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




 
                        SUBCOMMITTEE HEARING ON
                    COMPETITIVE BIDDING FOR DURABLE
                           MEDICAL EQUIPMENT

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

            SUBCOMMITTEE ON RURAL AND URBAN ENTREPRENEURSHIP
                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 21, 2008

                               __________

                          Serial Number 110-95

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


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

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Shuler, Hon. Heath...............................................     1
Fortenberry, Hon. Jeff...........................................     2
Velazquez, Hon. Nydia............................................     3
Braley, Hon. Bruce...............................................     4

                               WITNESSES


PANEL I:
Wilson, Mr. Laurence B., Centers for Medicare & Medicaid Services     6

PANEL II:
Harlson, Dr. Bob, American Association of Orthopaedic Surgeons...    26
Einfalt, Dr. Jon, Association of Community Pharmacists...........    29
Staub, Mr. Linwood, Advanced Medical Technology Association......    31
Hite, Mr. Casey, AAHomecare & NC Assoc. of Medical Equipment 
  Services.......................................................    33
Sutton, Mr. Heath, NC Assoc. of Medical Equipment Services.......    36

PANEL III:
Wartman, Dr. Rebecca, American Optometric Association............    47
Weidemann, Ms. Julie, VGM Group..................................    49
Gilberti, Mr. Gary, National Coalition for Assistive and Rehab 
  Technology.....................................................    51

                                APPENDIX


Prepared Statements:
Shuler, Hon. Heath...............................................    56
Fortenberry, Hon. Jeff...........................................    58
Velazquez, Hon. Nydia............................................    59
Braley, Hon. Bruce...............................................    60
Altmire, Hon. Jason..............................................    62
Wilson, Mr. Laurence B...........................................    63
Harlson, Dr. Bob.................................................    77
Einfalt, Dr. Jon.................................................    89
Staub, Mr. Linwood...............................................    96
Hite, Mr. Casey..................................................   116
Sutton, Mr. Heath................................................   126
Wartman, Dr. Rebecca.............................................   131
Weidemann, Ms. Julie.............................................   137
Gilberti, Mr. Gary...............................................   146

Statements for the Record:
Quality Diabetes Care Coalition..................................   152
Independence Through Enhancement of Medicare and Medicaid 
  Coalition......................................................   156
Consortium for Citizens with Disabilities........................   161
The Orthotic and Prosthetic Alliance.............................   166
The Power Mobility Coalition.....................................   171
Health Industry Distributors Association.........................   177
National Association of Chain Drug Stores........................   182

                                 (iii)

  


                        SUBCOMMITTEE HEARING ON
                        COMPETITIVE BIDDING FOR
                       DURABLE MEDICAL EQUIPMENT

                              ----------                              


                        Wednesday, May 21, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:12 a.m., in 
Room 1539, Longworth House Office Building, Hon. Heath Shuler 
[chairman of the Subcommittee] Presiding.
    Present: Representatives Shuler, Clarke, Fortenberry, and 
Davis.
    Also Present: Representatives Velazquez, Braley, and 
Gonzalez.

              OPENING STATEMENT OF CHAIRMAN SHULER

    Chairman Shuler. This hearing for "Competitive Bidding For 
Durable Medical Equipment" will now come to order.
    First of all, I want to thank everyone for being here. For 
a Subcommittee hearing, we have standing room only, which is 
quite remarkable. I think that I told the ranking member here, 
Mr. Fortenberry, I said, wow, this is great. He said, well, 
they are not here for us. But thank you for being here and 
being actively involved in this due process. I think that is 
what makes our country so strong.
    Access to health care is becoming increasingly critical for 
our Nation's seniors. By 2015, the baby-boom population in this 
country will reach 77 million. So it is critical to consider 
how we will care for these older adults and how we pay for that 
care.
    In 2007, health-care costs in the United States reached 
$2.3 trillion. Without a doubt, this is one of the greatest 
challenges of America, and if we are not careful, it will 
bankrupt our Nation.
    The question before us today is whether addressing 
America's Medicare challenges requires hurting small health-
care providers who have committed themselves to serving our 
seniors. This hearing will examine the implications of the 
competitive bidding process for durable medical equipment. 
While this program was created as a way to curb Medicare 
spending, this Subcommittee will review if CMS is properly 
considering the impacts on small health-care providers.
    CMS maintains that competitive bidding will not only ensure 
access to care but reduce out-of-pocket expenses for seniors 
and improve the effectiveness of payment. However, it is not 
clear that the program will meet the goals without driving 
health-care providers out of business and eliminating access to 
care.
    The results for the first bidding program were mixed at 
best. CMS's competitive bidding program for durable medical 
equipment was implemented in 10 cities last year. The bidding 
process created a number of problems for durable medical 
equipment small-business providers. CMS incorrectly 
disqualified some companies from participating due to clerical 
problems. In a number of situations, contracts were awarded 
when the bidder had no local presence, no history of providing 
a given product or service. This clearly does not meet the goal 
of ensuring access to care for the beneficiaries.
    Since Asheville, North Carolina, is in the second round of 
competitive bidding, I have been hearing about this problem on 
a firsthand basis. Small firms are an essential part of the 
health-care market, as they will fill many of the gaps larger 
businesses either cannot or will not fill. Like a number of my 
colleagues, I am worried that CMS has not considered the 
unintended consequences that may result from this program.
    This includes the possibility that Medicare beneficiaries 
may lose the right to choose the trusted care and the services 
of their local provider. Eliminating suppliers could have a 
devastating impact on rural communities. Suppliers could have 
to limit the outreach to rural areas. At the time when these 
communities are already facing health-care shortages, CMS 
should not be making this problem worse. Also, I believe that 
rural communities would be unfairly impacted by competitive 
bidding because of the nature of this program. Health-care 
practices could be forced to close their doors and working 
families would lose their jobs.
    Unfortunately, CMS has not taken any corrective action to 
fix the competitive bidding process and the impact it will have 
on small suppliers. I think everyone in this room agrees that 
the Federal budget simply cannot sustain the current growth 
rate in Medicare spending. However, we must also ask, is there 
a better means to achieve this program?
    I look forward today to hearing the testimony. I thank the 
witnesses for their participation.
    At this time, I will yield to the ranking member, Mr. 
Fortenberry, for his opening statement.

              OPENING STATEMENT OF MR. FORTENBERRY

    Mr. Fortenberry. Well, thank you, Mr. Chairman, for holding 
this important hearing.
    And we thank you, as well, for attending today.
    The House Small Business Committee, this Subcommittee and 
our Nation recognize that small business is critical to the 
country's overall economic well-being. The competitive 
pressures, creativity and innovation that small businesses 
bring to the marketplace are the hallmarks of entrepreneurship 
and the keys to job creation and economic growth.
    In many areas of our economy, the needs of rural America 
are uniquely different than those of urban areas. Few issues 
are more important to rural Nebraskans, for instance, than 
access to quality health care and services and providers. Small 
businesses particularly depend on access to quality health care 
as a key component of efforts to attract and retain a vibrant 
workforce. Small employers also play an important role in the 
delivery of health-care services and products in many rural 
markets. For example, 103 of the 142 pharmacies in my district 
are small, independently run employers.
    As we all know, Congress, in 2003, mandated that the 
Centers for Medicare and Medicaid Services implement the 
Durable Medical Equipment, Prosthetics, Orthotics and Supplies 
Competitive Bidding Program. It is, therefore, appropriate that 
Congress and we provide oversight as this program moves 
forward.
    The competitive bidding program was established to reduce 
beneficiary out-of-pocket expenses and save taxpayer dollars, 
while ensuring beneficiary access to quality items and service.
    The Centers for Medicare and Medicaid Services is scheduled 
to implement the competitive bidding process in phases, as our 
chairman reviewed. Round one encompasses 10 competitive areas 
and is ongoing. Round two encompasses 70 competitive areas to 
be implemented in 2009. And additional areas are to follow 
after 2009.
    As a part of the bidding program, CMS is required to take 
appropriate steps to ensure that small suppliers have an 
opportunity to be considered for participation. Congress, 
through its oversight role, must ensure that this process is 
implemented in a way that does not impede the competitiveness 
of our small pharmacies and suppliers, particularly in rural 
areas. Many small firms remain competitive by delivering high-
quality services and care to their patients. As CMS goes 
forward with this program, it is important to ensure that 
smaller suppliers, who particularly emphasize quality services, 
are left in a competitive position.
    Mr. Chairman, I believe we have excellent witnesses here 
today to provide insight into what issues need to be addressed 
to improve this program.
    Thank you again, Mr. Chairman, and I yield back the balance 
of my time.

    Chairman Shuler. Thank you.
    At this time, I would like to introduce the chairwoman to 
the Small Business Committee. I think it is a perfect example 
of her continued commitment and exemplifies her commitment to 
small business.
    At this time, Chairwoman Velazquez.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    Ms. Velazquez. Thank you, Mr. Chairman, Chairman Shuler, 
and Ranking Member Fortenberry. Thank you so very much for 
holding this hearing.
    Mr. Wilson, if you look around this room, we hold hearings 
almost every week, it has never been this packed. I don't think 
that it is because of Mr. Shuler. It is because of the issue.
    So I want to thank Mr. Shuler for this important hearing. 
He has been an advocate for small business on a number of 
fronts. Whether it is addressing energy costs, health costs or 
any other small-business concern, he has made small business 
his priority.
    Congress must not forget that most durable medical 
equipment suppliers are not only important small businesses, 
they are a vital part of this Nation's health-care safety net. 
Every day the elderly depend on DME suppliers for medical 
guidance and support, and they are often the only--the only--
medical assistance some patients see in their community.
    Once again, I find myself before CMS and the health-care 
community asking the question, why has the agency ignored the 
impact on small health-care providers? Over the past month 
alone, the Small Business Committee has held three hearings 
involving the Centers for Medicare and Medicaid Services. I 
don't think I would be alone in saying there is a problem. My 
concern is that CMS has little regard for how its decisions are 
impacting small businesses providing care for America's 
elderly.
    I have heard from numerous health-care organizations and 
providers asking this committee to conduct oversight. CMS, like 
any agency, must be accountable. And today's hearing is as much 
about accountability as it is about the challenges of the DME 
program.
    Again, thank you, Congressman Shuler and Ranking Member, 
for holding this hearing. And I yield back the balance of my 
time.

    Chairman Shuler. Thank you, Madam Chair.
    At this time, I would like to introduce Mr. Braley, our 
colleague and my classmate.
    Welcome to our committee.

                OPENING STATEMENT OF MR. BRALEY

    Mr. Braley. Thank you, Chairman Shuler. And I would like to 
thank you and Ranking Member Fortenberry by not using the usual 
recording of "Rocky Top" and the Nebraska fight song to begin 
the hearing. We all appreciate that.
    I would also like to thank Julie Weidemann, a constituent 
from my district and director of Palmer Home Medical Supply, 
for taking the time from her busy life to coming come to 
Washington, D.C., to testify before the Small Business 
Subcommittee on Rural and Urban Entrepreneurship on this 
important issue.
    I grew up in rural America, and I represent a large 
district that has many, many rural communities in it. And that 
is why this issue is so important to my constituents back in 
the 1st District of Iowa.
    In 2003, Congress passed the Medicare Modernization Act, 
which required the Centers for Medicare and Medicaid Services 
to launch the Durable Medical Equipment, Prosthetics, Orthotics 
and Supplies Competitive Bidding Program. While on the surface 
this may seem like a good idea, there is evidence that it could 
have devastating impact on DMEPOS industries.
    Companies currently receive a Government-set fee to 
distribute durable medical equipment for patient home use. 
Under the competitive bidding system, however, companies would 
have to submit a bid indicating how low of a price they would 
be willing to accept. Medicare would then limit distribution 
rights in a particular geographic area to the lowest bidders.
    In 2007, the DMEPOS Competitive Bidding Program started in 
the 10 largest metropolitan statistical areas, and in 2009 it 
is scheduled to be expanded to the largest 80 MSAs.
    I have many concerns about this competitive bidding 
process. This year I joined many of my colleagues in sending a 
letter to CMS. In this letter, we expressed concerns with the 
level of small-business participation in the competitive 
bidding program. Even the small businesses who are awarded 
contracts will be challenged to conduct business at reduced 
reimbursement rates because they cannot compete with large 
companies that have economies of scale.
    Also, there are many bidders that have been rejected by CMS 
on claims they had not submitted sufficient financial 
information or they had made other minor errors on their 
applications. Although these rejected bidders have made claims 
that have evidence to the contrary, they have no appeal rights, 
which seems contrary to our Nation's fundamental premise of due 
process.
    Furthermore, the program requires supplier accreditation 
for those participating in this program. This can create 
significant administrative and financial burdens on small 
suppliers and pharmacies. Many of these suppliers and 
pharmacies are already required to have a number of 
accreditations for providing care.
    The biggest concern I have, however, regarding CMS's 
proposal is that it could put small providers like Palmer 
Medical Supply out of business. Palmer Home Medical Supply 
currently serves 10 counties in rural northeast Iowa, and 
almost half of their business involves Medicare beneficiaries. 
The potential loss of suppliers could threaten these rural 
areas, which are more likely to have elderly populations, 
including the fact that Iowa has one of the highest levels of 
elderly populations per capita of any State in the country. It 
is essential that our communities continue to have access to 
high quality and great service from these small-business 
providers.
    I understand that the intent of the DME competitive bidding 
program is to provide cost savings for the Medicare program and 
its beneficiaries, and we all appreciate those efforts. But we 
need to ensure that beneficiary access, quality of care, and 
small businesses are not harmed by this program.
    The CMS competitive bidding for durable medical equipment 
project leaves too many questions unanswered. We need to take a 
step back to think about the true impact this project would 
have on the small providers and, ultimately, on the communities 
where they reside. It is important to explore whether there are 
rational alternatives to determining Medicare pricing for DME 
items and service. There are too many indications that the 
current bidding system is flawed.
    I look forward to hearing from our witnesses today, and I 
am hopeful that we can come up with a solution for Medicare 
reimbursement that does not pose so many potential risks for 
the providers and the patients they serve.
    So thank you, Mr. Chairman.
    And thank you to all the witnesses who have come so far to 
be with us today.
    And I yield back.

    Chairman Shuler. Thank you, Mr. Braley.
    Our first witness is Mr. Laurence Wilson from the Centers 
for Medicare and Medicaid Services. Mr. Wilson is the director 
of the Chronic Care Policy Group in the CMS's Center for 
Medicare Management.
    Mr. Wilson, thank you and welcome. You have 5 minutes for 
your testimony.



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

    Mr. Wilson. Thank you, sir.
    Good afternoon, Chairman Shuler, Representative 
Fortenberry, and distinguished members of the Subcommittee. I 
am pleased to be here today on behalf of CMS to discuss the 
Durable Medical Equipment Prosthetics, Orthotics and Supplies 
Competitive Bidding Program.
    This important initiative, required under the Medicare 
Modernization Act, has three key parts: quality standards and 
accreditation, financial standards, and competitive bidding. 
Together, these will help reduce beneficiary out-of-pocket 
costs, improve the accuracy of our payments, help combat fraud, 
and ensure beneficiary access to high-quality items and 
services.
    First, the quality standards and accreditation program and 
use of financial standards provide important safeguards for 
beneficiaries in the Medicare program. These safeguards also 
ensure a level playing field for suppliers competing under the 
competitive bidding program. Any bidder that failed to meet 
quality and financial standards was not qualified to 
participate in the program. The quality standards and 
accreditation program ensure that beneficiaries receive good 
customer service and have access to quality products from 
quality suppliers.
    CMS conducted a wide variety of activities to involve 
stakeholders in the development of these standards. Many, such 
as focus groups for small suppliers, were important parts of 
the development.
    The financial standards ensure that contracts only go to 
sound businesses that are capable of meeting beneficiaries' 
needs for the long-term. Financial standards also help weed out 
fly-by-night operators that prey on Medicare and beneficiaries, 
in contrast to legitimate suppliers acting in the best 
interests of their patients.
    Under the competitive bidding program, qualified suppliers 
compete on price to be contract suppliers with Medicare. 
Contract suppliers then compete with each other based on 
quality and customer service to serve the beneficiaries in an 
area.
    CMS adopted numerous approaches to ensure small suppliers 
have the opportunity to participate. First, CMS worked closely 
with the Small Business Administration to develop a more 
targeted and new definition of a small supplier. CMS then 
designed policies linked to this definition to help small 
suppliers in the program. For example, suppliers are able to 
band together in networks in order to meet certain program 
requirements.
    The program also ensures a formula to provide that multiple 
contract suppliers are selected for each of the 10 product 
categories. Most importantly, there is 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 added small suppliers to the list of winners to 
reach this target.
    The initial round of competitive bidding is now complete, 
with the announcement of 325 contract suppliers this past 
Monday. We are pleased with the results. Twenty-three percent 
of the bids submitted were in the winning range. Sixty-one 
percent of the bids were priced higher than the winning range, 
though some of those were also disqualified. The remaining 16 
percent would have been in the winning range; they were also 
disqualified.
    In the initial round of contract offers, 64 percent of the 
contracts were offered, again, to small suppliers. Ultimately, 
about half the contracts signed were those associated with 
small suppliers, clearly exceeding our target.
    When the new payment rates take effect on July 1 for the 
first 10 bidding areas, beneficiaries will begin saving money 
on 10 of the most commonly used durable medical equipment 
products, such as power wheelchairs and oxygen equipment. The 
average savings in their co-insurance and Medicare payments 
will be 26 percent.
    We understand that the implementation of this program may 
be difficult for some suppliers because the law anticipates 
that there must be both winning and losing bidders. Nonwinning 
bidders may still have opportunities to serve Medicare 
beneficiaries through providing nonbid products, subcontracting 
arrangements with winners, or as grandfathered suppliers for 
certain items, or by providing repairs and maintenance.
    We also understand that the new system represents a 
significant change in how suppliers operate under Medicare 
compared with the past. And we will continue to work closely 
with suppliers and make improvements in the program as we move 
forward.
    CMS is also conducting aggressive education and outreach to 
be sure that every beneficiary partner and supplier knows how 
to use the program well and ensure a smooth transition on July 
1. CMS will also monitor the performance of contract suppliers 
through beneficiary satisfaction surveys, tracking the volume 
of questions and complaints that CHIPs and 1-800-MEDICARE 
receive. These and other activities will help us keep current 
on what is taking place on the front lines.
    In conclusion, CMS is committed to the success of this 
program. We have designed a program to provide beneficiaries 
with quality items and good customer service at a lower price 
from reliable suppliers.
    I very much appreciate your time today and the invitation 
to testify. I would be happy to take any questions. Thank you.
    [The prepared statement of Mr. Wilson may be found in the 
Appendix on page 63.]

