[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]




                    CMS: NEW NAME OR SAME OLD GAME?

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                      WASHINGTON, DC, MAY 16, 2002

                               __________

                           Serial No. 107-58

                               __________

         Printed for the use of the Committee on Small Business


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                            WASHINGTON : 2002
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                      COMMITTEE ON SMALL BUSINESS

                  DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas                 NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado                JUANITA MILLENDER-McDONALD, 
ROSCOE G. BARTLETT, Maryland             California
FRANK A. LoBIONDO, New Jersey        DANNY K. DAVIS, Illinois
SUE W. KELLY, New York               BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio                   DONNA M. CHRISTENSEN, Virgin 
PATRICK J. TOOMEY, Pennsylvania          Islands
JIM DeMINT, South Carolina           ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota          TOM UDALL, New Mexico
MIKE PENCE, Indiana                  STEPHANIE TUBBS JONES, Ohio
MICHAEL FERGUSON, New Jersey         CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California          DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri                 GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia          BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York       MARK UDALL, Colorado
W. TODD AKIN, Missouri               JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia  MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania           BRAD CARSON, Oklahoma
                                     ANIBAL ACEVEDO-VILA, Puerto Rico
                      Doug Thomas, Staff Director
                  Phil Eskeland, Deputy Staff Director
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 16, 2002.....................................     1

                               Witnesses

Scully, Hon. Thomas, Administrator, Centers for Medicare and 
  Medicaid Services..............................................     9
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small 
  Business Administration........................................    14
Evans, Zachary, President, National Association of Portable X-Ray 
  Providers......................................................    15
Seeley, Brian, President, Seeley Medical Inc.....................    17
Minore, W. Stephen, MD, President, Rockford Anesthesiologists 
  Association....................................................    21
Hulsebus, Michael, MD, Hulsebus Chiropractic.....................    23
Blanchard, Timothy, Esq., Partner, McDermott, Will & Emery.......    26

                                Appendix

Opening statements:
    Manzullo, Hon. Donald........................................    68
    Christensen, Hon. Donna......................................    71
Prepared statements:
    Scully, Hon. Thomas..........................................    75
    Sullivan, Hon. Thomas........................................    90
    Evans, Zachary...............................................    94
    Seeley, Brian................................................   107
    Minore, W. Stephen...........................................   115
    Hulsebus, Michael............................................   119
    Blanchard, Timothy...........................................   123

 
                     CMS: NEW NAME, SAME OLD GAME?

                              ----------                              


                         THURSDAY, MAY 16, 2002

                          House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 9:45 a.m. in Room 
2360, Rayburn House Office Building, Hon. Donald Manzullo 
[chairman of the Committee] presiding.
    Chairman Manzullo. The Small Business Committee will come 
to order.
    I have been advised by Mr. Pascrell that he has to leave in 
20 minutes, so what I am going to do is I am going to postpone 
my opening statement and fit in so that Members that have to 
leave right away can get their's in first.
    Mr. Pascrell, if you could limit your opening statement to 
say three or four minutes then we will go to Mrs. Kelly.
    Mr. Pascrell. I will be quicker than that.
    Thank you, Mr. Chairman. Thank you for bringing us 
together. Thank you, Mr. Scully for being here. It was an 
interesting meeting the last time without you. It will be an 
interesting meeting with you today.
    I am very concerned, and I will go right to the point, the 
110,000 pages of Medicare rules, policies and regulations. In a 
recent AMA survey more than one-third of the 650 responding 
physicians report spending one hour completing Medicare forms, 
administrative requirements. And through the Chair, through the 
Ranking Member, I am asking this committee today, one of our 
objectives, one of our main goals should be a reduction of that 
paperwork. The Pythagorean Theorem took 24 words, we have 
110,000 pages. We keep adding to those pages. It is absolutely 
ridiculous. We are going in the wrong direction.
    I believe there should be a policy of this Committee to ask 
of CMS that they reduce the paperwork involved with Medicare 10 
percent every year for the next five years. It is not 
impossible to do. It is something that we should be directed to 
do.
    Number two, you are part of a department that has an F 
rating in grading in terms of small business contracts. This is 
unacceptable to this Committee, regardless of which side of the 
aisle we sit on. I am asking you to give us a floor plan by 
which you, in your own department, in your own division, is 
going to increase the opportunity for small businesses 
throughout this country.
    The secretary has to do his homework, but each of the 
directors of the administration or agencies have to do their's. 
Mr. Chairman, that is totally unacceptable as well.
    I welcome Mr. Scully, and I thank you, Mr. Chairman, for 
giving me that quick opportunity.
    Chairman Manzullo. Thank you, Mr. Pascrell.
    Mrs. Kelly.
    Mrs. Kelly. Thank you, Mr. Chairman.
    I simply want to say that I think this is a very important 
hearing that we are holding today.
    I also want to go on record as saying that I think that 
most of us in this room understand that there is a great deal 
of work that needs to be done at CMS.
    I also want to thank Mr. Scully for being here today and 
for the work that he has begun at CMS and that I hope he will 
continue. My dealing with CMS under Mr. Scully have been such 
that I feel they are looking at new ways of approaching things 
that perhaps will come to the benefit of all of us. So I thank 
you very much, Mr. Scully, for being here today.
    Chairman Manzullo. Dr. Christensen?
    Mrs. Christensen. Thank you, Mr. Chairman. I will be brief, 
and I hope I will be able to return.
    I want to welcome the witnesses, I want to welcome you, Mr. 
Scully.
    I am looking forward also to this hearing being one where 
we can resolve some of the issues. We are not here to point 
fingers and cast blame. We know the mammoth bureaucracy that 
you are working with. But at the end of this day I would like 
to see a couple of issues resolved.
    My first one that I want to reference is a carrier issue, 
the contractor issue. When you were here for your first hearing 
you indicated that one of the priorities was going to be 
contractor reform. It is my understanding that it is not 
happening. It feels like a broken promise to me. I get the same 
complaint from my physicians day after day. Based on what I 
heard at your first hearing I asked them to be patient, to hold 
off on their request for a change of carrier because the system 
was going to be reformed.
    I have here a record from a physician where, this is just 
one of many. This is an example of denied claims. It was stated 
in our calls to CMS that the point of service was incorrect. 
The point of service is correct, and payments have been delayed 
for this provider for months. He has not been able to get a 
response from our carrier. So I need to have some clarification 
on when--
    Chairman Manzullo. What I would like to do is I would like 
the affirmation of Mr. Scully that we will have an answer to 
that letter delivered to your office with a carbon copy to me 
and Mrs. Velazquez, delivered by personal carrier, signed for 
in receipt within ten days.
    Can I have your assurance on that?
    Mr. Scully. Sure. Absolutely.
    Chairman Manzullo. If you need more time than that, it has 
to come from the carrier and we can understand that, but if you 
can get back within ten days, let us know what timeframe they 
would need to get back to Mrs. Christensen in.
    Mrs. Christensen. Actually, we want to sit down and talk to 
some of the people in your agency because this is just one 
example. The claims were clean, and yet they were denied, and 
yet he has been unable to get a response. That response is in 
progress now, but they still insist the claims were not clean.
    The other one is the provider payment issue. You have long 
held that you do not have the administrative authority to fix 
that. From all that we have been able to read and research, and 
several legal opinions that have been given, you do have the 
authority. Doctors' offices are closing, other provider offices 
are closing. We are facing a major health care catastrophe 
because of the cuts to provider payments. Not the first, and 
from what I understand it is not proposed to be the last. We 
need to correct it now.
    So I am hoping, again, what I would like to see at the end 
of this hearing is that we reach some resolution on that.
    Thank you, Mr. Chairman.
    [Mrs. Christensen's statement may be found in the 
appendix.]
    Chairman Manzullo. Mr. Davis, did you have an opening 
statement?
    Mr. Davis. Thank you very much, Mr. Chairman, Mr. Scully 
and colleagues. I certainly want to appreciate the fact that 
you are here.
    My statement will be actually very brief. Let me just say 
that I think I understand the role and function of your office 
and I am not sure that I envy the task that you have. As a 
matter of fact I recall when this agency was established with 
the idea that cost containment was absolutely essential and 
necessary; that there was too much waste and corruption in 
health care; and somehow or another we had to ferret some of 
that out.
    I have watched over the years the administration of the 
agency and the work that it has done, and there seems to be 
some thought that while the agency has carried out its 
functions well that it might have gone a bit overboard, and 
that there might be instances where rather than making sure 
that there is legitimacy of claims and there is the opportunity 
for people to be reimbursed for the work that they have done, 
that there is an over-zealousness on the part of some 
components that have actually boggled things up and have helped 
to create the crisis that Delegate Christensen was talking 
about a moment ago.
    So I simply want to share that with you. It causes me a 
tremendous amount of consternation. I represent a district that 
has 23 hospitals in it, 25 community health centers, the number 
of nursing homes I cannot even remember, home health agencies 
and others. I guess about half of our problem case work really 
deal with businesses indicating that they are on the verge of 
going out of business, that for some reason or another they 
simply cannot get reconciliation of difficulty that they are 
having.
    So I thank you very much for being here and look forward to 
your testimony.
    Chairman Manzullo. Mr. Bartlett, do you have an opening 
statement?
    Mr. Bartlett. No.
    Chairman Manzullo. Thank you. On July 25th of 2001, 
Administrator Scully voluntarily appeared before this Committee 
and stated that he intended to meet the goal of not simply 
changing the name of HCFA but changing its culture. Nearly a 
year later the new name has been on HCFA's door but this 
hearing examines whether it is still the same old game. By that 
I mean is HCFA still being intransigent and unresponsive to 
health care providers and to the elected officials that make 
the laws, the United States Congress? Is HCFA still imposing 
undue and unnecessarily regulatory burdens on small businesses?
    At our last hearing which if Mr. Scully had decided to 
attend as opposed to not complying with a validly issued 
congressional subpoena, he would have heard the devastating and 
heart-wrenching testimony from various providers about the 
regulatory burdens that are driving physicians out of Medicare.
    Dr. Warren Jones, one of the most esteemed African American 
physicians in this country, an instructor/professor at the 
University of Mississippi, traveled all the way from Jackson to 
be here to be at the same dais as Mr. Scully to present to him 
personally the concerns of the people that he represents in his 
profession. He is the President of the American Academy of 
Family Physicians, a guest of Dr. Christensen. He noted that 
there are physicians who are now funding practices out of their 
own financial resources. He was also instrumental in 
demonstrating a chart that he showed to the people here in this 
Committee room, that if the cuts continue in Medicare that the 
rural areas of this country will be devastated, especially with 
the second round, to show that most Americans will not have the 
availability of health care services.
    In such a situation it is going to be impossible for young 
physicians with substantial debts to provide care to Medicare 
patients, and that is why at a number of medical schools in 
this country the enrollment and the people seeking application 
has actually gone down.
    Mr. Scully would have heard from Dr. David Nielsen, the 
incoming Executive Vice President of the American Academy of 
Otolaryngology about how reimbursements for Medicare do not 
take into account the new regulatory burdens such as the 
availability of translators for patients whose first language 
is not English; could have answered questions about what 
discretion Mr. Scully has, and it appears to be substantial, to 
modify the various components of the physician fee schedule to 
help physicians.
    Today's hearing will present equally wrenching testimony. 
We will hear about the economic and emotional toll that occurs 
when health care providers are audited without rational basis. 
At this table today is my chiropractor who along with his two 
brothers was terrorized, I mean terrorized, by HCFA when they 
were presented with a bill for $250,000 claiming that these 
three boys were out scamming the system. By the time we 
finished working with Dr. Hulsebus and HCFA, it was obvious 
that the people at HCFA had absolutely no practice, no 
experience, no expertise, no rules, no guidelines, nothing. 
Helped them in no ways. The fine went from $250,000 down to a 
compassionate zero, then up to $40,000, then back to $1500, and 
Dr. Hulsebus took it up on appeal, won the appeal with the 
Administrative Law Judge excoriating HCFA for the way it 
treated him, and then with HCFA having the nerve to finalize 
and try to appeal that $1500. We wonder where all the money is 
going. It is going to the bureaucrats in HCFA instead of to the 
providers in America who have the obligation to provide health 
care to the American people.
    HCFA is an agency charged with protecting the health of the 
Medicare Trust Fund, but as we will hear today HCFA makes 
decisions that squander those resources by driving portable X-
Ray and electrocardiogram providers out of business. Without 
this service, residents of skilled nursing facilities must be 
transported via much more expensive and reimbursable ambulance 
services to hospitals or to clinics.
    We will hear about physicians following the advice of their 
carriers only to be told by HCFA to complete reimbursement 
forms in a different manner. We will hear about carriers in one 
state denying coverage for medical procedures that are covered 
in bordering state. We will hear from physician providers of 
durable medical equipment supplies about their need to second-
guess Certificates of Medical Necessity that are signed by a 
physician.
    But as a result of the inefficiency of HCFA, health care 
costs more. The agency itself is the most egregious offender of 
waste, fraud and abuse, all to the detriment of the American 
people at large and medical providers in particular. And Mr. 
Scully, 99 percent of these regulatory decisions were made 
before your watch.
    Given these facts, it is no wonder that physicians and 
other health care providers are abandoning Medicare patients in 
record numbers. To them, it is simply not worth wading through 
the morass of red tape to obtain paltry payments that failed to 
meet their costs and then have the integrity, second-guessing 
the guys protecting against waste, fraud and abuse.
    The question remains, who will protect the providers from 
harassment and unnecessary regulatory burdens? Something must 
be done and it must be done soon.
    This Chairman will do all in his power to help these small 
health care providers and HCFA needs to step up to the plate. 
First, it must, it must reduce the inconsistency and decisions 
made by its contractors. If this requires HCFA to proffer more 
nationally applicable regulations such as national coverage 
determination, so be it. Second, HCFA must direct its carriers 
to direct an audit process that is fair and rational as opposed 
to the star chambers that take place across this nation. Third, 
HCFA must do more to ensure that its regulations and guidance 
are properly assessed for their impact on small health care 
providers. By doing this, HCFA will meet the President's goal 
that all agencies comply with the Regulatory Flexibility Act. 
And finally, HCFA must demonstrate that it is responsive not 
just to the Ways and Means Committee or the Energy and Commerce 
Committee, but to all committees of Congress including this 
Committee.
    We are willing to work with HCFA, willing to entertain 
HCFA's name being changed to CMS, but at this point we are 
going to call it HCFA because the proof is not yet there, but 
we are open to it. We are willing to work with HCFA to help it 
improve compliance with the Regulatory Flexibility Act and take 
other actions to reduce regulatory burdens. That requires 
Administrator Scully and the rest of HCFA to be responsive to 
this Chairman, the Ranking Member, and our staffs.
    We welcome all of you witnesses here. Mr. Scully, thank you 
for coming. You are appearing today on your own. I just want to 
say thank you to all the witnesses that are here.
    Let me instruct all the witnesses to tell your stories as 
they have happened to you. You do not have to read them. Mr. 
Scully is here to listen to your stories, and he has advised us 
by letter that he is willing to help. So any time an 
Administrator says he is willing to help, let us take him up on 
it. Okay?
    I have the assurance that he is willing to work with us, 
that he is willing to help, and that is why we are having this 
hearing today.
    So I would yield to my Ranking Minority Member from the 
great State of New York, Mrs. Velazquez.
    [Chairman Manzullo's statement may be found in the 
appendix.]
    Mrs. Velazquez. Thank you, Mr. Chairman. Good morning and 
welcome.
    Today is the sixth in a series of hearings we have convened 
to examine the Center for Medicare and Medicaid Services. I 
believe that these hearings have made clear that we have a 
pattern of communication breakdown between the agency and its 
stakeholders, which I believe CMS needs to keep in mind are not 
just Medicare and Medicaid recipients, but also health care 
providers.
    There has also been a breakdown between the agency and the 
congressional committees that have a constitutional duty to 
ensure that you are properly fulfilling the agency's mission.
    Regulatory agencies like CMS must evolve from a command and 
control mentality where the agency says we will tell you what 
you are going to do and you will do it; to an atmosphere of 
partnership and compliance assistance. By creating a 
partnership your stakeholder becomes invested in your mission. 
Now we have heard that CMS has engaged in a new customer 
service practice for Medicare and Medicaid recipients, but this 
new approach also needs to be expanded to the industries that 
you oversee in order to be fair and effective. The name may 
have changed but the game is still the same.
    This can be done through outreach and consulting because 
when agencies invest in this partnership up front it will pay 
dividends later on. Tools like regulatory negotiations where 
agencies work with stakeholders yield regulations that have 
higher compliance rates and operate more efficiently, which 
means savings for the government and small businesses. They 
also create a better-informed stakeholder that is less likely 
to have trouble later on.
    This has not been the case with CMS. This agency's record 
is very inconsistent. Recently it proposed a Medicare drug card 
program developed behind closed doors that promises only very 
limited benefits to seniors while destroying a critical part of 
our health care system, your community pharmacist. CMS still 
does not seem to grasp the concept that Reg Flex and SBREFA 
were created for a reason. These laws serve an important 
purpose. They protect the interests of small businesses to 
ensure they are not negatively impacted or overly burdened by 
an agency rule in the pipeline.
    CMS has ignored the requirements of Reg Flex and SBREFA. As 
a result, small businesses suffered from regulatory burdens and 
complex paperwork. The regulatory compliance process is 
confusing and time-consuming, but by using the two tools of Reg 
Flex and SBREFA, agencies can ensure that regulations are fair, 
balanced and still provide the necessary protection to our 
health, welfare and environment. CMS must do a better job of 
working to determine the impact of their regulations on small 
businesses, explore the regulatory options for reducing that 
impact and work with their affected stakeholders.
    I believe, that given the culture of CMS, this Committee 
should give serious consideration to not just expanding SBREFA 
to the IRS but should also include CMS. The arrogant, aloof and 
distant culture of CMS is so deeply ingrained that I believe we 
must have a radical shift in how the agency approaches these 
issues if anything is to change.
    It is my hope that today's hearing can serve as a starting 
point to change this adversarial relationship into one of 
partnership. There is no disputing the goal of protecting the 
health and welfare of those who use our Medicare and Medicaid 
programs. Now there needs to be a reconciliation between CMS 
and its stakeholders.
    We are all in this boat together. We can either row 
together in one direction or as three separate antagonists and 
keep going in circles without any improvement to the existing 
system.
    Thank you, Mr. Chairman. I look forward to this hearing.
    Chairman Manzullo. Thank you. We have a journal vote and 
then there is not going to be a vote until late this afternoon, 
so we are going to stand in recess for a few minutes, then we 
will come back, then I will recognize Dr. Weldon for an opening 
statement at that time.
    [Recess]
    Chairman Manzullo. Thank you.
    We are going to have an opening statement by an esteemed 
Member of Congress from Florida and a medical doctor, Dr. David 
Weldon.
    Dr. Weldon. Thank you, Mr. Chairman and Ranking Member 
Velazquez for the opportunity to sit in on this hearing, not 
being a member of the Committee. Though I think I am quite 
interested in the testimony and the issues that we are dealing 
with.
    Let me just say for starters, Mr. Scully, I do not envy the 
position that you are in. I personally voted against the 
Balanced Budget Act of 1997 specifically because I thought the 
Medicare funding levels were grossly inadequate and I continue 
to hold to that position. I certainly would like to say that I 
am prepared to work with the Administration on the problems 
that we face in this area. I think we are really facing some 
very, very critical problems on a multitude of levels.
    Regarding the main issue that the Chairman wanted me to 
address is my personal experience with portable X-Ray.
    I practiced general internal medicine for about 15 years 
before I was elected to the House of Representatives. The first 
six years were in the United States Army Medical Corps and the 
last eight years were in private practice. In private practice 
I saw about 30 patients a day in my office and carried between 
five and ten patients in the hospital, and I also was one of 
the few practitioners who continued to manage his own patients 
at the nursing homes. This is where my experience comes to 
play. A lot of my colleagues would not follow their patients at 
the nursing home, would turn their care over to somebody else.
    So typically I would get a phone call from a nurse, at a 
nursing home, in between seeing my patients in the office, and 
the phone call would be about one of my patients in the nursing 
home who had a cough and a fever or who had fallen and hurt 
themselves. The decision to be made was do we load them in an 
ambulance and bring them to my office? Do we load them in an 
ambulance and bring them to the emergency room? And 
fortunately, I have to say, the other choice we had was in many 
cases to utilize some of the diagnostic studies that we had 
available to us right there at the nursing home. We could have 
outside medical labs come in and draw blood if I wanted to see 
a white blood count. Fortunately, in a multitude of instances 
we could get a portable X-Ray.
    The service that I received, let me just say, was 
outstanding in that the portable X-Ray people would frequently 
go to the nursing home and obtain the X-Ray often more quickly 
than I could get it in the emergency room at the hospital. Then 
they would develop the film and take it to the radiologist and 
the radiologist would call me. I would literally say cough and 
a fever, let us do a chest X-Ray, I need to make a decision 
about antibiotics in this patient. They are very old, 
enfeebled, let us try to avoid putting them in the hospital. 
They are an associated list of hospital complications that you 
could run into. I would get a phone call from a radiologist 
telling me that the chest X-Ray is normal, or the chest X-Ray 
shows an infiltrate in the right lower lobe. With the new 
antibiotics, I could put these people on oral antibiotics. And 
the bottom line here, and this is the main point I want to 
share on this issue, and I know there are a lot of other issues 
before the Committee that you are wrestling with but this is 
the main thing that I was asked to comment on today, was that I 
felt in the vast majority of instances we provided better care 
at reduced cost by making use of those services. I found the 
quality of the service that I got in the sense that I got a 
phone call from a radiologist, unlike the emergency room where 
I would have to go over to the hospital, find the X-Rays, track 
down a radiologist to look at the X-Rays with me if I have a 
question about the X-Ray and did not trust my own 
interpretation of it, I would be getting a phone call from a 
radiologist.
    In my opinion it served the taxpayers very very well the 
way we utilized that in that dramatic amounts of funds were 
saved. To put a patient in an ambulance, send them to the 
emergency room, you have the emergency room charge, the 
ambulance charge, you have the emergency room doctor's charge, 
and then you would have all the associated labs. And frankly, I 
always felt when they went into the emergency room they did too 
many studies, and we all know why they do that, because they 
are afraid of lawsuits from trial attorneys, so they do every 
single test possible when they roll into the emergency room to 
keep them out of court. It is often not what is in the best 
interest of the patients.
    So I have been of the opinion that these services are 
extremely valuable and that CMS should be supportive of the 
service because it does ultimately in the end keep people from 
ending up going to the emergency room.
    And might I also add, frequently once they are in the 
emergency room you end up admitting them to the hospital too. 
And so in some cases I think you are actually talking about 
possibly thousands and thousands and thousands of dollars in 
costs that are actually saved simply by having this portable 
diagnostic service.
    We also make use of it in portable EKGs as well. But the 
portable X-Ray to me was just wonderful.
    I thank the gentlelady for the opportunity, and thank the 
Chairman for the opportunity.
    Chairman Manzullo. Thank you very much, Dr. Weldon.
    Mr. Scully, let me give you an option here. I have you 
number one out of the box without the five minute clock because 
they have individual disciplines and you, unfortunately, have 
all of them. But I want to give you the option to lead off or 
to be cleanup. If you want to go last and have the opportunity 
to listen to the people and then perhaps comment on that, or if 
you want to go first. It is your option.
    Mr. Scully. What do you prefer, Mr. Chairman? Either way is 
fine. I can go quickly first and then comment at the end.
    Chairman Manzullo. That would be fine.
    Mr. Scully, I am going to set a ten minute clock, but 
again, if you need more time, please, and we look forward to 
your testimony.
    The complete statements and the Members of Congress will be 
made a part of the record without objection.

