensure that program dollars are spent on the best care available to beneficiaries.

The Medicare and Medicaid programs spend in excess of $120 billion for inpatient healthcare services at thousands of American hospitals annually—including payments made to physician-owned specialty hospitals. For years, we have been outspoken critics of the conflicts created by physician-owned specialty hospitals. Together, we have held hearings, conducted oversight, commissioned studies, and even passed legislation regarding these facilities. We write today to renew our concerns and to inquire about yet another disturbing patient death at a physician-owned specialty hospital.

As you are aware, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) imposed an 18-month moratorium on Medicare payments to new physician-owned specialty hospitals. The statutory moratorium expired in June 2005. Through administrative action, CMS began a suspension on enrollment of new facilities from June 2005 through August 2006, when CMS released the final Strategic and Implementing Plan for Specialty Hospitals that was mandated by the Deficit Reduction Act of 2005 (DRA). The difference between the statutory moratorium and the administrative suspension on enrollment took center stage at a Finance Committee hearing held May 17, 2006.

The May 2006 Finance Committee hearing focused on the death of a patient at a physician-owned surgical hospital in Oregon that had opened for business during the MMA moratorium. The tragic death at the Oregon facility was even more egregious because the staff at the physician-owned hospital called 911 for an ambulance to transport the patient from the physician-owned hospital to a community hospital with an emergency room. We remain dismayed that a physician-owned hospital’s standing policy in treating a patient in an emergency situation is to call 911.

We are even more troubled today, after learning of this same scenario playing out again at another physician-owned specialty hospital—this time in Texas. It has been reported that on January 23, 2007, staff at West Texas Hospital—a physician-owned specialty hospital—placed an emergency call to 911 after a patient went into respiratory arrest several hours following an elective spinal surgery. Following the emergency call, the patient was transferred to a community hospital, Abilene Regional Medical Center, where he later passed away.

We are deeply disturbed by these events and want to find out more about what transpired. It is utterly unacceptable to us that we now have witnessed two separate incidents where patients were treated at “hospitals” that maintained a policy of calling 911 for emergency resuscitation of a patient following major elective surgery. CMS clearly must take action and ensure that physician-owned facilities that hold themselves out to the public as “hospitals” have the requisite staff and abilities to ensure that basic lifesaving measures can be employed.

From a review of previous records requests made by the Finance Committee to CMS regarding physician-owned specialty hospitals, it appears that West Texas Hospital was granted its Medicare provider number on May 20, 2005, making it another physician-owned facility granted a Medicare provider number during the MMA moratorium. Further, these records show that West Texas Hospital has been reimbursed $4,193,702 by Medicare since it was granted its Medicare provider number in 2005. While we recognize it is CMS’s position that the granting of a provider number during the moratorium was acceptable, CMS has stated that any Medicare payments made to hospitals during the moratorium are subject to review and possible recovery by CMS. We are concerned with the fact that West Texas Hospital appears to have opened during the moratorium and that it appears to have received Medicare funding for procedures performed during this timeframe.. Accordingly, we request detailed written responses to the following:

(1) Why did West Texas Hospital receive a Medicare provider number from CMS during the MMA mandated moratorium on physician-owned specialty hospitals?

a. Did West Texas Hospital file a request for an advisory opinion to determine if it qualified for the “under development” exception to the MMA moratorium? If so, please provide any documentation.

b. Please describe in detail the events surrounding the application for and granting of a Medicare provider number for West Texas Hospital.

(2) Provide a list of all Medicare and Medicaid reimbursements paid to West Texas Hospital or any provider affiliated with West Texas Hospital from 2005 to the present.

a. Were any of the Medicare payments made during the statutorily mandated moratorium on payments?

b. If so, has CMS initiated any action to collect the payments made during this period? If not, why?

(3) Provide a list of all physician owners of West Texas Hospital?

(4) Has CMS conducted any surveys of West Texas Hospital? If so, provide a copy of all such surveys.

(5) Did West Texas Hospital provide responses to CMS’s survey on physician-owned specialty hospitals that was sent in an effort to collect information for the Strategic and Implementing Plan for Specialty Hospitals? If so, please provide a copy of West Texas Hospital’s responses.

(6) Does West Texas Hospital provide notification to patients prior to surgery that in the event of an emergency, they may be transferred to another hospital and that the facility may not have a physician on site during the post-operative recovery period?

(7) How many times in the past has West Texas Hospital called 911 to transfer a patient to another hospital in an emergency situation?

We thank you in advance for your cooperation and request that your staff provide a point of contact for this matter no later than February 12, 2007.

Additionally, we request that CMS provide a briefing on this matter as soon as all written responses are available, not later than February 21, 2007. In complying with this request for information, please respond to each enumerated question by repeating the questions, followed by CMS’s response.

Should you have any questions regarding this matter please contact David Schwartz or Billy Wynne of Senator Baucus’ staff or Michael Park or Nick Podsiadly of Senator Grassley’s staff at (202) 224-4515 or Debbie Curtis of Representative Stark’s staff at (202) 225-5065.


Max Baucus, Chairman, Senate Committee on Finance

Charles E. Grassley, Ranking Member, Senate Committee on Finance

Pete Stark, Chairman, Subcommittee on Health, House Committee on Ways and Means

Cc: Dr. David L. Lakey, Commissioner
Texas Department of State Health Services
West Texas Hospital
5602 Health Center Drive Abilene, Texas 79606

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