Department of Health and Human Services
 
OFFICE OF 

 
INSPECTOR GENERAL 

 
 
 
 
 
 
P -O  
 HYSICIAN WNED 

 
S H  A
PECIALTY  OSPITALS   BILITY 

 
T   M M
O  ANAGE  EDICAL 

 
E  
  MERGENCIES 

 
 
 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
 
    January 2008 
 
OEI-02-06-00310 
 
   
   
 
Office of Inspector General

http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,  
as amended, is to  protect the integrity of  the Department of Health and Human Services 
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components:  
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services  for HHS, either by  
conducting audits with its  own audit resources or by overseeing audit work done by others.   
Audits examine the performance of HHS programs and/or its grantees and  contractors  
in carrying out  their respective responsibilities and are intended  to provide independent  
assessments of  HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement  and  promote economy and  efficiency throughout HHS. 
Office of Evaluation and Inspections  
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud,  waste,  or  
abuse and promoting  economy, efficiency, and effectiveness  in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative  
investigations  of  allegations of wrongdoing  in HHS  programs or to HHS  beneficiaries  
and of unjust enrichment by  providers.  The investigative  efforts  of OI lead to  criminal  
convictions, administrative sanctions,  or  civil monetary penalties.  
Office of Counsel to the Inspector General 
The  Office of Counsel to the Inspector General (OCIG)  provides  general legal services  to  
OIG, rendering  advice and opinions on HHS programs  and operations and providing all 
legal support in OIG's internal operations.   OCIG imposes program exclusions and civil 
monetary penalties  on health care providers and litigates  those actions  within HHS.   
OCIG also  represents OIG in the global settlement of  cases  arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to  the health care  
 
community,  and issues fraud alerts  and other industry  guidance.  
     
   
    
   
  E X E C U T I V E   S U M M A R Y  
OBJECTIVE 
 
To assess physician-owned specialty hospitals ability to manage 
medical emergencies. 
BACKGROUND 
Physician-owned specialty hospitals are hospitals that primarily 
perform cardiac, orthopedic, or surgical procedures and are  partially or 
fully owned by physician investors.  Two recent deaths of specialty 
hospital patients have raised concerns about the ability of these 
hospitals to manage medical emergencies.  In both instances, a patient 
experienced complications following elective surgery.  Neither hospital 
had a physician on duty at the time the emergency occurred, and both 
hospitals called 9-1-1. The patients were then transferred to community 
hospitals, where they were both pronounced dead.   
All hospitals that participate in the Medicare program must 
demonstrate to the Centers for Medicare & Medicaid Services (CMS) 
their initial and ongoing ability to meet a set of health and safety 
standards, referred to as the Conditions of Participation (CoP).  The 
CoPs require that all hospitals have a physician on duty or on call at all 
times.  Hospitals are also required to provide 24-hour nursing services, 
furnished or supervised  by a registered nurse.  In addition, the CoPs  
require that hospitals have written policies and procedures in place for 
addressing individuals emergency care needs, regardless of whether the 
hospital has an emergency department.  Finally,  according to CMS, a 
hospital is not in compliance with the CoPs if it relies on 9-1-1 services 
as a substitute for its own emergency services.  However, there is no  
specific Medicare prohibition on a hospital calling 9-1-1 to arrange for 
the transfer of a patient to another hospital.  
The Senate Finance Committee requested that the Office of Inspector  
General (OIG) conduct an evaluation of patient care and safety in 
physician-owned specialty hospitals.  This study focuses on hospitals 
emergency departments, staffing patterns, and written policies for 
managing medical emergencies. It is based on data from 109 physician-
owned specialty hospitals that we identified from a list provided by 
CMS. CMS currently does not have a system in  place to track 
physician-owned specialty hospitals or to identify newly enrolled 
physician-owned specialty hospitals. 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   i     
   