   STATEMENT OF THOMAS A. SCULLY, ADMINISTRATOR, CENTERS FOR 
                 MEDICARE AND MEDICAID SERVICES

    Mr. Scully. Thank you, Mr. Chairman.
    First I just want to say, Mr. Chairman and members of the 
Committee, I apologize for not being here on April 10th. I 
think we discussed that. I am sorry I was not here. I apologize 
to the Committee and the Members. I appreciate greatly the 
Chairman's willingness to be understanding about that and move 
on to what we are here for.
    Chairman Manzullo. Mr. Scully, your apology is accepted. I 
agree with you that the main mission here is to provide the 
best health care to the American people and also the best 
possible system to the health care providers and it is time to 
move on.
    Mr. Scully. Thank you, Mr. Chairman.
    Obviously I run a huge agency. Our budget, if you count 
Medicare and Medicaid, both halves of Medicaid, it is about 
$550 billion this year which is sometimes hard to even 
comprehend. But I came out of the health care sector a year ago 
and I think we have tried from the first day to be focused on 
trying to help small businesses and be focused on making this 
very large, two large, very large programs, easier to deal 
with.
    Medicare in particular is really run, we have 4800 
employees at CMS. Most of them are policy people. Medicare as I 
am sure most of your witnesses will get into this morning, is 
really run by contractors. We have 50 of those nationwide. 
Actually as of next week it will be 49. Some of the 
frustration, obviously I am responsible for all those, but from 
the beginning one of the things I have tried to do is reform 
that.
    The House, which we are very happy about, passed the reform 
bill last year I think 410 to 5. The bill is in the Senate. We 
have made a lot of progress and I have worked a lot with 
Senator Baucus and Senator Grassley on the Finance Committee 
and we are very hopeful that we will get contract reform that 
will at least allow us a little more aggressively to try to fix 
a very large, very unwieldy system, once we get that bill 
passed I hope in the Senate, and I am pretty certain it will 
happen this year.
    I read Mr. Sullivan's testimony from the first hearing as 
well as the other witnesses, and I agree with a lot of it. I 
agree with most of what I heard this morning. In fact one of 
your members, Mr. Pascrell, suggested that we have a ten 
percent a year reduction in paperwork for five years. I think 
that is certainly Secretary Thompson's goal and certainly mine, 
that might even be a little modest. I hope I will tell you 
about some of the things we have already done on that front.
    Additionally, Ruben King-Shaw who is my Deputy and the 
Chief Operating Officer of the agency and a number of my 
members of staff have met with Mr. Sullivan and his staff a lot 
in the last couple of weeks and I hope we are making some 
progress with the FDA both on working more cooperatively with 
the SBA as well as with the RFA. Also by coincidence I have 
basically three major subcomponents of the agency. We have not 
actually announced it yet but I will say, just somewhat by 
coincidence, but somebody from the Small Business 
Administration actually starting in a few weeks will be running 
a third of the agency so that will probably additionally add to 
the sensitivity of the agency.
    Let me add a couple of other points about RFA. We are very 
concerned about making sure we are responsive to that.
    The fact is the agency is so large and with things like 
portable X-Ray suppliers, portable EKG suppliers, no matter how 
aggressive we are in doing our RFA sensitivities, the reality 
is to make the agency and its rules really sensitive to the 
impact of every small provider we affect is pretty tough 
because they are just huge programs. Medicare is $260 billion. 
The physician payment component of which the portable EKG and 
X-Ray suppliers for instance come out of is about $66 billion 
this year and those two programs alone are probably around $170 
million. So trying to make these huge regulations and huge 
payment systems sensitive to every provider group is tough to 
do. We can do RFA impacts and we will do them aggressively, but 
my view of this and the Secretary's in the beginning has been 
to try to open up the process at the agency. We have tried to 
aggressively do that.
    One of the things we have done to make it more 
understandable to the outside world because I do not believe 
you should have to hire a lawyer at $500 an hour to interpret 
what is going on at HCFA/CMS, is to try to make our regulatory 
scheme more predictable. Last year we came up with a quarterly 
compendium. If you are an outside provider this is just the 
beginning of some of our remedies, hopefully. Every regulation 
that we are going to put out, every major program memorandum is 
published ahead of time so once a quarter there is a memorandum 
that is out put in the Federal Register saying what we are 
going to do once a quarter. So if you are worried about being 
regulated as a portable EKG supplier or a nursing home, if it 
is not out at the beginning of the quarter we are not going to 
do it that quarter.
    Additionally, we put out every regulation once a month so 
that people do not have to read the Federal Register every day. 
We put out I think more regulations than anyone in the 
government most likely. Our goal here is to at least be 
sensitive to the fact that once a month people that are being 
regulated by us can look in the Federal Register once a month. 
Hopefully for a lower volume and smaller regulations, but at 
least it is a little more predictable.
    The other thing we have done is I have created 11 what we 
call open door policy groups which may sound bureaucratic, but 
you remember that Mrs. Clinton was sued for having policy 
meetings that did not have open doors, so we call them open 
door policy groups. Anybody is welcome to be involved. Anybody 
in the industries that are affected and virtually every sector 
of health care is one of the 11. I chair three. I chair one on 
diversity along with Ruben, my Deputy. I chair one on rural 
health care and one on nursing homes. There is an open door 
group for physicians, there is an open door group for 
hospitals, home health, dialysis, virtually every sector of the 
health care field has one involved.
    So far with these 11 groups we have had more than 50 
meetings in the last 11 months. We have over 1,000 actual 
individuals come to CMS either in Washington or Baltimore and 
meet with me and my staff personally. All of these generally 
have a 1-800 call-in number. We have had 3700 people on these 
phone calls. The ones that I chair get together at least once a 
month, usually it is every three weeks, and for an hour and a 
half I sit around with the staff, whether it is rural health 
providers or nursing homes, and for an hour and a half we sit 
around and answer questions and sometimes they are extremely 
obscure and extremely technical and they are not, we are not 
trying to replace what the Washington trade associations do. We 
are trying to have home health aides in rural Montana, if they 
have a gripe about the program will have a place to come 
through and get their issues fixed.
    I would note we cannot fix everything. The first long term 
care open door policy meeting I had last summer was at the 
National Governors Association. The long term care group is co-
chaired with Ray Chapak and I. Ray is the head of the National 
Governors Association. Because this issue involves Medicaid and 
the state so much.
    The first half of that meeting was with the portable X-Ray 
providers, and for the first 45 minutes of that meeting we 
spent time talking, the first meeting I had last summer, 
talking about portable X-Ray providers. They have a lot of 
problems obviously which I am sure we are going to discuss 
today. But from the first we have tried to be sensitive to that 
and open up the agency to give people access to the 
policymakers in there.
    I personally probably answer 40 to 50 e-mails a night from 
patients, nurses, patient advocates, hospital administrators, 
people around the country. I think the volume is growing so at 
some point I might not be able to do that forever, but at least 
for now we have tried to be as responsive as we can to people 
around the country that have problems with the agency and 
obviously that is a very large number.
    As far as RFA compliances, we have tried to be open with 
the SBA. We have had over 100 CMS staff trained on the RFA 
compliance with over 600 hours of training. I am not aware that 
there is any other statute related to the agency where we have 
spent more time doing staff training. But we are trying to be 
responsive to that.
    Let me briefly run through and I will do it later more in 
response to the other witnesses, some of the points you have 
raised about various industries, and you have raised a lot of 
valid points as have other members this morning.
    There is a problem with obviously EKGs in nursing homes. 
There was a ruling made on that in 1997 by the previous 
Administration. We had covered transportation for nursing homes 
for EKGs. That rule was changed in 1997. The agency has not 
felt that it has statutory authority to overturn that, although 
we have looked into it extensively.
    On portable X-Ray suppliers, we do pay for transportation. 
It varies by region, by local carrier. It is usually about $100 
for a portable X-Ray supplier to transport an X-Ray to a 
nursing home. I agree that is a very useful issue. They are 
feeling a lot of the pressure that other providers are feeling 
this year and that there was a negative 5.4 percent update in 
the overall $66 billion pot that physicians and portable X-Ray 
suppliers are paid out of.
    We work with the AMA and their relative value committee to 
decide relatively who should take what increases or reductions 
every year and the recommendation of that group was for an 11 
percent total reduction this year so I am not surprised that 
portable X-Ray suppliers are feeling a lot of heat and more 
than some of the other people in the industry. But as many of 
you have mentioned, I hope, that we are working hard with the 
Commerce and Ways and Means committees to fix the physician 
update formula which has some significant glitches in it right 
now before we go out this year, and we are fairly confident 
that will happen.
    You also mentioned the hospital restraint rule and I have 
talked to you about the Merry Walker and other things. I 
personally, again, the one hour restraint rule was something 
that was done a few years ago. There is a lot of patient 
interest behind that. I do not think we can reverse it without 
significant public discussion with patients. I happened to have 
run a hospital association for the last six years before I took 
this job. I personally believe the restraint rule is unworkable 
and is an unrealistic burden for a lot of rural hospitals, but 
I do not think we are going to change it without a significant 
discussion about the impact on patients because there have been 
significant problems with patient restraints in the past.
    You have mentioned repeatedly the MDS reductions. One of 
the first things the Secretary and I did was we eliminated the 
MDS which is the nursing home form for critical access 
hospitals. They are no longer required to file it. We did that 
a couple of months ago. I do not want to preempt the Secretary, 
but I think you are going to see the Secretary give an 
announcement fairly shortly on some very significant nursing 
home data reductions on MDS which I think will be a step in the 
right direction.
    I will not go through all the other things, I will wait 
until your witnesses go through here, but I would be happy to 
comment on pain management, on chiropractors. Obviously we 
talked last summer about one of our carriers probably clearly 
overly harassing chiropractors in your district. I hope we have 
made some progress on that.
    But generally I think the Secretary and I are committed to 
opening up the agency, talking to the constituencies. We have 
made a very aggressive effort to do that. I think if you ask 
the rural hospitals, rural physicians, nursing homes, nurses, 
home health agencies, I hope you will find that they found the 
place to be much more open. Everybody always wants more money 
for Medicare. We cannot always do that but I think hopefully 
you will find that most of the providers we deal with have 
found at least some marginal improvement in openness and 
accessibility of the agency. We have made a big effort to do 
that.
    I have gone around the country already and had 21 town hall 
meetings all with members of Congress to talk about these 
issues and most recently in Seattle and last week in central 
Massachusetts and on Monday in Connecticut. One thing I can 
assure you is nobody is happy with us but we are doing the best 
we can to shake up the agency, turn it around, make it more 
responsive. A lot of these issues are legislative. A lot of 
them have to do with Medicare payment formulas that are very 
arcane that have been around for years, that we are going to 
work with you and the committees to change, and hopefully you 
will find that at least the rules will be a little more fairly 
implemented, we will be a little more open to constructive 
criticism, and we will be a little more responsive.
    But it is a big, big ship to turn. I cannot tell you that 
we can turn it immediately, but we are doing the best we can to 
try.
    Thank you, Mr. Chairman.
    [Mr. Scully's statement may be found in the appendix.]
    Chairman Manzullo. Thank you for your testimony.
    Before I go to the next witness I just, I am stunned to 
hear you say that CMS has 4,800 employees. The agency is so 
large that it is ``tough to consider every provider''.
    Mr. Scully, those providers are small business people and 
they have been wounded, grievously wounded by HCFA, and you do 
consider them. You chop their rates without considering the 
cost to the American people or what it does to these people 
whose lives have been wiped out because they are too little to 
be considered, ``tough to consider every provider''.
    What I want to impress upon you, I want every provider 
considered or do not lower the rates. And that is exactly what 
you are doing. You lower the rates and you do not do the 
analysis. We can continue that as we go through here.
    Mr. Scully. I think we do consider every provider. My point 
on that is, just for example, the portable EKG providers and 
the X-Ray providers, that $66 billion pot of money, it is all 
statutory. It is adjusted by statute. The rates are not reduced 
by us, they are reduced by statute. The formula that they are 
involved in is basically set up by the AMA.
    So I am totally sensitive to it, I just think, my point is 
that I do not believe the RFA requirements are actually----
    Chairman Manzullo. And that is precisely the point. You see 
the purpose of the RFA is to protect little people. Those are 
small business people. They are being rolled over by a steam 
roller called HCFA. And with 4800 employees, if you do not have 
the time to consider every medical provider, that is pretty 
gross mismanagement.
    Let us get on to Mr. Sullivan.
    I am going to set the clock at five minutes. And again, Mr. 
Scully, 99 percent of those regulations were set before your 
watch so I am not blaming you personally, but you are having 
the opportunity to work on these and we would love to work with 
you on those.
    Mr. Sullivan.

STATEMENT OF THOMAS SULLIVAN, CHIEF COUNSEL FOR ADVOCACY, U.S. 
                 SMALL BUSINESS ADMINISTRATION

    Mr. Sullivan. Chairman Manzullo, members of the Committee, 
good morning and thank you for the opportunity to appear before 
you this morning to address how government agencies, 
specifically the Centers for Medicare and Medicaid Services, 
CMS, can benefit small business by considering the consequences 
of their mandates on small employers before they regulate.
    On April 10th I appeared before you to testify on CMS' 
compliance with the Regulatory Flexibility Act and whether such 
compliance could be expected to resuscitate small health care 
providers. I testified then and I stand by that prior statement 
now, that it was Advocacy's goal for CMS to consider more fully 
the consequences of their regulatory actions on small health 
care providers prior to finalizing their rules as required by 
the Reg Flex Act.
    We have learned at Advocacy that early intervention with 
administrative agencies prior to the promulgation of their 
rules does work. It serves to minimize the impact of rule 
makings on small businesses without compromising the underlying 
mission or statutory requirements of the agencies.
    During my closing remarks in April I indicated a desire and 
willingness to work with CMS early in its rulemaking process. 
This I felt was consistent with President Bush's decision on 
how to protect small business, and Secretary Tommy Thompson's 
plan to reform the regulatory process within HHS.
    I am pleased to announce that since my testimony on April 
10th, my commitment to this committee to work with CMS has 
begun to take shape. On April 22nd I met with representatives 
from Mr. Scully's front office and from HHS' General Counsel's 
office, and last week I met with Mr. Scully's Deputy, Mr. Ruben 
King-Shaw.
    These meetings helped start a new dialogue between my 
office and CMS. The meetings focused on general, small business 
issues and data gathering mechanisms. The meetings resulted in 
a commitment between the Office of Advocacy and CMS to work 
together in a concerted effort to reduce the impacts associated 
with CMS rulemakings on small health care providers.
    It is my hope that this recent contact between our office 
and CMS is only the beginning. I look forward to maximizing 
this new relationship that has been developed since I appeared 
before this Committee in April. This can only result in cost 
savings for small business and in better communication and 
action between my office and CMS on the issues that are of 
concern to all of us this morning.
    Thank you.
    [Mr. Sullivan's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    The next witness will be Mr. Zachary Evans who is Chairman 
of the Board of the National Association of Portable X-Ray 
Providers out of St. Joseph, Missouri.
    Mr. Sullivan, I am sorry I did not introduce you as Chief 
Counsel for Advocacy of the U.S. Small Business Administration.
    Mr. Evans, we look forward to your testimony.

STATEMENT OF ZACHARY EVANS, CHAIRMAN OF THE BOARD, NAT'L ASS'N 
                  OF PORTABLE X-RAY PROVIDERS

    Mr. Evans. Thank you, Chairman.
    I am the Chairman of the Board for the National Association 
of Portable X-Ray Providers. I am pleased to have this 
opportunity to testify before you again today. Mr. Chairman, 
the plight of portable X-Ray providers has been described by 
CMS as very complex. They inform us that they have no cost data 
on our industry and therefore cannot perform the regulatory 
flexibility analysis required by law.
    Chairman Manzullo. Let me interrupt you. That statement 
that you just made came in a letter that was sent by Mr. Scully 
to my office within the last couple of days. Is that correct? 
That they have no cost data upon which to--That is the 
statement?
    Mr. Evans. Yes, sir.
    Chairman Manzullo. Go ahead. I just wanted to verify the 
source of that.
    Mr. Evans. Yes, sir.
    Chairman Manzullo. Go ahead.
    Mr. Evans. They assure us that their policies are 
appropriate, although they cannot provide any empirical 
evidence to support their position and discard any data that 
supports opposing views. They refuse to answer the most basic 
questions posed by providers or to meet with us when we come to 
Washington seeking guidance, yet boast of their openness and 
responsiveness.
    I appear before you today to explain simply and accurately 
and fairly the costs of our services and the cost of the 
alternative. You will see that in fact this situation is not 
particularly complex. You will see that a side-by-side 
comparison of the cost of portable X-Ray services versus the 
cost of transporting a patient to the hospital provides a 
clear----
    Chairman Manzullo. Excuse me a second. We need to be able 
to look at them on this end here. Maybe you could----
    Mr. Evans. These are attached to my testimony also.
    Chairman Manzullo. Okay, thank you. Proceed.
    Mr. Evans. Would you like those turned around----
    Chairman Manzullo. We have it before us, so that is fine.
    Mr. Evans. The charts we have prepared illustrate the cost 
of providing 3.5 million portable X-Ray procedures which were 
performed according to CMS in 2000 in a very conservative 
estimate of the cost of the services had they been performed at 
a hospital after transport by ambulance.
    The chart displaying the portable service cost is based 
upon national averages for the three component costs of 
portable services--transportation, set-up, and the technical 
component.
    Again, using the CMS figure----
    Chairman Manzullo. Mr. Evans, excuse me. Which chart is it 
that you are referring to?
    Mr. Evans. It should say Portable X-Ray Services Annual 
Cost to Medicare.
    Chairman Manzullo. Okay, thank you.
    Mr. Evans. That will be the first one. The second chart I 
will speak of is the one on, ``If We're Gone.''
    Chairman Manzullo. Go ahead.
    Mr. Evans. The figure of 3.5 million comes from CMS and we 
find that the average costs of $284 million in transportation; 
$38.5 million in set-up; and $63 million in the technical 
component for a total of $385.5 million.
    If we very conservatively estimate the cost of performing 
these same 3.5 million procedures at a hospital, which will be 
the outcome if current CMS policies continue, we see the costs 
in the second chart. The technical component cost remains 
unchanged at $63 million. The ambulance transport cost based 
upon CMS ambulance transport cost data contained in a March 
12th CMS letter to you, Chairman Manzullo, is $1.2 million. The 
hospital admissions cost is $945 million. These costs total 
$2,810,500,000. This means the result of a collapse of our 
industry which is going to be an eventuality will result in an 
increased cost to Medicare of nearly $2.5 billion annually. 
Viewed alternatively, the portable X-Ray industry saves 
Medicare nearly $2.5 billion annually while providing higher 
quality patient preferred services than the alternative.
    To further illustrate our point we have provided, and this 
is also attached to my testimony, several examples of actual 
remittance documents or Medicare benefit bills. In the interest 
of time I will not take the Committee through these line by 
line but offer them as examples of the cost of ambulance 
transport, emergency room treatment, et cetera, as compared 
with the portable provider costs.
    I would be happy to address the specifics of these 
documents during the question and answer period.
    In summation, our industry provides vital, cost effective 
services that if CMS is allowed to proceed on their current 
policy course will cease to be available to the public. Not 
only will this policy failure result in dramatic cost 
increases, the quality of patient care will suffer 
significantly.
    In this obvious truth my industry is confronted with 
punitive audits, regressive policy initiatives, unwillingness 
to respond to basic guidance inquiries, and overall contempt 
from an agency which spends millions of tax dollars telling 
America that they support small business and are solving 
problems through open door policy forums.
    Mr. Chairman, I have attached a letter sent on December 13, 
2001 to Mr. Scully requesting answers to fundamental guidance 
questions posed by our industry. CMS has never responded to 
that letter.
    Sadly, this is not the exception but the norm. Speakers are 
unavailable, correspondence is ignored, and administrators 
refuse to appear before the Congress and small businesses 
because they do not like the seating arrangements. This was the 
behavior of HCFA and this is the behavior of CMS.
    We applaud the tireless work of this Committee in the face 
of such unrelenting bureaucratic opposition to change and we 
sincerely hope that through the work of this exceptional 
Committee and a handful of caring, conscientious members of 
Congress--thank you, Dr. Weldon--we might serve to provide our 
services to our patients.
    Thank you for the opportunity. I would be happy to answer 
any questions.
    And I would like to state that I am in total agreement with 
you, Chairman Manzullo, that it is not Mr. Scully's fault. A 
lot of this stuff has come in Administrations before, but we 
need him now to help us solve these problems.
    [Mr. Evans's statement may be found in the appendix.]
    Chairman Manzullo. He is here today.
    Mr. Evans. Thank you.
    Mr. Pascrell. Mr. Chairman, may I comment on that last 
comment?
    Chairman Manzullo. Yes. A little bit out of order, but go 
ahead.
    Mr. Pascrell. It sounds wonderful, now we have heard it 
twice, to say to Mr. Scully, and I am sure he feels very 
relieved at that, that the problems that are facing this 
department and division are the results of what has happened 
long before he became the Director. That is easy to say, Mr. 
Chairman. But the fact is that a new Administration has been 
there for 18 months, and the bureaucracy has not gone the other 
way, it has gotten worse. We had our problems with the last 
Administration. I think we crossed across aisles here, were 
non-partisan in making sure we got our positions well known. 
But if you are sitting there and telling me that this is an 
inherited problem, it has been 18 months and we are going 
backwards, and doctors are leaving the field every day. Every 
day. And people are not getting serviced every day.
    Doctors are stopping to handle, in many areas of this 
country, Medicare patients. So do not tell me about the last 
Administration. You have blamed everything but the plague on 
them and I am sure that is next.
    Mr. Evans. May I comment?
    Chairman Manzullo. I want to proceed with the testimony. We 
will have a chance to interchange.
    Our next witness is Brian Seeley. We welcome your testimony 
and look forward to it.

