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



 
                     MEDICARE'S DMEPOS COMPETITIVE

                            BIDDING PROGRAM

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 6, 2008

                               __________

                           Serial No. 110-82

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
STEPHANIE TUBBS JONES, Ohio          THOMAS M. REYNOLDS, New York
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL, JR., New Jersey       JON PORTER, Nevada
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
CHRIS VAN HOLLEN, Maryland
KENDRICK MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director

                                 ______

                         SUBCOMMITTEE ON HEALTH

                FORTNEY PETE STARK, California, Chairman

LLOYD DOGGETT, Texas                 DAVE CAMP, Michigan
MIKE THOMPSON, California            SAM JOHNSON, Texas
RAHM EMANUEL, Illinois               JIM RAMSTAD, Minnesota
XAVIER BECERRA, California           PHIL ENGLISH, Pennsylvania
EARL POMEROY, North Dakota           KENNY HULSHOF, Missouri
STEPHANIE TUBBS JONES, Ohio
RON KIND, Wisconsin

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 6, 2008, announcing the hearing..................     2

                               WITNESSES

Kerry Weems, Acting Administrator, Centers for Medicare and 
  Medicaid Services..............................................     6
Kathleen M. King, Director, Health Care, U.S. Government 
  Accountability Office (GAO)....................................    32
Tom Ryan, American Association for Homecare......................    50
Peter W. Thomas, Health Task Force Co-Chair, Consortium for 
  Citizens with Disabilities.....................................    57
Thomas J. Hoerger, Ph.D., Senior Fellow, Research Triangle 
  Institute (RTI) International..................................    63

                       SUBMISSIONS FOR THE RECORD

Accredited Medical Equipment Providers of America, Letter........    87
American Council on International Personnel, Letter..............    88
American Hospital Association (AHA), Statement...................    90
American Medical Association, Letter.............................    91
Andrea Logan, Letter.............................................    93
Angelene Adler, Letter...........................................    94
Annie Nation, Statement..........................................    97
Capital Medical and Surgical, Inc., Statement....................    98
Cara C. Bachenheimer, Statement..................................    98
David Carey, Statement...........................................   104
David Soblick, Statement.........................................    86
Douglas T. Harrison, Statement...................................   104
Ellen S. Durrence, Letter........................................   106
Eric Sokol and Stephen Azia, Letter..............................   107
Ford C. Greene, Statement........................................   109
Freeman H. Smith, Letter.........................................   109
Greg Butchko, Letter.............................................   110
Henry Ford Health System, Statement..............................   111
Hugh D. Durrence, R.Ph, M.D., Letter.............................   113
James T. Bragiel, Letter.........................................   114
Jann Sherin, BS, RRT, RCP, Letter................................   114
Jim Buteyn, Letter...............................................   115
Joe Fernandez, Letter............................................   117
Joel Israel, Letter..............................................   117
Laura Cohen PhD, PT, ATP, and Barbara Crane, PhD, PT, ATP, Letter   118
Manyvone Champavannarath, Statement..............................   120
Matthew J. Rowan, Letter.........................................   121
National Association for the Support of Long Term Care (NASL), 
  Statement......................................................   123
National Association of Chain Drug Stores, Statement.............   126
National Coalition for Assistive and Rehab Technology, Statement.   131
National Competitive Bidding, Statement..........................   133
National Home Oxygen Patients Association, Statement.............   134
Pennsylvania Association of Medical Suppliers, Statement.........   135
Robert Brant, Statement..........................................   140
Robert Brant, Statement..........................................   141
Ryan Stevenson, Statement........................................   142
Tennessee Association for Home Care, Statement...................   142
Wayne E. Stanfield, Statement....................................   145
Zachary A. Schiffman, Statement..................................   146


                     MEDICARE'S DMEPOS COMPETITIVE



                            BIDDING PROGRAM

                              ----------                              


                          TUESDAY, MAY 6, 2008

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:00 p.m. in 
room 1100, Longworth House Office Building; Hon. Fortney Pete 
Stark (Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON HEALTH

                                                CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
April 29, 2008
HL-24

     Hearing on Medicare's Durable Medical Equipment, Prosthetics, 
      Orthotics, and Supplies (DMEPOS) Competitive Bidding Program

    House Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) 
announced today that the Subcommittee on Health will hold a hearing on 
the DMEPOS Competitive Bidding Program. The hearing will take place at 
1:00 p.m. on Tuesday, May 6, 2008, in the main committee hearing room, 
1100 Longworth House Office Building. In view of the limited time 
available to hear witnesses, oral testimony at this hearing will be 
from invited witnesses only. However, any individual or organization 
not scheduled for an oral appearance may submit a written statement for 
consideration by the Committee and for inclusion in the printed record 
of the hearing.
      

BACKGROUND:

      
    Currently, Medicare payment rates for most types of medical 
equipment and supplies are based on fee schedules. The Medicare 
Modernization Act of 2003 (MMA) required that the Centers for Medicare 
& Medicaid Services (CMS) use a competitive bidding process to contract 
with suppliers and other providers for certain types of equipment and 
supplies. The Competitive Bidding Program will be phased in over time, 
starting with 10 of the largest Metropolitan Statistical Areas (MSAs) 
in 2008 and expanded into another 70 MSAs--including New York, Chicago, 
and Los Angeles--in 2009. MMA gives CMS the authority to expand the 
program beyond those 80 areas starting in 2010 and allows the agency to 
adjust DMEPOS payment rates in areas of the country that do not fall 
under the Competitive Bidding Program.
      
    In early May, CMS announced preliminary results of the first round 
of the bidding program. Based on contract offers, payment rates will be 
reduced by an average of 26 percent in the ten areas covered by round 
one. However, concerns have been raised that some suppliers were 
improperly excluded from the bidding process and beneficiary access to 
certain types of equipment could be reduced in areas affected by the 
program.
      
    In announcing the hearing Chairman Stark said, ``We have heard from 
both suppliers and beneficiary advocates that the DMEPOS competitive 
bidding program is not working as well as it is supposed to. I look 
forward to hearing their concerns, as well as from CMS, as we consider 
whether changes need to be made before the program is further 
expanded.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on implementation of the administration of 
Medicare's DMEPOS Competitive Bidding Program.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
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    Chairman STARK. I apologize to our witnesses and guests, 
but Health and Human Services has been calling procedural votes 
on the floor of the House in an effort to prevent this hearing 
from going forward. We're pleased that we're here at any rate 
to review the development and execution of the ``Durable 
Medical Equipment Competitive Bidding Program'' mandated in MMA 
of 2003, and the program was to be phased-in over time. It 
started in ten of the largest metropolitan areas already and 
scheduled to move rapidly to another 70 areas in 2009 and may 
then be taken nationwide.
    While durable medical expenditures are a very small part of 
the overall Medicare spending, we think about 2 percent, all of 
us are well aware the changes to this benefit will have a 
significant impact on suppliers and beneficiaries in each of 
our districts all over the country. Spending has been growing 
rapidly in this area, and that provides good cause for review 
of how we pay for durable medical equipment.
    This hearing was called because of the concern from 
colleagues who are hearing from the suppliers in their 
communities and this is something that affects every district; 
and, as this change would, it's vital that we perform 
oversight. We've learned, so far, not much from this program. 
CMS will update us on their thoughts in a few minutes, but 
there are a few points that I'd make first.
    The good news from this demonstration is it's apparent that 
companies that are willing to take Medicare's business at a far 
lower price than the current fee schedule rates. The estimate 
is that Medicare would save 26 percent over the current fee 
schedule.
    That's a big savings. The accreditation process is also 
important. The DME industry has been a service industry and 
it's had excessive fraud and abuse, mostly because it's not 
very expensive to start up a line of business and there's been 
little oversight to ensure that the businesses are legitimate 
and the accreditation process is a positive step and I applaud 
it.
    There are many questions about the process used by CMS to 
implement this first round demonstration. Preliminary numbers 
presented to the Congressional staff at a recent briefing 
indicate that out of 1,005 applications, 630 were rejected for 
lack of proper documentation.
    That's more than 60 percent of the applicants. A refusal 
rate of that percentage does not show the market working. They 
weren't excluded because they failed to meet the standards, 
they were excluded because they didn't understand the rules or 
couldn't follow the directions and fill out the paperwork 
properly.
    I will wait for CMS to provide their testimony, and we can 
discuss their thoughts on this first round process. At a 
minimum, it seems there should be strong lessons learned, and 
how we can do it better. If this process is going to be 
repeated hundreds of times around the country, my question is 
whether there is value added to repeating this process again 
and again in each and every community.
    Might Medicare be better served and significant 
administrative costs saved by requiring all suppliers to meet 
the new accreditation standards and then taking what we learned 
in this first round to change the fee schedule by which we now 
pay for DME. Those improvements can be done once and will 
immediately be in effect nationwide. That for one idea seems 
simpler and much fairer and less disruptive to suppliers and 
beneficiaries.
    We can continue this discussion after we have heard the 
testimony, and I would like to yield now, if I may, to the 
distinguished ranking Member of the full Committee for comment.
    Mr. MCCRERY. Thank you, Mr. Chairman.
    I wanted to come by the hearing today for a few minutes, 
because I think this is a very important subject. The 
Subcommittee and some in Congress are contemplating taking what 
I think would be a step that ought to be taken with great 
caution, because I believe that this program is outlined in 
legislation that we passed a few years ago does hold out some 
hope for hoping to control costs in this portion of the 
Medicare Program.
    I think the Chairman just outlined very well the 
considerations of the Subcommittee ought to take up and 
examine, and I have thought about the solution that the 
Chairman just suggested, which would be to require some sort of 
certification for all vendors of durable medical equipment and 
then reset the reimbursement rates for the various devices at a 
more appropriate level. But I think, Mr. Chairman, what we have 
found through the years with Medicare is that it's very 
difficult for us to keep pace with the reality of the market in 
terms of setting prices; and, inevitably we are behind the 
curve. I just hesitate as a single Member of the House and 
Member of this Committee that has jurisdiction over this 
matter, I hesitate to take action which would possibly threaten 
the existence of this new competitive bidding approach. I hope 
that we can arrive at some solution that gets at the particular 
problems that the Chairman pointed out in his opening remarks 
without throwing the whole thing over the side, and give it a 
chance to work. Let's see what happens.
    I would prefer that, Mr. Chairman, to junking the whole 
thing and then trying to reset the prices at the appropriate 
level. I just think particularly in this segment of Medicare 
it's going to be very difficult for us to do. It seems that the 
pilot project is in place now and soon to be expanded to only 
ten regions, only ten in the whole country.
    We have a chance to learn from the mistakes of this round 
and employ some better procedures in the next round. That's 
why, if the Chairman will recall we did phase-in this program 
slowly over time so we could learn as we go along.
    So, I just wanted to come and urge the Subcommittee, Mr. 
Chairman, to delve into this and be very careful about actions 
that the Subcommittee suggests for fear in my view of 
jettisoning this approach before we even get a chance to see 
how well it works. I appreciate the Chairman letting me speak.
    Chairman STARK. I'd like to associate myself with your 
remarks. If no other reason, we're faced with a budget dilemma. 
If, in fact, we cancel the program, there are projected savings 
of millions of dollars, and how do you get that. So, I don't 
think that the idea of just wiping the slate clean is an 
alternative and I certainly wouldn't want my remarks to be 
construed, and I know yours weren't. The question is what can 
we learn and how could the system be improved.
    Mr. Camp, do you have?
    Mr. CAMP. Thank you, Mr. Chairman.
    Chairman STARK. Thank you.
    Mr. CAMP. Well, thank you, Mr. Chairman. I thank you for 
convening this hearing on this issue of the competitive bidding 
of durable medical equipment and Medicare.
    I think we need to examine Medicare's payments for these 
types of supplies to ensure that beneficiaries get the best 
quality care and the best equipment at the best price.
    We have heard a number of complaints about how this program 
is being implemented, and I think it's important to remember 
however how we got here, because Medicare does use its 
negotiating power to administratively set prices for durable 
medical equipment along with a number of other goods and 
services that it covers. I think if there's one lesson we 
should all take from this situation it's that the government 
often does a lousy job when it comes to setting prices.
    We've had a number of government audits and reports that 
have highlighted how Medicare was overpaying for certain types 
of equipment, and these reports by GAO and the HHS Inspector 
General compared Medicare's payments rates to other purchasers 
found that Medicare paid more than all other payers for certain 
durable medical equipment. These reports triggered the mandate 
by Congress for the demonstration projects to develop an 
alternative to the government setting prices for DME.
    CMS conducted competitive bidding demonstrations in Florida 
and Texas and I know we'll here testimony about how that 
resulted in savings of nearly 20 percent overall on each site, 
and, obviously, the access and quality remained unchanged 
there. But, even though CMS has made a tremendous effort in 
getting this program successfully underway, there are problems. 
We've all heard about those problems, particularly relating to 
the submission of bids and questions about whether the bid 
winners will have the ability or the capacity to serve existing 
Medicare populations.
    While suppliers argue these issues will limit access for 
beneficiaries living in certain areas and will decrease the 
quality of services they receive in the short term, I am 
concerned how these issues could ultimately reduce the number 
of providers that supply these items and actually increase 
costs in the long run. So, I believe we need a way to resolve 
these implementation issues as quickly as possible.
    If the government continues to set inaccurate prices or 
fails to truly create a competitive environment, and I frankly 
think competitive bidding as it's currently structured is not 
an accurate description of what's going on. But I don't think 
we'll see any winners if we don't fix that, so we need to 
refocus, I think, on the overall goal of this program. Use the 
market to drive down costs to make Medicare more financial 
stable and secure; and, it's a lesson I think we would be wise 
to use in the entire health system.
    I think we are going to hear some comments about 
accreditation and I think that would be a good way to move 
ahead in terms of making sure that those providers are doing a 
good job. So, I look forward to the testimony today. I thank 
the Chairman for this hearing and I yield back my time.
    Chairman STARK. We will now hear from the acting 
administrator of the Centers for Medicare and Medicaid 
Services, Mr. Kerry Weems.
    Kerry, welcome back to the Committee, and we have your 
prepared testimony and your colorful exhibits. Why don't you 
proceed to enlighten us or expand on your testimony any way 
you'd prefer.

