[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                  SUBCOMMITTEE HEARING ON COMPETITIVE
                 BIDDING FOR DURABLE MEDICAL EQUIPMENT:
                      WILL SMALL SUPPLIERS BE ABLE
                              TO COMPETE?

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

              SUBCOMMITTEE ON INVESTIGATIONS AND OVERSIGHT
                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 31, 2007

                               __________

                          Serial Number 110-56

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


WILLIAM JEFFERSON, Louisiana         STEVE CHABOT, Ohio, Ranking Member
HEATH SHULER, North Carolina         ROSCOE BARTLETT, Maryland
CHARLIE GONZALEZ, Texas              SAM GRAVES, Missouri
RICK LARSEN, Washington              TODD AKIN, Missouri
RAUL GRIJALVA, Arizona               BILL SHUSTER, Pennsylvania
MICHAEL MICHAUD, Maine               MARILYN MUSGRAVE, Colorado
MELISSA BEAN, Illinois               STEVE KING, Iowa
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia
GWEN MOORE, Wisconsin                LOUIE GOHMERT, Texas
JASON ALTMIRE, Pennsylvania          DEAN HELLER, Nevada
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                  Adam Minehardt, Deputy Staff Director

                       Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

               SUBCOMMITTEE ON INVESTIGATIONS & OVERSIGHT

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

        .........................................................


                                  (ii)

  


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Altmire, Hon. Jason..............................................     1
Gohmert, Hon. Louie..............................................     2

                               WITNESSES


PANEL I
Wilson, Laurence, Centers for Medicare & Medicaid Services.......     4


PANEL II
Taubman, Dr. Ross, American Podiatric Medical Association........    13
Shirvinsky, John, Pennsylvania Association of Medical Suppliers..    15
Gilligan, Carol, Health Aid of Ohio, Inc.........................    17
Blackburn, Georgetta, American Association of Homecare...........    20
Saxon, Richard, Advanced Medical Technology Association..........    22
Navarro, Jose F., RPh, National Association of Chain Drug Stores.    24

                                APPENDIX


Prepared Statements:
Altmire, Hon. Jason..............................................    35
Gohmert, Hon. Louie..............................................    37
Wilson, Laurence, Centers for Medicare & Medicaid Services.......    39
Taubman, Dr. Ross, American Podiatric Medical Association........    54
Shirvinsky, John, Pennsylvania Association of Medical Suppliers 
  and Attachment.................................................    96
Gilligan, Carol, Health Aid of Ohio, Inc.........................   106
Blackburn, Georgetta, American Association of Homecare...........   114
Saxon, Richard, Advanced Medical Technology Association..........   121
Navarro, Jose F., RPh, National Association of Chain Drug Stores.   126

Statements for the Record:
Food Marketing Institute.........................................   132
National Association for the Support of Long Term Care (NASL)....   137
Capitol Hill Advocates, Inc......................................   142
The Orthotic and Prosthetic Alliance.............................   146

                                 (iii)

  


                  SUBCOMMITTEE HEARING ON COMPETITIVE
                      BIDDING FOR DURABLE MEDICAL
                   EQUIPMENT: WILL SMALL SUPPLIERS BE
                            ABLE TO COMPETE?

                              ----------                              


                      Wednesday, October 31, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                 Subcommittee on Investigations & Oversight
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 2:00 p.m., in 
Room 2360, Rayburn House Office Building, Hon. Jason Altmire 
[chairman of the Subcommittee] Presiding.
    Present: Representatives Altmire, Gonzalez, and Gohmert.

             OPENING STATEMENT OF CHAIRMAN ALTMIRE

    Chairman Altmire. This hearing on "Competitive Bidding for 
Durable Medical Equipment: Will Small Businesses Be Able to 
Compete?" is now called to order.
    As more baby boomers age into Medicare, few would disagree 
that reform is necessary. But change presents unique challenges 
for the program, its beneficiaries and the medical providers 
that support it. That is why changes to Medicare must be made 
carefully and with a great deal of thought and input.
    Today's hearing will shed light on the importance of small 
durable and medical equipment suppliers to the Medicare 
program. It will allow the Subcommittee to fully understand the 
implications of the project that affects both small health care 
providers and patients' access to care. Small firms are an 
essential part of Medicare and fill gaps larger businesses 
either cannot or will not fill.
    On April 2, the Centers for Medicare and Medicaid Services 
issued its final rule on competitive bidding for durable 
medical equipment. The program allows Medicare to award 
contracts for durable medical equipment to suppliers with the 
lowest bids. CMS maintains that the program will not only 
ensure beneficiary access to quality medical supplies and 
services, but will also reduce beneficiary out-of-pocket 
expenses and improve the effectiveness of payments. But the 
question remains, what will competitive bidding mean to the 
small business community? And do its benefits outweigh the 
costs?
    CMS has estimated that within 5 years of implementing the 
program, the savings to taxpayers will exceed over $1 billion 
annually. The potential for gain cannot be ignored, but these 
reforms could have enormous ramifications on small businesses. 
While the objective is to reduce costs, it is not clear that 
the new competitive bidding program will achieve this goal 
without unraveling the DME small business community.
    Small suppliers make up well over 90 percent of the 
Nation's medical equipment providers. To its credit, CMS 
appears to acknowledge the value of small firms to the DME 
marketplace, and the program pays deference to this importance 
by putting in place rules that protect certain categories of 
small suppliers. It also encourages the formation of small 
supplier networks in its final rule.
    But these actions provide little relief to many small 
suppliers. By CMS's own estimation, once the competitive 
bidding program has taken full effect, as little as 20 
suppliers on average will be initial bid winners in each area. 
Even with small business protections in place, few small firms 
can expect to be actual bid winners. This may spell ruin for 
small business providers whose revenues are often less than $1 
million per year.
    What seems clear about CMS's competitive bidding program is 
that the only businesses certain to survive the agency's 
payment reform will be the national suppliers. Small businesses 
may be the backbone of this country, but the manner in which 
the competitive bidding program is structured may challenge 
their very survival.
    The issue is of particular concern to me because western 
Pennsylvania is one of the first 10 areas to implement 
competitive bidding. I worry that CMS has not considered the 
unintended consequences that may result from the program, 
including the possibility that patients may lose the personal 
relationship they have developed with their local provider, in 
turn compromising their quality of care.
    Further, I have concerns that western Pennsylvania will be 
disproportionately impacted by competitive bidding and that it 
may force some local small businesses to close their doors and 
working families may lose their jobs. Congress must take a long 
look at the competitive bidding and impact that it will have on 
small suppliers.
    Though there is little doubt that Medicare must be 
reformed, in my view small businesses should not shoulder that 
burden. The panelists here today are well equipped to talk 
about reasonable ways to ensure this does not occur.
    I look forward to today's testimony, and I thank all of our 
witnesses for their participation. I now yield to Mr. Gohmert 
for his opening statement.

                OPENING STATEMENT OF MR. GOHMERT

    Mr. Gohmert. Thank you, Chairman. And good afternoon to 
everyone. And thank all of you for being here as we examine the 
Centers for Medicare and Medicaid Services' competitive bidding 
program for certain durable medical equipment, prosthetics, 
orthotics and supplies. Boy, that is a mouthful, isn't it?
    And I would like to say, Chairman, I really appreciate your 
having the hearing, and I appreciate your emphasis. I think you 
and I are of the same heart on this issue. But on December 8, 
2003, President Bush signed into law the Medicare Prescription 
Drug Improvement Modernization Act of 2003. This legislation 
produced the largest overhaul of Medicare in the public 
health's 38-year history. Among other things, the legislation 
required CMS to use competitive acquisition procedures when 
entering into contracts for durable medical equipment, 
prosthetics, orthotics and supplies under Medicare Part B. A 
single payment amount for each item derived under the new 
competitive acquisition project through competitive bidding 
will replace the current payment amounts.
    The new competitive acquisition project is the subject of 
today's fact-finding hearing to acquire a better understanding 
of the CMS competitive acquisition project definition and 
impact on small business medical suppliers. In developing the 
competitive acquisition project procedures relating to 
competitive bidding and the awarding of contracts, this CMS is 
required by legislation to take appropriate steps to ensure the 
small business medical suppliers have an opportunity to be 
considered for participation. Because as we know, small 
business provides 70 percent of the jobs in the United States, 
legislation here does not require the demonstration be subject 
to Federal acquisition regulation.
    For our part, 19 implements Federal Government policy, 
provides maximum practicable opportunities in its acquisitions 
to small business, veteran-owned small business, service 
disabled veteran-owned small business, HUBZone small business, 
small disadvantaged business, and women-owned business 
concerns. Such concerns must also add the maximum practicable 
opportunity to participate as subcontractors in the contracts 
awarded by any executive agency consistent with efficient 
contract performance.
    Competition is the foundation of capitalism. Competition 
stimulates innovation, encourages efficiency, drives down 
prices, saving taxpayer dollars. Small business has 
historically been the engine of innovation and a catalyst for 
competition. They also, as I say, they have most--70 percent of 
all new jobs provided.
    While I support competition and the outcomes it normally 
produces, I want to ensure that the competitive acquisition 
project's design and methodology meets the intent of the Small 
Business Act by supplying small business medical suppliers the 
maximum practical opportunities to participate in the 
competition as both prime contractors and subcontractors.
    Additionally, it is imperative that we look at the big 
picture and make sure that folks who need these services are 
getting the best quality care they can. I think that is 
something that is oftentimes overlooked in Congress. We should 
not only get overly caught up only in the numbers but look to 
how the rules and regulations affect the folks back home in our 
districts.
    We have excellent witnesses here today to provide us with 
insight in the rationale behind the competitive acquisition 
project's definition of small business medical suppliers, and 
how the project's competition methodology ensures maximum 
practical opportunities for them. I look forward to their 
testimony. And thank you, Mr. Chairman, and yield back the 
balance of my time.
    Chairman Altmire. Thank you, Mr. Gohmert. I see that we 
have been joined by Congressman Gonzalez. Did you have a 
statement?
    Mr. Gonzalez. No.
    Chairman Altmire. Let me just say in starting, it is 
probable at some point during this hearing we are going to be 
called for a vote. And what we will do at that point is 
temporarily recess the hearing. We will walk over to vote. We 
will come back and we will pick up where we left off.
    We have two panels today. The first one is Laurence Wilson. 
And I know that you have testified before, but for the benefit 
of all of our panelists, the way the light system works that 
you have in front of you is when you see the green light, that 
means you have 5 minutes from the time that light goes on. When 
that light turns yellow, you have one minute remaining. So 
please start to wrap up. And then when it turns red, your 5 
minutes is up. So please summarize your remarks, and end your 
testimony at that time.
    So our first witness today in our first panel is Mr. 
Laurence Wilson. He is currently the Director of the Chronic 
Care Policy Group in the CMS Center for Medicare Management, 
where he has responsibility for Medicare policy on a broad 
range of fee-for-service health care benefits, including post-
acute care, home health, durable medical equipment, dialysis 
and various hospital services. He is also responsible for 
administering the agency's process for the coding of drugs, 
devices and other items and services. Mr. Wilson has worked at 
CMS since 1988.
    Welcome, Mr. Wilson. We look forward to your testimony.

