February 14,2006

Grassley, Baucus Say Oregon Death Raises Safety Concerns at Specialty Hospitals Question HHS on Hospital Approval, Oversight

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen.
Max Baucus, ranking member, are seeking to learn whether the federal government adequately
oversees the licensing, safety and quality of physician-owned specialty hospitals. The senators said
they are concerned about the oversight of specialty hospitals nationwide following an Oregon
incident. An 88-year-old woman died soon after surgery at an Oregon specialty hospital that
apparently opened during a federal moratorium on new specialty hospitals. The hospital did not have
a doctor on site during her crisis and needed to call 911 for medical assistance.

“Congress imposed the moratorium because we needed to get a handle on whether these
hospitals help or harm patients and federal health care programs,” Grassley said. “In at least one
case, a patient suffered harm. We need to know whether that was an isolated incident or whether
similar tragedies have happened or could happen because doctors aren’t present during emergencies.
We also need to understand why this facility was allowed to open during the moratorium, whether
other specialty hospitals also opened during this period, and whether federal oversight to protect
patient safety and oversee this industry is up to par. If patients think they’re going to a full-fledged
hospital, then they shouldn’t get treated like they’re at a clinic. And if specialty hospitals are putting
physician profit before patient care, we have a problem.”

Baucus said, “It’s important to find out why a physician-owned specialty hospital was given
the green light to open up shop during a federal moratorium on the opening of such hospitals. For
the sake of patient safety and the wise use of federal health care resources, it’s vital that HHS provide
answers and proper oversight on this issue.”

Grassley and Baucus outlined their concerns in a letter today to Health and Human Services
Secretary Mike Leavitt. The text of the letter follows.

February 14, 2006

Via Electronic Transmission

The Honorable Michael O. Leavitt
Department of Health and Human Services
200 Independence Avenue, SW
Washington, D.C. 20201

Dear Secretary Leavitt:

The United States Senate Committee on Finance (Committee) has exclusive jurisdiction over, among
other things, the Medicare and Medicaid programs. As Chairman and Ranking Member of the
Committee, we have a responsibility to protect these programs along with the more than 80 million
Americans who receive healthcare from them.

Each year the Medicare and Medicaid programs spend in excess of $200 billion for in-patient
healthcare services at America’s hospitals. Managed by the Centers for Medicare and Medicaid
Services (CMS), Medicare and Medicaid cover many different procedures and services reaching
virtually every hospital across the country, including physician-owned specialty hospitals. These
physician-owned specialty hospitals have raised much controversy and debate over the past few
years. Concerns over their dramatic growth, among other things, led Congress to enact section 507
of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) -- an 18-
month moratorium on the construction of new physician-owned specialty hospitals. We write today
to express serious concerns about both CMS’ administration of the specialty hospital moratorium
and the quality of care and patient safety at physician-owned specialty hospitals.

Physicians’ Hospital (Physicians’) in Portland, Oregon, is in many ways the typical specialty
hospital. Physicians’ focuses primarily on orthopedic and neurosurgical procedures and the primary
investors are doctors who work at the hospital. However, Physicians’ differs from other specialty
hospitals in that it appears to have opened its doors for business in December of 2004, during the 18-
month moratorium Congress placed on specialty hospitals. This information was brought to our
attention as a result of a tragic event which occurred this past summer at Physicians’.

The Case of Helen Wilson:

On July 27, 2005, Helen Wilson, an 88-year-old woman with a history of hypertension and diabetes,
was admitted to Physicians’ for elective back surgery. While in recovery, Ms. Wilson was given an
injection of the pain medication hydromorphone, and suddenly went into cardiac arrest. The nursing
staff at Physicians’ immediately began CPR, but there was no doctor available to assist. According
to the investigative report filed by the Health Care Licensure and Certification Office of the Oregon
Department of Human Services,

“[T]here was no physician in the hospital at the time of the incident. The hospital does not have an
emergency department. The respiratory therapists are not permitted to intubate patients. The
hospital’s [Physicians’] policy is to call 911 in the event of a patient code.”

The nurses followed procedure and called 911 for emergency help. Upon arriving at Physicians’,
paramedics were able to intubate and resuscitate Ms. Wilson and transport her to a neighboring
hospital capable of providing a higher level of care. Unfortunately, it was too late. Ms. Wilson
passed away four days later, after her family made the decision to remove life support.

The investigative report indicated that a review of documentation and interviews with hospital staff
revealed that “the hospital failed to ensure that the medical staff was accountable for the quality of
care provided to all patients.” The report raises questions regarding whether the admitting physician
actually assessed the patient prior to surgery, whether the surgery was still necessary, and whether
it was appropriate given the patient’s abnormal laboratory values prior to surgery. The report also
finds that a nurse made “multiple unsuccessful calls to several physicians between the hours of 1655
and 1720,” just before the patient stopped breathing.