    Chairman Shuler. Thank you, Mr. Wilson, for your testimony.
    The first question I have, in the first round of the 
bidding process, a Texas-based supplier won a bid that serviced 
Charlotte, North Carolina, a Texas-based company.
    How does CMS evaluate the bidder's statement of capacity 
when the provider has no offices, no employees in Charlotte?
    Mr. Wilson. A very good question.
    Consistent with how the Medicare program currently works, 
there are providers that operate out of State and move into new 
areas. Some suppliers are setting up subcontracting 
arrangements. Some may have distribution centers on the ground.
    Just yesterday, we talked to two suppliers that were moving 
into Pittsburgh. They already had, while they are listed in 
another State, they already had a distribution center on the 
ground. One of them already had existing contracts with 
University of Pittsburgh Medical Center and had been supplying 
services through W-2 employees in Pittsburgh for years.
    So we think there are a lot of those type of arrangements 
being made. We are checking on these ones that are listed as 
out-of-State suppliers, because we think the issue you raised 
is an important issue. We want to make sure that the suppliers 
have a plan in place to provide services, provide access to our 
beneficiaries.
    And, in fact, through the bid process, we did ask for 
subcontracting information from suppliers, because we wanted to 
understand their expansion plans and know how they were going 
to provide services. And we are following through to check on 
it now.
    Chairman Shuler. During the process, one of the 
qualifications was their quality. Specifically tell me how the 
quality is measured from a particular company.
    Mr. Wilson. What the law requires--the Medicare 
Modernization Act provided this authority that CMS would 
establish a set of quality standards that independent 
accreditation organizations, selected by the Secretary, would 
use to go out, do on-site reviews, and accredit suppliers.
    So suppliers need to have a plan for things like business 
standards, personnel, but also how to provide care. That is, 
working with physicians, how they are going to do delivery, set 
up of equipment, how they are going to monitor complaints, 
collect performance information, and keep that information for 
the accreditation organizations.
    So we expect and require for this program, and will require 
nationally by September 30th for all suppliers, September 30th, 
2009, that they be accredited in this manner. There are 10 
private accreditation organizations currently accrediting 
suppliers.
    Chairman Shuler. So you look at the quality based upon the 
business. You know, I have been in business for many years, and 
occasionally we have subcontracted. How is a business able to 
regulate, or how does CMS, how are they qualifying a 
subcontractor of a company?
    I mean, if they are looking at quality based on that 
company, when in fact the supplier themselves is actually 
another company? If they are subcontracting it, what 
qualifications from the subcontractor has CMS taken in 
consideration?
    Mr. Wilson. Right now we hold the supplier that we have a 
contract with responsible for meeting the requirements and 
ensuring that the beneficiaries are provided the appropriate 
services.
    Do we have an accreditation requirement on the 
subcontracting suppliers? I don't think we have that 
requirement in place right now. I think that is something that 
we need to look at as we roll out accreditation nationally for 
September of 2009.
    I think that is an important issue, because to the extent 
that suppliers have been subcontracting--and they have been for 
years--and we are moving into this world of accreditation, we 
need to consider what that relationship looks like. So I think 
it is an issue and one that we are looking at in the context of 
our progress on accreditation.
    Chairman Shuler. So, in fact, a company could be awarded a 
bid through the process, it could be rewarded that contract, 
and they could subcontract out to someone who was of 
substandard quality that you had actually already failed or 
denied?
    Mr. Wilson. If they had failed accreditation, I think that 
would be a concern for us.
    Chairman Shuler. So maybe that is something CMS should take 
into consideration?
    Mr. Wilson. I think that is something we ought to look at. 
And to the extent that we are interested in looking at 
subcontractor relationships and accreditation for all 
suppliers--
    Ms. Velazquez. Would the gentleman yield?
    Chairman Shuler. I yield to the chairwoman.
    Ms. Velazquez. Mr. Wilson, the subcontractors, would they 
be licensed by the State? Will that be required, to be licensed 
by the State in which they are going to be providing the 
services?
    Mr. Wilson. I am not sure of the answer to that question.
    Ms. Velazquez. Don't you think that is an important answer?
    Mr. Wilson. I think it is an important answer. I--
    Ms. Velazquez. Because it will determine whether or not 
they have the ability to provide quality care and services.
    Mr. Wilson. I think we should do everything that we can to 
ensure that the beneficiaries get the services they deserve and 
that they are quality services.
    Ms. Velazquez. So what process are you going to have in 
place in order to make sure that appropriate oversight will be 
there to prevent those subcontractors that do not have the 
ability in the first place, because probably they submitted a 
bid and they failed? So if they fail, what do you think are the 
reasons for someone who submitted a bid and failing and not 
getting the award?
    Mr. Wilson. I think, to the first part of that question, 
what we need to do is rely very heavily on monitoring, 
especially as we roll out the program on July 1. I think we 
need to do things like collect data from 1-800-MEDICARE. We are 
doing that. We need to do beneficiary satisfaction surveys to 
ensure that people are happy with the services they are 
getting. I think you raise an issue that we may want to focus 
on in doing that type of review.
    We are also operating a program where, if there are 
concerns, they do arise, we will have ombudsmen, we have eight 
ombudsmen ready to work with beneficiaries and suppliers in 
each of the areas, or eight ombudsmen total that will be out 
there.
    And so I think we need to be able to address those types of 
concerns.
    Ms. Velazquez. Okay, Mr. Wilson, when I asked you the 
question whether or not licensing is an important requirement 
and you said that you don't know the answer to that question, 
isn't that part of the Medicare rule, that licensing?
    Mr. Wilson. I believe it is. They need to have a National 
Supplier Clearinghouse number, so they need to be enrolled with 
us.
    And to the extent the State requires licensure, which I 
believe it does, then whatever the requirements are for 
Medicare enrollment, they must be met by the supplier.
    Ms. Velazquez. I yield back. Thank you.
    Chairman Shuler. Obviously, we have indicated already a few 
of the many concerns and questions that the Committee has.
    Name the biggest problem that you have run into in the 
first bidding process. And the second thing to do is tell me 
some of the things that you are able to correct of the major 
problems. And in order, what is the biggest difference between 
the first bidding process and the second bid process?
    So, first of all, tell me the biggest problem that you have 
had in the first bidding process.
    Mr. Wilson. The biggest problem that I think we had was 
with the tool that we used to interface with suppliers in the 
process, and that was the online bidding system.
    There were problems with the online bidding system that 
caused a lot of frustration for suppliers. Again, bids were 
submitted electronically; hard copy documentation followed 
later. But bids were submitted electronically. The system would 
time-out. The system would lose information. That was a problem 
that we had to deal with.
    We have taken that issue and, for round two, developed an 
entirely new system that we expect will not have those types of 
problems. That was a concern, caused us to have to extend the 
bid window and, again, caused suppliers a lot of frustration. 
So I think that is, sort of, to the point that we are now, the 
biggest thing that we want to do for the next round of 
competitive bidding.
    The other thing I would add is that supplier education is 
always a key issue. To the extent that you have a new program, 
you have lots of suppliers across the country, you want to be 
transparent on the rules. We want to work on education. Learn 
from round one, where did people have concerns? Where were 
there problems in the bid? And focus our education on those 
issues.
    And then, finally, the last thing I would mention is we are 
just now moving forward with a big national beneficiary 
education program in the 10 areas. And I think we are looking 
at that to see how that works, where we might need to make 
changes for next time. That is one of the key parts of this 
endeavor, educating the beneficiaries and those that refer 
beneficiaries for services.
    Chairman Shuler. Is CMS completely prepared for the July 
2nd bidding process?
    Mr. Wilson. Well, we have not announced a timeline for the 
second bidding process. We have not said that we are going to 
open the bid window in July.
    I think what we are doing right now is concentrating on 
round one in the 10 areas and ensuring that we are prepared to 
implement the system, meet beneficiary needs, and monitor to 
ensure beneficiaries get what they need. That is what we are 
focused on now.
    I think in the coming weeks or months we will publish a 
timeline, specific timeline, for round two so that suppliers 
will know what they need to do to get ready for round two.
    Chairman Shuler. Obviously, being a part of the Blue Dog 
caucus, we are very concerned about wasteful spending and being 
able to cut areas of wasteful spending in our budget when we 
are at a time of tremendous debt in our Nation's history and we 
are passing it along to our children and grandchildren. So, you 
know, I commend CMS from the standpoint of being able to save 
money.
    What has been the overall value of savings? And the 
reason--and I caution when I ask this question, just the 
initial savings from the standpoint of from the suppliers' 
standpoint. But let's say, for instance, they are dropping off 
the equipment--basically a drop-off at a location, say, it's 
home oxygen care, they drop it off. Well, if they are not able 
to regulate it and able to manage it, and have basically the 
case management with that particular patient, how many of those 
patients ultimately end up in the emergency room or an 
ambulance ride, a $600 ambulance ride? How many of those?
    So, in evaluating the equation of the overall cost, was 
that taken in consideration? How much savings were there in 
round one?
    Mr. Wilson. I don't know if that type of a factor was--that 
type of qualitative factor was evaluated in round one. I am not 
sure how it would be.
    I think the thing that we have tried to do to address the 
issue overall, which would seem to me to mitigate the financial 
impact or the economic impact of that type of, you know--
    Chairman Shuler. Loss of jobs, unemployment, layoffs--I 
mean, all those have to be taken into consideration. You just 
can't look at the complete one implication when you say, "We 
have a bidding process and we are going to be able to save 
money in the initial cost," when in fact more people are going 
to the emergency room, more people are getting an ambulance 
ride, more people are staying in the hospital, and ultimately 
more causes of health-care costs to rise. I mean, those have to 
be taken into consideration.
    The loss of jobs from our small businesses have to be taken 
into consideration. How many people went from a company of 10 
to a company of two because they are subcontractors now, not 
the initial providers?
    I mean, all of those have to be taken into consideration 
for us, as Members of Congress, to help CMS to be able to help 
regulate. I am all for doing everything that we can to make 
sure that we provide--the quality of service has to be number 
one for the patient. But we also have to make sure that we 
manage it in the fact that we have the quality but we cut 
spending as best we possibly can.
    And I think that all of us on the Committee would agree we 
have to do something with our health-care problem, but we can't 
provide more at cost and just as a pass-along to other 
industries. Because it ultimately is going to come down to the 
costs. And if we are not careful, then we are going to bankrupt 
our country on this health-care problem.
    And, at this time, I will yield to the ranking member, Mr. 
Fortenberry, for his questions.
    Mr. Fortenberry. Thank you, Mr. Chairman.
    Thank you, Mr. Wilson, for coming today.
    Clearly, reducing cost and at the same time improving 
quality of service is a goal we all share and, I don't believe, 
are incompatible.
    You had mentioned that there is a 26 percent average 
savings. Did you mean that for the beneficiary or for the 
Government or in totality?
    Mr. Wilson. I meant for both. So, compared to what Medicare 
currently pays under the fee schedule, which has been in place 
for about 23 years or so, prices under competitive bidding are, 
on average, 26 percent less.
    So Medicare will be paying less, and beneficiaries, our 
most vulnerable population of elders, seniors, that pay a 20 
percent co-insurance on that price, will also be paying less.
    Mr. Fortenberry. I think it would be helpful to return to 
one of the questions that my colleague, Chairman Shuler, had 
raised regarding quality of service and unpack that a little 
bit further.
    Is distance for a beneficiary to travel to a provider a 
part of the quality-of-service measure?
    Mr. Wilson. Well, it is not part of the quality-of-service 
measure. It is an interesting question, because I think, in 
this industry, and if you look at the items that we bid, most 
of these items are delivered by truck or van or by the supplier 
in some way. And so, if you think about a wheelchair or a 
hospital bed or oxygen, those are suppliers that are 
responsible for delivery and set up and come out to the 
beneficiary. This is an in-the-home benefit. By statute, it is 
in the home, and so suppliers come out to the home.
    Mr. Fortenberry. It will take care of itself.
    Mr. Wilson. Right. And I would say that for diabetic 
supplies we did not include storefront diabetic test strips in 
competitive bidding so that beneficiaries would have an 
opportunity to still be able to get their drugs and their 
diabetic supplies in the same place, community pharmacies.
    Mr. Fortenberry. The 30 percent target of contracts to 
small suppliers, why don't we define a small supplier?
    Mr. Wilson. It is--we worked with SBA on this. And in fact, 
this was recommended by this Committee, that we take a more 
targeted approach, in the comments to the rule, a more targeted 
approach in our definition of a small supplier. So rather than 
look at a small business, which under SBA rules at the time was 
$6 million, moving to $6.5 million, we relied on comments to 
establish a standard at $3.5 million. So about half of the SBA 
standard for a small business. Because we felt that was more in 
line with the relative size in terms of receipts, dollar 
receipts of this industry. And then, of course, we established 
the policies that I mentioned around that new definition.
    Mr. Fortenberry. And one of the other issues regarding 
definition of quality is to ensure that a potential beneficiary 
might not have to deal with multiple locations to obtain the 
sets of products that they would need for various 
complications.
    Is that a part of the quality assurance measure as well?
    Mr. Wilson. Well, it is not a part of the quality 
standards. I think what you are referring to, sir, is how we 
designed the bid process, how we designed the product 
categories. So a supplier's bid on product categories--
wheelchairs versus hospital beds--a beneficiary who needs both 
may have to go to two suppliers; you are absolutely correct.
    The reason we did it that way was out of a concern for 
small suppliers. We didn't want to have the product grouping so 
large that a small business that only focused on one or two 
groups couldn't bid for this broader array of services. So it 
was, sort of, a balancing act between a beneficiary issue and a 
small-supplier issue that we dealt with through rulemaking.
    Mr. Fortenberry. I see. All right.
    Thank you, Mr. Chairman. Those are the questions I have for 
now.
    Chairman Shuler. At this time, I would--Madam Chair, do you 
have any questions?
    Ms. Velazquez. Yes, I do have more.
    Mr. Wilson, the Committee has analyzed the list of 320 
contract suppliers announced in the first round, and we found 
that, in the Cincinnati competitive bidding area, 19 out of 101 
contract providers across all product categories were not in 
that area. That is 20 percent.
    In the Cleveland competitive bidding area, 27 out of 113 
contract providers were not in Ohio. That is 24 percent.
    But just this past Monday, Mr. Williams said that 90 
percent of contract providers are in the areas where they are 
providing service.
    Can you discuss this discrepancy?
    Mr. Wilson. Well, I think we need to look at that number 
carefully. The thing that I will say about the 90 percent 
figure is this was constructed by my staff--
    Ms. Velazquez. Uh-huh.
    Mr. Wilson. --and what it looks at is precisely this. It 
looks at suppliers that are, one, in the State, because 
suppliers across the State, they may not be in the CBA, the 
competitive bidding area, but they do business there because 
they have delivery arrangements there.
    Ms. Velazquez. Well--
    Mr. Wilson. And, two, it excludes--
    Ms. Velazquez. So you are telling me that Mr. Williams's 
statement is incorrect?
    Mr. Wilson. I am giving you the parameters of that 
statement.
    Ms. Velazquez. Yeah, but I am asking you a question. Uh-
huh.
    Mr. Wilson. And the second part of those parameters is it 
does not include diabetic supplies, which are only mail-order 
in this program and defined as ordered remotely. So that is a 
remote business. It is mail-order. You wouldn't expect to see 
them necessarily in the competitive bidding area.
    Ms. Velazquez. Well, I didn't make the statement. Mr. 
Williams made the statement. And he said clearly that 90 
percent of contract providers are in the area where they are 
providing services. When I give you the example of Ohio with 
Cleveland, it is not such.
    Mr. Wilson. And, again, the statement is correct with 
respect to the parameters that I have outlined.
    Ms. Velazquez. I asked you a question before regarding the 
325 winning bidders and the fact that they will be able to 
subcontract. My question is, can you tell this Committee today 
that all the 325 winning bidders are State-licensed?
    Mr. Wilson. Are licensed within the State?
    Ms. Velazquez. Yes.
    Mr. Wilson. I don't know the answer to that question.
    Ms. Velazquez. But that is part of the rules of the 
Medicare requirements.
    Mr. Wilson. I would be very happy to get back to you on 
that issue. I just don't know the answer to that question. It 
is a question that would be something I could check with the 
folks at CMS.
    Ms. Velazquez. Well, you have 1 week to submit in writing 
to this Committee what is the status of all those 325 bidders.
    Mr. Wilson. I can do that.
    I can tell you they are all enrolled in the Medicare 
program, all accredited by an accreditation organization. I 
just do not know the status of licensure, given there are 
different State licensure requirements. I am just not familiar 
with them.
    Ms. Velazquez. And that was not part of the requirements of 
the Medicare regulations at the time when they were submitting 
their bids?
    Mr. Wilson. I think there are standards that suppliers have 
to meet; I know there are. They involve their enrollment. I am 
not familiar with every standard personally. I am very happy to 
get back to you within 1 week.
    Ms. Velazquez. Thank you.
    Thank you, Mr. Chairman.
    Chairman Shuler. Thank you, Madam Chair.
    It is an honor to actually have somebody on the Committee 
who probably knows more about this issue than any Member of 
Congress. This is his profession, this is what he did before 
coming to serve his community in the 1st District of Tennessee. 
And so I yield to Mr. Davis from Tennessee.
    Mr. Davis. Thank you, Mr. Chairman. I appreciate the 
opportunity. And I would like to expound a little bit on what 
you were saying.
    And, Mr. Wilson, thank you so much for being here.
    I am a conservative Republican. I think we do need to save 
tax dollars. So I want that on the record.
    I am also a respiratory therapist by training. I also owned 
an HME DME company back in the 1980s and 1990s. My mother had 
emphysema COPD. My mother passed away. She was on home oxygen. 
And I can tell you, if my mother had had to depend on a 
supplier from a different State or a different region for her 
health care, my mother would have died years earlier. She would 
have ended up in the emergency room much more often. There 
would have been no way, in her chronic health condition, she 
would have been able to stay at home.
    Now, with all that said, going back to me being a 
conservative Republican, would it have been in the best 
interests of the taxpayers of America to have had my mother 
either, number one, pass away years earlier, or number two, end 
up in the emergency room much more often, which is much more 
costly, or number three, ended up in a nursing home, which 
would have been at least 10 times more expensive than having 
home oxygen? So I think we have to take all of these things 
into consideration when we make these decisions.
    I was also a surveyor for the Joint Commission on 
Accreditation of Healthcare Organizations. So I visited health-
care DME companies all across America, and I saw some good 
ones; quite frankly, I saw some bad ones.
    And if we are going to pass policy in Washington, I don't 
think we ought to be passing policy to punish good suppliers or 
pass policy that is going to take away services from American 
senior adults. I think we need to pass policy--if someone is 
breaking the rule or a fraudulent actor, go after them. Throw 
the book at them. But don't go after the 97 percent of 
suppliers that are doing the right thing.
    Have you done a study? Can you tell me how much 1 month on 
home oxygen costs? And then can you compare that to what 1 
month in a hospital would cost or 1 day in a hospital would 
cost?
    Mr. Wilson. Let me deal with the last question first. We 
pay about $200 a month for oxygen rental, rental of equipment. 
There are additional payments, I think in the area of about 
$70, for portable tanks. Depending upon the technology, there 
might be an additional add-on of $50 or so if there is certain 
types of new technology.
    Mr. Davis. So about $300 a month for home oxygen?
    Mr. Wilson. Probably $300 a month, maybe a little bit more.
    And certainly a hospital stay, depending on the diagnosis, 
can be anywhere from, you know, $8,000, $20,000, $30,000 just 
for a couple days in the hospital.
    Mr. Davis. Now, putting back on my conservative Republican 
hat, it doesn't seem like a good process for the American 
taxpayer. We need to look at this on several fronts: quality 
front, affordability front, the taxpayer front. And I just hope 
that we do those things.
    And then, being a former joint commission surveyor, I hope 
that when we make these decisions and we start to look at who 
is going to win these competitive bids, that we use some common 
sense. I am hearing stories of people in Asheville, North 
Carolina, that need home oxygen and health care; actually their 
contracts are being won by companies in different States. I can 
tell you, when an oxygen machine goes down or a tank runs out 
at 2 o'clock in the morning, they have to have care.
    And I don't think that many people in Congress understand 
that for that $300 that you said they are paid now they have to 
have respiratory therapists, they have to have people deliver, 
they have to pay the gas prices to get there. It is not just a 
piece of equipment that you drop off and you never see again 
until the patient dies. It is one of those things where you 
actually have to have some hands-on with the beneficiary.
    So I just hope, as we are awarding these contracts, that we 
are looking at cost and quality.
    And I yield back.
    Chairman Shuler. Thank you, Mr. Davis.
    At this time, I yield to Mr. Braley for his questions.
    Mr. Braley. Thank you, Mr. Chairman.
    I want to thank my friend from Tennessee for putting a 
compelling human face on the issues that bring us here today. I 
have the privilege of serving with him on the Subcommittee on 
Contracting and Technology, which has benefited greatly from 
his wisdom and personal experience.
    Mr. Wilson, it seems to me that this competitive bidding 
process started with the fundamental premise that bigger is 
better. Would you agree with that?
    Mr. Wilson. No, I would not agree with that. I am not sure 
what you mean, sir, by bigger is better.
    Mr. Braley. Well, it seems by setting up a competitive 
bidding process which, in principle, is going to eliminate many 
of the providers from the marketplace as a natural part of the 
bidding process is a determination made in advance that the 
largest companies are going to have the best chance of 
satisfying the criteria that were set up.
    Don't you agree with that?
    Mr. Wilson. I don't. And the reason is I think what we 
tried to do in the rulemaking is design policies, some of 
which, again, we received in comments from this Committee, 
other Committees, and from those in the industry, to allow 
small businesses, small suppliers an advantage. I mentioned 
those in my testimony.
    The result of that was 64 percent of the contracts offered 
going to small suppliers, meeting that $3.5 million threshold. 
And so I think the results there speak for themselves, sir.
    Mr. Braley. But one of the things that concerns many of us 
on this Committee is the point that Mr. Fortenberry raised, and 
that is the issue of service to rural areas and the distance 
involved in providing quality and affordable care to patients 
who are in need of these products and services.
    We have a witness who will be testifying here later from my 
district. She lives in Fayette County, population 22,000. 
Clayton County right next to it, population 22,000. Buchanan 
County in my district, 21,000. Delaware County, 18,000. Butler 
County, 15,000. Mr. Fortenberry, I am sure, has counties in his 
district which have lower populations than this.
    And as someone who has seen what has happened as services 
in particular segments of business are nationalized and the 
deterioration in the access and quality of services in rural 
parts of our country, I am at a loss to understand how this 
competitive bidding process is going to benefit the 
constituents I represent in these counties.
    Could you explain that to me?
    Mr. Wilson. Well, I guess I would like to answer that in a 
couple ways.
    One, under the statute, we are only tasked to implement 
this program in 10 and then an additional 70 metropolitan 
areas. And in the future we can do other areas, but we do have 
authority to exclude rural areas. We are only working on the 
metropolitan areas right now, and we are only working on round 
one.
    In addition, the statute gave us authority to exempt low-
population-density areas. So when we selected Riverside, for 
example, in California, we focused the competitive bidding on 
the city of Riverside and areas surrounding it and cut off half 
of the metropolitan area that was mostly desert and rural areas 
to the State.
    So my answer to that is that we are implementing the 
program, we think, consistent with the law and have used our 
authority to exclude these low-population-density, arguably 
rural areas when we can.
    Mr. Braley. But don't you see the challenge that is going 
to create for small-business owners? Because in States like 
Iowa and Nebraska, if you are going to survive as a small-
business owner you are going to have to have an ability to sell 
into both markets, those SMSAs as well as rural markets, in 
order to justify the costs of providing care in rural areas.
    When you cut out bidders from having access to an area 
where they have lower transportation costs and higher 
population densities, you are automatically imposing burdens on 
those small-business owners that are going to make it more 
difficult for them to compete and obtain reimbursement under 
this same scheme.
    Do you understand that?
    Mr. Wilson. I absolutely do. And I think we do recognize 
