Grassley, Baucus Continue Work on Specialty Hospitals, Ask Inspector General and Government Accountability Office to Review

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen.
Max Baucus, ranking member, today asked both the Inspector General for the Department of Health
and Human Services (HHS-OIG) and the Government Accountability Office (GAO) to review
patient safety and quality, as well as financial arrangements at physician-owned specialty hospitals.

The senators asked for both reviews as part of a continuing effort to understand the impact physicianowned
specialty hospitals have on patients, community hospitals, and the Medicare and Medicaid
programs. The requests follow a February 14, 2006, request the two sent to the Department of
Health and Human Services seeking information regarding the enforcement of the moratorium on
new specialty hospitals imposed by the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 and a February 27, 2006, letter to the Medicare Payment Advisory
Commission (MedPAC) requesting further examination on the impact of specialty hospitals on
community hospitals.

“The two reports Senator Baucus and I are seeking will help shed light on how these specialty
hospitals impact our communities and the health care system,” Grassley said. “We need to know the
impact so we can make educated decisions to ensure that patients receive the highest quality care for
the most cost effective price. Patient care should always come before profit, and these reports should
help us understand these facilities better to ensure that this is the case.”

Baucus said, “There are two issues that leap out for review: patient safety, and the use of
taxpayer dollars through Medicare and Medicaid. If patients’ health is at risk in these facilities, we
need to uncover that now. If Medicare and Medicaid dollars are paying for less than the best care
in these facilities, that demands immediate attention.”

Grassley and Baucus outlined their requests in letters today to Inspector General Levinson
and Comptroller General Walker. The text of the two letters sent, as well as the letter to MedPAC,
follows.

The Honorable Daniel R. Levinson
Inspector General
Department of Health and Human Services
Office of Inspector General
330 Independence Ave, SW
Washington, DC 20201

Dear Inspector General Levinson:

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.

Our interest in specialty hospitals dates back to the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA), which contained an 18-month moratorium on the expansion of
new physician-owned specialty hospitals. Continued concerns and debate about these facilities led
to provisions contained in the Deficit Reduction Act of 2005 seeking further study by the Department
of Health and Human Services (HHS). On February 14th, we wrote to Secretary Leavitt regarding
the administration and enforcement of the moratorium on specialty hospitals by CMS, in addition
to concerns about patient safety and quality of care at these facilities. A copy of this letter attached
for your review.

Currently, we are unaware of any planned audits or evaluations directed at examining both patient
safety and the quality of care at physician-owned specialty hospitals. Accordingly, we are writing
to request that your office conduct a thorough analysis, audit, and evaluation of patient safety and
quality of care provided to patients at the physician-owned specialty hospitals across the country. In
conducting this review, we ask that you keep us apprised of all developments during the course of
your review.

Thank you in advance for your assistance with this important matter.

Sincerely,

Charles E. Grassley
Chairman

Max Baucus
Ranking Member

Enclosures

The Honorable David M. Walker
Comptroller General of the United States
United States Government Accountability Office
441 G Street, N.W.
Washington, DC 20548

Dear Comptroller General Walker:

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.

On February 14, 2006, we wrote to Secretary Leavitt of the Department of Health and Human
Services (HHS) regarding concerns about the administration and enforcement of the moratorium on
the expansion of physician-owned specialty hospitals administered by the Centers for Medicare and
Medicaid Services (CMS). Our inquiry focused on the administration of the moratorium as well as
patient safety and quality of care provided. We write today raising further concerns regarding the
arrangements used to finance these facilities.

Recently, the Committee received information regarding at least one suspect arrangement used to
finance a network of physician-owned specialty hospitals. Based upon a review of this information,
we have serious concerns regarding the investment structures of these facilities and whether those
who invest are truly at risk. Further, the information raises additional questions about the disclosure
of investments by the hospitals, as well as the proportionality of investment related to financial
return. Each of these concerns present significant questions as they have the potential to represent
an arrangement exchanging a monetary benefit for increased patient referrals by a physician investor,
an arrangement which the Stark self-referral law and Anti-kickback laws were designed to prevent.
Currently, we are aware of only one survey being conducted by your office regarding physicianowned
specialty hospitals that was requested by House Committee on Ways and Means Chairman
Bill Thomas. Therefore, we write today to request a thorough review of the arrangements used to
finance physician-owned specialty hospitals by the Forensic Audits & Special Investigations Team.

In conducting this review, we ask that your team keep us apprised of all developments during the
course of your review.

Thank you in advance for your assistance with this matter.

Sincerely,

Charles E. Grassley
Chairman

Max Baucus
Ranking Member

Mark Miller, Ph.D.
Executive Director
Medicare Payment Advisory Commission
601 New Jersey Ave., N.W., Suite 9000
Washington, D.C. 20001

Dear Dr. Miller:

In your March 2005 report to Congress on physician-owned specialty hospitals, you stated that your
analysis was based on “a limited number of hospitals over a limited period of time” and that
“findings could change” as the industry evolves.

We would like you to examine more recent data from communities where physician-owned hospitals
operate, and tell us if your findings have changed with respect to the following three questions:

(1) How have physician-owned specialty hospitals affected the financial condition of community
hospitals in their markets?

(2) Is it more or less costly to treat patients at physician-owned specialty hospitals than at full-service
community hospitals?

(3) Has the formation of physician-owned hospitals caused the overall volume of procedures to
increase in markets where they operate?

In answering these three questions, we would like you to examine additional years of data from the
communities you analyzed in your March 2005 report and, if possible, to examine additional
communities with physician-owned hospitals that were opened too late to be included in your initial
study.

Please provide us with a briefing on your findings as soon as they become available. We thank you
in advance for your assistance.

Sincerely,

Charles E. Grassley
Chairman

Max Baucus
Ranking Member

-30-

• Print
• Email
• Tweet