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




                      SUBCOMMITTEE HEARING ON THE
                     IMPACT OF CMS REGULATIONS AND
                     PROGRAMS ON SMALL HEALTH CARE
                               PROVIDERS
=======================================================================

           SUBCOMMITTEE ON REGULATIONS, HEALTH CARE AND TRADE
                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 14, 2008

                               __________

                          Serial Number 110-93

                               __________

         Printed for the use of the Committee on Small Business


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

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


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 Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida

                                  (ii)




























                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Gonzalez, Hon. Charles...........................................     1
Westmoreland, Hon. Lynn..........................................     7
Fallin, Hon. Mary................................................     3
Altmire, Hon. Jason..............................................     4

                               WITNESSES


PANEL I:
Hill, Mr. Timothy B., Director of the Office of Financial 
  Management, Centers for Medicare & Medicaid Services - 
  Accompanied by: Farris, Dr. James Randolph, Administrator, 
  Consortium for Quality Improvement and Survey & Certification 
  Operations, Centers for Medicare & Medicaid Services...........     5

PANEL II:
Dolan, Dr. William A., American Medical Association..............    15
Wiesner, Mr. Dennis, R.Ph., H.E.B. Grocery Company...............    17
Schweitz, Dr. Michael, The Coalition of State Rheumatology 
  Organizations..................................................    19
Smith, Dr. Karen L., American Academy of Family Physicians.......    21

PANEL III:
Allen, Ms. Terry, South Texas Oncology and Hematology, P.A.......    29
Schraad, Mr. Joseph A., Oklahoma Allergy and Asthma Clinic.......    31
Wolf, Ms. Rina, RedPath Integrated Pathology, Inc................    32
Tieken, Ms. Mary Helen, Texas Association of Home Care...........    34

                                APPENDIX


Prepared Statements:
Gonzalez, Hon. Charles...........................................    43
Westmoreland, Hon. Lynn..........................................    45
Hill, Mr. Timothy B..............................................    46
Centers for Medicare & Medicaid Services: Information for the 
  Record.........................................................    54
Dolan, Dr. William A.............................................    56
Wiesner, Mr. Dennis..............................................    65
Schweitz, Dr. Michael............................................    80
Smith, Dr. Karen L...............................................    92
Allen, Ms. Terry.................................................    98
Schraad, Mr. Joseph A............................................   114
Wolf, Ms. Rina...................................................   116
Tieken, Ms. Mary Helen...........................................   124

                                 (iii)




















 
                   SUBCOMMITTEE HEARING ON THE IMPACT
                    OF CMS REGULATIONS AND PROGRAMS
                     ON SMALL HEALTH CARE PROVIDERS

                              ----------                              


                        Wednesday, May 14, 2008

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, , at 2:10 p.m., in 
Room 1539, Longworth House Office Building, Hon. Charlie 
Gonzalez [chairman of the Subcommittee] presiding.
    Present: Representatives Gonzalez, Altmire, Westmoreland, 
and Fallin.

             OPENING STATEMENT OF CHAIRMAN GONZALEZ

    Chairman Gonzalez. I will call this hearing to order. Today 
we are going to be conducting a hearing to consider a rather 
important issue under the heading of "The Impact of CMS 
Regulations and Programs on Small Health Care Providers."
    I want to start off by indicating that we have been 
awaiting the arrival of the ranking member, Mr. Westmoreland. 
He has been detained, but he will be here shortly. I thought I 
would get my opening statement out of the way and we would 
proceed.
    Another observation is that we have a number of votes today 
and that means we will be interrupted. I am going to ask for 
everyone's patience. Everyone is going to get to testify. We 
will have Members up here. I am not sure if Mr. Westmoreland 
will be able to remain throughout the hearing, because I know 
he has other matters that are of real pressing importance 
regarding his district. I will proceed then with my opening 
statement.
    Medicare and Medicaid are essential components of our 
nation's health care system. Many small health care providers 
are dependent on reimbursements from these programs. Changes to 
the programs can have profound economic effects on their 
businesses. With many small providers struggling to stay 
afloat, it seems a number of medical practices and pharmacies 
are merely one reimbursement cut away from being forced to 
close their doors.
    As program costs have risen, Congress has taken steps to 
cut them. All too often, CMS implementation of these efforts to 
reduce costs has placed small health care providers on an 
unlevel playing field and threatened their continued viability. 
In some instances, CMS has adopted rules to implement cost 
cutting measures, which is understood. When agencies, though, 
make rules, the law requires them to consider their impacts on 
small businesses and examine less burdensome alternatives.
    The Small Business Committee has jurisdiction over this 
important law known as the Regulatory Flexibility Act. The 
committee has held several oversight hearings on CMS in the 
110th Congress, and we have seen that the agency can do a 
better job of meeting its obligations to small firms.
    When CMS implements regulations and programs unfairly, it 
hurts not just small providers, but also patients, and damages 
the entire health care system for all Americans. Several CMS 
programs are creating particular concern among small health 
care providers. For instance, the Recovery Audit Contractor 
program will be one of those. Because of the enormous scale of 
Medicare, it is inevitable that some errors in the payment 
process will occur. In some instances, providers may be 
underpaid by Medicare. In others, they may be overpaid.
    With the aim of reducing the amount of Medicare's improper 
payments, Congress created the Recovery Audit Contractor 
program, known as RAC. A pilot program for RAC concluded in 
March of this year and now the program has become permanent.
    While the law requires RACs to identify underpayments to 
providers, it is clear that contractors are almost exclusively 
focusing on correcting overpayments. For example, of the $371 
million of improper payments identified by RACs in fiscal year 
2007, over 96 percent were overpayments collected from 
providers. Less than 4 percent of those dollars were 
underpayments repaid to providers. It is hard to believe that 
this number represents the true proportion of underpayments.
    The manner in which RACs are compensated is also troubling. 
RACs get a part of every dollar they bring in. This is the 
first time ever that Medicare has paid a contractor on a 
contingency fee basis. According to small providers, these 
contingency fees, coupled with a lack of proper oversight at 
CMS, have led to aggressive, and, in some cases, improper 
pursuit of recoveries and a disregard for the accuracy of the 
auditing process.
    Another significant issue is one that impacts pharmacies 
nationwide. They are facing major hardships from CMS's 
implementation of the Deficit Reduction Act. The DRA directed 
CMS to recalculate the way it reimburses pharmacies for 
providing generic prescription drugs to Medicaid beneficiaries.
    Last July, CMS released a final rule which could devastate 
pharmacies and Medicaid recipients. The new formula 
dramatically reduces reimbursements to pharmacies. GAO has 
determined that they will be paid back for only 64 percent of 
their costs of acquiring generic prescription drugs.
    This rule will have a disparate impact on small retail 
pharmacies, an impact that CMS overlooked when it wrote the 
rule. Small retail pharmacies serve a higher proportion of 
Medicaid beneficiaries and get more of the revenue from 
prescription drugs. Implementation of this rule may force many 
of them out of business, reducing access to care for millions 
of Americans. It is clear that CMS needs to do a better job of 
considering the needs of small health care providers when it 
implements programs and regulations.
    I look forward to today's testimony, and I thank the 
witnesses for coming here to share their stories.
    Chairman Gonzalez. At this time, I would be recognizing Mr. 
Westmorelandfor an opening statement, but since he has been 
detained, my preference will be that we then proceed.
    I am happy, in the absence of Mr. Westmoreland, the ranking 
member, to defer to a fellow Member and colleague from 
Oklahoma, Ms. Fallin, for an opening statement.

                OPENING STATEMENT OF MS. FALLIN

    Ms. Fallin. Thank you, Mr. Chairman. Hopefully Mr. 
Westmoreland will be here soon, but I also have an opening 
statement and will try to assist him as he is busy with his 
other committees too, but he should be here shortly.
    I want to, first of all, thank all of our witnesses for 
joining us here today and taking time out of your busy 
schedules. Many of you have traveled from different areas of 
the United States to be here to join us. I thank you for doing 
that. I know I have a gentleman here from Oklahoma with the 
allergy clinic, Mr. Schraad, who is here to help us give some 
testimony from Edmond, Oklahoma. So thank you for joining us 
here today and giving us some knowledge, all of you witnesses 
giving us knowledge about CMS and working with this agency and 
how we can better improve our relationship between the Federal 
Government and the private sector as it relates to health care.
    We are all here today to better understand how CMS 
regulations impact small businesses and health care, and there 
is no better way of learning about that than hearing from those 
on the ground directly affected and interacting with these 
regulations on a daily basis. Medicaid place a large role in 
this area, and even small changes within the system can 
reverberate rate throughout small businesses and health care 
providers and pharmacies, as we just heard the chairman talk 
about.
    I do believe, as the chairman does, that we must seriously 
evaluate the health care system as it stands today and how the 
slight changes that we talk about can alter the landscape for 
the providers as well as the beneficiaries in the future.
    I often hear providers in my district say that they are in 
a very precarious situation. They want to provide access to 
health care and the best type health care, pharmaceuticals, but 
yet at times, it is hard to have a viable business and sustain 
that business under the rules and regulations that are imposed 
upon them and that they have to operate in within the system.
    Due to decreases in the Medicare fee payments, many 
providers in my district reduce the number of Medicare patients 
they see in order to effectively recoup the costs of the 
services they provide. In many instances, the providers are 
actually losing money on transactions because Medicare does not 
reimburse the full costs of the services rendered.
    I have also heard from many of my doctors in my district 
that over the years, because of the amount of Federal 
regulations and rules that are put upon them, that they 
actually have to hire specific people just to work through all 
the rules and the insurance policies and try to figure out how 
to match those things up and what they can do and can't do and 
what they will be reimbursed for and at what rate.
    Under these circumstances, it is very difficult to see how 
anyone is expected to sustain a healthy business practice. 
Health care providers and beneficiaries in this country are 
suffering, and it is time that we get to the bottom of this.
    So I am looking forward to the testimony, both from CMS, 
and I know that CMS has a very tough job and I appreciate their 
Federal work and even having to work with Congress too. So we 
appreciate both of you gentleman being here and we look forward 
to the other testimony.
    Thank you.

    Chairman Gonzalez. Thank you very much. At this time, I 
know Mr. Altmire is present and he may not be here when we get 
to panel three and he would be introducing Ms. Rina Wolf. If 
Mr. Altmire has some opening remarks, I would be happy to defer 
to him at this time for that purpose.

                OPENING STATEMENT OF MR. ALTMIRE

    Mr. Altmire. Thank you, Mr. Chairman. I would just say to 
be very brief that our witness from Pittsburgh is going to be 
Rina Wolf, and we look forward to hearing her. She is the vice 
president of Reimbursement and Regulatory Affairs for RedPath 
Integrated Pathology in Pittsburgh. They have a very good story 
to tell regarding the purpose of this hearing.
    So I appreciate the opportunity to say a few words, and I 
will listen with interest to the testimony. Thank you.

    Chairman Gonzalez. Thank you very much, Mr. Altmire. To the 
witnesses that are present, let me explain the system. You will 
be given 5 minutes obviously to make your remarks. I know that 
is going to be a summary of your written statement, of course, 
which will be entered into the record in its entirety. So we 
would ask that it be summarized within those 5 minutes.
    When the green light comes on, obviously, the time will 
start. When the yellow light comes on, I believe you will have 
1 minute at that time. And then, of course, red, that means you 
have consumed all of the time. If you feel that you haven't had 
enough time to cover everything, believe me, during the 
question and answer period, at that time you can supplement any 
of your comments.
    The first witness will be Mr. Timothy B. Hill. Mr. Hill is 
the Chief Financial Officer and Director of the Office of 
Financial Management for the Centers for Medicare and Medicaid 
Services. As CMS's senior financial management executive, he is 
accountable and responsible for planning, directing, analyzing 
and coordinating the agency's comprehensive financial 
management functions.
    Mr. Hill, it is my understanding you will be assisted by 
Mr. James Farris, but that Mr. Farris will not be giving 
testimony, but is present here to answer any of those questions 
that fall within the purview of his expertise.
    Mr. Farris, I apologize, it is Dr. James Farris, he is the 
Administrator to the Consortium For Quality Improvement and 
Survey and Certification Operations for CMS. In this capacity, 
he works with all of the CMS regional office components that 
oversee quality improvement organizations and survey and 
certification operations throughout the country.