that concern, absolutely. And one of the reasons that we 
allowed suppliers to band together and into networks was to try 
to overcome that concern, as well as provide other 
opportunities for small businesses. So, again, yes, we do.
    Mr. Braley. And then my final question goes back to the 
point I made in my opening statement, and that is why it was 
necessary in the statute in the final rule to waive the 
requirements of the Federal acquisition regulations and 
providing no administrative or judicial review of six specific 
components of this process.
    That seems to be fundamentally an un-American philosophy, 
and I would like you to explain why that is part of the bidding 
process.
    Mr. Wilson. That waiver of judicial and administrative 
review was in the statute. We incorporated that as part of our 
regulations.
    The thing that I would say is I think it is appropriate for 
suppliers to have a hearing or for CMS to review an issue where 
they have a concern.
    That said, when we did disqualify a number of these bids, 
which is, I think, the greatest area of concern and tension on 
behalf of those suppliers that bid, we did allow them to come 
to the contractor and present their concerns. The contractor 
reviewed those concerns, made a recommendation to me and my 
staff, and we and me personally reviewed those concerns. And, 
in eight cases, we did overturn our contractor and allow that 
the bid evaluation move forward, and some of those suppliers 
are getting contracts.
    So we tried to incorporate that oversight, that review, 
take responsibility for our contractor and make some mitigating 
changes where it was appropriate. So I agree with that 
philosophy.
    Mr. Braley. Thank you.
    Chairman Shuler. Thank you, Mr. Braley.
    At this time, I would like to recognize Mr. Gonzalez, who 
is one of our great leaders here on the Small Business 
Committee, the one that we can rely upon, depend upon, and 
always ask for a lot of his advice. And at this time, Mr. 
Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman, and thank 
you for allowing me to sit in since I am not a formal member of 
this Subcommittee. But it is an important issue, and just about 
all of the other Subcommittees have had a CMS representative 
testify.
    And I am going to make certain assumptions, and then I want 
to follow up on this. And it touches on some of the things that 
my colleagues have already touched on.
    But as you make this evaluation, as you have these 
contractors go out there and figure what the people will be 
bidding on, the suppliers, the first assumption is that you do 
take quality of the equipment and the product into 
consideration. All products, all equipment are not created 
equal. That is going to be an assumption. So when you go out 
there, there has to be certain characteristics, conditions and 
requirements of the particular equipment or product that you 
are seeking different companies to bid on. That is just an 
assumption, that you take that into consideration.
    The second assumption is the adequacy, the efficacy part of 
the particular equipment or product, that it will do the job 
that it is intended to do. And then, lastly, that there are 
certain products or services, equipment that require--and I 
think some of my colleagues touched on--instruction, guidance, 
follow-up, maintenance, support, and that whoever is going to 
bid has the capacity, the ability to do all of that.
    Those are my assumptions. Am I correct to assume all that?
    Mr. Wilson. You are.
    Mr. Gonzalez. And how did you do it? Let us start off with 
the quality of the equipment or the product that is being 
submitted for bid, because all equipment is not created 
equally.
    So I just want to know, how do you fix those parameters?
    Mr. Wilson. Well, all equipment is not created equal, but 
the type of equipment we are dealing with, I think in all 
cases, thinking down the list--maybe not walker--is FDA 
approved. We are talking about FDA-approved products. So these 
are products that have been judged by the FDA and approved 
either through a PMA process or a--sorry--a premarket 
evaluation process or a 510(k) approval. That is what we are 
talking about.
    From there, we did do a few things in the rule to ensure 
that suppliers provided quality product, having a transparency 
process so that all products are listed on the Web site, 
publicly available for physicians, for families, for 
beneficiaries; and that is part of the competition. 
Beneficiaries will vote with their feet and go for the best 
products, and so will physicians.
    The other thing is an antidiscrimination clause, where a 
supplier can't provide one type of product or brand to their 
Medicare patient and another to their private care patients. So 
we tried to do some things to support that and go sort of 
beyond FDA approval.
    The second thing I would say is, the--you know, the 
accreditation program which is an important program--on-site 
reviews, going out looking at the business model, the care 
model of suppliers--gets to many of the issues that you 
mentioned. So we are accredited based on quality standards that 
go to things like interaction with physicians by a supplier to 
ensure they get the right care, delivery, setup of equipment, 
and beneficiary education on the equipment consistent with the 
package insert or the guidelines. There are also special 
standards for important products like complex rehab mobility, 
complex power mobility and for oxygen, special accreditation 
standards on top of the basic ones.
    Mr. Gonzalez. Once you go through this preliminary process 
you just described, is there room for input, what I consider in 
the real world; people that are utilizing the equipment, 
utilizing companies' product, utilizing a company's service 
follow-up, technical advice and so on?
    What I am talking about is, let's say you have the 
physician community saying this particular piece of equipment, 
even though there are four different models out there or 
products by different manufacturers, this is the one that is 
the most efficient and effective, this is our choice.
    And then, of course, you have the hospitals that they agree 
we get the best results with this particular equipment. Then we 
have patients, too, that obviously had very good results.
    Is there room in this equation of yours for this type of 
input?
    Mr. Wilson. Two things I would say about that issue.
    The answer, sir, is "yes." The two things I would say: One, 
the products we have seen--and we have looked at the products 
because we have asked suppliers to report what products and 
brands they are providing; and what we are seeing is a lot of 
the same national brands of wheelchairs, of oxygen equipment, 
diabetic supplies, et cetera. So we are seeing the same quality 
of products that beneficiaries are used to using.
    With respect to the issue of whether a patient needs a 
certain, specific brand or mode of treatment and the physician 
says, this patient has to have that brand, there is a process 
that is actually outlined in the statute and then carried 
forward in our regulations that allows a physician to say, 
where it is medically necessary, the supplier has to go through 
a process to obtain that brand or mode of delivery for a 
patient.
    So I think we have tried to factor that into the process.
    Mr. Gonzalez. Part of the reason I am asking these 
questions, we are going to have witnesses later that I believe 
will probably have a difference of opinion.
    And my time is up. Mr. Chairman, if you will indulge me 
just a couple of seconds.
    Chairman Shuler. I yield an additional minute.
    Mr. Gonzalez. I appreciate it.
    Everything that I just talked about--because obviously I am 
going somewhere with this on a particular product, and that is 
going to be the negative pressure wound therapy, the wound VACs 
and such.
    Are you familiar with, not necessarily controversy, but the 
discussion surrounding that particular type of medical 
equipment device, product, whatever we want to call it?
    Mr. Wilson. I am, sir.
    Mr. Gonzalez. And do you feel that everything we just went 
over in my 5 minutes or 6 minutes now was applied, and you have 
reached a correct determination regarding what would be the 
most effective product out there that would be available under 
this competitive bidding scenario that you all have instituted?
    I know it was first with just 10, and now we are going to 
go to 70 and so on areas. But do you believe you have followed 
that and you have come up with a good outcome?
    Mr. Wilson. I absolutely believe that.
    We have looked at this product very closely over the year, 
including encoding decisions, looking at this product relative 
to other products on the market in the same space, looking at 
the medical evidence that has been reported; and there are a 
number of different negative pressure wound therapy products on 
the market now. There are at least three, four, and we know 
that they are being--some by big device and drug companies that 
are being provided, and they will be included in this process 
of competitive bidding in the 10 areas.
    Mr. Gonzalez. I appreciate your answers. My fear, of 
course, is what is going to be available to a non-Medicare 
patient is a superior product that will not be available to the 
Medicare patient under the scheme of things, as instituted by 
the CMS.
    I yield back. Thank you very much for your indulgence.
    Chairman Shuler. Thank you, Mr. Gonzalez. Thank you.
    At this time, I would like to recognize Ms. Clarke for her 
questions.
    Ms. Clarke. Thank you very much, Mr. Chairman. Thank you 
very much.
    I wanted to raise some questions around beneficiaries, 
quite frankly. You talked about this program being prescribed 
specifically for metropolitan and highly dense areas. I want to 
know whether CMS has looked at the disruption to beneficiary 
access, or beneficiaries that obtain competitively bid items 
from suppliers that were not awarded contracts, and what the 
proposal is to make sure that the continuity of care is there.
    Mr. Wilson. Well, that is, I think for us, moving to July 1 
over the next 6 weeks, the key issue. That is where we are 
right now, having a ground game, having an approach to go 
forward and educate beneficiaries so that as of July 1, every 
beneficiary that needs a product will know where to go. When 
they get a physician, when they get a prescription from a 
physician or from a discharge planner, they know where to go. 
They know where the beneficiary needs to be sent.
    That is the key issue, so we have looked at that. We have 
an effort under way to educate beneficiaries, educate others.
    Ms. Clarke. I am clear on that. But we are talking 
logistics here, and just as crucial is--our colleagues have 
spoken about the rural area. You are talking about densely--I 
am from New York City, and your agency could spend that period 
of time that you are talking about evaluating right now just on 
New York City alone, let alone all of the other metropolitan 
service areas around this Nation.
    And you are talking about a drastic change in what people, 
particularly the elderly and the infirm would have to do in 
order to have continuity of care. That transition is critical 
to their survival, to the quality of health care, that they 
continue on in terms of being able to access the appropriate 
equipment. And it is a huge change in behavior for a lot of 
these individuals, a lot of the companies.
    I wanted to raise that because I really want us to be very 
focused on, you know, unintended consequences here.
    What percentage of beneficiaries will have to switch 
suppliers in this program? Do you have a percentage?
    Mr. Wilson. We don't have a percentage yet. And one of the 
reasons is that, you know, for many of the items--I think more 
than half--a supplier can continue to provide services as a 
grandfathered supplier. So for oxygen, for example, they could 
continue to supply their current patients.
    We don't know how many--
    Ms. Clarke. Mr. Wilson, I understand that. But it would 
seem to me that that would have been sort of one of the things 
you would have done in tandem with issuing the RFP, because 
this way you already know what your catchment group is and what 
the gaps will be.
    There will be gaps particularly in highly dense 
populations, and there is going to be a concern about--and 
really a panic when people are reliant upon medical equipment 
for their day-to-day lives, and all of the sudden there is a 
switch and the educational piece does not necessarily come 
together in time. The next thing that is going to happen is 
panic, and that is going to exacerbate the health care 
concerns.
    So it would just seem to me that that would be--we would 
have to multitask here.
    And I am not comfortable with not knowing those 
percentages, so I just want to encourage you to really try to 
have a parallel track where that is concerned because, again, I 
am very concerned about the delivery systems that we have in 
place. We have looked at changing that delivery system in order 
to be more efficient, but at what cost?
    There is a cost to small businesses that are no longer in 
the loop, that have had relationships with the clients. And 
there has been a delivery system. Maybe you don't believe that 
system was efficient enough, but this change can also mean a 
disruption in critical care that people need to receive.
    So I think that, you know, there are some "cart before the 
horse" scenarios here that were probably unanticipated or that, 
for whatever reason, were not dealt with in tandem with the 
rules that have been promulgated and the contracting 
arrangements that are now being put in place.
    Can you tell me what percentage of beneficiaries will have 
to obtain a new prescription for their competitively bid items?
    Mr. Wilson. I am not sure they will need a new 
prescription. Many items are--
    Ms. Clarke. Are you positive? It is not about whether you 
think or you are sure; it is, are you positive?
    You see, the thing about it is, at the end of the day, I am 
looking at the beneficiaries. And you may speculate today that 
may not be the case. What if it is? What if it is the case that 
people have to get new prescriptions because the distribution 
chain has been disrupted and reconfigured?
    We are talking about densely populated areas. These people 
are going to rush to the emergency rooms. And in these areas 
they are already inundated in the emergency rooms.
    So I am really glad that you are here today, because I 
wanted to raise these questions with you. And I know that the 
health care delivery system requires a response, a response 
before this implemented.
    I hope you will get back to this committee with a lot of 
answers. Dedicate some staff. Let them look at this. Because we 
have concerns about the entire United States of America.
    You have decided that the best way to be efficient here is 
to target metropolitan areas. Well, let's talk about the 
density of those areas and how we are going to effectively and 
efficiently use this new paradigm that has been set up for 
delivery. And what is the backup plan if what you believe will 
happen has unintended consequences?
    I yield back the rest of my time, Mr. Chairman.
    Chairman Shuler. Thank you, Ms. Clarke.
    I do have a follow-up question, and if any of the other 
members would like to have a follow-up question as well, I will 
offer that at this time.
    Contracts were awarded. Are those contracts reassignable 
from the--from one company to another? If you win a contract, 
can you then reassign it to someone? If so, if that is the 
case, what actions is CMS taking to make sure they are a 
qualified company?
    Mr. Wilson. I don't believe they are reassignable, Mr. 
Chairman. I think that in the course of business, a supplier 
could be bought. But we reserve the right to terminate a 
contract any time we like if we feel like the terms of the 
contract will not be met. And if we do that, we will withdraw 
the contract and we will place another contract supplier in 
their place. You can't just reassign that.
    Chairman Shuler. So as you look at who purchases a smaller 
company by a larger company, are you looking at that process in 
every single contract?
    Mr. Wilson. They are required to report to us if that is 
going to happen.
    Chairman Shuler. Let's say a large company buys out a small 
company that the large company was denied. Can they assume that 
contract then?
    Mr. Wilson. I think that, again, we have the right to not 
accept that.
    Chairman Shuler. They were qualified the first time, 
though. You are saying they weren't qualified the first time 
they submitted the bid.
    Mr. Wilson. So we have the right to review that and make a 
determination that we are not going to accept that.
    Chairman Shuler. So it only seems rightfully so, if you 
denied them the first time, if they buy a company that has a 
contract, then they should not be--they shouldn't be able to 
have that contract.
    Mr. Wilson. Well, if we deny them on a price issue, and 
that is now moot, it may not be the case. But if we denied them 
on another type of issue that was more of a program integrity 
concern or something else, that could be a concern.
    Chairman Shuler. Back to the quality of care based upon the 
company's accreditation, a company--some of these companies 
were actually awarded contracts in areas which they have never 
serviced. So how do you look at quality of care, from the 
beneficiary standpoint, if they have never been in that type--
you know, what gives them the qualifications that you would be 
able to award them with a contract if they have never been in 
that business?
    Mr. Wilson. That is a very good question. I think what we 
have said is, we do understand that companies come into new 
areas all the time, have for years. What we have now in place 
is an accreditation program and financial standards to ensure 
that we have viable entities there for the long term to meet 
beneficiary needs and those that meet our quality requirements; 
that is, standards in place that didn't exist before that we 
think give us some assurance of quality of care in viable 
entities.
    Chairman Shuler. Ms. Clarke, do you have any follow-up?
    Ms. Clarke. Yeah, I actually do, Mr. Chairman. Thank you. 
And it really harkens back to a question that was raised by 
yourself and our chairwoman; And it has to do with the 
subcontracting.
    What wasn't clear to me was the level of accreditation that 
is required for the subcontractors to maintain a certain 
quality of care, in that your agency has documentation that 
affirms their accreditation and ability to do this. It becomes 
even more of a concern if we have prime contractors, for lack 
of a better term, that don't have any experience in the 
industry.
    What kind of liability are we taking on here if a 
beneficiary, as a result of us not having this information, is 
harmed in some way? Have you taken that into consideration? And 
what are you prepared to do to address this?
    Mr. Wilson. Let me quickly address the premise. First of 
all, accreditation is new. Every single supplier that was a 
contract supplier is accredited and meets all of our other 
standards of Medicare.
    The question the chairwoman raised had to do with 
subcontractors and when they are accredited. There is not a 
national accreditation requirement until September 30, 2009, 
because that is new. So they may not be now; they may be later.
    I think what we have to look at is whether we make that a 
permanent requirement.
    Ms. Clarke. But there was some doubt in your response as to 
whether all the 325, currently who are awarded, actually have 
the accreditation and licensure that is required.
    Mr. Wilson. No doubt in my mind on accreditation in meeting 
all of Medicare's enrollment standards. I am not familiar with 
every aspect of State licensure. It is different in each State, 
and I am not familiar with that particular requirement in our 
standards as it has to do with State licensure.
    I will get back to the committee on that.
    Ms. Clarke. Yeah, I think that that is going to be 
important because it is part of the Medicare rule. That is 
critical.
    And, again, I am concerned about liability. You are saying 
that the prime contractors, for lack of a better term, are the 
individuals that you are holding to this standard, but if you 
have a new company that has met this, it has never done this 
work before, and they go to a subcontractor that you may have 
found to be unworthy now and they are subcontracting with them, 
isn't that a diminishing of the quality of care for whomever 
they are going to be delivering these services to?
    Mr. Wilson. I think we would be worried about a situation 
like that. I would hold the contractor accountable for the 
quality of the care.
    Ms. Clarke. You are going to be holding the contractor 
accountable. That is all well and good. But on the end of that 
is the beneficiary. And you won't know until something happens 
to that beneficiary, because we didn't take the time to do the 
due diligence around the subcontractors.
    And I think that that is really, really important because, 
again, you have changed the whole paradigm here; and I think 
everyone in the food chain, for lack of a better term, needs to 
have the same level of scrutiny applied. We need to be able to 
affirm to the American people that we have set that standard 
across the board, and that different companies haven't been 
given a different preference in that we are not vigilant in the 
quality and standard in the delivery of care and supplies that 
maintain lives in our society.
    I submit to you that that is just as important. And the 
owner should not only be on those companies that, for whatever 
reason, rose to the level where they have obtained this 
contract. How do you get accountability out of that?
    Mr. Wilson. And I guess the thing I would say is, I don't 
disagree with anything that you said. But I think what I would 
say is that, where we are now, is in a far better place than 
where we were before we implemented the quality standards, 
accreditation and financial standards.
    So we have upped the game, improved the system; and I think 
you are pointing out some areas that we need to look at closely 
as we move the system forward and see if there are other--
    Ms. Clarke. Because we left a hole; there are unintended 
consequences. And if we are going to move and step up our 
game--and there is this glaring hole there that even a 
layperson like me can see--then it would seem to me that those 
within your agency whose full-time work is to make this thing 
happen, would be able to see it as well.
    And so it becomes almost negligent if we don't apply the 
same level of standard to the entire process, so that the 
American people can feel assured that we have put in a top-
notch health care delivery system that they can rely on.
    There will be a lot of trepidation out there. Like I said, 
you have got a huge task here. You are going to be changing 
this and you are going into major metropolitan areas, densely 
populated, a lot of health care challenges in many of the 
areas, a lot of people relying on these supplies and equipment.
    It is going to be really critical that we have our finger 
on the pulse of every single part of this system; and I submit 
to you, Mr. Wilson, that that subcontracting piece is just as 
important as the 325 awardees that you have already identified.
    Thank you very much, Mr. Chair.
    Chairman Shuler. Thank you, Ms. Clarke.
    Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    First of all, Mr. Wilson, I appreciate your testimony 
today; and I think you have been forthright and candid. We 
appreciate the work of CMS. We mandate that you save money, we 
legislate that you save money; but the question is how you go 
about doing it. And sometimes I think you have to report back 
to us that, if we want quality care, it may be hard to save as 
much money as we are asking you to save.
    And that is the reality of it. And whether you are a 
Republican or a Democrat, we don't want fat, we don't want 
excess spending; we want to reduce taxes, but we want a 
realistic assessment of what it takes to deliver quality health 
care to our Medicare population and, also, Medicaid.
    But I am just talking about the--the next step that is 
really important and what I have discovered--and I am sure that 
this is not going to be any different; whatever CMS does sets 
the baseline and the standard, and then is adopted by the 
private sector, the private payer.
    So if you determine what is proper protocol, if you 
determine what is the proper equipment, if you determine what 
are those guidelines and restrictions and so on and what you 
are going to pay for, my understanding is, private sector is 
real happy, they adopt it and--I mean, there are tremendous 
consequences to what you do.
    Staff always prepares a memo--and I always want to thank 
staff for preparing these memos; these are just incredible--and 
this is what it says. "The CMS bidding process consists of 
three stages. The stages are fairly complex, but simply stated 
the process involves the following: one, a prescreening stage; 
two, a bid submission stage; and three, a pricing stage."
    And I am always caught up in process. I love process 
because the quality of the process determines the quality of 
the product. I am wondering, was this all done in house, or did 
you contract out? Because CMS does that.
    I know that we have this RAC program with physicians, where 
private contractors go out there and try to find overpayments. 
And that is private-sector run; and it is a contingency fee, 
and that has always bothered me.
    But I am just wondering--I am just assuming all this 
prescreening and the bidding process was conducted by in-house 
CMS personnel. Or was that contracted out?
    Mr. Wilson. Most of the work was contracted out to a 
competitive bidding implementation contractor, or CBIC.
    Mr. Gonzalez. And what was the basis for payment? I mean, 
there is no contingency. I would imagine because they are just 
putting out that we can save money. But surely the incentive 
would be there to come back and tell you, This is the way we 
are going to save money. You didn't hire them to come back and 
tell you we can't save you any money.
    But what was the contractual relationship? Was it just a 
straight payment for their work, or was there an incentive to 
say, if you come back with a 10 percent savings, then your 
compensation may be predicated on what you can save? Anything 
like that?
    Mr. Wilson. Absolutely not. This program is based on a 
fairly well prescribed methodology for pricing bid evaluation 
that was put forward in a regulation through a public process 
with an advisory committee composed of industry, beneficiaries 
and practitioners and, I think, very well thought out in that 
regard.
    But nothing like that.
    Mr. Gonzalez. All right. Well, I appreciate it very much. I 
yield back.
    Chairman Shuler. Thank you, Mr. Gonzalez.
    Mr. Wilson, thank you for your testimony. And I want to 
thank your staff, as well, and I hope that--I assume some of 
the CMS staff is here. I think it is even more important and 
more vital, and I know that your time is very valuable. It is 
even more important that you hear the testimony from the next 
two panels.
    We can talk about it. We have discussed it with so many of 
the panels, but I think it is vital that you--as many of you as 
can stay and listen to the testimony. So that would be very 
helpful.
    And I think we have a work in progress, as so often we do 
here in Washington. Sometimes policy looks good on paper, and 
then when we enact it, then we have got work to do. We have got 
our work cut out for us.
    I think, as you see, this committee has always been very 
bipartisan. We try to work together. And I think you have seen 
it from David Davis in Tennessee to Ms. Clarke in New York that 
we have some work to do. And the most important thing is 
quality of care.
    So let's please take that into consideration, and I do 
commend you for your testimony and for your honesty. Thank you.
    Mr. Wilson. Thank you, sir.
    Chairman Shuler. Let's go ahead and have the second panel 
take their seats.
    [Discussion off the record.]
    Chairman Shuler. I would like to welcome the second panel 
to this very important hearing that we are having today. I 
thank you for your testimony ahead of time, and also I thank 
you for your commitment to whether it be your association or 
your own community and, most important, to the patient care.
    Chairman Shuler. At this time, our next witness will be Mr. 
Bob Haralson, the Medical Director of the American Association 
of Orthopedic Surgeons, from Rosemont, Illinois. Dr. Haralson 
is testifying on behalf of the American Association of 
Orthopedic Surgeons, a group that I know all too well at times.
    Dr. Haralson.