 STATEMENT OF BRIAN SEELEY, PRESIDENT, SEELEY MEDICAL INC., ON 
             BEHALF OF THE POWER MOBILITY COALITION

    Mr. Seeley. Thank you, Mr. Chairman, esteemed members of 
the Committee. My name is Brian Seeley and I am the President 
of Seeley Medical which is a small, family-owned business. We 
supply medical equipment and services to patients at home in 
Florida. I have owned the company since 1988. It was founded by 
my father in 1960 before there was a beast called Medicare.
    I would like to thank the Committee for holding this 
hearing and appreciate the opportunity to present testimony 
today from the Power Mobility Coalition. While CMS has overall 
responsibility for the Medicare program, many of the 
responsibilities have been delegated to the Durable Medical 
Equipment Regional Carriers we know as the DMERCs.
    CMS has allowed the DMERCs to administer policies that are 
in direct contrast to existing law. One example of this is the 
inconsistent application of the Certificate of Medical 
Necessity. The Certificate of Medical Necessity is defined by 
Congress, developed by CMS, and was formally approved by the 
Office of Management and Budget pursuant to the Paperwork 
Reduction Act. The Certificate of Medical Necessity is signed 
by the patient's treating physician. This is the only medical 
record required to be submitted by a supplier to demonstrate 
medical necessity.
    Several DMERC inconsistencies are displayed by the chart 
that is included in your statements and also up here.
    Congress defined a Certificate of Medical----
    Chairman Manzullo. Excuse me. We do not know what is up 
there.
    Mr. Seeley. It is in your handout, Chairman.
    Chairman Manzullo. Could you explain what they are?
    Mr. Seeley. They show the inconsistencies between----
    Chairman Manzullo. Could you turn those charts so the 
Members of Congress can take a look at them also. We like to 
know what he has reference to.
    Mr. Seeley. Congress defined a Certificate of Medical 
Necessity as a form or other document containing information 
required by the carrier to be submitted to show that an item is 
reasonable and necessary. CMS said that when it went through 
the OMB approval process, and I quote, ``The information on the 
CMN is needed to correctly process claims and ensure that 
claims are properly paid. This form, the CMN, contains medical 
information necessary to make an appropriate claims 
determination.'' Here is what one of the regional DMERCs said 
about the CMN. ``The mere existence of a signed CMN is not 
sufficient evidence of medical necessity.''
    Another example is the DMERC audit process and its 
inconsistencies with CMS policy. PMC members have been audited 
and assessed overpayments even though equipment was provided 
with the properly completed Certificate of Medical Necessity. 
Suppliers comply with the rules established by the Medicare 
program and are still penalized by new and arbitrary criteria 
developed by the DMERC.
    Mr. Chairman, in your opening statement of the July 25, 
2001 hearing of this Committee you said, and I quote,, 
``Contractors in interpreting the guidance provided by HCFA may 
require a durable medical equipment supplier to obtain more 
information before providing equipment specified in a physician 
signed Certificate of Medical Necessity. What purpose exists to 
have a non-physician second-guess the determination of a 
licensed physician?''
    The PMC wants CMS and its DMERCs to conduct audits. The 
manner of the audit is the problem.
    We think, for example, an audit should validate the 
treating physician who completed the Certificate of Medical 
Necessity, or as another example, validate that the beneficiary 
received the equipment ordered on a Certificate of Medical 
Necessity. The audit should not be an opportunity to second-
guess the doctor's orders.
    We have witnessed an increasing number of audits and 
medical reviews being performed in our industry without regard 
to rules established by Congress and CMS. In fact two DMERCs 
have recently conducted general investigations of our industry 
without complying with the PRA, the Paperwork Reduction Act.
    While CMS indicated that the DMERCs do not conduct industry 
audits based on utilization, the facts show a different story. 
The Region C DMERC recently conducted an audit of the top 30 
mobility suppliers based solely on utilization. And every 
supplier that provided more than six power wheel chairs per 
month was audited by the Region D DMERC.
    We are concerned that general investigations of our 
industry will continue to hamper our ability as small 
businesses to provide equipment and services to Medicare 
beneficiaries.
    As a side note, when I gave testimony to this Committee 
last July, as I gave my testimony an unannounced audit had 
taken place by CMS OF my coalition's president in his business.
    Chairman Manzullo. Excuse me a second. Would you say that 
again?
    Mr. Seeley. While I was testifying last July 11th, we found 
out, actually one of the lead attorneys found out that the 
President of the coalition I represent, his business was 
audited by CMS as I was testifying.
    Chairman Manzullo. What is his name?
    Mr. Seeley. That would be The Scooter Store, and his name 
is Doug Harrison. They walked into his offices as I was--It 
seems highly coincidental.
    In conclusion, the Power Mobility Coalition applauds CMS 
for issuing a recent program memorandum entitled Cessation of 
Certain DMERC Activities. The Agency instructed the DMERCs to 
cease specific activity being imposed on power mobility 
suppliers. The agency stated that the DMERCs must not require 
additional information for all power-operated vehicle claims, 
and must not require additional documentation when a 
beneficiary progresses to a higher level piece of equipment.
    The agency's program memorandum is a positive step in the 
right direction. We do caution, however, it does not address 
the inconsistent and arbitrary manner in which the DMERCs 
conduct audits.
    Mr. Chairman and esteemed members of the Committee, thank 
you again for providing the Power Mobility Coalition with this 
opportunity to discuss these important regulatory and 
procedural issues.
    [Mr. Seeley's statement may be found in the appendix.]
    Chairman Manzullo. Mr. Seeley, before we proceed, you 
stated that the last time that you testified, the day before 
that the President of your society was subject to a snap audit?
    Mr. Seeley. No, the day of the testimony.
    Chairman Manzullo. The day of the testimony.
    Mr. Evans, what happened to the President of your society 
the day that you testified?
    Mr. Evans. He was audited and in fact there is a letter to 
Ranking Member Velazquez that states that Mr. Cavalier of 
Cavalier Portable X-Ray was audited in December and that CMS 
had never audited them when in fact the letter is obviously in 
error. They were at his office the day of testimony.
    Chairman Manzullo. Interesting.
    Mr. Evans. Yes.
    Chairman Manzullo. Two witnesses come before the United 
States House of Representatives representing two organizations 
and the Presidents of the organizations are snap audited by 
HCFA.
    I want a full and complete investigation, Mr. Scully. I 
want a criminal referral if necessary. I want to know the names 
of every single person involved in that audit. I want that on 
my desk within 21 days.
    Mr. Scully. I am happy to do that, but if I can comment on 
it. Nationwide apparently did an unrelated audit to the 
gentleman, in Ohio, and Nationwide is no longer our contractor.
    Secondly, I have----
    Chairman Manzullo. But they work for you, all right?
    Mr. Scully. I understand, that, Mr. Chairman.
    Chairman Manzullo. They work for HCFA. All I am saying, we 
are going to move on, we will give you an opportunity to 
comment later, is the fact that as the Chairman of this 
Committee I am extremely offended that when I ask witnesses to 
come here to Washington they pay their own way, they testify 
here, and the presidents of their respective organizations are 
snap audited by the very organization that they come here to 
testify that is not working.
    Mr. Scully. Mr. Chairman, if that is the case I will be 
every bit as outraged as----
    Chairman Manzullo. Mr. Scully does not say if that is the 
case, that is the case.
    Mr. Evans. Excuse me, Mr. Chairman----
    Chairman Manzullo. And that is why we are here.
    Mr. Evans. Mr. Chairman, I have a point that important that 
I put in here.
    Chairman Manzullo. I understand.
    Mr. Evans. It was not audited--He was audited by Nationwide 
months before. CMS, his agency, walked in for a snap audit. It 
was the federal government. It was not the carrier.
    Chairman Manzullo. I want to know the names----
    Mr. Scully. I will check on that.
    Chairman Manzullo. More than checking on it. Who here in 
this group that you brought with you would be the person in 
charge of the snap audits? Does anybody know the name of that 
person?
    Mr. Scully. Probably Steve Belovitz, I assume.
    Chairman Manzullo. What is his name?
    Mr. Scully. It is not you? No.
    Chairman Manzullo. What is the name of the person who is in 
charge of snap audits? I want his name for the record.
    Mr. Scully. I do not believe there is such a thing as a 
snap audit. There would be a follow-up audit.
    Chairman Manzullo. Well there is such a thing as a snap 
audit. That is what happened to them. What is the name of the 
person?
    Mr. Scully. Mr. Chairman, I will fully investigate it----
    Chairman Manzullo. No, no, no. I want the name of the 
person.
    Mr. Scully. I do not know the name of the person----
    Chairman Manzullo. Does anybody from HCFA know the name of 
that person? Anybody here?
    Mr. Scully. The person in charge of the audit area is Tim 
Hill.
    Chairman Manzullo. He is the one that came to Rockford and 
met with Dr. Hulsebus, and Dr. Hulsebus will tell you the 
experience we had with Mr. Hill.
    Mr. Scully. Okay.
    Chairman Manzullo. Let us move on to Dr. Minore.
    Dr. Stephen Minore is a constituent of mine. He comes here 
in two capacities. First, as an anesthesiologist. In addition 
to that he is also a clinical assistant professor at the 
University of Illinois. But in addition to wearing those two 
hats he also has a business where he does billing and is 
familiar with the billing practices, reimbursement rates, et 
cetera, of I believe half a dozen various practices.
    Dr. Minore, we look forward to your testimony.

   STATEMENT OF W. STEPHEN MINORE, M.D., PRESIDENT, ROCKFORD 
                    ANESTHESIOLOGISTS ASSOC.

    Dr. Minore. Thank you, Mr. Chairman and members of the 
Committee. I appreciate the ability to offer testimony today 
with regard to issues that physicians have been experiencing 
with CMS. I wish to thank you whole-heartedly for the 
opportunity and to help contribute to improve the services of 
CMS. Furthermore, I would like to thank Secretary Tommy 
Thompson for his efforts to date in reforming a bureaucracy 
that has been plagued with inefficiencies, confusion and 
obfuscatory regulations that contribute to the general feelings 
that physicians have when they are confronted with CMS and 
other bureaucracies.
    I wish to offer several points of view that are 
representative of a physician in private practice. In addition, 
several of my views can be carried over to the academic 
practice model. I also wish to offer testimony on the impact 
that CMS has had on small businessmen such as my group and on 
myself personally.
    For background, I am the President of a physician group 
that provides anesthesia services and pain management services 
to the second-largest city in Illinois, that of Rockford, 
Illinois. There have been several problems that have arisen 
through the coding and billing of Medicare.
    I brought a study from the GAO showing that the carrier 
call centers gave full and accurate answers to Medicare billing 
questions only 15 percent of the time. Indeed, GAO 
representatives made 61 calls to five area call centers and 
asked a series of three billing questions that were culled from 
the frequently asked questions section of the carrier's own web 
sites. Eighty-five percent of the answers were wrong, 
incomplete, and would subject the physicians to the False 
Claims Act.
    One of the major problems that occurs on a daily basis in 
our office is that of correct coding. Two days every week I 
spend entirely in non-patient care duties. As the President of 
a 37-physician group I am responsible for all of the billing 
and also for the billing of several other physician practices 
including surgeons and primary care physicians.
    As physicians we ask only to do the right thing, however, 
it is very difficult and impossible when physicians are given 
multiple responses from multiple sources. In medical school I 
was taught that 50 percent of the information we were told was 
correct. The other 50 percent was incorrect. The professors 
always said it is your job to figure out what is correct and 
what is incorrect. I am faced with 85 percent incorrect when I 
call a CMS help line. Certainly, several days before getting 
here, I was brought a billing question from one of our 
certified coders. We called our local carrier and got seven 
different responses. We then called the CMS help line and got 
four different responses. In all, for one procedure, there was 
a 28-fold possibility of picking the correct answer. We went 
back, recertified it, looked historically, and still came up 
with four different answers. that question is still sitting on 
my desk.
    As we proceed, it is also significant to add that the 
increased costs of regulatory documentation, confusion and 
disagreement has increased our billing costs over 100 percent 
in the last three years. The revenue that we spend on billing 
is revenue that can no longer be used for patient care.
    This cost shifting also causes problems in other ways. Our 
fees to private carriers have to rise in order for us to stay 
in business. This is cost shifting of the highest degree.
    Insurance companies and small businesses cannot afford to 
provide health care because of the increase in costs that they 
are seeing. Next to the malpractice crisis this decreases our 
physician availability and liability. Treating critically ill 
patients in the operating room at all times of the day or night 
is much less terrifying to me than sitting down in the office 
trying to determine what I did the night before in cogent, 
correct and legal fashions. Physicians are to take care of 
patients. When the average physician must spend 5 to 12 percent 
of their time to determine their billing codes, something is 
wrong with the system. We need to have the system efficient, 
reproducible, and the information freely exchanged between 
carriers and providers.
    In closing, I wish to thank you for allowing me to 
participate. I also wish to add, three years ago my group 
contracted with an outside agency, a large nationally known 
accounting firm to do our billing. The end result of that was 
that we ended up paying over $560,000 back to the Medicare 
program. The disputes were questionable. Some were simple 
mistakes. A lot of them were totally acceptable with the ways 
we were currently billing as advised by our local carrier. That 
amount of money caused several physicians to leave my group and 
to relocate into areas that they would ``not have to take care 
of Medicare beneficiaries because of the fear of government 
reprisal.'' We felt that we had no way to appeal that, and 
certainly as the person that signed on the bottom line I was 
fearing criminal penalties. As a result, we were forced to 
settle those cases.
    I ask that this Committee look into such things as that and 
to help us take care of our patients, because really, that is 
all we ever wanted when we went to medical school was to take 
care of our patients.
    Thank you.
    [Dr. Minore's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much.
    Our next witness is also a constituent and my personal 
chiropractor, a man that I have known for so many years that I 
do not even want to--about 1967, 1968. We welcome Dr. Michael 
Hulsebus who is here also with his brother Roger. Roger, would 
you stand up, please?
    Thank you. I appreciate your being here.
    Dr. Hulsebus' father, Bob Hulsebus, was a pioneer. He 
passed away a few years ago. In the development of the practice 
of chiropractic in this country and actually in the world. He 
served as a personal inspiration to the three Hulsebus sons 
that continue in the chiropractic profession. He has worked 
tirelessly nationwide, Michael has worked tirelessly with his 
brothers and his colleagues to bring chiropractic to the level 
where it is now recognized by the VA. Where now federal 
employees have chiropractic coverage. And Dr. Hulsebus has also 
been the type of person who has always been in contact with our 
officer and has the most extraordinary story of abuse by the 
Health Care Financing Administration.
    This is the second time he has had the opportunity to come 
to Washington to tell the story. Michael, why do you not take a 
glass of water, sit back, take a deep breath, and I want you to 
tell the American people what happened to you and your family.

   STATEMENT OF MICHAEL HULSEBUS, D.C., HULSEBUS CHIROPRACTIC

    Dr. Michael Hulsebus. Thank you, Mr. Chairman and members 
of the Committee. I am pleased to have the opportunity to 
appear before this Committee to address the ongoing problems 
and challenges that face doctors of chiropractic.
    As you know, chiropractors continue to work very hard to 
serve the nation's elderly through the Medicare program. I 
regret, Mr. Chairman, that since I was here last time not a 
whole lot has been changed. In fact, we were here last July, 
unjust and the targeting of doctors of chiropractic and myself 
continues, I believe totally unjustly, not for fraud or abuse 
but to reduce chiropractic utilization. This has been going on 
since the last time I testified. There has been no change.
    As you just stated, doctors of chiropractic are mostly 
independent practitioners who have deep roots in the 
communities they serve and who strive to provide the highest 
quality care to every patient. They take their clinic 
responsibility very seriously. Our goal is optimal care. That 
means exactly as much care as is clinically indicated, no more 
and no less.
    Chairman Manzullo. Doctor, Michael, if I could interrupt 
you a second. I have your testimony here. But I would like you 
to tell your story about the audit. Just put your papers down 
and tell us the story as though you were seated across from us 
having a cup of coffee, and I want Mr. Scully personally to 
hear this and the people here, to tell what happens to three 
little guys in small towns that get picked on by a federal 
agency.
    Dr. Michael Hulsebus. In order to do that I am going to ask 
my brother to come up here, because he was involved as much as 
I am.
    Chairman Manzullo. That would be fine. Roger, do you want 
to come up, please? If we can squeeze another chair in there--
Can somebody provide the second Dr. Hulsebus with another chair 
there?
    Dr. Michael Hulsebus. I do not know if all the dates are 
right.
    Chairman Manzullo. That is okay. You do not need the dates.
    Dr. Michael Hulsebus. To start out with, we kind of told 
the story in July and we will kind of repeat it now, but as our 
Congressman Don Manzullo stated, my father started his practice 
in 1949 as an entrepreneur, small business, and all three sons 
are chiropractors. We are in the northern Illinois, primarily 
in the Rockford-Freeport area and Byron. We have been serving 
under the Medicare guidelines ever since the beginning of 
Medicare. We have always tried to understand and abide by what 
is needed in order for us to take care of the elderly people. 
We have always put ourselves in a position to understand 
everything we can to the best of our ability with Medicare so 
we could continue to take care of the Medicare people.
    I believe it was about two, two and a half years ago, is 
that correct?
    Dr. Roger Hulsebus. Yes.
    Dr. Michael Hulsebus. We received a letter from our carrier 
at that time that asked if they could audit thirty of our 
patients at four of our facilities. We did not see any problem 
with this so we sent them the necessary documentation. By the 
way, each one of the clinics had different documentation.
    When they finished looking at the documentation they wrote 
us a letter and stated that we had approximately 30 days to pay 
back fines of up to $250,000 for care that they felt was 
medically unnecessary. Now none of this was in fraud or abuse, 
it was just their decision that all the care we had been 
rendering since way back whenever was absolutely not necessary 
at any time.
    Now this same care had already been reviewed by the other 
carrier. The other carrier had said no problems. When the new 
carrier came on and reviewed it they said the care was no 
longer necessary.
    So they gave us choices, and the choices were not very 
popular, if I can say that. We were guilty, guilty, guilty. The 
first choice was just to pay the fine and they would leave us 
alone and they would not look at this any more. The next one 
was to continue to put more information to their hands and let 
them look at it, and they would decide whether or not the fine 
would still be there or not. The third one was to not pay the 
fine and they would come in and look through all of our records 
from all four clinics, from day one basically.
    So we really did not know what to do. At that time all of 
us got together and said, ``What are we going to do here?'' We 
all had different clients and we started contacting different 
attorneys. So Dr. Roger Hulsebus, I will let you go from there.
    Dr. Roger Hulsebus. I contacted Arthur Andersen, as it 
was--[laughter]--and Arthur Andersen had represented--
[laughter]--and they told me to talk to Don Manzullo, so here 
we go. They asked me if we had a congressman we could work 
with, and they said, ``You are really being harassed.''
    The sad and the ironic part of it is that we saw letters 
after the Balanced Budget Amendment happened, saying that the 
best way to eliminate chiropractic was post-payment review to 
get rid of the providers and scare the providers and have them 
so they no longer wanted to participate.
    Chairman Manzullo. Where were those letters from?
    Dr. Roger Hulsebus. WPS.
    Chairman Manzullo. Which is Wisconsin----
    Dr. Roger Hulsebus. Physician Services.
    Chairman Manzullo. Which is your Medicare provider.
    Dr. Roger Hulsebus. Carrier. And they inherited the taking 
over, underwriting Blue Cross and Blue Shield from Blue Cross 
and Blue Shield of Illinois after there was some fraud in Blue 
Cross and Blue Shield of Illinois, so WPS took it over. But 
guess what? They had the same people running it in the same 
office in downtown Chicago.
    So we kind of knew what we were up against. When they said 
they were going to scare us with the post-payment review, they 
sent the four Hulsebus offices that they audited a bill for 
$256,000. The options we had were probably the same ones that 
Dr. Minore had, I would assume, within 30 days if you do not do 
this and you do not do that.
    We came to our congressman and we asked our congressman. 
Our congressman, being an attorney, looked at it and you said, 
``Well this is nuts.'' And we had no fraud.
    I have been around chiropractors all my adult life, and I 
do not think there is a lot of fraud in chiropractic. 
Chiropractors would rather see patients than not see patients. 
They are so passionate about what they do.
    But at any rate, we had no fraud, so we stood up to WPS 
with the government's help, with Congressman Manzullo's help, 
and we did prevail but it cost us lots and lots of time. We had 
18, 19 chiropractors in our group who left our group, who were 
afraid of Medicare. We have had people bail out of Medicare. 
And we have had harassing letters to Medicare recipients saying 
they are looking into our office for fraud.
    Chairman Manzullo. At the meeting that took placer in my 
office in Rockford, Michael, were you there or was Roger----
    Dr. Michael Hulsebus. We were both there.
    Chairman Manzullo. You were both there. Would you state for 
the record what happened when Allen McGarry from my staff HCFA 
if they had looked at the X-Rays. Do you recall that statement?
    Dr. Michael Hulsebus. Yes we had a meeting with them, and a 
lot of the meeting regarded communication and looking at what 
was going on. They asked how you determine medically 
unnecessary? They said the only service a chiropractor provides 
and the only thing they take care of is the vertebral 
subluxation. At that time, the only way we could determine 
whether or not someone has a vertebral subluxation was by an X-
Ray, so that is the only document you can use to determine 
whether or not the care is necessary.
    So Dr. Hulsebus, my brother here, asked the Medical 
Director, ``Did you look at the X-Rays?''
    Chairman Manzullo. The Medical Director for WPS.
    Dr. Michael Hulsebus. Right, of the carrier. The response 
was, ``No, we have never looked at the X-Rays, we have never 
looked at anything. We just determined that on the basis of. . 
. .'' We do not know the basis. They never even looked at the 
X-Rays. It was the only documentation we have. And we offered 
to send the X-Rays to them and they refused that.
    During that meeting, Mr. Manzullo, Adam Magary was there, 
and we asked very graciously if we could have some kind of 
communication with the Wisconsin Physicians Service so we did 
not have to go down this road again, so we could take care of 
any problems we have. We did not want to go through this again, 
and this harassment we received from our carrier was totally 
unjust as we prevailed. But we have yet to this day never heard 
from Wisconsin Physicians Service. And I believe when I talked 
to your office, you also asked for communication, and the 
communication has been about the same in your office as it has 
been in my office.
    Chairman Manzullo. The only communication from WPS was when 
the fine went from $250,000 down to zero, then up to $40,000, 
then down to $1500. The only communication I saw from WPS was 
when they decided to appeal the $1500 that you took to the 
Administrative Law Judge.
    Dr. Michael Hulsebus. If your office had not stepped in and 
if we had not had the heritage of chiropractic that we 
received, I do not think any chiropractor would have been able 
to withstand what they did to us. There is no doubt in my mind 
that a normal chiropractor, if I call it that way, would not 
have been able to take care of the problems that the Wisconsin 
Physicians Service and Health Care Finance Administration 
imposed upon our family. There is no doubt they would have 
surrendered and they would not be practicing today.
    [Dr. Hulsebus's statement may be found in the appendix.]
    Chairman Manzullo. I appreciate that. Let us go to the next 
witness. Mr. Blanchard?