    STATEMENT OF TIMOTHY HILL, CFO AND DIRECTOR, OFFICE OF 
FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE & MEDICAID SERVICES, 
ACCOMPANIED BY JAMES RANDOLPH FARRIS, ADMINISTRATOR, CONSORTIUM 
FOR QUALITY IMPROVEMENT AND SURVEY & CERTIFICATION OPERATIONS, 
            CENTERS FOR MEDICARE & MEDICAID SERVICES

    Chairman Gonzalez. At this time you may proceed, Mr. Hill.
    Mr. Hill. Thank you, Chairman Gonzalez, distinguished 
members of the Subcommittee, thank you for inviting us here 
today to discuss the recovery audit contractor program and its 
effects on Medicare providers that are small businesses.
    In January 2008, the Office of Management and Budget 
reported that Medicare is one of the top three Federal programs 
making improper payments, with an estimated $10.8 billion in 
improper payments made during fiscal year 2007. It is in this 
context that Congress directed HHS to conduct a 3-year 
demonstration program using recovery audit contractors (RACs) 
to detect and correct improper payments in the Medicare 
program.
    Pursuant to the law, HHS began the demonstration in March 
of 2005. During the demonstration, the recovery audit 
contractors were tasked with the detecting of both overpayments 
and underpayments in the Medicare program and correcting those 
improper payments. I am pleased to report that as of its 
conclusion in March of 2008, the demonstration had corrected a 
total of more than $1 billion worth of improper payments in the 
Medicare program. Even before the demonstration had been 
completed, Congress recognized its potential by making the 
program permanent and mandating that HHS expand it nationwide 
by no later than January 1st, 2010.
    During the demonstration and our planning for expansion, 
CMS has worked very closely with physician and other provider 
groups to make sure that they understood the demonstration 
program as well as to solicit input about how to make the 
program better. So, for example, we have standing monthly 
meetings with the American Medical Association and members of 
the affected State medical associations to discuss ongoing 
operational issues. We created programs for specific e-mail 
accounts for the demonstration that will continue during the 
program expansion as a method for addressing individual 
physician questions. After the companies, the permanent RACs, 
are selected later this spring, CMS and the new RACs will 
conduct extensive provider outreach, including visits, on-site 
visits with local medical organizations and representatives in 
each State. State medical associations are also currently 
partnering with CMS to prepare a bulletin that will inform the 
physicians about the expansion of the RAC program which will be 
sent to the entire membership of each state's association.
    CMS has also utilized its standard methods of provider 
education and outreach, including e-mail list serve messages 
that are distributed widely among national and regional 
provider trade associations, open door forums, Medicare 
learning network articles, press releases and various CMS and 
contractor Web sites with links to frequently asked questions 
and contact information for each RAC.
    We believe that our ongoing outreach to physicians and 
other Medicare providers has had a significant impact on our 
ability to maximize the effectiveness of the program while 
minimizing its burden on providers and physicians.
    Some of the specific changes we have made to the program 
were a direct result of the feedback we solicited from 
providers. So, for example, both a medical director and 
certified coding experts will be required to be employed by all 
the permanent RACs. Under the demonstration project, no medical 
director was required nor were coding experts required of the 
RAC contractors.
    Additionally, during the demonstration, RACs were only 
required to pay back their contingency fees if they lost the 
first level of appeal, but not at subsequent levels of appeal. 
Permanent RACs must pay back their fees if they lose at any 
level of appeal.
    In the demonstration, there was no maximum look-back date, 
meaning that RACs could review claims as old as four years. In 
the permanent program, RACs will not be able to look back for 
improper payments on claims paid before October 1, 2007.
    CMS will require the permanent RACs to operate Web-based 
systems so that providers involved in an audit will have secure 
on-line access to information that explains the status of their 
claims and the RAC audit process. None of the RACs in the 
demonstration had this capability.
    In the demonstration, CMS did not limit the number of 
medical records that could be requested by a RAC. In the 
national RAC program, CMS will establish a record limit that 
will vary by a biller's size to protect small providers from 
undue administrative burden.
    Most importantly, I think, under the permanent RAC program, 
CMS will place a much greater emphasis on provider education 
and training. For example, RACs will be required to gain CMS 
approval before beginning medical necessity reviews of provider 
claims. CMS oversight will ensure that providers are not unduly 
burdened by RACs. Additionally, CMS will require the permanent 
RACs to identify and publish vulnerability analyses so that the 
provider community can better understand where mistakes are 
being made so they can correct these mistakes before an audit 
begins.
    To sum up, let me emphasize CMS's commitment to our 
continued partnership with Medicare providers, particularly 
physicians who are small businesses, as we move forward on this 
new important program. Ultimately, we believe that the 
implementation of this program will support ongoing beneficiary 
access to care by ensuring the appropriate expenditure of 
taxpayer resources and supporting the financial integrity of 
the Medicare program.
    Thank you for your time. Dr. Farris and I remain to answer 
any of your questions and would be happy to take them now.
    Chairman Gonzalez. Thank you very much, Mr. Hill.
    [The prepared statement of Mr. Hill may be found in the 
Appendix on page 46.]

    Chairman Gonzalez. At this time the Chair is going to 
recognize the ranking member, Mr. Westmoreland, for some 
comments.

             OPENING STATEMENT OF MR. WESTMORELAND

    Mr. Westmoreland. Thank you, Mr. Chairman. I do want to 
thank Chairman Gonzalez and his willingness as chairman of this 
Subcommittee to have these hearings, where we look at how small 
business is affected by government regulations. As a former 
small business owner, I am very aware of the regulations and 
the hurdles that government puts in front of industries and 
small business in particular.
    Our health care system is the envy of the world due to the 
excellent patient care that we receive in this country. 
However, the same cannot be said about the treatment of our 
health care system and the treatment it receives from our 
government.
    So I hope, Mr. Chairman, in this hearing, that we will hear 
some testimony from not only CMS, but from small business on 
how these burdensome regulations slow down not only maybe their 
production, but also their ability to provide health care for 
their employees.
    I have a written statement here I would like to have 
unanimous consent to submit to the record.

    Chairman Gonzalez. Without objection.

    Mr. Westmoreland. With that, I yield back the balance of my 
time.