STATEMENT OF LAURENCE D. WILSON, DIRECTOR, CHRONIC CARE POLICY 
GROUP, CENTER FOR MEDICARE MANAGEMENT, CENTERS FOR MEDICARE AND 
                       MEDICAID SERVICES

    Mr. Wilson. Good afternoon, Chairman Altmire and 
distinguished members of the Committee. I am pleased to be here 
today on behalf of the Centers for Medicare and Medicaid 
Services to discuss the durable medical equipment prosthetics, 
orthotics and supplies competitive bidding program mandated by 
the Medicare Modernization Act of 2003.
    This initiative will reduce beneficiary out-of-pocket 
costs, improve the accuracy of Medicare's payments, help combat 
fraud and ensure beneficiary access to high-quality items and 
services. Each year suppliers provide critical items and 
services, such as power wheelchairs and oxygen equipment to 
address the care needs of over 10 million beneficiaries.
    Over the past decade, Medicare expenditures have more than 
doubled from approximately $5 billion in 1997 for this benefit 
to over $10 billion annually. Fraud and abuse has been a 
significant concern in this area of Medicare program with 
numerous instances documented by the Office of Inspector 
General, General Accounting Office and other law enforcement 
agencies. Broadened abuse has no doubt contributed to this 
dramatic growth in this area of Medicare.
    The three charts that I have provided in the written 
testimony and to my right provide examples of the dramatic 
growth and expenditures for certain items. Power wheelchairs, 
negative pressure wound therapy and oxygen. For example, this 
first chart shows the growth in Medicare expenditures for power 
wheelchairs from 1995 to 2006. During this period, total 
allowed charges grew from $59 million to $980 million, over or 
over 1,500 percent. More accurate prices under Medicare will 
reduce incentives to commit fraud by making it less lucrative, 
while overall, resulting in more appropriate level of 
expenditures for durable medical equipment. Lower prices will 
also provide value to beneficiaries who will now pay less in 
coinsurance.
    The Office of Inspector General issued a report yesterday 
showing that on average Medicare fee schedule amounts or 
current payments in the area of power wheelchairs were 45 
percent higher than median Internet retail prices available to 
consumers in 2007. This study, along with the examples for 
other products included in CMS's written testimony, shows the 
potential value that could result from our competitive prices.
    In addition, the application of quality standards under 
this program by independent accreditation organizations as well 
as application of financial standards will help ensure that 
patients receive quality items and good customer service and 
that Medicare contracts with viable suppliers will be there for 
the long term to meet patients' care needs.
    In developing this program, CMS worked closely with 
suppliers, manufacturers, and beneficiaries through a 
transparent public process. This included public meetings and 
forums, the existence of an external advisory board. In 
addition, beneficiary and small business focus groups were 
convened in several cities across the country to bring special 
focus to their concerns. As a result, CMS's policies and 
implementation plan pay close attention to the needs of 
beneficiaries and small suppliers.
    I would note that CMS very much appreciates the detailed 
comments from this Committee, which were very helpful in the 
formulation of our final regulation. In that rule, CMS adopted 
numerous approaches to ensure small suppliers have the 
opportunity to be considered for participation in the program.
    First, consistent with the recommendation of the Committee, 
CMS worked with the Small Business Administration to develop a 
more representative definition of a small supplier in contrast 
to the more general definition of a small business. CMS then 
designed specific policies linked to this new definition to 
help small suppliers.
    For example, the final regulation allows small suppliers to 
band together networks in order to meet the requirement to 
serve an entire competitive bidding area. The regulation also 
employs a formula to ensure that multiple suppliers will be 
selected for each of the 10 product categories in an area. In 
this way, the largest suppliers will be unable to dominate the 
bidding process. All winning suppliers will continue to compete 
based on quality and customer service, and each supplier's 
share of the market will ultimately depend on patient choice.
    Most importantly, the regulation establishes a 30 percent 
target for small supplier participation in the program. If the 
winning group of suppliers is not composed of 30 percent small 
suppliers, CMS will add small suppliers to the list of winners 
to reach this target.
    The first round of competitive bidding is currently 
underway. Over 6,300 certified bids have been submitted by 
interested suppliers in the 10 metropolitan areas. We are very 
pleased with this result, and we are evaluating the bids 
currently. We recognize that some suppliers experience 
difficulty, and we are working on changes to the system to 
alleviate those concerns with a view towards round two when we 
will expand the bidding to 70 MSAs.
    In summary, the new competitive bidding program will bring 
value to Medicare and its beneficiaries. More accurate prices 
along with accreditation and financial standards will result in 
improved quality and customer service for patients and form an 
important part of the agency's overall effort to eliminate 
fraudulent suppliers in Medicare and protect America's seniors.
    I thank the Committee for inviting me here today, and I am 
pleased to answer any questions the chairman or other Members 
may have. Thank you.
    [The prepared statement of Mr. Wilson may be found in the 
Appendix on page 115.]