STATEMENT OF TIMOTHY BLANCHARD, ESQ., PARTNER, McDERMOTT, WILL 
                            & EMERY

    Mr. Blanchard. Thank you, Mr. Chairman and the Committee 
for the opportunity to speak with you about a topic that has 
been of great interest to me for many years. In particular the 
manner in which the Medicare program handles medical necessity 
determinations; the manner in which medical necessity policies 
are put in place; and some of the burdensome situations that 
providers find themselves in, which a have become much riskier 
in recent years as a result of increased focus fraud and abuse.
    I have written two Law Review articles regarding these 
topics. In 1990, I focused mainly on the vast amount of secret 
law. You had to very much guess at that time.
    I can report that by 1999 when I wrote my second Law Review 
article then the Health Care Financing Administration had taken 
great strides in the right direction to tell providers more 
often what was going on. Now they have done even better with 
the establishment of a couple of web sites, LMRP.net; and 
DraftLMRP.net.
    There is a problem, though. That notice actually in some 
respects makes the conundrum more difficult for physicians. 
Because when a physician is faced with a local policy that says 
something is not covered under these circumstances and the 
physician does not agree with that, even if they know for sure 
what it is, and frequently they are faced with competing 
interpretations, but even if the physician does know there is 
no effective way for the physician to get a timely 
determination about what standards will ultimately apply. This 
puts the physician in a terrible situation.
    First, the claims appeal process is not very effective. It 
takes years to resolve and they cannot rely on that necessarily 
going forward anyway.
    The other thing to keep in mind about the appeals is at the 
end of the day very frequently the contractors' determinations 
are reversed. They are found to be incorrect when reviewed by 
an Administrative Law Judge who is not shackled by those same 
local policies but rather with a statutory requirement.
    Physicians do not have the luxury of waiting to figure out 
what that is going to be at the end of that appeal process. 
They have to treat patients every single day. This gives them 
four untenable alternatives.
    First, they could decide to withhold the services being 
questioned by the local policy. That is inconsistent with their 
medical practice, inconsistent with the best interests of the 
patient and the treating physician's belief.
    Second, they could seek to shift the risk of a denial to 
the beneficiary through what Medicare calls ``advanced 
beneficiary'' notices or ABNs, which basically would require 
the patient to pay personally for the cost of those services in 
the event Medicare denies the claim. The risk here is that the 
patients will be financially strapped and will forego what 
might turn out to be a medically necessary service at the end 
of the day. Too bad for the patient, too late. Many physicians 
are not willing to do that.
    Provide the service for free, the fourth option. Do not 
bill the Medicare program. Unfortunately, the Health Insurance 
Portability and Accountability Act, we got a new set of rules 
regarding patient-inducements that indicates that a physician 
who engages in a pattern of giving free services to patients 
can be subject to civil money penalties and potential program 
exclusion. So, even if the physician had the financial 
wherewithal to give away services for free there is that 
additional potential risk.
    Finally, the physician could decide to provide the service, 
go ahead and bill Medicare for it. After all, they think it is 
the right thing to do, they believe it is medically reasonable 
and necessary, they have signed the claim form and made the 
medical record documentation. The risk here of course is denied 
claims, more likely a post-payment review and large overpayment 
determination down the road, potential false claims 
investigations because the statute was also amended to make a 
pattern of furnishing services not considered reasonable and 
necessary, a basis for false claims. A possible payment 
suspension based on ``reliable'' evidence that the claims might 
not be right. This is the death penalty for small businesses 
and small providers and not so small providers because they 
lose their Medicare payments, do not have the wherewithal to 
defend themselves, and simply close down.
    Congress did take action to correct this problem in the 
Benefits Improvement and Protection Act of 2000, Section 522. 
There are two problems, one created by Congress and one created 
by CMS. The one created by Congress is that the statute limits 
standing to beneficiaries, not providers. Providers are the 
real ones at risk; providers are the ones who are in a position 
to effectively bring those appeals. The problem by CMS is that 
it has elected not to implement that new appeal mechanism even 
though it was supposed to be in place by October 1, 2001, 
pending conducting notice and comment rulemaking.
    Now I agree notice and comment rulemaking should be pursued 
here because it is very important and all parties should be 
represented, but CMS finds it convenient I think sometimes to 
stand behind the Administrative Procedure Act when it wants to, 
but other times is very comfortable issuing policy by program 
memorandum and by interim final rule.
    I think there should be a moratorium on claims denials and 
overpayment recoveries based on local medical review policies, 
and for that matter national review policies, until such time 
as CMS implements the Congressional intent to establish this 
very necessary appeal mechanism.
    That is the most important point in my written statement, 
but there are others.
    [Mr. Blanchard's statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much.
    I am going to start the questioning with Dr. Christensen 
who has to go to another meeting. She is a family physician, 
esteemed member of our Committee from the Virgin Islands. Dr. 
Christensen.
    Mrs. Christensen. Thank you. I am really going to ask just 
two questions. I was going to ask one. But the last point that 
Mr. Blanchard made, I have asked in at least two of these 
hearings about a moratorium on denials and on audits and I want 
you to respond to that, Mr. Scully. As I understand it, and 
correct me if I am wrong, the audits turn up almost nothing in 
terms of fraud. It is almost negligible the amount of fraud 
that is uncovered. As a matter of fact, as I understand it, the 
OIG cannot even tell you what the error rate that is 
attributable to fraud is. Given the two stories from Mr. Evans 
and Mr. Seeley, given the fact that you are not yielding any 
real fraud and abuse from these audits, and the denials are 
continuing and you have not implemented the new process, I 
think that there should be a moratorium.
    Mr. Scully. Congresswoman, this is a tough balance. I would 
love to bring you over to talk to Senator Levin and Senator 
Grassley who would probably be jumping up and down right now.
    Mrs. Christensen. I will go over and talk to them, too.
    Mr. Scully. I get stuck----
    Mrs. Christensen. It is unfair what is happening to the 
providers. It is just unfair.
    Mr. Scully. I agree.
    Mrs. Christensen. And on top of that you are cutting their 
payments.
    Mr. Scully. We are not cutting their payments. I understand 
the tension and we should talk about that, but----
    Mrs. Christensen. You are not?
    Mr. Scully. It is all statutory. Congress cuts the payments 
as----
    Mrs. Christensen. I am coming to that in a minute.
    Mr. Scully. But I just want to address the issue, I have my 
own horror stories from the hospital business and it is one of 
the reasons I came and took this job. I had a lot of my own 
providers who are no longer in business.
    There is a lot of tension here. The great mantra of 
Medicare the last ten years has been fraud, fraud, fraud, and I 
think some of it has been legitimate, some has not. The IG 
would tell you that 12 percent, I do not happen to agree with 
the number. We do issue a joint press release, that there is 
$12 billion a year Medicare fraud. I am not sure the number is 
quite that high, but I will tell you----
    Mrs. Christensen. Improper payments, maybe.
    Mr. Scully. I would agree with you, I think it is improper 
payments, not fraud. But I can tell you that every year there 
is a headline in the newspaper that says $12 billion of fraud. 
I have pushed back on that a little from my own agency, but a 
lot of this is driven by Justice and the Inspector General----
    Mrs. Christensen. Have you testified regarding those 
improper payments as to what constitutes fraud in that $12----
    Mr. Scully. I have never been asked to testify, but I think 
you will find that in the joint press release that came out 
this year with the IG and me, the language is significantly 
tempered. Janet Rehnquist is the new Inspector General, is an 
old friend of mine. She is also a health care lawyer. I have 
been trying to work with Justice and the IG to change the 
rhetoric a little bit. There are a lot of overpayments in the 
Medicare program, a lot of it is not fraud, a lot of it is 
fraud. There is a lot of fraud.
    But I can tell you that I get hammered and as recently as 
last week by many other committees in Congress for not being 
tough on fraud, so finding the right balance is difficult.
    Mrs. Christensen. I still think that a moratorium ought to 
be put into place and I can tell you from experience of some of 
my colleagues at home that in some cases the overpayments are 
because HCFA or CMS has established a fee and then gone back 
and said we established the wrong fee. It was not supposed to 
be $6, it was supposed to be $4.50, then the provider is 
required to pay that back. So this fault on the side of CMS, 
and I still think there should be a moratorium.
    Let me just ask this very important question. It goes back 
to provider payments and your refusal to correct the errors in 
prior years because you say you cannot do it.
    I have a quote here, this goes back to 1985, but where it 
days, ``Because the Bureau of Labor Statistics has periodically 
retroactively revised some of the statistics on data on which 
the earlier economic indices were based it is necessary for 
us,'' this is CMS saying this, ``to recompute some of the 
values and ratios for earlier years in order to obtain an 
accurate index for the current year.''
    Now granted you are using a different index to set the 
payment fees but you have gone back and you have revised your 
payment schedule based on finding errors.
    Could you put up the error thing?
    There is $20 billion I think in errors that are owed the 
physicians over these years. Physicians offices are closing, I 
repeat. Other provider offices are closing. I know I am saying 
physicians and providers, but this translates into services 
that are not being provided to some of the people who most need 
it. And as you know, whatever Medicare does, private insurers 
are going to jump in and start doing the same thing.
    So we are looking at a major crisis.
    Mr. Scully. This could be a three hour discussion alone.
    Mrs. Christensen. We want you to adjust that figure, to 
make the corrections.
    Mr. Scully. We have made a number of corrections including 
this week the projection and it is clearly a hard to conceive 
number, the projection statutorily for next year for physician 
services was going to go down negative 5.6 percent. Our 
actuaries did go back and reevaluate a number of growth 
assumptions and it is now going to come out in a few weeks as 
negative 4.4 percent.
    So we have made the adjustments we can. The issue----
    Mrs. Christensen. On what you are paying now?
    Mr. Scully. On what will be paid next year. The actual----
    Mrs. Christensen. Which is an incorrect calculation.
    Mr. Scully. No, these are just actual assumptions about 
what future growth rates are going to be.
    The two things that have generated I would say this 
catastrophe in physician payment, because I was the White House 
Health Care staffer in 1989 that helped push this through and I 
happen to believe the SGR formula is generally structured 
right. There are two----
    Mrs. Christensen. Structured right?
    Mr. Scully. I would argue, and I think it is a very 
credible argument, that if you look back to 1989, home health 
payments have been a big up and down cycle; hospitals have had 
a big up and down cycle. Every other part of Medicare is a very 
unpredictable roller coaster. The physician payment structure 
has been much more predictable and reliable than others, and in 
fact the last year and a half it has been broken because of two 
big errors. One was in 2000 and in 2001 under the law we were 
supposed to pay a certain amount and HCFA made a large mistake. 
We added a couple of hundred codes each of those years and we 
did not, we spent $3.5 billion in 2000 that we were not 
supposed to spend. Physicians----
    Mrs. Christensen. You work for an Administration. Have they 
asked for that money to be reinstated? You know that you have 
miscalculated. You know that physicians are losing money.
    Mr. Scully. In those two years, Congresswoman, on the 
contrary which is not very well understood, physicians, and I 
know you do not like to hear this, in bulk nationally were 
overcompensated by $3.5 billion in 2000 and by $2.3 billion in 
2001. That is part of the problem, is that by mistake physician 
spending under the law those years was supposed to go up 6 
percent in 2000 and 5.5 percent in 2001. In fact they went up 
11 percent and 10.5 percent. We accidentally, I was not there 
then, and I do not want to get into that, but we accidentally 
overpaid them. The formula is very exacting and----
    Mrs. Christensen. But you made some miscalculations in the 
prior years, so I would imagine that it probably still does not 
add up.
    Mr. Scully. Actually the 1998 and 1999 SGR which we 
discussed during the break which I believe is wrong and should 
be fixed is statutory. We were told we had to use estimated 
numbers in 1998 and 1999. I spent a lot of time with the AMA 
trying to do that, to fix it last year. That is the $40 billion 
issue and I cannot fix it. The Justice Department has told me I 
cannot.
    Mrs. Christensen. You agree that that 5.4 percent cut this 
year is----
    Mr. Scully. Is wrong.
    Mrs. Christensen [continuing]. Wrong.
    Mr. Scully. I do not think it is substantively defensible.
    Mrs. Christensen. You do not think that cut is defensible.
    Mr. Scully. I do not think it is sustainable. I think if it 
goes on we are going to have an access problem with physicians. 
I have said that repeatedly. I think we should fix it. I have 
been working with the committees to try to fix it. I think it 
will be fixed. The law does not allow me to do anything else, 
unfortunately.
    Mrs. Christensen. We do not agree with that.
    Mr. Scully. Unfortunately, Congresswoman, I have gone to 
the General Counsel of HHS, the highest level of the Justice 
Department, I spent a month with the AMA trying to fix it last 
year. If I could have I would have and I think the AMA knows 
that. The fact is legally I cannot. I wish I could. I have been 
through this with them for a year.
    Mrs. Christensen. I am going to give up here, but Mr. 
Chairman I do not agree.
    Chairman Manzullo. I think we are talking about two 
different things. I think Mr. Scully is talking about the 
overall amount that has to be reduced by 5.6 percent and that 
is, HCFA has to work within those parameters.
    But the other issue is who actually sets the fee schedule 
per, whatever it is, that is set by HCFA. So I think you might 
be talking about two different things.
    Mrs. Velazquez. Would the lady yield?
    Mr. Scully----
    Chairman Manzullo. Let me go to Mrs. Kelly.
    Mrs. Velazquez. It is a follow-up question regarding his 
answer, Mr. Chairman.
    Chairman Manzullo. I do want to let everybody take their 
turn on that.
    Ms. Kelly.
    Mrs. Kelly. Thank you.
    Mr. Scully, I think basically what people have indicated 
here in their questioning of you and what we have seen with the 
witnesses is a very strong need that this formula get changed, 
and it get changed in favor of quality medical practice for the 
seniors in this nation. I am very concerned about some of these 
things.
    One of them, I found in Dr. Minore's testimony, the fact 
that he was going to certified coders, that really truly I find 
offensive. That any doctor, any practice in this nation has to 
go to someone who is a professional coder? That means that this 
whole coding system needs to be reevaluated. It means we have 
an industry that has grown up that is costing the medical 
people and the patients money to support because people like 
Dr. Minore have to go to someone who is a professional coder to 
make sure that they are coding this right.
    I have a instance in my district where a doctor got into 
all kinds of trouble with HCFA. This did not happen on your 
watch. I do not know how much of the witnesses' testimony 
actually revolves around things on your watch, but I would beg 
you, sir, to take a look at the whole coding system. I think 
that it is going to have to be reevaluated. And the other 
factor that I am very concerned is this whole formula of 
payment.
    If we need to do that at the congressional level, then let 
us work with you because it is affecting too many people, too 
many small businesses that are involved in ancillary ways with 
the medical profession.
    I also feel very strongly that the whole instance of post-
payment review, the people who are doing that out of your 
agency need a great retraining course. They need to learn when 
they are going in it is not aha, gotcha, I am going to pay my 
salary and the salary of several others when I go into evaluate 
on a post-payment review. And I would hope, and I would like to 
as you if you will commit here today to promising those of us 
who are concerned with the medical profession that you will try 
to reevaluate the people who are doing that because there are 
some people who think they have a lot of power and they are 
going to exercise it and they slam the doctors, which only 
hurts the patients. It only hurts the quality of medical care 
of the seniors in this nation.
    Can you commit to us that you will try to change that? Do 
the best you can?
    Mr. Scully. I have been trying to change it and I would 
encourage you to talk to, and this is my agency, but the 
overwhelming, and I saw this from running a hospital 
association, trend the last ten years has been pressure on our 
contractors. Their evaluations have been on fraud enforcement. 
There is an $800 billion fund called the Medicare Integrity 
Fund that no one talks about much. This all came out of the 
last ten years. There was a lot of fraud.
    But there has been a very aggressive push from the 
Inspector General, from Justice. Our contractors, the number 
one way they are evaluated is how aggressive they are on fraud. 
And I would say there probably was a great need for that in the 
early '90s and I have said publicly, I think I was the chair of 
the Fraud Task Force with the then-Attorney General in the 
first Bush Administration, we probably were not doing enough. 
The Clinton Administration aggressively went after it. I would 
argue the pendulum, and I have publicly said it has swung a 
little too far and we need to come back and find a balance.
    But I think every incentive, and just to defend the 
contractors a little bit, every incentive, everything they have 
been told to do for the last seven or eight years has been 
fraud, fraud, fraud, be aggressive. And I would argue there are 
a lot of instances and I have seen a lot of them personally 
where people have suffered from that. But that is what they 
have been driven to do for the last seven or eight years and 
they have responded to the federal incentives.
    I think a healthy debate about finding the right balance is 
crucial and I have tried to do that with the agency. But I also 
think when you look at Medicare fraud enforcement, which we 
have been pushed very very hard and appropriately to be tough 
on, it is a partnership between the Justice Department, the 
Inspector General, and CMS, and my experience has been, and I 
have tried to aggressively work with Justice very cooperatively 
so far, and the Inspector General who I have known for many 
years, to have a three-way partnership. For the last seven or 
eight years it was very much a partnership where CMS got 
dragged along. But there is a lot of momentum behind this and I 
think it is important for Congress to find a balance because a 
lot of what you are hearing is the fact that the pendulum has 
swung very aggressively on the fraud enforcement side. In many 
cases appropriately, but in many cases not appropriately. It is 
a big challenge to get that balance back.
    But I can tell you that I still go to hearings on a regular 
basis and get beat up for not being tough enough on Medicare 
fraud.
    Mrs. Kelly. I know that, and I read the same papers you do. 
My concern about fraud, yes, I think early on there was a lot 
of fraud and the attitude, we have to go out and stamp out 
fraud is still there. But I agree with Dr. Christensen, I think 
the figures show that the fraud has leveled off and probably as 
a result of heavy fraud enforcement.
    What I am asking you is not only for an attitudinal change, 
but also my office has worked with your office to resolve a 
serious issue we have with regard to ambulances in New York 
state. What I have found is that the people in your office and 
you for yourself are willing to be creative in trying to find a 
result.
    I think what is happening here with regard to fraud is 
perhaps the entire basis of the way that you are approaching it 
may need to have a shift. It may need to be shifted in not only 
its emphasis in finding fraud, but the way you go about it. If 
a doctor has to change a code, is that truly fraud? If the 
patient presents in the course of treatment for another 
illness? Is that truly fraud? That is what happened to one of 
the doctors that I represent. Is there a way that you can put 
some people in a room and try to think about how the process of 
going after the fraud is currently done and look for new ways 
to do it so that it is first of all more accurate? And 
secondly, the doctors have a chance to defend themselves right 
away before somebody comes in and says we are going to assess 
you a fine, you pay the fine and then we will figure out where 
the true facts are, which is really what is happening with a 
lot of the doctors now.
    Mr. Scully. I am certainly trying. I can tell you that 
obviously we have had problems with WPS and let me talk about 
that in a minute. I am a little irritated because I actually 
talked to the Chairman of WPS last summer and I am amazed that 
they did not do a better job of communicating about the 
specific problem.
    Generally what you find with doctors is that, and I am not 
trying to pass the buck here, the issue here is frequently 
local U.S. attorneys that are driving this, and a lot of times 
they are dealing with CMS. It is a three-pronged approach on 
fraud and the more reasonable approach is going to take all 
three agencies. I actually got beaten up in a Senate committee 
a few weeks ago for not being aggressive enough in supporting 
the Justice Department because I asked some questions about 
some of the things they are doing and some lawsuits I did not 
agree with.
    I understand your concerns. We are trying to find the right 
balance. I believe there is a lot of Medicare fraud out there 
and we are going to be incredibly aggressive in going after it. 
I also know there are an awful lot of good providers, some of 
whom I used to represent, who get harassed unnecessarily and 
trying to find the right balance is tough.
    Mrs. Kelly. I would ask you to take a look at the two 
things I have asked you about. One is coding. The coding 
situation is a mess.
    Mr. Scully. Can I just add one thing? I mean 
philosophically I do not want to, I was about to defend my 
predecessor who is a good friend as well, but philosophically, 
I run a $260 billion insurance company where we set the prices 
for every doctor, every ambulance, every nursing home, every 
hospital, and then we enforce it.
    The Administration's position, obviously, is we would just 
as soon buy private insurance for all of you like the Federal 
Employee Health Benefits Plan. I am doing the best I can to run 
this huge price fixing insurance agency, but clearly our 
preference would be to go out and do what we did for federal 
employees. We believe the way the Medicare program is run is 
insane.
    Mrs. Kelly. The problem that I have is when a doctor gets 
accused by your agency of fraud, the doctor's guilty until the 
