February 27,2007

Baucus, Grassley, Stark Comment on CMS response to Specialty Hospital Query


To: Reporters and Editors

Fr: Carol Guthrie for Finance Committee Chairman Max Baucus (D-Mont.)
Jill Kozeny for Finance Committee Ranking Member Chuck Grassley (R-Iowa)
Yoni Cohen for House Ways and Means Health Subcommittee Chairman Pete Stark (DCalif.)

Re: CMS response to specialty hospital letter

Attached please find briefing information regarding West Texas Hospital, a physician-owned
specialty hospital in Abilene, Texas, where a patient death occurred in January of this year.
Finance Chairman Max Baucus (D-Mont.), Ranking Republican Chuck Grassley (R-Iowa), and
House Ways and Means Subcommittee Chairman Pete Stark (D-Calif.) wrote the Centers for
Medicare and Medicaid Services (CMS) on February 8, requesting information on Medicare
dollars paid to West Texas Hospital. A recent moratorium on Medicare payments to physician owned hospitals, sparked by safety concerns, did not stop all Federal payments to such facilities. The attached information is CMS’s response to that letter, the text of which is also provided below. Baucus, Grassley, and Stark commented on the new information from CMS today.

“The contractor CMS paid to keep seniors safe ignored instructions. They didn’t stop signing up
specialty hospitals for Medicare payments. Medicare dollars were going to a hospital that had to
call 911 more than a dozen times when patients were in trouble. If that’s not a total breakdown of oversight by CMS, I don’t know what is,”
Baucus said. “CMS is proposing some welcome
changes, like a separate designation for specialty hospitals and requirements for more disclosure about physicians’ financial stake in facilities. But CMS can’t just shuffle papers when patients may be in danger. Medicare policies and Medicare dollars need to ensure that beneficiries get safe, quality care.”

“This information reveals serious problems with how Medicare and other responsible parties are
handling these hospitals. The West Texas hospital was not eligible for Medicare payments at the
time it applied, but a government contractor issued a Medicare provider number anyway and
received payment for its work from Medicare as if no mistake was ever made, and even after it
was determined that the hospital was being paid illegally. On top of that, the Joint Commission
responsible for accrediting hospitals didn’t do anything at all until the patient’s death was made
public. Congress clearly needs to act to make sure a trusting public isn’t victimized by what is, at
least, bureaucratic bungling by the Centers for Medicare and Medicaid Services. This specialty
hospital in particular holds itself out as a full-service acute care hospital even while it lacks the
ability to provide emergency medical care to its patients. As a practical matter, that seems like
false advertising. At a minimum, these facilities should be required to disclose such material
facts to patients so that they can make informed decisions. I intend to keep up vigorous oversight of the specialty hospitals that are already operating and to seek meaningful curbs on the proliferation of these hospitals, which weaken the community hospital system that we all rely on, while also condoning conflicted medical care by physicians,”
Grassley said.

“I commend CMS for their swift response to the patient death at West Texas Hospital, a
physician-owned facility. But there is no good explanation for the death of yet another patient at a ‘specialty hospital.’ It is tragic that it took a second death to highlight the grossly inadequate process that is in place to monitor whether these facilities are really hospitals and can safely provide the care they sell. It is clear to me that Congress needs to intervene and I look forward to working with colleagues on both sides of the aisle and in both bodies of Congress to achieve that change,”
said Rep. Pete Stark, Chairman of the Health Subcommittee of the Committee on Ways and Means.

The February 8, 2007 news release and letter follow here.

~United States Congress~

For Immediate Release:
February 8, 2007

Carol Guthrie (Baucus), (202) 224-4515
Jill Gerber (Grassley), (202) 224-4515
Yoni Cohen (Stark), (202) 225-3202


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
said Stark. “These facilities present themselves as ‘hospitals,’ but perform
only the most profitable of operations. In so doing, they suck money out of alreadystrapped
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

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

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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