  STATEMENT OF KERRY WEEMS, ACTING ADMINISTRATOR, CENTERS FOR 
                 MEDICARE AND MEDICAID SERVICES

    Mr. WEEMS. Thank you.
    Good afternoon, Mr. Chairman. It's a pleasure to see you 
again, Mr. Camp.
    I am very pleased to be here today to discuss the durable 
medical equipment prosthetics, orthotics and supplies 
competitive bidding program. I think this will be an excellent 
opportunity to dispel some of the rumors and talk about some of 
the facts.
    This major initiative will reduce beneficiary out-of-pocket 
costs and improve the accuracy of Medicare's payments, help 
combat fraud, and ensure beneficiary access to high quality 
items and services. The initial round of competitive bidding is 
now complete, the bidding window officially closing on 
September 25, 2007.
    We received a total of 6,209 bids; and, of the bids 
received, 1,335 were winning bids. We exceeded our target on 
small supplier participation and offered 64 percent of the 
contracts to small suppliers. As of April 18, 2008, 1,254 
contracts have been signed out of those offered, translating to 
a 96 percent acceptance rate. We expect to be able to announce 
the contract awardees next week.
    When the new payment rates take effect on July 1st for 
Round I bidding areas, the beneficiaries will begin saving 
money on ten of the most commonly used durable, medical 
equipment supplies such as power wheel chairs, oxygen, and 
diabetic testing strips.
    Let me give you an example of these savings. This is a box 
of blood, glucose test strips with 100 in the box. In 
Cleveland, under the current fee schedule, the price of this 
exact box is $73.86, of which Medicare pays $59.09, and the 
beneficiary pays $14.77. Due to a successful, competitive 
bidding program, on July 1st, this same box in Cleveland will 
drop to $42.00. That's a 43 percent savings, and it's worth $6 
and $37, per box, to the beneficiary, or $70 a year.
    Let's take another example. Power wheelchairs, as you can 
see on the chart to my right, beneficiaries in Miami currently 
pay $805 for this particular wheelchair. Medicare pays 80 
percent of the cost or $3,219. Now, after competitive bidding, 
the beneficiary in Miami will pay $563; and, Medicare's payment 
will drop to $22.53. It's a clear example of how the program is 
going to save both the beneficiary and the government money.
    CMS is conducting an aggressive, education and outreach 
campaign to ensure that every beneficiary, partner, provider, 
and supplier knows how to use the program and to ensure a 
smooth transition on July 1st. As you can see from the second 
chart in front of you, CMS has begun a significant outreach 
campaign.
    We started with several education activities ranging in 
activities with various media outlets to list serve 
announcements and training. Later this month, we will be 
announcing Round I suppliers, and we will be posting them to 
Medicare.gov, Our website. Will feature a supplier finder tool 
with contract supplier location information as well as a list 
of the products a particular supplier will offer. This will not 
only assist the beneficiaries, but also the providers.
    In June we will conduct a direct mailing to all Medicare 
beneficiaries in the Round I area. This mailing will contain a 
letter, a brochure that outlines a new program and list of all 
contract suppliers in their area. Medicare has developed the 
beneficiary fact sheet; and, this will be not only available on 
our Web site but through partner groups and through physicians. 
Our partner groups are crucial to a smooth transition and we 
will be relying heavily on them to assist us. My staff and I 
have been in contact and will continue to be in contact with 
our partner groups to educate them on this program.
    CMS will monitor the performance of contract providers 
through beneficiary satisfaction surveys, tracking the volume 
of questions and complaints that SHIPs and 1-800-Medicare 
receive will track the shift from non-contract to contract 
suppliers for competitively bid products comparing before and 
after July 1st.
    We will track the number of advance beneficiary notices 
issued by non-contract suppliers and competitive bid areas for 
competitively bid items to gain insight into where the 
beneficiaries are obtaining their products. All of these 
activities will help us keep current on what's taking place on 
the frontlines.
    Once our program begins, our regional offices will respond 
to general inquiries from beneficiaries. They may also refer 
questions and complaints to 1-800-Medicare, which will be the 
primary point of contact for beneficiaries. Questions or 
complaints can also be referred to the claims processing 
contractor or the local Ombudsmen. All questions and complaints 
will be tracked for internal reporting purposes.
    CMS is committed to the success of this program. We set out 
to provide the beneficiaries with quality items and services; 
and at a lower price from reliable suppliers in their 
communities. We have the lower price. We have reliable 
suppliers, and we are in the process of educating beneficiaries 
on this new program. Our extensive monitoring network will 
signal any issues that arise and allow us to move to correct 
them quickly and efficiently.
    I appreciate your time and the invitation to testify before 
you today. I'd be happy to answer any questions you have at 
this time or address any concerns you have about the process to 
date.
    [The prepared statement of Kerry Weems follows:]
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    Chairman STARK. Well, thank you.
    I think our concerns are legion; and I guess I will just 
pick on what I think the process, I have no quarrel with 
bidding, is one that causes a great deal of unnecessary 
concern. I would just point out to you that the Federal 
Government goes to a lot of extremes.
    I mean, we do have no bid contracts with Bechtel and other 
companies like that where we just award it to our friends. 
Then, GSA on the other hand buys 10s, if not hundreds of 
thousands of vehicles. They do not give the Chevy dealer in 
Washington, D.C. an exclusive, if that Chevy dealer bids lower. 
They happen to have the manufacturer's bid, and then the 
manufacturer ca determine where the car is delivered, through 
what dealer.
    In the case of automobiles, if there's some preparation 
required by the dealer or added equipment, the manufacturer 
pays the dealer. But there they're principally dealing with 
three or four major suppliers to bid, major manufacturers to 
bid, and the suppliers are all still allowed the dealers to 
continue.
    You have a picture here of a wheelchair in Miami where, I 
guess, we've saved a thousand bucks, the Federal Government; 
but is it not correct that in Miami there will be only one 
dealer that will provide these wheelchairs?
    Mr. WEEMS. That's not correct. No.
    Chairman STARK. Well, how does that happen to be?
    Mr. WEEMS. The way the bid process worked was we asked for 
bids.
    Chairman STARK. Yeah?
    Mr. WEEMS. We also estimated we knew historically the 
number of wheelchairs that were provided in that area.
    Chairman STARK. Okay?
    Mr. WEEMS. We asked suppliers for an estimate of their 
capacity, but we'd let no supplier go above 20 percent of the 
market.
    Chairman STARK. So, it's got to be five dealers, minimum. 
How many were there before the bidding process do you suppose, 
100?
    Mr. WEEMS. I would not speculate, sir.
    Chairman STARK. Whoa, wait a minute. You ought to know. I 
don't want you to speculate. How can you be doing this if you 
don't know?
    Mr. WEEMS. I can provide it for the record, if you like.
    Chairman Stark. Okay, well, let's suggest that there were 
50. So, you just put 45 of them out of business. What good does 
that do you?
    Mr. WEEMS. Well, 19 were successful in that area.
    Chairman STARK. Yeah, but you told me you are only going to 
take five.
    Mr. WEEMS. No. No. No, if they said they could take 20 
percent of the market, then we would count it.
    Chairman STARK. And 19 had the same bid?
    Mr. WEEMS. No. That's not the way the bidding process 
works. Sorry. We took their estimates of capacity up to market 
clearing up to the point where all the capacity in the market 
would be taken. They had each bid a price; and, at that point, 
we took the median bid from that successful group. That's the 
way the price was determined.
    Chairman STARK. Why didn't you take the low bid?
    Mr. WEEMS. We took a look at it. We wanted to make sure we 
would have enough suppliers in the market. The median bid was 
the place that we chose.
    Chairman STARK. But basically you just set the price, 
didn't you?
    Mr. WEEMS. We chose the medium price of the prices bid.
    Chairman STARK. That sounds like price setting to me. You 
may want to call it something else, but I think Boeing would 
like to have you arrange for taker bids, but my point is that 
sometimes you're bidding and sometimes you're not. When it 
suits your convenience and you manage to get an awful lot of 
suppliers all steamed up, one would think that you could find 
the savings and still allow many of these businesses to 
continue.
    In your testimony you didn't suggest any changes that you 
might make in the program. Are there none that you can think of 
that would improve the program?
    Mr. WEEMS. I think the change we would make for Round II is 
to make it very, very clear to bidders that the responsibility 
lies with them for supplying complete documentation for a bid.
    Chairman STARK. So, it's not your fault; it's theirs. What 
you're really saying is you want to make it clear to the 
bidders that if they can't understand your instructions, 
they're out of the game.
    Mr. WEEMS. If they're unable to provide adequate 
documentation, yes.
    Chairman STARK. What if you're unable to provide 
instructions that are intelligible. Did you ever think of that?
    Mr. WEEMS. Well, we did think of that and we had a number 
of suppliers who were able to provide us with completely 
documented, successful bids.
    Chairman STARK. So, that absolves CMS of any, in other 
words, what you're saying to this Committee is there's nothing 
that you think is wrong with this system.
    Mr. WEEMS. I can't think of anything that I would trade it 
for.
    Chairman STARK. That's all right. Thanks. That shows your 
usefulness as a witness.
    Mr. Camp.
    Mr. CAMP. Well, I would just have to say that Mr. Weems, 
this is process where some people were not allowed to bid; and, 
so what's happened is there's an exclusive group of providers 
that are now going to be providing this equipment; and, I think 
we both agree that we've had a decade of testimony from GAO 
that Medicare is paying higher than market rates for DME.
    But, what I would like to hear from you is a way to reform 
what you've been doing, because I would agree with Mr. Stark 
that I don't think this process has been one that stands 
scrutiny. So, if you could help us with a way to move forward, 
and this is not competitive bidding. I mean that may be the 
term it has, but it is a structured price setting and I think 
there's another way to design this to get the result where 
there's, you know, more competition brought into this system. 
Yet, there's still choice of providers.
    I know that there'll be at least five providers from your 
testimony. No one can have more than 20 percent of the market, 
but I don't see any problem with having more than five 
providers, or more than 10 or 15 providers in an area. 
Particularly what I am concerned about is information I have 
been hearing that some providers are going to parachute into 
areas of the country that they have not had any history; no 
infrastructure.
    I do think that not all this equipment is just dropped off. 
There is a service aspect to durable, medical equipment. 
Sometimes you get it and it doesn't work and you need to get 
another one. So I think the goals that you are trying to 
achieve are laudable. I understand those and I appreciate 
those.
    What I would like to hear from you is not that everything 
is okay and we are just going to move forward with this system 
that we have designed, but is there some way that we can 
improve upon this, because I think the contractor who was hired 
to implement this has not done you a good service.
    So, if we could find a way to move forward and accomplish 
the goals that we have been hearing about for more than a 
decade before this Committee, but, so, I guess I'd like to hear 
from you some ideas on how to move forward with that. I think 
the comment on accreditation and why not have more bids and in 
the structured bid setting I just have some problems. So, I 
guess I would like to hear your comments on that.
    Mr. WEEMS. Well, first of all, we had to be obedient to the 
statute for competitive bidding; and that statute clearly 
contemplated that there would be unsuccessful bidders. That the 
statute contemplated people would bid a price that would be 
competitive, where they could go and achieve a market share.
     Now, like you, when I heard reports that a large number of 
bidders had been disqualified for reasons of documentation, I 
was very concerned about t hat. So, I sent a team of Federal 
officials down to where the documents were actually received; 
and, for bidders who said they were wrongly excluded, we look 
through 100 of the bids and we found that the contractor was 
correct, that items were missing. In fact, in several of them 
there was a cover note that told us there were items missing.
     Mr. CAMP. I know my time is about to expire, but let me 
suggest something.
    If you were to provide a 60-day window to re-examine the 
bids that were disqualified due to lack of information, do you 
believe a six-month delay would be necessary? Do you think a 
rebid would still be necessary if you could re-examine those 
folks that were disqualified?
    Mr. WEEMS. Well, a rebid would be costly. We have looked at 
those that were disqualified, two-thirds of them would not have 
made it on price, anyway. So, only one-third of them were.
     Mr. CAMP. Is that based on a sample? Or, is that based on 
looking at all of the bids that were disqualified?
    Mr. WEEMS. I believe that is based on looking at all of 
them. So, you know, two-thirds of them were not even in the 
competitive range.
    You know, there are improvements we could make in the on-
line bidding system. That did not work particularly well in the 
fall of this year, actually, in the summer. So, we extended the 
bidding window for 60 days to be able to allow suppliers to 
come in. We obviously will need to work a little bit more on 
supplier education. But, actually, I think the results of this 
round will provide substantial education.
    Mr. CAMP. Well--and I realize my time has expired--I just 
want to say quickly is first these bidders were told if they 
didn't have sufficient information they'd be contacted. I 
realized that changed twelve days before the bids closed; but, 
if you could re-examine those bids in a 60-day window that 
didn't have adequate information and give them a chance to 
submit that. That's my proposal, if you'd think about that.
    Thank you, Mr. Chairman, and I yield back.
    Chairman STARK. Thank you.
    Mr. Thompson, would you like to inquire?
    Mr. THOMPSON. Thank you, Mr. Chairman. I do.
    Mr. Weems, I just want to pick up on something that the 
gentleman from Michigan mentioned. Your answer, you said 
something along the lines of this round will tell us a lot 
about are we going to the next round.
    Is there any discussion or consideration being given to 
delaying the second round 'til we find out what we learned from 
Round I?
    Mr. WEEMS. We haven't announced a full schedule yet for the 
second round. The statute requires that.
    Mr. THOMPSON. Are you considering delaying it to learn 
from?
    Mr. WEEMS. We are considering the schedule that we would 
lay out given what we have learned here.
    Mr. THOMPSON. That will give us time to take away some 
lessons learned from Round I?
    Mr. WEEMS. Of course. The statute requires that we do the 
competition in 2009.
    Mr. THOMPSON. I'd like to ask you about this proposal and 
how it affects an area that is near and dear to me. That's 
rural American.
    Mr. WEEMS. Yes?
    Mr. THOMPSON. About 30 percent of the suppliers are in 
rural areas and it takes you longer to get from one spot to 
another. There's greater distance to travel, gasoline at $4 
plus a gallon. The costs all start to tack up. What are your 
plans for dealing with the disparity that the folks in rural 
areas are going to find themselves slapped with?
    Mr. WEEMS. Well, in the first and second rounds that we 
have announced so far, those were required to be in MSA. So, 
they are not in rural areas. We have a decision in front of us 
that is still quite distant and will likely be made in future 
administration about exactly what we do in rural areas. So, 
right now, we are not contemplating competitive bidding in 
rural areas at this point. Though I think that the 
beneficiaries in rural areas who look at the price savings that 
those in urban areas have might want those prices.
    Mr. THOMPSON. Might have what?
    Mr. WEEMS. Might want those prices.
    Mr. THOMPSON. Well, they may want the prices, but it's a 
distinctly different area and there's different costs that are 
associated with it. There's access questions that have to be 
asked. If you have to drive three hours in order to get your 
equipment or to have it serviced, repaired or have warranty 
worked on it, these are all problems that folks in rural areas 
experience that folks in the city who oftentimes make these 
policies have no idea what life in the rural area is like. I'd 
like some assurances that rural issues, concerns and access for 
these folks are in fact taken into consideration.
    Mr. WEEMS. But they are, and we have exempted them.
    Mr. THOMPSON. I guess I'd like more than just your nod and 
word that they are. I'd like to better understand how this is 
being dealt with.
    Did you guys take into consideration a supplier's 
experience or lack of experience with a given type of equipment 
before you made these awards?
    Mr. WEEMS. We took into account a supplier's ability to 
supply the market. We took into account whether or not they 
were an accredited entity.
    Mr. THOMPSON. But how about their actual experience with 
providing a certain type of equipment; providing a service for 
that certain type of equipment? How do you determine if one is 
qualified to do that at the same level that beneficiaries were 
experiencing before?
    Mr. WEEMS. Well, unlike the current program, we actually 
require our bidders to be accredited.
    Mr. THOMPSON. Accredited by whom?
    Mr. WEEMS. We picked various accrediting bodies for whom 
they could go to accreditation. Currently, suppliers are not 
required to be accredited. We do expect that all of them will 
be accredited by September of 2009, but under the current 
regimen, they are not accredited.
    Mr. THOMPSON. I'd like to know what that accreditation 
takes in in regard to the standards that they have to meet. I 
want to know what it is. I think there's some basic problems 
that I think we all need to understand.
    Mr. WEEMS. General provider accreditation requires we have 
standards for set up and delivery, training and instruction.
    Mr. THOMPSON. Whose standards? What are the standards? Who 
sets them? Who reviews it? Is there a process by which folks 
can wage complaints and get redress on those complaints?
    Mr. WEEMS. Of course, and I can provide you in writing the 
various standards that we have. But we have more beneficiary 
protections now under competitive bidding than there are in the 
previous program, and we added additional protections for 
quality standards for oxygen and for complex rehab chairs.
    Mr. THOMPSON. Mr. Chairman, I would hope that through the 
Committee you would re1quire that they submit this so we have 
an understanding of how in fact they are accrediting these 
people to make sure that they are qualified and able to provide 
the services that all of our constituents are going to be 
dependent on. Thank you.
    Chairman STARK. I appreciate the gentleman.
    My concern, for example, how the scooter store, some 
hundreds of miles away, gets to be an oxygen provider. That 
stretches the imagination of accreditation. But maybe it's 
because they have those horns on the scooters, and that squeeze 
the bulb and you get oxygen.
    Would the gentleman from Texas, Mr. Johnson, like to 
inquire?
    Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate you 
having this hearing.
    I know you're not a doctor, but do you have any medical 
experience at all?
    Mr. WEEMS. No.
    Mr. JOHNSON. How can you run an organization like this 
without medical experience?
    Mr. WEEMS. A number of my predecessors have not been 
clinicians.
    Mr. JOHNSON. I know. I've griped about that too.
    Have you ever done any work other than for the government?
    Mr. WEEMS. My entire professional career has been as a 
civil servant.
    Mr. JOHNSON. How many years is that?
    Mr. WEEMS. I mark 27 years with the government this month; 
25 with HHS this month.
    Mr. JOHNSON. Okay, thank you. You know, you set the price 
for the medical equipment. We've already determined that. On 
hearing from suppliers in the third district--it's Dallas 
essentially--and how the implementation is affecting them, I 
become concerned.
    You know, Congress can have all the good intentions in the 
world, but the agency in charge is putting Congress' ideas into 
practice missing some mark, it puts us in a difficult position. 
The number one issue I've heard about is the same all these 
other questioners have heard about. How many suppliers 
submitted bids to CMS for Round I out of the Dallas area?
    Mr. WEEMS. Let me see.
    Mr. JOHNSON. I'll help you, about a thousand.
    Of those totals, how many of those suppliers were initially 
rejected for some reason other than the actual amount of the 
bid?
    Mr. WEEMS. About 508.
    Mr. JOHNSON. 600 is the number I've got, but that's close.
    Of those suppliers, how many filed a 30-day review of their 
bid package with a contractor to look at insufficient financial 
disclosure?
    Mr. WEEMS. I don't have the Dallas area, but 346 filed 
total.
    Mr. JOHNSON. About 300. Now, it seems to me that these 
numbers suggest more of a systemic problem rather than a 
supplier here or there forgetting to include a piece of paper 
with their bid package.
    Would you not agree with that?
    Mr. WEEMS. I would say that there is a problem with the 
fact that certain financial documentation was not supplied.
    Mr. JOHNSON. Yeah, but you had no cross-talk between the 
guys submitting bids to tell them that they didn't have all the 
information there; and, according to what I'm hearing from you, 
the contractor was not telling you whether they got all the 
paperwork or not. Is that true or false?
    Mr. WEEMS. I was informed of that after the bid window 
closed.
    Mr. JOHNSON. Okay. You know, would the premise of 
competitive bidding program being you will only get a contract 
if you bid low enough, and then you set a higher number, 
there's some concerns that massive consolidation may negatively 
impact the competition in bid years to come.
    How do you see this process unfolding in the next year or 
within the next 3 years let's say?
    Mr. WEEMS. I see substantially more competition, especially 
as we move to Round II, the other 70 MSAs. I think that we'll 
have more companies come in to the market to try and capture 
market share. We will have lower prices and drive down the cost 
for the government and for beneficiaries.
    Mr. JOHNSON. Well, as my friend here pointed out, I think a 
reduction in suppliers ultimately could lead to less 
competition and higher prices.
    You don't agree with that statement?
    Mr. WEEMS. I'm not sure that I accept the premise. There'll 
be a reduction in suppliers.
    Mr. JOHNSON. Well, if you keep setting limits on them and 
putting people out of business, I don't know how you could help 
but understand that.
    Did you do anything to ensure that contracted suppliers 
have a sufficient capacity to supply the products?