    Chairman Gonzalez. Thank you very much. I have already 
explained, Mr. Westmoreland, to everyone that is here, that you 
may have to absent yourself due to a very pressing issue there 
in your district, and you better be there or you may not be 
joining us next Congress. So I think it is kind of important.
    Mr. Westmoreland. I appreciate that. I am going to leave, 
if it is okay and go make another opening statement.
    Chairman Gonzalez. My pleasure. It is my understanding that 
substituting in place of the ranking member will be Ms. Fallin 
from Oklahoma.
    It is the prerogative of the Chair, of course, to lead off 
with the questions. It is a good place to be, in many ways. But 
I have some preliminary questions, Mr. Hill. I understand that 
we had what would be a demonstration or the project in 
different States, and now it is going to be permanent and there 
are going to be some structural changes which may address some 
of the concerns that some of the physicians and health care 
providers have regarding professional staff that will be with 
the permanent RAC, and I know that is the term we use now.
    But I do have a question, and that is how many physicians 
will each RAC be required to have on staff? I think you pointed 
out that there is going to be a medical director, and I 
understand that, as well as a coding expert. But we are talking 
with physicians. Because I have been told we have non-
physicians, in essence, passing on a physician's judgment on 
what was medical necessity.
    So how many doctors, how many MDs are we going to have 
required or mandated?
    Mr. Hill. Right. The requirement for the permanent RAC 
program is that each recovery audit contractor have a medical 
director who is a physician. The concept here isn't to 
enumerate the absolute number that has to be there, do they 
have to have one or do they have to have five, but the concept 
here is there is one medical director who is overseeing the 
judgment of the other clinicians, whether they are nurses or 
therapists or coding professionals, who are sort of making the 
judgments on claims whether or not they are going to get paid 
or on review or not, and it is that physician making the 
ultimate determination. If, in the example you used, the RAC is 
going to make a judgment to overturn a claim, the physician 
would be the one overseeing that process and making that 
judgment.
    Chairman Gonzalez. What do you think would be, and I guess 
it is a claim or a caseload of a medical director. When we say 
the permanent RAC will have a medical director who is a 
physician who is going to be overseeing the non-physicians and 
such, but realistically, the demands on someone's time, how 
many claims are we talking about? Is there a process that will 
require the review by the medical director, or is that going to 
be something that will be established within each independent 
and permanent RAC?
    Mr. Hill. Right. I think it will be established within each 
permanent and independent RAC, but again, I think what we are 
talking about here are processes as much as workloads, which is 
to say it is not the notion here that the physician would look 
at each and every claim.
    So, for example, you may have a series of claims dealing 
with one benefit category, one particular issue, and I think 
that the job of the medical director would be to ensure there 
are processes in place as the nurse reviewers or the therapists 
or whoever making judgments on the claims are making those 
judgments, they are making them consistently and in a way that 
the physician could sign off on that ultimate disposition. Not 
that they would look at each and every claim.
    Chairman Gonzalez. What evaluation did you have before we 
went into the permanent phase of how it operated, how the RAC 
system operated in those other States? I have some information 
that obviously has been provided to me, and it says that an 
independent contractor reviewed a sample of medical necessity 
decisions made by the California RAC and found an error rate of 
at least 40 percent, or up to 40 percent.
    I am just wondering, did you ever conduct, did you ever 
have any kind of independent analysis of the work that was 
actually being done by these RACs in these selected States?
    Mr. Hill. Absolutely. And that independent evaluation that 
you discussed there was something that I directed in California 
in particular, which was our sort of poster child for bad 
decision making on the part of the RACs. A lot of that, I would 
say most of that, had to do with a particular benefit area in 
patient rehab services in hospitals in California where the 
RAC's judgment on medical necessity ultimately didn't end up 
conforming with what CMS thought the right judgment would be.
    And after we had heard from a series of folks, hospitals in 
California, some Members of the California delegation, about 
what was going on there, we sort of suspended that review, sent 
in an independent evaluation to make sure that the RACs were 
making--that particular RAC was making correct decisions on 
those particular claims in California.
    Now, that was specific to those sets of issues. It is also 
the case that because of that we have built into the process an 
independent evaluation of every RAC's reviews. So, say the RAC 
does 100 claims. We are going to take a sample of those claims 
and independently are going to review those and say did they 
make the right decisions on that review that they did on a 
sample. That will help us detect whether or not we need to do 
corrective action with the RAC or whether they are going in the 
right direction. But it is giving us a little more comfort that 
they are making the right decisions on an ongoing basis.
    Chairman Gonzalez. So that is going to be built in in the 
permanent RAC arrangement where you actually will have some 
oversight, again, taking a sample of those, let's say, medical 
necessity challenges and claims and such.
    Mr. Hill. Correct. And actually on the medical necessity 
issue, even more important, because what I have just described 
is what happens after the RAC has made a decision. So it has 
already had the impact on a physician or a hospital. More 
important than that, I think, is we have put in place a process 
what we sort of euphemistically call in CMS a new issue review 
process.
    You can think about it this way: If an RAC wants to open up 
a new set of reviews on a particular issue having to do with 
medical necessity in a particular state, before they can begin 
that review in earnest, in other words, before they can start 
asking for a lot of medical records from a lot of different 
providers, they need to come into CMS and they need to talk to 
me as the CFO and they need to talk to the physicians who do 
our coverage policy and the people who do our payment policies 
who really write all the policies and explain how they are 
going to do that review, the rules that they are using to do 
that review, and we need to sign off and agree that what they 
are doing comports with the policies that we have got in place, 
precisely so we don't get in the situation like we did in 
California where the RAC was reviewing rehab claims in a way 
that ultimately we didn't agree with.
    I think that, on the front end, puts a level of oversight 
and discipline in the process that we don't have now, and, 
quite frankly, we don't have for any of the other sorts of 
review activities we have in Medicare. That would be unique to 
the RACs. I think it will provide for me, anyway, a much 
greater level of comfort and oversight for the RAC processes.
    Chairman Gonzalez. I don't mean to misinterpret what you 
are doing, and I think it is done in good faith, but I also 
believe that you see some real potential for things going 
haywire or not as we would prefer that it perform.
    One thing that concerns me is this contingency fee 
arrangement, which I understand that concept, but I have never 
seen something like this, to be honest with you. Let me get 
this straight.
    If the RAC finds that a claim should be denied, a medical 
necessity claim, a denial, it is that first step, are they 
reimbursed at that point? In other words, are they entitled to 
their contingency fee at what stage? At the initial finding?
    Mr. Hill. They are only entitled to the fee when the 
overpayment amount has been recouped by Medicare. So to the 
extent that they have identified a claim, a medical necessity 
claim that should be overturned and recouped by Medicare, to 
the extent that Medicare recoups that amount, the RAC is 
repaid.
    If, for example, a provider, say it is a significant amount 
and a hospital, this is typically the case in hospitals or a 
home health agency, as I said, they would like to pay that 
amount over time, they would like to have an extended repayment 
plan, the RAC only gets a portion of each payment. They don't 
get the full amount right away. They get the percentage as 
Medicare gets its amount.
    On the back end, to the extent a provider appeals that 
determination, the way the Medicare process works now is 
typically the amount is collected when the appeal happens. To 
the extent the provider appeals and wins, in other words, that 
appeal is overturned, the RAC has to pay that money back. They 
don't get to keep that money. That is how it works.
    Chairman Gonzalez. And I have another question. I am going 
to reserve that and give myself a little additional time after 
I allow my colleagues to have a question here.
    At this time, the Chair will recognize Ms. Fallin.
    Ms. Fallin. Thank you, Mr. Chairman. I thank you once again 
for your testimony. I have a couple of questions.
    If a physician appeals a claim and it goes to an appeals 
judge, what percentage of those claims are overturned by the 
appeals judge? Do you have an estimate on that?
    Mr. Hill. I do. I actually have the numbers. If you think 
about it in three buckets, you have got the total amount that 
has been denied by the RAC. Of that total amount, roughly 4.5 
percent ultimately get overturned on appeal. Of that total 
amount, the number that are appealed is roughly 13 to 15 
percent. So you get 100 claims, 13 to 15 of those get appealed, 
and of those, roughly 30 percent get overturned. So it is 
ultimately an overturn rate of about 4.5 percent. And that 
compares--it actually compares favorably, or not favorably, 
however we want to think about it, with the appeals rates that 
we see with our normal FI and carrier operations who also do 
this sort of work.
    Ms. Fallin. We are talking about some issue. What is the 
appeal rate for the FI and the appeals carriers?
    Mr. Hill. Those rates are about the same.
    Ms. Fallin. They are about the same.
    Mr. Hill. Right. The initial--so the 13 percent is probably 
a little lower, right? So fewer of the denials are appealed. 
But of those denials appealed, more are overturned for the FIs 
and the carriers. It is closer to a 50 percent overturn rate.
    Ms. Fallin. Do you have any classifications of claims that 
are automatically denied on the first time they are sent?
    Mr. Hill. I do, but for the FIs and the carriers, the way 
we do that is normally through the systems process, that is 
Noble. I don't know that here. I can get back to you on that 
for the record.
    Ms. Fallin. My physicians frequently tell me that, that 
they will submit a claim and it is just automatically denied. I 
just wonder why we do that sometimes in Federal Government.
    Mr. Hill. Well, there are certain circumstances where we 
have what we characterize as correct coding on it, so they look 
at the claim and make a judgment as to--the system makes a 
judgment as to whether or not that procedure matches up with 
the particular diagnosis code. You know, sort of the procedure 
for fixing a broken arm wouldn't match unnecessarily with a 
diagnosis of pneumonia. So those might get denied.
    Others are what we call medically unbelievable edits. 
Certain amounts of procedures that are done on a particular 
day, the system would look at that and say that is medically 
sort of unrealistic that that would happen, and those would get 
denied on their face. So I am not going to say there aren't 
certain circumstances that they would be believable. In those 
cases, they get appealed and get overturned.
    Ms. Fallin. Do you know of any particular illnesses that 
are denied on the first claim?
    Mr. Hill. Illnesses? No. Other than things that would not 
have been normally covered for Medicare. But I can't think of 
any illnesses that would be denied on the first blush.
    Ms. Fallin. What do you think is the root cause for the 
improper payments by the CMS contractors?
    Mr. Hill. I think there are roughly four categories of 
improper payments that we see. We see improper payments that 
are the result of medical necessity. Those are the hardest 
ones. Those are the ones where we are going in there and we are 
saying the physician made a judgment, admitted somebody into a 
hospital or facility and does a particular thing to a 
particular person that perhaps could have been in a different 
setting or should not have been done.
    Roughly a third are what we characterize as coding. You 
know, they just coded it incorrectly. The person needed a 
service. They got the service. Somebody just put down the wrong 
code for that service.
    And roughly a third are what we would characterize as no 
documentation or insufficient documentation. So something was 
provided, but the information that we got back from the 
facility, there is not enough information in the record that we 
got back from the facility to support whether or not it should 
have been provided. So it is those three.
    I think sort of why do they occur, some of it is Medicare, 
and medicine is very complicated, and sometimes the rules are 
tough to follow, and so that is an obligation for CMS to do a 
better job on provider education and outreach.
    Sometimes it is people trying to game the system. As much 
as we don't like to admit it, there are people who try to game 
the system. And sometimes they are just straight out mistakes.
    Ms. Fallin. In light of that, do you think that 
proliferation of the contractors helps or hinders the medical 
service provider's ability to deliver care to their patients?
    Mr. Hill. Ultimately, it is CMS' position that it is going 
to help. I understand the issues around RACs and sort of what 
the provider community in particular believes or sort of 
perceives as some of the issues.
    My judgment has always been as CFO that, you know, a 
physician or a supplier or a home health agency should have 
competence in the process they are in. They may not like the 
outcome, right? They may not like it that a claim was denied or 
perhaps something was covered or shouldn't have been covered or 
was. They may not like the outcome. But they should walk away 
from the process saying CMS was fair, they were predictable, we 
knew what was going to happen in the process.
    That is what we are striving to do with all our integrity 
efforts and, with the RACs in particular, we learned a lot in 
the demo. I am not going to say that I achieved that vision in 
the demo all the time, but we strove to, and I think as we roll 
this out nationally that is what we are seeking to achieve.
    Ms. Fallin. Thank you, Mr. Chairman.
    Chairman Gonzalez. Thank you very much, Ms. Fallin. I am 
going to follow up with a couple of questions, one that is 
going to be on prescription drugs, generics. I referred to it 
in my opening statement. GAO conducted a study and my 
information is that it appears that they would say that a 
pharmacy may well be only reimbursed at somewhere around 64 
percent.
    In my district, I have Caremark, and I think both Dr. 
Farris and yourself know what Caremark represents. But I also 
have the Ortiz Pharmacy there in the west side of San Antonio, 
which is a poorer side. I have visited both and they are 
totally different operations, I assure you.
    But I do know that the Medicaid population in San Antonio 
is going to depend on Ortiz before it depends on other. And I 
guess I am somewhat concerned. I don't understand the average 
manufacturer price. But the GAO report is very disturbing. How 
do you reconcile that? Do you agree with the findings? Is there 
anything that you are going to be doing? We are going to have 
testimony later from the private sector, but what is your 
understanding of that situation today?
    Mr. Hill. Well, a couple of things. First, I know that as 
we promulgated the rules and as we talked about AWP, we are 
carrying out what we believe is the intent and sort of what 
needed to happen as a result of the DRA.
    I think with respect to the details and sort of whether or 
not CMS believes that the GAO report was correct or incorrect 
or the impact, I would sort of defer that for the record. Some 
of that gets sort of complicated. There are people who work in 
the Center for Medicaid and State Operations who are the real 
experts, who are not here. I want to get you a fair answer, and 
the right answer, and not sort of just sort of dance around 
with it. With your indulgence, I would like to defer that for 
the record.
    Chairman Gonzalez. We will follow up probably with a 
written question. Of course, members of the Subcommittee will 
be given time to submit written questions and we would 
appreciate a prompt reply.
    The last question I have for you, of course, we come back 
to RAC, which I understand that you are simply saying we are 
following exactly what you and other Members of Congress told 
us to do. Well, we understand that, but what we expect is that 
you are going to have some sort of a fair process that is not 
just going to be efficient and effective, but obviously fair to 
the health care providers in this country.
    There has to be an incentive, obviously, and if it is a 
contingency fee, then it is those overpayments. Maybe I don't 
understand, but they are also supposed to be looking for 
underpayments. Common sense and human nature tell me that you 
may not have the same motivation or inspiration, and I could be 
wrong on that, to put as much effort in finding the 
underpayments.
    How do you address that particular side of the equation? 
And, secondly, what is the incentive to identify under 
payments?
    Mr. Hill. The incentive to identify underpayments is 
exactly the same as the incentive to identify overpayments. The 
contingency fee, the proprietary fee that has been negotiated 
with the RACs, is the same as a percentage of the overpayment 
as it is on the underpayment. So if they find a $100 
overpayment and they got a 10 percent fee, they are getting 10 
bucks. If they find a $100 underpayment and they get a 10 
percent fee, it is 10 bucks. The incentives are the same.
    I take this next step lightly sort of dealing with the 
chairman of the Small Business Subcommittee, but what we have 
done on a random basis for 10 years now, 11 years now, having 
nothing at all to do with the RACs, is a random assessment 
under the Improper Payments Act of where Medicare makes 
improper payments. A completely random sample. It is not 
focused on overpayments, it is not focused on underpayments. We 
just take a strict sample. Over 10 years, we have been doing 
that.
    For the 10 years we have been doing that, we do find that 
there are not a lot of underpayments. The vast majority of the 
improper payments, in the percentages you identified, 5 to 10 
percent, being only the underpayments. We don't see a lot of 
underpayments as we look at those records and we go back and 
make a redetermination.
    Now, whether that is--I don't know how to explain that, 
whether or not the overpayments are the result of people trying 
to game or the underpayments--not having underpayments is the 
result of physicians or other just feeling like they don't want 
to bill for more, for whatever reason. But we haven't seen over 
time a remarkable amount of underpayments as we looked at our 
improper payments across the program.
    Chairman Gonzalez. The last question is probably the 
toughest one for anyone that represents an agency or department 
here, but under the leadership of Chairwoman Velazquez, who 
takes this responsibility very, very seriously, under the 
jurisdiction of this Committee comes the Regulatory Flexibility 
Act. And what we always ask heads of departments, 
organizations, cabinet members, it doesn't matter, we always 
say, what do you do as you promulgate these regulations and 
such to take into consideration the mandate and the 
responsibility with which you are charged under the Regulatory 
Flexibility Act.
    One, it is applicable, I believe, and if you disagree, you 
would say, Charlie, we are an exception to the rule or 
something. But what do you do? Because it seems that has always 
been the hardest question for everyone to answer when we pose 
it.
    Mr. Hill. Right. Well, I don't know what this is going to 
say, but I am not quite sure it is that hard to answer, so 
maybe it will be the wrong answer. But I am going to try. There 
are two aspects of this for us.
    On the demo side, there is the basic analytic due diligence 
function for us, right? So we knew we were doing a demo. We 
knew it was going to have a impact on a number of providers. 
There was not going to be any regulations associated with it. 
So the piece of the Regulatory Flexibility Act that talks about 
the assessments that you need to do as you do regulations 
wasn't going to apply.
    But we did reach out quite aggressively with the Small 
Business Administration to help them understand what we are 
doing, sort of lay out our plans so they understood what we are 
doing. Not that they were going to sign off or sort of say it 
was the greatest thing since sliced bread one way or another, 
but we did at least want to do that due diligence.
    So for us, that is the two-pronged piece. There is the 
Ombudsman Office at SBA that we work with as they get comments 
in from providers and we proactively work with them to tell 
them what we are doing. And as we roll the demo out nationally, 
that is a group that we will work with quite closely so that 
they understand the impact of what we are doing on the RACs.
    Not just on the RACs. Whether it is regulations having to 
do with home health agencies or DME or whatever, we work very 
closely with that group to be sure we are in compliance where 
we need to be with the Regulatory Flexibility Act.
    Chairman Gonzalez. Thank you very much. The Chair is going 
to recognize Ms. Fallin.
    Ms. Fallin. Thank you, Mr. Chairman. I have one last 
question I am just trying to get a feel of. Under the statute 
for Recovery Audit Contractor, that they can review a payment 
in a particular fiscal year or up to the four preceding fiscal 
years as I understand it, is that right?
    Mr. Hill. Under the Demonstration Act, that is correct.
    Ms. Fallin. Under the Demonstration Act. Okay. Is it then 
conceivable that the Recovery Audit Contractor could reexamine 
a payment to a hospital or a physician that was ordered by a 
Federal Court, including the possibility of even the United 
States Supreme Court, that they could reexamine that, and does 
CMS have any guidelines for your Recovery Audit Contractor from 
reviewing the decisions of the Federal Court or Supreme Court?
    Mr. Hill. That is a very interesting question. I think the 
short answer is I never say never, right? I mean, it is 
absolutely entirely plausible that a claim could get reviewed 
and that claim could be the result of some sort of judicial 
action, either a stipulation or a mandate that something occur.
    I mean, off the top of my head, you know, under the 
Medicare statute, a judge stipulating that something or 
demanding that something is medically necessary, that is not 
something I have seen come up before. I mean, I have seen where 
a particular, whether it is a provider or a jurisdiction, be it 
a State or local jurisdiction, is required to provide a set of 
services to a set of individuals, but not that every service 
has to provided and covered by Medicare. We still have to reach 
those coverage decisions.
    So, I mean, if there is more information there or if there 
is something else I can do to sort of delve into that, I would 
be happy to. It is a very interesting question, and I suspect 
it will lead to all sorts of odd answers.
    Ms. Fallin. Okay. All right. Thank you very much.
    Chairman Gonzalez. Thank you very much, Ms. Fallin. And Mr. 
Hill, Dr. Farris, thank you very much for your testimony. We 
are going to go to the next panel. You may receive written 
questions from members of the Subcommittee. Also I anticipate 
that you may have to leave, but we will have representatives 
from CMS that will remain throughout the hearing. It is always 
very important to the witnesses to know that someone from the 
government is there and listening to their specific testimony.
    Mr. Hill. We will be here. Thank you very much.
    Chairman Gonzalez. Thank you. You may be excused.
    The Chair is going to call panel 2. We will have staff set 
up the particular order.
    I welcome the second panel of witnesses and thank you for 
your patience. I know it took a little longer with CMS, but it 
is always important when we have somebody here that can answer 
some of the questions that I know you have had and hopefully 
were reflected in some of the questions posed by the members.
    I will indicate now that Ms. Fallin may also have to excuse 
herself. We try to do everything in about 2-1/2 days when we 
are here, and you are finding yourself in one of the busiest. 
At this time what I will be doing is I will be recognizing the 
witnesses individually, and I will introduce them as they are 
about to testify.
    Chairman Gonzalez. The first witness is Dr. William A. 
Dolan. Dr. William A. Dolan was elected to the American Medical 
Association Board of Trustees in June 2007. He is an orthopedic 
surgeon from Rochester, New York, and has served on the AMA 
Council on Medical Service since 2002 before becoming Chair 
this year. The American Medical Association helps doctors help 
patients by uniting physicians nationwide to work on the most 
important professional and public health issues facing our 
country.
    Again, I will remind everybody, you have 5 minutes, and, 
believe me, you will have plenty of time to expand on anything 
during the question and answer.
    Dr. Dolan, you may proceed.