  STATEMENT OF DR. ROBERT H. HARALSON, M.D., M.B.A., MEDICAL 
   DIRECTOR, AMERICAN ASSOCIATION OF ORTHOPEDIC SURGEONS, ON 
                   BEHALF OF THE ASSOCIATION

    Dr. Haralson. Thank you, Mr. Chairman and Mr. Fortenberry 
and members of the committee. I am Bob Haralson. I am an 
orthopedic surgeon. I am here on behalf of the American 
Association of Orthopedic Surgeons, which represents 17,000 
Board certified orthopedic surgeons.
    I practiced in Knoxville, Tennessee, for 33 years and we 
implemented DME in all nine of our offices, and so I am very 
familiar with the issues regarding DME. But I would like to 
thank you for the opportunity to present our concerns with the 
many changes being implemented by law and regulation concerning 
DMEPOS.
    We share Congress' aims at increasing the quality of 
patient care, eliminating fraud and abuse in the Federal health 
care programs and reducing the cost of delivering care to 
beneficiaries. And it is our pleasure to appear before you 
today to continue our work towards those goals.
    With that said, I would like to highlight what we believe 
are some unintended consequences of applying rules meant to--
for retail DMEPOS suppliers, to physicians and small practices 
across the country.
    As part of providing high-quality care to our patients, it 
is important to note that we are talking about physicians who 
supply DMEPOS only to their patients, not to the general 
public. And because many of our physicians who provide DMEPOS 
are essentially small businesses and many provide those items 
to their patients because they are the only supplier in the 
rural areas, we are especially appreciative of your willingness 
to discuss this today.
    I can take you through some of the concerns we have 
regarding new and revised rules pertaining the provision of 
DMEPOS to our patients. Specifically, I would like to address 
the application of DMEPOS quality standards to physician 
suppliers, the quality standard accreditation process for 
physician-suppliers and the impact of the DMEPOS competitive 
bidding program on physician-suppliers.
    Collectively, these changes threaten to interfere with the 
continuity of patient care and the primacy of the patient-
physician relationship and significantly increase the financial 
and administrative burden on many physicians participating in 
the Medicare program. Currently, the rules make no difference 
between large retail DMEPOS suppliers and physicians who are 
also serving as DMEPOS suppliers solely during the course of 
caring for their patients.
    I would like to personally thank CMS staff for their 
willingness to work with us on how quality standards are 
applied to physicians who enroll as DMEPOS suppliers. However 
the AAOS believes that the one-size-fits-all approach to the 
quality of standards is not in the best interest of patients 
and will have an adverse impact on the patients' ability to 
access DMEPOS from their physicians.
    We have made CMS aware of these concerns, and while staff 
have acknowledged the difficulties of applying quality 
standards to physician-suppliers, the AAOS is concerned that 
CMS believes it lacks authority from Congress to provide 
flexibility for physician-suppliers in setting quality 
standards. This is certainly an area where we would request the 
committee's assistance.
    The second major topic I would bring to your attention is 
the burden of the quality standard accreditation process. We 
acknowledge and share congressional and CMS interest in 
assuring Medicare beneficiaries receive high-quality care, 
supplies and services. We are equally committed to ensuring 
that patients have access to the care and supplies that they 
need in a safe, efficient and timely manner.
    Unfortunately, our members are finding it increasingly 
difficult to participate as DMEPOS suppliers. In most cases, 
orthopedic surgeons are submitting claims for a small number of 
DMEPOS items. However, in order to go through the accreditation 
process, a physician's practice will be charged approximately 
$3,000 per location for accreditation. We have spoken to some 
small practices that provide as little as $1,500 a year for 
DMEPOS billings.
    This leads me to the specifics surrounding the competitive 
bidding process. Using the public commenting period, we 
expressed our concerns to CMS about the cost and burden 
associated with competitive bidding. We would like to applaud 
CMS for their decision to exempt physicians from having to 
competitively bid, particularly DME, including crutches, canes, 
walkers and folding manual wheelchairs. We are, however, 
extremely dismayed regarding one of the other categories of 
products subject to the competitive bidding program, and that 
is off-the-shelf orthotics. In the final rule, CMS did create a 
separate exception from the competitive bidding process for 
off-the-shelf orthotics, but only extended the exception to 
occupational and physical therapists and did not include 
physicians.
    Many patients require immediate access to these items for 
mobilization of injury support, facilitation of safe mobility 
or post-surgical recovery. It is unsafe and clinically 
inappropriate to delay a patient's access to items by sending a 
patient out of the physician's office without the necessary 
DMEPOS. We are hard pressed to understand why CMS did not 
include physicians in the exception.
    Finally, I would like to leave you with a few 
recommendations. First, regarding quality standards and 
accreditation, we seek your support in recognizing that 
physicians are already trained to provide and administer DMEPOS 
to patients. We firmly believe that given the complexity of 
today's health environment, steps must be taken to ensure that 
there are not unnecessary or duplicative efforts required of 
program participants that would discourage patient access to 
care.
    In terms of providing public confidence that the providers 
and suppliers of orthotics are trained and qualified, we 
believe that professional society credentialing and training 
processes and State regulation of practitioners already provide 
the necessary safeguards in this area. Therefore, while we 
understand the need for a process of this nature, we ask not 
that physicians and health care professionals be exempted from 
having to be accredited, but rather that they be deemed as 
having met requirements and accreditations once they are 
licensed or credentialed to practice medicine under State law. 
In the event that this is not possible, we ask for a delay of 
accreditation deadlines for new and existing suppliers so that 
a more coherent set of quality standards can be applied.
    Lastly, with regard to the DMEPOS competitive bidding 
program, my recommendation is simple: Add physicians to the 
already existing exception for off-the-shelf orthotics. Failure 
to exempt physicians would cause significant access and patient 
safety issues.
    I would like to thank you, Chairman Shuler and Ranking 
Member Fortenberry and members of the subcommittee, for the 
opportunity to speak to you.
    [The prepared statement of Dr. Haralson may be found in the 
Appendix on page 77.]