doctor proves themselves innocent. That is exactly the reverse 
of the Justice situation that ought to be available for 
everyone in the United States of America. That seems to me to 
be almost unconstitutional. And I would ask you please to go 
back and take a look in your agency, think about the way that 
this agency is operating.
    Most of us who receive the complaints and concerns of both 
patients and doctors feel the agency is broken and I know you 
are working to fix it. Those are two areas I feel very strongly 
need fixing.
    Thank you very much.
    Chairman Manzullo. Before we go to Ms. Velazquez let me 
announce that on July 17th at 10:00 o'clock this Committee is 
going to hold a hearing on the harassment by HCFA and its 
providers of the Presidents of two organizations whose 
representatives appeared before this Committee. This is nothing 
less than witness tampering. I am not going to tolerate it. I 
am going to ask, Mr. Scully, that within 14 days you provide 
this office with the names of every single person involved in 
that snap audit, plus the names of people that authorized it. I 
am going to issue subpoenas. I am going to have the Federal 
Marshals issue those subpoenas. I want those people here on 
that date. I want Mr. Hill here on that date. Prior to that 
date I am probably going to take Mr. Hill's deposition under 
oath and everybody else that is involved in this outrageous, 
outlandish harassment of America's health providers.
    It is not by coincidence that on the day of and the day 
before two witnesses appear before this Committee, testify 
about the abuses of HCFA, that HCFA personally and through its 
agents conduct audits on them. That is not by way of 
coincidence, that is by way of design, possibly criminal 
design.
    The reason that this Small Business Committee is involved 
with all of these physicians, they came to us because they were 
being tortured by Health Care Finance Administration. They 
could not go anywhere else to get relief. And to have them 
subject to this type of administrative abuse, that is not going 
to be tolerated in this Committee.
    Mrs. Velazquez.
    Mrs. Velazquez. Thank you, Mr. Chairman.
    Mr. Scully, clarify to me. I guess that your answer to Dr. 
Christensen was that you sought clarification from the 
Department of Justice regarding 1998 and 1999 projection 
errors, and that the Department of Justice said to you that you 
do not have the authority to change that.
    Mr. Scully. That is right.
    Mrs. Velazquez. If we correct the 1998, 1999 projection 
errors, we have that CMS actuaries have calculated that 
correcting the errors will put $46 billion back into the 
physician expenditure pool over the next ten years, right?
    Mr. Scully. Yes.
    Mrs. Velazquez. So assuming that the agency is correct and 
cannot go back and fix the errors, Mrs. Kelly made reference to 
the fact that you have been very creative in dealing with the 
issue of the ambulance in New York State. Would you be creative 
enough, knowing that you do not have the authority to change 
the errors, the calculation, to propose language to Congress to 
give you the authority to deal with this?
    Mr. Scully. We would love to have the authority. I think 
there is no question the policy is wrong, and the 1998 and 1999 
data that we use which was projected data under the law, if we 
used the right data the problem would be fixed largely and we 
would like to do that.
    The issue is, the law is clear that I cannot do it 
administratively and----
    Mrs. Velazquez. I understand that the law is clear.
    Mr. Scully. And if Congress----
    Mrs. Velazquez. Would you propose----
    Mr. Scully. Oh, I have. Mr. Thomas and Mr. Tauzin and I 
have been talking about this since the first day I told them 
last September, the issue is that if they pass that law they 
have to finance it under the Budget Act and they have to find 
$46 billion. They would like me to do it, and believe me, I 
talk to Chairman Thomas almost every day and Mrs. Johnson and 
Mr. Tauzin and Mr. Stark, they would like me to find a way to 
do it because it is a financing issue under the Budget Act, and 
I think everybody wants to get to the right result which is to 
fix the formula. The issue is can it be done administratively 
without--There is going to be new spending. If we do it 
administratively it does not have to be financed in Congress 
under the Budget Act. If Congress passes the law they have to 
pay for it and it is extremely difficult. But we all are on 
board about fixing it.
    Mrs. Velazquez. I guess that we were able to come up with 
$15 billion to bail the airline industry. Can we find $46 
billion to do this?
    Mr. Scully. We have worked----
    Mrs. Velazquez. Okay----
    Mr. Scully [continuing]. Extensively. I think we can.
    Mrs. Velazquez. Mr. Sullivan, has the Office of Advocacy 
reviewed the issue to determine whether CMS has the authority 
to correct the 1998 and 1999 projection errors? And if not, 
will you do so?
    Mr. Sullivan. Congresswoman, with regard to CMS' compliance 
with the Reg Flex Act and Mr. Scully's statements before this 
Committee and in letters back to us and back to this Committee 
on statutory prohibition of acting in one way or the other, one 
thing that we offered this Committee in April was in those 
points where CMS should do a Reg Flex analysis and flush out 
less burdensome alternatives, if those alternatives cannot be 
done because of statutory prohibitions----
    Mrs. Velazquez. Excuse me, Mr. Sullivan. I am not asking 
you about Reg Flex. I am asking you if you have reviewed the 
issue of correcting of 1998 and 1999 calculation errors
    Mr. Sullivan. No, Mrs. Velazquez, it is not my 
understanding that we have reviewed that----
    Mrs. Velazquez. Will you do that?
    Mr. Sullivan [continuing]. Outside of the boundaries of the 
Reg Flex Act.
    Mrs. Velazquez. Will you do that?
    Mr. Sullivan. Will we review the numbers and to----
    Mrs. Velazquez. No, will you review the facts to determine 
whether or not CMS has the authority to do that as the 
Administrator.
    Mr. Sullivan. Congresswoman, we are happy to try to look at 
different proposals coming out of agencies and how they comply 
with the Regulatory Flexibility Act. I am not entirely certain 
about what authority our office has to review budget 
calculations.
    Mrs. Velazquez. Even when this has an economic impact on 
small businesses?
    Mr. Sullivan. In that are, Mrs. Velazquez, we actually do 
have authority to look at economic impact, and I am happy to 
commit to this Committee and to Mr. Scully to work with CMS to 
look at how different numbers have an impact on small business 
and then proffer that back to the Committee.
    Mr. Scully. We would be happy to do that.
    Mrs. Velazquez. Mr. Scully, CMS last year in January 
started a program to reduce the regulatory burden on health 
care providers. That group was called the Physician Regulatory 
Issues Team. Over 35 rules were identified as needing reform. 
Since then CMS has decided to focus on about a dozen of those 
regulations. Has CMS completed action on that initial dozen? If 
not, why not? If not, when will they be resolved?
    Mr. Scully. We have done a number of things on that list 
including last week we came out with our annual hospital rule 
and I think the physicians here will tell you one of the bigger 
issues for hospitals and doctors in MTALA, the emergency room 
rule. And I think if you will look at that rule you will see 
there is a significant restructuring and reform, we need to do 
more, of MTALA, which is probably one of the biggest issues for 
both physicians and hospitals, and we have started to 
significantly rein in the regulatory burdens of the MTALA law 
which has been torturing a lot of hospitals and doctors. We 
have a long list of things to do.
    I just hired a doctor, Phil Rogers, I think it has been 
announced. If I did not, I guess I just announced it, to run 
the Physician Regulatory Team, and I know him because he 
actually is a real doctor that ran the Alexandria Hospital 
emergency room, and I have been trying to get doctors who are 
not in the normal bureaucracy into the agency that actually 
have to live with this stuff day to day. I know how much it 
affects hospitals and emergency rooms. So that is one example, 
but there are a lot of others we are doing.
    Mrs. Velazquez. Would you commit to providing the Committee 
with a list of these regulations and an update on the status of 
each one of them?
    Mr. Scully. Absolutely. I would be happy to.
    Mrs. Velazquez. Thank you.
    Mr. Scully, can we go back to the letter that I sent to you 
on March 19th? And you responded to my letter. This is in 
reference to Mr. Cavalier.
    In your letter to me dated April 19, 2002, responding to my 
inquiry, you stated that an audit of Mr. Cavalier's company had 
taken place in December by Nationwide but that no such audit 
has taken place since then by Nationwide. I think that you 
misled me on your response because we were aware that when 
Nationwide conducted an audit in December it showed that the 
company was clean and did not have any problems. But I was not 
asking you about the December audit. I was asking you about the 
March 5th audit conducted to him.
    Would you please explain to me on what basis that audit was 
performed?
    Mr. Scully. To be honest with you Congresswoman, I do not 
know enough about it but I will find out and obviously----
    Mrs. Velazquez. But you sent me a response.
    Mr. Scully. I sent you a response because at the time I got 
into this initially I thought the question was about the 
Nationwide audit, and obviously there is more going on. And to 
be honest with you, I am as interested in finding out the 
bottom of this as the Committee is. If it turns out that people 
were----
    Mrs. Velazquez. I did not in my letter make reference to 
Nationwide. I spoke about an audit that was conducted.
    Mr. Scully. They do our audits. And I was not aware that 
there was any additional audit done. I am going to find out.
    Mrs. Velazquez. But I do not understand why if in December 
an audit was conducted that showed that there was no fraud and 
that he was clean, why then the day that we were conducting a 
hearing here, Mr. Cavalier was audited?
    And you know, I would like to know----
    Mr. Scully. If that is the case and there is a connection I 
will be every bit as outraged as you are. I cannot believe that 
is. I hope I am correct.
    Mrs. Velazquez. I would like for you to respond to the 
following question in writing. I want to know what were the 
costs to CMS to perform such an audit on Mr. Cavalier's 
company. And further, is an audit of this nature, one that is 
unannounced, a normal occurrence.
    Mr. Scully. It is, and I happen to think it is, to be 
honest with you, I do not think we audit----
    Mrs. Velazquez. It is normal that after----
    Mr. Scully. No, this is not.
    Mrs. Velazquez [continuing]. An audit was conducted in 
December that showed that there were no problems to conduct 
another unannounced on the day that they were here in 
Washington and that they were testifying before our Committee?
    Mr. Scully. No, that is not, obviously, and obviously I 
hope that is not the case. We will find out.
    My point is we do a very, very small number, of the $260 
billion of claims, less than one-half of one percent are 
actually----
    Mrs. Velazquez. What----
    Mr. Scully. We do federal follow-up audits on a very small 
number of clients.
    Mrs. Velazquez. Mr. Evans, can you tell me, Mr. Evans, how 
normal is it to conduct two audits so close to each other?
    Mr. Evans. It is not normal at all.
    Mr. Scully. In this case, obviously I am going to get to 
the bottom of it and find out what happened. But we do do on a 
limited number of our audits federal follow-up audits because 
the contractors, the carriers, which in this case was 
Nationwide, do audits and on a very small percentage of those 
we do follow-up audits. If it was abused in this case we will 
find out.
    Mrs. Velazquez. So you are going to clarify for this 
Committee that an audit was conducted that day and why was it 
conducted?
    Mr. Scully. Sure. I will get as much detail as we possibly 
can.
    Mrs. Velazquez. Thank you.
    Chairman Manzullo. Mr. Davis?
    Mr. Davis. Thank you very much, Mr. Chairman.
    Mr. Scully, let me try to understand, do we have any kind 
of breakdown in terms of a projection on analysis of 
inaccuracies that are found in terms of a percentage of those 
that might be fraud how much might be error as opposed to 
fraud?
    Mr. Scully. There is a long, joint Inspector General/CMS 
report that is put out on fraud every year and I would be happy 
to send it to you. I think the latest number from this year is 
about $12 billion of inaccuracies. How much of that is fraud 
and how much of that is--it is a totally extrapolated number 
which is why I am not always comfortable with it. We actually 
do audits and find what percentage of Medicare claims are 
either inaccurate or fraudulent and then it is extrapolated out 
to come up with that $12 billion number.
    There is clearly fraud and there are clearly inaccuracies, 
and it is a big, inaccurate program. But it is difficult to 
come up with exactly what is fraud and exactly what is 
inaccuracies and I have tried to restrain the rhetoric on 
inaccuracies being labeled as fraud.
    Mr. Davis. Mr. Blanchard, would you comment on that?
    Mr. Blanchard. I would just add that in addition to trying 
to get a distinction between fraud and inaccurate fee for 
service overpayment, even the fee for service overpayment 
estimation appears likely to be exaggerated in that the way the 
OIG does this review is to select a sample, give it to the same 
contractor personnel who would have reviewed the claim the 
first time, and figure out whether they thought it was correct. 
There is no accounting in the OIG's report for what would 
likely be appeal determinations and CMS' own data indicates 
that appeals of fee for service payments are reversed at each 
level of appeal in the neighborhood of 50 percent. Sometimes 
more. So to say that those rates are an accurate description of 
the incorrect payments without accounting for favorable appeals 
to me is something that very much distorts likely policymaking 
on that data.
    Mr. Davis. Mr. Scully, let me ask, what happens say if it 
is discovered that there has been error on the part of HCFA 
after an agency or an entity or a physician or whoever have 
gone through a protracted----
    Mr. Scully. We try to fix them and it has been a problem. I 
can tell you a couple of examples I am working on now. Maybe I 
should not be announcing these either, but a hospital in 
Washington State had an error that we have worked, I think 
tried to work out. The entire city of Savannah's hospitals were 
underpaid by many millions of dollars by virtue of an error 
that the agency made. My policy in the agency has been, since I 
got there, if we made the mistake we are going to fix it and we 
are going to pay you more if you deserve it. Sometimes that is 
not always popular.
    But there is fraud and there is a repayment, and when 
providers make a mistake and we find it, they are taxpayer 
dollars and we are going to aggressively try to recover it. 
When the agency makes a mistake and underpays someone, I have a 
multi-multi million dollar issue going on in Philadelphia right 
now, my attitude is we are going to go back and fix it. It is 
usually the hospital wage index or the physician payment 
update. But I think we have a big problem, we make a mistake, 
we need to make people whole. I have tried to do that. I have 
done it in Savannah, I have done it in Lourdes, Washington, and 
I hope we are going to do it shortly in Philadelphia.
    Mr. Davis. Would the same approach be taken with, you 
mentioned hospitals that are obviously large entities, but what 
about smaller businesses, physicians or----
    Mr. Scully. We fix some. A number of them are physicians. I 
will give you one example of the Power Mobility Coalition, this 
is not the direct policy. When I first came in we had lots of 
problems with DMERCs, we are trying to work on that. We had a 
lot of problems with wheelchair providers. One of the major 
gripes I think it is fair to say with wheelchair and scooter 
manufacturers was, believe it or not, the federal government 
pays a flat rate, $2,000 for scooters and $5,000 for 
wheelchairs and that is it. If somebody wants to buy more than 
cannot.
    I changed the policy last summer, and the real reason was 
fraud. There was a perception that people were going to be, 
that in fairness, there was a perception in the agency and in 
Justice and other places that people would sell wheelchairs 
with 50 different appliances on them, and overbill seniors. I 
made this policy change last fall that we would allow people to 
bill more than $5,000 for wheelchairs, $2,000 for scooters, to 
have seniors buy additional things, then we track it closely 
for fraud. If there is evidence of fraud I would reverse the 
policy immediately. So far I have not seen any. At least I have 
not had any reported.
    But that was one of the great frustrations of inflexibility 
of a big government program on the Power Mobility Coalition. I 
spent a lot of time--the fellow who got audited, by the way, I 
spent many hours with and have met with extensively on a lot of 
issues. I think the one who was audited, the President of the 
Power Mobility Coalition, and that was their number one issue 
last August and I fixed it. I was not aware of the other issue. 
Is that fair to say?
    Mr. Seeley. Yes, it is very fair.
    Mr. Scully. And I went and spoke to their convention in New 
Orleans and spent a lot of time working on their issues.
    Mr. Davis. My last question, someone mentioned the issue of 
culture earlier. And some regulatory and law enforcement 
agencies from time to time find it necessary to review their 
approach in terms of how they look at situations. Have you 
undertaken such a cultural----
    Mr. Scully. I have very aggressively, and I do not think 
any of my employees would argue otherwise, have tried to change 
the culture. I have known a lot of people at HCFA for 20 years. 
I think there are some terrific, fabulous career civil servants 
there who work incredibly hard. I also think the culture at 
HCFA over the years has tended to be a little too insular and I 
have said that many times. I think, my experience many years 
ago as a telecommunications lawyer, my experience is if you are 
a telecom lawyer part of your career development is you work at 
the FCC. If you are a banking lawyer you go to the SEC. HCFA 
has always been insular. There has always been a fear of 
outside providers, hospital administrators, physicians, nursing 
home people working in the agency. I have tried to change that. 
I have aggressively tried to recruit around the country. I have 
doubled the number of doctors since I have been there. They 
have gone from about 40 to 85. I spent a lot of time trying to 
recruit people. I happened to come out of the hospital 
industry. I think it is healthy to have people from the 
industries that you regulate coming in. I think most people are 
honest and when they go in the agencies they help open the 
place up and make people understand what is going on.
    I have made a very aggressive effort to try to get new 
blood into the agency and I think it is fabulous that we have 
25 year career civil servants, a lot of great people. I also 
think we need some people that are running nursing homes or 
hospitals or physician practices to come in for two or three or 
four years and come into the agency and bring the expertise 
from the people we have to deal with every day. There has not 
been enough of that and I have been very aggressive in trying 
to bring new people in.
    Chairman Manzullo. Thank you, Mr. Davis.
    Dr. Weldon.
    Dr. Weldon. Thank you, Mr. Chairman.
    Mr. Scully, are you familiar with the fraud alerts that 
your agency issues to the carriers?
    Mr. Scully. I am, yes. Usually it is with the Inspector 
General as well, for the most part. Some of them are directly 
from us.
    Dr. Weldon. Around the same time the President of the 
Portable X-Ray Coalition received his unannounced audit there 
was a fraud alert that came out from CMS regarding fraud in 
that industry.
    I looked at that and I looked at it in comparison to other 
fraud alerts. Most of the other fraud alerts they had 
documentation to support the fraud alert. They cited cases of 
particular types of fraud or cases that they had uncovered but 
there was really none of that for the Portable X-Ray Coalition.
    Can you provide the Committee the documentation, the 
internal documentation from CMS in terms of how they went about 
issuing that fraud alert? Because it looked to me as well like 
harassment. And if it is not harassment, great. I would be very 
pleased with that. But I would like to see the documentation. I 
would like you to provide it to the Committee----
    Mr. Scully. Absolutely.
    Dr. Weldon [continuing]. As to how CMS came up with the 
conclusion that a fraud alert was necessary for this industry.
    Mr. Scully. I would be happy to do that. I do not know the 
details of it, but I will find out. And believe me, if I have 
people in my agency harassing providers, I was in the provider 
business until about a year ago, and I am not any happier about 
it than you are. I hope that is not happening. If it is, I will 
be every bit as aggressive as you in trying to go after it and 
fix it.
    There has been a culture, I repeat again, and some of it is 
healthy and needed for the last ten years, in our contract and 
every place else of you cannot possibly be aggressive enough on 
fraud and abuse enforcement. I think there needs to be balance 
restored. But I do think the fact, and I think this kind of 
discussion is healthy, and I think probably some people in my 
agency, I can tell you, have been unhappy because I have asked 
a lot of those questions and we need to start restoring that 
balance.
    Dr. Weldon. I want to say something about that. In the 
early '90s we had some real horror stories on fraud. I know in 
Florida, it was almost like a phantom health care provider. 
They were not actually seeing patients at all and they were 
churning through a tremendous volume of billing. I believe some 
of the perpetrators in that instance actually went to jail.
    But essentially what is going on right now is the hot 
pursuit of up-coding, at least that is the way I see it. A lot 
of the blatant fraud has been wrung out of the system and now 
we have this hot pursuit of up-coding.
    While certainly I think CMS and the carriers need to be 
vigilant in pursuing that because it is a problem and I know 
there are physicians and other providers who do abuse the 
system, and they give all the honest providers a lot of grief 
and we all pay a price for that for the dishonest amongst us. 
But what is going on right now for a lot of providers, at least 
in the physician community, is when they get these notices they 
are being audited or they have had a certain number of their 
charts that have been found to be not properly documented or 
therefore up-coded, for a lot of physicians the cost of 
challenging is greater than just paying the money, so a lot of 
people are just paying the money.
    Frankly, I see that as a real problem, particularly for a 
small medical group or a solo practitioner. They cannot come 
against the weight of the agency.
    We covered a lot of issues, and this has been a very very 
informative panel, but the testimony Dr. Minore gave to me, I 
know you are familiar with it, I know you are familiar with the 
GAO report that he cited. This is a real serious problem.
    Now I agree with you, that we need to totally reform the 
system and that we are in effect tinkering around the edges 
when we try to address this, and the problem to a great degree 
is the inability of the Congress to come to any kind of 
agreement with the White House and get a product through of 
real reform.
    I am certainly fighting for real reform of Medicare to make 
it a more fair and equitable system and I can vouchsafe to the 
people next to me here, that they fight for it as well. But 
until we can come up with a political solution something has to 
be done to get some clarity on these code issues. For a 
provider like Dr. Minore, I know what it is like. You see the 
patients, you are on call all night, you see patients all 
night, you go into the office the next morning bleary-eyed, and 
this person who works for you in your billing department comes 
up to you and asks, and you have typically got it written on a 
scrap paper, is very often the case, and you say to yourself, I 
hope to God I have got all of this right and I hope I do not 
get audited, and you do the sign of the cross and you give it 
to your clerk.
    Something has to be done. I certainly am putting pressure 