   STATEMENT OF DR. WILLIAM DOLAN, MEMBER, BOARD OF TRUSTEES 
                  AMERICAN MEDICAL ASSOCIATION

    Dr. Dolan. Thank you, Mr. Chair, and acting ranking member, 
Ms. Fallin, and members of the Subcommittee. My name is Bill 
Dolan. I am a member of the Board of Trustees of the AMA and a 
practicing orthopedic surgeon in Rochester, New York. I want to 
thank you for inviting us to testify here today on the impact 
of the CMS regulations and programs of the small health 
practitioners.
    Chairman Gonzalez. Excuse me, Doctor. I don't think the 
mike is on. If you can hit that button. I can hear you fine, 
but they can't in the back.
    Dr. Dolan. Approximately 75 percent of physician practices 
are composed of fewer than eight physicians. For the majority 
of these small physician practices, including mine, burdensome 
regulations can take valuable time away from patient care. We 
believe that this is particularly true with regard to the 
Recovery Audit Contractor, or the RAC program, and the ICD-10 
implementation.
    Now, as you pointed out, the RAC program employs 
contractors to analyze and audit physicians' reimbursement 
claims for billing errors. The pilot program, which began in 
2005 and will begin nationwide this year, has been extremely 
burdensome on the affected physicians and does nothing to 
educate them about common billing mistakes. Instead, the 
program embraces the "bounty hunter" technique that provides 
the RACs with incentives to deny claims.
    While we strongly oppose the RAC program, we believe there 
are things that CMS can do prior to the national rollout that 
would improve it. Specifically, CMS should consult with the AMA 
on RAC physician communications. In addition, they should make 
RAC monthly financial reports public and maintain an accessible 
list of commonly audited procedures.
    CMS, in addition, should preclude RACs from reviewing 
claims for the past 12 months. The failure to do so will result 
in RACs reviewing claims still under review by carriers and 
other fiscal intermediaries.
    RACs should not be permitted to review billing issues 
arising from evaluation and management services or medical 
necessity determinations, as they are extremely individualized 
and extensive clinical review is necessary.
    CMS should limit the number of records requested from 
individual physicians. I know of one neurologist from 
California who had a request for 50 of his patients' charts.
    CMS should also raise the minimum claim level from $10 to 
at least $25.
    Finally, CMS should encourage the pursuit of underpayments, 
as you spoke about, as well as the overpayments, by requiring 
RACs to accept case files from providers for underpayment 
reviews and including as an underpayment those situations where 
a physician mistakenly neglects to report a delivered service.
    The AMA also concerns itself with the rollout of the ICD-
10, the 10th version of the international classification of 
disease is used in outpatient and inpatient settings. While the 
AMA recognizes the important action of updating the current 
coding system, ICD-9, we believe that due to the complexity and 
the cost of this extensive transition, a plan and timeline must 
be developed prior to a national rollout. Any transition must 
take into account the fact that physicians are already 
struggling to implement the HIPAA electronic transaction 
standard and also the transition to the national provider 
identifier number.
    Given the costs and complexities involved with the move to 
ICD-10, the AMA suggests that the HIPAA electronic standards be 
upgraded to version 50-10 prior to the national rollout as the 
current standard, 40-10 is totally incompatible with the ICD-
10. In addition, the ICD-10 coding system should be pilot 
studied and tested so that problems with it can be identified 
and resolved in advance of a national rollout. Physicians, 
their staffs, their coders and other national stakeholders will 
need adequate education and training very early in the 
transition process.
    Due to the significant resources, administrative 
complexities and advanced planning required to retool and 
replace our systems and processes which currently depend upon 
ICD-9 logic, HHS should work collaboratively with the health 
care industry stakeholders to develop a realistic transition 
process and timeline.
    The AMA looks forward to working closely with the Small 
Business Committee to ensure that physician practices, 
especially the smaller practices like my own, are able to 
manage the RAC audit process and prepare for the ICD-9 rollout 
and transition without compromising health care to our 
patients.
    Thank you.
    [The prepared statement of Dr. Dolan may be found in the 
Appendix on page 56.]
    Chairman Gonzalez. Thank you very much, Doctor.
    Chairman Gonzalez. The next witness is Dennis Wiesner. Mr. 
Wiesner is the Senior Director for Privacy, Regulatory, 
Government, and Industry Affairs for H.E.B., a grocery company 
in San Antonio. Beginning in 1905, H.E.B. Grocery Company is 
now one of the largest independently owned food retailers, with 
stores throughout Texas and Mexico.
    When I make a comment that I have got Caremark in San 
Antonio as well as the Ortiz, somewhere in the middle I have 
grocery stores like H.E.B.
    Welcome, Mr. Wiesner. You may proceed.

 STATEMENT OF MR. DENNIS WIESNER, SENIOR DIRECTOR FOR PRIVACY, 
   REGULATORY, GOVERNMENT, AND INDUSTRY AFFAIRS, THE H.E.B. 
              GROCERY COMPANY, SAN ANTONIO, TEXAS

    Mr. Wiesner. Thank you, Chairman Gonzalez.
    Chairman Gonzalez and members of the Small Business 
Committee, I am Dennis Wiesner, a registered pharmacist, and I 
am senior director for Privacy, Regulatory, Government, and 
Industry Affairs for H.E.B. Grocery Company, headquartered in 
San Antonio, Texas. I am testifying today on behalf of the 
National Association of Chain Drug Stores. Over half of the 
NACDS membership operates 20 or fewer stores.
    We appreciate this Committee's support for pharmacies, 
particularly the leadership of Chairman Gonzalez, Chairwoman 
Velazquez, Ranking Member Chabot, and others on the Medicaid 
AMP issue.
    As you may be aware, 20 percent of the Medicaid population 
is located in rural areas of the country, and in Texas, many of 
our stores are located in rural towns. For Medicaid 
beneficiaries, we are often the most accessible supplier of 
prescription medications, health information and critical 
health care services. In particular, my company offers 
immunizations in all of our locations. Pharmacies are the face 
of neighborhood health care.
    It is with this in mind that I express my concern regarding 
the devastating cuts to Medicaid pharmacy reimbursement called 
for by the Deficit Reduction Act of 2005 and the CMS 
implementing regulations commonly referred to as the AMP rule.
    For many pharmacies, the AMP cuts to Medicare reimbursement 
place our businesses at risk and threatens patients access to 
medication. Many pharmacists will not survive the AMP cuts 
because they will be paid less for generic drugs than it costs 
to purchase them. Many pharmacies may have to cut back services 
or shorten their operating hours, and it has been estimated 
that as many as 12,000 pharmacies across the country could 
close their doors.
    If patients lose access to vital medications it could also 
lead to more emergency room visits and expensive catastrophic 
care. Failure to take medications as prescribed is estimated to 
cost $177 billion annually.
    The AMP rule is fundamentally flawed in many ways, but in 
particular, it fails to provide a thorough analysis of the 
economic impact that this rule would have on small pharmacy 
businesses as required under the Regulatory Flexibility Act.
    In light of numerous statutory violations, a Federal judge 
has blocked implementation over the AMP cuts. However, only 
Congress can prevent these cuts with a permanent legislative 
fix. That is why it is essential that Congress pass the Fair 
Medicaid Drug Payment Act, H.R. 3700 and Senate bill 1951. I 
urge all Members of the Committee to cosponsor this important 
bill.
    I would like to focus the rest of my statement on the 
Medicare program and the impact of related CMS regulations on 
beneficiary access to drugs, medical supplies and services.
    When enacting the Medicare Modernization Act, Congress 
recognized the value and trust patients place in their local 
pharmacist and the need to preserve those relationships, many 
of which go beyond the simple filling of a prescription. Thus 
Congress included playing field provision to ensure that 
patients can obtain their Part D benefits from any retail 
pharmacy of their choice.
    However, CMS' implementation and its guidance on how plans 
should follow this provision are inconsistent with 
congressional intent.
    As a result, Medicare plans are steering patients to mail 
order houses and discouraging 90 day supplies at retail by 
offering lower reimbursement rates or by charging higher copays 
for the patients. These practices deny patients a choice in 
their health care provider.
    Another area of concern involves new program requirements 
and competitive bidding under the Medicare Part B for durable 
medical equipment and supplies which will also harm patients' 
access to their local community pharmacist, the most readily 
accessible health care provider in the community. On this 
issue, NACDS proposes the following recommendations, on which I 
elaborate in my written statement.
    First, State licensed retail pharmacies should be exempt 
from the accreditation requirement. State licensed pharmacies 
are licensed by their respective state board of pharmacy and 
abide by strict State and Federal laws, including those related 
to health care, fraud and abuse.
    Next, diabetes testing supplies sold at retail pharmacies 
should not be subject to competitive bidding. Expansion of the 
program to include diabetic supplies sold at retail pharmacies 
could harm patients' access to those products and create a 
fragmented care in the management of diabetes.
    Last, CMS should not create national or regional 
competitive bidding areas for mail order items. The mail order 
program is likely to compromise on the quality of products and 
services, pose tremendous navigational obstacles to the low 
income and minority beneficiaries, and could force patients to 
either forego diabetes testing or do it in an improper and 
limited manner. And this, of course, could have devastating 
effects.
    On behalf of my company, H.E.B., and NACDS, Mr. Chairman, 
thank you again for the opportunity to testify today before the 
Committee. I welcome any questions you may have.
    Chairman Gonzalez. Thank you very much, Mr. Wiesner. We 
will get back no doubt.
    [The prepared statement of Mr. Wiesner may be found in the 
Appendix on page 65.]

    Chairman Gonzalez. The next witness is Dr. Michael 
Schweitz. The doctor is a practicing rheumatologist and vice 
president of the Coalition of State Rheumatology Organizations. 
The doctor is here to testify on behalf of the Alliance of 
Specialty Medicine, a coalition of 13 national medical 
specialty societies representing more than 200,000 physicians.
    You may proceed with your testimony.

STATEMENT OF DR. MICHAEL SCHWEITZ, VICE PRESIDENT, COALITION OF 
   STATE RHEUMATOLOGY ORGANIZATIONS, WEST PALM BEACH, FLORIDA

    Dr. Schweitz. Good afternoon Mr. Chairman and members of 
the Subcommittee. I am Dr. Michael Schweitz, a practicing 
rheumatologist from West Palm Beach Florida. I would like to 
discuss the experience of physicians and my own personal 
experience impacted by one aspect of CMS regulations on small 
health care providers, namely the CMS demonstration project 
referred to as the Recovery Audit Contractor program, or RAC.
    The implementation of the demonstration has created unfair 
and expensive administrative burdens for physician practices, 
which are, after all, small businesses with limited capacity 
for dealing with arbitrary, ill-informed and often very 
confusing policies of those contractors. Some of these problems 
are detailed in our written documents and I will summarize some 
of them for you.
    Number one: Recovery and review of old and previously 
adjudicated claims. In Florida, the RAC contractor, HGI, 
demanded multiple physician refund payments throughout the 
State for claims that had previously been reviewed and 
adjudicated by the Florida Medicare carrier.
    Two: Errors by RAC's misstating or misapplication of codes. 
Records were requested or refunds demanded involving hundreds 
of thousands of dollars from oncologists in Florida after the 
RAC erroneously misstated the codes for IV hydration, which is 
necessary during chemotherapy.
    Three: Refund requests exceeding time limits. California 
urologists were asked by the RAC to refund payments on the 
basis of least costly alternative policy for drugs used to 
treat prostate cancer. The RAC was discovered to be misapplying 
CMS written policy by exceeding time limits for reviewing 
claims.
    Four: RACs have also taken on the role of interpreting 
clinical guidelines governing utilization for procedures, such 
as inpatient versus outpatient procedures for hysterectomies 
and the implantation of cardiac devices.
    Five: RACs have also applied new regulations retroactively 
to previously performed procedures. In Florida, hundreds of 
physicians were asked for refunds or records pertaining to 
spinal joint injections to relieve pain based on a 2003 
commentary in The Federal Register, when the actual CMS policy 
had not been developed, distributed or published until 
September of 2007.
    Hundreds of practices were forced to hire consultants or 
counsel and divert clinical and administrative staff in order 
to retrieve, review and submit records to comply, and even some 
had payments withheld, creating significant cash flow problems 
for that practice. One practice, in fact, had the funds 
withheld before the demand letter was received.
    The RAC's decisions, if successfully reversed on appeal, do 
not resolve secondary carrier withholds or demands that are 
triggered by CMS notifications. This creates an exceptional 
additional burden on these practices to interact with dozens of 
carriers in order to reconcile hundreds of claims.
    Our recommendations are outlined in our written testimony, 
but I will summarize some. These include, number one: As 
stated, changing the bounty hunter payment mechanism that seems 
to embolden RAC behavior.
    Two, precluding the RAC from reviewing work from the 
current year. It is redundant. There are already contractors 
who are doing that at the same time.
    Three, shortening the look-back period to 12 months from 
months 12 to 24. This should be a sufficient time.
    Four, and most importantly, CMS should remove medical 
necessity reviews from the RAC statement of work. We do not 
think that these reviews are appropriate for the RAC program 
and believe that they exceed the authority imparted to the RAC 
by Congress. These reviews should be conducted by clinicians 
with the relevant experience and expertise to make rationale 
judgments. RACs do not appear to have used appropriately 
qualified staff for their reviews. If CMS intends to 
significantly reduce error rates in its transactions, 
physicians should expect no less from the RAC.
    For these reasons, we support H.R. 4105, the Medicare 
Recovery Audit Contractor Act of 2007, or any other similar 
legislation that proposes a much-needed moratorium on RAC 
activities and expansion until the serious flaws are adequately 
evaluated and addressed and demonstrably corrected.
    Thank you, Chairman Gonzalez.
    [The prepared statement of Dr. Schweitz may be found in the 
Appendix on page 80.]

    Chairman Gonzalez. Thank you very much.
    The next witness is Dr. Karen Smith. Dr. Smith is the Board 
Chair to the American Academy of Family Physicians. She also 
practices family medicine in her own clinic in Raeford, North 
Carolina. The American Academy of Family Physicians is the 
National Association of Family Doctors. It is one of the 
largest national medical associations, with more than its 
93,000 members in all 50 States, and also Puerto Rico, the 
Virgin Islands and Guam.
    You may proceed with your testimony, Dr. Smith.