    Mr. WEEMS. We looked at their bids, looked at their 
business plan; their capacity to supply and as I said we only 
let any individual supplier say that they could supply up to 20 
percent of the market even if they made claims being able to 
supply more than that. If indeed the company was expanding 
beyond their current capacity and had a business plan to do 
that, we required stronger financial assurances from the 
company before we would allow that bid to come in at that 
capacity.
    Mr. JOHNSON. Well, how did you determine whether the 
financial capability was strong or not?
    Mr. WEEMS. Well, the financial documentation required in 
the bid allowed us to do that because we were able to compute 
certain financial rations that would tell us the financial 
strength of that company.
    Mr. JOHNSON. Okay. Thank you, Mr. Chairman. I appreciate 
the time.
    Chairman STARK. Mr. Becerra, would you like to inquire?
    Mr. BECERRA. Thank you, Mr. Chairman.
    Mr. Weems, thank you very much for being here.
    Mr. WEEMS. It's good to see you, sir.
    Mr. BECERRA. Let's see if I can continue along the lines of 
my friend Mr. Johnson's questioning. First, let me ask this.
    Is a contractor who wins a contract from CMS able to 
subcontract some of those services based on that awarded 
contract?
    Mr. WEEMS. Absolutely, and that's indeed what I expect to 
happen when we announce the winning suppliers next week, that 
many will want to subcontract.
    Mr. BECERRA. So, are the qualifications of a subcontractor 
taken into account by CMS in the process of awarding a bid to a 
prime contract?
    Mr. WEEMS. Not in the process of award, because those 
contracts don't exist yet. So, the liability and responsibility 
remains with the prime contractor to make sure that the 
services are rendered as provided for in the contract.
    Mr. WEEMS. That's correct. We will hold that contractor 
responsible for the services they contracted for.
    Mr. BECERRA. So, is a prime contractor able to subcontract 
with someone who may not have any experience in their 
particular field?
    Mr. WEEMS. They could, yes. I'm not sure it would be in 
their business interest to do so, but yes, they could.
    Mr. BECERRA. Is there any requirement that a subcontractor 
be accredited to provide the types of equipment or services 
that are required under the contract?
    Mr. WEEMS. The contractor themselves are required. The 
winning supplier is required to be accredited. The same quality 
standards from which that accreditation arose would also be 
required of the subcontractor. They would not be required to be 
accredited at this point, but all suppliers are going to be 
required to be accredited as of September of 2009.
    Mr. BECERRA. As I understand it though, your relationship 
legally is with the contractor. What the contractor does to 
satisfy the terms of the contract, you don't have that much 
oversight over them in that regard, do you?
    Mr. WEEMS. In these ten areas, they are going to be under 
the microscope. We are going to have a high degree of scrutiny 
over contractor's performance, and their ability to deliver 
quality products to beneficiaries.
    Mr. BECERRA. But you are going to have to rely on the prime 
contractor doing this the right way, because your legal 
relationship, CMS's legal relationship, isn't with the 
subcontractor.
    Mr. WEEMS. That's correct.
    Mr. BECERRA. You've already said just a minute ago that you 
don't interfere with the process of the subcontracting, so the 
subcontractor could be someone or some entity totally 
unfamiliar with the field that the contract with the prime 
contractor is for.
    Mr. WEEMS. Again, perhaps not in the best interest of the 
contractor, but what you say is possible. Yes, sir.
    Mr. BECERRA. So, why not run the thread of legal 
responsibility that CMS, when it gives out money and gets a 
contract, runs not juts to the contractor, but to any 
subcontractor.
    Mr. WEEMS. The contract right now, and, as you pointed out, 
the legal responsibility, is with the contractor. They're the 
ones who have had the bid. They're the ones with the skin in 
the game and if they don't perform, we're going to take action 
against them. That includes the non-performance of a 
subcontractor.
    Mr. BECERRA. The difficulty, Mr. Weems, with that is that 
you're not trying to remedy a situation. You're not trying to 
rectify a problem that may have occurred as a result of the 
contract because of whatever activity by the contractor in this 
case, in our example, with a subcontractor.
    So, trying to remedy something doesn't necessarily assure 
us that we are going to get our money back if we over-pay or if 
we are defrauded. I think there is a real concern, at least 
some of us, I think, that this so-called competitive bidding 
process may not necessarily giving us everything we think we're 
going to get in return.
    Let me before my time expires ask something else with 
regard to this competitive bidding process.
    Doesn't it seem to run somewhat counter to intuition that 
we have competitive bidding in the marketplace if you limit the 
number of suppliers who compete?
    Mr. WEEMS. Actually, it's quite intuitive to me, because 
when we bid a contract in government, typically, there's just 
one winner. Everybody who didn't win is excluded.
    Mr. BECERRA. Well, now you're talking Pentagon. Let's 
forget about the Pentagon for now.
    Mr. WEEMS. No, I mean even in HHS. When we acquire things 
or, you know, when we have a contract, we competitively bid it. 
If you don't win, you don't win and you don't participate.
    Mr. BECERRA. But rather than say that we only want as many 
competitors as we think we'll need to satisfy the need, why not 
say, everyone come forward. Anyone who can match the price is 
eligible to compete and participate. So, this way, you always 
have a lot of contractors out there who are able to 
participate, and you ultimately, hopefully, then get the most 
competitive price, because you have a very open, competitive 
process.
    But when you simply say we're going to need someone to 
satisfy this need of medical widgets, we need a thousand of 
these medical widgets, and we see that we have three suppliers 
there that can provide the thousand medical widgets, so 
therefore, we only need three suppliers. That doesn't 
necessarily guarantee that those three suppliers are going to 
give you the best price, the most competitive price. But, if 
you say we need a thousand widgets; everyone compete, and 
everyone at every point can compete, then there will be true 
competition to try to keep the price of those widgets as low as 
possible so they can get the business from the government.
    Mr. WEEMS. I understand your point. First of all, the law 
doesn't allow for any willing provider, but second of all, if 
we bid and said everybody come in, it's likely we wouldn't get 
26 percent discounts. Instead, we get the fee schedule again. 
You know, if you don't have any skin in the game, you're going 
to bid the fee schedule price.
    Mr. BECERRA. I know my time is expired, so Mr. Chairman, 
I'll stop.
    But, Mr. Weems, at some point I'd like to transition this 
conversation not in terms of DME but in terms of MA, Medicare 
Advantage, and see if you'll say the same things with regard to 
the process of competition that you provide for under the 
setting for Medicare Advantage participation and are compared 
to what you do for DME.
    But I thank you for your time.
    Mr. WEEMS. Yes, sir.
    Chairman STARK. Mr. English, would you like to inquire?
    Mr. ENGLISH. Yes, thank you, Mr. Chairman.
    Mr. Weems, when a large hospital-based DME company fails to 
secure Medicare contract, many patients and hospitals are 
affected.
    What are plans at CMS for transition in states where the 
hospital-based DME companies currently serving many hospitals 
and Medicare patients have not been offered Medicare contracts.
    Specifically, my interest after July 1st, 2008, several 
large health organizations will no longer be able to accept 
Medicare patients including in my region, UPMC, which serves 13 
hospitals, and Vantage, which serves 12 hospitals. What are the 
transition plans for these patients in the hospitals?
    Mr. WEEMS. Thank you for the question. Congressman, I am 
not going to be able to speak about the particulars.
    Mr. ENGLISH. I'm happy to entertain it.
    Mr. WEEMS. All right. I will give you a general answer.
    The particulars of this are still covered by the 
procurement laws.
    Mr. ENGLISH. Yes.
    Mr. WEEMS. I expect that in hospital-based settings that 
they will subcontract with a winning supplier. That's going to 
be an area where we're going to have very good contact with 
beneficiaries, so that they're going to become contract 
suppliers. They're just not going to, you know, in their 
service, and close down in a hospital.
    Mr. ENGLISH. Okay. A very different kind of transition 
occurs for many Medicare patients who will be leaving 
hospitals.
    What are the Medicare strategies for acquiring the new DME 
contractors to be responsive and timely in fulfilling their 
obligation to deliver equipment and services at the time of 
discharge from the hospital, particularly after normal business 
hours?
    Mr. WEEMS. The people are going to be in this business to 
succeed. They're going to be in this business to win market 
share; and, with the market prices, there's going to be even 
more motive to capture market share. The way to do that is 
going to be through quality.
    That is, they're going to offer higher quality services. 
They are also going to be accredited. They will have met 
quality standards that's not true today.
    Mr. ENGLISH. Mr. Weems, one of the issues that has become 
apparent in conversations I've had with interested constituents 
is that there have been bids awarded to companies that have 
never previously provided the bidded service. I'm curious.
    What is CMS's approach to this particular issue and has 
there been any thought to protecting the Medicare benefit by 
making certain that awards are given to bidders who are clearly 
able to provide that service and maybe with a focus on 
providers that are already doing this?
    If in fact the other is happening, how does that equate to 
enhanced quality care for our Medicare patients?
    Mr. WEEMS. Well, first of all, it's good to step back and 
look at the circumstances today. Today, anybody can move into a 
particular line of durable, medical equipment without that 
expertise. For the competitive bidding program, they had to 
show that they were a viable ongoing business. That's not a 
requirement today. They had to meet our quality and 
accreditation standards. That's not a requirement today; and 
they also had to demonstrate a business plan that would show 
capacity to meet the market. That's not a requirement today. 
Those are the kinds of beneficiary protections that are built 
into it.
    Mr. ENGLISH. So, your argument is there's really no 
protection today from folks entering stepping up providing the 
service.
    Mr. WEEMS. Absolutely.
    Mr. ENGLISH. Okay. I wonder, Mr. Weems, can you offer the 
rationale behind the requirement for national diabetes 
suppliers to bid based on a full formulary while small 
suppliers could bid and win by bidding on a limited number of 
products. I wonder, what impact will this have on patient 
choice.
    Did CMS find that this created a disproportionate number of 
particularly low bids, which were based on fewer products?
    Mr. WEEMS. I am going to have to provide you that answer in 
writing, Congressman.
    Mr. ENGLISH. Very good. Thank you, Mr. Chairman.
    Chairman STARK. Mr. Doggett, would you like to inquire?
    Mr. DOGGETT. Thank you for your testimony, Mr. Weems.
    While I certainly share a number of the concerns my 
colleagues have voiced, I think it is important to understand 
how we got to this point and there was a conclusion reached, 
not only by you and your office, but by a number of other 
groups that looked at this issue that we have been paying and 
are today paying significantly more for durable medical 
equipment that is necessary to provide quality, durable medical 
equipment to Medicare beneficiaries. Isn't that correct?
    Mr. WEEMS. It is, sir.
    Mr. DOGGETT. That's why you conceived this competitive 
bidding program?
    Mr. WEEMS. It's why it was conceived. We are following the 
law.
    Mr. DOGGETT. I do want to get your reaction to the question 
my colleague, Mr. Becerra raised, because if competition is a 
good way to address this problem, why wouldn't it also be a 
good way to deal with Medicare Advantage where we are still 
paying $1100 more for beneficiary than for traditional 
Medicare.
    Mr. WEEMS. In Medicare Advantage the payment rates are 
based on a county benchmark system within that benchmark 
system, plans do compete.
    Mr. DOGGETT. Well, they don't compete enough to not result 
in a situation that's been estimated at a cost over 10 years of 
$150 Billion more than if we just covered them with traditional 
Medicare. So, there may be some competition, but it has yet to 
lower prices; and, as you know, your actuary has been unable to 
give us any future date by which we won't be paying out 
billions of dollars more to these plants.
    Why can't they compete in the same way that you propose to 
occur here?
    Mr. WEEMS. The payment for Medicare Advantage plans are 
based on a county benchmark that's in statute. The payment rate 
is fixed by statute on a county benchmark level.
    Mr. DOGGETT. Well, I'll accept your answer, but 
respectfully disagree with you that the system is not working 
and it is causing us a much greater cost to sustain any quality 
of care than any of what we are talking about today.
    But, focusing on today, you will recall that back in 2001 
the HHS Inspector General testified to congress that durable 
medical equipment providers, that we were paying them for 
products that were sometimes never delivered and we were paying 
for more expensive items than what was actually received. That 
was one of the initial voices of concern; and then in 2004, the 
GAO indicated that Medicare lacks the capability to identify 
specific items provided to beneficiaries, because suppliers' 
claims use broad codes and don't identify the specific item.
    I gather that that's still a problem, and my question to 
you apart from competitive bidding, since I've heard that there 
are concerns that their incentives to substitute lower price or 
lower quality items for higher priced items is has CMS or HHS 
ever considered establishing some kind of serial number or 
identification program so that you can track individual pieces 
of durable, medical equipment, and follow them through the 
claims process?
    Mr. WEEMS. I know of no attempt.
    Mr. DOGGETT. No study of that? I mean, why wouldn't that be 
feasible?
    Mr. WEEMS. Well, for many of these pieces of equipment, you 
know, some can be, you know, quite small.
    Mr. DOGGETT. Some of the reference to scooters or motorized 
wheelchairs are pretty substantial. Why couldn't you use a 
serial number system on some of these items?
    Mr. WEEMS. That might be something that we can look at. I 
mean, one of the frustrations, sir, as you well know, with 
durable medical equipment is it's supplied in the home. It's 
supplied outside of the public view and it is one of those. 
It's not quite a government acquisition, but, you now, you 
don't get a corresponding control number or a corresponding 
receipt. The government doesn't for actually having acquired 
the equipment.
    Mr. DOGGETT. You're going to respond to a question Mr. 
Thompson raised about accreditation. But, as you did 
accreditation for these suppliers, were you looking only at 
financial capability or did they have to demonstrate some 
expertise in being able to deliver a service.
    If someone was in oxygen and they were now going to provide 
diabetes supplies; or, if they were in motorized wheelchairs 
like the scooter store and they would provide oxygen, what did 
you look at to assure that they have the capability to provide 
quality products?
    Mr. WEEMS. We looked, first of all, at overall ability to 
do delivery and set-up. Can they do that? For many of the kinds 
of products we're talking about, that's not very complex. But 
we took an additional step for two items, which are more 
complex, and that is for oxygen and for complex power, motor 
device, complex wheelchairs. We actually established higher 
standards for the delivery and set-up, and the capability of 
doing that for those two items, because they are more complex--
standards which don't exist to this day.
    Mr. DOGGETT. So, if the scooter store will be providing 
oxygen supplies, they had to meet those standards?
    Mr. WEEMS. They do, yes.
    Mr. DOGGETT. Just one other area. We all remember the 
problem some would say fiasco associated with the initial 
implementation of the Part D program and the claim that all you 
had to do was just call 1-800-Medicare.
    We are now about, I guess, less than 2 months out from this 
program going into effect. What have you done to ensure we 
don't have a repeat of that? What additional training has there 
been and is there any, I guess, ombudsman-type office so that 
if folks that are counting on this durable, medical equipment 
have as many problems as folks had originally with part D, that 
there'll be an alternative available for it.
    Mr. WEEMS. That chart and the one that you have in front of 
you shows the various outreach activities that we have. But, 
let me stress two things, sir. Because you ask a very, very 
good question. The most important moment in all of this is when 
a Medicare beneficiary sits with their provider and their 
written prescription. They need to know what to do with it at 
that point. That's what we're concentrating on and we are going 
to give physicians a list of qualified beneficiaries.
    Remember, most of this is not storefront-type material. 
What happens is the beneficiary takes that and then calls a 
number and it's delivered to their home. That's the moment that 
we are concentrating on. Every Medicare beneficiary in these 
MSAs will get a letter from us. Every provider, every supplier 
will get a letter from us laying out in detail. So, what 
happens then?
    One of the things that I think is vitally important when 
you institute a new program is situational awareness. How do 
you know what's happening?
    We have put together a surveillance network so that we will 
know what happens; and, yes, that includes calls to 1-800-
Medicare. It includes calls to our SHIPs. It includes the 
regional offices involvement in each one of those areas. We're 
going to check in with the suppliers. We are going to work to 
get this right. I hope you are feeling better. I'm sorry, you 
were in an accident.
    Chairman STARK. Mr. Tiberi, would you like to inquire?
    Mr. TIBERI. Thank you, Mr. Chairman. Thank you for letting 
me sit in.
    Sorry that I didn't hear your testimony. I look forward to 
reviewing it, Mr. Weems.
    Just a couple comments, I guess, to get your comments, I 
guess, to get your thoughts on from things that I have been 
hearing and thanks for your long-term service to the Federal 
Government, our taxpayers.
    Some would say that the entire process in which the 
implementation of this program has not met transparency levels 
that we would all be proud of in the Federal Government and 
that there has been a lack of information provided to both 
beneficiaries and suppliers and policymakers throughout the 
implementation of this process.
    What would you say to that criticism?
    Mr. WEEMS. I would strongly disagree. I think that we have 
done a very good job of educating our suppliers. We have an 
advisory Committee with them that has met six times over the 
course of this. We have taken considerable input from them. We 
have been very transparent. About the requirements, the only 
thing that I would say that we have not disclosed as a matter 
of the bid process is exactly how we use the financial rations 
in judging the financial viability of each bidder. We have told 
them what financial documentation we need. We have told them 
the ratios that we would use, but we have not told them how 
that would be scored.
    That, I would say, is the one piece sort of ``our audit 
plan,'' we have not disclosed.
    Mr. TIBERI. So, if Members of this Committee can give you 
information that contradicts that, you'd be willing to look at 
that?
    Mr. WEEMS. Absolutely.
    Mr. TIBERI. Just to follow-up on Mr. English's point or one 
of his points the criticism that there are suppliers that could 
be awarded regions that they have no business model presently 
in may not be a concern, but after this process is put in place 
and you have people providing a service in a region where they 
have never provided a service before, if there are problems in 
providing a service to beneficiaries, what would be CMS's 
reaction to that?
    Mr. WEEMS. You know, it depends on the problem. If we find 
somebody who is simply incapable in that region then we're 
going to take steps to end their contract and award it to 
another. So, it depends on what problems.
    But, again, these suppliers bid to have a viable business 
model, to move into, if they're moving in, a community to 
actually sell product. They didn't win not to sell product.
    Mr. TIBERI. But there's no advantage given to someone who 
has a business model within that community?
    Mr. WEEMS. They might have a particular competitive 
advantage by knowing the community, knowing the physicians, 
knowing the beneficiaries. But there's no structural advantage.
    Mr. TIBERI. Not with you. Not with you all.
    Mr. WEEMS. Correct.
    Mr. TIBERI. Thank you. Thank you, Mr. Chairman.
    Chairman STARK. I just had a couple of questions. The 
definition of a supplier, I gather, is that person with whom 
the beneficiary patient has contact. Is that correct?
    Mr. WEEMS. Yes.
    Chairman STARK. For the most part, suppliers are not 
manufacturers? Certainly not necessarily manufacturers?
    Mr. WEEMS. They are not necessarily manufacturers. There 
are some cases.
    Chairman STARK. The supplier does not have to supply new 
equipment. Is that correct?
    Mr. WEEMS. They may supply refurbished equipment, but 
that's true now. Yes.
    Chairman STARK. They can purchase their equipment made in 
China, Taiwan, France. There's no real prohibition on where 
they buy the equipment. Is there?
    Mr. WEEMS. It has to be an FDA approved, but after that, it 
has to meet manufacturing standards. But yes, they can acquire 
it.
    Chairman STARK. Does the FDA approve crutches and bandages 
and canes?
    Mr. WEEMS. Well, those aren't ones that we competitively 
did.
    Chairman STARK. None of the supply? What about hospital 
beds?
    Mr. WEEMS. They do, I'm told. Yes.
    Chairman STARK. The FDA approves hospital beds? Imagine 
that.
    How does one judge the quality of refurbished or used 
equipment?
    Mr. WEEMS. The equipment has to be in good working order. 
It has to meet the standard of working for the beneficiary, 
and, you know, being of good quality.
    That's true today.
    Chairman STARK. I would entertain any of my colleagues if 
they'd like to further inquire. If not, we'll excuse you, Mr. 
Weems. Thank you for your considerable help in this issue and 
we will have our second panel.
    Mr. WEEMS. Thank you, Mr. Stark; pleasure to see you again, 
sir.
    Chairman STARK. All right. Hurry back.
    We are pleased to welcome Ms. Kathleen King, the Director 
of Healthcare Studies at the U.S. Government Accountability 
Office, affectionately known as GAO; Mr. Tom Ryan from the 
American Association for Homecare; Mr. Peter Thomas, the Health 
Task Force Co-chair at the Consortium for Citizens with 
Disabilities; and Mr. Thomas Hoerger, a senior fellow at the 
Research Triangle Institute International.
    We have your prepared testimony and without objection for 
each of you it will appear in the record in its entirety. If 
you would like to expand on it, change your mind or inform us 
in any way, please continue. We'll ring a bell here in about 5 
minutes and we can elicit more details from you in the question 
period that follows.
    Ms. King, would you like to lead off?