EEE XXX EEE CCC UUU TTT III VVV EEE     SSS UUU MMM MMM AAA RRR YYY     
The study relies on four primary sources of data: (1) a review of 
physician and nurse staffing schedules for 8 sampled days, (2) a review 
of hospitals staffing policies, (3) a review of hospitals policies for 
managing medical emergencies, and (4) structured interviews with 
administrators at each hospital.  
FINDINGS 
About half of all physician-owned specialty  hospitals have 
emergency  departments, the majority  of which have only  one 
emergency bed. Fifty-five percent of all physician-owned specialty 
hospitals have an emergency department. More than half of these 
hospitals have only one emergency bed. Another 17 percent  of these 
hospitals have between 2 and 5 emergency beds,  15 percent  have 
between 6 and 8 emergency beds, and 8 percent have 9 or 10 emergency 
beds. Medicare does not require that hospitals have emergency 
departments, but some  States  do have this requirement. 
Not all physician-owned specialty hospitals had nurses on duty and 
physicians on call during the 8 sampled days.   Based on our review of 
hospitals staffing schedules, 93 percent of physician-owned specialty 
hospitals met these two requirements during our 8 sampled  days. The  
remaining 7 percent of hospitals did  not meet these requirements.  
Specifically, seven hospitals failed to have a registered nurse on duty 
and one hospital failed to have a physician on call or on duty during at 
least 1 of the 8 sampled  days. Hospitals were least likely to  meet these 
staffing requirements on weekends.    
Administrators report that less than one-third of physician-owned 
specialty hospitals have physicians onsite at all times.  According to 
administrators, 28 percent of hospitals have a physician onsite 24 hours 
a day, 7 days a week. Additionally, 45 percent of the hospitals with 
emergency departments have a physician onsite at all times, compared 
to 8 percent of the hospitals without  emergency departments. Medicare 
does not require that hospitals have physicians onsite at all times. 
Two-thirds  of physician-owned specialty  hospitals use 9-1-1 as part 
of their emergency response procedures. According to 
administrators and our review of hospital policies, 66 percent of 
hospitals instruct staff to call 9-1-1 as part of their medical emergency 
response procedures. Most notably, 34 percent of hospitals use 9-1-1 to 
obtain medical assistance to stabilize a patient, a practice that may 
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E X E C U T I V E   S U M M A R Y   
violate Medicare requirements.  Almost half of all hospitals (46 percent) 
use 9-1-1 to transfer patients, a practice that is permitted by Medicare.   
Some physician-owned specialty  hospitals lack basic information in  
their written policies about managing medical emergencies.  Almost 
a quarter of  all physician-owned specialty hospitals have policies that do 
not address appraisal of emergencies, initial treatment of emergencies, 
or referral and transfer of patients.  In addition, some policies lack 
certain information about managing medical emergencies, such as the 
type of emergency response equipment to be used or the life-saving 
protocols to  be followed.   
RECOMMENDATIONS 
Based on these findings, we recommend that CMS take the following 
actions to improve the ability of physician-owned specialty hospitals to 
manage medical emergencies.   We  recognize that although the scope of 
this study includes physician-owned specialty hospitals, some of the 
recommendations apply to all hospitals.  Specifically, we recommend 
that CMS: 
 	  Develop a system to identify and regularly track physician-owned 
specialty hospitals. 
 	  Ensure that hospitals meet the current Medicare CoPs that require 
a registered nurse to be on duty 24 hours a day, 7 days a week and a 
physician to be on call if one is not onsite.    
 	  Ensure that hospitals have the capabilities to provide for the 
appraisal and initial treatment of emergencies and that they are not 
relying on 9-1-1 as a substitute for their own ability to provide these 
services. 
 	  Require hospitals to include necessary information in their written 
policies for managing a medical emergency, such as the use of 
emergency response equipment and the life-saving protocols to be 
followed. 
In addition to making these recommendations, we will forward to CMS 
for appropriate action information on the 8 hospitals that did not meet 
the two staffing CoPs reviewed in the study and the 37 hospitals that 
use 9-1-1 to obtain medical assistance. 
 
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E X E C U T I V E   S U M M A R Y
   
AGENCY COMMENTS  
CMS concurred with all four of our recommendations.   
In response to our first recommendation, CMS stated that it will add 
information to CMSs provider enrollment form and the new Provider  
Enrollment  and Chain-Operated System.    
In response  to our second recommendation, CMS indicated that it 
currently examines hospital compliance with all Medicare CoPs through 
its routine hospital surveys.  CMS does not conduct these surveys for 
the 42 percent of hospitals that are accredited by either the Joint 
Commission or the American Osteopathic Association.  However, CMS 
investigates all credible complaints, including complaints against 
accredited hospitals.  CMS stated that it will ensure that both 
accreditation organizations are aware of our findings.   
In response  to our third  recommendation, CMS stated that it issued a 
program memorandum to State Survey Agencies during the period that 
we were conducting the study that reiterates its requirements for 
hospitals and addresses medical emergency requirements.  CMS 
circulated this memorandum to the national accreditation organizations 
and made it available to the public through its Web site.   
Finally, CMS concurred in principle with our fourth recommendation. 
CMS stated that it will consider whether regulatory changes to create 
more specific requirements for equipment and staff qualifications would 
be appropriate. 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   iv     
   
  T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9 
  
  Half of all hospitals have emergency departments . . . . . . . . . . . . .  9 
  
  Not all hospitals had nurses on duty and physicians on call  

during the 8 sampled days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10 
  
  Less than one-third of administrators report having physicians     
  
onsite at all times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11 
  
  Two-thirds of hospitals use 9-1-1 as part of their emergency
                  
  response. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12 
  
  Some hospitals lack basic information in their written policies . .  13 

 
 
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15 

  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16 
  
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17 
  
  A: 	Distribution of Physician-Owned Specialty  

         Hospitals, by State  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17 
  
  B:	  Number of Physician-Owned Specialty Hospitals That Have  

   an Emergency Department  . . . . . . . . . . . . . . . . . . . . . . . . . . .  18 
  
  C:	  Number of Registered Nurses on Duty. . . . . . . . . . . . . . . . . . .  19 
  
  D:	  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20 
  
 
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23 
  
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  I N T R O D U C T I O N  
OBJECTIVE 
To assess physician-owned specialty hospitals ability to manage 
medical emergencies. 
BACKGROUND 
Physician-owned specialty hospitals are hospitals that primarily 
perform cardiac, orthopedic, or surgical procedures and are  partially or 
fully owned by physician investors.   
There is an  ongoing debate about the value of physician-owned specialty 
hospitals. Proponents of these facilities state that by narrowing 
services to a select group of procedures, specialty hospitals can deliver a 
higher level of care to their patients, compared to that delivered by 
community hospitals.  Critics note that because these facilities are 
physician-owned, they create incentives for physician owners to refer 
their more profitable and healthier patients to their specialty hospitals.  
They argue that this creates a financial problem for community 
hospitals, by depriving them of an important revenue stream without 
alleviating the burden of providing uncompensated care.  They also 
believe safety is an issue for specialty hospital patients, because they 
are being treated in a facility that may be less prepared to handle  
postoperative emergencies compared to a community hospital.1   
Two recent deaths of specialty hospital patients have raised  concerns  
about the ability of physician-owned  specialty hospitals to manage 
medical emergencies.  In both instances, a patient experienced  
complications following elective surgery.  Neither hospital had a 
physician on duty at the time the emergency occurred, and both 
hospitals called 9-1-1. The patients were then transferred to community 
hospitals, where they were both pronounced dead.   
The Senate Finance Committee requested that the Office of Inspector  
General (OIG) conduct an evaluation of patient care and safety in 
physician-owned specialty hospitals.  This study focuses on hospitals 
emergency departments, staffing patterns, and written policies for 
managing medical emergencies.  
 