The events surrounding the death of Helen Wilson are tragic, and illustrate some of the drawbacks
of the limited scope of work performed at specialty hospitals. This incident raises concerns about
quality of care and patient safety. Additionally, it raises questions regarding how Physicians’ was
allowed to open during the 18-month MMA-mandated moratorium.

Specialty Hospital Moratorium:

Physicians’ Hospital, a physician-owned orthopedic and neurosurgical specialty hospital, opened for
business in December 2004, in the middle of the 18-month moratorium. Further, initial inquiries to
CMS by our staff revealed that Physicians’ Hospital did not request an advisory opinion to determine
whether the facility qualified for an exception available to certain specialty hospitals under
development. (End Note 1) Thus, we are left in the position of wondering how Physicians’ was able
to open its doors for business during the specialty hospital moratorium.

Based upon our review of information provided by CMS, even if Physicians’ did apply for an
advisory opinion it should not have qualified because the official transaction to purchase Physicians’
did not occur until July of 2004, well after the November 18, 2003, deadline imposed by CMS.
Perhaps an alternative explanation is that Physicians’ operated using the provider number of the
previous hospital run at the same location, Woodland Park Hospital, a full-service community
hospital. In either case, it appears that CMS should not have allowed Medicare or Medicaid
payments to Physicians’. Accordingly, as Chairman and Ranking Member of the Committee, we
request that you provide written responses to the following:

(1) How many physician-owned specialty hospitals have policies, either written or verbal, that do
not require a physician to be on duty or on call when patients are present?

a. Do any of these physician-owned specialty hospitals provide a disclaimer to their patients
informing them that a doctor may not be there in the event of a life-threatening emergency?

b. In the event that CMS does not track or have records that would allow CMS to answer the
aforementioned questions, please provide a written response regarding CMS’ position as to whether
or not CMS believes Medicare and Medicaid funds should be paid to specialty hospitals that lack
either a physician on duty or a physician on call.

(2) How many physician-owned specialty hospitals have policies directing hospital staff to call 911
in case of a patient emergency?

(3) Since its opening in December 2004, have there been any other patient deaths at Physicians’?
What are the circumstances surrounding these deaths?

(4) Was Physicians’ Hospital reimbursed by Medicare or Medicaid for any services rendered during
or after the physician-owned specialty hospital moratorium (November 18, 2003 – Present)? If so,
please provide a list of the payments, including the type of procedure and the total amount of money

(5) Was Physicians’ granted a new provider agreement to receive Medicare and Medicaid payments?
a. If so, please provide an explanation why CMS issued a provider agreement to a new physicianowned
specialty hospital during the moratorium.

b. If not, please state in detail how Physicians’ was able to seek reimbursement for services to
Medicare and Medicaid patients.

(6) Is CMS aware of any other physician-owned specialty hospitals that have received provider
agreements during the moratorium without applying for the required advisory opinion? If so, please
provide a list of the hospitals and a reason why CMS granted a provider agreement.

(7) Does CMS know of any other physician-owned specialty hospitals similar to Physicians’ that may
have opened during the moratorium utilizing a provider agreement from a facility that existed prior
to the moratorium? If so, please provide a list of such facilities and provide a detailed explanation
as to why CMS approved them during the moratorium.

(8) Provide a list of all specialty hospitals that received any payment from Medicare and Medicaid
from November 18, 2003, through June 8, 2005. This list should include the name of the facility, the
location, and contact information for that facility. Please separate this list by state and identify the
total amount of Medicare and Medicaid funds received by each facility.

The case of Helen Wilson raises overall patient health and safety concerns of physician-owned
specialty hospitals. The public expects any facility labeled as a “hospital” to be able to appropriately
deal with urgent medical situations. This involves more than just dialing 911 and waiting for an
ambulance to arrive. Medicare beneficiaries should receive care in hospitals that are adequately
staffed to deal with complications that may arise before, during, or after surgical procedures
performed at the hospital.

If it is determined that Physicians’ was given a new provider agreement during the 18-month
moratorium, it raises serious questions about the number of these facilities operating across the
country and the integrity of CMS’ enforcement of the moratorium. Conversely, if this facility acted
based upon the provider agreement from its predecessor, Woodland Park Hospital, it raises questions
regarding the accuracy of CMS’ records and CMS’ ability to track new hospitals. At best, it is safe
to say that the circumstances surrounding Physicians’ and its receipt of Medicare and Medicaid funds
are unclear.

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 17, 2005. Additionally, we request that CMS provide a briefing
on this matter as soon as all written responses are available, not later than February 28, 2005. In
complying with this request for information, please respond to each enumerated question by
repeating the questions, followed by CMS’ response.


Charles E. Grassley

Max Baucus
Ranking Member

Cc: The Honorable Mark McClellan, M.D., Ph.D.
(1) See 42 U.S.C. § 1395nn(h)(7)(B)(i) (2006).