  STATEMENT OF KATHLEEN M. KING, DIRECTOR, HEALTH CARE, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. KING. Mr. Chairman, Members of the Subcommittee, thank 
you for inviting us here today to testify about GAO's work on 
Medicare payment for Medical Equipment and Supplies.
    A number of you have made references to our earlier work 
and we have in fact done a series of reports over the last 10 
years or so where we talked about cases where Medicare was 
overpaying of medical equipment and supplies.
    In one case in 2000, we reported that Medicare paid more 
than the median surveyed retail price for five categories of 
equipments, including eyeglass frames, catheters and two types 
of catheter insertion trays. I just point to that as one 
example of our work. So, my remarks today will be based on our 
previously issued work.
    We have said that competition is a fundamentally different 
way to pay for services and fee schedules based on historical 
charges and that competitive bidding; and, this has also come 
up today, difference from Medicare's usual practice of 
accepting any willing, qualified provider by selecting among 
providers based on established criteria such as price and 
quality.
    We believe that competition could reduce Medicare spending 
by creating an incentive for providers to accept lower payments 
in exchange for their ability to retain Medicare business and 
to increase market share. In the demonstration of competitive 
bidding that happened from 1999 to 2002, approximately 50 to 55 
percent of the bids from suppliers were accepted and the 
evidence suggests that competition helped lower payments 
resulted in estimated savings of 7.5 million from the Medicare 
Program and 1.9 million for beneficiaries who paid lower 
copayments.
    Based on the results of the demonstration, Congress enacted 
the permanent program for Medicare competitive bidding that's 
under discussion today; and, I think, I won't elaborate on all 
of the elements of that except a couple; and, one is that the 
accreditation process, which is new, and the fact that 
suppliers must submit financial documents that include income 
statements, credit reports and balance sheets.
    In our view, this additional scrutiny could help CMS screen 
out providers that are not stable or legitimate businesses, and 
it could help reduce the improper payment rate of 10.7 percent 
for medical supplies and equipment which is more than double 
that for other Medicare providers. But we have also said that 
the competitive bidding program raises concerns about accessing 
quality of care, because it could encourage providers to cut 
costs by providing lower quality of care or curtailing 
services.
    Therefore, we believe it's important and in fact adequate 
oversight of the program is critical. When we evaluated the 
competitive bidding demonstration, we made a number of 
recommendations to CMS, and that was that they monitor 
beneficiary satisfaction. That they set standards for providers 
to participate. That they provide beneficiaries with the choice 
of suppliers and that they select winning bids on the basis of 
quality in addition to price. One of the ways they could do 
that would be routine monitoring of beneficiary complaints, 
concerns, and satisfaction.
    I should point out to you and I know you have someone on 
the panel today form the independent evaluation. But the 
evaluation of the demonstration did not see any major adverse 
effects on access or quality of care. There were a few concerns 
raised. A decline in the use of portable oxygen among new users 
and a possible shift away from providers making home delivery.
    When you enacted the competitive bidding program, you also 
directed us to look at the impacts on suppliers, manufacturers 
and beneficiaries. We were directed to look at Access and the 
quality of items and services. We now have a team working on 
that and we have also been asked by the Committees of 
jurisdiction to assess Medicare's implementation of the 
competitive bidding program.
    Mr. Chairman, that concludes my prepared remarks 
[continuing]. I'd be happy to answer questions.
    [The prepared statement of Kathleen M. King follows:]
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    Chairman STARK. Mr. Ryan.

 STATEMENT OF THOMAS RYAN, AMERICAN ASSOCIATION FOR HOMECARE, 
 AND PRESIDENT AND CHIEF EXECUTIVE OFFICER, HOMECARE CONCEPTS, 
                              INC.