    Chairman Altmire. Thank you, Mr. Wilson. The bidding 
process ended on September 25 after the need for multiple 
extensions to allow bidders to submit those bids. Whenever CMS 
proposes to start the program in an MSA, whether it be the 
first phase of 10 MSAs or the second phase of 90 MSAs or even 
nationwide, will you start with a new bidding process in each 
MSA?
    Mr. Wilson. We will, as we did in round one in 10 MSAs, 
publish a request for bid. We will indicate a timeline for 
suppliers to submit their bids and commence education for 
suppliers so that they can meet all the specific requirements 
associated with the bidding process and move forward much in 
the same way.
    We do have some changes that we plan for round two. In 
particular, I mentioned in my testimony an improved bidding 
system, online electronic bidding system. We recognized 
suppliers had problems there. We are going to fix that, make it 
better for suppliers, and we will move forward, giving 
suppliers additional information they need.
    Chairman Altmire. Is it CMS's position that each MSA is 
different, has unique circumstances surrounding each one and 
therefore should have a different bidding process, separate 
bidding process?
    Mr. Wilson. They do indeed have a separate bidding process. 
And we certainly agree that each MSA is different. They are 
geographically different. Some have--like Riverside, 
California, has some very low population density areas in the 
west--or in the eastern part of that county that borders 
Nevada. We excluded those because it didn't make sense for 
beneficiaries or suppliers to have to cover that type of 
territory. So we will consider those types of unique 
circumstances when we go forward with the bidding process.
    Chairman Altmire. Thanks. Now it is my understanding that 
CMS limited eligibility initially to small businesses with $3.5 
million in annual revenue, but the SBA's limit is $6 million in 
annual revenue. So could you please explain the rationale 
behind this inconsistency in the application of small 
businesses?
    Mr. Wilson. What we wanted to do in this area of the 
program was try to target small suppliers, truly small 
suppliers. The small business definition was fairly general and 
included almost--and I think one of the--Mr. Gohmert pointed 
this out--90 percent of the suppliers that we have 
participating in Medicare. We wanted to find out who were a 
subset of that and make sure that they would participate 
because we wanted to ensure that not just large suppliers would 
have an opportunity to participate but the ones that were truly 
small had special policies to help them out. And that is why we 
changed that definition.
    Chairman Altmire. Okay.
    Mr. Wilson. And I would point out that the specific 
definition was recommended by small suppliers who commented on 
the rule.
    Chairman Altmire. Thank you. I just want to get something 
clarified with you here. Based on the final rule for the 
competitive bidding program, the rule leaves unanswered the 
question of whether DME suppliers will be able to withdraw from 
offering to supply an item if it is below their submitted bid 
price. So just for the record, can you clarify CMS's position 
on this issue?
    Mr. Wilson. Yes, sir. I certainly can. Suppliers will 
submit a bid. They may fall in the winning range. They may not 
fall in the winning range. We will let them know. We will 
provide them an answer to their bid, whether it is accepted or 
not. If it is accepted, they will have to sign a contract with 
us. They don't have to sign that contract. So they can decide 
if they don't like the price that we are offering and turn it 
down. Just because they submit a bid, we won't force them to 
participate.
    Chairman Altmire. Thank you. And my last question for this 
first panel, then we will turn it over to the ranking member. 
In 2003, the Medicare Modernization Act added dentists, 
podiatrists, and optometrists to the definition of physicians 
who may contract with Medicare. Given this shift in policy, why 
has CMS chosen not to extend the limited exception to the DME 
competitive bidding requirements to podiatrists, dentists, and 
optometrists?
    Mr. Wilson. We did receive a number of comments from 
podiatrists. They asked us to include podiatry in the 
definition of the statute, and it is my understanding that we 
did do that. Now I think there was some additional concerns 
expressed by podiatry with respect to other exceptions we 
granted physicians and whether they were--whether the items 
that they supplied would be included there. We didn't do that 
at this point, but we haven't yet included those items in 
competitive bidding either.
    I would like to go back and provide you a written answer to 
that because I want to make sure that I am correct in what I am 
telling you with respect to what we did in the final rule.
    Chairman Altmire. Okay. That will be fine. We will confirm 
through a letter.
    Mr. Wilson. Thank you.
    Chairman Altmire. Thank you. I will turn it over to the 
ranking member, Mr. Gohmert.
    Mr. Gohmert. Thank you, chairman. The difference in 2,200 
of the suppliers that actually applied and the 15,000 that were 
anticipated still concerns me. But let me ask you what steps 
that seem--that the Centers for Medicare and Medicaid had 
incorporated into the accreditation process to minimize cost 
and resource impact on small medical suppliers. What input did 
you actually have from them?
    Mr. Wilson. We had quite a bit of input, sir. We had focus 
groups with suppliers. In particular, we discussed the quality 
standards. They had concerns about the quality standards and 
accreditation, not with respect to the fee necessarily that was 
charged by accreditation organizations but with the cost of 
coming into compliance with the standards.
    Mr. Gohmert. I guess a better question would be--and you 
mentioned the focus groups and all. I guess I should have gone 
straight to not how many did you hear from, but how much 
attention did you actually pay? I mean, we have got Members of 
Congress that they go home all the time, listen to their 
constituents and then come up here and do something completely 
different. But back home, they think they are listening because 
they do. But then they don't put that into application. So how 
did you go about incorporating in the application process what 
they said, what you heard?
    Mr. Wilson. Well, I think we did a great deal. Let me just 
start with a pretty simple metric from my standpoint. What we 
proposed was 114--I am sorry--about 120 pages in requirements 
for the quality standards. The final document was 14 pages and 
just focused on the core standards. A lot of standards that 
they were concerned about that went to record keeping and 
documentation requirements, whether or not they had posted 
business hours versus we had an original requirement that said 
40 hours of office hours they had to keep. We got rid of that 
and just said posted business hours.
    So we listened to a lot of different, very specific issues 
and eliminated a lot of requirements that were of particular 
concern to small businesses, and I would be happy to send you a 
list of some of those.
    Mr. Gohmert. Okay. Well, let me also ask, the competitive 
bidding rule permits physical and occupational therapists to 
provide off-the-shelf orthotics without participating in the 
bidding process, but physicians are not allowed to do that. And 
you know, obviously physicians play an important role in the 
treatment process. So I am curious why physical therapists were 
carved out but not physicians.
    Mr. Wilson. Well--
    Mr. Gohmert. You figure they make enough money as it is? I 
am just curious.
    Mr. Wilson. Not the physicians that I talk to, but the--I 
guess what I would say was we did establish a limited exception 
for physicians that allowed them to really--we allowed them to 
remove themselves from competitive bidding as long as they were 
serving a specific core set of items to only their patients. So 
we did provide that physician exception to provide certain 
things to just their patients. They couldn't act more broadly 
as a supplier in the community, but to the extent that they 
were treating their patients and their patient needed a walker, 
for example, to leave the office, we allowed them to do that 
without having to go through competitive bidding.
    Does that answer your question, sir?
    Mr. Gohmert. Yes. Somewhat. Apparently you provided a 
limited carve-out for physicians. Is that the same extent to 
which physical or occupational therapists are allowed their 
carve-out?
    Mr. Wilson. I believe it is somewhat different.
    Mr. Gohmert. Yeah. It sounds more restrictive.
    Mr. Wilson. It is more restrictive in those other areas, 
and--
    Mr. Gohmert. So the physical therapists would know more 
than the doctors would about what was needed, is that where we 
are going here?
    Mr. Wilson. Where we are going is that we only carved out a 
very, very limited set of items and services from competitive 
bidding provided by those practitioners.
    Mr. Gohmert. And I understand there is always a balance 
there. I have always had concerns about, you know, if you allow 
a physician to prescribe medications and then fill those 
prescriptions, then obviously there could arise a conflict. But 
let me move on.
    It is my understanding that you didn't include diabetes 
testing supplies sold at retail in the competitive bidding 
demonstration projects and also excluded diabetes supplies sold 
at retail from first round of competitive bidding. So what is 
CMS's intention for the second round with respect to ensuring 
patient access to diabetes testing supplies?
    Mr. Wilson. Well, one of the reasons that we excluded from 
competitive bidding diabetes supplies sold at the retail 
pharmacy outlets or store fronts was because a lot of concerns 
were raised with respect to access and with respect to patients 
getting the information they might need from pharmacists and 
others with respect to how those glucose monitors or test 
strips or items would be used and how to interpret the results. 
So we did carve that out. Now with respect to round two, we 
have not yet announced the items that will, or product 
categories that will fall under round two or the areas. We are 
considering that now and expect to provide the answer that you 
need within the next couple of months.
    Mr. Gohmert. So you don't have an answer yet?
    Mr. Wilson. I do not.
    Mr. Gohmert. Well, looks like we may need another hearing. 
Thank you.
    Chairman Altmire. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. And 
welcome, Director Wilson. I want to start off by what I 
generally start off with, and that is the observation that this 
Committee kind of looks at things a little differently than 
most other Committees. You may have testified before other 
Committees, Ways and Means or Energy and Commerce, but we are 
more oriented about the impact of Federal policy on small 
businesses.
    The United States Government is the biggest purchaser of 
services and products than anyone else, any other entity in the 
world. So what we attempt to do is to make sure that small 
businesses are part of that whole equation, and we even tried 
to institute through policy and orders and even legislation 
that they somehow get to participate in this contracting. The 
biggest problem that we have had in the past with government 
services and products--and any small businessman or woman out 
there, they are going to love the word--it is bundling. The 
question that comes to my mind, do we have here the mother of 
all bundling? And that is going to be a real concern.
    I am not saying that you are the cause of this. I think we 
have given you a very difficult, difficult mission, and that is 
attempting to save as much money as possible, but it would 
appear--it is counterintuitive to us because you start off with 
the proposition of probably limiting the number of businesses 
that will be eligible to contract with the Federal Government 
for reimbursement for their service or their product. I think 
that is what we are really here to look at today. And you may 
be able to reconcile some of that.
    But I do want you--when I ask for your response after I 
finish this two-part question--to address that. Do you see that 
as a special challenge to you as you attempt to accomplish what 
the Medicare Modernization Act attempted to accomplish in 
mandating what you were doing?
    The other part of my question goes to your demonstration 
projects. I am from San Antonio. I represent half the city. 
That was one of the sites. The other was in Florida. I still 
don't know that it is Polk County or Dade County.
    Mr. Wilson. Polk.
    Mr. Gonzalez. But I was just wondering, the second part of 
my question really goes to what you may have learned from that 
experience as being valid when you apply it to what you are 
attempting to accomplish by areas that are huge compared to 
what I would think would have been San Antonio or Florida. And 
I am talking about the competitive bidding areas, the CBAs 
based with MSAs combination and so on. Can you really rely on 
what you believe you learned in your demonstration projects and 
apply it to such a huge or larger--not just geographical but 
obviously a population that you are going to have now when you 
actually roll out what we have here today with CBAs?
    So the first question is, do you see any conflict here as 
going basically with the proposition that if you accomplish 
your goal, you probably have cut out small business? There may 
not be a role for small business in what CMS is attempting to 
do. And we have run into this problem with other agencies and 
departments in government. You wouldn't be alone. And then 
secondly, the lessons that you believe and the savings that you 
believe you accomplished under the demonstration projects, do 
they really translate into the bigger and the more real picture 
that you presently find yourselves in?
    Mr. Wilson. Thank you, Congressman. With respect to the 
first question, I think we have done enough to ensure that 
small suppliers are included. I think the type of policies we 
put in, in particular a policy that requires us to add to the 
list of winners suppliers that meet our small supplier 
definition, will ensure that there will be small suppliers 
participating in this program. That is as close to a guarantee 
as you can get. I think at the end of the day there may be 
fewer suppliers operating in these areas because Medicare will 
now only be contracting with the ones that can offer the best 
value, ones that meet our quality requirements and ones that 
meet our quality and accreditation requirements and ones that 
meet our financial standards. But at the end of the day, I 
think we have done enough to ensure that they have a role and 
will be participating and there for the long term.
    But again we do recognize that some may not be. Some may go 
into other lines of business, some may go and provide items and 
products to different payers other than Medicare. Some may 
provide other items that don't fall under competitive bidding. 
But I think there will be a role for these suppliers within 
this program based on the policies that we have created.
    With respect to the second issue, I mean I think we learned 
a lot during the demonstrations. You know we have learned some 
of the big things, like you can achieve savings through this 
type of program. We certainly know the VA and other types of 
programs, even private payers do this type of competitive 
acquisition process and have been successful at it. So we know 
their savings. We looked at quality very closely, and we were 
able to see that quality was maintained, access was not 
hindered. So we think those types of things, those sort of big 
things can be achieved.
    At the same time I think we learned a lot. We learned that 
suppliers need transparency, they need to understand the rules. 
This is complicated, and we need to help them. And I think that 
is something that we take very seriously as we move forward 
with the implementation of not just this current round but the 
upcoming round. I think it is achievable.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman.
    Chairman Altmire. I wanted to ask one more question, and 
then I will offer the same opportunity to each of the Committee 
members that are here if they wish.
    And that is, that trained and licensed medical 
practitioners are by and large knowledgeable and skilled in the 
use of DME for patient care. So why does CMS believe it is 
necessary for them to on top of that be accredited by a CMS-
recognized organization?
    Mr. Wilson. Well, that is a very good question and one that 
we have heard a lot about from different practitioner 
organizations. Certainly the statute does require that all 
participating suppliers be accredited. And so we considered 
this very carefully. We looked at our authority. We looked at 
the comments. And what we felt was at the end of the day the 
type of service, the type of delivery, the type of beneficiary 
education on these particular products was unique enough that 
we wanted to have a standard requirement for everybody, a level 
playing field for everybody so that we could ensure not just 
quality but that everybody participating in the program had to 
meet a common set of requirements.
    Chairman Altmire. Thank you. Mr. Ranking Member, do you 
have a question?
    Mr. Gohmert. Yeah. But let me go ahead and ask 
specifically, why do you think instead of the 15,000 projected 
suppliers applying that we had 2,200?
    Mr. Wilson. 2,200 is not a number that CMS has used, sir. I 
am not sure where that came from.
    Mr. Gohmert. Okay. What number are you using?
    Mr. Wilson. Well, the number that I shared with you today 
was that we received across the 10 product categories, across 
the 10 metropolitan areas, 6,300 certified bids submitted.
    Mr. Gohmert. Okay. So that is still less than half of what 
was expected, and those are from some pretty big areas.
    Mr. Wilson. Well, I think that is right. I think there is 
some confusion about what is talked about in the final rule 
versus reality. What is talked about in the final rule is the 
number of supplier sites that may fall under the bidding, the 
total potential supplier sites. In fact, when suppliers submit 
bids, suppliers under common ownership only submit one bid. So 
a big company--and I know a bunch of big companies bid as well 
as small suppliers--will submit one bid for 100 sites. So that 
is not factored into that number.
    So it is somewhat confusing. You have to read the language 
carefully in the rule. But I think the numbers are much closer 
together than folks may have been thinking when they looked at 
that large number.
    Mr. Gohmert. Well, I am just concerned that it may be like 
the old story about ending on something in Chinese and saying, 
if you are a small business and you want to participate, you 
have to be able to read that. Can you read that? Yeah. It says, 
there are not going to be any small businesses participating. 
But I am hoping that won't be the case.
    Chairman Altmire. Mr. Gonzalez?
    Mr. Gonzalez. I will be brief. Thank you, Mr. Chairman.
    Director Wilson, you would agree though once we implement 
this plan, you will have fewer businesses eligible to conduct 
business in the supply of durable medical equipment?
    Mr. Wilson. I agree that is likely. I also know that once 
we learn a lot from this program, you know, we can offer prices 
based on what we have learned in competitive bidding to other 
market areas and use those prices for everybody.
    Mr. Gonzalez. And I understand that. And there is a 
learning curve on all this. But in the meantime, the businesses 
go under.
    The second part of the question is, because there will be 
fewer, less, whatever the appropriate term is, as far as 
choice, do you think that impacts the quality of care that will 
be available to patients, to beneficiaries as far as maybe 
picking the best product that is best suited for their 
condition? You will have less choice?
    Mr. Wilson. I don't--I hope not. We have done a number of 
things to ensure that doesn't happen. At the end of the day, we 
have a program that provides greater value. Suppliers will now 
be accredited to meet quality standards and meet financial 
standards so that they are there for the life of the contract 
to meet patients' needs. So we will have a better, I think a 
better environment for providing that care, which will promote 
the quality.
    We also have specific policies to promote quality, an anti-
discrimination clause which says if you are a supplier and you 
provide this brand to your private pay patients, well, you have 
to relay that to Medicare. We have a transparency policy where 
we will publish and update the list quarterly all information 
on models and brands provided by suppliers as the statute 
directed us to. We will have a physician authorization policy 
that allows physicians to pick a particular brand and have that 
provided if the patient needs that for medical reasons.
    So there are some protections in place for beneficiaries. 
Beneficiary protections and small supplier issues were the two 
key issues in this final rule. So we have tried to address 
those.
    Mr. Gonzalez. Thank you very much. Thank you, Mr. Chairman.
    Chairman Altmire. Mr. Wilson, thank you for being here 
today. If we could get some clarification in writing on the 
couple of issues that we brought up.
    Mr. Wilson. Yes, sir.
    Chairman Altmire. You are excused. But if you could allow 
at least one of your staff to remain here for the remainder of 
the hearing in case we have questions, that would be 
appreciated.
    Mr. Wilson. Thank you.
    Chairman Altmire. I call to the table the second panel. We 
will begin. We will introduce each witness individually and 
then they will have the opportunity to offer their testimony 
and then we will introduce the next witness. So in that order 
for all six of you.
    We are going to have a vote called in approximately 10 to 
15 minutes. So at that point we will hear the remainder of the 
testimony for whoever happens to be speaking. We will recess 
for probably 20 minutes to a half-hour and we will return to 
finish the hearing.
    So at this point I want to introduce Dr. Ross Taubman. He 
is certified in foot and ankle surgery by the American Board of 
Podiatric Surgery and is the current President-Elect of the 
American Podiatric Medical Association, which is the Nation's 
leading podiatric organization, representing approximately 80 
percent of the podiatrists in this country. Dr. Taubman's 
practice is located in Clarksville, Maryland, where he focuses 
on elective and reconstructive foot surgery and limb salvage 
for patients with diabetes. Welcome, Doctor, and we look 
forward to your testimony.