1 Physician-Owned Specialty Hospitals:  In the Interest of Patients or a Conflict of  
Interest?  Hearing Before the Committee on Finance, United States Senate, 109th  
Congress, First Session, March 8, 2005. 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   1     
   
I N T R O D U C T I O N   
Medicare Enrollment of Physician-Owned Specialty Hospitals  
Congress and the Centers for Medicare & Medicaid Services (CMS) 
imposed several restrictions on physician-owned specialty hospitals 
between 2003 and 2006.  The Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) imposed a 
temporary moratorium on new physician-owned specialty hospitals to 
provide time to study the impact they have on patients, community 
hospitals, and the Medicare and Medicaid programs.2  The moratorium  
limited physician owners ability to refer patients to their own specialty 
hospitals and specialty hospitals ability to bill any individual,   
third-party payer, or  other entity for these self-referrals.  The 
moratorium began on December 8, 2003; it expired on June 8, 2005.3    
The day after the moratorium  expired, CMS temporarily suspended the  
Medicare enrollment of  new physician-owned specialty hospitals 
pending CMS review of the procedures used to qualify specialty 
hospitals for participation in the Medicare program.4  Under section  
5006(c) of the Deficit Reduction Act of 2005 (DRA), Congress continued 
CMSs suspension until the earlier of August 8, 2006, or the date that 
the Department of Health and Human Services (HHS) could submit a 
plan to address issues relating to physician ownership of specialty 
hospitals.5   HHS submitted its plan to Congress on August 8, 2006, 
thereby ending the suspension.6  The plan included action items for  
HHS to undertake, such as reforming the payment system for inpatient 
hospital services and ambulatory surgical centers and promoting 
transparency of physician investments in hospitals.   
Currently, the exact number of physician-owned specialty hospitals is 
unknown. CMS compiled a list of 130 physician-owned specialty 
hospitals for a study required by the MMA and for its plan to Congress.7   
 
2 P.L. No. 108-173, ' 507(a) (2003) (codified at 42 U.S.C. ''  1395nn(d)(2), (d)(3), and 
(h)(7)). 
3  The moratorium did not apply to grandfathered specialty  hospitals that met the 
requirements of 42 U.S.C.  1395nn(h)(7)(B). 
4 CMS memorandum to State Survey Agency  Directors, Hospitals  Suspension of  
Processing New  Provider Enrollment Applications (CMS-855A) for Specialty Hospitals, 
S&C-05-35, June 9, 2005. 
5 P.L. No. 109-171, ' 5006(c) (2006). 
6 HHS, Final Report to the Congress and Strategic and Implementing Plan Required 
Under Section 5006 of the Deficit Reduction Act of 2005, August 2006. 
7 HHS, Study of Physician-Owned Specialty Hospitals Required in Section 507(c)(2) of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 2005. 
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I N T R O D U C T I O N   
However, CMS does not have a system in place to identify newly 
enrolled physician-owned specialty hospitals and does not track 
hospitals that are no longer physician-owned specialty hospitals.  
Regulations Governing the Management of Medical Emergencies 
All hospitals that participate in the Medicare program must 
demonstrate to CMS their initial and ongoing ability to meet a set of 
health and safety standards, referred to as the Conditions of 
Participation (CoPs). CoPs define the minimum standards for all 
hospitals participating in the Medicare program.   
Generally, the CoPs require that a physician be responsible for the care  
of each Medicare patient with respect to any medical problem that is 
present on admission or  that develops during hospitalization.8  The 
CoPs also require that all hospitals have a physician on duty or on call 
at all times.9  Hospitals are also required to provide 24-hour nursing 
services, furnished or supervised by a registered nurse.10    
Hospitals must have written policies and procedures in place for  
addressing individuals emergency care needs, regardless of whether the 
hospitals have emergency departments.11  The CoPs require that if a 
hospital has an emergency department, there must be adequate medical 
and nursing personnel who are qualified to manage medical 
emergencies and who are able to meet the written emergency 
procedures and needs anticipated by the facility.12  The CoPs also 
require that if a hospital does not have an emergency department, the 
hospital must ensure that the medical staff have written policies and 
procedures for the appraisal of emergencies, initial treatment, and  
referral when appropriate.13  Finally, if the hospital has an emergency  
department, but also has off-campus departments that do not have an 
emergency department, such as imaging facilities or physical therapy 
clinics, the hospital must ensure that the medical staff have written 
policies and procedures in effect with respect to the off-campus 
 
8 42 CFR  482.12(c)(4)(i). 

9 42 CFR  482.12(c)(3). 

10 42 CFR  482.23(b)(1). 