    Mr. RYAN. Good afternoon, Mr. Chairman, and distinguished 
Members of the Subcommittee. My name is Tom Ryan. I started in 
the home care industry as a respiratory therapist and have 
served patients in my community for 30 years. I'm the President 
and CEO of Homecare Concepts. It's a company I founded 20 years 
ago in Farmdale, New York, to provide respiratory and home 
medical equipment to people with medical conditions and 
disabilities. I appreciate the opportunity to testify about our 
very serious concerns regarding the competitive bidding 
program.
    I am speaking today on behalf of the American Association 
for Homecare, where I recently served as Chairman and currently 
serve as a member of the executive Committee. Our members 
operate home care practices that will be impacted by the 
competitive bidding program. I am concerned about the problems 
that have plagued round one of this program. My company is 
scheduled to be in round two of the bidding program.
    I will be blunt. This Medicare bidding program is a train 
wreck. But this program jumps off the tracks, the attitude of 
CMS is clearly let's go full steam ahead. The bidding program 
is poorly conceived, it's fundamentally flawed, and it does not 
account for the way home care providers currently compete for 
business. As a result of these flaws, the program has been 
plagued with problems since its inception. This program will 
drive people out of business. A large portion of high quality 
local home care providers will be driven out of business and 
they will no longer be able to serve the communities that 
they've been serving for years.
    The real tragedy is the negative impact on the Medicare 
beneficiaries. Problems with the design and operation of the 
bidding program will seriously reduce beneficiary access, the 
quality of care, and products that beneficiaries receive today. 
The program is not the free market miracle that some have 
characterized it to be.
    In light of these problems, the American Association for 
Homecare strongly urges Congress to immediately halt 
implementation of this program. We urge Congress to develop an 
alternative process that achieves not only accurate 
reimbursement rates for home medical equipment, but most 
importantly, ensures appropriate access to quality care for the 
Medicare beneficiaries.
    The bidding program will drive thousands of qualified 
providers out of the marketplace, and as a consequence severely 
limit the services available to millions of seniors and people 
with disabilities. Providers currently compete on the ability 
to improve quality. That's what attracts referral sources to 
give us business. The new Medicare bidding program will stifle 
that competition.
    There are multiple problems with various products subject 
to bid. I'll mention just a few. In the area of complex power 
wheelchairs, long-time consumers of customized wheelchairs will 
be forced to switch to new providers. For patients who rely on 
these specialty wheelchairs for daily activities, this is a 
drastic change.
    In the diabetic treatment area, diabetic patients will be 
forced to switch to different monitoring systems and supplies, 
which has serious implications for patient compliance. The same 
point is true for cancer patients who depend on enteral 
nutrition for tube feeding. As a result of the new Medicare 
policy for home oxygen therapy, disruptive changes in the area 
of home oxygen therapy are scheduled to take place very soon. 
The transfer of ownership of oxygen equipment and the 36-month 
payment cap go into effect on January 1st, 2009. This will 
cause confusion among beneficiaries and will reduce the level 
and quality of services. New bidding rules only complicate 
these problems.
    With respect to the impact on home care provides, 63 
percent of the accredited home care providers submitted bids in 
round one, and they were disqualified. Most of these 
disqualifications were for technicalities. A 63-percent 
exclusion rate is totally unacceptable, and we feel is a 
serious breakdown in the bidding program.
    Home medical equipment providers are overwhelmingly small 
to mid-size companies just like myself. We typically receive 50 
percent of our business from Medicare. The loss in the ability 
to serve these patients will result in widespread layoffs and 
business failures.
    The term ``competitive bidding'' is dead wrong. The bidding 
program will in fact radically reduce the number of accredited 
suppliers that are allowed to compete. The bidding program's 
widely touted savings are misleading. Small providers bid 
unreasonably low to have an opportunity to stay in the game, 
since the alternative was to go out of business. The fact that 
64 percent of the suppliers that were offered contracts were 
small validates. We believe the extraordinary low-bid rates 
will be unsustainable over a 3-year contracting period, and any 
savings will be at the expense of services to the beneficiary.
    Significant aspects of the development and implementation 
of this bidding program have been shrouded in secrecy. The lack 
of transparency, the unwillingness by CMS to share key 
information, mask deficiencies of the program and make it 
impossible to evaluate why CMS reaches various decisions. 
Moreover, CMS has rejected congressionally mandated working 
with the PAOC community. They have not worked with the PAOC 
community.
    There are 33 business days before round one of this program 
takes effect. The program would be a historic change affecting 
as many as three million beneficiaries in the first phase 
alone, yet Medicare has not even announced who has won the bids 
yet, leaving the education of providers and beneficiaries till 
the last minute.
    For this reason, the American Association for Homecare 
urges Congress to immediately halt the implementation of this 
program. The wide range of problems and questions about the 
program must be independently evaluated and an alternative 
process to determine payment rates for home medical equipment 
must be explored. The Association stands ready to work with 
members of this Committee and other Members of Congress 
immediately to address these issues.
    In closing, I want to remind you that home care is part of 
the solution to Medicare. It's not part of the problem. Thank 
you for your invitation to speak, and I would welcome any 
questions that you have.
    [The prepared statement of Thomas Ryan follows:]
        Statement of Tom Ryan, American Association for Homecare
    Good afternoon, Mr. Chairman and distinguished members of the 
Subcommittee. My name is Tom Ryan. I am a respiratory therapist and 
President and CEO of Homecare Concepts Inc., a respiratory and home 
medical equipment company based in Farmingdale, New York. I appreciate 
the opportunity to testify before you today about very serious concerns 
surrounding the Medicare DME competitive bidding program and the 
negative impact it will have on Medicare beneficiaries and homecare 
providers.
    I am speaking today on behalf of the American Association for 
Homecare (AAHomecare) where I served as chairman during 2006 and 2007 
and where I currently serve on its executive committee. AAHomecare is 
the national trade association representing both providers of durable 
medical equipment and manufacturers across the nation. The 
Association's membership reflects a broad cross-section of the homecare 
community including home medical equipment (HME) providers of all sizes 
operating in approximately 3,000 locations in all 50 states. I am also 
a member of the board of directors for the New York Medical Equipment 
Providers Association (NYMEP).
    AAHomecare works to strengthen access to high quality care for 
millions of Americans who require home medical equipment, services and 
therapies in their homes. Many of our member providers operate health 
care facilities and businesses in areas that are subject to the 
Medicare competitive bidding program. I am scheduled to be in Round Two 
of bidding by virtue of serving beneficiaries in the New York 
metropolitan area, but I have heard and seen in detail the first-round 
problems that have plagued this high-profile program. I am well aware 
of the bidding program's anticipated effects on both Medicare 
beneficiaries and suppliers.
Summary
    The Medicare bidding program is a poorly conceived and 
fundamentally flawed program that is now exhibiting many of the serious 
breakdowns that were predictable based on its failure to recognize and 
account for the true nature of the way home medical equipment is 
provided to Medicare beneficiaries. These breakdowns have been evident 
since the start of the Round One bidding process in early 2007, 
throughout the bid evaluation process, and right through the recent 
awarding of contracts. Design and operational problems in the bidding 
and contracting phase will seriously compromise beneficiary access and 
quality of care. The Association strongly urges Congress to immediately 
halt the implementation of this bidding program and develop an 
alternative process that achieves not only accurate reimbursement rates 
for home medical equipment but, most importantly, ensures good access 
to quality care for Medicare beneficiaries.
    The current bidding program will drive thousands of qualified HME 
providers out of the Medicare marketplace. One of the consequences will 
be limitations on services available to millions of seniors and people 
with disabilities. Nearly two-thirds (63 percent) of accredited, 
qualified homecare providers that submitted bids have been disqualified 
in the first round of bidding. Moreover, such a dramatic reduction in 
the number of homecare facilities will result in reduced access to home 
providers and the quality of services that they provide if this bidding 
program moves forward in its current form. Errors and flaws that have 
emerged in Round One of bidding will be embedded in the program if CMS 
rushes to implement Round Two in 70 additional areas in the months 
ahead.
    The Medicare Modernization Act mandated a competitive bidding 
program to establish market-based pricing for home-based equipment and 
care under Medicare. But because the bidding system will reduce the 
number of home medical equipment providers, it will needlessly 
eliminate thousands of qualified providers, reduce services to 
beneficiaries, and systematically dismantle the nation's homecare 
infrastructure.
    HME providers are overwhelmingly small to mid-sized practices that 
typically receive about 40-50 percent of their business from Medicare 
patients. The loss in the ability to serve this patient population will 
result in layoffs and many business failures. The term ``competitive 
bidding'' is misleading because CMS is radically reducing the number of 
suppliers that compete in a given area.
    The changes that will result from the bidding program will affect 
over three million beneficiaries who reside in Round One areas. CMS has 
indicated that if Round Two is implemented, approximately 50 percent of 
all Medicare beneficiaries requiring home medical equipment could be 
affected. The bidding program could also quickly affect all Medicare 
beneficiaries in the U.S. as early as January 1, 2009, when CMS will 
have the authority to apply bid pricing in non-bidding areas. The 
ability of CMS to apply bid pricing to non-bidding areas, especially 
rural areas with hard-to-reach patients, is clearly not market-based.
    For these reasons the Association urges Congress to immediately 
halt the implementation of this program until the wide range of 
problems and questions about the program can be independently evaluated 
and an alternative process to determine payment rates for home medical 
equipment can be explored. Without a pause in the implementation 
timeline to review serious concerns and examine alternatives, 
Medicare's home medical equipment benefit will be irreparably harmed.
Consequences of Bidding
Impact on Beneficiary Quality of Care
    Many Medicare beneficiaries who reside in bidding areas will likely 
see: (1) a reduction in the level of services they receive; (2) lower 
quality items that may not be tailored to their specific needs; and, 
(3) disruptions in continuity of care as they are forced to switch 
providers.
    Under the bidding program, suppliers are required to provide the 
same products to Medicare beneficiaries as they provide to non-Medicare 
patients, but only in situations where a physician specifically 
prescribes a certain product and brand. In all other cases, suppliers 
have the option to provide a range of products that fit within the 
physician's prescription. With the drastic reduction in reimbursement 
rates, there will be a diminution in the quality of goods and the level 
of service that suppliers have furnished in the past.
    Additionally, CMS has also awarded contracts to suppliers who 
currently have no physical presence in bidding areas. These suppliers 
have the following options. They can: (1) quickly form subcontracting 
arrangements with local suppliers, or (2) attempt to open a new 
location(s) to service beneficiaries residing within a bidding area. In 
either case, suppliers will have to make these changes in the next 60 
days because the program starts on July 1.
    In the complex power wheelchair marketplace, there are a number of 
problematic areas that will impact quality of care. A contract winner 
who is not currently located in the bidding area could attempt to form 
subcontracting arrangements. However, the Medicare allowable set 
through bidding is unlikely to financially support both the contract 
supplier and the subcontractor. Also, CMS accrediting bodies cannot 
necessarily guarantee that ``winning'' suppliers use exclusively 
accredited subcontractors. In its final rule on bidding, CMS stated 
that it will ``not evaluate subcontractors to determine if they meet 
the accreditation, quality, financial and eligibility standards because 
a subcontractor to a contract supplier cannot itself be a contract 
supplier and cannot submit claims under the Medicare DMEPOS Competitive 
Bidding Program.'' Moreover, these subcontracting suppliers could 
provide the beneficiary with a very inexpensive power wheelchair system 
that may not be as durable nor may it fully meet the beneficiary's 
needs, as complex power wheelchairs that are currently provided. 
Finally, CMS does not mandate that suppliers repair the complex power 
wheelchair they provide. Given the low payment rates for repairs, the 
Medicare beneficiary may very likely find him/herself unable to find a 
provider willing to repair the power wheelchair.
    CMS made decisions in the diabetic arena that are likely to 
jeopardize disease management services to Medicare beneficiaries. In 
the diabetes treatment area, CMS did not ensure that all bidders played 
by the same rules. First, it did not define a formulary and it did not 
apply the rules of bidding equally to all bidders. As a result, CMS may 
have significantly limited beneficiaries' range of choices of diabetes 
monitoring systems and supplies. Second, by excluding retail providers 
from the bidding process, CMS distorted and clearly undermined the 
objectives of competitive bidding by allowing more than one 
reimbursement rate for the same product in an area. This was not 
envisioned by Congress. This unprecedented policy is anti-competitive. 
Unless winning suppliers are providing the same or equivalent products 
or services as are provided today, patients may now turn to retail 
stores for their supplies, where the cost is greater and there is no 
Medicare savings. We believe that CMS should establish one 
reimbursement rate for a product in an area regardless of where it is 
purchased, at a fair rate that allows choice so that beneficiaries do 
not have to switch their systems.
    Over 20 million Americans currently live with diabetes, a serious 
and chronic disease. One in four Medicare patients suffers from 
diabetes and these beneficiaries account for 40 percent of Medicare 
spending. Given these statistics, it is imperative that we work to help 
patients more effectively manage their chronic disease. Reducing the 
likelihood that diabetes patients will be compliant in managing their 
disease should not be the bi-product of bidding.
    Prior to bidding being implemented, significant policy changes have 
been slated to take effect that will impact home oxygen beneficiaries. 
The transfer of ownership of oxygen equipment and the 36-month payment 
cap--which both go into effect on January 1, 2009--are very likely to 
cause confusion with beneficiaries and adversely impact the level and 
quality of service beneficiaries have come to expect. These issues will 
only be magnified with bidding and its additional set of rules. For 
example, a beneficiary who is in his/her 31st month on oxygen therapy 
with an advanced oxygen system who moves to a new geographic area is 
unlikely to find an oxygen provider willing to furnish the same level 
of technology that the beneficiary was previously using.
    There is also the real issue of suppliers being able to ramp up 
operations to meet significant new demand for medical equipment and 
services subject to bidding. While CMS has presumably selected enough 
suppliers to service an entire bidding area for each product category, 
contract suppliers are going to have to be prepared for a significant 
increase in demand for these items and services. Based on the 
information provided by CMS that identifies the number of contracts 
that were offered in each product category and each bidding area, 
contract suppliers could see an increase of 200-300 percent in the 
number of patients they are required to serve. Suppliers may be 
overwhelmed by the huge increase in volume, which their systems and 
infrastructure did not anticipate or may not be able to handle. This is 
especially true for suppliers who have never operated in bidding 
marketplaces prior to the implementation of this program. Contract 
suppliers that cannot meet demand are unlikely to provide the level of 
service that patients are accustomed.
    These changes will also impact manufacturers who provide suppliers 
with lines of credit, which allow them, in turn, to purchase home 
medical equipment. These manufacturers will experience significant 
chaos in the credit market. Good providers who lost bids will become 
instant bankruptcy risks for manufacturer creditors because they have 
no way to anticipate the impact of bidding on suppliers and their 
ability to meet payment obligations. It will also be difficult for 
manufacturers to provide winning suppliers with the credit they are 
seeking given the significant payment cuts. Credit from financial 
institutions for winning suppliers who need to increase their operating 
capacity to meet increased demand also may not be readily available as 
the financial markets have recently made lending much more difficult. 
As a result, it will be the beneficiary who may not be able to receive 
the same quality of items and services that were previously provided 
due to credit pressures.
Impact on Beneficiary Access to Care
    The Association is aware of some suppliers that were awarded 
contracts for certain product categories, which those same suppliers 
never before provided. In these circumstances, CMS has never outlined 
how it evaluated a supplier's self-reported plans to provide these new 
services. We also question how these suppliers could submit accurate 
bids for such services and items while also incorporating an unknown 
demand factor and operation costs into their bid calculation.
    Consider the range of beneficiaries that will be impacted by 
bidding effective July 1:

      More than 220,000 Medicare beneficiaries who currently 
rely on home oxygen therapy may experience a disruption of their 
service if their provider does not elect to ``grandfather'' existing 
patients, and tens of thousands of new patients prescribed the therapy 
will have severely limited access from July 1, 2008 forward. As these 
beneficiaries assume ownership of their equipment in January 2009, they 
may have to switch providers in order to obtain portable oxygen.
      143,000 beneficiaries currently receiving home-delivered 
diabetic supplies may be forced to switch providers by July 1 since 
there is no ``grandfathering'' provision. Small ``winners'' will be 
overwhelmed by the rush of patients to switch suppliers by CMS' 
deadline.
      10,000 beneficiaries currently receiving home enteral 
nutrition therapy may be forced to switch providers by July since there 
is no ``grandfathering'' provision.
      16,000 beneficiaries currently being treated at home for 
Obstructive Sleep Apnea (OSA) may have to switch providers as they 
assume ownership of their equipment under the Deficit Reduction Act 
(DRA).
      25,000 elderly beneficiaries currently relying on 
hospital beds to remain at home may have to switch if their providers 
do not ``grandfather'' due to pricing in one or more markets.