on my colleagues on both sides of the aisle to come to the 
table on some real serious reform to get a more simplified and 
more patient-friendly system. But just, again, to reiterate, I 
would like the details on that fraud alert for the portable X-
Ray.
    Mr. Scully. I would be happy to. It is a very complicated 
system, and I do not mean to be whining. I spent many years at 
home being genetically cheap so I am not asking for more than 
4800 employees, but when you look at the size of the programs 
we run, of those 4800 employees probably 1200 work on Medicaid. 
So let us say we have 3500 working on Medicare which takes care 
of 40 million people and affects every provider in the country. 
It is, in my opinion, and again, I am not asking for money 
outside the President's budget, it is very tightly run.
    One of the reasons you get 85 percent of the wrong answers 
is that the contractors who run the program are largely 
underfunded. It is a very skimpily funded insurance program and 
you get what you pay for in a lot of cases, so it is not 
surprising.
    When you look at the appeals, which somebody complained 
about, which is totally right, Congressman Thomas and Mr. Stark 
passed through some BIPA appeals two years ago which you have 
said they have not put in place. There is a good reason we have 
not put it in place, to be perfectly honest with you. I think 
those reforms are great. The appeals process is a joke. If you 
are a patient it takes you two years to go through it. It is 
run by the Social Security Administration largely, not by 
Medicare. I want to bring it into Medicare and get it out of 
Social Security who does not care as much about Medicare 
obviously. But it costs $140 million a year and the money is 
not in our budget.
    I spent a lot of time talking to congressmen regularly. Mr. 
Obey, helping Mr. Thomas try to get the money in our budget. I 
would like to do it tomorrow. I have spent a lot of time 
telling the committees that. But it is $140 million that is not 
in my budget and I cannot put it in place without the money. 
The authorizers authorized it and the appropriators did not 
appropriate it. To be honest with you, it is something that is 
desperately needed and I would agree with my attorney friend at 
the end of the table that the Medicare appeals process is 
broken. But I cannot fix it under the current resource level.
    Dr. Weldon. Thank you, Mr. Scully. My time has expired.
    Before I yield back, Mr. Chairman, I just want to again 
thank you for this hearing and thank you and the Ranking Member 
for allowing me to be here.
    I would also ask that the Committee consider in the future 
investigation of the impact of these problems in CMS on small 
businesses and providers, that the Committee consider looking 
at the role the Justice Department plays in all of this, 
because it is definitely a player. Mr. Scully alluded to that.
    Chairman Manzullo. I appreciate that. Thank you.
    Mr. Scully, it does not take one cent to come up with a set 
of rules that the doctors can follow that is consistent. I mean 
even before you get to the appeals it is $146 million for 
appeals to find out that someone is screwing up?
    Why can you not come up with consistent rules? People in 
Illinois, Kentucky, they have these different rules, different 
values. Can you not get these 49 contractors together?
    We dealt with one who is a tyrant. Wisconsin's Physicians 
Services, and I talked to the President. This great 
organization.
    When Mike Hulsebus faxed me the appeal and I asked the 
President--What is his name? I want to get it into the record.
    Mr. Scully. I completely forgot. I apologize. I will get 
the name for the record.
    Chairman Manzullo. Do you recall his name that was on the 
letter? Wisconsin's Physicians Service sent the notice of 
appeal. It was signed by the President or Vice President, and I 
called him and I said did you read the Administrative Law 
Judge's order? He said no. I said who authorized the appeal? I 
said I did.
    Maybe you can start with something real simple that you 
have at least some orderly rules.
    Maybe we ought to get Chairman Rosotti, Commissioner 
Rosotti from the IRS, who has worked marvelously with that 
organization. I have worked with him on three huge, monstrous 
issues. He has been in my office a half a dozen times. He has 
cleared them up very easily because he believes in consistency 
of rules.
    What these providers are asking for is something very 
simple. Just be consistent in what you are asking for. That 
does not take one dime. And to come here with 4,800 employees 
and to tell this Committee that you need more resources, which 
is more money, in order to conduct an appeal because you do not 
have consistent rules--Am I missing something?
    Mr. Scully. I do not think I said that.
    Chairman Manzullo. You did not say you need more money?
    Mr. Scully. We do not do the appeals. The Social Security 
Administration does the appeals, largely.
    Chairman Manzullo. I am talking about WPS. Before it got to 
the point----
    Mr. Scully. I would argue with you, and I do not think 
there is any question about it, that most of these insurance 
companies, and WPS is a little different, most of them are Blue 
Cross plans. WPS clearly has a significant problem in your 
case. Most of these are Blue Cross plans. They----
    Chairman Manzullo. Then why do you not get rid of them?
    Mr. Scully [continuing]. The level of funding--I cannot, 
number one. First of all, on the physician side I can, the 
hospital side I cannot. The hospitals get to pick their 
contractor. That is part of contract reform. I have no control 
over that. That is why I am trying to get 49 down to----
    Chairman Manzullo. The hospitals get to pick theirs?
    Mr. Scully. The hospitals get to pick their own.
    Chairman Manzullo. And you used to work for the Hospital 
Association.
    Mr. Scully. I did, yes.
    Chairman Manzullo. All right, then why cannot the providers 
pick their own?
    Mr. Scully. Statutorily. The hospitals are allowed to pick 
their own, the doctors are not.
    Chairman Manzullo. But under the statute the hospitals are 
allowed to pick their own.
    Mr. Scully. I am trying to change that, yes. And I am 
trying to get the contractors consolidated down from 49 to 20 
so I can find the 20 best to work with and come up with more 
consistency.
    Chairman Manzullo. What I am asking you is the fact that 
Dr. Hulsebus, this was the internal appeal before it got to the 
formal appeal, is that right, Michael? It was the internal 
appeal. The guy at WPS who was the President or the Vice 
President, I cannot think of his name. Ned Boston.
    Mr. Scully. That is right, yes.
    Chairman Manzullo. I believe he is the one I talked to on 
the phone and I said this is extremely significant. I said 
first they started out with a $250,000 fine; and then because I 
got involved and started raising hell it went down to zero and 
I take credit for that. Because the only way that we get 
anything done is through threat of hearings, through Members of 
Congress intervening on behalf of little bitty people like 
these providers here, to get in there and rattling the cages, 
otherwise nothing gets done, including they do not even answer 
letters.
    Mr. Scully. Congressmen, to them I can tell you that the 
total contractor budget is roughly $1.2 billion to run a $260 
billion program. I used to be on the board of one of the 
biggest insurance companies in the country and nobody runs an 
insurance company on that kind of budget. It cannot be done 
effectively.
    Chairman Manzullo. That is a matter of fairness. The guy 
who authorized the appeal did not read the judgment of the 
appellate law judge. That is incompetence.
    Mr. Scully. Well, you----
    Chairman Manzullo. And you are contracted with them.
    Mr. Scully. I am trying to defend the contractors. I think 
the contractor system is screwed up. I do not think they are 
funded enough to do an appropriate job. And when you have----
    Chairman Manzullo. It is not a matter of funding. These are 
decisions that have nothing to do with money. How much time was 
he wasting on the appeal? $1500 after we fought for two years 
to get it down from $250,000 and he is the President of this 
organization. He is wasting all of that money and all that time 
and all the king's horses on $1500 to continue to harass Dr. 
Hulsebus.
    Mr. Scully. I agree, and that case was clearly mishandled. 
But I think the problem is systemic.
    Chairman Manzullo. But it is continuous. Ask the providers 
here. It goes on nationwide, that is why they are here.
    Mr. Scully. I have been very involved in this issue as a 
provider for years and I agree with you. But I am saying the 
reality is you cannot take care of 40 million people with 900 
million claims a year and process it effectively and answer 
their calls and not----
    Chairman Manzullo. Let me suggest----
    Mr. Scully [continuing]. Make 80 percent of the answers. 
The system is screwed up.
    Chairman Manzullo. But it is your job to straighten it out.
    Mr. Scully. I am doing the best I can.
    Chairman Manzullo. Okay. But let me give a suggestion. This 
is really really simple, okay? I have practiced law for 20-some 
years and we have books, we have the Federal Rules of Evidence, 
the Illinois Civil Code, it has some very, very basic rules 
that say this is what is expected of you. It is very simple.
    Mr. Scully. Part of our 110,000 pages of regulations are 
pretty clear guidance to these 49 carriers. The problem we get 
into and the reason we leave regional flexibility, 25 percent 
of our coverage decisions are made nationally, and I can give 
you hundreds of examples. Every time I get us to make a 
national coverage decision or a national policy people scream 
you need more flexibility. Seattle operates different than 
Rockford and San Antonio is different than Philadelphia. So no 
matter what you do it is a catch-22.
    If you make a national coverage decision about how to cover 
one physician payment whether it is a gastroenterologist or an 
anesthesiologist, people who do not like it come in and say you 
guys are bureaucrats in Baltimore and----
    Chairman Manzullo. That is because it got set up that way 
in the first place. That is not a matter of federalism, that is 
a matter of 49 different pieces of the worm being chopped up.
    Mr. Scully. We would agree. I mean philosophically our 
approach would be that we would rather have, my guess would be 
the anesthesiologists probably do not like the private 
insurance companies but they probably have a more rational 
relationship. We would rather buy private insurance for 
seniors. But in the system we are, we have to----
    Chairman Manzullo. No, what I am saying is this. As the 
Administrator of HCFA you have the authority to issue a simple 
letter to every one of your 49 health care providers and saying 
these are the simple rules of an internal health care appeal.
    When I took a look at Dr. Hulsebus', one of those that it 
did not mention is this. It was well, you can pay your $256,000 
immediately. That is great. I said where is your checkbook?
    The second one was, you can request a meeting with somebody 
from HCFA. Well, that is exciting. You did not know if it was a 
person with authority or who it was. Maybe the same person that 
did the audit on it. Then you could have 30 days to have that 
meeting.
    The third one was well, you can do a separate, informal 
appeal, but oh by the way, it is 13 percent interest on the 
$256,000 if you proceed to go to the appeal.
    I mean there are some things in there, some very basic 
fundamental rules of fairness that you are in a position as the 
Director of CMS, of HCFA, as the Director, to put out some very 
basic guidelines, just a matter of fairness to these providers.
    Mr. Scully. I agree totally, and I am trying to do that.
    Chairman Manzullo. Nothing has happened.
    Mr. Scully. I would be happy to come and give you more of 
the things we are trying to do to change it. But my point 
separately is if you take Blue Cross of, I do not know if it is 
Anthem that does Northern Illinois. But if you took somebody, 
an anesthesiologist in their hospital and looked at the 
administrative costs of the private sector Blue Cross plan for 
a private insurer in that area, it is 11 percent on average, 11 
or 12 percent. That is the standard administrative loss ratio 
to run a good insurance program.
    The administrative loss ratio in the Medicare program is 
about three-tenths of one percent. All I am saying is if you 
want good service, you want rational appeals, you want it to be 
run like a private insurance company, it is not structured to 
be run that way. It is a very bureaucratic, slow moving monster 
that is funded to be inefficient.
    Chairman Manzullo. You are in charge of cleaning this thing 
up.
    Mr. Scully. I am trying very hard.
    Chairman Manzullo. I noticed that you have no interest at 
all in my suggestions.
    Mr. Scully. I will try, and I am happy to work with you.
    Chairman Manzullo. Maybe Dr. Hulsebus, maybe something like 
this. How about you are innocent until proven guilty? 
[Laughter] Is it not time that medical providers get the same 
rights as criminals in this country? [Laughter]
    Mr. Scully. Mr. Chairman, I totally agree with you, and I 
am trying to find that balance. But I can tell you----
    Chairman Manzullo. No, it is not a balance. This is not a 
balance. This is a matter of fairness.
    Mr. Scully. I agree. Then I have Chairman Grassley in the 
Senate Finance Committee, not chairman any more, Ranking 
Member, and Senator Harkin, every bit as aggressively telling 
us we are not tough enough on fraud and that we ought to be 
going more after providers.
    Chairman Manzullo. You mean the fraud committed by HCFA?
    Mr. Scully. Committed by providers. That is their argument. 
I am just telling you----
    Chairman Manzullo. The number of people out there with all 
these audits, how many people do you have from CMS that are out 
roaming the country doing these audits? Do you have any idea?
    Mr. Scully. CMS that do audits?
    Chairman Manzullo. Yeah the ones that went to----
    Mr. Scully. The people that do audits generally are 
employees of the contractors.
    Chairman Manzullo. No, who did the audit----
    Mr. Evans. CMS.
    Chairman Manzullo. CMS employees did the audits personally.
    Mr. Evans. Correct.
    Mr. Scully. There are very few if any that actually work 
for CMS that do audits.
    Chairman Manzullo. How many showed up in Mr. Cavalier's 
office that day? Is Mr. Cavalier here?
    Mr. Evans. He is here.
    Chairman Manzullo. Would you come up to the table, Mr. 
Cavalier?
    Mr. Evans. It is John Cavalier.
    Chairman Manzullo. Could you please state your name and 
spell it for the record?
    Mr. Cavalier. John Cavalier, C-A-V-A-L-I-E-R.
    Chairman Manzullo. Tell us your background and your 
position, and tell us what happened.
    Mr. Cavalier. First of all, I am President of the National 
Association of Portable X-Ray Providers. I own Cavalier Mobile 
X-Ray in Youngstown, Ohio.
    Our carrier is Nationwide Insurance out of Columbus. Back 
in December they did send us a letter asking for 40 
requisitions on patients, and what they asked for through 
Nationwide, they asked for reason for the X-Ray, they checked 
the type of views we did consistent with the CPT codes that we 
bill for, and for that audit they told us that we billed a very 
high level of certain procedure codes and that is what caused 
the audit to happen.
    In our area, we are a fairly medium sized company, so they 
were looking at certain codes that were billed and it looked 
like it was a 710 code which is a chest X-Ray, and our company 
does do many chest X-Rays so they came in and they did check 
for why we did so many.
    Chairman Manzullo. This was Nationwide?
    Mr. Cavalier. This was Nationwide.
    Chairman Manzullo. When did that occur?
    Mr. Cavalier. That occurred in December.
    Chairman Manzullo. December of 2001?
    Mr. Cavalier. Yes.
    Chairman Manzullo. Go ahead.
    Mr. Cavalier. What they found was nothing. They found that 
we were within regulations, why we did so many, and the 
transportation charge, they also looked at that. The R Code, 
why there were so many single visits. So the R Code was broke 
down. What the R Code does is that when you have a 
transportation rate if we go to a facility and do more than one 
patient we have to break down that R Code. Medicare allows one 
transportation code for each visit that we make to a facility. 
So if we go into a facility and do eight patients, that is 
divided by eight, so that amount of money is divided by eight. 
So they do watch the transportation codes.
    Chairman Manzullo. Did you feel that the audit was done 
fairly?
    Mr. Cavalier. That audit I thought it was.
    Chairman Manzullo. Did you feel it was justified because of 
the high number of that particular code?
    Mr. Cavalier. No, because you know what? Being in business, 
we have been in business 12 years now. I know the background of 
our company. I know what is ordered. I think CMS, when they 
look at some things like that, certain codes that are done, you 
will find if they did data on mobile X-Ray companies they are 
probably going to find that the Code 71010 is the most used 
code in the country because it is a chest X-Ray. That is the 
most common X-Ray that is ordered.
    Chairman Manzullo. So they said you were being audited 
because you did the most used----
    Mr. Cavalier. Code in our area, in the State of Ohio.
    Chairman Manzullo. When did the second audit occur? The 
snap audit?
    Mr. Cavalier. The second audit occurred March 5th.
    Chairman Manzullo. Of 2002.
    Mr. Cavalier. Of 2002. I was here for our National 
Association convention, first of all. That was one of the 
reasons I was here, plus for the hearing that was taking place 
here in Washington. My wife usually does travel with me, she is 
an X-Ray tech, she is part owner of the company. She happened 
to stay back this trip. And on that morning I got paged here 
when I was in Washington that we were going through an 
inspection from CMS. I said what are you talking about, we are 
going through an inspection? We just went through an audit. She 
goes well, CMS called and said they would be at the office 
within ten minutes.
    Ten minutes later they came through our front door.
    Chairman Manzullo. How many people?
    Mr. Cavalier. One person came in. One person. She was there 
six hours. She looked at all our records. She looked from 
employees to registration of radiation sources, looked at 
education on employees, she asked us to pull ten Medicare 
folders at a time of patients that were done at random, and in 
the past, I know what they look for. What they look for is 
fraud on views.
    Chairman Manzullo. Fraud on?
    Mr. Cavalier. On views of X-Rays. Like if I would do a 
wrist X-Ray and I bill CMS for three views and it happens in 
that film jacket there are only two views, I just committed 
fraud because I billed them for three views instead of two. 
That is what a lot of audits look at. They look at type of X-
Rays done and what type of views are done because if you say 
you did four X-Rays or four exams on that patient you better 
have four exams in that X-Ray jacket.
    Chairman Manzullo. What happened as a result of the audit?
    Mr. Cavalier. Well the audit, they found nothing. The first 
audit, though, to get back to the first audit, I am a little 
confused on little things. There is a thing called place of 
service when we do--We have to explain where our place of 
service is which is a nursing home or a private home. In that 
place of service, that is where a lot of data could come from. 
That is where I think CMS could really find a lot of data that 
where the X-Ray was done. Was it done in a private home. What I 
mean by private home is a residence of a patient. We have the 
capability of going right into a home patient, right inside 
their house. Or is it done in a nursing home.
    One of my techs did mess up on one of our requisitions, and 
what he did is, there is a question on the requisition that 
Medicare asks us to answer, is why was the patient done 
portable. And we put that the patient is either home confined 
or nursing home confined. That is why the X-Ray is done 
portable.
    So one of my people, instead of putting nursing home 
confined they put home confined, but in fact it was done in a 
nursing home and they caught it. They caught it real quick.
    They said well, Mr. Cavalier, out of the 40 slips that you 
sent in we found out you put home confined when you really did 
the patient in a nursing home. They did their job because we 
should have had nursing home.
    But the place of services is very important in our industry 
and I think this is a little bit going over the question that 
you asked me, but place of service is the most important I 
think question that could be asked from CMS to give data on our 
services.
    Chairman Manzullo. Is that asked?
    Mr. Cavalier. It is asked by us. We have to put that down 
where we do a patient. But that can keep great numbers on what 
is done, where it is done. I think physicians like getting on 
to the EKG level, on the physicians, if an EKG was done by a 
physician in a skilled nursing facility or if it was done in a 
home patient, they do not have to place of service. So really 
there is no data keeping.
    So when the EKG issue came up years ago I believe there was 
really no data there.
    Chairman Manzullo. We will get into that. I have some other 
questions on data but I want to get to Congressman Ferguson 
then I can come back.
    Mr. Ferguson. Thank you, Mr. Chairman. I appreciate your 
holding this hearing and for your leadership and your energy 
with pursuing this because clearly the treatment of small 
businesses by CMS and other agencies is crucial not only to 
making sure that they have the ability to provide the services 
that they provide, but also to help ensure the solvency and the 
success of those who work so hard in our small businesses. So I 
am delighted that you held this hearing. I am familiar with Mr. 
Evans' testimony and appreciate your being here.
    A gentleman from New Jersey, where I am from, Norman 
Goldhecht, who I am sure many of you know Norman, he has not 
testified today but he has done so in front of this Committee 
frequently in the past. Unfortunately Mr. Goldhecht, because of 
some of the burdensome regulations that he had had to deal with 
as a portable X-Ray business owner, forced him to sell his 
business. So although he is still active with the association 
he is no longer an owner of his business, unfortunately. That 
simply speaks not only to some of the problems that we see with 
CMS and with other regulations that these folks are forced to 
deal with sometimes, but also with the urgency of this issue 
and how it affects real people and real lives in a very direct 
way.
    So I want to again thank the Chairman for your pursuit of 
this and for your energy in wanting to work with Mr. Scully and 
CMS to see how we can make this more efficient and to enable 
CMS, frankly, to do their job and to do it in an increasingly 
efficient way, an increasingly effective way, that does not 
lead to harassment or forcing folks out of business but does 
protect the taxpayer dollar, but does it in a way that allows 
small business people and others who work so hard to provide 
these services and to run their businesses and provide for 
their families, give them an opportunity to succeed and grow 
and to prosper.
    I want to change gears just for a second to talk about 
prescription drugs for a second. Prescription drugs is a big 
issue that we are dealing with in the Congress right now and 
something that we are working very very hard on as we look at 
reforming our Medicare program to include a prescription drug 
benefit.
    In my State of New Jersey we have been a leader in 
providing prescription drug benefits to our seniors in New 
Jersey. In fact we were I believe the first state, and we 
still, we remain as the most generous state in terms of 
providing prescription drug benefits for seniors in our state. 
In fact 20 percent of the seniors in this country who are 
covered by a state program are covered in my State of New 
Jersey. Twenty percent. That is an extraordinary figure.
    Like a lot of other states, our state in New Jersey is 
dealing with some budget crises right now. We are working on 
dealing with the effects of a recession, the effects of debt 
and spending and whatever else.
    As we look in New Jersey at ways of being able to still 
provide these types of benefits, a whole host of different 
benefits including our prescription drug benefit, to folks in 
our state with our serious budget situation, our state has 
applied for a waiver from CMS and has yet to hear back, and I 