    Chairman Shuler. Dr. Haralson, thank you for your opening 
testimony.
    At this time, I will yield to the Ranking Member, Mr. 
Fortenberry for his introduction of the next witness.

    Mr. Fortenberry. Thank you, Mr. Chairman.
    I would like to thank all of the witnesses for joining us 
today, and at this time, I would like to introduce fellow 
Nebraskan, Dr. Jon Einfalt, from my district.
    Jon is a pharmacist at Tom's Rexall Drug, a family-run 
business in West Point, Nebraska. Thank you, Jon, for coming 
today.
    I would like to add parenthetically, Mr. Chairman, that I 
am also on the House Foreign Affairs Committee and, this 
weekend, was in the Middle East. And one of the meetings that 
we had was with the President of Afghanistan, President Karzai 
who, by the way, has visited West Point, Nebraska.
    I told him how impressed the town still is with the fact 
that he jumped on a horse to tour one of the cattle lots, 
feedlots that we have there. And we were very proud that he 
visited. He immediately responded, how amazed and delighted he 
was that all of the children of the village, as he said, waved 
the Afghan flag as he went by.
    So, Jon, thank you for joining us today. We are not only 
engaged in Nebraska in the critical issues of durable medical 
equipment, but those faced in the international affairs arena. 
Thank you.

   STATEMENT OF DR. JON R. EINFALT, PharmD, RP, OWNER, TOM'S 
    REXALL DRUG, ON BEHALF OF THE ASSOCIATION OF COMMUNITY 
                          PHARMACISTS

    Mr. Einfalt. Thank you, Chairman Shuler and Ranking Member 
Fortenberry, for allowing me to share my thoughts on the CMS 
competitive bidding process for durable medical equipment.
    My name is Dr. Jon Einfalt, and I am a pharmacist and co-
owner of Tom's Rexall Drug, a small, independent, rural 
pharmacy in West Point, Nebraska. I am a third-generation 
pharmacist, and all that experience is in rural Nebraska.
    Tom's Rexall Drug provides the West Point area with a wide 
range of pharmacy services. We have 10 employees. The building 
our store is located in has been an independent pharmacy for 
over 100 years. We have a high concentration of elderly 
patients, and it is higher than other parts of Nebraska.
    There are approximately 23,000 independent pharmacies 
located across the country. Many are located in rural areas and 
represent the only health care available in their community. 
Currently, Nebraska has 19 of 93 counties without a pharmacy.
    In the day-to-day care of my patients, I sell durable 
medical equipment. For years, my patients have depended on me 
to provide these products and the education necessary to use 
them properly and effectively.
    Even before the implementation of competitive bidding, CMS 
controlled the reimbursement for these items. In fact, the 
reimbursement for diabetic testing supplies has not changed for 
many years. In addition, CMS has greatly curtailed the ability 
of the independent pharmacist to provide some of these supplies 
to patients by setting reimbursement rates well below the 
acquisition costs of the supplies.
    Competitive bidding was introduced by CMS as a tool to 
control costs. I believe the rules and regulations CMS has 
implemented with this program will eventually have the exact 
opposite effect. Competitive bidding and accreditation will 
eliminate rural independent pharmacies and other small 
suppliers from the program. Rural jobs will be lost; patient 
access to health care will be limited.
    Access is not just a rural problem. Patients will stop 
using their durable medical equipment, hospital long term care 
visits will increase, and the small savings garnered in the 
first few years of the competitive bidding program will quickly 
be lost due to increased utilization of these higher-cost 
health care facilities.
    I can think of several instances like this involving my 
patients just in the last year. Let's look at blood glucose 
testing strips, just because they are such an important part of 
treating my patients, the diabetics. Although exempt from 
bidding right now in the competitive bidding process, they will 
fall under the accreditation standard that starts September 30, 
2009.
    Blood glucose testing is a relatively simple process and 
modern equipment is fairly user friendly. However, seldom does 
a week go by that we aren't helping a patient deal with a blood 
glucose testing issue. All these contacts require face-to-face 
interaction and hands-on equipment. I cannot remember the last 
time I was able to resolve one of these issues over the 
telephone.
    Some of these patients receive their supplies through the 
mail, so obviously the mail order supplier wasn't able to 
resolve the issue. Pharmacists routinely provide this type of 
valuable consultation, often at little or no cost to the 
patient. That will be difficult when we are no longer around.
    The costs and time and money to implement competitive 
bidding and accreditation are prohibitive for small independent 
pharmacies. Current estimates to comply and participate are 
estimated to be $8,000 to $20,000 and 200-plus hours over a 6-
month period of time.
    Most rural independent pharmacies are single owner 
operations. I don't know how they are going to find time to 
prepare for and implement accreditation. With the cost to 
participate exceeding the profits from DME sales, you can 
understand that I will not be seeking accreditation or selling 
any durable medical equipment.
    There is, however, a more ominous and perhaps catastrophic 
problem looming here. If CMS requires accreditation to 
participate in Medicare Part B, then the next contract I have 
to sign with the pharmaceutical benefit managers to fill 
prescriptions will require accreditation. Ninety-three percent 
of the prescriptions I fill are governed by a pharmacy benefit 
manager contract. Say goodbye to Tom's Rexall Drug.
    Pharmacies in Nebraska are licensed and inspected by the 
State of Nebraska on an annual basis. Pharmacists are also 
licensed by the State. Both are governed by a comprehensive set 
of rules and regulations overseen by the Nebraska Department of 
Health and the Nebraska Board of Pharmacy. I do not need 
Federal accreditation to practice pharmacy or sell durable 
medical equipment. I could negotiate that section out of a 
future contract, but without Congress negotiating capabilities 
to small pharmacies by passing legislation like H.R. 971, my 
ability to negotiate fair contracts with giant PBMs is 
nonexistent.
    So where does this leave the patients, your constituents? A 
misguided plan to produce some short-term savings and DME costs 
has suddenly changed into a plan that has decimated the access 
to quality health care for rural Americans and increased the 
overall health care costs for the government.
    A mailbox is not a pharmacy. If a patient needs an 
antibiotic, pain medication, insulin, asthma medication or even 
a blood glucose testing strip, they can't wait 3 to 10 days to 
get it in the mail. That means a long drive or doing without. 
That certainly does not provide an improved quality of life, 
and in some cases, it will mean something much worse.
    Independent pharmacies are under the gun and need the help 
of Congress to fix this mess with competitive bidding for 
durable medical equipment. The results of the first round of 
competitive bidding are due to be implemented July 1, 2008. The 
drop-dead date for accreditation is September 30, 2009. Early 
statistics from the first round of competitive bidding show the 
scenario I have outlined is already under way.
    There is little or no cost to the government to fix these 
problems. The government already controls the cost of durable 
medical equipment.
    Thanks for inviting me to participate in your discussions.
    [The prepared statement of Mr. Einfalt may be found in the 
Appendix on page 89.]

    Chairman Shuler. Dr. Einfalt, thank you for your testimony.
    At this time I yield to Mr. Gonzalez for our next witness.

    Mr. Gonzalez. Thank you very much, Mr. Chairman. I 
appreciate it.
    It is my privilege to introduce Mr. Linwood Staub, who is 
President of Global VAC Therapy for Kinetic Concepts, Inc., 
which is headquartered in my hometown of San Antonio, Texas. 
KCI is a global medical technology company that develops and 
markets advanced therapeutic systems.
    Mr. Staub has over 20 years of global experience in the 
medical device space. He is here, though, testifying on behalf 
of the Advanced Medical Technology Association. AdvaMed 
represents over 1,600 of the world's leading medical technology 
innovators, who manufacture over 90 percent of the medical 
devices, diagnostic products, medical information systems 
purchased annually in this country.
    And again, welcome, Mr. Staub.
    Thank you, Mr. Chairman. I yield back.
    Chairman Shuler. Thank you, Mr. Gonzalez.

STATEMENT OF MR. LINWOOD STAUB, PRESIDENT, GLOBAL VAC THERAPY, 
   KINETIC CONCEPTS, INC., ON BEHALF OF THE ADVANCED MEDICAL 
                     TECHNOLOGY ASSOCIATION

    Mr. Staub. Thank you, Mr. Chairman and members of the 
committee. Thank you for holding this hearing.
    I am here today on behalf of AdvaMed, the Advanced Medical 
Technology Association. Seventy percent of our members are 
relatively small companies with sales of less than $30 million 
a year.
    The company I work for, KCI, is a medium-sized company 
today, but it started out as small, family-owned business 30 
years ago, so we understand the role that small, innovative 
businesses play in driving progress.
    Our message today is very simple. Advanced medical 
technologies is a smart investment for patients and taxpayers 
alike. Medical innovation saves lives, it improves patients' 
health, and in doing so, it very often saves money--for 
example, by allowing patients to be at home as opposed to being 
in the hospital.
    Whereas doctors like to say, the most expensive equipment 
is the one that doesn't work, that is why we are concerned 
about the design and implementation of CMS's competitive 
bidding program. Specifically, we have three concerns relating 
to product interchangeability, cost savings and supplier 
capability issues.
    Regarding interchangeability, as you know, CMS has chosen 
10 specific product categories for this program I want to share 
with you. Two of these are walkers and negative pressure wound 
therapy devices, which are depicted here on the slide at the 
very back of your packet. Some of you may have seen that.
    Competitive bidding treats both of these product categories 
the same way, yet obviously they are very different. One 
product is a simple, functional device that helps you walk; 
hence, the name "walker." It is pretty straightforward.
    The other product category is negative pressure wound 
therapy, a category created by CMS that includes CMS's VAC 
therapy. VAC therapy is a complex, sophisticated, therapeutic 
system that is used to treat some of the most severe and hard-
to-heal wounds, often in highly compromised patients.
    So, for example, a typical patient who relies on this type 
of treatment is a diabetic who has co-morbidities such as 
obesity and hypertension and may be at risk of an amputation 
due to poor blood circulation in the arms and legs. VAC therapy 
reduces swelling, prepares the tissue for healing and removes 
toxic fluids. So, as you can imagine, this is a technology that 
significantly reduces healing times, reduces infection rates, 
prevents amputations and shortens or eliminates hospital stays.
    Basically, the VAC has proven to save lives, limbs and 
money, yet starting on July 1st, because of a flawed 
competitive bidding program, Medicare will deny access to this 
therapy for elderly, disabled Americans living in these 
communities.
    Now, this loss of access wouldn't be so bad if all 
offerings in CMS's MPWT category were interchangeable, like 
walkers, but that is not the case. VAC therapy is unique and 
not clinically comparable with other products. In fact, only 
VAC has scientific studies to prove that it produces the 
positive effects that I described a moment ago.
    We wheeled in some of the paper that the clinical studies, 
the peer reviewed journals, the appointments in different 
medical books. It took quite a job to get that in. You will see 
it on the table behind me. But VAC therapy has the largest body 
of clinical evidence in virtually any wound care product; and 
it is why VAC therapy is the only product cleared by the FDA 
specifically for use in the home, and it is why our military 
forces in Iraq use the VAC exclusively for the severe, 
complicated wounds that they treat every day.
    Physicians and medical societies, including two of the 
Nation's largest wound care associations, told CMS that 
products in the MPWT categories are not clinically equivalent 
and that the category shouldn't be competitively bid. But the 
Agency didn't listen.
    Our second concern has to do with the claimed cost savings 
of the program. CMS estimates competitive bidding will save 20 
percent in all product categories on average, but the estimate 
only looks at line-item prices. As suggested earlier, you also 
need to look at outcomes and total costs to determine the true 
value. Unfortunately, Medicare officials only plan to look at 
line-item price savings.
    Here again, the VAC provides a good example of why this is 
pennywise and pound foolish. A study of Medicare patients 
treated with VAC therapy in the home found that patients had 
lower rates of hospitalization, lower need for emergency room 
care, as well as less pain and a higher degree of mobility. And 
when compared with patients who were not treated with the VAC, 
patients treated with the VAC at home had average cost savings 
between $3,600 and $12,000 per patient. Again, those savings 
were not factored in.
    Our third concern has to do with the clinical support. 
Patients using therapeutic equipment require training to ensure 
that the products are used safely and effectively. They and 
their caregivers also need access to clinical and technical 
support 24 hours a day, 7 days a week, in case complications 
arise. Without this, patients could be jeopardized.
    Many MPWT contract suppliers appear to lack sufficient 
capabilities to provide an acceptable level of patient support. 
We know many of them failed this test because a number of them 
contacted KCI, inquiring whether they could obtain VAC supplies 
from us and revealing that they had no experience with this 
therapeutic category, no supply of product, no guaranteed 
access to supply and no clinical or customer support 
capabilities specific to the therapeutic option.
    So, in conclusion, we believe competitive bidding as 
designed and implemented by CMS suffers from serious flaws that 
should be addressed before the program goes forward.
    And, finally, in sophisticated product categories such as 
this, we believe that CMS is fooling itself if it believes that 
low bid prices will reap lower costs. Just the opposite; there 
will be costs. Those costs won't come in dollars, but rather in 
lost limbs and in quality of life.
    And in the long run, Mr. Chairman, members of the 
committee, we feel superior outcomes, not price alone, will 
save money.
    [The prepared statement of Mr. Staub may be found in the 
Appendix on page 96.]

    Chairman Shuler. Thank you.
    Our next witness is Mr. Casey Hite. Mr. Casey Hite is Vice 
President and co-owner of Aeroflow Healthcare in Asheville, 
North Carolina. He is testifying on behalf of AAHomecare and 
the North Carolina Association of Medical Equipment Services.
    Casey, you have 5 minutes.

     STATEMENT OF MR. CASEY HITE, VICE PRESIDENT, AEROFLOW 
  HEALTHCARE, ON BEHALF OF AAHOMECARE AND THE NORTH CAROLINA 
           ASSOCIATION OF MEDICAL EQUIPMENT SERVICES

    Mr. Hite. Thank you, Mr. Chairman, and distinguished 
members of the subcommittee. My name is Casey Hite, and I am a 
small business owner and vice president of Aeroflow Healthcare, 
a small home medical equipment located in Asheville, North 
Carolina.
    Aeroflow Healthcare is a company that my brother and I 
founded in 2001. We provide oxygen and mobility equipment and 
services to approximately 13,000 active patients in North 
Carolina, South Carolina and Tennessee.
    We decided to enter this industry after visiting our 
grandmother, who was slowly dying from chronic heart failure in 
a local nursing home. The nursing home provided her with oxygen 
from a dilapidated oxygen concentrator which broke down 
frequently. This gave her severe anxiety about the possibility 
of suffocating in her sleep. As I am sure as I can tell you, 
that is a scary feeling. At that time, the only home medical 
equipment providers in the area were large corporations that 
were based in Florida, or as far away as California. We 
believed there had to be a better way.
    I appreciate this opportunity to testify before you today, 
on behalf of the North Carolina Association of Medical 
Equipment Services, the American Association for Homecare and 
small home medical equipment providers nationwide.
    Our company is scheduled to be in Round Two of the program 
bidding. I have heard and seen in detail Round One problems 
that have plagued this high-profile program. I am well aware of 
the program's anticipated effects on both Medicare 
beneficiaries and suppliers. The Medicare bidding program is 
poorly conceived and fundamentally flawed. This program is 
showing many of the serious breakdowns that the American 
Association for Homecare predicted, based on the failure of CMS 
to recognize and account for the way that home medical 
equipment is provided to Medicare beneficiaries.
    The current bidding program will literally drive thousands 
of qualified home medical equipment providers out of the 
Medicare marketplace. One of the consequences will be 
limitations on services available to millions of seniors and 
people with disabilities. Nearly two-thirds of qualified 
homecare providers that submitted bids were disqualified in the 
first round of bidding. Two-thirds. That is a huge amount. That 
dramatic reduction in the number of homecare providers will 
result in reduced access and quality of service that we 
currently provide to beneficiaries.
    HME providers are overwhelmingly small to mid-sized 
practices that typically receive about 40 to 50 percent of 
their business from Medicare patients. The loss in the ability 
to serve this patient population will result in layoffs and 
many business failures.
    We have been using this term "competitive bidding" all day, 
but the term "competitive bidding" is very misleading because 
CMS is radically reducing the number of suppliers that compete 
in a given area, resulting in market concentration rather than 
a competitive marketplace. The changes that will result from 
the bidding program will affect over three million 
beneficiaries who reside in Round One areas. CMS has indicated 
that if Round Two is implemented, approximately 18 million, or 
about half of all Medicare beneficiaries requiring home medical 
equipment could be affected.
    The bidding program could also quickly affect all Medicare 
beneficiaries in the U.S. as early as January, 2009, when CMS 
will have the authority to apply bid pricing in non-bidding 
areas. The ability of CMS to apply bid pricing to non-bidding 
areas, especially rural areas with hard-to-reach patients, is 
clearly not market-based.
    Homecare providers, like my company, are on the frontline 
in caring for Medicare beneficiaries. Outside of their 
families, we are the first person they call. If beneficiaries 
are not caring for themselves adequately, we are the ones who 
notify their family members and their physicians. This flawed 
bidding program will cause major disruption in service to these 
beneficiaries across the country. Beneficiaries have three 
choices. They can choose to enter a hospital, a nursing 
institution, or stay at home. The vast majority of 
beneficiaries choose to stay home. Homecare is not only the 
preferred choice for the patient but it is also the most cost-
effective health care solution.
    The Medicare bidding program is expected to immediately 
impact more than 4,500 home medical equipment companies in the 
first 10 metropolitan statistical areas.
    We believe that the Medicare bidding program will radically 
change the HME marketplace and dismantle the nation's home 
medical infrastructure, if implemented in its current form. CMS 
will selectively contract with approximately 300 unique 
suppliers in the first 10 metropolitan areas under the program. 
CMS' own statistics have shown approximately 4,500 unique 
companies reside in these 10 bidding areas. So essentially this 
would indicate that CMS intends to contract with approximately 
7 percent of the existing home medical equipment companies. 
Even if we only account for the unique companies that took part 
in the program, which was 1,005 companies, CMS is still 
threatening the financial viability of 70 percent of otherwise 
qualified and accredited suppliers in the current homecare 
marketplace.
    Homecare has shown to be the most cost-effective and 
patient-preferred type of care provided to beneficiaries. As 
baby boomers retire and become eligible for the Medicare 
program, the demand for home medical equipment is likely to 
increase. These beneficiaries will prefer the advancements in 
technology that allow them to live full lives in the home 
setting. Arbitrarily limiting the number of homecare companies 
that the market will support should be viewed as selective 
contracting, not competitive bidding.
    Due to the flaws, errors, and questions that have plagued 
Round One, and will certainly carry through to Round Two, we 
urge Congress to delay the implementation of this bidding 
program. We support the implementation of a rational 
alternative process to determine Medicare pricing for DME items 
and services.
    AAHomecare stands ready to work with members of this 
Subcommittee and other Members of Congress to address these 
complex challenges and ensure the provision of cost-effective 
and quality home care to deserving Medicare beneficiaries.
    [The prepared statement of Mr. Hite may be found in the 
Appendix on page 116.]