STATEMENT OF DR. ROSS TAUBMAN, PRESIDENT ELECT OF THE AMERICAN 
   PODIATRIC MEDICAL ASSOCIATION, AMERICAN PODIATRIC MEDICAL 
                          ASSOCIATION

    Dr. Taubman. Thank you. Mr. Chairman Altmire, Ranking 
Member Gohmert and Mr. Gonzalez, I welcome the opportunity to 
testify before you today on behalf of the American Podiatric 
Medical Association.
    I am Dr. Ross Taubman, President-Elect of the APMA and a 
practicing doctor of podiatric medicine. We represent 
approximately 80 percent of the podiatrists in the country, and 
our members provide the majority of foot care services to the 
Medicare population.
    Mr. Chairman, more than 60 percent of the podiatrists in 
this country practice in one or two-person groups and would be 
considered small businesses. We do not believe Congress 
intended to construct new barriers for small businesses in 
recent legislation, including the Medicare Prescription Drug 
Improvement and Modernization Act of 2003, or MMA, but the 
unintended consequences have been serious for podiatry 
practices.
    PPMs have been defined as physicians within their scope of 
practice under Title 18 of the Social Security Act since 1967. 
One of the provisions of the MMA that authorizes the 
competitive acquisition program cites a restrictive definition 
of physician that includes only medical doctors and doctors of 
osteopathy but not doctors of podiatric medicine. This 
restrictive definition could prevent patients from obtaining 
necessary DME as part of their care from their podiatrists.
    Because this exclusion of podiatrists appears in the law, 
CMS has stated that Congress must make a technical correction 
to the MMA to resolve this issue. APMA urges Congress to take 
such action this year as part of a broader Medicare package, 
ensuring that podiatric physicians can continue providing DME 
to our elderly and disabled patients.
    The competitive acquisition program presents specific 
challenges to small business medical practices. Physician 
suppliers dispense small amounts of DME as part of patient 
care. According to 2004 CMS data, physicians and other 
practitioners were responsible for only 3.1 percent of DME-
allowed charges. It is unclear what, if any, program 
improvement would be realized by imposing these requirements on 
physician suppliers.
    Consider this CAM walker used when treating foot or ankle 
fractures. If subject to competitive bidding, I would need to 
make a bid to Medicare and be selected as a winning bidder to 
be able to continue to supply these items to my patients at the 
point of care. This is a completely uneven playing field from a 
cost basis. Since I may stock only two or three of a given item 
at a time in my small office, there is no way I can take 
advantage of economies of scale compared to a large supply 
house that purchases thousands of these items at a time.
    Mr. Chairman, not only would this be unfair to me as a 
small businessman, but more importantly, it is certainly not 
good medical care. We shouldn't be sending patients out of our 
offices to get these medically necessary products in acute care 
situations.
    Therefore, I urge Congress to exempt all physician 
suppliers that dispense DME as part of their patient care from 
the competitive bidding process.
    The Medicare program's new accreditation requirements for 
DME suppliers are time consuming, expensive and heavy on 
paperwork, precisely the type of barrier which poses special 
difficulties for small businesses.
    Consider that podiatrists who supply DME receive an average 
of $7,000 per year from Medicare. Accreditation costs a minimum 
of $3,000 per office for up to a 3-year period. It is not 
difficult to understand why we find it impractical to seek 
accreditation.
    Furthermore, this accreditation requirement is unnecessary 
for physicians, given the comprehensive medical education and 
stringent licensure process to which we are already subject. 
Applying the same accreditation standards to physicians that 
are applied to large-scale suppliers is unnecessary, unfair, 
anti-competitive and costly duplication of existing rigorous 
processes. Therefore, physicians should be exempt from this 
supplier accreditation requirement.
    Another DME-related burden arose recently when CMS proposed 
to require all physician suppliers of DME to furnish CMS with a 
surety bond. Since podiatric physicians generate only an 
average of $7,000 per year in allowed annual charges, most are 
almost certain to stop providing DME products under Medicare if 
the surety bond requirement is implemented.
    Congress recognized that including physicians in surety 
bond requirements was bad policy. The Balanced Budget Act of 
1997 states that such surety bonds requirements should be 
applied to suppliers, quote, other than physicians or other 
practitioners, end quote. Moreover, the report language states 
unambiguously that, quote, the conferees wish to clarify that 
these surety bonds requirements do not apply to physicians and 
other health care professionals, end quote.
    Given the clarity of that statutory report language, APMA 
does not understand why CMS proposed to include podiatrists and 
other physicians in the surety bond requirement.
    In conclusion, implementing rules whose predictable outcome 
is the exclusion of thousands of small businesses from 
supplying DME to Medicare beneficiaries is bad for physician 
practices and the patients whom we serve. Podiatric physicians 
must be permitted to continue to prescribe and supply DME 
products. Additionally, physicians should be allowed to provide 
essential durable medical equipment as part of patient care 
without the burdens of competitive bidding, additional 
accreditation or posting of surety bonds.
    Mr. Chairman and members of the Subcommittee, again thank 
you for providing me with the opportunity to speak today on 
behalf of the APMA. Attached to my written testimony are 
comments that we have submitted to CMS and other background 
documents. I respectfully submit these letters to the 
Subcommittee and ask that they be included in the record. I 
will be happy to answer any questions you may have.
    [The prepared statement of Dr. Taubman may be found in the 
Appendix on page 37.]

    Chairman Altmire. Without objection, they will appear in 
the record.
    We will go next to John Shirvinsky. He is the Executive 
Director of the Pennsylvania Association of Medical Suppliers, 
established in 1972. The Pennsylvania Association of Medical 
Suppliers is the oldest State association of its kind in the 
country dedicated to providers of home medical equipment and 
supplies and the patients they serve. Welcome, Mr. Shirvinsky.

STATEMENT OF JOHN SHIRVINSKY, EXECUTIVE DIRECTOR, PENNSYLVANIA 
                ASSOCIATION OF MEDICAL SUPPLIERS

    Mr. Shirvinsky. Thank you, Mr. Chairman, Mr. Gohmert.
    First, PAMS would like to commend and thank this Committee 
for taking the opportunity to examine the impact of CMS's 
competitive bidding program for DME and for looking at the 
question, will small suppliers be able to compete? The question 
might as well be, will small suppliers be able to survive?
    One small supplier in Pittsburgh who does about 65 percent 
of his business with Medicare recently told me that this is a 
question that literally keeps him up at night. You see, 
competitive bidding is an exclusionary process. It is one that 
produces winners and losers and, of necessity, it produces far 
more losers than it does winners. Since the vast majority of 
HME suppliers are small and independently owned, it should 
stand to reason that small independently owned companies will 
bear the brunt of the burden.
    CMS did attempt to create some small provider-friendly 
provisions, such as small supplier networks for the purpose of 
submitting joint bids, but even that effort failed. To the best 
of my knowledge, no small providers were able to successfully 
form such a network in the Pittsburgh competitive bidding area. 
I am unaware of any small supplier networks that were able to 
be formed anywhere in the country. I can only vouch for 
Pittsburgh, none were formed there.
    Instead, what small providers in Pittsburgh did is they 
formed ad hoc subcontracting arrangements as a matter of 
survival. Each provider agreed that they would submit their own 
bids and secured letters of intent from one another to provide 
products and services throughout the CBA as subcontractors. Now 
that was a clever idea. But why should honest hard-working 
business people need to come up with clever ideas in order to 
survive in an otherwise healthy market?
    Competitive bidding has been a bad idea from the git-go. It 
was inserted into the Medicare Modernization Act of 2003 in the 
middle of the night just prior to final passage. It was not 
properly vetted, it was not properly thought through. It makes 
pretensions about its ability to save money, again on a very, 
very small portion of Medicare spending, that are simply 
unsupportable and unsustainable. It makes no account for its 
impact on businesses, communities, employment, product quality, 
quality of care or the potential for increased hospitalizations 
that may result. It is a program that promotes the 
concentration of market share, yet takes no notice of the 
inherent dangers in such concentration.
    The CMS competitive bidding process received failing grades 
from Pittsburgh-area providers of all types and sizes. From the 
many providers with whom I have spoken, it has been called 
flawed, ridiculous, unworkable, overwhelming, frustrating, 
crazy, uninformed, anti-private enterprise, absurd, disturbing 
and misdirected. I made up none of those, although I did clean 
up a few.
    CMS has contended that DME competitive bidding represents a 
market-based efficiency. It is at best dubious to suggest that 
this program represents anything close to healthy market 
economics. Competitive bidding is a tool that can be used to 
great effect by government so long as it is carefully targeted 
and promotes competition. Think highway and facility 
construction or, you know, even office supplies or local trash 
collection. The DME competitive bidding process is none of 
these things. It is complex, far reaching and burdensome. It is 
a government-sponsored scheme to eliminate competition by 
dismantling a national network of HME providers that has 
reliably serviced the home health needs of Medicare patients 
for decades. Medicare beneficiaries, CMS, and this Congress 
will live to regret the day that this network of independent 
DME providers was dismantled as a result of this ill-considered 
program.
    Medicare is the dominant insurer in the DME market. With 
this program, CMS is attempting to manipulate the market for 
purposes that will not result in meaningful savings, that will 
not ensure better service for people in need, that will result 
in layoffs, that will result in small business closings, and 
that will result in the loss of tax revenues to State and local 
governments.
    The Medicare population is growing larger and older with 
each passing year. For the HME industry, that means a growing 
market. Under free market economic theory, that should mean 
that more competitors should be entering this market, helping 
to drive down or stabilize pricing in the face of increasing 
demand. It is inconceivable that it would be the U.S. 
Government that would come forward with a scheme to concentrate 
market share and eliminate competition given such conditions.
    What CMS is doing is a formula for certain higher prices 
down the road. Competitive bidding for DME is not good 
business. It is bad news. The most responsible thing that this 
Congress can do on this count is to admit that a previous 
Congress made an error in approving a poorly considered 
provision. I urge this Subcommittee to support the repeal of 
competitive bidding and to set this Nation's small and 
independently owned HME providers free to meet the needs of 
America's aging population.
    I thank you for this opportunity to testify.
    [The prepared statement of Mr. Shirvinsky may be found in 
the Appendix on page 79.]