know CMS has granted waivers to other states that are newer to 
the prescription drug coverage issue than New Jersey is. They 
provide less generous benefits than New Jersey's program does. 
New Jersey is really the leader as far as state programs in 
this. We have not heard back from CMS and we sent a letter, I 
know I led our delegation and sent a letter and our delegation 
has 13 members of congress and two senators. There is not a lot 
that we all agree on. We are seven Democrats in the House, six 
Republicans in the House, two Democrat senators. We are a 
diverse group of people from all walks of life and when you 
think about New Jersey and its diversity, and the amazing 
differences between folks in New Jersey, this is something 
which unites us and something that we all agree on is the 
urgency and the need for the waiver from CMS for our state, I 
do not know if you are familiar with this letter. We sent a 
letter to you three weeks ago which has the signature of every 
member of our delegation on it laying out the case for New 
Jersey to receive a waiver from CMS. We have not heard anything 
back yet. I know our office faxed a copy to your office 
yesterday in fact. Can you give me an update?
    Mr. Scully. I will get back to you. I have not seen it. I 
know that New Jersey has a waiver in, I think there has been 
some back and forth with New Jersey and the staff. We have been 
inclined to give waivers, especially for drugs if they work out 
financially. As you know, the number one issue for us is budget 
neutrality. We cannot spend more money, we have to find more 
ways to do it creatively.
    Mr. Ferguson. Sure.
    Mr. Scully. In Illinois, we gave Illinois a waiver to cover 
368,000 seniors two months ago so every senior in the State of 
Illinois up to 200 percent of poverty will now have drug 
coverage. We are happy to do that if we can work it under the 
law. And if we can work it out in New Jersey in a way that we 
can get through the budget neutrality rules, I am sure we will 
try to approve it.
    Mr. Ferguson. Sure. I know my time is up, Mr. Chairman, if 
I could ask your generosity for a moment.
    Our program was installed in New Jersey in 1975. Since then 
we have spent over $4 billion on prescription drug coverage for 
seniors in our state without a dime of federal matching funds, 
without a dime.
    I know the issue of budget neutrality is a serious one, but 
if we are not able to have this waiver there is no question 
that New Jersey will be forced to cut back on the prescription 
drug benefit that we currently give and provide to our seniors 
which is going to end up in I think huge new costs for 
institutionalized care, for hospitalized care, which is going 
to end up coming from a federal dollar and not from the very 
generous benefits that we are providing on the state level 
right now. So I think, and in our letter when you have a chance 
to read our letter we lay out I think a very strong case for 
meeting the budget neutrality criterion.
    The second, I know, contingency for the waiver is the 
maintenance of effort requirement. We also lay out an argument 
on that. I would be happy to give you a copy of this----
    Mr. Scully. I would be happy to come and meet with you but 
I have not seen the letter. I apologize. But I will look at it 
and call you back.
    Mr. Ferguson. This letter is dated April 25, I understand 
you have a lot of letters to read. This letter is dated April 
25, it is three weeks ago, and I know we faxed a copy to your 
office yesterday, to your staff who we were talking to in 
preparation for this hearing.
    So if I could ask you please to simply expedite your 
reading of this letter, number one--
    Mr. Scully. I will read it and call you back.
    Mr. Ferguson. I really look forward to working with you on 
this. This is a crucial health care issue in our state, it is a 
crucial budgetary issue in our state, it is something which has 
united our delegation which does not happen often, and it is 
something that is very very important not only for the health 
care of New Jersey seniors, but frankly, to the federal 
taxpayer, because if this does not happen we are going to 
explode costs on the other end. So I appreciate your 
willingness to take a look at this.
    Mr. Scully. I hope we can work it out. I think we did some 
very creative stuff in Illinois based on some unusual 
flexibility, and I was surprised OMB actually looked at it as 
creatively as they did. But if we can work it out obviously we 
would be happy to. We are trying to give states the flexibility 
to cover drugs.
    Mr. Ferguson. Thank you. And as I said, there have been 
states that have received waivers that provide a less generous 
benefit and who have not been in this, who have been doing this 
on a state level nearly as long or nearly as generously as New 
Jersey has. This is a crucial issue for us. I appreciate your 
willingness to work with us on it.
    Thanks.
    Chairman Manzullo. Thank you. I have got a couple of 
questions.
    We sent you a letter, Mr. Scully, and then you responded 
timely. It is your letter dated May 13th. Do you want to put it 
in front of you there? Your letter to me dated May 13th.
    On page one at the bottom you state, it is the third line 
from the bottom, Mr. Scully, ``We use interim rules with 
comment only when justified by particular circumstances such as 
the need to implement a change in law quickly, and even in 
these cases we include appropriate impact analyses.''
    Then on page three the first full paragraph, let me start 
it there. ``I would also note several points in RFA. Over 100 
of our staff spent 600 combined hours.'' That is a total of six 
hours apiece. ``--being educated on their statutory 
responsibilities under RFA.''
    I think they need to go back to school. I think six hours 
is totally inadequate. That is the only buffer that small 
businesses have, and Mr. Sullivan would be glad to go to 
Baltimore to conduct a school on how to comply with the RFA.
    I guess I volunteered your services, Mr. Sullivan, but----
    Mr. Sullivan. Actually, Mr. Chairman, in a meeting with Mr. 
Scully's deputy last week we talked about this very issue of 
going back up to Baltimore because that is in fact where this 
training that Mr. Scully talks about occurred a few years ago. 
We are happy to go back up there and in fact under the 
President's plan to improve agency responsiveness to small 
business, that is a commitment that we have already made in a 
memorandum of understanding with Dr. John Graham over at OIRA 
in OMB.
    So we are happy to do that and that commitment actually has 
already been made with Mr. Scully's deputy.
    Chairman Manzullo. I do not see that winding its way 
through into this letter. Let me complete it here. It says, 
``We are very focused on RFA and believe our regulations meet 
the requirements of the RFA,'' which they do not. ``We do not 
believe,'' and here is the key statement. ``We do not believe 
the RFA requires us to do an analysis of issues on which the 
federal government has no industry data and where obtaining 
data would be burdensome for small businesses.''
    Who makes the determination as to whether or not obtaining 
the data would be burdensome? You or the small businesses?
    Mr. Scully. Under this analysis I believe it is the HHS 
General Counsel, but we try to be sensitive to the burden for 
small business.
    Chairman Manzullo. Let me tell you where you are not 
sensitive. Mr. Evans, would you tell him what happened when you 
submitted data HCFA about portable X-Ray providers?
    Mr. Evans. Sure.
    Several years ago there was a CPEP panel that--That stands 
for Clinical Practice Expense Panel in which a couple of our 
members sat on, were invited to sit on. It was a panel put 
together by CMS. It was CMS' panel. They spent long hours, in 
fact I believe it was two full days in this panel, testified 
twice. The panel unanimously voted in favor of the information 
that we brought forward as far as costs are concerned.
    You requested yourself that they provide this data and 
obviously it does not exist any more. They must have thrown it 
away.
    Chairman Manzullo. How old is the data?
    Mr. Evans. I believe it was 1995, I am not sure on it. But 
as I sit here----
    Chairman Manzullo. Would those figures still be good today?
    Mr. Evans. No, they would not, obviously, because a lot of 
things have changed since 1995, but we did turn in data since 
then.
    Chairman Manzullo. What happened when you turned in the 
data on home X-Ray? What was HCFA's response to that?
    Mr. Evans. We never received a response. In fact Mr. Scully 
wants to sit here today and tell this Committee that we 
received a 5.4 percent decrease in our funding, and that is 
flat not true.
    Mr. Scully. I said it was 11 percent.
    Mr. Evans. Even at 11 percent, it does not take into 
consideration all of the components. It does not take into 
consideration what the Balanced Budget Act of 1997 did to the 
portable X-Ray provider as far as PPS is concerned and the 
discounts that we had to take by CMS' hand. It does not take 
into consideration that as you stated earlier, Chairman, that 
physicians are leaving and not taking Medicare patients.
    Well, let me tell you something. Radiologists do not have 
to take Medicare patients except for the ones that are in their 
hospital. Therefore they walked out and we have that new burden 
to deal with too.
    Chairman Manzullo. My question here was again, to the 
portable X-Ray, let me tell you why we have made this an issue.
    My mother was in an assisted living center. She had a leg 
amputated. I was there one day when a portable X-Ray fellow 
came in the room and I said mom, what's going on? She said 
well, the doctor called and I might have a touch of pneumonia 
and she had called the doctor. Within a very short period of 
time the portable X-Ray man was there, took the picture, and as 
it turned out she was fine. I stopped by and saw mom, she said 
I had to have an X-Ray and I went to the hospital. She said 
what do you mean you had to go to the hospital? She said well 
the guy came along with this truck, it was not an ambulance, it 
was a special vehicle that had a lift on it. She did not have 
to lay down on a stretcher. I said what happened? She said we 
went to the hospital and had the X-Ray taken.
    I was sitting there thinking, my brother was the one that 
handles the bills. Instead of getting just one bill, these X-
Rays are ordered by physicians. They are not optional. They are 
not the types of things that the patients say they want. They 
are all ordered by physicians. So HCFA had to pay for the 
ambulance. I think one exhibit up there showed just a transport 
ambulance cost was $168.
    Mr. Evans. One way. They obviously have to get back.
    Mr. Scully. Can I ask you a question? What year was this?
    Chairman Manzullo. Mom died two years ago in April.
    Mr. Scully. So it was 1998 or '99 probably. I will explain 
to you. Was it within 100 days after she left the hospital?
    Chairman Manzullo. No, it had nothing to do with that. She 
was at the nursing home.
    Mr. Scully. So she had not been in the hospital recently.
    Chairman Manzullo. Well, she had been in and out of the, 
you know, seniors are in and out. But what I am saying is the 
fact that that is when the portable X-Ray people had gone out 
of business.
    Mr. Scully. There are a lot of perverse incentives in 
Medicare. What happens, and this is one of the major changes 
that is shaking up this industry, in 1997 Congress passed 
Prospective Payment for Nursing Homes. So the nursing homes now 
get prospective payment and if the nursing home wants to do an 
EKG within 100 days after discharge from the hospital, it used 
to be they just billed it to Medicare. Now they get one cap 
dated payment, the services in that, and if the nursing home 
wants to do an X-Ray or an EKG they have to pay for it out of 
their set payment. Believe it or not, if they send the patient 
to the hospital that gets paid out of a different pot. That is 
a statutory----
    Chairman Manzullo. It gets paid out of the taxpayers' pot 
to the tune of $2 billion a year.
    Mr. Scully. That is not a HCFA rule, Congressman, that is 
statute.
    Chairman Manzullo. One of the things you can do if you do 
not like the statute is to change the darn thing. But one thing 
you do, Mr. Scully, you can up the rate for home health care, 
home X-Ray provider. You have the authority to raise that. Not 
statutorily, you have to work within the budget guidelines.
    Mr. Scully. Well we do not believe we do, but we are----
    Chairman Manzullo. Let me give it to you. I want to read 
the statute to you. Now I know I do not sit there and change 
7500 different reimbursement rules. HCFA does that. Do you 
disagree with that statement?
    Mr. Scully. Yeah. We definitely have, adjust many 
reimbursement rules but many of them are very strictly 
statutory.
    Chairman Manzullo. But you have the authority to adjust it 
up or down on these categories.
    Mr. Scully. the vast bulk of these are done by the AMA's 
resource utilization----
    Chairman Manzullo [continuing].--The AMA, it is HCFA.
    Mr. Scully. Congressman, in the $66 billion physician pot 
the AMA convenes every doctor group in the country in something 
they call the Resource Value Utilization Committee and they 
make recommendations and 99 percent of the time we take them.
    Chairman Manzullo. Recommendations. Now you listen to the 
AMA but you would not listen to them.
    Mr. Scully. I----
    Chairman Manzullo. No, you did not. Let me stop right here.
    Mr. Evans. They will not give us any representation. We 
asked to be represented. They will not give us representation. 
We give them the data, they will not do anything with that. And 
in fact under the physician's fee schedule which they put us 
under several years ago, all the rest of the physicians are 
excluded from PPS. They do not have to bill it. But we, as one 
individual group, have to bill it.
    I think what is happening to us is the same thing that has 
happened to the chiropractors down there. They do not want us 
around any more.
    Chairman Manzullo. Well they have succeeded, because when 
mom went to the hospital----
    Mr. Scully. Are succeeding.
    Chairman Manzullo. Tell me what you would prefer for your 
mom. Would you prefer, if you had a mom with one leg who was 84 
years old, would you prefer to have a home X-Ray, portable X-
Ray provider come to her in the privacy of her room, take the 
picture, have him take it over to the radiologist, report back 
to the doctor, or would you rather have her carted to a 
hospital in an ambulance or whatever vehicle she had, to go to 
the waiting room, emergency room, to have the picture taken 
there, and to come back several hours later.
    One of the reasons seniors get X-Rays is because of a fear 
of pneumonia. And have her to go out in the rain or whatever, 
regardless of what it is. Would you not prefer----
    Mr. Scully. Clearly better.
    Chairman Manzullo. Then why do you not look at their data? 
You can still do it.
    Mr. Scully. I am happy to look at their data and I have not 
met with this gentleman, but I would be happy to and I have met 
with them extensively.
    Chairman Manzullo. But what you say in the letter here is, 
``We do not believe the RFA requires us to do an analysis of 
issues on which the federal government has no industry data and 
where obtaining data would be burdensome for small businesses.
    Mr. Scully. I was not referring to that specifically. And I 
also in the letter, Congressman, I also think I offered later 
on to try and work with the AMA which does run this group to 
get them on there. I had found out only recently that they did 
not have representation on there. I am happy to work with the 
AMA's groups which do in fact make recommendations to us, but 
the fact is they are almost always followed, to get their 
recommendation on this committee.
    Mr. Evans. But the problem is, Chairman, if they turn 
around, and you are talking about the AMA and we are talking 
about budget neutrality. If those physicians or the AMA says 
give the portable X-Ray people more money, it is less to them.
    Chairman Manzullo. So it does not work.
    Mr. Evans. Not only that, but in a letter to you again----
    Chairman Manzullo. Is that correct?
    Mr. Scully. That is the statutory construct. That is just a 
fact of life, Congressman. We have $66 billion. I have----
    Chairman Manzullo. I have heard those figures. You also 
have 4800 employees, one of whom could take the time to read 
the data and see we are wasting $2 billion a year.
    Mr. Scully. Well, that will just go up.
    Chairman Manzullo. If I were you, Mr. Scully, I would be 
incensed over the fact that here comes a group that shows you 
how to save $2 billion a year----
    Mr. Scully. I will be happy to come back and have a multi-
hour discussion about that data and how it works. I think there 
are clearly some efficiencies that can be had from sending 
portable X-Ray providers to nursing homes, but I am not sure I 
would agree with their total perception of that. But the fact 
is that their major burden right now that they are feeling is 
the reduction, an 11 percent----
    Chairman Manzullo. I understand that, but you also have the 
authority, let me read it to you. Let me tell you what you can 
do.
    It says, ``The numerical value of each procedure consists 
of HCFA's combination of three separate components. A, the time 
that physician spends on a procedure; B, the cost of running a 
business; and C, the cost of malpractice insurance.'' The 
statute provides that ``The Secretary shall develop a 
methodology for combining.'' The Secretary's authority has been 
delegated to you.
    In other words in a contradiction of the claim on your 
letter, HCFA has unlimited discretion in how it combines these 
three components. Congress told HCFA to combine them, not how 
to combine them. That combination is called the relative value 
unit in Section 1848 of the Social Security Act.
    Mr. Scully. I agree. And I could, at my discretion, take 
that $66 billion, which is budget neutral, and divide it up any 
way I chose. Since 1989 when the statute passed, and I was one 
of the people that helped write it, I believe the best way to 
do is we have had the AMA convene every specialty group and 
every device manufacturer----
    Chairman Manzullo. Do you know what the best way to do it 
is?
    Mr. Scully [continuing]. And decide what the right approach 
is. If there was a better way, Chairman, I would be happy to--
--
    Chairman Manzullo. There is a better way to do it. And let 
me tell you how simple this is. Watch how simple this is.
    Tell me which is cheaper, having a portable X-Ray person go 
to the nursing home or home and taking an X-Ray, all right? Or 
taking that senior by ambulance or other specialty vehicle to a 
hospital and paying a hospital charge, an X-Ray charge, 
whatever it is, whatever the hospital charge and the standard 
X-Ray charge, and then having that person wait three or four 
hours, exposing the senior to all kinds of germs and things in 
the waiting room which is what Dr. Weldon said. In addition, he 
even said on sometimes a minor bump, a senior at the nursing 
home instead of calling the ambulance they would just call the 
X-Ray provider.
    Is that not common sense that it is much cheaper?
    Mr. Scully. Congressman, I agree with you. The issue is not 
what we pay for it, the issue is they do not think we pay them 
enough.
    Chairman Manzullo. That is the whole point.
    Mr. Scully [continuing]. Discretion----
    Chairman Manzullo. If you paid them more you would save 
money.
    Mr. Scully. My own view is I do not substitute my view for 
the physicians on this group. We would be happy to have----
    Chairman Manzullo. Well maybe you should because they are 
trying to be on the group and they are excluded.
    Mr. Scully. Every single physician, that $66 billion, 
Congressman, tells me he needs more money, he is underpaid.
    Chairman Manzullo. Mr. Scully, the portable X-Rayers have 
been excluded from the party.
    Mr. Scully. Well, they will not be any longer and I do not 
believe I have excluded them. I have met with them repeatedly.
    Chairman Manzullo. No, no, no. They do not want to meet 
with you, they want to be----What is the group you want to be 
on?
    Mr. Scully. And I volunteered in this letter to put them in 
the group.
    Chairman Manzullo. What is the group?
    Mr. Evans. I believe the PEAC was what we asked for 
initially, and then one was suggested----
    Chairman Manzullo. What is PEAC?
    Mr. Evans. The Practice Expense Advisory Council.
    Chairman Manzullo. The letter from----
    Mr. Evans. Which is the one we asked for.
    Chairman Manzullo. He granted you that request.
    Mr. Evans. No, it was never granted.
    Mr. Scully. There is no such thing as the Practice Expense 
Advisory Committee.
    Mr. Evans. What is the name of it?
    Mr. Scully. What they have asked for, they asked by a 
slightly----
    Mr. Evans. It is the RUC, excuse me. They renamed it. Which 
we will be more than happy to. That is not what he offered us 
in the letter. What he offered us in the letter was to submit 
data. That was it. We have submitted data before, it has always 
been thrown away.
    Chairman Manzullo. Mr. Scully, is there a portion we missed 
in the letter? Please.
    Mr. Scully. I wrote it into the letter myself, I put it in 
the letter that----
    Mr. Evans. It says that we could ask to sit on it, but it 
also states that we could submit data.
    Chairman Manzullo. Do you want to sit on that?
    Mr. Evans. We would be more than happy to sit on it.
    Chairman Manzullo. Can he sit on it? Does he have 
permission to sit on it, Mr. Scully?
    Mr. Scully. I cannot tell the AMA to do it but they usually 
take my recommendation so I will certainly recommend that.
    Chairman Manzullo. Will you recommend that they sit on it?
    Mr. Scully. Yes, I will.
    Mr. Evans. I would like to ask another question that is 
very vital, too.
    Chairman Manzullo. Sure. Mr. Scully is on a roll here. He 
has come here, he has been very patient, he is in the middle on 
it, he is doing a very good job of responding. Go ahead and ask 
your question. That is one of the reasons why we put people 
together.
    Mr. Scully. Actually, Mr. Chairman, I think it is the 
Health Care Professionals Advisory Committee which is on the 
RUC which is the one that makes these recommendations. It is in 
the letter.
    Chairman Manzullo. Is that the one you had reference to?
    Mr. Evans. I believe that is the one that he is 
recommending and that is fine, we would be more than happy to.
    Chairman Manzullo. That is fine.
    Mr. Evans. On March 12th, however, Chairman, Mr. Scully 
wrote a letter to you and I believe on page three, yes, page 
three about halfway down he references again the 5.4 percent 
reduction which is not a 5.4 percent reduction.
    Chairman Manzullo. Right, into your profession.
    Mr. Evans. Entire profession.
    Chairman Manzullo. It is 11 percent----
    Mr. Evans. ``We do not--''.
    Mr. Scully. To clarify, it is also for all radiologists, I 
mean I am not happy about it but it is for all radiology 
services across the country. It is 11 percent.
    Chairman Manzullo. Go ahead, please.
    Mr. Evans. ``However, with our specific codes to our 
industry, the Q and the R code, the Q which is a setup, Q0192, 
and the R code which is a transportation code. It says, and I 
quote, ``We do not require that the carrier-priced services be 
reduced by 5.4 percent because that would have been 
inconsistent with the notion of the carrier setting, the price 
based on their knowledge of the local situation.
    So----
    Chairman Manzullo. Now----
    Mr. Evans. Let me continue.
    Chairman Manzullo. I want----
    Mr. Scully. I want to clarify that because I do not think 
he understands it.
    Chairman Manzullo [continuing]. Know what you are reading 
from.
    Mr. Scully. What I also offered in the letter was, there 
are two components of this.
    Mr. Evans. March 12, 2002.
    Chairman Manzullo. Did you have that, Mr. Scully?
    Mr. Scully. No I do not, but I have the issue and I can 
find the letter.
    Chairman Manzullo. Okay.
    Mr. Scully. The issue here which I think we have offered to 
be helpful to them as well, there are two major components when 
you go to do an X-Ray and I cannot give you the exact numbers, 
but the X-Ray itself is reimbursed at, I cannot remember the 
number, but it varies anywhere from $10 to $30 roughly. But the 
most more important component is transportation which can go 
from $60 to $120.
    Over the years, and this is my understanding, I may be 
wrong, but we offered, in one of my responses, we have left 
carrier pricing which means the 23 original carriers by 
flexibility have tried to come up with the local price that 
they think is right for transportation, whether it is rural or 