11 CMS memorandum to State Survey Agency  Directors, Provision of Emergency
  
Services - Important Requirements for Hospitals, S&C-07-19 (April 26, 2007).  
12 42 CFR 482.55(b)(2). 
13 42 CFR  482.12(f)(2). 
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I N T R O D U C T I O N   
department(s) for appraisal of emergencies and referral when 
appropriate.14  
In addition, in April 2007, CMS issued a program memorandum to State 
Survey Agency Directors addressing specific requirements for the 
management of medical emergencies.15  In this memorandum,  CMS 
clarified the use of 9-1-1, stating that:  A hospital is not in compliance 
with the Medicare CoPs if it relies on 9-1-1 services as a substitute for 
the hospitals own ability to provide services otherwise required in the 
CoPs.  This means, among other things, that a hospital may not rely on 
9-1-1 services to provide appraisal or initial treatment of individuals in 
lieu of its own capability to do so.   However, CMS notes that there is no 
specific Medicare prohibition on a hospital calling 9-1-1 to arrange for 
the transfer of a patient to another hospital.  
In August 2007, CMS adopted a final rule requiring hospitals to 
inform all patients in writing, at the beginning  of their hospital stay 
or outpatient visit, if a physician is not present in the hospital           
24 hours a day, 7 days a week.  The hospital must also inform 
patients how the hospital would meet the medical needs of any 
patient who  develops an emergency medical condition when no 
physician is present.16    
Prior Studies  
In 2006, the Government Accountability Office (GAO) examined 
community hospitals competitive response to physician-owned specialty 
hospitals in their market areas.17  It found that community hospitals in 
markets with and without specialty hospitals did not differ 
substantially in the changes they made to their operations and clinical 
services. 
As mandated by the MMA, the Medicare Payment Advisory Commission 
(MedPAC) and the Secretary of HHS also conducted studies on 
physician-owned specialty hospitals.  MedPAC looked at the financial 
 
14 42 CFR  482.12(f)(3). 
15 CMS memorandum to State Survey Agency  Directors, Provision of Emergency  
Services - Important Requirements for Hospitals, S&C-07-19 (April 26, 2007).  
16 Medicare Program, Changes to the Hospital Inpatient Prospective Payment Systems 
and Fiscal Year 2008 Rates, 72 FR 47130, 47413 (August 22, 2007) (to be codified at           
42 CFR  489.20(v)).   
17 GAO, General Hospitals:  Operational and Clinical Changes Largely Unaffected by 
Presence of Competing Specialty Hospitals, GAO-06-520, April 2006. 
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I N T R O D U C T I O N   
impact of specialty hospitals on full-service community hospitals.18   
MedPAC found no statistically significant difference in the cost of 
providing care to patients at physician-owned specialty hospitals, 
compared to the cost at other area hospitals.  However, it found that 
physician-owned specialty hospitals were less likely to treat Medicaid 
patients than community hospitals in the same areas and that 
physician-owned specialty hospitals tended to treat healthier patients.  
HHS reviewed patterns of physician referral to specialty hospitals, as 
well as quality of care and patient satisfaction at these hospitals.19 It 
found that physician owners did not  exhibit clear and consistent 
patterns of hospital preference in their referrals, compared to physicians 
with no hospital ownership.  However, similar to the MedPAC study, 
HHS found that cardiac hospitals treated healthier patients than 
community hospitals in the same geographic area.  HHS also found 
indications that patients at specialty hospitals receive a high quality of 
care, similar to that received by patients at competitor hospitals.  
Additionally, it found that patient satisfaction was very high in 
specialty hospitals and high in competitor community hospitals.    
METHODOLOGY 
Scope 
This study assesses physician-owned specialty hospitals ability to 
manage medical emergencies.  It focuses on hospitals emergency 
departments, staffing patterns, and written policies for managing 
medical emergencies.   
This study is based on data from 109 physician-owned specialty 
hospitals that we identified from a list provided by CMS.  The study 
relies on four primary sources of data:  (1) a review of physician and 
nurse staffing schedules for 8 sampled days, (2) a review of  hospitals 
staffing policies, (3) a review of hospitals policies for managing medical 
emergencies, and (4) structured interviews with administrators at each 
hospital. 
 
 
 
18 MedPAC, Physician-Owned Specialty Hospitals, March 2005.  
19 HHS, Study of Physician-Owned Specialty Hospitals Required in Section 507(c)(2) of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 2005.   
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I N T R O D U C T I O N   
Identification of Physician-Owned Specialty Hospitals  
For the purposes of its MMA-mandated study, CMS defined a 
physician-owned hospital as a hospital that has at least one physician 
owner. It defined a specialty hospital as a surgical hospital if at least 
45 percent of Medicare discharges involve a surgical procedure. It 
defined a specialty hospital as cardiac or orthopedic if at least         
45 percent of its Medicare discharges are classified under the  Medical 
Diagnostic Categories for cardiac or orthopedic conditions.  Cardiac 
hospitals must also have at least five major heart surgery discharges a 
year; orthopedic hospitals must have at least five major orthopedic 
surgery discharges a year.20  
Currently, CMS does not have a system to identify all physician-owned 
specialty hospitals. It originally compiled a list for the MMA study and 
added to the list for the plan that HHS submitted to Congress as 
required by the DRA.21  The list included a total of 130 physician-owned 
specialty hospitals. CMS surveyed the hospitals it identified, but did 
not fully verify that all of them were physician-owned specialty 
hospitals because some of the hospitals did not respond to the survey.  
Between December 2006 and March 2007, we contacted each hospital on 
the list to verify whether it currently met CMSs definition of physician-
owned specialty hospital.  We verified that a total of 109 of the           
130 hospitals met this definition.  Of the 21 remaining hospitals,          
14 were not physician owned; 3 hospitals no longer met CMSs definition 
of a cardiac, orthopedic,  or surgical specialty hospital; 3 hospitals were 
terminated by CMS in 2006 and 2007; and 1 hospital was converted to a 
critical access hospital in 2004. 
The remaining 109 hospitals that met CMSs definition have the 
following characteristics:  66 hospitals are surgical hospitals, 23 are 
orthopedic hospitals, and 20 are cardiac hospitals.  They are located in a  
total of 20 States. The five States with the highest concentration of 
these hospitals are Texas (33 hospitals), Louisiana (15 hospitals), 
Oklahoma (9 hospitals), Kansas (9 hospitals), and South Dakota            
(8 hospitals).  Appendix A provides a map of the  distribution of these 
hospitals. In addition, 42 percent of  the hospitals were accredited by 
 