    Beneficiaries also are likely to face the prospect of coordinating 
care with multiple suppliers in bidding areas. Prior to bidding, a 
beneficiary's home medical equipment needs could be served by one 
supplier. Now, suppliers can only serve beneficiaries for items and 
services subject to bidding for which they have received a contract. If 
a beneficiary needs a hospital bed, a walker and oxygen therapy, the 
beneficiary may require care from three separate suppliers due to the 
mechanics of the bidding program.
    Few beneficiaries are aware that changes resulting from this 
program are imminent. If services and quality are reduced, if access is 
curtailed or beneficiary compliance diminishes--all likely outcomes 
from this program--Medicare costs will increase as patients require 
longer hospital stays, seek more frequent physician interaction and 
visit the emergency room.
Failure to Educate Beneficiaries, Referring Clinicians and Suppliers
    CMS has touted an extensive list of steps it has taken to educate 
the supplier community about competitive bidding. Nevertheless, 63 
percent of suppliers who attempted to participate were unable to 
navigate the bidding process and operational questions remain. Further, 
the supplier community, who has the most direct contact with existing 
beneficiaries that will be impacted by this program, has never been 
formally engaged by CMS to educate the beneficiary community on the 
changes that will result from bidding. To our knowledge, CMS has 
published only one pamphlet, in October 2007, to educate Medicare 
beneficiaries. This is for a program that is scheduled to go into 
effect in less than 60 days.
    Now that there are ``winners'' and ``losers'' because of the 
program, ``losing'' suppliers have no incentive to educate 
beneficiaries and ``winning'' suppliers are consumed with the prospect 
of ramping up their operations to handle a significant increase in 
demand for services.
    Once again it is the beneficiary that will suffer. Unfortunately, 
ensuring that three million beneficiaries in the 10 areas subject to 
bidding are educated on how the home medical equipment benefit will 
operate will be extremely difficult in the remaining days before this 
program goes into effect. Many Medicare beneficiaries who rely on or 
will need home medical equipment and services are the most frail within 
our health care system. Many do not have access to the internet. They 
are homebound. They are not able to attend public meetings like those 
held to educate beneficiaries about the Medicare Part D program.
Bidding Implementation Problems
    The Medicare bidding program is expected to immediately impact more 
than 4,500 home medical equipment companies in the first ten 
metropolitan statistical areas. Ultimately, only 1,005 unique supplier 
companies submitted bids to CMS for consideration. Of that, 630 
supplier companies were disqualified from consideration because of a 
failure to submit complete and accurate information--leaving a pool of 
only 375 companies for CMS to consider. Regardless of whether supplier 
packages were deemed complete or incomplete, we do not believe that any 
program where more than 60 percent of suppliers were disqualified 
should be considered a success and should move forward. These 
statistics point to a failure by CMS to properly educate suppliers 
about the bidding program and flaws within the internal bid submissions 
review process.
    The lack of supplier participation can be traced back to the 
initial bid submission period in May 2007. Suppliers in the 10 
metropolitan areas subject to bidding immediately encountered a wide 
range of significant problems.
    Suppliers found that the bid submission system was primitive, 
cumbersome and fraught with problems resulting in excessive data input 
time and loss of submitted data. Frequently, the system was non-
operational and inaccessible.
    The problems faced by suppliers during the bidding window were so 
significant that CMS extended the bidding window three times (two one-
week delays followed by a 60-day delay). Ultimately, however, we 
believe that some suppliers were unable to navigate the program and 
were unable to participate in the program.
    More procedural and operational flaws that threatened the integrity 
of the entire program became more readily apparent when CMS began 
informing suppliers whether they won a contract on March 21. These 
flaws include, among others: (1) the Competitive Bidding Implementation 
Contractor's (CBIC) inappropriate rejection of qualified bids due to 
misplaced or overlooked documentation that was properly and timely 
submitted by suppliers; (2) inappropriate disqualification of bids due 
to purported ``financial stability'' reasons, which neither the CBIC 
nor CMS has ever explained during or after the bidding process; (3) a 
seemingly arbitrary process regarding how the CBIC or CMS used 
providers' self reporting capacity to determine how many winning 
suppliers were needed for each market; and (4) extremely minimal 
information disclosed in terms of the calculation of the winning bid 
amounts and related results.
    The original ``request for bids'' rules on the CBIC's web site 
stated that the CBIC will inform suppliers of any deficient 
documentation; the original RFB rules said that, ``beginning 10 
business days before the bidding window ends, suppliers will be 
notified if there is any missing hard copy attachments.'' These rules 
were in place as of May 2007, and upon which suppliers relied as they 
navigated the cumbersome and confusing bid process. However, on 
September 13 (just prior to the closing date of (Sept. 25, 2007), the 
CBIC revised this RFB rule without any type of notice to the bidding 
community.
    Equally troubling, especially in light of an extraordinary 
disqualification rate of 63 percent, is that CMS has never delineated a 
process at any time in the development or implementation of this 
program by which suppliers who were disqualified would be able to have 
their cases reviewed. Subsequent to the mass disqualification of 
suppliers on March 21, the CBIC initially informed suppliers who 
questioned their disqualification that their cases would be reviewed 
for accuracy within 30 days. Recently, the CBIC has sent e-mail 
communication to some of these suppliers indicating that it would not 
be able to meet its stated review period. For others, the CBIC has just 
reaffirmed the original ``incorrect'' disqualification and left these 
suppliers, who have proof that they have been wrongly disqualified, 
with no avenue for a proper review of their supporting information.
Home Medical Equipment Supplier Impact
    The Association believes that the Medicare bidding program will 
radically change the HME marketplace if implemented in its current 
form. CMS will selectively contract with only approximately 300 unique 
supplier companies in the first 10 metropolitan areas under the fee-
for-service program. CMS' own statistics have shown that approximately 
4,500 unique companies reside in these 10 bidding areas. This would 
indicate that CMS intends to contract with approximately 7 percent of 
existing home medical equipment companies. Even if we only account for 
the unique companies that took part in the program--1,005 companies--
CMS is still threatening the financial viability of 70 percent of the 
otherwise qualified and accredited suppliers in the current homecare 
marketplace.
    The integrity of contract suppliers may also become a question 
since some suppliers who participated in the program submitted bids 
based on the assumption that they would be awarded contracts for 
multiple product categories subject to bidding. If, for example, a 
supplier submitted its bids expecting to be a contract supplier for 
multiple product categories but only ``won'' a contract for one product 
category, the supplier's long-term sustainability may be in question.
    Homecare has been shown to be the most cost-effective and patient 
preferred type of care provided to beneficiaries. As baby boomers 
retire and become eligible for the Medicare program, demand for home 
medical equipment is likely to increase. These beneficiaries will 
prefer the advancements in technology that allow them to live full 
lives in the home setting. Arbitrarily limiting the number of homecare 
companies that the market will support should be viewed as selective 
contracting, not competitive bidding.
Savings Questionable
    The bidding program designed by CMS is fatally flawed and its 
widely touted savings are misleading. Smaller suppliers were fearful 
that larger suppliers had a competitive advantage in the bidding system 
due to the ability of these larger suppliers to negotiate volume 
pricing with manufacturers. As a result, smaller suppliers believed 
they could only remain viable by bidding at levels that were 
extraordinarily low, but assumed that larger supplier bids would 
reflect accurate (higher) pricing and would increase the final Medicare 
single payment amount, thus, rationalizing payments.
    Essentially, small suppliers bid unreasonably low to have an 
opportunity to ``stay in the game'' since the alternative is to go out 
of business. The fact that a large percentage of suppliers offered 
contracts, 63 percent, were small suppliers validates this theory. 
Because so many small suppliers bid so low, these bidders came close to 
meeting the capacity projections; preventing many of the larger firms' 
bids from being considered. We believe the extraordinarily low bid 
rates will be unsustainable over a three-year contracting period.
    The argument that the pricing levels established through bidding 
are indicative of market pricing is unfounded. The bid system 
established an elaborate ``game'' with skewed incentives, resulting in 
prices that are not reflective of market pricing; but instead were 
based upon a desperate need to ``stay alive'' through the bid program.
    We anticipate that beneficiaries in the bid areas will receive 
lesser quality items and reduced services. Also problematic will be 
beneficiary disruption and confusion that will lead to additional 
program costs in the form of longer hospital stays, more frequent 
physician visits and care sought in emergency rooms. None of these 
factors has ever been identified by CMS in its presentation of savings 
that can be achieved through bidding.
Lack of Government Transparency
    The development and implementation of the bidding program have been 
shrouded in secrecy. The lack of transparency masks deficiencies of the 
program and makes it impossible to evaluate fully the way CMS reached 
its various decisions at every stage of the process. CMS' unwillingness 
to share basic information about the program raises serious questions 
about any future rounds of the program with respect to fair supplier 
selection and patient access to quality suppliers.
    CMS has not shared meaningful bidding data nor the methodology and 
criteria used to establish new Medicare payment rates and the criteria 
by which suppliers were evaluated. By refusing to release critical 
data, CMS is impeding an open assessment and dialogue with the public.
    How did CMS evaluate the financial stability of providers? How did 
CMS review a supplier's self-reporting capacity to meet the market's 
need? Did CMS properly calculate the single payment amount? What 
criteria did CMS use to evaluate bids and determine whether a bid was a 
``bone fide'' one? What process did CMS use to re-evaluate the bidding 
packages of suppliers who believe they were inappropriately 
disqualified from the program? These and other questions still remain 
unanswered and threaten the integrity of the bidding program.
Recommendations
    Due to the flaws, errors and questions that have plagued Round One, 
and will certainly carry through to Round Two, we urge Congress to 
immediately halt the implementation of this bidding program. The 
Association supports the implementation of a rational, alternative 
process to determine Medicare pricing for DME items and services.
    AAHomecare stands ready to work with members of this Committee and 
other members of Congress as early as today to address these complex 
challenges and ensure the provision of cost-effective and quality 
homecare to deserving Medicare beneficiaries.

                                 

    Chairman STARK. Thank you.
    Mr. Thomas.

 STATEMENT OF PETER W. THOMAS, ESQ., CO-CHAIR, CONSORTIUM FOR 
          CITIZENS WITH DISABILITIES HEALTH TASK FORCE

    Mr. THOMAS. Thank you, Mr. Chairman. My name is Peter 
Thomas and I'm being so bold today as to try to represent the 
voice of the Medicare beneficiary through the Consortium for 
Citizens with Disabilities. CCD is a coalition of 100 national 
disability-related organizations and includes some of the major 
disability groups in the country, including the Brain Injury 
Association of America, the United Cerebral Palsy Associations, 
the National Multiple Sclerosis Society and many others.
    Let me just take a moment to say that we've talked a lot 
about devices and products today. I just need to bring home to 
the Committee how vital these devices and services and items 
really are to beneficiaries across the board, across the 
Medicare Program, but especially for those with long-term needs 
with severe disabilities, with chronic conditions. These items 
and services and related devices are a lifeline to independent 
living and to functionality and to health care, good, solid 
health care.
    In addition to the senior population, of course, the 
Medicare program covers over six million people below the age 
of 65 that are only on the program because they have 
disabilities that permit them--or that do not permit them to 
work. I hope that this Committee and CMS really takes this into 
account in implementing the program.
    DMEPOS items and services disproportionally impact people 
with disabilities. This is a relatively vulnerable population 
in the Medicare program and assistive devices really mean a 
great deal for function and health care. The CCD groups have 
opposed competitive bidding since the beginning, in 1997 with 
the demonstration projects, in 2003 when the MMA passed, and of 
course now less than 2 months before it's being implemented.
    Under the current fee schedule, price is a constant, and 
suppliers compete on a range of other variables, including good 
service to patients, including being responsive to referral 
sources and physicians, and exercising good business practices. 
That's what competition is currently in the Medicare system for 
this benefit. When price becomes the sole determinant of who 
gets the contract, all of those other provisions become 
secondary. So, the CCD opposes competitive bidding for three 
main reasons: One, it will reduce choice, two, it will reduce 
quality, and three, it will reduce access.
    As to choice, choice of supplier, the competitive bidding 
program clearly reduces the choice of suppliers as a large 
number of longstanding, high quality providers did not receive 
bids. Thousands and thousands of people with disabilities will 
wake up on July 1st and have disruptions in their provider-
patient relationships, many of whom will not know the first 
thing as to how to address those new needs.
    Two, in terms of brand names. People with disabilities and 
chronic conditions often use brand names because they have 
particular needs or they have particular preferences that a 
particular brand of DME item or service will really address. So 
we are very concerned with shrinking margins and with lesser 
providers that you're going to have a restriction in the number 
and breadth of devices covered under the program.
    Number two is quality. We believe that there will be in 
fact a race to the bottom in the area of quality with respect 
to competitive bidding. You know, the ability to choose and 
move from provider to provider under the current system is an 
important quality assurance mechanism. If a beneficiary doesn't 
have a major interest in being restricted in their provider 
choice and would like to save some on copayments, they can join 
the Medicare Advantage plan. But if they're in the fee-for-
service plan, we feel strongly that they should maintain--have 
the right to choose their provider and the services that that 
provider provides.
    In terms of access, we also believe that the competitive 
bidding program will dramatically limit access to not only the 
number of suppliers, and in fact cause additional need to 
travel long distances and the like.
    So, we have a series of recommendations. The first would 
be, and our hope is to simply repeal or eliminate the 
competitive bidding program. We believe there are mechanisms 
that are currently in place that CMS has to adjust prices if 
they deem them unreasonable, and to use those existing 
authorities to adjust reimbursement levels when necessary. If 
competitive bidding is not repealed or eliminated, we do think 
that Congress should delay round one because of the concerns 
that I've raised in my testimony.
    If in fact that is not possible, certainly round two should 
be delayed, because round two is where you are able to learn 
what occurred in round one and hopefully apply those lessons 
learned.
    We do think that exempting specific, uniquely fitted and 
individualized items and services are extremely important, and 
so we do support the Medicare Access to Complex Rehabilitation 
and Assistive Technology Act, H.R. 2231, which would exempt 
seating, positioning, mobility devices and speech-generating 
devices from competitive bidding.
    Finally, let me also say that we think that there should be 
an opt-out provision for beneficiaries to choose to opt out of 
competitive bidding and simply pay the 20 percent of the fee 
schedule amount, at least in the first or second year of this 
program, to act as a real safeguard and a safety measure to 
ensure compliance with quality care.
    There is one other recommendation before I end, and that 
simply is for CMS to create a separate toll-free number and 
have an ombudsperson or people who are well qualified to answer 
these questions and address the concerns that we are sure are 
going to come to them on July 1st and beyond.
    Thank you very much.
    [The prepared statement of Peter W. Thomas follows:]
       Statement of Peter W. Thomas, Health Task Force Co-Chair,
               Consortium for Citizens with Disabilities
    Chairman Stark, Ranking Member Camp, and Members of the 
Subcommittee:
    Thank you for this opportunity to testify on Medicare's competitive 
bidding program for Durable Medical Equipment, Prosthetics, Orthotics, 
and Supplies (``DMEPOS''), scheduled to begin being implemented in less 
than two months from today.
    My name is Peter Thomas and I am an attorney with the law firm of 
Powers, Pyles, Sutter and Verville, P.C. I am here today representing 
the Consortium for Citizens with Disabilities (``CCD'') Health Task 
Force. The CCD is a coalition of over 100 national disability-related 
organizations working together to advocate for Federal public policy 
that ensures the self determination, independence, empowerment, 
integration and inclusion of children and adults with disabilities in 
all aspects of society. CCD members include the National Multiple 
Sclerosis Society, the Brain Injury Association of America, United 
Cerebral Palsy Associations, and United Spinal Association, to name a 
few. The CCD Health Task Force focuses on health care policy from the 
perspective of people with disabilities and chronic conditions and, as 
such, I am testifying today to bring forth the views of Medicare 
beneficiaries, particularly those with significant health care needs.
    I am also here as an individual with personal experience with a 
disability. My 34 years walking on artificial legs has demonstrated the 
vital role that assistive devices can play in the health, function, 
rehabilitation, and independent living of people with disabilities, 
including Medicare beneficiaries. And it is important to remember that 
in addition to seniors, the Medicare program serves the health care 
needs of over six million beneficiaries below the age of 65 who have 
become Medicare eligible due to a disability that is severe enough to 
prevent them from working.
    Many CCD member organizations opposed the Medicare DMEPOS 
competitive bidding program since 1997 when the competitive bidding 
demonstration projects were authorized by statute. The current 
competitive bidding program was authorized in the Medicare 
Modernization Act of 2003 (``MMA'') over the objection of many 
disability-related groups. Those same groups, and more, remain deeply 
concerned about the impact of this program on Medicare beneficiaries. 
This is because we believe this program disproportionately impacts and 
unfairly places at risk some of Medicare's most vulnerable 
beneficiaries--individuals with disabilities and chronic conditions. We 
fail to see why Congress and the Administration would single out vital 
assistive devices and technologies under the Medicare fee-for-service 
program to be provided by the lowest bidder when other benefits are not 
exposed to this potentially harmful practice.
    The hallmark of the Medicare fee-for-service program is patient 
choice of provider/supplier. Accessing the provider of choice is an 
important quality assurance mechanism, as any beneficiary can simply 
choose another qualified provider if their current provider is not 
meeting their needs. The current fee schedule makes price a constant 
variable and makes suppliers compete for Medicare beneficiaries by 
providing excellent service, meeting patients' needs, establishing 
reliable and long-standing relationships with physicians who refer 
patients to suppliers. When competitive bidding is employed, the sole 
variable becomes price, while service, patient satisfaction, patient 
choice, and access are presumed to be equivalent from one supplier to 
another. As such, the fee schedule amount of an assistive device may 
decrease, but so will the quality of care.
    This is particularly important to beneficiaries who have 
significant health care needs on an ongoing basis. If a beneficiary is 
not concerned about choice of provider and would prefer to spend a 
little less on copayments under Medicare Part B, they are free to 
choose to enroll in a Medicare Advantage plan. Policymakers who have 
concerns about the restrictions and disincentives in Medicare Advantage 
plans should not be in favor of extending these same principles to the 
Medicare fee-for-service program, as the current law will do.
    To date, the competitive bidding program has been largely viewed as 
a provider/supplier issue centered on the price that Medicare pays for 
durable medical equipment and supplies (``DME''). (Although competitive 
bidding generically applies to the DMEPOS benefit, all prosthetic limbs 
and most orthotic braces are exempt from competitive bidding due to the 
fact that they are highly customized to the patient and require 
significant clinical services.) Although CCD and other consumer groups 
have long opposed competitive bidding, it has been the DME/home care 
industry that has been most vocal on this issue. However, as we now 
begin to see the details of implementation of this program and the 
real-life impact that these enormous changes in the benefit will have 
on beneficiaries, we feel that the consumer voice needs to be 
amplified.
    CMS is about to begin a massive experiment and individuals with 
disabilities and chronic conditions are the unwitting participants. The 
public awareness of this program is extremely low and we are convinced 
that many thousands of Medicare beneficiaries with long term 
disabilities and chronic conditions will awake on July 1st to find that 
they no longer have access to their trusted DME supplier. These 
beneficiaries will have to start anew with another supplier, one who 
may be less convenient and less familiar with beneficiaries' specific 
needs. We as consumers must underscore at this point that assistive 
devices and technologies are not interchangeable, luxury items, but, 
instead, are essential tools with which we create independent lives. In 
our opinion, experimenting with the quality of and access to these 
devices is risky and simply not reasonable.
    That being said, we are not opposed to adjusting Medicare 
reimbursement levels for items and services to make them more 
reasonable for beneficiaries. And we recognize the benefits to 
consumers of lower reimbursement levels in the form of reduced co-
payments. However, there are currently mechanisms in place for CMS to 
adjust reimbursement levels, such as the inherent reasonableness 
process. It is our strong belief that the modest decreases in co-
payments that will result from the competitive bidding program simply 
do not outweigh the price that beneficiaries with disabilities and 
chronic conditions will pay in the form of reduced access, quality, and 
choice.
    Although CCD does not support competitive bidding, we do support 
the Medicare Modernization Act's requirements that DMEPOS suppliers 
become accredited and meet certain quality standards in the provision 
of care. These requirements are vital to help ensure that all 
beneficiaries receive the highest quality devices and technologies to 
meet their medical and functional needs.
CCD Concerns with Competitive Bidding for DMEPOS
    Although there has been a significant lack of beneficiary education 
from CMS leading up to the roll out of this program, the CCD Health 
Task Force is beginning to hear from members and numerous other 
stakeholders regarding the potential threats to assistive devices and 
technologies under this program. As a result, we have objectively 
analyzed the program and I will summarize our current concerns.
    Decrease in the Quality of Devices, Products, and Technologies: CMS 
estimates that, on average, the price Medicare will pay suppliers for 
the targeted products is 26% lower than current payment rates. These 
dramatic price reductions provide disincentives to suppliers to offer 
the highest quality devices and products. The likely decrease in the 
quality of assistive devices and technologies, especially highly 
individualized or complex devices and technologies, threatens the 
ability of the beneficiary to be as functional and independent as 
possible. Additionally, the use of improper equipment could result in 
related medical complications (e.g. bed sores, shoulder injuries) for 
the individual and the costs of treating these complications will 
likely diminish significantly the cost savings from competitive 
bidding. Furthermore, because many private payors take their 
reimbursement cues from Medicare, we expect that individuals with 
private insurance will eventually face many of the same quality issues 
as Medicare beneficiaries when competitive bidding is implemented.
    Access to Related Services: Often individuals with significant 
disabilities such as spinal cord injuries, cerebral palsy, multiple 
sclerosis, and amyotrophic lateral sclerosis (``ALS''), require 
assistive devices that must be fitted and/or programmed to meet their 
individual needs. In addition, technology assessments, home 
evaluations, and other specialized services are regularly performed in 
order to ensure that the appropriate equipment is provided. Suppliers 
often have 24-hour hotlines for emergency service and strive to 
maintain quick turn-around times on repairs. With the significant 
decrease in reimbursement to suppliers for the competitively bid items 
and, from what we understand, the inexperience of many of the potential 
contract suppliers to provide the benefits they have been selected to 
provide, CCD members are extremely concerned that these related 
services will either be restricted or no longer available to consumers.
    We would like to make clear that time-consuming services provided 
to beneficiaries such as fittings, refittings, evaluations, 
programming, repairs, etc., are not optional services, but instead, are 
vital to the safe and effective use of many assistive devices and 
technologies.
    Access to Suppliers: It is our understanding that suppliers, when 
bidding, offered CMS an estimate of the percentage of the population in 
a metropolitan statistical area (``MSA'') that they believed they would 
be able to serve. CMS then used these estimates to determine which 
suppliers would be offered Medicare contracts without, apparently, 
conducting any independent verification of these supplier estimates. It 
is also our understanding that CMS expected approximately 15,000 bids 
to be submitted for the first round of the program but received just 
5,000. We also understand that across the 10 MSAs, CMS only offered 
1,300 contracts to suppliers, even though they expected to award 9,000. 
We expect the result to be a significant decrease in the number of 
suppliers available to Medicare beneficiaries and CCD is very concerned 
that this decrease, combined with the unverified manner in which CMS 
has determined the number of suppliers necessary in each MSA, will 
result in serious access problems.
    For example, Lisa is a Medicare beneficiary with quadriplegia who 
uses a custom seating and positioning system to promote proper posture 
and preserve skin integrity while using her wheelchair. She currently 
receives services at a specialized seating clinic, often the only 
setting where a beneficiary in need of specialized seating systems can 
be served properly. However, the suppliers that serve the seating 
clinic were not offered a contract by CMS under the competitive bidding 
program and, as a result, Lisa will loose access to the comprehensive 
``team'' approach available only at this type of clinic. Instead, she 
will have to travel ten miles farther to the next appropriate supplier 
who will not be able to provide services using this team approach. It 
is important to note that many individuals will also face the new and 
difficult burden of physically accessing a new supplier who is located 
much farther from their home or in a location that is more difficult 
for them to access. For individuals with severe disabilities, this new 
burden cannot be underestimated.
    Impact on Beneficiary-Supplier Relationships: Many Medicare 
beneficiaries may wake up on July 1st to find that they can no longer 
purchase items from their supplier with whom they have worked for many 
years. Many suppliers have detailed knowledge of their patients' 
disabilities and related conditions, and a history of providing them 
with the most appropriate devices to meet their needs. These long-
standing beneficiary-supplier relationships could be considered one of 
Medicare's best defenses against fraud and abuse and an important 
quality indicator; however, many of these relationships will be broken 
as a result of the competitive bidding program.
    For example, John, a power wheelchair user, had a spinal cord 
injury when he was in high school and has been going to the same 
supplier, located just four blocks from his home, for over 20 years. 
This supplier has detailed knowledge of his disability and related 
conditions such as prior decubitus ulcerations, contractures, and 
``overuse syndrome'' in his shoulders, all conditions secondary to his 
disability. As a result, this supplier has a history of providing John 
with the most appropriate wheelchair and related accessories to meet 
his changing needs. However, because this supplier was not selected as 
a contractor in the Medicare competitive bidding program, as of July 
1st, John will have to start all over with a new supplier. The new 
supplier has no historical knowledge of his particular disability and 
related needs, does not carry the specific brand of wheelchair he has 
used for years, and is located more than five miles from John's home.
    Access to Brand Name Devices: Individuals who use assistive devices 
will tell you that consumer preference for a specific brand is an 
important factor when determining the most appropriate device. 
Competitive bidding will force many individuals to switch to new 
suppliers who may not offer the same brands of devices that they are 
accustomed to using. A forced substitution in brand could significantly 
impact the functional level of an individual, thereby impacting their 
health and functional status.
CCD's Policy Recommendations to Congress
    Congress intended the competitive bidding program to be phased-in 
over a several-year period by 2010. Unfortunately, because CMS fell 
behind in the implementation of the first round, the agency has 
accelerated the implementation of the second round, to be implemented 
in 70 MSAs next year, in order to meet the 2010 statutory deadline. 
This accelerated timeline means that CMS will be expanding competitive 
bidding virtually nationwide with very little data on the impact of the 
program on Medicare beneficiaries. It also leaves little time for 
Congress to act to protect consumers.
    For the reasons stated in this testimony, we urge Congress to 
eliminate DMEPOS competitive bidding entirely so as not to subject 
Medicare beneficiaries, especially those with disabilities and chronic 
conditions, to a system that compromises access, quality, and choice. 
CMS currently has at its disposable mechanisms to adjust prices when 
Medicare reimbursement levels are deemed unreasonable, and it should 
use those existing authorities to adjust reimbursement levels when 
necessary.
    If competitive bidding proceeds to be implemented, we urge Congress 
to delay implementation of the first round of DMEPOS competitive 
bidding until significant flaws in the selection process and number of 
suppliers are addressed and until safeguards are in place to protect 
the consumer.
    We urge Congress and CMS to delay the second round of DMEPOS 
competitive bidding in order to allow CMS and stakeholders appropriate 
time to assess and address the impact of the first round on all 
Medicare beneficiaries, especially people with disabilities and chronic 
conditions.
    We strongly support Congressional efforts to exempt items from 
competitive bidding that must be uniquely ``fitted'' and individualized 
for the specific user. CCD supports the Medicare Access to Complex 
Rehabilitation and Assistive Technology Act (H.R. 2231/S. 2931), 
legislation to carve-out complex assistive technology and devices such 
as seating, positioning, and mobility devices and speech generating 
devices from the competitive bidding program, with the goal of 
protecting appropriate access.
    We urge Congress and CMS to allow beneficiaries with disabilities 
and chronic conditions to keep their current supplier under the 
competitive bidding program in order to ensure continued quality and 
choice of supplier. One method may be to allow Medicare beneficiaries 
to ``opt-out'' of the competitive bidding network and continue 
accessing their supplier of choice at the Medicare DMEPOS fee schedule 
amount. Quality would be ensured as consumers would have the right to 
pay less under competitive bidding or continue to pay a higher 
copayment with their long-standing suppliers. Considering the potential 
for significant disruptions in service if the first round of 
competitive bidding proceeds on July 1st, this proposal seems 
imminently reasonable, at least for the first year or two of 
implementation.
    We urge CMS to establish a separate toll-free number and 
ombudsperson for beneficiaries to use regarding competitive bidding 
questions and concerns. Consumers will have numerous and important 
questions regarding the changes in the DMEPOS benefit and a specific 
toll-free number and access to an ombudsperson are important safeguards 
in implementation of this program. Such a dedicated toll-free number 
would also allow Congress to more accurately monitor the impact of 
competitive bidding on Medicare beneficiaries.
Reforming Competitive Bidding in a Difficult Fiscal Environment
    CCD usually does not address Medicare reimbursement issues 
involving providers and suppliers unless the policy proposals at issue 
impact access to quality care. DMEPOS competitive bidding is such a 
case and, in this difficult fiscal environment and with the 
implementation date for competitive bidding looming, we offer the 
following thoughts.
    First, any and all alternatives to competitive bidding that are 
considered by Congress, if designed to be budget neutral, should ensure 
that beneficiaries are not harmed by compromised access, quality, and 
choice.
    Second, if Medicare DME fee schedule adjustments are to be made as 
an alternative to competitive bidding, we would argue that such 
adjustments must be confined to the range of DME items subject to 
competitive bidding, rather than an across-the-board fee schedule 
adjustment. For instance, prosthetic limbs, orthopedic braces, and a 
range of other DMEPOS items are not included in competitive bidding and 
they should not be affected if Congress decides to adjust certain fee 
schedules to make budget neutral changes to competitive bidding.
Conclusion
    CCD is very concerned that competitive bidding will significantly 
threaten access to and quality of assistive devices and technologies 
that are essential components of the health and independence of 
individuals with disabilities and chronic conditions. We call on 
Members of Congress and the Administration to delay implementation of 
the program and initiate appropriate safeguards to ensure that 
individuals with disabilities are not harmed by the upcoming changes in 
this important benefit.
    I thank you for this opportunity to testify before the subcommittee 
and welcome your questions.