    Chairman Shuler. Thank you, Mr. Hite.
    At this time I would like to introduce Mr. Heath Sutton, 
president and founder of Mountaineer Oxygen Services in 
Waynesville, North Carolina. Mr. Sutton is testifying on behalf 
of North Carolina Association for Medical Equipment Services.
    Mr. Sutton, you have 5 minutes for your testimony.

   STATEMENT OF MR. HEATH SUTTON, OWNER, MOUNTAINEER OXYGEN 
   SERVICES, ON BELAHF OF THE NORTH CAROLINA ASSOCIATION OF 
                   MEDICAL EQUIPMENT SERVICES

    Mr. Sutton. Thank you, Mr. Chairman and distinguished 
members of the House Small Business Committee for the 
opportunity to share my story. I am a private registered 
respiratory therapist of 13 years. My wife and I started our 
company in Waynesville, North Carolina, years ago with one goal 
in mind, to better serve the needs of home medical equipment 
patients in the western counties of North Carolina.
    Many patients and doctors in our area were experiencing 
serious difficulties in locating even adequate homecare for 
oxygen and sleep disorder needs, so we began our company with 
the motto "Treating Patients Like Family," a motto which 
remains on our homecare truck today. By very hard work and 
frugal management, we have built a business in a small town 
area that serves over 400 home oxygen patients and 500 CPAP 
patients (patients with sleep disorders) with the highest 
quality homecare at a very reasonable cost to both insurers and 
to patients.
    The original intent of competitive bidding was to control 
the increasing costs of Medicare and was mandated by Congress. 
As providers, we heard the call and supported the efforts as 
concerned citizens who wished to make government-insured care 
more economical. However, the results of the initial phase of 
the program have clearly shown that this program cannot ensure 
access to care or quality care, nor will it lower costs.
    Implementation of Round One will create access issues and 
make quality care more difficult to provide. The Center for 
Medicare and Medicate Services is excluding almost two of every 
three qualified and accredited bidders with no specific 
information as to why, and is confirming their reliance on less 
than 10 percent of current suppliers to provide service to the 
entire 10 Metropolitan Statistical Areas (MSA) in the first 
round. We are certain that such a limited list of suppliers 
will not allow us to properly service the needs of patient 
markets.
    By mandating that even noncontracted suppliers be 
reimbursed at contract pricing beginning January 1st, 2009, all 
who serve this market understand that lower pricing will lead 
to lower quality equipment. I understand from a small business 
perspective the desire to submit a bid in the competitive 
bidding program in order to try to protect some level of margin 
to make the business they own sustain itself and be profitable. 
However, thousands of small businesses will quickly fail 
because they simply cannot afford to stay in business, since 
the bidding program's median bid pulled them below what they 
can afford to stay in business.
    Furthermore, there is no requirement for subcontractors to 
be accredited. Those few providers who received contracts will 
not be able to fully serve their markets without 
subcontracting. With two entities seeking margin through bid 
processes, quality equipment will be quickly replaced by lower 
quality product, and we will soon find ourselves in a market no 
longer known as durable. Disruption in both quality and 
availability will most assuredly follow, because price is most 
important in the economic equation.
    The large majority of beneficiaries of homecare have chosen 
their home providers from those available locally, most with 
the assistance of their physician. Now, this new program will 
force many, possibly most, to switch to new providers. 
Estimates are that literally hundreds of thousands of patients 
may face service disruption as a small number of new CMS-
mandated providers scramble to find a way to serve these new 
homecare patients. Is this the very best method to assure our 
elderly we have their best interests at heart? These citizens 
are generally being well-served now, and the ultimate question 
rests with whether they will continue to be well-served by a 
"lower priced-dictated" marketplace. We also know that some 
suppliers who won contracts did so for products they have never 
provided. How can this process be seen as either fair or 
ethical under these conditions?
    My company currently serves an elderly patient with severe 
chronic lung disease and chronic hypercapnea. She just happens 
to be the very first oxygen patient that Mountaineer Oxygen 
Services set up on home oxygen in October 2003. She lives alone 
and has no family and is stricken with arthritic hands. At 
least once a week, in a panic, she calls our on-call service 
between 9 and 10 p.m. on her way to bed because she cannot 
attach her water bottle to her oxygen machine correctly. For 
the past 4 years, our on-call person has received a weekly call 
from this patient and drives out to assist her. Several times, 
however, she has panicked, causing her to be unable to dial our 
number, and she calls 911. This patient will suffer emotional 
stress if we lose the bid in Round Two, not to mention the 
problems she will encounter if the Round Two contract winners 
are over 100 to 200 miles away. She relies on us to care for 
her needs.
    As a homecare professional, I believe fundamentally that 
the system, as it is currently designed, is fatally flawed and 
will result in large-scale discord in the market structure for 
both providers and, much more importantly, patients, who are 
indeed members of our community and families, and should be 
treated as such.
    Any system which disqualifies almost two of every three 
qualified providers should be questioned as to its validity and 
serviceability. We strongly implore you to reconsider 
competitive bidding. This program is flawed, and we ask that 
you stop it in its tracks and delay it before large-scale 
damage is done to our elderly citizens. There are much better 
ways to derive excellent homecare at lower costs and those of 
us who have spent our lives in this market stand ready to help 
you establish them.
    We sincerely hope you will listen to our pleas and serve as 
our champions. You, as our representatives, can change this 
course and keep it from ruining our businesses and negatively 
impacting elderly Medicare beneficiaries. Thank you for your 
time.
    [The prepared statement of Mr. Sutton may be found in the 
Appendix on page 126.]

    Chairman Shuler. Thank you, Mr. Sutton, for your testimony 
and the panel's testimony.
    At this time, I am going to yield my questions for later, 
and I will yield to the ranking member, Mr. Fortenberry, for 
his questions.