20 HHS, Study of Physician-Owned Specialty Hospitals Required in Section 507(c)(2) of 
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 2005.   
21 HHS, Final Report to the Congress and Strategic and Implementing Plan Required 
Under Section 5006 of the Deficit Reduction Act of 2005, August 2006:  Appendix I. 
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I N T R O D U C T I O N   
the Joint Commission and the American Osteopathic Association as of 
2006.22  
Review  of Staffing Schedules  
We collected and reviewed staffing schedules from each of the             
109 specialty hospitals for 8 sampled days.  We selected a sample of        
8 days between July 1, 2006, and December 31, 2006, using a two-stage 
sampling method.  First, we divided all the days during our study 
timeframe into eight strata representing each of the 7 days of the week, 
plus one stratum for holidays.  Second, we randomly selected 1 day from 
each stratum.  Our findings based on these data are limited  to the  
sampled days. 
For the 8 sampled days, we requested and received the staffing 
schedules of the physicians and nurses who were on duty or on call for 
each unit of the main hospital and for each off-campus department or 
satellite office operated by the hospital, if applicable.  We reviewed the 
staffing schedules for the 8 sampled days from each of the 109 hospitals.  
We identified any instances when a hospital did not meet the Medicare  
staffing CoPs that require at least one physician to be on duty or on call 
at all times and at least one registered nurse to be on duty at all times.  
We also reviewed the number of nurses per shift in the inpatient unit 
for a randomly selected weekday and weekend day from our  8 sampled  
days. 
Review  of Hospital Staffing and Emergency Management Policies  
We collected and reviewed each hospitals staffing policies.  We received  
these policies from all but two hospitals.23 In reviewing these 
documents, we specifically looked for how hospitals determine the 
number of staff who are on duty for  different shifts and whether they 
designate a certain response time for on-call staff.   
We also collected and reviewed each hospitals policies for managing 
medical emergencies.  We received these policies from all 109 hospitals.  
We also requested any documents that the hospital provides to patients 
describing their emergency care policies and procedures.  In  reviewing  
these documents, we specifically looked for how the hospital instructs 
staff to respond to medical emergencies, the procedures that should be 
 
22 The Joint Commission and the Healthcare Facilities Accreditation Program of the 
American Osteopathic Association are two accrediting organizations that have deeming 
authority to certify hospitals as  meeting Medicare requirements. 
23 Two hospitals did not submit staffing  policies. 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   7     
   
I N T R O D U C T I O N   
followed, and any guidance about the transfer of patients to other  
hospitals. 
Interviews With Hospital Administrators 
We conducted structured telephone interviews with the hospital 
administrator at each of the 109 hospitals.  In some instances, other 
staff, such as the medical director, director of nursing, or risk  manager, 
were present at the interview.  We asked each administrator about 
procedures for the management of medical emergencies at their hospital 
and at any off-campus departments. In addition, we discussed staffing 
patterns for their inpatient, outpatient, and emergency departments, if 
applicable.  We conducted these interviews between January and March 
2007. 
Limitations 
We based this study on 109 physician-owned specialty hospitals that we 
identified from a list of 130 hospitals that CMS updated in 2006.  This 
list may not have included all physician-owned specialty hospitals.  In 
addition, the 109 hospitals that we verified do not include any 
physician-owned specialty hospitals that may have enrolled in Medicare 
since the suspension ended in August 2006.  The information from our 
interviews with the hospital administrators is self-reported; we did not 
independently verify their responses.  Also, we did not collect  
information from other short-term acute care hospitals and therefore 
cannot make relevant comparisons.   
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
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  F I N D I N G S  
About half of all physician-owned specialty   Fifty-five percent of all physician-
hospitals have emergency departments,   owned specialty hospitals have an 
emergency department.   There is 
the majority  of which have only  one     
no Federal requirement that all 
emergency bed 
hospitals have emergency 
departments, but some  States do require emergency departments in 
hospitals. As shown in  Chart 1, many of these emergency departments 
are relatively small. More than half of hospitals with emergency 
departments have only one emergency bed.  Another 17 percent of these  
hospitals have between 2 and 5 emergency beds,  15 percent  have 
between 6 and 8 emergency beds, and 8 percent have 9 or 10 emergency 
beds.  According to administrators, the hours of operation for all of these  
emergency departments are 24 hours a day, 7 days a week.    
CHART 1:   70% 
Physician-Owned Specialty    y
Hospitals With  Emergency  enc 60%  58% 
Departments by the Number of  erg
m
Emergency Beds (N=60)  E 50% 
 h 
Wits 
s ent 40% 
alm
pitart
sp 30% 
oe
HD
of 
ge  20%  17%  15% 
a
ent 8% 
c 10% 
Per 2% 
0% 
1  2 to 5  6 to  8  9 to  10  Other* 
Number  of Emergency Beds 
  * One hospital with an emergency department shares the  emergency beds of an adjacent hospital. 
Source:  OIG analysis of interview data, 2007. 
 