STATEMENT OF DR. KAREN SMITH, BOARD CHAIR, AMERICAN ACADEMY OF 
                       FAMILY PHYSICIANS

    Dr. Smith. Good afternoon, Chairman Gonzalez and members of 
the Committee. I am Dr. Karen Smith, a family physician and 
owner of a solo private practice in Raeford, North Carolina.
    On Monday morning, October 24, 2005, two representatives 
from AdvanceMed presented to my office with badges identifying 
themselves as authorized subcontractors for CIGNA Medicare and 
requested 72 charts for review of clinical documentation of 
services rendered from July 1, 2004, through July 30, 2005. My 
staff extracted the requested information from the electronic 
record system, and I personally provided the walking tour of 
the building, including inspection of State and Federal 
licenses for medical business operations. The care of my 
patients was disrupted in our open access rural family 
practice, as patients, pharmaceutical vendors and other 
visitors of the practice observed the unannounced review.
    Five months later, on March 16, 2006, I received 
notification that 72 claims with 154 services submitted were 
reviewed and 91 of the 154 disallowed for payment. The actual 
amount paid to the practice for the services questioned was 
$1,551.11. This overpayment amount, when extrapolated to a 
sampling frame size of 2,935 patients, resulted in an 
overpayment calculation of $48,245. However, my practice 
management system noted I only had 1,287 CIGNA Medicare 
patients in the practice at that time. This discrepancy was 
never acknowledged nor was it corrected in the final 
calculations.
    The reasons given for denial included incomplete or no 
documentation, services incorrectly coded, services not covered 
by Medicare, lack of documentation for drugs administered, 
services not medically necessary in the judgment of the 
reviewer, who was not a physician.
    When my staff and I reviewed this summary, we noticed that 
several items of documentation the reviewer cited as being 
nonexistent were indeed present in our electronic medical 
record system. I notified AdvanceMed of this discrepancy and 
requested instructions for sending this information. They 
responded that this information could be submitted only in an 
appeal.
    This answer was communicated in such an intimidating and 
aggressive manner, prompting me to call a well-known 
independent auditor. I participated in several of her coding 
workshops and quickly recognized additional professional 
assistance was going to be needed. At my request, the auditor 
immediately contacted an attorney who also called AdvanceMed, 
only to receive the same answer.
    The appeal process was initiated and then delayed due to 
AdvanceMed sending letters to the wrong medical office which 
neither I nor my counsel ever received. Documentation was 
finally accepted by CMS and forwarded to Q-2 administrators 
hired by CMS to review the file and make an independent 
decision.
    The outcome from the CMS review was partially favorable in 
that it decreased the overpayment amount from more than $48,000 
to $18,158, a $30,000 error. But it was still based upon an 
incorrect and inflated number of Medicare patients in my small 
practice.
    Our attorney reviewed additional options, including an 
administrative law hearing for services performed, but required 
additional appeal presentation. The practice, my family and 
myself were at a point of stress never imagined. We were 
exhausted and emotionally distressed after countless hours and 
days of preparation and review during our third year in 
business. Thus, we decided to halt further appeals and review. 
We were financially drained and feeling the pressure to make 
payroll, pay mortgage, as well as other expenses.
    A loan was acquired from my personal home equity and a 
check sent to CMS to satisfy the obligation. Ninety days later 
I received notification from the U.S. Attorney's Office for a 
possible levy of assets due to nonpayment of the CMS 
recoupment. After providing documentation two times, it was 
clarified that the payment had not been applied to our debt.
    I established a technologically advanced primary care 
practice in one the poorest counties in North Carolina. This is 
a practice that adheres to the highest standards of care and 
participates in quality-based projects and a goal of decreasing 
medical errors, eliminating redundancy and State-of-art 
communications with the hospitals located in the region.
    The guilty until proven innocent audit we endured used 
sampling and extrapolation calculations which are not properly 
verified for validity. In addition to the disruption to patient 
care and possible reputation damage by the surprise and abrupt 
visit of badge-bearing authorities, the process quickly 
exhausted our financial reserves.
    It defies common business sense to run a highly qualified 
medical practice using records in a financial environment where 
Medicare does not recognize the true total costs for caring for 
individual patients with many medical problems. The escalating 
costs of health care cannot be subsidies for moneys taken out 
of the businesses of small physician practices. We have the 
compassion and the desire to remain in operation, but will not 
be able to endure in a world of uncontrolled costs and 
diminished payment.
    Thank you for allowing me to testify.
    [The prepared statement of Dr. Smith may be found in the 
Appendix on page 92.]

    Chairman Gonzalez. Dr. Smith, thank you very much. Quite a 
compelling experience I would say. It wasn't a story, it was 
reality.
    We are going to have votes in a few minutes, but I think, 
since I don't have any other members that are present, and 
please do not interpret that as not having an interest. Believe 
me, we are just pulled in every which way. If I wasn't 
chairman, I probably would have been here and then I would have 
been at another hearing.
    All of your testimony, of course, is being recorded. Your 
statements are part of the record. The questions that we have 
here, probably the most important people will be our staff 
members. Chairwoman Velazquez is not one to conduct a hearing 
or allow us to conduct Subcommittee hearings without looking at 
taking some sort of affirmative action on these things. She is 
very proactive. So, believe me, this is incredibly important 
and informative.
    My first question, Dr. Dolan, you have recommended that the 
minimum should be increased from, let's say a $10 overpayment 
to $25. I guess it is a two-part question. What is the basis 
for that? And simply, if the threshold is really low, obviously 
you have multiple claims being challenged and overpayments and 
such. I understand that. Is it worth it, even at $25, for the 
physician to go through all the trouble to basically contest 
it? That is the first question.
    The other thing is if you don't contest and you just simply 
pay, are you establishing some sort of record in that big 
computer in the sky or whatever, that Dr. Dolan, because you 
just didn't want to contest all these low ones or even 
cumulatively, it was just not worth the expense? Is there some 
fear on the part of a physician that somehow they are having 
some sort of a record out there for someone to look at, and it 
obviously would not be a good reflection that you had 1,000 
claims, maybe they are all $10 or whatever, but nevertheless 
there is no distinction. Is that a fear?
    Let's just go back to you want to increase it from $10 to 
$25, and what would be the basis for that?
    Dr. Dolan. I personally would want to increase it to $100. 
At $10, the physician will lose money, just listen to the story 
next door here, will lose money in even trying to replicate the 
records. Remember, we do not get paid like the hospitals get 
paid for replicating the records, nor the postage nor anything 
else. So you will lose quite a bit of money. Even if you have 
to do one record, it is not worth it.
    It is like us seeing Medicaid patients. It is not worth us 
to charge. We do it for free. The same with $25. With all the 
work you have to do, it is probably not worth paying a full 
time equivalent to go back, find the record, $15-an-hour 
payment, to file and then copy all those things and then get 
the postage and send it off, filling out all the forms. It is 
not worth it.
    We know of no such dragon in the sky who is watching over 
this. There may be. But if you are just dealing with several 
items, unlike the multiple requests by the doctor, I would just 
blow it away. It is not worth my time. It is not worth my 
secretary's time. It is not worth the patient's inconvenience. 
So I would do that.
    Now, PPAC, which is the Physicians Advisory Counsel to CMS, 
has recommended $25. That is where the $25 came in. But, 
personally, I would go higher than that, because that is when 
you are really going to fight, when it gets to be $100. That is 
where that number comes in. It is an arbitrary number, and I 
will have to say that.
    Chairman Gonzalez. The fear, of course, is if you are on a 
contingency basis and you go for all this low hanging fruit, 
but the real reason is you simply know it is not going to be 
contested and cumulatively you can make a lot of money, to be 
honest with you, because obviously the other side, it is just 
not a financially viable proposition for them.
    I will instruct Committee staff if they will remind me to 
follow up as to how CMS keeps these statistics and whether 
there is any adverse effect on someone. In other words, if 
there is a future let's say investigation or whatever it is, 
they go back and they go, my gosh, look at all these claims, 
not looking at the numbers or anything like that. So is a 
physician or health care provider placed in jeopardy by simply 
making that determination of not to oppose or to appeal or so 
on.
    I think that is a real concern. At the end of the day, you 
are still a business. Your life span and profession always say 
that, but, nevertheless, they are business considerations.
    Then, Mr. Wiesner, let me ask, I am trying to figure this 
thing out on the average manufacturer's price and how it plays 
out and the different type of pharmacists that we have out 
there. I think I have already described, I think I have all 
three there obviously in my own district.
    But you heard Mr. Hill from CMS, and he seemed to say, not 
in reference to RAC, but what we are talking with here, that it 
seems to be more of a work in progress still. Do you sense 
that? Do you feel that you still have some input, that 
something can still be done? Or is this a bygone conclusion and 
you are going to be facing this. And then the potential impact 
on someone like H.E.B. And what I refer to as my supermarket 
pharmacies?
    Mr. Wiesner. Correct. I don't believe at this particular 
point we have that much more input that is going to change the 
direction that we are going. Obviously, I did refer to the fact 
that we have a temporary injunction so it is not in effect at 
this point in time. But at some point, there will need to be a 
benchmark to help determine the adequate cost basis for generic 
products, and at this moment, AMP is a flawed definition of how 
that is achieved.
    It is intended to be really the average price paid by a 
community retail pharmacy. But included in the information that 
is gathered is prices from a large number of other facilities. 
They could include clinics, they could include the mail order 
operations, for example, and in each of those instances we are 
not on a level playing field with those. I could elaborate, but 
that would take a little while to do that.
    So what we actually have is kind of a misnomer. It says 
average manufacturer price. The real reality, it is the lowest 
price that is reported. It is not an averaged weighted price 
across all these various classes of trade. So it would be the 
lowest price that would come in. And in many cases, as you 
reported earlier, the GAO report, it has already been 
determined and confirmed that 60 to 65 percent of the time, the 
average community retail pharmacy would not be able to purchase 
the product at the price that it is going to be set at.
    Chairman Gonzalez. It is a fair statement though, if you 
are looking, in essence it is going to be the lowest price. And 
it is not a level playing field, for many reasons. A mail order 
house obviously don't have the facility, the physical 
structure, the employees and such, which creates jobs and 
everything else in my district, by the way, and everybody 
else's district, and the traditional pharmacist there. But, 
nevertheless, you all would all come under this general 
umbrella at arriving at that price. Everybody is basically 
under it or in the same situation.
    Mr. Wiesner. That is correct. We would all be underneath 
that same umbrella. What that is going to really create is for 
individual pharmacies to make some very tough decisions if 
nothing is changed. They will each have to look at their own 
financial situation, and the ones that would be most at risk, 
more than any, would be pharmacies located in rural settings 
that have a high percentage of Medicaid recipients.
    It is important that the Medicaid recipients have providers 
across-the-board for access, and if they have to make decisions 
such as not participating in the program, there still needs to 
be avenues for the Medicaid recipient to receive their 
prescriptions. So that will then push that out into the 
community and further overburden the rest of the pharmacy 
community.
    Chairman Gonzalez. I appreciate it. It is so important for 
us as Members of the Congress to understand how the real world 
works out there and the different competitors in the same 
enterprise. So it is, when you are explaining to me the 
difference between, let's say mail order, and you pointed that 
out, I think it is an important distinction.
    Dr. Schweitz, your testimony obviously was very interesting 
and also very compelling. I do want to obviously be fair to CMS 
and some of the concerns you had.
    I just want to know if you believe they are going to be 
adequately addressed? We know it is a pilot project. We know it 
is in certain States. Mr. Hill indicated in his testimony 
lessons were learned. They are going to improve on that 
particular system.
    Chairman Gonzalez. I just want to know if it provides you 
and addresses your concerns. From his testimony, he says, for 
example, they will now have both a medical director and 
certified coding experts will be required to be employed at all 
permanent RACs. That is an improvement. Does it go far enough?
    Dr. Schweitz. That addresses the issue of medical necessity 
reviews to some degree, but I think your question to the CMS 
representative was right on the mark. What kind of volume are 
we talking about and how is one medical director going to 
address all of those necessity reviews from all of those 
different specialties?
    I would like my necessity reviews to be done by someone who 
has expertise in my field to make a judgment on what I am 
doing. I really don't know how a general medical practitioner 
or general medical director can have the expertise to make 
those determinations in all the different fields there are in 
those kinds of volumes. So I have reservations about that part 
of it.
    Chairman Gonzalez. I think Mr. Hill was, again, very candid 
and I think those decisions on how that process will operate 
within that particular RAC is really going to be up to that 
medical director, what he or she will actually be seeing. I 
don't think that it is going to be every doggone claim. That is 
the most obvious observation that we could be making.
    In Florida, I forget the name of the outfit that you dealt 
with. I don't know if--
    Dr. Schweitz. Health Data Insights. HDI.
    Chairman Gonzalez. HDI. Do you have an idea how much of an 
area they were provided? I should have asked Mr. Hill this. I 
am still not sure how many RACs we had out there during this 
process. Let's say in the State of Florida, which is--
    Dr. Schweitz. There were only three States that were part 
of the demonstration project initially, Florida, California and 
New York, and I believe there is one contractor in each State. 
We only dealt with one.
    Chairman Gonzalez. And now I see everybody shaking their 
heads in the audience. I think they are all in agreement with 
you. I am just wondering if when we expand this to all 50 
States--and anybody else, I am really--again if that is what we 
are going to do, it is going to be an overwhelming challenge I 
would suspect. I am not saying that CMS is not attempting to do 
the best they can. I am just saying now that we are going to 
have 50 States, how many RACs are we going to--permanent RACs, 
that is what we refer to them now. Nothing is really permanent 
permanent, as you know, and that is why we have legislation. 
You could also have lawsuits and so on. But I am hoping we have 
a collaborative and come up some answers that address your main 
concerns because obviously CMS is acting at the direction of 
Congress. It is just the manner in which they are executing the 
policy and that is what we are trying to arrive at.
    Dr. Smith, I guess--I wanted to ask you when they paid this 
visit and it was unannounced, you talked about people just 
coming in. Your employees, your patients, and you have somebody 
who comes obviously in an authoritative manner. I don't think 
they flash badges or whatever it is, but in essence and that 
actually occurred. You did not have any warning. There wasn't 
any discussion--"we need to meet with you, this is what we are 
going to do and we are coming by tomorrow."
    I am not saying they give you 30 days notice. I understand 
how the real world works. If they think someone is doing 
something they don't want to give you any time to do anything 
if they believe that you are a wrongdoer. Not that that is what 
was happening in your case. But I understand that is the way 
the government works. But nevertheless they came in; right? And 
at some point it just isn't profitable to continue to resist; 
is that correct?
    Dr. Smith. Yes, that would be correct. And exactly as you 
described, they appeared at the front window and they did flash 
badges which placed us on notice immediately, which is why we 
responded immediately and prepared this information.
    Chairman Gonzalez. The other thing that was disturbing in 
your particular circumstance, which is different circumstances 
than what we have been talking about prospectively, what we 
have already had in place and what goes on, is this sampling 
when you extrapolate. I understand that concept, too. I just 
don't think it is applicable in many instances.
    And that is what they basically do. They find one or two 
cases and say, well, you have 50 recipients, therefore we are 
just going to go and figure that each and every one of those 
then should reflect this overcharge of whatever it is; is that 
correct?
    Dr. Smith. Yes, that is the sampling frame size. And in our 
situation, the sampling frame size was grossly incorrect. We 
ran our numbers before taking the flight yesterday and as of 
yesterday we had 1,487 Medicare patients. At the time of this 
audit it was still noted that we had 2,935 patients. As of this 
date we have never acquired that many patients and it was 
extrapolated against that number.
    Chairman Gonzalez. So the base number was wrong. The other 
thing, too, I think you indicated some payment was tendered or 
whatever. Obviously it wasn't applied. I think we all run into 
that in some respects.
    But for you, I mean, you are getting a letter, obviously--
and I don't remember if it was an Assistant U.S. Attorney or 
someone in a legal capacity--which technically they could just 
shut you down; is that correct? How were you able to remedy 
that situation?
    Dr. Smith. Fortunately, by that time we had maintained 
copies of each piece of correspondence sent out from the 
office. And so he immediately asked me to fax those to him. We 
faxed it over. He called back to verify the information. We 
also had a copy of the check that was written and also showed 
on the back where it had been cashed, and we sent that to them. 
And we thought the matter was resolved.
    And literally 3 to 4 weeks later the same letter comes 
again and we sent back the same information, this time with the 
certified mail receipt showing where we sent it and we sent a 
copy to CMS so they were aware of what the problem was.
    Chairman Gonzalez. I want to thank you for your testimony. 
One last question on the ICD-10. Dr. Dolan, I think you made 
some reference to it. Based on your testimony, this is being 
rolled out but we really have not had a pilot project. We 
haven't had any kind of a test out there, any rollout. I know 
what we did with RAC, but we don't have anything similar 
regarding what we are going to be doing with coding and such.
    And I was reading the staff's memorandum on this--and I 
want to commend staff for doing such a good job because this is 
quite complicated in many ways unless you are a physician or 
you work in CMS--but it is an incredible expansion of the code. 
The numbers that you have out there actually to apply and to 
use--and I forget the exact number and I could find the 
memorandum, but what you are saying is they are just going to 
roll this thing out. You are going to have to adopt it, whether 
you can reconcile it with what you have in an existing 
framework or procedure. Is that correct?
    Dr. Dolan. That is correct. The current plan of CMS is to 
roll this out. The current terminology base, ICD-9, is not 
compatible with ICD-10. All right? That is the 4010 software.
    Chairman Gonzalez. Okay.
    Dr. Dolan. Now, ICD-10 has 10 times the number of 
diagnoses, procedures, et cetera. Since ICD-9 was started in 
1970 and they never got the bugs out of it for 20 years, ICD-10 
has 10 times the diagnoses numbers and procedures. And on top 
of that, one, ICD-9 is a numeric base. ICD-10 will be an alpha 
numeric base with at least three, sometimes four digits 
following the main number.
    So this is going to be very complex. And to get a software 
that will be compatible with this is possible, but first you 
have to apply the software to the new ICD-10, and then have at 
least a 2-year pilot project to make sure it works. And once we 
know it works, then teach everybody about it before you put it 
into effect. This should take 4 to 6 weeks--4 to 6 years at 
least before you can get a good enough shot.
    Now, we don't deny that ICD-10 will be good. But you have 
to think of the thousands, hundreds of thousands of nurses, 
coders, doctors, who don't know a thing about this and they are 
going to thrust this big complex system on top of them and it 
is going to be Y2K all over again. So I just really would want 
you to understand the complexity of this matter and the 
problems that we are going to run into.
    Chairman Gonzalez. And I know it was pointed out in simple 
terms, ICD-10 has 200,000 codes.
    Dr. Dolan. Correct.
    Chairman Gonzalez. And that alone--then you are telling me 
about the incompatibility of software and of course the 
conversion and what that is going to take and so on. It seems 
like a prudent thing--and I will educate myself on this as well 
as in talking with other members of other committees that have 
jurisdiction over this particular issue to address exactly what 
you are describing here. Because it seems like if it is just 
rolled out and dumped in everybody's laps, I am not even sure 
it is a practical matter. And I am sure we have software 
vendors and everybody out there that can tell you that they can 
get their hands around it and can handle it, but I am not sure 
of that.
    Again, I just want to thank the witnesses for your 
testimony. And, again hopefully we can come to some sort of 
consensus in a collaborative effort. As I have always said, 
short of lawsuits and short of major legislation which is 
always hard to pass, in a regulatory scheme we are going to be 
more nimble and we can react more quickly, and that is what the 
Regulatory Flexibility Act was all about.
    Let's do that but make sure we are getting the input. And I 
am not real sure on some of this if CMS has met its duty under 
the Regulatory Flexibility Act. And again we want to work with 
them, of course, and see if we can find something that meets 
the needs of CMS, the mandates of Congress, but at the end of 
this, doesn't in any way imperil the care that our citizens 
under the programs receive.
    Again thank you very much. And I am going to ask the next 
panel to come and have a seat. We are going to get as much done 
as we can before the next votes, which should have already 
happened, but I can get introductions.
    Thank you very much. Again, you have been the most patient 
because you are the last panel. And we will be interrupted, but 
I am going to again ask for your patience. And I hope you are 
not missing any flights or anything. Your testimony is very, 
very important as I heard from the previous witnesses.
    What I am going to attempt to do, because I have got about 
10 minutes but that will allow me to go through the testimony 
of one or two witnesses, and I don't want you to hurry. You 
have your full 5 minutes. Your testimony is as important as all 
the others, if not more important on some of the practical 
aspects.
    The first witness on Panel 3 will be Ms. Terry Allen. Terry 
Allen is the Director of Reimbursement for the South Texas 
Oncology and Hematology in San Antonio, Texas. South Texas 
Oncology and Hematology offers a full range of treatment 
options for patients facing cancer treatment. And you may 
proceed at this time, Ms. Allen.