    Mr. Fortenberry. Thank you, Mr. Chairman, for indulging me.
    Dr. Haralson, I am glad we changed your sign. We needed to 
get the title right. Actually, I am going to direct my 
questions to Dr. Einfalt, but any of you, if you are willing to 
provide an insight, I would be happy to hear that as well.
    You mentioned two aspects of this issue that I want to 
unpack a little further. H.R. 971, which would allow small 
independent pharmacies or suppliers to band together to 
basically compete for these contracts, is a bill that I am a 
cosponsor of. Let's talk about the potential impact that could 
have in addressing some of the issues that you all raise.
    Secondly, you talked about the cost of accreditation being 
between $8,000 to $20,000. I am assuming there is no process 
currently at the Federal level to accept State accreditation, 
which would allow for waiving the Federal accreditation 
process. In other words, if a State meets the Federal 
requirements, you are certified by the State, then that would 
be acceptable at the Federal level if I am understanding this 
correctly. That might be a way in which we could address that 
particular issue of this. But I wanted to hear your comments on 
it, as well as anyone else who might have insight into this.
    Mr. Einfalt. Currently what you are speaking of, there is 
no plan that I know of to allow States to certify and then 
thereby qualify them for CMS or to participate then at that 
point. I do know that hospitals in the State of Nebraska can 
utilize the Department of Health to acquire accreditation or 
certification, and then that certification can be passed on so 
that they can serve Medicare beneficiaries. So that does exist. 
So if there is a route for doing that certainly with 
pharmacies, that would be a possibility, because I don't 
believe there is a State around that doesn't license their 
pharmacies and also license their pharmacists. I think that is 
all in place in each of the individual States to take care of 
that.
    Mr. Fortenberry. Are those accreditation standards fairly 
uniform across the country, or do they vary greatly do you 
know?
    Mr. Einfalt. I wouldn't know. I would suspect there is some 
variation just from what I know of pharmacy law from a couple 
different States.
    Mr. Fortenberry. And there might not be exact applicability 
in terms of being a part of the approved for bidding process, 
but nonetheless that might be something that could be examined 
to see if there is reasonable applicability given a State 
licensure, meaning you set up certain quality standards that 
would then apply for your Federal program.
    Mr. Einfalt. I believe that would be something to look at, 
yeah.
    Mr. Fortenberry. The second issue regarding the ability to 
cooperate with other independent pharmacies or providers in 
order to be placed in a better competitive bidding position, 
would that approach potentially allow for greater flexibility 
or put smaller independent pharmacies as well as suppliers in a 
greater competitive position?
    Mr. Einfalt. Listening to the CMS testimony earlier, I 
believe that already exists, the ability to band together to 
submit a bid in the DME area. My concern with H.R. 971, and the 
reason H.R. 971 came into being or was proposed, deals with 
what Mr. Gonzalez was speaking to earlier. And that is, 
anything that the Federal Government does in implementing 
accreditation or standards immediately flows to the private 
sector. And that is what is going to have a huge impact on 
rural pharmacies, particularly in Nebraska, is their inability 
to deal with the private sector and the pharmacy benefit 
managers.
    Mr. Fortenberry. So this is more of a reimbursement issue 
with private insurance.
    Mr. Einfalt. Well, the impact is going to have there 
because those standards that are taken from the Federal level 
into the private sector, they are going to just say you have to 
be accredited by CMS in order to participate now in Medicare 
part D, and probably then all the rest of the commercial 
contracts that we have; 93 percent of our business is governed 
by those pharmacy benefit managers. So if they do that, I am 
done. I don't have accreditation with CMS. I don't plan to go 
after it. We can probably survive without--it is a smaller part 
of our business, and we will figure out a way to try to get 
around that and not sell DME. But the bigger problem is that 
now that standard is in the prescription arena. And when that 
comes in, we are done. We are gone. There is no negotiating. 
The pharmacy benefit managers come in and tell you what is 
going to happen. And we are done at that point. And that is 
where the problem really gets serious in Nebraska as far as 
access.
    Mr. Fortenberry. The two issues are unrelated on the 
surface, but after implementation, they would be inextricably 
intertwined.
    Mr. Einfalt. That is correct.
    Mr. Fortenberry. Anybody else have input on that particular 
issue?
    Okay.
    Thank you, Mr. Chairman.
    Chairman Shuler. Just as a follow-up to Mr. Fortenberry's 
question, so if you decide not to participate, then what is 
going to happen to the patients in that rural community? I 
mean, what is going to happen, as far as their access?
    Mr. Einfalt. There is a small chain, a regional chain that 
has a location in West Point. So I would suspect that it will 
be channeled, that business will be channeled to that business, 
or Wilfred Brimley will come in and pick up the pieces and sell 
test strips to all the guys that couldn't get them locally.
    Chairman Shuler. And you service how many communities?
    Mr. Einfalt. We just have a store in West Point. But our 
service area encompasses probably, depending upon which 
direction you go from West Point, anywhere from 10 to 20 miles 
out from West Point.
    Chairman Shuler. So there are going to be a lot of people 
impacted based upon--and they are not going to have much of a 
choice.
    Mr. Einfalt. There will be no choice, basically. It will 
just happen. And we hate to do that. It has happened to us in 
other areas of the DME. We try to help the patients. As long as 
we are there, we are going to help them. In my testimony, I 
brought in the part about they need help with dealing with the 
equipment that they can't get taken care of by mail order or 
some other supplier. As long as we are there, we do that. We 
don't charge for it. Doesn't matter where you got those strips 
from, doesn't matter--you got a problem, we are going to help 
you out with it. And we will continue to do that as long as we 
are there.
    Chairman Shuler. Very good.
    Dr. Haralson, according to your testimony, physicians' 
practices will be charged as much as $3,000 per location to be 
accredited by CMS. What do you believe is going to be the long-
term effects from the pharmacist services to the Medicare 
beneficiaries.
    Dr. Haralson. Well, first of all, the regulations are you 
have to have a DMEPOS number, a unique DMEPOS number for each 
address. So in our situation, for instance, we had nine 
offices, so we had to have nine separate DMEPOS numbers, which 
means we are going to have nine separate accreditations. And it 
is $3,000 apiece. So we had technically a large, 37-physician 
practice. We operate in four what we call care centers. And my 
little care center in Maryville, Tennessee, was only four 
physicians. So that group of physicians probably are not going 
to be able to afford to provide DME from their offices.
    Chairman Shuler. And once again, who--the patient care, I 
mean, who do they fall to?
    Dr. Haralson. Well, they go to whoever supplies them. Some 
of the drugstores have some of the smaller items. They don't 
have the bigger items. The most common scenario is the boot 
walker. The boot walker has revolutionized the way we treat 
ankle and foot injuries. Used to be, you had to have a cast. I 
am not sure which one you had.
    Chairman Shuler. I had the boot walker, DeRoyal Industries, 
yes, 6 months on that.
    Dr. Haralson. The neat thing about the boot walker is you 
can take it off. If you have an ankle fracture that you have 
operated on, you would like to inspect the wound. You can 
inspect the wound one of two ways. You can take the cast off, 
which means you have to put another one, or you can cut a 
window in the cast, which means that's the only place that 
swelling can occur. And that is detrimental to the wound. The 
nice thing about the boot walker is that you can take it off, 
the patient can exercise nonambulatory and can care for the 
wound and wash the extremity. Those high end things like that 
are usually not available in the common drugstore.
    Chairman Shuler. And washing being a very important role.
    Dr. Haralson. Keeps it from smelling, yes, a real problem. 
If you really want to see something, you go swim in the ocean 
in one of these waterproof casts. I would suggest you not try 
that. But anyway, those high-end DME products are not available 
in the drugstores. And they need to be adjusted, which is not 
available in the routine drugstore. So I think, in those 
situations, in my little town, they will have to go to 
Knoxville.
    Chairman Shuler. So they will have to travel.
    Dr. Haralson. Yes, sir.
    Chairman Shuler. How will the quality of care be impacted 
if you are prohibited from providing off-the-shelf orthotics?
    Dr. Haralson. You know, Mr. Shuler, that is an extremely 
important question. As you are probably aware, CMS as well as 
all the medical societies are really getting involved in 
evidence-based quality medicine. And our fuss with some of the 
payers is that you cannot look at costs without looking at 
quality. I can reduce the cost by providing sorry medicine. 
Most of the DME suppliers, the manufacturers, have at least two 
and three, and usually three, levels of quality. They have a 
cheap one, which is usually made out of the country because 
they have a competitive bidding program with the hospitals, and 
the hospitals take the cheapest. They are not worried about 
quality. So I think that if we implement this as it is 
suggested, that the quality really is going to take a hit. And 
we just insist that if you are going to measure cost, you have 
to include a measure of quality along with that.
    Chairman Shuler. So if you are taking one of the lesser 
products, then basically the long-term care could be compounded 
over the time of the patient's life.
    Dr. Haralson. Absolutely. And the second thing about the 
poor quality is they wear out. And so, frequently, you have to 
replace them. If you are in a boot walker for 6 months and you 
had low quality, you are going to have three or four of those 
things.
    Chairman Shuler. Oh, yeah. I had good quality and had 
several during that time period.
    Dr. Haralson. Great.
    Chairman Shuler. Yes, sir.
    To Mr. Hite, kind of give me an overview of--you know, they 
talked about during the competitive bidding process that in 
Charlotte, for instance, someone in Texas won a bid in 
Charlotte that was not skilled or had any expertise in 
providing care in that particular field. So let's say that they 
were in the electric mobile devices, and they wanted to go to 
oxygen, providing oxygen to our seniors in our community. I 
mean, what all are they going to have to go through and what 
concerns do you have in your business?
    Mr. Hite. They are going to have to go through a lot. When 
I saw the list of winning bidders, I was actually shocked to 
see that there were providers there that had won bids in 
categories that they had never provided before. Now, we talked 
about accreditation. Accreditation, at least to my knowledge, 
even though we are an accredited company, it doesn't 
necessarily address the products that you are providing. It 
addresses your general infrastructure and, you know, that you 
have the right policies and procedures in place. So how CMS is 
going to look at quality when there is no track record is 
absolutely beyond me. I don't understand how it can happen.
    Chairman Shuler. So, in fact, maybe a company in Dallas, or 
any part of the United States, could win a contract in 
Asheville, and next thing you know, you have lost your entire 
company that you and your brother have built from scratch based 
on looking at the lack of quality from your grandmother. So 
they could, in a sense, basically take out your entire company 
based upon one bid process.
    Mr. Hite. Yeah, they certainly could. You know, and I think 
the company might--a company like this might be based, I want 
to be as accurate as possible, a company might be based like 
somewhere in Texas or California, and they might have a 
distribution center, a quickly opened distribution center in a 
place like Asheville. But with no track record in supplying a 
particular bid group, you know, it would take me an hour to 
describe how difficult that would be. I am shocked if somebody 
had the courage to bid on something that they had never done 
because you have to build--it takes time to build 
infrastructure. And the infrastructure it takes to support a 
large group of oxygen patients is huge. There are a lot of 
details involved in it.
    Chairman Shuler. Mr. Staub, do you think the way that CMS 
has structured the product categories would serve a significant 
disincentive to small firms conducting research and development 
in new medical technologies?
    Mr. Staub. Well, I think that it probably goes back to some 
of the comments earlier on around, if we are really paying for 
low bid, right, we are paying for the lowest price. We are not 
paying for an outcome. In many cases, there is not even really 
good clinical data to support the efficacy of that product. As 
Mr. Wilson said earlier on, some of those products are 510(k) 
approved, which means that they just need to prove that they 
function. They don't have clinical studies behind them to show 
that they are efficacious or that they are clinically capable. 
So I think what happens is you end up getting a low price issue 
so, you know, the companies now try to, instead of developing 
new technology that is moving us forward in health care, you 
are going to develop very, very inexpensive products that we 
can deliver for less than anyone else but don't have good long-
term clinical outcomes. And I think that is the direction the 
free market economy will take you at that point in time.
    Chairman Shuler. What impact do you see or foresee CMS's 
program having on the technology innovation in medicine?
    Mr. Staub. You know, I think that is probably one of the 
most critical aspects. And we look at it in pharmaceutical and 
medical devices alike. It is very expensive in today's day and 
time to develop products and do the appropriate clinical 
studies and trials that are required to get a product on the 
market and make certain that they are moving health care 
forward. I think again when you shut down some of these small 
companies--as we said, ours was a small start-up from Dr. Jim 
Leininger, an ER physician, 30 years ago, and it is now a $1.5 
billion company, so I think some of these startups won't have 
the opportunity really to get their feet off--or get off the 
ground. And that is very unfortunate in this environment.
    Chairman Shuler. Mr. Sutton, you were telling me that you 
had beneficiaries who would call you at 1 o'clock in the 
morning. Why do you service them? Why don't you just tell them 
to call 911?
    Mr. Sutton. Well, Congressman Shuler, thank you for the 
question. You know, our business is 24/7, 365, and oxygen is 
vital for folks that are chronically, you know, hypoxic or have 
low oxygen in their blood. So, that is our job, and it is 
service-based. And we are on call, and that is what we signed 
up to do. And so that is why we are in the business we are in.
    And what frustrates me, an example I would like to 
elaborate a little bit on, you know, is skilled facilities in 
our area in western North Carolina frequently have contracts 
with companies in Virginia and Tennessee and different areas. 
And we routinely get calls from these facilities that say, you 
know, this patient is qualified for oxygen. They have moved 
into our skilled facility and need a continuous positive airway 
pressure machine for sleep apnea. And the company that we 
contracted with, it is going to take 2 or 3 days to get the 
equipment. That is the comment we get from them, and so they 
want to pay us for a couple of days of service. And of course, 
we graciously go and help them out because we have to help 
patients, and that is what we signed up to do, even though we 
don't have that contract. But those are instances where those 
folks, if they don't get the care they need, 2 or 3 nights 
without a sleep apnea machine, they could have a stroke, you 
know, and a week extended stay in a hospital. Patients that 
can't get oxygen on time, if we don't take those calls at 1 or 
2 o'clock in the morning and the patients are elderly, they 
live at home alone; they can't change a tank with the power out 
because they don't have the strength to do it; so if we don't 
make that visit out there to either change the tank or help 
that patient, they call 911. And that costs patients who are on 
Medicare more than $4,500 for one day in the hospital. The 
patients spend money in the hospital and make frequent visits 
to physicians' offices. So, you know, those are some unintended 
consequences that, you know, I request that you folks really 
look at and pay attention to. And I urge CMS to not just assume 
that, you know, we may save 26 percent up front, but what is 
going to happen a month into the program with these folks with 
disruption in service? The unintended consequences I can't 
implore enough on you to research before it happens.
    Chairman Shuler. And I am sure you get paid extra after 
hours, after 10 o'clock at night, you get paid extra.
    Mr. Sutton. You know, Congressman Shuler, I think that is 
an interesting question, in that, earlier, the gentleman from 
CMS said that we get approximately $300 a month. And it is 
somewhere around $239 to be exact. And that is if you don't get 
a call from the patient or you don't have to deliver supplies 
or you don't have to go out there to see an elderly patient 
with chronic lung disease that has a lot of anxiety.
    Chairman Shuler. So do you get paid more every time you 
service?
    Mr. Sutton. No, those are free visits.
    Chairman Shuler. Those are free visits to you.
    Mr. Sutton. Gas is now $4 a gallon in rural Waynesville, 
North Carolina. So besides my cost of my driver, my technician 
and the time away that he could be doing other things, we are 
there. And that is not included in the costs.
    Chairman Shuler. What is the distance between your 
Waynesville location and the largest, the longest distance you 
have to travel to service a patient?
    Mr. Sutton. We serve Haywood County west all the way to the 
line, which is the Robbinsville, Murphy area, Graham County.
    Chairman Shuler. So 2 hours?
    Mr. Sutton. Two, two and a half hours. And it is not like 
interstate, a major interstate highway, Congressman Shuler, you 
know that, as we drive through Swain County. It is--
    Chairman Shuler. We are working on that.
    Mr. Sutton. --winding roads. So it is a lot of cost. And 
those are things that, again, I implore CMS to consider that.
    And you know, I am in Waynesville, North Carolina, and 
Asheville is, you know, 25 miles from my area. So I am going to 
assume that my ZIP codes will be included. And that has not 
been, you know, released yet.
    Chairman Shuler. Mr. Hite, how far is your furthest area? 
Or would you like to comment based upon the question?
    Mr. Hite. Very similar to Heath's situation. We have 
patients that far away. Now, obviously it is discretionary. We 
could, you know, choose not to accept a patient that lives long 
distances. But we often do, because it is a physician's choice. 
Physicians are referring the patient to us for a reason. You 
know, it ultimately comes down to the patient, but the 
physician is saying, hey, this is who you need to deal with 
because they provide this specific product, and it is going to 
improve your life. So, in those cases, we accept patients from 
long distances and travel those long distances.
    And to Heath's point, you know, you are not just paying $4 
a gallon in gas, you are also paying overtime to an employee to 
go out in the middle of the night. We will continue doing that. 
You know, it is just the ethical thing to do. I don't know 
whether it will drive us out of business. It might under the 
new reimbursement schedule, but it is what is right.
    Mr. Einfalt. Following up on your original question, why do 
we do that, in rural America, that customer is not only your 
patient; you live with him. You live with his family. You have 
to face him every day. So every decision you make, you have to 
deal with the consequences of that decision on a daily basis, 
good or bad.
    Chairman Shuler. Absolutely. I commend all of you for that.
    At this time, Mr. Gonzalez, do you have any questions?
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    I am going to try to go quickly. I think we are going to 
have a series of votes. And you may want to try to get the 
testimony of the next panel.
    So just real quick, Dr. Haralson, it is ironic, because you 
pointed something out, it is very important, physicians are 
legitimately unhappy with the way CMS establishes reimbursement 
rates. We call it the Sustainable Growth Rate; it is 
unrealistic. So what they are proposing is what you basically 
were saying, and that is pay for performance. The amazing 
thing, we want you to use your independent judgment and choose 
that treatment and protocol, and of course, we are talking 
about medical devices, too, that will get you that result that 
we are seeking. Right? However, what we have in place today and 
what we are hearing, we are going to restrict your ability to 
pick that device, or even maybe the treatment that you in your 
professional opinion believe will result in the quickest 
recovery and such. Pay for performance. I know it is odd, and 
you go back and I am sure you have great discussions about who 
we are over here in Washington, and rightfully so.
    Now, you heard the witness, Mr. Wilson, from CMS, and it 
appears his answers are really good. And he knows a lot more 
about this subject than all of us in here because that is his 
full-time job. But in your specific issue about exempting 
physicians for what you do, and it seems very reasonable, what 
was their response? Because surely they heard your objection 
and your request, and surely they responded. What was that?
    Dr. Haralson. Well, we did have some discussions with them. 
And frankly, at first they seemed to agree with us. And we 
thought actually they were going to exempt physicians from the 
competitive bidding, and especially from the--from the 
competitive bidding for the things that we supply, which are 
really just braces and splints. We don't do the other DME, the 
wheelchairs. We do like to have crutches so the patients can 
ambulate out of the office. But we assumed that they were going 
to exempt us. And we are frankly a little dismayed that we were 
not included, because they did exempt physical therapists and 
occupational therapists. And it is a little bit odd that, in 
many cases, orthopedic surgeons employ physical therapists, and 
so we have a situation where my employee can provide the DME, 
but I cannot.
    Mr. Gonzalez. And now, Mr. Staub, you heard Mr. Wilson, who 
indicated, sure, when we call the V.A.C. wound therapy, yours 
is not the only device out there. Now, people are going to say, 
you are not that objective, Charlie, KCI is in San Antonio. And 
there is an element of truth to that. But I also have been the 
beneficiary of a lot of information, and I know the studies 
that have taken place. I know the physicians and the 
clinicians. I know what they are saying out there about the 
superiority of a particular product or device. Not necessarily 
just yours.
    Well, how do you respond? They have done their homework. 
They have done their research and FDA approval. It looks like 
you have all these other devices, and it doesn't matter if 
yours may be the device of choice by the physicians, the 
attending physicians.
    Mr. Staub. You know, Representative Gonzalez, it is very 
disappointing actually. That is our response. And the reason 
being is two points. Number one is that, you know, the way 
these products are approved, as he had said, there is a PMA or 
a 510(k). A 510(k) is a more basic approval which basically 
proves that the product is safe and says that it acts as 
though--acts the way you want it to act. Basically, it does 
what you say it will do. But clinical studies, really usage on 
a patient doesn't happen unless you have a PMA. So they come on 
to the market as predicate devices saying this is just like 
that one. But they are actually very, very different. Not only 
the way the products are made up and the way they act with the 
patient, but I think the second point that is most important is 
around this accrediting.
    I mean, the accrediting that we saw was really just around 
financial capabilities of these companies, not around their 
ability to service or care for the patients by any means that 
these guys have mentioned I think a couple of times. You know, 
we have over 450 clinical nurses that are out in the field. We 
have over 1,200 service people that are out there that answer 
these calls late at night. And I don't think these companies 
that come in--and, you know, I use the term carpetbagger 
loosely--but you know, basically want to get the bid to either 
sell the bid to someone else or to try to then find a supply 
and support that market. I think that is extremely 
disappointing for us, because we feel like we seriously help 
patients that are compromised and at home and have no one else 
to help them. And it is a less expensive alternative, quite 
frankly, than having their surgeons keep them in the hospital 
for another 2 weeks or 3 weeks until their wound heals.
    So my response would be that it is disappointing that they 
haven't gone deep enough in understanding and accrediting 
potential suppliers.
    Mr. Gonzalez. Yeah.
    And to Mr. Hite and Mr. Sutton and Mr. Einfalt, this 
committee is obviously the Small Business Committee, and we are 
very sensitive to what is going on out there, and our chief 
concern is really the impact of all of this on small 
businesses.
    Dr. Einfalt, we are familiar with the average 
manufacturer's price, what it is going to do to you, because we 
have had other hearings. We have had our community independent 
pharmacists.
    Mr. Hite, Mr. Sutton, we have had other hearings by 
different Subcommittees, and we are very familiar with some of 
the issues and the challenges in providing a service. I know we 
had a home care provider from Texas that was saying, just with 
the cost of gasoline, now we are talking about certain areas of 
Texas you drive forever, and that is not part of the 
calculation in arriving at what it takes for you to provide a 
service or a device. Now that is not realistic. That is not 
reality-based. So it is so important when you come and testify 
here.
    My fear is that Mr. Hite and Mr. Sutton are probably going 
to be relegated at best to some sort of a subcontractor status. 
And that means a whole lot I think to small businesses today 
when you are the owner of a business and such and what will be 
dictated to you. So, again, I just want to say thank you for 
your testimony.
    And I yield back, Mr. Chairman.
    Chairman Shuler. Mr. Gonzalez, I want to thank you.
    I want to really commend the hard work and dedication of 
your businesses, and their associations have been able to put 
forth the work in being here and for your testimony. I thank 
you so much.
    And thanks for your testimony.
    We are going to--very quickly, because we are going to call 
votes here, and it could be any minute now--to the third panel 
if we can. So if we can just quickly change out, thank you so 
much.
    If we can get on the third panel, please. It is very 
important that we hear the third panel. We have got votes 
coming up very quickly.
    Our next witness is Dr. Rebecca Wartman, owner of Doctors 
Vision Center in Asheville, North Carolina. She is testifying 
on behalf of the American Optometric Association.
    Thank you for your commitment to being here. Thank you for 
your testimony. And I look forward to hearing it.

STATEMENT OF DR. REBECCA H. WARTMAN, OD, OWNER, DOCTORS VISION 
 CENTER OF ASHEVILLE, ASHEVILLE, NORTH CAROLINA, ON BEHALF OF 
              THE AMERICAN OPTOMETRIC ASSOCIATION

    Dr. Wartman. Thank you. Mr. Chairman, and members of the 
committee, the American Optometric Association, representing 
over 34,000 doctors of optometry, would like to thank the 
committee for holding this important hearing.
    My name is Dr. Rebecca Wartman, and I am the owner of 
Doctors Vision Center in Asheville, North Carolina. While I 
have been an optometrist for 21 years, I have been in Asheville 
for 11 of those years. As an optometrist and a small business 
owner, I am pleased to have the opportunity to provide 
testimony regarding the burdensome requirements established by 
the Medicare Modernization Act and the chilling effect on 
providing patient care.
    Even though CMS has exempted physicians and treating 
practitioners from the competitive bidding program, under many 
circumstances, optometrists are still concerned with two 
requirements of the program which, if implemented, could have 
an adverse impact on Medicare patients.
    First, we believe that requiring physicians and health care 
professionals to be accredited in order to continue supplying 
DME when treating patients is both financially and 
administratively burdensome.
    Second, in the MMA, it appears that there is no recognition 
that health care professionals who supply and educate patients 
on the appropriate use of DME that is integral to patient care 
are very different from suppliers who furnish DME products to 
the public as a primary part of their business. Roughly 14,000 
optometrists with DME supplier numbers prescribe lenses, frames 
and sometimes contact lenses to patients following cataract 
surgery. And these items are clearly an integral part of the 
practice of optometry. These benefits are typically provided 
only one time after cataract surgery.
    Further, the 2004 CMS data indicates that health care 
providers supply slightly more than 3 percent of the total DME. 
It is unclear, therefore, what, if any, program improvement and 
cost savings would be realized by imposing these requirements 
on health professionals who only dispense DME when providing 
patient treatment. Since March 1st of this year, Medicare began 
requiring health care professionals to become accredited prior 
to obtaining a national supplier clearinghouse number. The 
accreditation process, as we have already heard, is time-
consuming, expensive, and heavy on paperwork, costing up to 
$3,000 for a 3-year period.
    Many optometrists, as well as other small business health 
professionals, do not want to or cannot afford this additional 
cost and regulatory burden. Apparently, only 4 of the 10 
accrediting organizations will accredit optometrists.
    As well, this accreditation can take months to complete. 
For optometry, it would essentially be impossible to recoup 
these costs given the amount of Medicare payments for the small 
number of DME products furnished to our patients. Therefore, it 
is difficult to understand why optometrists and other health 
care professionals--it is not difficult to understand why 
optometrists and other health care professionals find it 
impractical to receive accreditation.
    In fact, the American Optometric Association has already 
received numerous complaints from optometrists who have made 
the decision not to supply lenses, frames, and contact lenses 
after cataract surgery. If optometrists and other health care 
providers are faced with being unable to provide Medicare-
covered DME products to their patients at the point of care due 
to these regulations, the only other alternative would be to 
refer the patient to a DME retailer supplier.
    This delay in access to appropriate treatment or even worse 
could prevent the beneficiary from receiving the proper item 
because there is no DME retailer in close proximity. The costs 
of transportation, the need for more than one trip in many 
cases, and the burden of finding a provider will all be serious 
hurdles for many Medicare beneficiaries. These burdens are even 
greater for patients in nursing facilities and assisted-living 
situations, whom I personally serve many of those. As well, 
aphakic patients, those who did not have a lens implant after 
cataract surgery, are often fitted with contact lenses. And 
that presents a whole other array of health risks. And the 
contact lenses do fall under the DME.
    In conclusion, the one-size-fits-all approach by CMS fails 
to recognize that DME suppliers comprise a very diverse set of 
individuals and organizations, including licensed health 
professionals and physicians, such as optometrists. The AOA 
believes that the accreditation and quality standards developed 
by CMS should recognize this diversity and be structured 
accordingly. And we believe that the MMA gives the agency 
sufficient flexibility to do so. We look forward to working 
with the Small Business--House Small Business Committee and CMS 
to find a way to address these accreditation concerns and to 
avoid access issues for patients who rely on health care 
professionals to provide DME as a part of their care. Thank 
you.
    [The prepared statement of Dr. Wartman may be found in the 
Appendix on page 131.]