    Chairman Altmire. Thank you, Mr. Shirvinsky. And at this 
time we will recess the hearing until 3:15.
    [Recess.]
    Chairman Altmire. Thanks, everybody, for waiting. That 
should be our last interruption for this hearing.
    We left off at Ms. Carol Gilligan. She is president and 
owner of Health Aid of Ohio. For 23 years her company has taken 
care of Cleveland's elderly and disabled.
    Recognized nationally as one of the of the top three 
rehabilitation wheelchair companies for 3 years in a row, 
Health Aid has taken care of thousands of patients. They 
closely interact with patients at Metro Health, the Cleveland 
Clinic Melon Center, and the Children's Rehab, to name just a 
few
    Just this month, Carol's company received the industry's 
reward as the number one rehabilitation provider in America.
    Welcome Ms. Gilligan.

  STATEMENT OF CAROL GILLIGAN, PRESIDENT, HEALTH AID OF OHIO, 
                     INC., CLEVELAND, OHIO

    Ms. Gilligan. Mr. Chairman and Members of the Subcommittee, 
thank you for the opportunity to talk to you today about the 
Medicare program and its implementation of competitive bid 
acquisition programs for durable medical equipment, 
prosthetics, orthotics and supplies, and its impact on my small 
business and the consumers I serve.
    A copy of my written statement has been provided to you for 
the record. My name is Carol Gilligan, and I am President of 
Health Aid of Ohio in Cleveland, Ohio. I started my small 
business in 1984 to serve seniors and people with disabilities. 
My company primarily provides what we call complex rehab 
equipment and services to people with specialized needs.
    I started my company, small business, over 20 years ago 
after meeting a girl in my neighborhood who has a rare form of 
muscular dystrophy. I brought her mold today because that small 
girl is 26 years old right now, and that is her shape of her 
body and her custom seating. So Emily is with us today.
    My business was inspired by my desire to be able to really 
help people with special needs and mobility limitations. This 
year I was honored to be awarded the best rehab provider in the 
United States by HME News, an industry trade publication.
    I would like to explain the types of services my company 
provides to consumers and how the bidding program will impact 
my program and consumers. Provision of complex rehab technology 
is not a commodity. Complex rehab and assisting technology 
consists of highly individualized products and services that 
are prescribed by a physician and provided to individuals by 
specially trained and credentialed members of the rehab 
technology profession.
    It is different from traditional durable medical equipment 
products in that rehab products are evaluated, fitted, 
configured, adjusted or programmed to accommodate each 
individual's specific and unique medical needs, taking into 
consideration the individual's medical history, diagnosis, 
disease progression, functional needs, anatomical anomalies and 
requirements as well as the typical environments that 
individual encounters throughout the course of their daily 
activities.
    I am accompanied today by my friend David T. Williams of 
Ohio, and I invite you and members of the Committee to talk to 
Mr. Williams after the hearing. David is an excellent example 
of what goes on into the process, into providing complex rehab.
    In 1975, David was diagnosed with multiple sclerosis. This 
form of multiple sclerosis is characterized by acute 
exacerbations of the disease, resulting in the formation of 
scar tissue in various locations in the brain and spinal cord. 
This in turn causes a wide variety of symptoms.
    In David's case, the location of the multiple lesions in 
his spinal cord have resulted in multiple symptoms and 
disabilities, including quadriplegia and multiple complex 
medical conditions.
    The process of obtaining his wheelchair started with the 
thorough review of his medical record and complete and detailed 
evaluation by a multidisciplinary wheelchair seating clinic. 
Based on this evaluation, David's neurologist prescribed a 
power wheelchair and a seating system that would give him 
pressure management, respiratory relief when necessary, 
postural stability, abductor spasticity control and the ability 
to periodically reposition and elevate his legs.
    The certified rehab technology specialist conducted an 
environmental assessment including his home, his workplace, and 
his vehicle. Based on the doctor's prescription and the 
recommendations from the various health professionals that were 
at the seating clinic, we ordered the following components to 
provide David with an appropriate wheelchair: a power 
wheelchair base, a transportation securement system, joystick-
style driver control with tremor dampering, power elevating leg 
rests, and a power seating system with the following functions: 
tilt, recline, power elevating seats, lateral trunk supports, 
adductor positioning device, and a headrest.
    To meet David's unique needs, the wheelchair he is driving 
today is built from components derived from seven different 
manufacturers. The component parts were assembled by a rehab 
technology company who had to fabricate some of the hardware 
needed to blend the different components into one system. A 
customized wheelchair system was then delivered to David, and 
several field adjustments were made during multiple visits to 
David's home.
    The costs of all of these services that were provided are 
included in the base Medicare payment for the power wheelchair 
system. Between the time David notified the staff of the 
seating clinic, the team assigned to his case had spent about 
40 hours. This time includes doing environmental assessments, 
working with David to see what kinds of things he must do every 
day to maintain the best possible functionality and quality of 
life, ordering the components, assembling, fitting, adjusting 
the product and training David in the proper use of the system.
    As the supplier, we also incur significant costs of 
obtaining all of the necessary complex medical documentation 
that Medicare requires. David's case is not unique. It 
represents the kind of challenge rehab technology companies see 
on a regular basis. Imposing a competitive bid process on 
complex rehabilitative services will substantially undercut the 
quality of services and the life for thousands of persons with 
disabilities and will essentially determine whether my business 
will continue or not.
    If my company loses this bid, the impact will be far 
greater than just losing my Medicare business. I will likely 
lose most of my other business for those product categories, 
because referral sources prefer to refer the providers who can 
take care of all of their business, not just patients who have 
one particular payer.
    In addition, State Medicaid programs and private payers 
will likely adopt the new lower Medicare bid fees, further 
negatively impacting any remaining business. Therefore, the 
majority of my business will be lost, forcing me to close my 
doors.
    As a small business, I believe we are disproportionately 
negatively impacted by this bidding program.
    There are two bills that have been introduced, H.R. 1845 
and H.R. 2231, that would make reasonable changes to how CMS 
implements this bidding program, and it would begin to address 
some of the problems faced by small businesses.
    I strongly urge this Committee to actively support these 
measures.
    Thank you for the opportunity to be here today and I willbe 
happy to answer any of your questions.
    Chairman Altmire. Thank you, Ms. Gilligan.
    [The prepared statement of Ms. Gilligan may be found in the 
Appendix on page 89.]

    Chairman Altmire. I now introduce Ms. Georgie Blackburn. 
Ms. Blackburn is Vice President for Government Relations and 
Legislative Affairs for Blackburn's and has worked within the 
homecare industry since 1978.
    Blackburns is an independent pharmacy and medical equipment 
and medical supply company with a staff of 150 people. Ms. 
Blackburn is the immediate past president of the Pennsylvania 
Association of Medical Suppliers and member of the American 
Association of homecare.
    She is here on behalf of the American Association of 
homecare, which represents health care providers, equipment 
manufacturers, and other organizations within the homecare 
community operating in approximately 3,000 locations in all 50 
States.
    Welcome, Ms. Blackburn.

 STATEMENT OF GEORGETTA BLACKBURN, VICE PRESIDENT, GOVERNMENT 
   RELATIONS AND LEGISLATIVE AFFAIRS, BLACKBURN'S, TARENTUM, 
PENNSYLVANIA, ON BEHALF OF THE AMERICAN ASSOCIATION OF HOMECARE

    Ms. Blackburn. Thank you, Mr. Chairman. We appreciate this 
opportunity to speak directly to you today, and the 
distinguished panel.
    The American Association of Homecare represents durable 
medical equipment providers and manufacturers who are part of 
the continuum of care that assures that millions of seniors and 
disabled Medicare beneficiaries receive cost-effective, safe, 
and reliable homecare equipment and services in their homes.
    It is essential that Congress examine the Medicare 
competitive bidding program and its impact on patients and on 
small providers.
    The Association is very concerned about the effect that 
competitive bidding would have on the survival of small 
homecare providers and also on the ability of providers to meet 
the needs of their patients.
    A typical beneficiary using home oxygen, which is a life 
sustaining therapy, is a woman in her seventies who suffers 
from late-stage chronic obstructive pulmonary disease, COPD. 
COPD is a debilitating disease characterized by low levels of 
oxygen in the blood and severe air flow limitation resulting 
from inflammation of the airways.
    Medicare beneficiaries who use power wheelchairs are 
seniors and Americans with disabilities who have lifelong 
debilitating conditions such as multiple sclerosis, Lou 
Gehrig's disease, cerebral palsy, traumatic brain injury and 
spinal cord injury. A power wheelchair enables individuals to 
live at home independently rather than in a more costly 
constitutional setting.
    Mr. Williams' chair, as Ms. Gilligan stated, is a prime 
example of complex rehab power mobility, and Mr. Williams 
exemplifies the independent, high-functioning beneficiaries we 
service.
    Blackburn's has had a very difficult but not unique 
experience with the bid process. As you mentioned, we are in 
the Pittsburgh CBA. We struggle to submit bids on all nine 
product categories. The bidding system is complex, and it is 
confusing.
    Medicare expected 16,000 providers to submit bids. Mr. 
Wilson stated 6,300 certified bids were received. My feeling is 
many providers looked at the convoluted program and chose not 
to bid at all.
    Under the first round of the bidding program, providers 
submitted bids to CMS to provide items and services at a 
reduced reimbursed rate. Providers who meet Medicare 
participation requirements and whose bids are deemed low enough 
will be selected as contractors.
    Those who are not selected as winning contractors will not 
be able to provide competitively bid equipment or services to 
Medicare beneficiaries. Since Medicare payments typically 
comprise 35 to 50 percent of a small providers's revenue, 
losing the ability to provide competitively bid items for a 3-
year contract period is essentially a death knell.
    The risk that this program poses to homecare providers 
cannot be overstated. If our company is not selected as a 
contractor, our very survival is in jeopardy.
    The competitive bidding rules designed by CMS are stacked 
against small providers. Small businesses lack the economy of 
scale to negotiate lower prices for manufacturers and the 
physical size to cover an entire CBA, the area of the bid.
    Even with the small business protection, such as the 
ability to form networks or the 30 percent set-aside, the 
program will still radically reduce the number of providers 
that exist today.
    The American Association of Homecare believes that the 
changes to the program contained in H.R. 1845, the Durable 
Medical Equipment Act of 2007, are critical. This bill will 
protect homecare patients and give a fighting chance to small 
providers. And we thank the Subcommittee members for your 
overwhelming support of this legislation.
    H.R. 1845 does not repeal competitive bidding; rather, it 
makes sensible changes to ensure patients access to home 
medical equipment, while protecting small providers.
    Specifically, the legislation would accomplish the 
following:
    First, it exempts smaller rural areas from competitive 
bidding. Congress gave CMS the authority to exempt areas with 
low population to ensure that bidding is not implemented in 
areas that lack a sufficient number of providers.
    Second, under H.R. 1845, all providers who meet Medicare 
participation standards and who submit a bid would be allowed 
to continue to provide equipment and services at the lower 
competitively bid rate. This provision restores fairness for 
small providers and would ensure that beneficiaries have 
choice.
    Third, the bill would restore the rights of participating 
providers to administrative and judicial review. Presently, 
homecare providers have no recourse if a mistake is made by CMS 
in calculating the award reimbursement rate or in awarding a 
contract. An error can result in the loss of a bid, and more 
importantly, the loss of a business.
    Fourth, the bill exempts items and services unless savings 
of at least 10 percent can be demonstrated. CMS should be 
required to show the competitive bidding saves money.
    The American Association of Homecare believes that unless 
it is modified, the Medicare competitive bidding program will 
undermine our Nation's homecare infrastructure. It will also 
jeopardize patients' care, choice of providers, and access to 
the medical equipment and services they desperately need.
    I look forward to working with this Committee and its staff 
to address small business issues and would like to continue to 
work with Committee members to enact H.R. 1845.
    Thank you so much for the opportunity to testify today.
    Chairman Altmire. Thank you, Ms. Blackburn.
    [The prepared statement of Ms. Blackburn may be found in 
the Appendix on page 97.]