Among physician-owned specialty hospitals, cardiac hospitals are twice 
as likely as orthopedic and surgical  hospitals to have an emergency  
department.  Ninety percent of cardiac hospitals have an emergency  
department, compared to 48 percent of orthopedic hospitals and   
47 percent of surgical hospitals.  See Appendix B  for the number of each  
type of hospital that has an emergency department.  Cardiac hospitals 
have a median of seven beds in their emergency departments, compared  
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   9     
   
F I N D I N G S  
to a median of one bed for surgical and orthopedic hospitals. In 
addition, 72 percent of the hospitals with emergency departments are 
located in three States that require hospitals to have emergency 
departments.24  Seventy-six percent of these hospitals have only one bed 
in their emergency department.   
Several administrators at hospitals without emergency departments  
note that as a safety precaution, their hospital will not admit patients 
with certain conditions. They explain that they will not admit patients 
needing intensive care or a higher level of care than the hospital can 
provide. Additionally, 13 administrators at hospitals without 
emergency departments report that they are located adjacent to or 
across from  or are connected to a hospital with an emergency 
department. 
The Medicare CoPs state that 
Not all physician-owned specialty  hospitals had 
hospitals must have, at a 
nurses on duty and physicians on call during 
minimum, a registered nurse on 
the 8 sampled days  
duty 24 hours a day, 7 days a 
week, and a physician on call if one is not on duty at the hospital.25   
Based on our review of hospitals staffing schedules, 93 percent of 
physician-owned specialty hospitals met these two requirements for our 
8 sampled days. The remaining 7 percent of hospitals did not meet 
these requirements.   
Specifically, seven hospitals failed to have a registered nurse on duty 
and one hospital failed to have a physician on call or on duty during at 
least 1 of the 8 sampled days.  Most  notably, three hospitals did not 
have a registered nurse on duty for any shift during 1 of the sampled 
days. Another hospital did not have a registered nurse on duty for any 
shift during 3 of the sampled days, as well as for the night shift on a      
4th day.  Hospitals were least likely to meet these staffing requirements 
on weekends.   
Most physician-owned specialty hospitals (60 percent) have policies that 
specify coverage requirements for physicians on call.  Many of these 
policies state that  physicians must be on call around the clock.         
Forty-two percent of the hospitals with on-call policies require specific 
 
24 These States are Texas, Oklahoma, and Colorado.  See 25 Tex. Admin.                      
Code ' 133.41(e); Okla. Admin. Code ' 310:667-49-9; and 6 Colo. Code Regs. ' 1011-1, 
Chapter IV, para. 11.1. 
25 42 CFR  482.23(b)(1); 42 CFR  482.12(c)(3).   
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F I N D I N G S  
response times; these policies typically state that on-call physicians 
need to respond within 30 minutes.  
Almost all of the hospitals have policies governing nurse staffing 
requirements.  These policies commonly set certain nurse-to-patient 
ratios, factor into account patients needs, and/or set a minimum 
number of nurses that a hospital is required to have on duty.  
In addition, according to our review of hospitals staffing schedules, 
hospitals typically have between one and three registered nurses on 
duty per shift in their inpatient units.  During the day, they have a 
median of three registered nurses during the week and during the  
weekend, they have a median of two registered nurses.26  At night, they  
have a median of two registered nurses on duty during both the week 
and the weekend.  See Appendix C for the number of  registered nurses 
on duty in the inpatient units during the day and night.   
According to our review of 8 sampled days, the patient census for the 
hospitals varied greatly depending upon whether it was a weekday, 
weekend,  or holiday.  The median number of patients ranged from four 
to nine during the week and from one to two patients during the 
weekend.  During the holiday, the median number of patients was two.  
Most hospitals had patients during  the week; however, 46 percent of 
hospitals did not have any patients during one of the weekend days, and 
25 percent did not have any patients during the holiday. 
According to information provided 
Administrators report that less than one-third of 
by administrators, 28 percent of 
physician-owned specialty hospitals have 
physician-owned specialty 
physicians onsite at all times 
hospitals have a physician onsite 
24 hours a day, 7 days a week.  
Medicare does not require that hospitals have physicians onsite at all 
times.  Administrators at hospitals that do not have a physician onsite 
at all times commonly explain that their hospital does not employ 
physicians directly.  Physicians typically have privileges at the hospital 
and are generally on duty during business hours to perform surgeries 
and/or check on their patients, but the hospital does not manage the 
physicians schedules.27  
 