    Chairman Shuler. Thank you.
    At this time I yield time to Mr. Braley to introduce our 
next witness.

    Mr. Braley. Thank you, Mr. Chairman. I am pleased to have 
two of my constituents here today in the room, John Gallagher 
with VGM, and our next witness, Ms. Julie Weidemann, who is the 
director of Palmer Home Medical Supply in West Union, Iowa, 
which is a lovely county seat town of over 2,500 people.
    And it is great to have you here.
    Ms. Weidemann will share some of her 20 years of experience 
in the home medical equipment industry. And she will also be 
testifying on behalf of the VGM Group, which is the largest 
network of independent home medical equipment dealers in the 
United States, with more than 2,000 medical equipment provider 
members in more than 3,500 locations.
    Welcome.

   STATEMENT OF MS. JULIE WEIDEMANN, DIRECTOR OF PALMER HOME 
  MEDICAL SUPPLY, WEST UNION, IOWA, ON BEHALF OF THE VGM GROUP

    Ms. Weidemann. Thank you.
    Chairman Shuler and members of the Committee, I am Julie 
Weidemann, director of Palmer Home Medical in West Union, Iowa. 
I am pleased to come before this Subcommittee to discuss with 
you the profound risk of the DMEPOS competitive bidding program 
being implemented by the U.S. Department of Health and Human 
Services.
    I have worked in the HME industry since 1988. I started my 
home care career as a respiratory therapist and, in 1994, 
created and instituted Palmer Home Medical Supply, a department 
of Palmer Lutheran Health Center, which is a 25-bed hospital in 
West Union. We have three locations. I employ 10 people. We 
serve 10 counties in rural northeast Iowa, covering 2,500 
square miles. And close to 50 percent of my client base are 
Medicare clients.
    I have the largest concern over the competitive bidding 
program due to the MMA 2003 provision that allows CMS to take 
the purported savings that is achieved in desperation bids from 
round one and apply pricing nationwide with the new fee 
schedule.
    Earlier, Representative Braley asked the question how 
competitive bidding is going to affect rural providers. And 
what was stated was that it was only going to affect 
metropolitan areas, and really rural providers were exempt. 
That is not true. What CMS can do is they can take the data 
from these round one and two biddings, and they can impose an 
inherent reasonableness standard on the entire industry, which 
will mean that rural providers will have a 26 percent cut in 
reimbursement. So, no, I am not in a competitive bidding area, 
but I am still going to see the 26 percent cut that they are 
seeing in the metropolitan areas. If I have to take that 26 
percent reduction, I will have no choice but to decrease the 
level of service I am currently providing. And with the price 
of fuel, I may need to decrease the territory I provide service 
to.
    What then will happen to the patients out there in those 
outlying areas? What provider will be able to afford to help 
them? And if I am decreasing my territory, that means I most 
likely will need to cut staff.
    My other major concern is competitive bidding will simply 
limit choice for beneficiaries and will dramatically reduce the 
service they have always received and need to receive. Can a 
company 3 hours away that gets the bid provide quality service 
compared to what I can provide when I am right down the street? 
My patients are going to suffer greatly from this program. 
Small business is going to suffer greatly as well and will not 
be able to survive a 26 percent cut.
    And what happens to medical innovation? It will cease to 
exist in a low-bid environment. Better technologies are 
expensive. And with the huge national bureaucracy that is being 
created at CMS, an increase of approximately 1,600 employees, 
what kind of savings will really be achieved at the expense of 
patients and small business?
    Also there has been a lot of talk this morning about 
discussion on quality standards and accreditation. To this 
date, the HME provider quality standards are still in draft 
form. There has been no final release yet. So we don't know 
exactly what our standards are going to be.
    The new rent-to-purchase payment policy for home oxygen 
program enacted in the DRA requires that, after a 36-month 
rental period, title and responsibility for maintenance and 
service for all home oxygen stationary and portable 
technologies would be transferred to the Medicare beneficiary. 
Just last week, one of my respiratory therapists was in a 
Salvation Army store in Cedar Rapids, Iowa, and sitting there 
was an oxygen concentrator and three oxygen tanks for sale for 
50 bucks; no doctor order required. Oxygen is a drug that must 
be prescribed by a physician. And when beneficiaries start 
owning this equipment, where will it go when they no longer 
need it? Obviously, a Salvation Army, maybe a local garage 
sale, on eBay, the Internet. As a respiratory therapist, this 
worries me to no end.
    Oxygen, when used inappropriately and without proper 
training, has very dangerous consequences that could result in 
death from underdosing or overdosing, or deadly fire due to 
lack of training in the safe use and storage of the oxygen. 
Providers currently educate each patient and their caregivers 
on these very critical issues. The costs for providers is not 
in the equipment being provided. It is in the service. Patients 
don't call us for equipment. They call us for advice. We 
currently provide 24-hour emergency on-call service. We assist 
our patients with troubleshooting and proper use, equipment 
failures. We provide clinical assessments by respiratory 
therapists and nurses. Who is going to do all this when the 
patients own their own equipment?
    I cannot provide these services for free, and not many of 
my fixed-income Medicare patients can afford to pay me extra 
out of their Social Security check for these services. So it 
will simply not get done, and patients will be hospitalized 
more often. In 2002, there were 673,000 hospitalizations for 
people with chronic lung disease. Their average length of stay 
was 5.2 days, making the average cost of that hospital stay 
$18,000.
    In contrast, the current average annual cost for home 
oxygen therapy is $2,784, less than the average cost for one 
day in the hospital. I can provide this service for a whole 
year. Home care is the solution. It is not the problem with our 
medical industry and the Medicare expenditures that go out.
    What does this mean to me, rural hometown HME providers, 
and all the providers in a competitive bid area throughout 
America? I live in an area of the country with a large elderly 
population. And with almost 50 percent of my clients on 
Medicare, I truly fear what will happen to my customers and my 
small business when the competitive bidding storm thunders its 
way into rural America. I cannot survive if I cannot serve 
Medicare beneficiaries, nor can I survive providing our current 
quality of product and level of service with a 26 percent cut 
in payment. Due to this competitive bidding storm, small 
business will be destroyed and beneficiaries will be left to 
fend for themselves, threatening their current access to care 
and their quality of life.
    I call on Congress to immediately delay the implementation 
of this competitive bidding program. And as with any action 
that is taken to avert the train wreck that is competitive 
bidding, I ask that Congress include a repeal of the imposition 
of the 36-month cap on oxygen. As a provider, I support the 
implementation of a rational alternative process to determine 
Medicare pricing for DME items and services.
    I thank you for this opportunity. It has been quite an 
honor.
    [The prepared statement of Ms. Weidemann may be found in 
the Appendix on page 137.]

    Chairman Shuler. Thank you for your testimony.
    Our final witness is Mr. Gary Gilberti, president and CEO 
of Chesapeake Rehab Equipment, from Baltimore, Maryland. He is 
testifying on behalf of the National Coalition For Assistive 
and Rehab Technology.
    You will be recognized for 5 minutes.

 STATEMENT OF MR. GARY GILBERTI, PRESIDENT AND CEO, CHESAPEAKE 
REHAB EQUIPMENT, BALTIMORE, MARYLAND, ON BEHALF OF THE NATIONAL 
          COALITION FOR ASSISTIVE AND REHAB TECHNOLOGY

    Mr. Gilberti. Thank you, Mr. Chairman and members of the 
Committee.
    On behalf of NCART and my company, Chesapeake Rehab 
Equipment, I appreciate the opportunity to be here today.
    As Chesapeake Rehab, we participated in competitive bidding 
in two of the CBAs. And I can say I lived to tell about it, but 
I am not sure I am happy about it.
    Just to understand a little bit about complex rehab 
technology, you have to understand a little bit about these 
businesses. Complex rehab technology companies, more than 50 
percent of the providers in this sector are small businesses, 
with revenues of between $3 and $5 million annually. Most are 
privately owned, which are generally well entrenched in their 
communities and have established relationships with their 
customers and allied health professionals.
    Complex rehab and assistive technologies are adaptive 
seating, positioning, and mobility devices that are evaluated, 
fitted, configured, adapted, and modified based on the unique 
clinical and functional needs of people with severe 
disabilities. These disabilities could include things as ALS, 
spina bifida, cerebral palsy, muscular dystrophy.
    In fact, there is a young woman in the room today, Selen 
Dalton Cummings, who is a customer of mine. She is in a piece 
of complex rehab technology. And it helps her get to work every 
day and be a very productive individual in the community.
    And just a little bit more what differentiates complex 
rehab technology companies from other home medical equipment 
providers is the level of products we supply and the level of 
staff required to provide them, and the amount of time and 
labor that is involved in that process. Companies that adhere 
to the long-standing service/delivery model that provides the 
best clinical outcome for consumers for complex rehab are 
required to employ certified staff and to run their operations 
in a certain way. All this comes with a very high cost.
    In a study performed by a D.C.-based economics firm for 
NCART, companies operating in this field experienced a net 
operating income of 1.6 percent. That is a very thin line. This 
is based on nonproduct costs in the 50.5 percent range and 
product costs of 47.9 percent for these companies. With such 
high nonproduct expenses and such minimal net operating income, 
complex rehab technology companies are already unstable. 
Coupled with cash flow challenges in dealing with third-party 
payers and then add the increase of things like fuel and 
payroll costs increasing the way they are, these companies are 
even more challenged to remain viable.
    It is important to note that suppliers and manufacturers of 
complex rehab technologies have already absorbed significant 
cuts in reimbursement resulting from coding changes and 
congressionally mandated reimbursement cuts. Moreover, the CPI 
increase for Medicare fee schedule for existing HCPCS codes has 
been frozen for almost a decade, while costs associated with 
the provision of this technology have increased. The DME 
industry generally has only received one permanent Medicare fee 
schedule increase since 1998.
    Round one of competitive bidding continues to move forward 
in spite of many inequities and controversies. The areas of 
concern range from both the resulting prices and their 
calculations to the actual winning bidders and how they were 
selected. CMS continues to claim that it has addressed many of 
the concerns appropriately, but the fact still remains that 
many small businesses have already been injured by this 
program.
    When you look at competitive bidding in the complex rehab 
area, CMS has claimed to realize a 15 percent savings in that 
area. If you use the math that I have given you already, as far 
as where rehab companies are, with a 1.6 net operating margin, 
you take 15 percent out of what tends to be about 30 percent of 
their business, they are below water.
    There is also the issue that there are companies that are 
doing business in competitive bidding areas who are not 
historically operating in those areas. In Pittsburgh, for 
example, where I was not able to win a bid, two of the four 
companies that were offered the bid either have not operated in 
that business--or in that CBA or in that business as far as 
complex rehab.
    Additionally, CMS claims there are accreditation standards 
in place. One of the winning bidders in many of the CBAs was 
able to get in under a loophole that they were accredited under 
standards that were not in place by the time the competitive 
bidding was put in place. For instance, now in order to be a 
complex rehab provider, you have to have certain certified 
individuals; you have to operate a certain way; and the 
accrediting bodies have rehab standards. Those weren't in 
place. And these companies were able to get through based on a 
loophole.
    In conclusion, I just would hope that Congress would 
embrace H.R. 2231, which would allow for the exemption of 
complex rehab technology from competitive bidding and would 
allow that Medicare beneficiaries with disabilities would be 
protected from this problem.
    Thank you.
    [The prepared statement of Mr. Gilberti may be found in the 
Appendix on page 146.]

    Chairman Shuler. Thank you for your testimony.
    Obviously, they have called votes. What we are going to do 
is, each of the members will ask one question. And hopefully, 
we can give everybody the opportunity to kind of expand more on 
their testimony.
    I first would like to ask Dr. Wartman, if there is no 
change in the current regulations, what effect will the 
accreditation requirements have on patient care and access to 
DME?
    Dr. Wartman. Well, as I said, some optometrists have 
already decided to drop out of DME suppliers because they 
needed to recredential with the national clearinghouse and been 
told that they couldn't if they were accredited.
    So if I am not a supplier of glasses after cataract 
surgery, those patients that I have had a really long-standing 
relationship with, been my patient for a number of years, I 
helped them through the process of deciding to have cataract 
surgery, care after cataract surgery; I will have to look at 
them and say, now you have to go somewhere else to find your 
glasses. It is one time after cataract surgery.
    If I have a patient that doesn't have a lens implant, that 
is aphakic, and has the really thick Coke bottle glasses or 
contact lenses and glasses, then I have to look at them and 
say, I can't supply your contacts. In many cases, I can't even 
fit those, because fitting it is really an integral part of 
supplying it. I can't actually fit it unless I have it. And 
then I can't make adjustments to it.
    So while those patients are becoming fewer, there are still 
a lot of those patients out there. So it will really have a big 
impact on the patients.
    Financially, I don't make a lot of income off of the 
durable medical equipment because it is not very much for us. 
But to have to jump through those hoops and pay a huge 
credentialing fee and all the burden of trying to figure out 
how to get through that process, as well as be credentialed by 
the national clearinghouse supplier in addition to all my State 
licensure requirements, I think a lot of us would choose just 
not to provide those.
    But that's not fair to the patients.
    Chairman Shuler. Thank you.
    I will now yield to Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman.
    Just quickly, Dr. Wartman, I think we are hearing you. I 
think you are aligned with Dr. Haralson, saying, look, if we 
are the physicians, the professionals, there has to be an 
exception. This is common sense, by the way. And I think we get 
that. And let's see what we can do about it. I don't think it 
is going to impact in any measurable amount CMS's efforts in 
reducing costs.
    Ms. Weidemann, Mr. Gilberti, I am trying to rush this 
because we are going to have to go and vote, and I don't want 
to keep you here, and I know that Bruce might have something he 
wants to ask.
    Some people will say, and CMS may say, who cares if you 
guys are relegated to subcontractor status? You still have a 
business. You are still a small business. The way I see it, and 
I want you to tell me, is the problem is that the big 
contractor that got the bid, that had the best bid, can be as 
unrealistic as they want to be because they are just going to 
be passing it onto the subcontractor. They are going to find 
somebody out there, hopefully, or it is not going to be really 
viable or it is going to work. What is the big disadvantage of 
you just being part of subcontracting system with the winning 
bid?
    Mr. Gilberti. Congressman Gonzalez, I have won in one CBA 
and I didn't win in another CBA, so I have seen both sides of 
this.
    Mr. Gonzalez. Yes, sir.
    Mr. Gilberti. And as winner, I don't feel like a winner 
because of the pricing, because a lot of people bid out of fear 
and intimidation to just try and maintain their customer base.
    But as a subcontractor, I am going to have to give up 
another portion of margin in order to participate. That means, 
as subcontractor, one of the existing winners is going to want 
a percentage out of me. So the price then goes down probably 
another 10 percent on me. And I can't operate on that. But in 
order to serve my clients, I am going to have to accept some of 
that.
    Mr. Gonzalez. I thank you very much for your testimony.
    I yield back, Mr. Chairman.
    Chairman Shuler. Mr. Braley.
    Mr. Braley. Thank you.
    Ms. Weidemann, I want to follow up on the point I made in 
the first panel about my perception that the entire purpose of 
this competitive bidding process is to adopt a bigger-is-better 
mentality. And you were here when the CMS representative 
testified that that was not his perception of the bidding 
process. But in your written statement, you included some 
interesting figures that came out of the round one bidding 
process, and I think it is very relevant to the discussion we 
are having today.
    You wrote only 5 percent of the eligible small business 
providers were offered a contract and about 16 percent of the 
large providers. And that is from an earlier perception that 85 
percent of the businesses engaged in this industry were small 
businesses. So one of the things that I am troubled by as a 
person who represents a heavily rural district is if this was 
truly a free-market environment, then the large companies would 
have the same incentive to compete in rural America as they 
would in urban America. But if that were true, then we would 
see Comcast providing cable TV services in West Union, Iowa, 
and we know that is not true. So from your perspective as a 
small business owner living in a small community, would you 
care to respond to the CMS representative about your perception 
of what is going on here?
    Ms. Weidemann. Well, we already basically see it in the VA 
system. Patients on VA that are on oxygen in my town of West 
Union, the contracts that the VA has at Iowa City, they come to 
that patient's home every month, they bring them six oxygen 
tanks. And if they run out, it is their problem. They can go 
back to Iowa City themselves to get more tanks or they just go 
without. And that is what is going to happen if--if the big 
company gets the bid, the little guy down the street for--I 
think right now I have a patient last week that called me on a 
Sunday morning. I forgot to call you and tell you I was out of 
tanks on Wednesday, and I really would really like to go to 
church this morning. I met them at the office and gave them 
their tank. That is not going to be a viable option anymore 
when these big companies get the bid and they are too far away.
    Mr. Braley. So, in some cases, it could be a life-and-death 
matter?
    Ms. Weidemann. Definitely. They are going to go without.
    Mr. Braley. I yield back, Mr. Chairman.
    Chairman Shuler. I would like to thank the gentlemen for 
their questions. I thank all of you for your time, your 
commitment, and for all of the witnesses here today.
    I thank Mr. Fortenberry for his continued support in a 
bipartisan way so that we can get to this. And I also want to 
thank CMS, the staff that has remained here to hear this 
testimony. I think it is so important that we all understand 
how we can work with our colleagues. But not only with this 
committee, with some of our other committees who have 
jurisdiction as well. So I look very forward to working with 
all of you. And, again, thank you for your testimony.
    I ask unanimous consent that the record be open for 5 days 
for members to submit their statements. Hearing no objection, 
so ordered. This hearing is adjourned.
    [Whereupon, at 1:08 p.m., the subcommittee was adjourned.]

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