    Chairman Altmire. I now introduce Richard Saxon. Mr. Saxon 
is President and CEO of BioMedical Life Systems, Incorporated, 
a manufacturer of portable electrotherapy devices and 
accessories founded in 1983. BioMedical Life Systems focuses on 
the development and manufacturing of durable medical equipment.
    Mr. Saxon is a member of the Advanced Medical Technology 
Association, AdvaMed, which represents more than 200 small and 
large businesses producing medical devices, diagnostic 
products, and health information systems throughout the 
country.
    Welcome, Mr. Saxon.

STATEMENT OF RICHARD SAXON, PRESIDENT AND CEO, BIOMEDICAL LIFE 
  SYSTEMS, INC., VISTA, CALIFORNIA, ON BEHALF OF THE ADVANCED 
                 MEDICAL TECHNOLOGY ASSOCIATION

    Mr. Saxon. Good afternoon. My name is Richard Saxon, and I 
am President and CEO of BioMedical Life Systems, a small 
business manufacturing durable medical equipment, based in 
Vista, California. I thank the Committee for inviting me to 
testify on behalf of AdvaMed at this important hearing today.
    AdvaMed represents over 1,600 of the world's leading 
medical technology innovators and manufacturers of medical 
devices, diagnostic products, and medical information systems.
    Over 70 percent of our members are small companies with 
sales under 30 million per year. AdvaMed members are devoted to 
the development of new technologies that will allow patients to 
lead longer, healthier, and more productive lives.
    The medical technology industry is filled by intensive 
competition and the innovative energy of small companies, firms 
that drive very rapid innovation cycles amongst products, in 
many cases heading to a new product version every 18 months.
    The medical device industry has developed a wide range of 
DMEPOS products to meet the many needs for many 
complexconditions. Access to DMEPOS can often mean the 
difference between a patient being able to remain at home or 
being admitted to a more expensive treatment in a nursing home 
or hospital.
    The primary focus of a competitive acquisition program is 
cost savings. Under such a program, my industry has strong 
concerns about the potential impact on quality of care and 
patients' access to lifesaving and life-enhancing technologies 
that companies like mine develop.
    The competitive acquisition program will limit the number 
of suppliers serving Medicare beneficiaries. It will encourage 
the smaller number of suppliers to limit devices to those that 
meet the average basic patient's needs. We feel that patients 
who have those special needs, those special needs will not be 
met.
    This program will significantly impact companies like mine 
that manufacture devices to meet all levels of individual 
patient's needs, including innovative and unique technologies.
    It will also directly impact companies working to modify 
highly complex technologies that are currently used in the 
hospital so the patients may successfully use them in a 
homecare setting.
    It could also dampen the significant investment my industry 
makes in research and development, R&D. If the program reduces 
payments to a point where innovative devices cost more than the 
payment amount, the incentive to reinvest in additional R&D is 
eliminated and the patients will suffer.
    When Congress established the competitive acquisition 
program in 2003, AdvaMed recommended a number of safeguards to 
ensure beneficiary access to products prescribed by their 
physicians. We appreciated the establishment of the Program 
Advisory and Oversight Committee, PAYOUT, to allow for 
stakeholders' discussions about program implementation.
    We believe it has been a helpful tool.
    However, given the likely impact of the program on daily 
patient care, we believe that there are still many details 
warranting careful consideration.
    We appreciate your willingness to listen to our concerns 
and to work with us to ensure that Medicare beneficiaries 
continue to receive high-quality DMEPOS. My written statement 
provides details, but let me highlight a few actions that 
should be taken by Congress or CME.
    Congress requires CMS to report on the program by July the 
1st, 2009. We ask that CMS be required to accept public input 
to ensure the reports analyze clinical outcomes, quality 
measures, measures to assess beneficiaries' access to the range 
of effective technologies, and potential impact on other 
Medicare services such as hospitalizations that are a result of 
the competitive bidding program.
    We have strong concerns about CMS' ability to use bid 
amounts submitted in one MSA to set rates in another MSA. 
Patient needs and costs for providing care and technologies are 
not the same in every MSA.
    If this program continues, CMS should be required to 
conduct a separate bidding process in each and every MSA to 
ensure that the payment amounts reflect local market 
conditions.
    The product categories used by CMS and the individual codes 
within these product categories are often broad, and fail to 
adequately differentiate between products with diverse and wide 
ranges of quality, functionality, technology and clinical 
utility.
    If the accepted bid amount does not reflect the various 
costs of the range of products, beneficiaries will not have 
access to the full range of products within a category or code.
    We urge CMS to allow for public comment on the categories 
and codes being bid.
    Thank you, again, for holding this important hearing. We 
look forward to working with this Committee on ways to make 
sure that beneficiaries maintain access to quality care, 
medical technologies, as the program continues to be 
implemented.
    Thank you.
    Chairman Altmire. Thank you, Mr. Saxon.
    [The prepared statement of Mr. Saxon may be found in the 
Appendix on page 104.]

    Chairman Altmire. Now we turn to Mr. Jose Navarro. He is a 
pharmacist and owner of Navarro Discount Pharmacies in Florida. 
Navarro Discount Pharmacies is currently a chain of 20 drug 
stores and is currently the top drug store in the Nation.
    Mr. Navarro sits on the Board of the National Association 
of Chain Drug Stores, which represents more than 200 chain 
pharmacies throughout the Nation.
    Welcome.
    Mr. Navarro. Thank you.

STATEMENT OF JOSE F. NAVARRO, RPh, NAVARRO DISCOUNT PHARMACIES, 
MEDLEY, FLORIDA, ON BEHALF OF THE NATIONAL ASSOCIATION OF CHAIN 
                          DRUG STORES

    Mr. Altmire, Ranking Member Gohmert, Congressman Gonzalez.
    Regardless of the size of the members of NACDES, which 
range from 4- to 6,000 stores, all members are deeply concerned 
about the impact of patient access and the competitive 
acquisition problem it will have.
    Many beneficiaries obtain their supplies from local 
pharmacies. In fact, a study found that nearly two-thirds of 
all of older diabetic patients obtain their diabetic test 
strips from retail-based community pharmacists.
    Retail pharmacists are the largest provider of medical 
equipment and supply services to the Medicare patients. And in 
many cases, the pharmacist is the most readily accessible 
health care provider in the community for Medicaid 
beneficiaries.
    We offer the following four suggestions to improve the 
competitive acquisition program to ensure continued 
participation by pharmacists servicing Medicare patients.
    First, State-licensed retail pharmacists should be exempt 
from accreditation requirements. The competitive acquisition 
program requires suppliers to be accredited before they are 
awarded a contract. The goal of these requirements is to reduce 
fraud, waste, and abuse to the Medicare program.
    While requiring accreditation of pharmacists is unlikely to 
reduce fraud, waste, and abuse, it will have the results of 
reducing the numbers of pharmacists that would be available to 
supply durable medical equipment and supplies to the American 
beneficiaries.
    The costs associated with the accreditation processes, 
which can amount to several thousand dollars and hundreds of 
man hours for each pharmacy, creates a tremendous disincentive 
for pharmacists to participate.
    I would like to clarify for a minute the number of 2,200 
that was stated before, which Mr. Wilson did not know about it. 
That number comes from a program adviser on Oversight Committee 
for CMS in a meeting of October 11, 2007, in Baltimore, 
Maryland.
    The timing and extensive paperwork required by 
accreditation requirements is likely to be blamed for this low 
turnout, and, as a result, our seniors may face difficulties in 
obtaining essential medical equipment and supplies.
    Further, requiring accreditation of State-licensed 
pharmacies is necessary. Pharmacies and pharmacists are 
licensed by the board of their respective States to provide 
services to patients. This very important feature allows 
pharmacists to bring a great degree of integrity to the 
Medicare program.
    Second, diabetic testing supplies sold at retail 
pharmacists should not be subject to competitive acquisition. 
Currently Medicaid beneficiaries can obtain the diabetes 
glucose monitoring and testing strip from retail pharmacies 
that participate in the program, allowing the beneficiaries to 
obtain their equipment, supplies and prescription drugs for 
managing their diabetes from qualified pharmacists.
    Evidence for programs such as the Ashfield Project prove 
that the pharmacist-based programs can result in clinical 
significant improvement to the health outcomes of diabetic 
patients.
    Further, unlike DME supply, CMS did not evaluate the 
effects of competitive acquisition on diabetic supplies during 
the competitive bidding project. Those expansions of the 
competitive acquisition program to diabetic supplies sold at 
retail pharmacies would create significant confusion and 
frustration in diabetic providers.
    And if you look at Mr. Wilson's testimony, the problems are 
mainly based on very expensive equipment like wheelchairs, 
oxygen equipment. At no point was the point of diabetic strips 
brought up by him. Also the fraud issues that he mentioned 
through his presentation were not related to diabetic supplies.
    Fourth, State-licensed and retail pharmacists should be 
exempt from CMS proposed surety rule. In addition to the 
competitive bidding program, CMS also proposed to require 
$65,000 surety bond program for all Medicare and medical 
equipment supplies. For many pharmacies this will be more--this 
will represent almost over $2,000.
    According to CMS' own calculations, up to 15,000 DMEPOS 
suppliers currently enroll in the Medicare; 22 percent are in 
rural areas, who will cease to provide Medicare beneficiaries 
as a result of the surety bond.
    CMS envisioned that most, if not at all, of the Medicare 
business conducted by DMEPOS suppliers will be assumed by other 
medical equipment and supplies remaining in the program. We 
really contest that. I think that is an incorrect figure.
    Clearly, CMS has indicated that these proposed rules will 
result in even fewer pharmacies participating in the Medicare 
Part B program. As a result, patients could face tremendous 
difficulties in obtaining the necessary equipment and supplies.
    The last one is that we will ask that CMS does not create 
national original competitive acquisitions area for mail order. 
CMS has stated that for the year 2010 and thereafter, he has 
the authority to establish national regional competitive 
acquisitions areas for supplies that furnish items through mail 
order. As I have already shared with the Committee, the 
majority of older patients prefer to obtain DME supplies 
through their local pharmacy, and this will impede that.
    In conclusion, I am grateful for the opportunity to testify 
before you today. Thank you for providing a forum to air our 
concerns on the medical equipment and supplies acquisition 
program.
    Chairman Altmire. Thank you.
    [The prepared statement of Mr. Navarro may be found in the 
Appendix on page 109.]