STATEMENT OF MS. TERRY ALLEN, DIRECTOR OF REIMBURSEMENT, SOUTH 
    TEXAS ONCOLOGY AND HEMATOLOGY, P.A., SAN ANTONIO, TEXAS

    Ms. Allen. When I was asked to speak to the committee today 
regarding the Medicare regulations, Lynn Kuhn asked me to speak 
from a business office perspective because I get to deal with 
them from across the board, from admissions talking to 
patients, from the compliance standpoint for billing, auditing, 
and looking at business applications going forward.
    One of our largest challenges in cancer care is the 
emerging technologies and the amazing advancements that have 
come along. With that are some capital investment ventures that 
come out. One of our hardest things with looking at capital 
ventures and expanding our services is tied to emerging 
technologies.
    We offer radiation therapy services. An emerging technology 
over the last several years has been stereotactic radiosurgery. 
Stereotactic radiosurgery is for lesions, tumors, and other 
radiation therapy needed services. It has been FDA cleared for 
the entire body. This service to start out is 4 to $5 million. 
As a small business we are looking at a patient population, 
radiation therapy and that the service can cover the entire 
body. So you are fixing to make a business decision based on 
that information.
    Next comes the G-codes. How are we going to bill for it and 
pay for it? CMS has outlined some G-codes for stereotactic 
radiosurgery. Unfortunately, only for the hospital, not for 
outpatient. In working through the coalition and various 
organizations, those codes were opened up for the outpatient 
setting local carrier price. So we said that is great. So we 
called and said we would like to purchase the system. We are 
looking at the G-codes, it is carrier priced. Can we have the 
price that you are setting for this payment?
    No. Buy the equipment. Submit your claims individually and 
we will determine the payment on a case-by-case basis. We 
escalated the calls, we sent letters, we still are not at that 
platform. The inconsistency of the regulations being applied is 
difficult for us to manage.
    Six other States have published what the States are going 
to pay for the G-codes, so it is a daunting task for a small 
business to look at making a substantial investment to better 
the patients to keep at an outpatient setting without having to 
duplicate the services in a hospital setting, but we are stuck 
here.
    The emerging technologies is really an interesting gambit 
for us to look at and it is part of our ongoing viability as 
reimbursement is cut for drugs and ongoing services throughout 
the system.
    And that leads me to probably one of the other Federal 
regulations that seems to be going through a significant change 
for cancer patients, and I would briefly like to touch on 
erythropoietin stimulating agents. Unlike an emerging 
technology, that is a technology that has been around for a 
long time. It is a drug that is a support drug and helps us 
continue to give chemotherapy treatments.
    CMS has recently limited, outside the FDA guidelines, how 
we can administer that drug to our patients. We are abiding by 
that. Patients are having to delay chemotherapy treatments. We 
can define a direct correlation to reduced prescriptions for 
chemotherapy. And one of the hallmarks of good cancer care is 
maintaining on-schedule correct dosing for your patients.
    So ESAs are very troubling. The patients don't understand 
it. They feel better with the product. They know that they are 
able to tolerate the treatment and advance more quickly.
    The negative impact to the patients is many of our patients 
are saying we would like to pay for it out of pocket. So we are 
filling out the appropriate paperwork and talking with them. 
And many of our patients are going there. The other thing they 
are asking us, are the other payers requesting the same 
guidelines? No, they are not. CMS has taken a bold step and it 
is the only payer that is limiting the guidelines for the use 
of ESAs for chemotherapy-induced anemia.
    Unfortunately, a lot of our patients are now looking to the 
Medicare Advantage Plan. From an administrative burdensome 
standpoint the Medicare Advantage Plan has been a major 
stumbling block for our practice. Patients are signing up. They 
are having salesmen come to their offices and homes and telling 
them that it is just like Medicare and it is going to pay all 
of your same benefits.
    What they don't understand, they are no longer part of 
Medicare Part B program. They are now part of Medicare Part C, 
and they have just forfeited their dual eligibility rights. If 
they don't purchase a product that again covers them for the 
Medigap information, they are not going to be covered and 20 
percent of chemotherapy is a substantial dollar amount. They 
cannot afford it.
    Even more troubling, if they are dual eligible to Medicaid, 
Medicaid will not make the 20 percent coinsurance payment 
because it is no longer Medicare Part B. We worked with a 
nationally recognized carrier, Humana, for 6 months trying to 
resolve these issues. Texas Medicaid sent us a letter back 
saying it is not Part B, it is Part C and we don't cover it. We 
were stunned. Out patients were stunned. So they are 
disenrolling as quickly as they were enrolling.
    Thank you for your time.
    [The prepared statement of Ms. Allen may be found in the 
Appendix on page 98.]

    Chairman Gonzalez. Thank you, Ms. Allen. And obviously I am 
fairly familiar with the situation there in San Antonio and 
thanks for your effort, for the education that you have 
provided me for the past few years, along with your colleagues.
    The next witness is Mr. Joseph A Schraad. Joseph A. Schraad 
is the Chief Operating Office of Oklahoma Allergy and Asthma 
Clinic. And we need you in San Antonio and D.C. The Oklahoma 
Health Center is the epicenter of research, health care 
education, and technology for the community. It consists of 30 
member organizations ranging from cutting agent biotechnology 
companies to government education, patient care, and community-
supported institutions. And you may proceed with your 
testimony.

   STATEMENT OF MR. JOSEPH A. SCHRAAD, MHA, CHIEF EXECUTIVE 
  OFFICER, OKLAHOMA ALLERGY AND ASTHMA CLINIC, OKLAHOMA CITY, 
                            OKLAHOMA

    Mr. Schraad. Mr. Chairman and members of the subcommittee, 
thank you very much for your time to allow me to come out here.
    One of the challenges that we are faced with, I am sure 
across the Nation but specifically in Oklahoma, is the number 
of providers that will take Medicare. In Oklahoma, the Oklahoma 
Allergy and Asthma Clinic as well as the Allergy Clinic in 
Tulsa are the only two allergy clinics in Oklahoma that takes 
Medicare. That is staggering whenever you look at the rural 
areas. We get patients from Kansas, western side of Oklahoma, 
as well as New Mexico coming to visit us because there is no 
one else to take Medicare.
    With the challenge of reimbursements and overhead, we have 
to find unique challenges that will allow us to see these 
patients and at the same time cover our overhead. With the 
onset or the potential of Medicare reducing their fee schedule, 
coupled with the fact that we are looking at implementing 
electronic health records as mandated by Medicare, we are 
having several challenges.
    When I met with the board about 2 months ago over the 
impact of these two situations, the first question was what 
would happen if we just did not see Medicare? And that was a 
situation that I did not want to address. Because I think we 
need to see Medicare, we need to continue seeing Medicare, and 
we just need to work a little smarter and making sure that our 
patient population is taken care of it.
    With the Medicare reimbursements fluctuating, a lot of the 
commercial insurance carriers also fluctuate their payments 
based on what Medicare does. If Medicare drops their payments 
by 3 percent, 5 percent, 10 percent, they decrease theirs as 
well. If Medicare increases it, the commercial carriers 
increases theirs as well.
    I am in the process now to determine if Medicare drops 
their reimbursement by 5 percent, what kind of ripple effect 
will that have across the board with other commercial 
insurance, and it is staggering of how much we are going to be 
losing as far as revenue.
    One of the other issues with the Medicare is encouraging 
people, all the practitioners, to take Medicare. And as we have 
the challenge of having less reimbursement and more mandates, 
there is less and less providers signing on for Medicare.
    I have talked with some of my constituents in Oklahoma, 
some of the CEOs and administrators, and asked them what they 
were going to do. And they said they were going to basically--
if Medicare drops their reimbursements they are just going to 
drop Medicare. They said they cannot survive, because we--a few 
years ago I had two sole practitioners seeing Medicare and 
Medicaid trying to build a practice. They had one staff member, 
and they gave up. They went on back to teaching at a 
university, because it failed because of the reimbursements 
that they were trying to do, plus the dollars that they were 
expending trying to deal with Medicare.
    And at Oklahoma Allergy and Asthma Clinic I have two 
members solely devoted to Medicare. All the other insurance 
carriers, I only have four. That is a big impact on how we see 
patients and some of the challenges that we are faced with.
    [The prepared statement of Mr. Schraad may be found in the 
Appendix on page 114.]

    Chairman Gonzalez. I appreciate your testimony. We are 
going to stand in recess until this series of votes. It could 
be 30 minutes. I appreciate--I do have some questions. Now we 
are getting into the real practical application of what is 
going on out there, even outside of what we have had with RAC 
and of course the codes and such.
    So again we will stand in recess until after this last 
series of votes, and I will be back.
    [Recess.]
    Chairman Gonzalez. The Chair calls back into order the 
hearing. And at this time we are going to have Rina Wolf. And 
Mr. Altmire more or less already introduced you, but I am going 
to the formal introduction.
    Rina Wolf is Vice President of RedPath Integrated 
Pathology, Incorporated in Pittsburgh, Pennsylvania. RedPath 
provides advanced molecular support for difficult oncology 
cases. They serve pathologists, clinicians and patients by 
resolving diagnostic dilemmas. And you may proceed with your 
testimony, Ms. Wolf.