                                 

    Chairman STARK. Thank you, Mr. Thomas.
    Dr. Hoerger.

STATEMENT OF THOMAS J. HOERGER, PH.D., SENIOR FELLOW, RESEARCH 
             TRIANGLE INSTITUTE (RTI) INERNATIONAL

    Mr. HOERGER. Mr. Chairman and Members of the Committee, I 
am pleased to appear before you today. My name is Thomas 
Hoerger. I'm a Senior Fellow at RTI International and also 
Director of the RTI-University of North Carolina Center of 
Excellence in Health Promotion Economics. RTI International is 
an independent nonprofit research organization that performs 
research for the U.S. Government and private sector clients. 
Since 1991, I have led a series of studies on competitive 
bidding for Medicare Part B services. All these studies were 
funded by CMS. In one of these studies, my colleagues and I 
evaluated the impact of Medicare's competitive bidding 
demonstration for DMEPOS. After the evaluation, I led an RTI 
project to provide technical assistance to CMS on the design 
and implementation of the DMEPOS competitive bidding program. 
That project ended in August 2007, thus I'm aware of the 
general design of the bidding program, but I have no direct 
knowledge of specific issues relating to how the suppliers were 
selected.
    Today my comments focus on our evaluation of the DMEPOS 
competitive bidding demonstration as well as on the potential 
value of using competitive bidding to set prices for DMEPOS. 
The demonstration project took place in two metropolitan 
statistical areas between 1999 and 2002 with two rounds of 
bidding taking place in Polk County, Florida and one round of 
bidding taking place in San Antonio, Texas.
    We evaluated the impact of the demonstration on Medicare 
expenditures, beneficiary access to care, quality of care, 
competitiveness of the market, and the reimbursement system. 
Our full evaluation report was included as part of the required 
report to Congress on the demonstration project and is 
available for downloading from the RTI website.
    Briefly, we reached the following conclusions. Competitive 
bidding produced lower prices, leading to lower allowed charges 
for the Medicare Program and reduced copayments by 
beneficiaries. We estimated that the demonstration reduced 
Medicare allowed charges by 9.4 million or 19 percent.
    The demonstration had relatively little effect on 
beneficiary access, quality and product selection. 
Beneficiaries remained as satisfied with their suppliers as 
they were before the demonstration. The estimated reductions in 
program expenditures exceeded the estimated costs of 
implementation.
    Because the demonstration reduced allowed charges, supplier 
revenues had to fall, and that result was probably viewed 
negatively by suppliers in general. Overall, we concluded that 
the impacts of the demonstration were largely positive.
    Looking more broadly at the use of competitive bidding for 
DMEPOS, the basic rationale for competitive bidding is 
relatively simple. Ask suppliers how much they are willing to 
accept in payment for providing DMEPOS to beneficiaries. Then 
offer contracts to those suppliers offering the lowest prices, 
ensuring that enough suppliers who are accredited are selected 
to serve all beneficiaries. Thus, in principle, competitive 
bidding gives suppliers strong incentives to reveal their 
underlying costs and meet accreditation and quality standards 
and allow CMS to select suppliers who can provide DMEPOS 
products most efficiently, thereby using program funds and 
taxpayer dollars in the most prudent way.
    Although the basic rationale for competitive bidding for 
DMEPOS is simple, implementing competitive bidding is more 
complicated. As they say, the devil is in the details, and 
there a lot of details when it comes to implementation. In the 
interest of time, I will only mention three of the most 
important issues.
    First and foremost is quality. The biggest concern with 
competitive bidding is that after offering low prices, winning 
bidders will provide low-quality products and little or no 
service to beneficiaries. Congress and CMS have attempted to 
address this issue by requiring accreditation for all DMEPOS 
suppliers serving Medicare, both in competitive bidding and in 
other areas. With this accreditation, specific quality 
standards are also imposed for each product category.
    Finally, multiple suppliers were selected in each bidding 
area and product category. Thus, suppliers will need to provide 
quality in order to attract beneficiaries.
    Second, in selecting winning bidders, CMS must take great 
care to ensure that enough suppliers are selected to serve the 
Medicare beneficiaries in an area. This requires CMS to 
carefully balance beneficiary access and program expenditures, 
because selecting more suppliers would cause the winning bid to 
increase. Or, conversely, if you try to keep the winning bid to 
low, access may be reduced. It is important to achieve the 
right balance.
    Third, suppliers should be treated fairly in the bidding 
process. This means providing adequate information about the 
program and the bidding process and general information about 
how bids will be evaluated. However, CMS cannot release the 
proprietary bids of individual suppliers.
    I would be happy to answer any questions. Thank you for 
your time.
    [The prepared statement of Thomas J. Hoerger follows:]
Statement of Thomas J. Hoerger, Ph.D., Senior Fellow, Research Triangle 
                     Institute (RTI) International
    Mr. Chairman and Members of the Committee, I am pleased to appear 
before you today to provide you with information on research I have 
performed on Medicare competitive bidding programs for Part B services.
    My name is Thomas J. Hoerger. I am a Senior Fellow at RTI 
International and also director of the RTI-University of North Carolina 
Center of Excellence in Health Promotion Economics. RTI International 
is an independent, nonprofit research organization based in North 
Carolina that performs research and technical services for the U.S. 
Government and private sector clients.
    Since 1991, I have led a series of six studies on the design, 
evaluation, and implementation of competitive bidding for Medicare Part 
B services. All of these studies were funded by the Centers for 
Medicare & Medicaid Services (CMS). In one of these studies, my 
colleagues and I evaluated the impact of Medicare's competitive bidding 
demonstration for DMEPOS. After that evaluation, I led an RTI project 
to provide technical assistance to CMS on the design and implementation 
of the DMEPOS Competitive Bidding Program. That project ended on August 
31, 2007; thus, I am aware of the general design of the bidding program 
but I have no direct knowledge of specific issues relating to how 
suppliers were selected in the first round of bidding for the program.
    Today, my comments focus on our evaluation of the DMEPOS 
competitive bidding demonstration as well as on the general potential 
value of using competitive bidding to set prices for DMEPOS.
Evaluation of the DMEPOS Competitive Bidding Demonstration
    The demonstration project took place in two metropolitan 
statistical areas between 1999 and 2002, with two rounds of bidding 
taking place in Polk County, Florida and one round of bidding taking 
place in San Antonio, Texas. We evaluated the impact of the 
demonstration on (1) Medicare expenditures, (2) beneficiary access to 
care, (3) quality of care, (4) competitiveness of the market, and (5) 
the reimbursement system. Data sources for the evaluation included site 
visits and telephone discussions with key demonstration participants, 
focus groups, surveys of beneficiaries and providers, bid analysis, and 
claims analysis.
    Our full evaluation report was included as part of CMS's required 
Report to Congress on the demonstration project and is available for 
downloading at http://www.rti.org/pubs/DMEPOS--final-report.pdf. 
Briefly, we reached the following conclusions.