26 This analysis is based on a randomly selected weekday and  weekend day  from our       
8 sampled days.  
27 According to the hospitals policies, business hours typically include daytime  hours.    
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F I N D I N G S  
Additionally, not all physician-owned specialty hospitals with 
emergency departments have a physician onsite at all times.  According 
to administrators, 45 percent of the hospitals with emergency 
departments have a physician onsite at all times, compared to 8 percent 
of the hospitals without emergency departments. Cardiac hospitals are 
more likely than orthopedic and surgical hospitals to have a physician 
present around the clock.  Ninety-five percent of cardiac hospitals have 
a physician onsite at all times, compared to 17 percent of orthopedic 
hospitals and 12 percent of surgical hospitals. 
Administrators report that hospitals with emergency departments that 
do not have  a physician on duty at all times use on-call physicians to 
staff their emergency department.  As one administrator stated, her 
hospital does not have a dedicated physician for the emergency 
department; if an emergency occurs,  staff would need to call in the 
appropriate physician.   
Based on information provided by 
Two-thirds of physician-owned specialty  
administrators and our review of 
hospitals use 9-1-1 as part of their emergency  
hospital policies, 66 percent of  
response procedures 
physician-owned hospitals 
instruct staff to call 9-1-1 as part 
of their medical emergency response procedures; however, hospitals 
differ in their usage of 9-1-1.  See Chart 2 on the next page.   
About one-third of physician-owned  specialty hospitals (34 percent) use  
9-1-1 to obtain medical assistance to stabilize a patient.  As noted 
earlier, a hospital is not in compliance with Medicare CoPs if it relies on 
9-1-1 services to provide appraisal or initial treatment in lieu of its own 
capabilities.  For example, one hospitals emergency policy states, 9-1-1 
will be called to the scene to attempt resuscitation.  Another hospital 
has a policy that states, After hours, call 911 for a Code Blue.  Upon 
arrival, [county] EMS will assume responsibility for the patient.  
Additionally, another hospitals policy states, If conditions are such 
that staff should require additional assistance, 911 will be contacted. 
Almost half (46 percent) of physician-owned specialty hospitals use       
9-1-1 to transfer patients to other hospitals.  Medicare CoPs do not  
prohibit using 9-1-1 for transfers.  One administrator reports that it is a 
city requirement to use 9-1-1 for transfers because there are no other  
ambulance services available. 
For 6 percent of physician-owned specialty hospitals, it is not  clear to  
what extent staff rely on 9-1-1 services.  In these cases, the hospitals 
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F I N D I N G S  

emergency response procedures typically state that staff should call  
9-1-1 but the policies do not indicate whether it is for medical assistance 
or patient transfer. 
 
CHART 2:    
Percentage of 
Hospitals, 
 by 9-1-1 Usage   Use 9-1-1- for 
  both medical  Use 9-1-1 for 
assistance and  transfers 
transfers  27% 
19% 
Use 9-1-1 for 
medical 
assistance 
15% 
9-1-1 not  
Use 9-1-1 but  
mentioned 
extent unclear 
34% 
6% 
 
   Note:  Percentages do not total  100  because of  rounding.                                                                         
Source:  OIG analysis of interview data and hospitals policies, 2007. 
 
Orthopedic and surgical hospitals are more than twice as likely to 
include 9-1-1 as part of their medical emergency response procedures 
compared to cardiac hospitals.  In addition, hospitals that do not have 
emergency departments and hospitals that do not have physicians on 
duty around the clock are more likely to use 9-1-1 as part of their 
emergency response procedures. 
All physician-owned specialty 
Some physician-owned specialty hospitals lack 
hospitals have written policies 
basic information in their written policies about 
governing the management of 
managing medical emergencies  
medical emergencies.  However, some 
hospitals policies lack basic 
information about how they would manage such emergencies.     
Most physician-owned specialty hospitals have policies that address the 
appraisal of emergencies, initial treatment of emergencies, and the 
referral and transfer of patients.  Such policies may identify which staff 
should respond to an emergency to appraise a patients condition or may 
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F	 I N D I N G S  
contain detailed procedures for using life-support equipment.  However,  
almost a quarter of physician-owned specialty hospitals (22 percent) 
have policies that do not address appraisal of emergencies, initial 
treatment of emergencies, or referral and transfer of patients.   
Moreover, some of the policies for the 109 hospitals lack certain 
information about managing medical emergencies.  Specifically:  
 	  Twenty-four percent of hospitals do not have policies that mention 
the use of emergency response equipment, such as defibrillators. 
 	  Twenty-one  percent of hospitals in which administrators do not 
report having a physician on duty at all times do not have policies 
that provide guidelines for managing medical emergencies when a 
physician is not on duty. 
 	  Fifteen percent of hospitals do not have policies that mention the 
use of cardiopulmonary resuscitation or Advanced Cardiac Life 
Support (ACLS) protocols.28  
 	  Six percent  of hospitals do not have policies that indicate who 
should respond to medical emergencies. 
In addition, 2 of the 10 hospitals with off-campus departments do not 
have emergency policies that apply to these departments.  One hospital 
does not have a policy.   The other  hospital has a policy for its main 
campus, but the policy is not applicable to its off-campus department 
because it does not take  into account the absence of physicians and  
nurses at the off-campus department. 
 
28 The ACLS refers to a set of medical interventions used to treat people experiencing  
respiratory and/or cardiac emergencies and stroke, including invasive techniques, such as  
intubation and administration of drugs.  Available online at 
http://www.americanheart.org/presenter.jhtml?identifier=3012127. Accessed July 18, 2007. 
. 
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  R E C O M M E N D A T I O N S  
 
Our findings raise some concerns about physician-owned specialty 
hospitals ability to manage medical emergencies.  During the 8 sampled 
days we reviewed, not all physician-owned specialty hospitals met the 
Medicare CoP requirements to have a registered nurse on duty at all 
times and a physician on call if one is not onsite at all times.  Over    
one-third of  physician-owned specialty hospitals also rely on 9-1-1 to 
provide medical assistance, and some hospitals lack basic information in 
their written policies about how to manage medical emergencies. In  
addition, CMS does not have a system to identify or track the number of 
physician-owned specialty hospitals. 
Based on these findings, we recommend that CMS take the following 
actions to improve the ability of physician-owned specialty hospitals to 
manage medical emergencies.   We  recognize that although the scope of 
this study includes physician-owned specialty hospitals, some of the 
recommendations apply to all hospitals.  Specifically, we recommend 
that CMS: 
 	  Develop a system to identify and regularly track physician-owned 
specialty hospitals. 
 	  Ensure that hospitals meet the current Medicare CoPs that require 
a registered nurse to be on duty 24 hours a day, 7 days a week, and 
a physician to be on call if one is not  onsite.     
 	  Ensure that hospitals have the capabilities to provide for the 
appraisal and initial treatment of emergencies and that they are not 
relying on 9-1-1 as a substitute for their own ability to provide these 
services. 
 	  Require hospitals to include necessary information in their written 
policies for managing a medical emergency, such as the use of 
emergency response equipment and the life-saving protocols to be 
followed. 
In addition to making these recommendations, we will forward to CMS 
for appropriate action information on the 8 hospitals that did not meet 
the two staffing CoPs reviewed in the study and the 37 hospitals that 
use 9-1-1 to obtain medical assistance. 
 
