Medical Device Daily Washington Editor

Physician-owned specialty hospitals have been the target of congressional ire for a pair of incidents involving fatalities, but they have also been the subjects of reimbursement activity on the part of the Centers for Medicare & Medicaid Services (CMS) as well. A recent report by the Office of Inspector General (OIG) at the Department of Health and Human Services cast an even less-flattering light on these hospitals, but an association for physician-owned hospitals (POHs) blasted the report as inaccurate and a reflection of shoddy work by OIG.

The history of the POH is replete with controversy. CMS had imposed a ban on payments to physician-owned specialty hospitals in 2003 over concerns about resource use, which was lifted in October 2006. Also, the Medicare Modernization Act of 2003 imposed an 18-month moratorium on development of any new such hospitals.

Much of the recent controversy revolves around two episodes, one in 2005 and one in 2007, in which a patient died after a specialty hospital transferred the patient to another hospital via a 911 call. Both patients had elective surgeries and neither hospital had a physician on duty when the emergency occurred. These and other considerations led the Senate Finance Committee to request that OIG conduct a review of these hospitals.

Among the OIG’s findings are that more than one in five of the 109 hospitals reviewed had no written policies for evaluating and dealing with emergency situations, which is a CMS requirement. OIG also said in its report that 34% of the hospitals rely on 911 services for emergency care and that less than a third of the 109 had a physician on site at all times.

Molly Sandvig, the executive director of Physician Hospitals of America (Sioux Falls, South Dakota) told Medical Device Daily that “we continue to support the OIG’s recommendations to CMS,” which included development of a system to identify and regularly track physician-owned specialty hospitals and to ensure that these hospitals have a registered nurse on site 24/7.

However, Sandvig said of the OIG’s conclusions: “We’re confident that it’s blatantly false.”

“It’s either a case of people at OIG in not understanding what they’re reading” or not correctly interpreting CMS regulations, Sandvig said, adding that “It appears that there was a lack of follow-up” to validate the initial findings when they were contested.

“There were 37 hospitals named in the report as having suspect emergency policies, using 911 for purposes of stabilization,” Sandvig said, adding “none of the hospitals I talked to have policies that matched the OIG’s accusations.”

One of the points on which Sandvig said OIG was “dead wrong” was the allegation that eight hospitals failed to meet medical personnel staffing requirements. She said, “I talked to all eight hospitals and they all met the staffing requirements. One was accused for not having a physician on call on Thanksgiving in 2006,” which was because a picture of a turkey had blotted out the name of the physician on call.

Sandvig said, “We are going to be taking action” through the media, but also will ask that OIG reconduct the study.

Jeffrey Micklos, general counsel at the Federation of American Hospitals (FAH; Washington), told MDD that FAH was “pleased by the report because it confirmed things we were concerned about.”

Micklos said “the patients in these facilities are not necessarily getting the level of urgent care you would get in a community-based hospital.” He added that FAH members are of the opinion that “Congress should act on closing the loophole for specialty hospitals.” The reference is to the whole hospital exception to physician self referral laws that has been applied to specialty hospitals.

As for the prospect that Congress will act on this, Micklos pointed to support for the idea by both Sens. Max Baucus (D-Montana), chair of the Senate Finance Committee, and Chuck Grassley (R-Iowa), the ranking minority member, both of whom seemed interested in pulling the exception in 2007. “We anticipate there will be further activity this year along those same lines,” Micklos said.

ZymoGenetics gets BLA for Recothrom

Some in business say that what’s good for the company is good for the customer and vice-versa. Last week’s announcement that FDA has approved a topical to stop surgical bleeding suggested that it is true, at least in some cases.

According to FDA’s Jan. 17 announcement, Recothrom, made by ZymoGenetics (Seattle) is a topical solution containing thrombin, which produces fibrin, a protein essential to the clotting process. The company manufactures the product via recombinant DNA. The announcement that FDA had granted the firm a biologics license approval (BLA) was also good for the financial health of the firm, which won a $40 million payment from Bayer Healthcare (Tarrytown, New York) as a result of the milestone.

Bayer has marketing rights for the product outside the U.S., and both firms will market the drug inside the U.S. The announcement also sparked ZymoGenetics’ shares on the NASDAQ board, driving it from $12 to $13.05 in trading by the end of the day last Thursday.

Prodesse (Milwaukee) also got on FDA’s good side last week with the Jan. 18 announcement that the agency had cleared the firm’s real-time test for respiratory viruses. ProFlu is a diagnostic that can pick up as many as four viruses, including two influenza viruses and two variants of respiratory syncytial virus.

ProFlu makes use of a polymerase chain reaction to extract and replicate the genetic material from the virus (viruses have no nuclei and their genetic material floats in the intracellular plasma), which is drawn from swabs from the patient’s throat.

The market for ProFlu seems promising. According to FDA, influenza hits 5%-20% of the U.S. population annually, “resulting in more than 200,000 hospitalizations and up to 36,000 deaths.” FDA also said that influenza A, “is the most severe [of influenzas] and has been the cause of major epidemics.”

The firm obtained a CE mark for the diagnostic in October.