STATEMENT OF MS. RINA WOLF, VICE PRESIDENT, REDPATH INTEGRATED 
           PATHOLOGY, INC., PITTSBURGH, PENNSYLVANIA

    Ms. Wolf. Thank you, Chairman Gonzalez and other 
distinguished members of the committee. Good afternoon and 
thank you for inviting me here today to share with you my 
experience and challenges with Medicare regulations that are 
not keeping pace with and hampering the evolution of medical 
technology and personalized medicine in the United States.
    RedPath Integrated Pathology is a genomics-based cancer 
diagnostics company located in Pittsburgh, Pennsylvania. 
RedPath operates as a fully accredited laboratory, providing 
complex testing services that help oncologists and pathologists 
to resolve indeterminate cancer diagnoses and shape cancer 
treatment plans.
    Our test, PathFinderTG, is based upon a powerful 
proprietary technology platform that was under development for 
15 years prior to commercialization. It is clinically validated 
with strong peer review and support and is used by clinicians 
in major cancer centers, including many of the major national 
comprehensive cancer network cancer centers (NCCN) in the 
United States.
    PathFinderTG allows earlier and more informed diagnosis of 
cancers, such as pancreatic cancer, a cancer that has 
historically been very difficult to diagnose and is very 
aggressive. When suspected but not definitively diagnosed, 
physicians typically have two options: Watch and wait to see 
whether or not cancer actually develops over time, or remove 
major portions of the patient's pancreas to definitively limit 
the spread of cancer.
    Neither option is without serious consequence. Because of 
the aggressive nature of this cancer, waiting and therefore 
delaying treatment can have fatal results. However, removing 
major portions of the patient's pancreas out of an abundance of 
caution also has grave implications, including significant 
surgical morbidity, as well as long-term consequences such as 
leaving the patient with insulin dependent diabetes.
    By providing a definitive diagnosis, PathFinderTG provides 
information that can help to preserve the patient's quality of 
life, while assisting physicians in selecting an appropriate, 
timely and cost-effective treatment plan.
    RedPath is part of a small, but growing, industry that is 
translating knowledge gained from the Human Genome Project into 
clinical practice by providing treatments that are tailored to 
individual patients based on their DNA and the specific 
molecular character of their disease. By understanding the 
molecular nature of disease, new technologies increasingly 
allow clinicians and patients to pick individually appropriate 
treatment options, rather than basing treatment choices on 
broad assessments of what works best for a population.
    RedPath also is one of several new technologically-based 
companies providing job growth for southwestern Pennsylvania as 
its economy shifts from manufacturing and service to a life 
science and robotics industry. In just 4 years we have grown to 
51 employees, and as is the case with most life sciences 
companies, our workforce is highly educated and well 
compensated. We are not just providing jobs, but better quality 
jobs to our region.
    As you can imagine, ours is a highly regulated industry, 
and rightly so. Poor quality is not an option. Lives hang in 
the balance. It is important, in fact necessary, that Federal 
and State authorities and nongovernmental accreditation 
organizations provide rigorous oversight of our research, 
methodologies, processes and outcomes. However, it is likewise 
necessary that all regulatory regimes keep pace with this 
rapidly evolving world.
    Medicare date of service regulations generally provide that 
any test furnished within 14 days after the patient's discharge 
from a hospital is deemed to have been performed on the day the 
specimen was collected; for example, when the blood was drawn 
or tissue biopsied. This makes no sense, given that the 
PathFinderTG and other specialized laboratory tests are 
typically performed and reported to the treating physician 
after the patient has left the hospital.
    Hospitals are encouraging physicians to delay ordering 
these tests until after the 14 days. Imagine, if you will, that 
you or someone you love is faced with a suspicion of pancreatic 
cancer. After the biopsy it can take 2 to 3 days to get the 
initial pathology. Then, if PathFinder is indicated, the 
hospital would decide to hold the test for 14 days. RedPath's 
PathFinder takes 5 days. It can conceivably be 3 to 4 weeks 
before you have an answer, with tremendous anxiety and 
potentially negative impact on the outcome.
    CMS almost certainly did not intend for Medicare's date of 
service rule to restrict access to specialized in vitro 
diagnostic tests, as it does. Nonetheless, the rule remains in 
place.
    We appreciate the agency's willingness to meet with us, 
which they have, and review these serious issues, and we remain 
hopeful that CMS will propose a new remedy for this problem. I 
applaud this subcommittee for studying and focusing attention 
on this important area and implore CMS to remove this 
impediment to the promise of personalized medicine.
    Again, thank you for inviting me here today and for 
listening to my statement. I would be delighted it take 
questions.
    [The prepared statement of Ms. Wolf may be found in the 
Appendix on page 116.]

    Chairman Gonzalez. The next witness is Mary Helen Tieken. 
Mary Helen Tieken is the President-Elect of the Texas 
Association for Home Care in Floresville, Texas. With over 
1,100 members, the Texas Association for Home Care is a 
nonprofit organization aimed at improving acute, sub-acute, 
rehabilitative and long-term care.
    You may proceed with your testimony.

 STATEMENT OF MS. MARY HELEN TIEKEN, RN, BSN, PRESIDENT-ELECT, 
       TEXAS ASSOCIATION OF HOME CARE, FLORESVILLE, TEXAS

    Ms. Tieken. Thank you very much, Chairman Gonzalez, 
distinguished members of the committee. Thank you very much for 
allowing us to be here today to discuss our issues that have to 
do with CMS regulations and programs on small health care 
providers, particularly those of us in home health and hospice.
    I am a registered nurse and the owner and administrator of 
Nurses in Touch, Inc., a Medicare-certified home health and 
hospice company. Currently we serve about 280 patients. I have 
a 16-county service area that we cover, and we have employed 
185 people.
    I am also here today as the President-Elect of the Texas 
Association for Home Care. It is a nonprofit trade association, 
and we have 1,200 agencies in that group that provide home 
health, hospice and personal assistance services in Texas.
    Because of the time constraints, you have my written 
testimony, but I want to go over the five burning issues that 
we have.
    The first issue deals with employee staffing. We need 
flexibility to use contracted staff to meet the unique needs of 
our patients and to accommodate a fluctuating caseload. This is 
especially true for small home health agencies who serve 
primarily rural areas, like mine. This is an issue because 
current CMS rules limit our ability to use contracted staff.
    As an example of this, if a majority of my nursing staff 
became ill with the flu and could not conduct their patient 
visits, I would not have the flexibility to use a staffing 
agency. Yet hospitals are allowed to use this contracted staff. 
We believe CMS should allow the same flexibility.
    Second, in regards to telehealth and telemonitoring, CMS 
does not recognize the technology and visit costs as 
reimbursable under the current Medicare home health benefit, 
even though CMS encourages the use. Telehealth and 
telemonitoring methods are used by agencies to monitor patient 
care without the nurse being present in the home. These 
monitors can assist vital signs, weight and other valuable 
parameters that alert the home health nurse to potential health 
problems and possibly averting a visit to the emergency room or 
even hospitalization. And if CMS moves to a pay-for-performance 
model, those of us unable to invest in these technologies to 
the degree that larger agencies can will certainly will be at a 
disadvantage.
    Third, gas prices. They have had an immediate impact on 
home health and hospice care. Ladies and gentlemen, we drive to 
see our patients. We don't walk down hallways to see them. Last 
year, my staff drove 700,000 miles to see our patients, and it 
is not unusual to have one of our nurses drive as many as 100 
miles in a single day.
    We are concerned that the rising prices have deterred 
nurses and therapists from even working for home health and 
hospice agencies. Larger agencies can purchase fleets of cars 
for their employees, something that is not possible for small 
agencies like mine to do. With no end in sight to rising gas 
prices, we would like CMS to take into account increases in 
gasoline prices when determining our reimbursement amounts.
    Our fourth issue has to do with who is allowed to sign 
orders for care. Currently, CMS rules require physician 
certification on home health plans of care, and that means that 
for home health, nurse practitioners and physician assistants 
are not allowed to sign plans of care, even though they are 
allowed to do so in other health care settings, and, 
ironically, CMS did allow them to sign these orders on hospice 
patients. So the question would be, why not home health? Not 
only would allowing them to do so expedite patient care, it 
would also reduce our administrative costs and allow us to bill 
more timely for the services we have provided.
    Congress should enact legislation to instruct CMS to allow 
nurse practitioners and physician assistants to certify and 
make changes to home health plans of care.
    Fifth, regarding contingency plans for claim payment 
delays, CMS should be required to have a contingency plan in 
place and these plans should be accessible for all Medicare 
providers, especially when there are changes in reimbursement 
systems that impact claims payment.
    In conclusion, Chairman Gonzalez and distinguished members 
of the committee, I want to thank you for allowing me to be 
here to testify today. I would be happy to answer any 
questions.
    [The prepared statement of Ms. Tieken may be found in the 
Appendix on page 124.]