 
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R E C O M M E N D A T I O N S  

AGENCY COMMENTS  
CMS concurred with all four of our recommendations.   
In response to our first recommendation, CMS stated that it will track 
physician-owned specialty hospitals by adding information to CMSs 
provider enrollment form and the new Provider  Enrollment  and Chain-
Operated System.    
In response  to our second recommendation, CMS indicated that it 
currently examines hospital compliance with all Medicare CoPs through 
its unannounced initial certification and recertification hospital surveys.   
CMS does not conduct these surveys for the 42 percent of hospitals that 
are accredited by either  the Joint Commission or the American 
Osteopathic Association.  However, CMS investigates all credible 
complaints, including complaints against accredited hospitals.  CMS 
stated that it will ensure that both accreditation organizations are 
aware of our findings.   
In response  to our third  recommendation, CMS stated that it issued a 
program memorandum to State Survey Agencies during the period that 
we were conducting the study that reiterates its requirements for 
hospitals and addresses medical emergency requirements.  CMS 
circulated this memorandum to the national accreditation organizations 
and made it available to the public through its Web site.   
Finally, CMS concurred in principle with our fourth recommendation.  
CMS stated that it currently has the authority to require that hospitals 
have policies and procedures addressing, at a minimum, assessment of a  
medical emergency, initial treatment, and referral as appropriate.  CMS 
stated that it will consider whether regulatory changes to create more 
specific requirements for equipment and staff qualifications would be 
appropriate.  Appendix D provides the full text of CMSs comments. 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   16     
   
  A P P E N D I X  ~ A  
 
 
 
Distribution of Physician-Owned Specialty Hospitals, by State* 
MT 
2 
ID 
WI 
SD 8 
3  2 
PA 1 
NE 3 
NV  UT  IN  OH
1  CO  3   4 
CA  1 
1 
KS 9 
5 
NC 1 
AZ 
NM  OK 9  AR 
4 
1  3 
TX  LA 
33  15 
*States that  are shaded do not have any physician-owned specialty hospitals. 
Source: Office of Inspector General analysis of interview data, 2007. 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   17     
   
  A P P E N D I X ~ B
 
                                   Number of Physician-Owned Specialty Hospitals  
That Have an Emergency Department 
70 
60 
s  50 
al
pit
os 40 
H
of  35 
er  30 
b
m
u
N 20  2 
12 
10 
18  11 31 
0 
Cardiac  Orthopedic   Surgical  
With Emergency  Department  Without Emergency  Department 
 
 
Source:  Office of  Inspector General analysis of interview data, 2007. 
 
 
 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   18    
   
  A P P E N D I X ~ C
 
Chart 1:  Number  of Registered Nurses  on Duty  in the Inpatient Units During the Day  
60% 
51% 
50% 
s 
al 40% 
t
pi 40% 
s
o
H 31% 
 of  30% 
e 
g
a 19%  20%
nt 20% 
ce 14% 
r
e
P 8%
10%  6%  5%
3%  3%
0% 
0% 
0  1  2  to 3  4 to 5  6  to 10  More than 
10 
Number of Registered  Nurses 
Weekday  Weekend 
 
Source:  Office of  Inspector General analysis of hospitals staffing  schedules, 2007.  
 
Chart 2:  Number  of Registered Nurses  on Duty  in the Inpatient Units During the Night 
60%  56% 

50% 

45% 
s 
al
t
pi 40%  36% 
s
o
H
of  30% 
e  25% 
g
a
nt 20% 
e
c
er 10% 
P
10%  6%  4% 4%  5% 3% 3%
1% 
0% 
0  1  2  to 3  4 to 5  6 to  10  More than 
10 
Number of Registered Nurses 
Weekday  Weekend 
   
Source:  Office of  Inspector General analysis of hospitals staffing  schedules, 2007. 
  OEI-02-06-00310   PHYSICIAN-OWNED  SPECIALTY  HOSPITALS  ABILITY  TO MANAGE  MEDICAL  EMERGENCIES   19     
   
A P P E N D I X   ~   A  
   A P P E N D I X ~ D  
Agency Comments 
 
  OEI-02-06-00310  PHYSICIAN-OWNED SPECIALTY HOSPITALS ABILITY TO MANAGE MEDICAL EMERGENCIES  20    
   
A P P E N D I X   ~   D  
  OEI-02-06-00310  PHYSICIAN-OWNED SPECIALTY HOSPITALS ABILITY TO MANAGE MEDICAL EMERGENCIES  21    
   
A P P E N D I X   ~   D  
 
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  A C K N O W L E D G M E N T S
 
This report was prepared under the direction of Jodi Nudelman, 
Regional Inspector General for Evaluation and Inspections in the      
New York regional office, and Meredith Seife, Deputy Regional 
Inspector General.    
Judy Kellis served as the team leader for this study.  Other principal 
Office of Evaluation and Inspections staff from the New York regional 
office who contributed to this report include Lucia Fort and Iris Lin;  
central office staff who contributed include Kevin Farber, Doris 
Jackson, and Barbara Tedesco. 
 
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