    Chairman Altmire. We will do at least two rounds of 
questioning from each of the members here.
    I want to start with Ms. Gilligan. Can you share with the 
Committee your thoughts on some of the modifications CMS in its 
final rule to address concerns raised specifically by small 
suppliers?
    Ms. Gilligan. Yes, Mr. Chairman. I would reference you to 
my written testimony in the record for additional details, but 
I have a couple of concerns.
    First of all, CMS established a network scenario that is 
theoretically geared to help small business, but the logistics 
and the legal issues associated with that scenario make it 
unlikely that any small business could pursue that approach. I 
don't know of any myself, and I have heard testimony this 
afternoon that not many people do know.
    Secondly, CMS sets a target that 20 percent of the 
suppliers be small business. But then, again, the low bidders 
who are forced to accept the bid amount would most assuredly 
have to take a financial loss on their product category.
    And I will give the example. In my marketplace I have large 
competitors. And if small business is targeted that will give 
us one or two small businesses. But because of the buying 
ability of the large business, the small business, even if 
offered the ability to take it at a lower price, we can't buy 
it at that price and we can't compete. So it is not really 
access.
    So I would say despite these modifications, I don't believe 
that CMS has taken any meaningful steps to address the special 
needs of small business and our ability to participate in this 
program.
    I think those who have a small business, like myself and 
all of the panel at the table here today have, a clear case of 
grievance under the Regulatory Flexibility Act which provides 
Small Business Administration with the authority to raise 
issues of unfair government, such as the CMS imposing right 
now.
    I was hoping that with the regulatory impact on small 
businesses being disproportionate, that you could help us out 
today and work with us on the Regulatory Flexibility Act.
    Chairman Altmire. Thank you.
    I want to say for the record that I do agree with Ms. 
Gilligan about the need to protect our small businesses and the 
beneficiaries they care for.
    The Regulatory Flexibility Act was intended to encourage 
agencies such as CMS to tailor regulations to be less 
burdensome to smaller entities, like these small suppliers, 
under DME competitive bidding.
    I am concerned that given the magnitude of this program, 
that CMS has similarly failed to address the requirements of 
the Regulatory Flexibility Act in isolating the impact that a 
rule will have on small businesses.
    In the absence of a rigorous analysis of this rule and the 
impact on small businesses, this Committee cannot be certain 
that small suppliers can compete or that rural beneficiaries 
will not have difficulty obtaining DME.
    So I appreciate your answer.
    And I would now ask, Mr. Saxon, in your statement you 
recommended that CMS should be required to conduct bidding to 
set prices within all MSAs as it expands the program, 
essentially prohibiting the agency from using bid amounts 
determined in setting payments in one MSA to set rates at 
another MSA.
    Why do you feel this is important?
    Mr. Saxon. Mr. Chairman, the cost of doing business in 
different parts of the country are undeniably always different. 
The cost to rent a building in New York is certainly different 
to a supplier renting a building in a rural area.
    CMS should conduct bidding in each MSA with the local 
suppliers to establish the prices within that specific MSA. 
They should not simply be transferring a bid amount from one 
MSA, assuming that would be good for the whole country as far 
as moving it from one MSA to another.
    As you know, and I will just point out, the cost of doing 
business in one State or one MSA are very different. So the 
prices should be set locally to ensure the programs meet the 
needs of the patients in that area.
    I think that it is a fairly logical thing that one should 
not allow CMS to be able to establish what works in one or what 
is established for one MSA cost and just transfer that across.
    Chairman Altmire. Thank you.
    My last question for the first round is for Ms. Blackburn.
    Given your experience in serving Medicare beneficiaries, 
what would you anticipate the impact of this program would be 
for patients and their caregivers, and what kind of education 
will Medicare beneficiaries and suppliers need?
    Ms. Blackburn. That is a good question, Mr. Chairman.
    We know there will be a problem. We know that there has 
been no education. When the Drug Act came about last year, we 
know when the--we know when the drug act came about, the 
Medicare drug act came about, there was a huge amount of 
information that was shared with the public as well as 
caretakers who take care of people who are on medications.
    We have seen none of that with competitive bidding. We have 
very little information to handle the bids ourselves. There is 
just not a lot of information out there.
    As far as the patients, what they need and their caretaker, 
we feel that the impact will be, if you look at the market, the 
impact may be if you have a growing demographic and you have 
less suppliers to provide to that demographic, we suspect that 
the quality of care will be at risk.
    And we are concerned that the type of services we provide 
now--those of us who are in that business, that you could call 
us 24 hours a day--just may not be there, because the award 
winners will be working on the basis of volume.
    So how that will impact on the caretakers, I am not sure. 
But I will say there will be a higher level of frustration for 
those that care for those at home.
    Chairman Altmire. Thank you.
    I will turn it to Mr. Gohmert.
    Mr. Gohmert. Thank you.
    Mr. Navarro, thank you for providing the information on the 
2,200. I will see that gets passed on to Mr. Wilson so he will 
know what came from his agency in the future.
    Mr. Navarro. Thank you.
    Mr. Gohmert. And I have a good deal of rural area in my 
district, and it has been an increasing concern. It looks like 
someone has to go toward almost complete elimination of people 
in retail, so that you basically can watch television, decide 
what your symptoms are and which commercial best fits your 
situation, and then get on the Internet or telephone and order 
whatever pill you want and what other orthotic piece of 
equipment looks appropriate. But we know that we need help. 
That is why people get licenses: doctors, health care 
providers. So I am very concerned that we are about to lose one 
of those elements.
    Of course, CMS wants accreditation. They have got these 
procedures.
    Let me just throw the question out to each of you as to 
whether or not the public would be adequately protected without 
this particular accreditation procedure, or if there is 
something that would not be quite as onerous?
    Yes, Dr. Taubman.
    Dr. Taubman. Thank you, Mr. Gohmert.
    I think from the physician's standpoint, physicians go 
through rigorous education, training, licensure. That is a 
significant burden to get through that process.
    Mr. Gohmert. That is why we have prescriptions, is because 
you are supposed to know more what we need than we do.
    Dr. Taubman. I would agree with you, sir.
    So I would submit to you, as I said in my testimony, that I 
believe physicians to be exempted from the accreditation 
process because we have already proved that we are capable of 
dispensing and prescribing these items for our patients by 
virtue of our licensure and our training.
    I also want to point out to you, in case you didn't know, I 
happened to download from one of the deemed accrediting 
organizations, the standards manual, which is 128 pages long, 
that I am supposed to follow to become accredited.
    I would submit to you, as a small business person in a 
small practice with six employees, the burden for me to comply 
with this is nearly impossible. And I think most physicians who 
supply DME at the point of care for our patients, would be 
unable to do this, and we are not going to be able to give 
these devices to our patients.
    Mr. Gohmert. I may need to get a copy of that downloaded, 
too, so we can provide that to Mr. Wilson, because apparently 
that is a little more than 14 I think we were talking about 
earlier.
    Mr. Shirvinsky. We do support accreditation for DME 
companies. And here is why.
    The CMS testimony today spent an inordinate amount of time 
talking about fraud, and they paint a very--they painted a 
picture with a very broad brush that made this entire industry 
appear corrupt.
    Mr. Gohmert. And you are not?
    Mr. Shirvinsky. We are not. And we strongly object to the 
way they utilize the data on fraud.
    Now, if they want to look at fraud, you have got to take a 
look at some situations like Miami, where 40 companies were 
given provider numbers inside of a burned-out, closed-up strip 
mall. You cannot bill for Medicare without a provider number. 
You cannot get a provider number without CMS or their 
subcontractors coming in and verifying that the business that 
is applying for a provider number is a legitimate operation.
    Obviously, something is wrong. I mean, CMS has let a lot of 
companies slip through the cracks. Whether there are payoffs or 
kickbacks or bribes that are involved, I don't know. But 
something is terribly wrong when that number of companies can 
appear at a single address and bill millions upon millions upon 
millions fraudulently to the government.
    Mr. Gohmert. So you think we need an accreditation process 
for CMS?
    Mr. Shirvinsky. I think accreditation for process for CMS 
would be a good idea at this point.
    But accreditation is a good idea for this industry. All it 
means are people are abiding by the rules. They are following 
the law. That is what we try to do with our members as an 
association. That is what the national organization does as 
well. That is what State by State, organization by 
organization, company by company, tries to do.
    Mr. Gohmert. You think the accreditation process as it is 
too onerous, or you think it is about right?
    Mr. Shirvinsky. Most of our companies have no problem with 
the accreditation process.
    Mr. Gohmert. Apparently some that don't have problems 
should have problems.
    Mr. Shirvinsky. That, I can't speak.
    All I know is the companies in my organization that are 
accredited do not complain. I have never heard one complaint 
from my companies about the accreditation process or 
accrediting companies.
    I do know that a lot of hospitals, for example, take issue 
with a lot of the accrediting companies. Our people have been 
able to work with them. They worked very hard. Our companies 
worked very hard to comply with the law. And a lot of the 
violations that appear when CMS, their subcontractors, conduct 
audits, we are normally caught in the middle. If an audit is 
done today, it is likely to find some violations. But the 
violations won't be something that our company did. They will 
likely be in what is contained in the physician's order. Again, 
we are in the middle.
    Mr. Gohmert. Let me hear from other witnesses.
    Ms. Gilligan. I also agree with my partner here. I am in 
the State association in Ohio. And we already have licensure in 
the State of Ohio for accreditation, and you cannot dispense 
life-sustaining equipment or technology, sophisticated 
technology equipment in Ohio,
    Mr. Gohmert. Is your mike on?
    Ms. Gilligan. You cannot dispense life-sustaining equipment 
or technologically sophisticated equipment in Ohio without a 
license, but we do exempt physicians because they already are 
licensed and all of those things.
    And I do applaud, and I do like requiring credentials, and 
I do like the accreditation process, because I think it makes 
me have a better company. I am very proud of that. We went 
through a lot of work to do that, and we put in a lot of 
practice, and it is very expensive and time-consuming. And I 
think we have a better end product. And with that, the 
customers and the public benefits from that.
    And I think that we should have it, but I don't think it is 
a solution to fraud and abuse that CMS is using. It is, 
absolutely, bad people are going to do bad things. They are 
going to lie. They are going to write bad things.
    Fraud and abuse is not accreditation. Accreditation is 