    Chairman Gonzalez. Thank you very much, and we will have 
questions. I will go ahead and proceed and ask a couple myself.
    Ms. Allen, you all, you can tell I am from Texas with the 
"you all," but you have educated me as well as other 
specialists in oncology on the present setting in which cancer 
patients receive their treatment. In what I refer to as the old 
days or previous days it was a hospital setting. That is no 
longer true.
    There is one area of concern the past couple of years, more 
than 2 years, and I just want to know what is the status, and 
that basically was where the oncologist or the cancer treatment 
facility was actually being reimbursed for the drugs that were 
being utilized at something less than the actual cost to you. 
Can you elaborate on that?
    Ms. Allen. That continues to be an ongoing problem. The 
Medicare Advantage Plan has certainly not helped that. The 20 
percent, if we don't collect 100 percent of the allowed charge, 
the 80 plus the 20, we are not covering the cost of the drug. 
It certainly doesn't begin to address the pharmacist and 
registered nurse and everything along with it. So that 20 
percent for us to chase has become more vital just to our 
survival at this point.
    With Medicare Advantage coming on board and with the 
reimbursement for drugs continuing to decrease, I have had to 
add three additional staff members to access foundation 
programs for coinsurance, which helps with some drug-specific 
conditions, but certainly doesn't cover the entire 20 percent. 
I think that is a total of about $115,000 that we have 
expended, and that is just to try to maintain the revenue. We 
are not gaining anything there but an additional cost.
    We are putting in additional systems to try and streamline 
our practices and to be more cost-effective, but at some point 
you have to hire more people to chase dollars that are harder 
to find. It is still a huge issue for a practice.
    Chairman Gonzalez. So it continues. I know we have been 
trying to get their attention and I know we have some meetings 
set up for CMS not to basically recognize what have been the 
past practices that actually were encouraged by them by 
regulation and switching over a regulation. And I think that is 
one of the reasons we are here today. So, again, thank you for 
your testimony.
    I would like to go to Mr. Schraad. This is interesting, I 
guess. What happens? I mean, first of all you are telling me 
because of the regulation, because of the unnecessary and maybe 
burdensome regulatory scheme that we have, we have fewer and 
fewer health care providers that are available to you to 
utilize. I think that is the gist of your testimony. That is 
the greatest impact. We have many other side issues. But first, 
how about just availability and accessibility, which is going 
to be major, and we are always reminded of that by the 
different physicians.
    I also want to ask, what is the practical aspect, if 
something is challenged and we keep talking about denial and so 
on, what happens to the payments that are pending or 
prospectively while something is being examined for potential 
denial, which already there has been a preliminary finding that 
they are going to deny it or there is a problem. We have had 
examples cited by different witnesses.
    But what is the practical implication let's say to you as 
far as billing and such?
    Mr. Schraad. The impact is quite large. We have to--
basically on our company we are on a cash basis. So if we don't 
have the revenue coming in, the actual payment coming in, we 
just sit on it, and that is less revenue coming in per month. 
But we look at all revenue by the month. Sometimes we don't get 
payment for 10 or 11 months, depending on what the denial was. 
So if we don't have it, we don't have it to spend either.
    So that is just one of the challenges that the staff are 
working on every day, and it is an everyday occurrence. This is 
nothing new, it has been going on for years and years and 
years. But at the Oklahoma Allergy and Asthma Clinic, we have 
two devoted individuals who work very well and very close with 
CMS to streamline this, and some things are rectified very 
quickly and some things take several months.
    Chairman Gonzalez. I appreciate it. I apologize for the 
hoopla over there. Those are not Members of Congress, I assure 
you. We are never that happy.
    Ms. Fallin. They were cheering on their answers.
    Chairman Gonzalez. It could be the answers. Let me go on to 
Ms. Wolf. There was something that was very interesting, and 
you lay it out. The end effect of this 14-day rule of when a 
test is ordered, it relates back to the time that it is 
actually ordered, which may be in the hospital setting, then 
who is the responsible person, even though it may be even at 
that point it is referred to someone else who makes that 
determination. It still kind of goes back in time, and there is 
a lot of liability issues there people that are assuming.
    But this is the paragraph, and I know you touched on it. 
But I just have to really get this in the record. "In light of 
these and other administrative and financial disincentives, 
hospitals are encouraging physicians to delay ordering the test 
until after the 14 days."
    Ms. Wolf. That is correct.
    Chairman Gonzalez. If you can get a little closer to the 
mike.
    Ms. Wolf. That is correct. Because otherwise the hospital 
will have to assume financial responsibility either by billing 
Part B, if the specimen was collected during an outpatient 
encounter, and that is very difficult because many of these 
tests are billed using what they call miscellaneous codes, 
which don't have coverage and coverage amounts with MACs other 
than their home MAC, which would create a policy. Or if the 
specimen was collected during an in-patient encounter, it has 
to be absorbed by the hospital as part of their DRG payment, 
which certainly are not developed to take into consideration 
these expensive new technologies.
    Chairman Gonzalez. But it is amazing that it impacts a 
decision of a physician in a certain setting because of the 
relating back aspect of it. I mean, I can't imagine--I am not 
saying that a physician would delay anything that would be of 
greatest importance where time is of the essence, but sometimes 
we are not real sure. You know, we catch things, we don't 
believe they are a problem at that point in time, but sometimes 
a delay, no doubt--I know I would not want my test delayed 
because of the 14-day relating back, that is the way I am going 
to refer to it, the relating back.
    You say CMS is listening. There is dialogue, there is 
discussion?
    Ms. Wolf. There is dialogue, but this dialogue has been 
going on for quite a while and we cannot seem to get resolution 
on this issue. And as you so rightly point out, it is typically 
not the hospital itself that is making the decision that this 
test needs to be ordered. It is a clinician as a follow-up to 
the hospital encounter, and the results of this test and the 
others that are impacted by this rule are used strictly for 
patient management decisions that are made that are unrelated 
to the encounter where that specimen was collected.
    Chairman Gonzalez. Thank you very much for your testimony. 
I would like to follow up on that discussion of the 14-day 
rule. I understand there may be some logic to it, but, again, 
the practical application, the theory is good and then the 
practice is never.
    Ms. Tieken, let me ask you a question. Obviously with 
additional operating costs, gasoline is one of them, and we 
have many Members that are here today and especially on the 
floor that are always championing the rural aspects of health 
care. Your operation, you have 700,000 miles to see home health 
and hospice patients.
    Ms. Tieken. Yes, sir.
    Chairman Gonzalez. There is no way you can build in that 
additional cost. Is Medicare, CMS, is anyone willing to say, 
gee, because of the nature of your practice, of the health care 
that you provide, which entails going to and obviously 
transportation, that is not factored in?
    Ms. Tieken. No, sir, it isn't. Under our current 
reimbursement system, we are reimbursed on an episodic payment, 
which means that there is a configuration of information that 
goes in to Medicare. The conglomerate is a number that comes 
up, and that is how we are paid, based on the diagnosis code 
and some other numbers that go in, and that for that patient is 
all we get. It is a one number deal for us. None of our costs 
like that, none of our costs are separately considered in terms 
of reimbursement. In the old days when we had cost 
reimbursement, yes, those figures were looked at, but not 
today.
    Chairman Gonzalez. All right.
    Ms. Tieken. So those are absorbed into any amounts that we 
get back for reimbursement purposes.
    Chairman Gonzalez. But it is such a relevant factor 
depending on the setting of the health care provider, and it 
has to be addressed one way or another.
    Thank you very much. At this time the Chair is going to 
recognize Ms. Fallin for her questions.
    Ms. Fallin. Thank you, Mr. Chairman. I apologize. I had to 
step out for a couple other scheduled meetings and things. But 
I appreciate all of your coming up, and I appreciate my 
gentleman from my district coming to testify with the allergy 
clinic. I am sorry I missed your comments, but I do have them 
in my book and looked them over before you came. Thank you very 
much for being here. We appreciate your coming.
    I had a couple of questions, and maybe all of you deal with 
Medicare payments, if you can address this for me. I asked CMS 
earlier today if there were any particular classifications of 
procedures that they automatically denied, because I hear that 
from my physicians at times, that they can file for 
reimbursement for procedures, it is denied the first time, and 
then they have to go through this long process of waiting for 
them to be looked at again and going through the appeals 
process.
    But he said that CMS doesn't really just deny specific 
procedures, at least that is what I thought he said, but if 
they are coded wrong or if they think there is an excess of 
procedures done in one day that may not make sense, then they 
may deny them automatically.
    So I guess my question is what percentage of your Medicare 
submissions for payment are denied? Is there a particular 
percentage that you see in your businesses? If you could answer 
that one first of all?
    Ms. Allen. We see probably about 5 percent of our claims 
are denied. Being in oncology, we deal with a lot of not 
classified codes, which historically require additional 
information because they are just kind of generic codes at this 
point.
    The biggest part for oncology, especially with the advent 
of the genome project and more specific diagnostic testing, is 
that we actually get a cocktail back from that testing that 
says this patient's DNA appears like it is going to work best 
with this combination of drugs. Fabulous. We are going to cut 
to the chase and get there. The problem is that the combination 
of drugs that come back may not be FDA cleared for the cancer 
type that has been identified.
    We have Federal regulation on our side to a certain extent 
that we can go ahead and create the necessary medical 
documentation, document it, work through that, but then we wait 
typically at least a year for payment. We go through the denial 
process. Because we have to tell CMS I am billing you off label 
and I know that I am billing it off label so we are not 
creating a fraudulent incident.
    So we inform them of that in this information. We go 
through a first level of appeal. It is routinely denied 
straight up. Nobody even looks at it. We get to a second level 
of appeal. Even if there is overwhelming documentation that we 
have met the Federal criteria for the use of anticancer drugs 
off label, it is historically denied again.
    You take it to an ALJ. At that point you are probably at a 
year out. I pulled my last ALJ, the service was for June 7, 
2006. I won at July 7, 2007.
    We are not talking about a $10 payment. These cancer 
payments are, depending on the drug, can be $20,000 for each 
visit. That is a lot of money for a practice to loan out for 12 
to 18 months. But it is the right thing to do medically.
    So I think that is the precipice that physicians are at. 
The medical decision has been made, but can they financially 
afford to give the care. They do have access. We look towards 
foundations to help ensure that we don't have to write a check 
for the drugs and we look to the drug companies for that 
information. But the patients have to financially qualify.
    So I think the technology has certainly outpaced the 
reimbursement, but that is the routine denial that our practice 
sees, is truly the technology pacing and looking for additional 
guidance.
    I believe that Medicare is on the right track. They have 
expanded the credible journals that will be accepted. It used 
to be a very narrow list. The list is now longer. But still it 
is an extraordinary investment in time. I think what is 
difficult and a learning curve that we learned at our practice 
is what you submit at your first level of appeal is what you 
have to submit at the administrative law judge panel. You can't 
add anything. So you know the first one is going to be kicked 
out so you may not put as much effort because you are trying to 
get through the process. But once you forfeit payment on the 
first one, the administrative law judge says so sorry, why 
didn't you give it to the first two? You lose it. So you figure 
out you have to do the up front investment at the very 
beginning.
    Ms. Fallin. Mr. Schraad, do you have a comment?
    Mr. Schraad. I have a couple. What is interesting is one of 
our patients is on therapy which was given skin testing or 
shots to help them out with their allergies. But when a patient 
comes in and sees a physician and gets a shot the same day, 
they reject the shot. So what we do is do a modifier 25 and 
they pay it. So my first question is, why? What is the 
difference between a modifier 25 or not? Just submitting it 
with this other patient and the patient got the shot, so why 
are they rejecting it?
    Going back to your question, how many of ours are rejected 
initially, I would be afraid to look. Because I mean we have 
two people full-time doing Medicare, dealing with Medicare 
patients--I am sorry, with the issues with the Medicare 
patients we see.
    Another one that is interesting, if a Medicare patient 
comes in and they get skin testing and there is a couple of 
sets, I am trying to recall the name of them, I want to say 
sublingual and interdermal, one of them Medicare only pays for 
20 skin tests. The other one they pay for 70. But what I got 
notified just recently, which you have to laugh about it, if we 
submit or do 21 skin tests, Medicare rejects the entire thing. 
It doesn't pay for anything. But if we do 18, they will pay for 
18. If we do 20, they will pay for 20, which I thought that was 
kind of interesting, and that is where some of our challenges 
are in play.
    Ms. Fallin. If I can ask you one more question too about 
the length of time for processing these claims. I thought I 
heard some of you say it that takes up to 10 months at times or 
a year for some of the processing of claims, especially once 
they have been denied.
    Mr. Schraad. Right now, we are in May, and we are still 
working on the claims that were rejected in January. Some of 
them we cleaned out were done in November and December.
    Ms. Fallin. If they are not rejected, what is the length of 
time to get reimbursed on Medicare?
    Ms. Allen. Nineteen days probably. It is a quick turnaround 
for clean claims.
    Mr. Schraad. It is quick. Clean claims, yes.
    Ms. Fallin. If everything was electronic, what do you think 
your time payment would be? If everyone used electronics?
    Ms. Allen. CMS, they are going to hold the claim for 14 
days, because we time how we bill. They hold it for 14 days, it 
goes to the banking floor for 2 days. You allow 1 day for 
transmission. So the best you are going to have is probably 17 
days. And we typically see 19.
    Ms. Fallin. If I could ask Nurse Tieken a couple of quick 
questions, I think our bell is ringing for voting, in your 
testimony you mentioned something about the State operations 
manual. How many pages are in that State operations manual?
    Ms. Tieken. My goodness. I don't really know the count, but 
I can tell you it is that thick.
    Ms. Fallin. How do you keep up with all the changes made?
    Ms. Tieken. That is an ongoing--if you do not pay attention 
to that manual and don't keep up with the updates, you are 
behind. It is a daily chore for me. I am a small administrator 
in terms of numbers, so it is me. I am the one responsible for 
keeping up with that. Some larger agencies have more staff that 
they can devote that time to. So it is a burdensome task for 
us, but it is absolutely imperative that we keep up with it. So 
I do it by e-mail and just staying on line with them and 
watching any of the information that comes out.
    Ms. Fallin. Do you ever find that there are any of the 
rules or regulations that might be more burdensome than they 
are helpful, and if there are, could you identify them and send 
them to us?
    Ms. Tieken. Oh, yes, ma'am. Yes, ma'am. Yes. It is 
unfortunate, and, you know, I would say that we want to work 
with CMS. We don't want to fight with anybody. We want to take 
care of patients and we want to do that the most efficient, 
effective way that we can. Because the bottom line is who is 
out there may be your mother or your father or your sister at 
some point, and we want the best people out there taking care 
of patients, not being burdened with a lot of bureaucracy and 
paperwork that bogs us down frequently.
    Ms. Fallin. I missed part of your testimony, but you do 
telemedicine?
    Ms. Tieken. Personally we make phone calls to patients, but 
we do not have the monitors that I spoke about. Those monitors 
cost anywhere from $1,200 to maybe $2,500, depending on the 
elaborateness of that particular unit. It is a little bit out 
of range for my size agency.
    Ms. Fallin. Maybe one of you can answer this, but is 
telemedicine reimbursable for Medicare?
    Ms. Tieken. It is not for home health.
    Ms. Fallin. I know in rural Oklahoma that telemedicine is a 
very good asset to be able to deliver access to care and 
especially specialty practitioners who might not get out into 
the rural areas, and I am just curious if that is reimbursable?
    Ms. Tieken. At this point it is not. CMS encourages it, and 
even the quality improvement organizations that CMS designated 
to help agencies and other facilities become more efficient and 
work towards quality care, they have all encouraged the use of 
it. It is the cost factor that is prohibitive right now.
    Ms. Fallin. Thank you, Mr. Chairman.
    Chairman Gonzalez. Thank you very much. The Chair is going 
to recognize Mr. Altmire.
    Mr. Altmire. I want to thank all of you for being here. 
This is not easy to do, to prepare your testimony and travel 
here and wait out these votes and wait to be on the second or 
third panel. This is something that this committee realizes 
that you have gone to extraordinary effort to be here today and 
provide us with this testimony, and I want you to know that we 
really appreciate your time here today.
    In the interest of time, because we do have a vote coming 
up, I just wanted to ask a question of Ms. Wolf. We have heard 
a lot about the promise of personalized medicine. For those who 
might not be as familiar, and especially for the record, for 
the committee, can you tell us more about personalized medicine 
and what it means for the future of health care?
    Ms. Wolf. Certainly. Traditionally, the efficacy of medical 
diagnostics and therapeutics has been proven suitable for broad 
patient groups. Norms were developed based on groups rather 
than specific patients. The reality we are finding out, 
however, is that diagnostics and treatments that work for some 
patients don't work for all and may even be harmful to some.
    The mapping of the human genome now provides us the 
potential to look at an individual patient or even that 
patient's specific tumor, the molecular information, to 
personalize diagnosis and treatment. In the past we would look 
at cancer and make treatment decisions based on the organ. Now 
we can look at gene expression profiling for breast cancer or 
liver cancer, for example, and identify the most appropriate 
and specific treatments.
    So just to review, personalized medicine gives us the 
ability to detect diseases at an earlier stage where effective 
treatment may be possible and enable the selection, as my panel 
member referenced, of optimal therapy, reduce trial and error 
prescribing, which can be dangerous and highly expensive, 
reduce adverse drug reactions and increase patient compliance 
with their therapy because they believe they are getting the 
right therapy.
    Mr. Altmire. Very quickly, to conclude, how many companies 
and services are similarly affected?
    Ms. Wolf. Now there are probably less than a dozen. These 
are not the routine tests that you would see done every day on 
blood and tissue. These tests are developed by small 
independent laboratories. They are proprietary tests that are 
only done at these laboratories. They are typically the only 
ones in the whole country that do them. And we do anticipate 
more tests being developed that are like this if CMS clears the 
way and allows us to be successful.
    Mr. Altmire. Thank you. Thank you all very much.
    Chairman Gonzalez. Thank you, Mr. Altmire.
    First, I want to thank all the witnesses. I think Mr. 
Altmire described our appreciation adequately, but I just want 
to express my own personal thanks. I want to thank staff for 
putting all this together. I don't think we ever say thanks. 
But they prepare the memorandum, they provide us with your 
testimony and they coordinate getting you here. I know that is 
a tough job.
    What we are trying to avoid is that we don't want a health 
care professional to go out there having to sue the Federal 
Government to stop them implementing regulations. We want a 
streamlined system that promotes good practices and pays you 
fairly and compensates you as you should be.
    We really aren't that interested in having to go through 
the legislative process if we can work it through our 
regulatory scheme of things, and that is if CMS listens 
carefully and makes sure it takes into consideration the 
impact, the consequences of their regulations. That is 
hopefully what we are doing here today. Hopefully we have those 
lines of communication.
    We understand that sometimes that lawsuit that people file 
is necessary and surely that legislative intervention at times 
is the only way. But please understand we are trying to do this 
collaboratively. We appreciate your input.
    I will ask unanimous consent that members will have 5 days 
to submit statements and supporting documents for the record. I 
thank my colleagues for their participation, and without 
objection, that will be ordered.
    This hearing is now adjourned.
    [Whereupon, at 4:55 p.m., the subcommittee was adjourned.]
    
    
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