urban.
    If the national association wants to come in and work out a 
national rate, they have preferred to have the local 
flexibility in the state in the past and in fact that local 
carrier rate was not reduced. You do not want it to be reduced. 
If it were not a national rate it would be reduced by 5.4 
percent. It is not because we have left that----
    Mr. Evans. That is not true. It was reduced. In fact we 
have a gentleman sitting in the room----
    Chairman Manzullo. Transportation----
    Mr. Evans [continuing]. That talked to his carrier in 
Florida, just got a letter back from them, and they said we are 
not going to restore the 5.4 percent----
    Chairman Manzullo. Oh, so the carrier did not have to cut 
it but they cut it anyway.
    Mr. Evans [continuing]. Because the----
    Mr. Scully. I will----
    Mr. Evans [continuing]. Exactly what he says here, that 
they do not have to cut it and a more important point, if he 
wants to----
    Mr. Evans. Excuse me. Excuse me.
    Chairman Manzullo. Just a second.
    Mr. Evans. The carrier said no, we cannot do that because 
his office said they could not do it.
    Chairman Manzullo. What I think Mr. Scully--Go ahead, Mr. 
Scully.
    Mr. Scully. What I have offered to do if you would like to 
come and talk to us, is to sit down. If they want to have a 
national rate for transportation based on geographical 
variances, I am sure we would be happy to work that out with 
them. In the past they have wanted the regional variation. If 
they have changed their mind, we will be happy to talk to them 
about it.
    Chairman Manzullo. The second point is that if this carrier 
is reducing the transportation component based upon the 5.6 
percent, then that carrier has acted improperly.
    Mr. Scully. I may be mistaken. I will check. Maybe they 
have to----
    Chairman Manzullo. You think that----
    Mr. Scully. I may have misspoken, I will check.
    Chairman Manzullo. Okay. That is fair enough.
    Did that answer your inquiry?
    Mr. Evans. It answers my question and I guess the situation 
is, we are forced now to sit down. However in 1999 they came 
out with a rate, a national transportation rate, which they 
must have had cost data for, which they also say that you 
cannot have an RVU unless you have cost data. They came out 
with the cost data for the R Code. They already have the Q Code 
under an RVU without cost data.
    So we would be more than happy to sit down and work with 
them in a friendly manner.
    Chairman Manzullo. Okay.
    Mr. Evans. But they cannot turn around and put in well--I 
am not--he cannot turn around and--either have it or you don't 
have it and they will not work with us.
    Chairman Manzullo. I understand this.
    Mr. Scully. Well, there is a reason why some of the data is 
not what it was pre-1997. And we would be happy to talk about 
it. Before 1997 every one of these services were reimbursed on 
cost. After 1997 a huge number of these services went under the 
Protective Payments for Skilled Nursing Facilities. The 
database changed. If there is better data, newer data, we would 
be happy to talk to them.
    I apologize if I have missed some providers, but I can tell 
you, I think if you talk to most provider groups, I have sat 
down with the vast bulk of them to talk about every range of 
issues in the agency, and if we cannot fix it I will tell them, 
but I have tried to work lots of them.
    Mr. Evans. I would have to ask you, Chairman, that we could 
have an assurance that it would be wrapped up quickly, that we 
would talk and there would be some decision within an amount of 
time.
    Chairman Manzullo. What decision do you want?
    Mr. Evans. If we could wrap this up in 90 days I would be 
happy.
    Chairman Manzullo. What exactly do you want wrapped up? 
Tell me what you want and we will see if Mr. Scully can comply 
with it.
    Mr. Evans. I would like to have meetings in which we 
discuss going to a national transportation rate. I would like 
to have meetings in which we discuss their Q Code which is 
particular to our industry, and have solutions ready to go in 
place within 90 days that would be retroactive back to January 
1 of this year.
    Mr. Scully. That cannot be done.
    Mr. Evans. That is when it started.
    Chairman Manzullo. I do not know if you can make it 
retroactive, but Mr. Scully----
    Mr. Evans. If we do not start doing something within 90 
days you can kiss the industry goodbye. It is that easy.
    Chairman Manzullo. You will be broke.
    Mr. Evans. Exactly.
    Chairman Manzullo. Mr. Scully, the things that he is asking 
for, can those be done by way of regulation?
    Mr. Scully. The change to the national, the variation 
between having the transportation being regionally varying and 
national can be changed and we have offered in the letter I 
think to sit down if that is what they would like to do, and I 
would be happy, I do not know who the best person is but I will 
probably Tim Triss who is one of my senior staff, probably is 
the best person and I will hook him up with them and we are 
happy to work with it.
    All right, Mr. Scully.
    Anything else with the X-Ray providers?
    Mr. Evans. Excuse me just a moment.
    Chairman Manzullo. Okay.
    Mr. Evans. We do have the situation where the physicians, 
were treated as physicians and paid under the physicians fee 
schedule, however, we are still stuck in PPS. It is like they 
want their cake and they want to eat it too. It is a problem. 
It is something we have to resolve.
    I do not have a problem taking this to this meeting, but I 
would like to have some reassurance that they can fix the 
problem.
    Chairman Manzullo. Can that be fixed by regulation or does 
it take a statutory?
    Mr. Scully [continuing]. Paying for nursing homes as it is. 
Once you are out of the hospital, 100 days out of the hospital 
as a senior, everything is under the Nursing Home Prospective 
Payment. I understand that is different than pre-'97, but that 
is the statutory issue.
    Mr. Evans. But I do not understand because the physicians 
are exempt. We were even exempt at one point.
    Mr. Scully [continuing]. Statute.
    Mr. Evans. On----
    Chairman Manzullo. Did you hear what he said?
    Mr. Scully. Physicians are exempt by statute, services are 
not. It is just a fact of the statute. I will be happy to look 
into it further and sit down and explain it to you, but when we 
went to the skilled nursing facility PPS in 1997 which was 
extremely unpopular with lots of people, it capitated the 
payments for everybody but doctors.
    Mr. Evans. If it is statutorily----
    Chairman Manzullo. Blame me, not him.
    Mr. Evans. Exactly. [Laughter]
    Chairman Manzullo. We are trying to find out who is 
responsible for what around here. This is a great discussion.
    Dr. Hulsebus, let me conclude with you. When you testified 
earlier you said that after this incredible ordeal, you guys 
could write a book on it. This is the second time you have been 
to Washington to testify about it. But you said things had not 
changed much in the last year or so. What has been going on 
with Wisconsin Physicians Service? They got royally scolded by 
Mr. Scully, I understand. What has happened? Anything different 
in how they are treating you?
    Dr. Michael Hulsebus. Basically our treatment is about the 
same. Right now what I do is I take all my claims from the 
Judge, the ALJ and he reviews them and says everything is okay, 
go ahead and pay it, but it has to go through, approximately a 
year process for each one of these claims.
    Chairman Manzullo. Just a second.
    Mr. Scully, that is done through Social Security what he is 
talking about? ALJ?
    Mr. Scully. That is a shockingly complex--What happens is 
if you go to Wisconsin Physicians Services they deny your claim 
and have the fight they have had and you appeal it. Then you go 
to an ALJ who works with the Social Security Administration. 
The appeal is to the ALJ who works for Social Security. The 
first round is to the carrier which is Wisconsin Physicians 
Services.
    Chairman Manzullo. All right.
    Dr. Michael Hulsebus. And I guess, Mr. Manzullo, I get 
comments from all over the chiropractic profession regarding 
these horror stories I am telling you about. I think the 
biggest problem we have is we do not have any input with Health 
Care Finance Administration, CMS, as to chiropractic. We need 
to have chiropractic, we need to have a voice for chiropractic 
regarding Medicare.
    It is my opinion, being on the Board of the International 
Chiropractic Association that there is no input from our 
association, that we have no contact to work with anybody on 
those higher levels.
    Chairman Manzullo. At HCFA?
    Dr. Michael Hulsebus. HCFA, yes. CMS. And I would ask if 
you could----
    Chairman Manzullo. Go ahead and ask Mr. Scully.
    Mr. Scully. I will give you two people. One is Barbara Paul 
who ran the Physician Resource Group that just, is now our Head 
of Quality. But Barbara Paul and Phil Rogers who I mentioned, I 
guess I announced hiring who, maybe prematurely, but he is the 
new Chief quality person and he is a physician who ran the 
emergency room at Alexandria Hospital for years. They are both 
physicians, they are both I know very involved and know a lot 
because I have talked to them about chiropractic issues, and 
they both know a lot about it. I think both of them would be 
happy to talk to you and I will tell them to talk to you.
    Dr. Michael Hulsebus. The Executive Director is here from 
the International Chiropractic Association. He has written 
several letters to your office to please let us have a voice, 
please let us have an input regarding the chiropractors' 
industry. We never get a response, we never get anything back. 
It is like we do not exist. The only time we exist is when we 
have problems like this.
    I would like to open a dialogue to----
    Mr. Scully. I will be happy to. I will tell you, because I 
am not trying to make excuses, I am trying to fix it. When I 
have people that send me letters, and I apologize, the 
Congressman obviously sent one last week I have not seen. A lot 
of them, I see them not directly, sometimes I do not see them 
at all. But I do in fact answer a couple of hundred e-mails a 
day and some at night, and I will give you my e-mail address 
and if you have problems I strongly urge you to send me an e-
mail or call me and I will try to get into it.
    Dr. Michael Hulsebus. Is there something the chiropractic 
industry can do to make it better?
    Mr. Scully. I think I will just have you sit down and talk 
to Barbara Paul and Phil Rogers who are my two chief physicians 
on my staff and talk to them about trying to find ways to be 
more sensitive to chiropractic issues.
    Chairman Manzullo. Dr. Hulsebus, is it a matter of the 
reimbursement rates? You are able to live with that?
    Dr. Michael Hulsebus. Oh, I think----
    Chairman Manzullo. I know you would like to have a higher 
rate, but for the----
    Dr. Michael Hulsebus [continuing]. Talk about but it is not 
just reimbursement. It is guidelines, there are different 
guidelines throughout the nation. The chiropractors all over 
the nation say they do not understand what is going on. Some 
people get this many visits, some people get this many. Nobody 
understands how it is worked at all. We would just like to have 
some clarity.
    Chairman Manzullo. Mr. Scully, is there anybody in CMS that 
is assigned the task of dealing with chiropractors? I know you 
have MDs, in fact we talked to one of the ladies in your office 
that came to our office and visited. On staff, I know you have 
some MDs.
    Mr. Scully. I do not think we have any in Baltimore. I 
think we have chiropractors in at least one of the regions. I 
will have to check. But we do not have anybody that 
specifically does chiropractic. We also----
    Chairman Manzullo. You cannot have one for each discipline, 
I understand.
    Mr. Scully. In some that are big, like I am trying to hire 
a dialysis coordinator right now because it is $14 billion a 
year to dialysis clinics and I think we need somebody to 
coordinate dialysis issues which we do not have.
    I will have to find out. I do believe we have a 
chiropractor on staff in one of the regions. But I think the 
fact is what you are really looking for is entry to the agency 
to have more direct contact and I am sure we can do that.
    Dr. Michael Hulsebus. Thank you.
    Chairman Manzullo. Before we finish, does anybody else on 
the panel have anything else that you would request of Mr. 
Scully?
    Mr. Scully. Can I just make one suggestion?
    Chairman Manzullo. Of course.
    Mr. Scully. I know some people do not think these work. I 
actually spend a couple of hours a week on these open door 
policy meetings with lots of staff and lots of people and the 
people who are participating have found them helpful even if 
they are calling from around the country, and I would suggest 
we will be happy to get any of you involved, but I believe if 
you get on these calls and ask the questions you will find that 
they are very helpful, and if they are not, then I would be 
even more happy to sit down and try to find other ways to help 
you out, but we do have a physician open door group that 
includes chiropractors, a number of chiropractors have called 
in. Ruben King-Shaw is my Deputy and Jeb Bush's former 
Secretary of Health in Florida, runs that one. I sit on most of 
them, and I hope you would find those are helpful. I think the 
people that are on mine I think almost universally find them to 
be helpful and we have solved a lot of problems.
    Chairman Manzullo. Dr. Minore?
    Dr. Minore. The one thing I would like to add is that 
universally listening here, I feel that my problems are not 
unique of all other providers. But again, trying to find a 
uniform set of guidelines to use would be so helpful. It is 
like being told to go sit in a corner in a round room. You keep 
going around and around in circles and you just never know 
where you end up. [Laughter]
    Chairman Manzullo. Has anybody quantified the amount of 
time that doctors waste trying to ferret out inconsistent HCFA 
guidelines?
    There is some groaning going on in the back of the room 
there.
    Mr. Evans. You make sure that when you call in that you get 
it in writing because you are going to get seven different 
answers.
    Mr. Scully. Mr. Chairman, I would just tell you this is a 
common problem. I will give you one example yesterday. I did 
not look in the papers today, but we cover a few billion 
dollars a year outpatient prescription drugs. Congress last 
year told us to start covering more and a broader group of 
self-injectable drugs usually done in doctors' offices. We did 
a polling of our 23 carriers over the last four months and 
found unbelievable inconsistencies for, one example, Avinex, 
the number one MS drug, was covered in about 13 regions and not 
covered in 10 others. So we just put out direction yesterday 
that I think will be clear which drugs are covered nationwide.
    But there is a tough balance. We are trying to come up with 
regional flexibility so that you are following the regional 
practice guidelines of various types of physicians and 
providers and also having national standards that are 
consistent.
    Chairman Manzullo. Why would you have somebody that is 
regional for something, I mean transportation is easily 
regional because some places are mountains and some are inner 
cities. Why would you have regional?
    Mr. Scully. Believe it or not, every time someone comes to 
us for national coverage they get the wrong decision. I can 
tell you, I can give you 100 drugs and devices. Then they all 
say well, you should not be making bureaucratic national 
coverage decisions in Baltimore, you should give us regional 
flexibility.
    So it is forum shopping. Twenty-five percent of the 
decisions are made in national coverage decisions. Inevitably, 
I can give you a bunch of examples. People are not happy when 
we do that. One example is PET scans. I spent a vast amount of 
time trying to decide what PET scans to cover last summer. We 
made, I think, a pretty fair national coverage decision and we 
got people saying oh, it is outrageous, limit it to the 
regional flexibility.
    So one thing--We need to come up with more consistency, but 
sometimes more consistency leads even to more unhappiness so 
there is a balance to be had there as well.
    Chairman Manzullo. Mr. Blanchard
    Mr. Blanchard. I think that is right, but at least to the 
extent there is a national rule it sets up two possibilities. 
One, a provider can conform to that rule and in that way 
protect themselves from this downstream overpayment, payment 
suspension, False Claims Act investigation. And they can lobby 
you, Congress, if they do not like the result, to expand that 
particular coverage in that particular area. They know what the 
answer is.
    Now there are still variations that make absolutely no 
sense. I will just give you one because I looked it up so I 
would have a good example. I might as well use it. In the Los 
Angeles area for MRI of the lumbar spine, there are at least 70 
fewer, it was an informal count on the plane coming here, but 
there are at least 70 fewer indication for MRI of the lumbar 
spine depending on which side of the avenue that separates Los 
Angeles County from San Bernadino County.
    The same metropolitan area, 70 fewer----
    Chairman Manzullo. Same spine.
    Mr. Blanchard. Same MRI scan. Seventy fewer indications on 
one side or the other.
    What is surprising here is not that, because you will find 
that in a lot of parts of the country where carrier areas come 
together. What is surprising in southern California is it is 
now the same carrier. It used to be two, but it has been one 
carrier for a year and that is just one example.
    Mr. Scully. That does not surprise me. I am sure he is 
right and that is one of the reasons I would like to go from 49 
carriers down to 20.
    Chairman Manzullo. Wait a minute. This is the same carrier.
    Mr. Scully. I can tell you what happened. Blue Cross of 
California and Candor were a former client of mine and I think 
one of the better run insurance companies in the country, got 
out of this business because it is a rotten business to be in, 
and they happened to be a pretty well run insurance company, so 
they gave a lot of their staff, I am sure, and some of their 
old rules, to probably Blue Shield of California, or Noridian I 
think is the carrier out there now. I am sure they are trying 
to fold them in. Eventually I would like to have 20 carriers 
that have more consistent rules, have those 20 medical 
directors talk to each other more often, and come up with more 
consistency and also keep some national flexibility.
    Chairman Manzullo. I appreciate that.
    Is there somewhere in that process where Mr. Blanchard can 
have input?
    Mr. Scully. Sure, I would be happy to talk to him, however 
he wants to----
    Chairman Manzullo. I guess I volunteered you, Mr. 
Blanchard. I volunteered Tom to go over there and teach and 
everything, but do you have any recommendations, Mr. Blanchard, 
as to what input you would like to have into the system so you 
do not have those 20 different----
    Mr. Blanchard. Providers are up against, and the reason I 
gave that example is there are providers who have offices on 
both sides of the street in this particular case. There are 
providers who have offices in New York City and in New Jersey. 
There are providers who span carrier boundaries all the time.
    In addition there are companies that have nationwide 
practices or large regional practices. Actually we have talked 
about some of those types of companies today. They have a very 
difficult time keeping track of which rules ought to apply. You 
would think in running a business you want to build in the 
efficiency of common rules, standard rules, and those sorts of 
things, but you cannot if there is not a good way to get all 
these folks together. So there are a couple of things.
    In the BIPA provisions as well, there is also a provision 
for petitioning for national coverage determination. I agree 
with what Mr. Scully says. You ask for one of those, you may 
not get what you ask for but that is the nature of rulemaking, 
and informal rulemaking which this is sort of. But at least it 
is an ability to ask someone to arbitrate this issue, which one 
of these rules ought to apply.
    That rule has a problem as well in that it too is limited 
to beneficiaries, so providers are not even granted standing to 
make that request. And the statute does not even make clear, 
really, and this again is the statute, does not even really 
make clear whether providers are authorized to represent 
beneficiaries. Unlike the claims appeal where it is clear that 
they can, on these it is not clear.
    So an opportunity to present those issues would I think 
alleviate a lot of concern among a wide range of providers----
    Chairman Manzullo. What form would you want present those 
issues?
    Mr. Blanchard. I think that the national coverage 
determination process has merit to it. We do not have enough 
experience yet with petitions for national coverage 
determinations to see whether the machinery will work smoothly. 
There are a lot of variables there.
    Chairman Manzullo. Can----
    Mr. Scully. Mr. Chairman?
    Chairman Manzullo. Yes, sir.
    Mr. Scully. I do not know if you were there. We had tried 
these open door meetings, we had the American Health Lawyers 
Association had a big meeting in Baltimore last month and we 
had very well attended, very lengthy open door policy meetings 
there for the physician group, for the hospital group, and I 
think one other, and we had a lot of participation from health 
lawyers around the country that had a lot of good suggestions. 
I think that is one forum to get people involved and there has 
been a lot of feedback from that.
    Mr. Blanchard. I agree with that. I was actually on the 
planning committee for that program and I serve on the board of 
the American Health Lawyers Association. That is a good way to 
go.
    Chairman Manzullo. Mr. Scully, what would it take to treat 
the spine the same? The indications in Los Angeles.
    Mr. Scully. Since I am spineless it is hard for me to tell, 
Mr. Chairman. [Laughter]
    Mr. Scully. That was too easy.
    Chairman Manzullo. I did not say that. I said you were in 
contempt of Congress. That is the legal one. [Laughter]
    Spineless is physiological. Contempt of Congress is 
intentional. Please.
    Would that take a--See, we could have had fun like this if 
you had showed up about a month ago.
    Mr. Scully. I will try to be better in the future, Mr. 
Chairman.
    Chairman Manzullo. All right?
    Mr. Scully. Yes, sir.
    Chairman Manzullo. And I have accepted your apology.
    Mr. Scully, in order to put this spine in one indication, 
could that be done regulatorily or statutorily?
    Mr. Scully. I personally believe, and you certainly could 
do it by regulation, you could certainly do it by statute, that 
most providers including MRI clinics probably prefer some 
regional flexibility to work with the carrier and most of them 
have had better luck than with WPS.
    Chairman Manzullo. Okay.
    Mr. Scully. I think the reality is that we have 49 carriers 
and it is unwieldy to get the 49 to talk to each other and come 
up with consistencies. If we had 20 of our best carriers and we 
competitively bid the business and we had the 20 medical 
directors talking to each other we would have much more 
consistency, and that is what we are striving to do in the 
contract reform and I think we are getting there slowly. Even 
without contractor reform there has been a contraction in the 
industry. Companies like Blue Cross of California are dropping 
out. We have gone just by contraction in the industry because 
it is not a fun business to be in, from about 110 contractors 
ten years ago when I was involved, to 50, and I think you are 
going to see further contraction.
    We would like to speed that up and make it a better 
business, give people better margins to run the business, and 
identify the best contractors that can come up with more 
consistent policies.
    Chairman Manzullo. Okay.
    For the record, we are going to be asking you for, is it 
three things?
    Mr. Scully. I think I made a pretty good list.
    Chairman Manzullo. How long is it going to take the letter 
to get ready? Oh, that is right, you are going to be submitting 
some further questions.
    Mr. Day, how much time would you need? Tomorrow? All right. 
Then I think you said 14 days is what you need to respond to 
these?
    Mr. Scully. Yes, if you give us 14 days we will get back to 
you.
    Chairman Manzullo. Okay.
    Thank you very much, all of you, for participating. This 
Committee is adjourned.
    [Whereupon, at 1:25 p.m., the Committee was adjourned.]


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