raising the level of care and the quality, which is what we 
should all be wanting to do for our patients. It is not to keep 
out the bad people. They will just lie. Bad people are bad.
    Ms. Blackburn. The American Association of Homecare does 
support accreditation. We also feel it raises the bar for the 
companies and it gives an even playing field for how things are 
done within each firm.
    We have actually asked CMS to announce a final date for 
accreditation, and that has never been forthcoming. This has 
been going on all year.
    On a personal level, I can tell you that Blackburn was 
accredited in 1995 by the Joint Commission. Is it difficult? It 
is a little tedious. You do have a manual to follow. There are 
some things that are introduced into your business that you may 
not have thought about that, absolutely, it gives that business 
the ability to improve through the accreditation process.
    And I also agree that the end result is a help to the 
patients whom we serve.
    Mr. Gohmert. Thank you.
    Mr. Saxon.
    Mr. Saxon. Well, from the manufacturer's side, admittedly, 
few of the smaller DME manufacturers will be endeavoring to bid 
for equipment under the competitive bidding program. But I 
would say that--I leave it to the Association of Homecare and 
other people here on the panel, since they are representing 
more of the suppliers, which are the people that are asking to 
be accredited.
    So I won't go any further in this matter.
    Thank you for the opportunity.
    Mr. Gohmert. Mr. Navarro.
    Mr. Navarro. I am here, you know, I can tell you from a 
pharmacy. Today, pharmacists are highly educated individuals. 
They go through 6 years of higher education plus 1 year of 
training. They are licensed by the State Board. Pharmacies and 
pharmacists are licensed by the State and, really, there is no 
need to offer an accreditation program for pharmacists. I mean, 
we go through that, and we--on top of that, we are--we have 
continuing education every year. I do not see a need why we 
should go through an accreditation program when we are licensed 
by the State and audited on a weekly basis.
    And just tell you, with regard to the fraud that Mr. Wilson 
said--and I am from Miami--really the fraud has to be blamed on 
CMS. I mean, the licenses, the fraud is happening with 
storefront locations that get patients recommended, that then 
they open their own DME stores. I mean, these are licenses that 
should never have been granted. You know, they do not visit the 
location for an inspection.
    And then they complain there is fraud. And at the same 
time, they want pharmacist accreditation for us to get a 
license. They go in and inspect us. They inspect us every year 
and they issue a license.
    I don't think pharmacists require accreditation.
    Mr. Gohmert. Thank you very much.
    Chairman Altmire. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    When we think of DME suppliers and vendors, I don't know, 
we envision doctors and pharmacists. And when we look at the 
grand scheme of what CMS is trying to do, we are not sure how 
that impacts manufacturers and such. But you are all up here 
and you are all expressing your deep concerns about the 
negative impacts from where you operate and how you take care 
of patients in your own right.
    Mr. Navarro, I visited a small pharmacy in San Antonio; the 
father and the daughter, the daughter that followed in the 
father's footsteps.
    I know what you described. But if this went into effect, 
there is no way that Ortiz Pharmacy is going to be able to 
prevail. And I know Mr. Wilson told me that they are going to 
make exceptions somehow within that San Antonio area, maybe 
somehow within that CBA, to accommodate someone like the Ortiz 
family and the Ortiz Pharmacy.
    How do you see it playing out?
    Mr. Navarro. We have 20 stores so we have a decent number 
of employees and supporting staff and a warehouse.
    We were not able to do the accreditation. Okay. At the end, 
we were going to go out to hire a firm to do accreditation for 
us, and it was impossible. We could not do it. And we, you 
know, we are pretty sophisticated. We are in the top pharmacies 
in the Nation and really we were not able to complete that--and 
Ortiz pharmacies will not survive. I don't care how many 
exceptions they do and how many things they do; at the end, I 
will guarantee you the community pharmacist, the independent 
pharmacist and many small pharmacists will not be able to 
participate in this program.
    And just one more second. I cannot really imagine how an 
older lady will get the test strips and medication to measure 
those test strips without consultation with the pharmacist. 
That is why it is beyond my mind to go on the Internet and get 
it.
    Mr. Gonzalez. I think any member has a pharmacy like I 
described in their town and such, and thank God that we have 
them. If I told you to what extent they go to serve their 
clients, it is extraordinary. It is just beyond belief. To lose 
that would be a true tragedy.
    Mr. Saxon, you are from the manufacturer and device maker 
and those people, and I wonder how does it impact you?
    I did pose a question about--from what I learned about how 
to categorize things first, which could limit choice. Then 
obviously limiting the number of vendors could very well impact 
what would be available to that user, to the patient, to the 
beneficiary.
    How does that play out as far as unique type of DME? And 
all of it is important. All medical equipment supplies are 
important one way or another. But some are unique. They are a 
little more sophisticated, need more instruction, and so on. 
And that is what I am talking about.
    What could be the potential negative impact on, one, the 
availability because of choice and such, of these products for 
patients, beneficiaries?
    Mr. Saxon. The first thing that I think is important to 
note is that this bidding contract is for 3 years. So any new 
innovative products that come into the market and try and 
obtain a HCPC code and category will have to wait 3 years. And 
even then, it will take time for them to be able to establish 
to CMS that this is a proven technology.
    So this is one issue.
    The other issue is that there has to be accountability in 
the categories and codes that are the HCPC codes that CMS 
establishes for different types of sophistication of devices. 
We can have, for example, in wound care, whereby a patient is 
treated with gauze and ointments, and that patient can be 
having to have those gauze and ointments treated, put on daily, 
and/or we can look at offering a more sophisticated DME product 
that allows for a more likely success of treatment in a short 
period of time.
    And I have to point out, these people are elderly. They are 
65 and older. These people are generally given and take what 
they are presented with. They are not likely to say okay, that 
is not what I wanted or that is not what I believe I should be 
treated with. They are given the equipment that Medicare 
decides they should have, whether--and it is probably, under 
this program, going to be the least expensive basic treatment 
equipment, and they are going to not be able to compare it with 
other treatments that are available or on the market.
    It is very important that we ensure that Medicare, under 
this bidding program, takes account of the total cost of the 
treatment. I mean, you can get a more expensive device, treat 
the patients, and successfully treat the patient, or you can 
prolong that treatment. And then you are involved with daily 
dressing or whatever is necessary to prolong that cheaper means 
of treatment. But in the end, the cost to Medicare will be 
greater than if they initially supplied the more expensive 
equipment.
    So there has to be accountability somehow that the codes 
allow for different sophistication of treatment if they are 
needed, and that it is not just the basic and everything 
bundled together in one HCPC code. And then, of course, it is 
going to be the cheapest product, because that is the way--it 
is a bidding system, and that poor patient then is going to 
suffer.
    This is talking about costs, first of all, but also the 
suffering of the patient having to wait for this treatment 
period of time to be successful.
    I mean, if you talk about wound care, you are talking about 
bed sores in particular, but you are also talking about other 
areas of wound care. I mean, they use wound care for--
    Mr. Gonzalez. I appreciate it, Mr. Saxon, and my time is up 
and I yield back.
    Chairman Altmire. Mr. Gonzalez, I would say that we are not 
planning to ask more questions. But if you do have one more, 
you can ask it.
    Mr. Gonzalez. Dr. Taubman, is that correct? Do you know Dr. 
Larry Harkus?
    Dr. Taubman. I know him very well.
    Mr. Gonzalez. He is a good friend, dear friend in 
California.
    I would like to play out one scenario, and we also have to 
think in terms of the Medicare beneficiaries, whoever that may 
be--yourself or your mother or father or whoever--going down to 
Mr. Navarro's pharmacy or the Ortiz Pharmacy and suddenly 
finding out they are not going to get that particular DME. So 
where are they going to go? And we have to start thinking that 
through.
    Now from a physician's point of view, my mother goes to 
you, and soon I will be going to you, and I will be covered, 
regardless. My mother is a beneficiary. She goes over there 
and, because of the new rules and the new model and such, you 
are not going to be able to provide her something as basic as 
this boot that you are referring to. So where is my mother 
going to go? From your office, where are you going to make my 
poor mother go?
    Dr. Taubman. Let us play that out, and we will use my 
walking boot that I brought here today.
    The way the regulations are written, currently CMS did in 
their recent final role, exempt some products from the 
competitive bidding. And also, in fairness to them, they did 
say that all physicians could supply these products at the 
point of care.
    They were things like walkers, those metal four-poster 
things you see people with. Canes, crutches, and manual 
wheelchairs are some things that I could give out to my 
patients if need be.
    But let us talk about your mom who comes to see me, and I 
practice in Maryland and it gets icy and it snows. She has a 
fracture that is unstable, and I am now seeing her in my 
office, but because this item, which is an off-the-shelf 
orthotic, and as Mr. Gohmert said, only PTs or OTs are allowed 
to dispense those without competitive bidding, I as a doctor 
can't do that.
    So I say to her, you know what? I am really sorry, but I 
will give you a set of crutches, and you can walk across the 
ice with your crutches, get on three buses and go across town 
and get this item from a larger supplier.
    I am not sure that is exactly what Congress intended in 
this process here. It is certainly not good medical care. So I 
think in that scenario we are talking about a very serious 
problem for physicians at the point of care.
    Physicians are not dispensing through their office power-
operated wheelchairs. We are not dispensing hospital beds. We 
are not dispensing oxygen tanks. We are not dispensing CPAP 
machines that are used for sleep apnea, and all of the things 
that are larger cost items. And clearly these folks are much 
better equipped to do that than I as a doctor in my practice.
    But these items are things we are not going to be able to 
dispense, and it is going to impact care; and from that 
standpoint, it makes no sense whatsoever to include physicians 
in this particular process for these items that we dispense as 
a critical part of our care at point of care.
    Mr. Gonzalez. Thank you very much.
    I yield back.
    Chairman Altmire. I want to thank the panel. You all came 
in from out of town, and at some expense and travel, and I 
really appreciate it. The Committee appreciates the fact that 
you took the time to join us today and offer your expertise on 
this very important issue. We are going to continue to study 
this, and we ask for your consideration and help in moving 
forward in offering your expertise.
    So thanks to each and every one of you.
    I ask unanimous consent that members of the Committee have 
5 days to submit statements and supporting materials for the 
record. Without objection, so ordered.
    And this hearing is now adjourned.
    [Whereupon, at 4:20 p.m., the Subcommittee was adjourned.]

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