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has learned that Physicians' Hospital could face substantial financial penalties from an ongoing federal investigation and is separately negotiating the sale of all its assets.
The potential penalties stem from a dispute between Oregon's only doctor-owned hospital and Medicare/Medicaid officials about whether the Northeast Portland hospital should ever have been allowed to bill those federal programs in the first place.
Physicians', located at 10300 NE Hancock St., attracted attention from federal Medicare/Medicaid investigators after WW chronicled the circumstances surrounding 88-year-old Helen Wilson's death last July.
Wilson's heart stopped while she was recovering after surgery at the hospital. There were no doctors present, and nurses had to call 911 after failing to revive her ("Doctors Inc.," WW, Oct. 19, 2005).
Sen. Charles Grassley (R-Iowa) requested an investigation as chairman of the Senate Finance Committee, which oversees Medicare and Medicaid expenditures on hospitals.
In late February, federal inspectors visited Physicians' and ordered the hospital to stop admitting new surgical patients immediately ("Physicians' Shaky Prognosis," WW, March 8, 2006).
That order threatened Physicans' survival, because, as Physicians' CEO Bill Houston previously told WW, the hospital depended on orthopedic surgery and neurosurgery for most of its revenues.
Doctor-owned hospitals that earn most of their money from surgery are called "specialty hospitals" and are highly controversial.
Critics claim they skim the most lucrative patients from general hospitals and may fail to serve patients' interests because the doctor-owners have a financial incentive to refer patients to their own facilities. (The surgeon who operated on Helen Wilson was a part owner of Physicians'.)
Physicians' spokeswoman Dianne Danowski Smith denies that Physicians' is a "specialty hospital" or that it violated a federal moratorium on the development of new specialty hospitals, which extended from Nov. 18, 2003, to June 8, 2005.
The hospital previously operated as Woodland Park Hospital but got its current license as Physicians' Hospital in December 2004. Danowski Smith contends that sequence means the predecessor's hospital license was still valid.
But Medicare/Medicaid officials told the hospital in a Feb. 17 letter that it was indeed a specialty hospital and that it did not qualify for an exemption to the moratorium, according to Grassley's office.
The hospital may also have to repay any charges billed to Medicare/Medicaid for services given patients referred by doctor-owners during the moratorium.
Investigators are determining how much money Physicians' might owe, but state figures show the average Oregon hospital bills Medicare/Medicaid for about half its total charges. Danowski Smith says such billings at Physicians' totaled only about 20 percent.
Although Physicians' filed a plan of correction with the feds on March 6 and hospital officials say they hope to resume surgery, documents filed with the state show the hospital is nearing permanent closure and the sale of its assets.
On March 3, Regency Hospital Company, a Georgia-based operator of long-term acute-care facilities, filed a letter of intent to buy Physicians'.
"Physicians' will cease operations in March, 2006. Physicans' will then sell the real property comprising the hospital in March or April," reads Regency's letter to the Oregon Department of Human Services.
Just how the pending federal investigation could affect the proposed sale remains unclear.
Regency's plan contemplates continuing to use Physicians' license, but Grassley's office says the federal government's position is that Physicians' never should have been allowed to open.
Danowski Smith would only say that talks with Regency are continuing.
Physicans' struggles also could affect Portland taxpayers because part of the hospital's seed money was a $500,000 loan from the Portland Development Commission.
PDC spokeswoman Elissa Gertler says Physicians' is current in its annual interest payments of 3 percent and has kept PDC apprised of recent developments.
More importantly, Gertler says, PDC feels confident that it will get repaid because it holds a personal guarantee from Physicians' primary owners, Drs. Timothy Treible, Jordi Kellogg, Bryce Milam and Carlos Ceballos.
WWeek 2015