The March 2 letter from the Centers for Medicare and Medicaid Services to Physicians' Hospital CEO Bill Houston says the Department of Health and Human Services intends to end its provider agreement with the hospital on March 19.

The feds' decision to pull the plug on Medicare money going to Oregon's only doctor-owned hospital was influenced by WW's story ("Doctors Inc.," Oct. 19, 2005 http://www.wweek.com/story.php?story=6856) which detailed a number of irregularities at the facility, located at 10300 NE Hancock St.

Among the alleged irregularities were the circumstances surrounding the death last July of 88-year-old Helen Wilson, who went into cardiac arrest shortly after undergoing elective spinal surgery.

There were no doctors on the premises when Wilson's heart stopped. Nurses called 911 after failing to revive Wilson, and an ambulance transported her to Portland Adventist Hospital, where she died without regaining consciousness.

WW's story caught the eye of Sen. Charles Grassley, (R-Iowa), who is chairman of the Senate Finance Committee. The committee oversees federal Medicare and Medicaid and asked for an inquiry.

"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," Grassley and Sen. Max Baucus (D-Montana) wrote the federal Department of Health and Human Services.

That Feb. 14 letter led to a federal inspection of Physicians' less than a week later. Last week, the investigators issued their findings.

"Based on a review of deficiencies identified during the survey, we have determined that Physicians Hospital is not in compliance with the Medicare Conditions of Participation and the most serious deficiencies constituted immediate jeopardy [emphasis theirs] to the health and safety of patients," Medicare inspector Steven Chickering wrote to Houston.

Chickering specified the jeopardy as medical staff failing to "(1) ensure coordinated, comprehensive, and safe medical care which meets the medical needs of patients, and (2) ensure the admitting/attending medical staff were on-site to render timely, comprehensive medical care prior to surgery and post surgery."

This decision presents an enormous challenge for the fledgling hospital, which is at the location of the former Woodland Park Hospital.

Following the inspection, Medicare officials ordered Physicians' to discontinue surgery immediately and not admit any additional patients, according to Dr. Grant Higginson, who directs hospital licensure for the state of Oregon. Higginson says that within a few days, the hospital was empty of patients.

"The letter is obviously very serious," says Michael Marchand, spokesman for the Center for Medicare Services' Seattle regional office.

Although Physicians' financial information is private, hospitals typically get 30 to 50 percent of revenue from Medicare/Medicaid, according to a local health-insurance administrator who declined to be identified.

The federal decision also will fuel the debate over these kinds of facilities. In June 2003, Congress imposed a moratorium on new doctor-owned hospitals such as Physicians' after critics said such hospitals skim the most lucrative patients from general hospitals. They also said doctor-owned hospitals can create conflicts of interest when doctors refer patients to facilities in which they have an ownership interest.

Marchand said that of the 116 acute-care hospitals in Alaska, Idaho, Oregon and Washington, "usually three to four at best in a given calendar year would fall into this situation [with Medicare], and maybe one would actually see termination."

Medicare officials gave Physicians' until Monday, March 6 to provide Medicare officials with a plan of corrective actions. Physicians' spokewoman Dianne Danowski-Smith says changes are in the works.

"The hospital is absolutely going to cooperate with [Medicare] to the fullest extent," Danowski-Smith says. "The plan for correction has already started, and we're going to work to the best that we can to implement all of the requirements."

Whether Physicans' can heal itself remains to be seen.

The hospital employed as many as 200 people in 2005, but at midday last Saturday, there was not a single car in any of the hospital's parking lots.

The development also poses challenges for the Portland Development Commission, which lent $500,000 to the doctors who bought the hospital a little more than a year ago, hailing the Physicians' opening as "Portland's Greatest Christmas Present Ever."

NOTE: This story published to the web on 3/6/2006