      Competitive bidding produced lower prices, leading to 
lower allowed charges for the Medicare program and reduced copayments 
by beneficiaries. We estimated that the demonstration reduced Medicare 
allowed charges by $9.4 million, or 19%. Medicare program expenditures 
fell by about $7.5 million, and beneficiary payments fell by about $1.9 
million.
      The demonstration had relatively little effect on 
beneficiary access, quality, and product selection. Beneficiaries 
remained as satisfied with their suppliers as they were before the 
demonstration.
      The estimated reductions in program expenditures exceeded 
the estimated costs of implementation.
      Because the demonstration reduced allowed charges, 
supplier revenues had to fall, and that result was probably viewed as a 
negative effect by suppliers in general. As expected, demonstration 
suppliers gained market share as a group, while nondemonstration 
suppliers lost market share.

    Overall, we concluded that the impacts of the demonstration were 
largely positive.
The Rationale for Competitive Bidding
    Looking more broadly at the use of competitive bidding for DMEPOS, 
the basic rationale for competitive bidding is relatively simple: ask 
suppliers how much they are willing to accept in payment for providing 
DMEPOS to beneficiaries. Then offer contracts to those suppliers 
offering the lowest prices, ensuring that enough suppliers who are 
accredited and follow predetermined quality standards are selected to 
serve all beneficiaries. Thus, in principle, competitive bidding gives 
suppliers strong incentives to reveal their underlying costs and meet 
accreditation and quality standards, and allows CMS to select suppliers 
who can provide DMEPOS products most efficiently, thereby using program 
funds and taxpayer dollars in the most prudent way.
    Although the basic rationale for competitive bidding for DMEPOS is 
simple, implementing competitive bidding is more complicated. As they 
say, the devil is in the details, and there are a lot of details when 
it comes to implementation. In the interest of time, I will only 
mention 3 of the most important issues.
    First and foremost is quality. The biggest concern with competitive 
bidding is that after offering low prices, winning bidders will provide 
low-quality products and little or no service to beneficiaries. 
Congress and CMS have attempted to address this issue by requiring 
accreditation for all DMEPOS suppliers serving Medicare, both in 
competitive bidding areas and in other areas. With this accreditation, 
specific quality standards are also imposed for each product category. 
Finally, multiple suppliers were selected in each bidding area and 
product category. Thus, suppliers will need to provide quality in order 
to attract beneficiaries.
    Second, in selecting winning bidders, CMS must take great care to 
ensure that enough suppliers are selected to serve the Medicare 
beneficiaries in an area. This requires CMS to carefully balance 
beneficiary access and program expenditures, because selecting more 
suppliers will cause the winning bid to increase. It is important to 
achieve the right balance.
    Third, suppliers should be treated fairly in the bidding process. 
This means providing adequate information about the program and the 
bidding process and general information about how bids will be 
evaluated. However, CMS cannot release the proprietary bids of 
individual suppliers.
Additional Details on the Evaluation
    The Evaluation of Medicare's Competitive Bidding Demonstration for 
DMEPOS was conducted by the University of Wisconsin-Madison Center for 
Health Systems Research and Analysis and RTI International under CMS 
Contract No. 500-95-0061. Authors of the final evaluation report 
included Sara Karon, Thomas Hoerger (Project Director), Shulamit 
Bernard, Kevin Tate, Richard Lindrooth, Teresa Waters, and Kay Jewell.
    Selected key results from the evaluation, taken from the Executive 
Summary, include the following:
Medicare Expenditures
      In Polk County, Round 1 demonstration prices were lower 
than the existing Florida fee schedule for at least 90% of all items in 
4 product categories. For surgical dressings, most demonstration prices 
were higher. Almost all Round 2 demonstration prices were lower than 
the Florida fee schedule.
      In San Antonio, demonstration prices were lower than the 
existing Texas fee schedule for all items in 4 product categories. In 
the remaining category, more than half of the demonstration prices were 
lower.
      For most demonstration items, the demonstration did not 
have a statistically significant effect on utilization.
      Assuming that the demonstration had no impact on 
utilization, we estimate that the demonstration reduced allowed charges 
in Polk County by $4.7 million during its 3 years of operation. We 
estimate that the demonstration reduced allowed charges in San Antonio 
by $4.6 million during its 23 months of operation.
      Combining savings from both sites, we estimate that the 
demonstration reduced allowed charges by nearly $9.4 million (19.1 
percent). Medicare expenditures (defined as allowed charges less co-
payments and deductibles) fell by about $7.5 million, and beneficiary 
payments fell by about $1.9 million.
Beneificiary Access
      Beneficiary survey data showed few statistically 
significant demonstration impacts on access-related survey measures in 
Polk County and San Antonio. This suggests that the demonstration had 
little overall impact on beneficiary access in these sites.
      In Polk County, most demonstration suppliers chose to 
serve every zip code in Polk County. Similarly, in San Antonio, most 
suppliers chose to serve all three counties in the demonstration area.
      The transition to demonstration prices and suppliers 
passed relatively smoothly in Polk County and San Antonio. The smooth 
transitions appeared to be related to the existence of transition 
policies and the willingness of nondemonstration oxygen suppliers to 
continue serving their patients. As a result, there was relatively 
little disruption of existing relationships between suppliers and 
beneficiaries during the transition.
      Our Polk County beneficiary survey analysis detected a 
statistically significant decline in the provision of portable oxygen 
equipment and an increase in conserving device usage among new users 
under the demonstration. We also detected a decline in maintenance 
visits among new users of medical equipment in the demonstration area. 
Other statistically significant impacts in Polk County included changes 
in the ways beneficiaries order and receive their equipment, as well as 
declines in some types of training for urologicals and surgical 
dressings users.
      In contrast, beneficiary surveys in Texas indicate that 
the demonstration did not have a significant impact on portable oxygen 
and conserving device use in San Antonio, nor was there a decline in 
maintenance visits for new users of medical equipment.
      To further evaluate the impact of the demonstration on 
portable oxygen use in Polk County, we analyzed claims data. This 
analysis indicates that the demonstration had a negative and 
statistically significant impact on the percentage of new oxygen users 
who received portable oxygen, especially during Round 2. However, the 
negative impact was smaller in magnitude than the impact suggested by 
the beneficiary survey.
      Referral agents who ordered equipment and supplies for 
their patients reported a few problems with access during the first 
months of the demonstration. Agents later became more familiar with 
demonstration rules and demonstration-eligible suppliers, and began 
using suppliers with whom they were comfortable. In general, referral 
agents did not think that the demonstration had a negative impact on 
beneficiaries' access to care, but the agents believed this was due to 
the additional responsibilities they assumed to ensure access and 
quality.
Quality and Product Selection
      Users of oxygen and other medical equipment in Polk 
County and San Antonio were highly satisfied with their experiences 
with their DMEPOS suppliers. Survey data show that overall satisfaction 
ratings were high before the demonstration and remained high 1 year 
after implementation.
      Survey data indicate that quality of DMEPOS products and 
services was high before and after the demonstration in both Polk 
County and San Antonio. There were few statistically significant 
demonstration impacts on quality-related survey measures, suggesting 
that the demonstration had little overall impact on quality.
      During site visits to Polk County in Round 1, concerns 
were raised about the quality of urological supplies. Some suppliers 
believed that--partly through supplier inexperience--prices in Round 1 
were set too low. Prices rose in Round 2, and a urological supplier 
with a strong reputation was added as a demonstration supplier.
      During site visits to San Antonio, referral agents 
reported a number of issues related to wheelchair service provided by 
some demonstration suppliers. Some suppliers did not provide the level 
of service expected by referral agents in terms of equipment setup and 
delivery, initial fitting and adjustments, and responsiveness to 
problems. Agents responded by cutting referrals to these suppliers and 
by taking increased responsibility for ensuring quality service to 
their patients.
      San Antonio suppliers reported on product selection in a 
supplier survey. Most suppliers reported little change in the products 
they supplied before and after the demonstration began.
Competitiveness of the Market
      Thirty suppliers submitted a total of 71 bids in Polk 
County in Round 1 of the demonstration. Sixteen suppliers, both large 
and small firms, were selected as demonstration suppliers. Twenty-six 
firms submitted a total of 52 bids for the four product categories in 
Round 2, and 16 suppliers (62 percent) were awarded demonstration 
status. The number of firms submitting bids for urological supplies in 
Round 2 fell from 9 to 7, and the number of suppliers bidding for 
surgical dressings fell from 8 to 4. These product categories had the 
fewest Round 1 demonstration suppliers.
      Entry into and exit from the market were still possible 
in the presence of competitive bidding. Half of the Round 2 
demonstration suppliers in Polk County also had demonstration status in 
Round 1, but half did not.
      Seventy-nine firms submitted a total of 169 bids for the 
five product categories in San Antonio. Overall, 65 percent of the 
suppliers that submitted bids won demonstration status in at least one 
product category.
      As a group, demonstration suppliers gained market share 
during the demonstration, whereas nondemonstration suppliers lost 
market share. In product categories where there were transition 
policies that allowed nondemonstration suppliers to continue to serve 
existing customers, the increase in market share for demonstration 
suppliers occurred gradually.
      The demonstration had relatively little effect on market 
concentration.
      As expected, individual suppliers generally gained market 
share if they were demonstration suppliers and lost market share if 
they were nondemonstration suppliers. Some demonstration suppliers in 
Polk County, gained substantial market share. However, being named as a 
demonstration supplier did not guarantee increased market share. In San 
Antonio, many demonstration oxygen suppliers had little or no increases 
in market share due to the fact that many of the largest suppliers in 
the predemonstration period were granted demonstration status.
Reimbursement System
      From an operational standpoint, CMS and Palmetto GBA were 
able to successfully implement the demonstration project. The project 
team was able to effectively solicit, collect, and evaluate bids; 
educate suppliers, referral agents, and beneficiaries; monitor quality 
and behavior; and administer claims throughout the demonstration.
      Although the overall implementation was successful, not 
everything went perfectly. A flaw in the weighting system used to 
evaluate bids in Round 1 of the Polk County demonstration led to higher 
prices in the surgical dressings category. In San Antonio, CMS delayed 
the start of the demonstration by 1 month, and delivery of the 
demonstration directories was delayed until very close to the actual 
starting date. Such problems were relatively minor and reflect one of 
the benefits of conducting demonstration projects: the ability to learn 
from the demonstration and apply the lessons if the demonstrated system 
is adopted on a wider scale.
      For the entire demonstration, CMS and Palmetto GBA costs 
of implementation totaled about $4.8 million between 1995 and 2002. The 
costs of implementing the demonstration were nearly 50 percent lower 
than the projected $9.4 million reduction in Medicare allowed charges 
associated with the demonstration.
Administered Fee Schedules for DMEPOS
    Previously, Medicare used an administered fee schedule to set 
DMEPOS prices. The fee schedule was based on historical DMEPOS prices, 
with periodic updates for inflation, occasional price fees mandated by 
legislation, and occasional price reductions for items that were 
believed to be overpriced. Since the fee schedule was established, 
DMEPOS products have experienced great technological change, 
utilization has increased dramatically, labor costs have risen, and the 
cost of delivering many DMEPOS products has increased. As a result, 
there is little reason to believe that the administered fee schedule 
reflects the prices that would be set in a perfectly competitive market 
for DMEPOS products.
    It can be difficult to adjust an administered fee schedule to 
reflect market forces. The administrators of the fee schedule lack 
information to know when costs have risen or fallen and they typically 
lack authority to make changes to the fee schedule. Suppliers have no 
incentive to say when the costs of providing DMEPOS have fallen, and a 
strong incentive to say that costs have risen. The Government 
Accountability Office (GAO) has conducted a series of studies 
concluding that Medicare pays too much for selected DMEPOS items. The 
industry has responded, sometimes with good reason, that the prices 
cited by the GAO do not reflect the full cost of serving Medicare 
beneficiaries.

                                 

    Chairman STARK. Thank you. We're going to just question for 
about 10 minutes and we'll at that point happily have to 
adjourn the hearing. But I have one principal question.
    I want to thank the witnesses for their patience and their 
willingness to provide us with this information, but I'm 
afraid, Mr. Ryan, that you're stuck. I don't think you'll get 
any quarrel from anybody on the dais today that the system is 
flawed. As a matter of fact, somewhere between flawed and 
lousy, and it's unimportant. Fault in that case is a useless 
concept.
    But to the extent that we're going to change it, the 
Congressional Budget Office, who is a fiddler to whom we have 
to dance here, has said that a 1-year delay in round one would 
lose $3.5 billion in projected savings, or as we look at, if 
we're going to have a 1-year delay, we've got to come up with 
$3.5 billion in savings. Over 5 years, the current program is 
north of $6 billion over the next 5 years.
    Now we ain't going to take that out of kiddies' health 
insurance, and we ain't going to take that out of the 
hospitals, and the doctors already gave at the office. So, my 
question to you is, is your industry prepared to have their 
fees adjusted downward to the extent of $3.5 billion over five 
or $6 billion more likely, if we get rid of this bidding 
process? That's the bind you're in.
    Mr. RYAN. Mr. Chairman, I understand we're in a PAYGO 
environment and we need--we're in a PAYGO environment, and we 
do need to look at alternatives. As I said, yes, the industry 
is ready and willing today to sit and talk about alternatives.
    We gave at the office quite a bit as well. If you look at 
the history of what this industry has given back----
    Chairman STARK. I've heard it.
    Mr. RYAN [continuing]. Has been significant. We also have 
to understand that the 26 percent savings that Mr. Weems talks 
about is unrealistic. That is just unrealistic.
    Chairman STARK. Mr. Ryan, all that's well and good. We have 
to--if we are going to solve this legislatively, and we may 
not, we're going to have come up with 6 billion bucks over 5 
years. You know the drill. The question is, is your industry 
willing--we just write a bill. We say, Mr. Secretary, cut out 
the bidding and come up with the cost savings through adjusting 
price structure. Are you willing to live with that?
    Mr. RYAN. Mr. Chairman, the industry is willing to work 
with this Committee, and, yes, we're willing to see if we 
cannot come up with a savings projection.
    Chairman STARK. Uh-uh. Uh-uh. Uh-uh. Six billion bucks. I 
mean, I know you're willing to work with us. My question is, 
are you willing to come up with the $6 billion----
    Mr. RYAN. Yes.
    Chairman STARK [continuing]. To get rid of the bidding 
system?
    Mr. RYAN. Yes.
    Chairman STARK. Great. That's--I think we can do business. 
Mr. Camp.
    Mr. THOMAS. May I please make a statement?
    Chairman STARK. Pardon?
    Mr. THOMAS. Mr. Chairman, may I please say a word?
    Chairman STARK. Sure.
    Mr. THOMAS. The CCD usually does not engage in finding 
offsets and talking about payment issues as they impact 
suppliers, but in this instance, because these discounts are so 
deep, wherever it does impact access, we do tend to speak up. 
The only two principles that we would suggest that if you do 
move in that direction, that we would hope that whatever 
discounts or offsets are found obviously do not impact quality 
choice and the beneficiary, and also that they be----
    Chairman STARK. We'd direct the Secretary to do that and 
Dr. Hoerger would make a plan to see that it didn't happen.
    Mr. THOMAS. Fair enough.
    Chairman STARK. Mr. Camp.
    Mr. CAMP. Well, I--thank you, Mr. Chairman. Frankly, you 
asked the exact question I was going to ask, and I know we're 
running up against a vote, and so I don't think I need to 
repeat it, but that is exactly my concern in terms of what we 
do with the PAYGO problem that we're facing. I was going to ask 
in a more open-ended way how we might get out from under this, 
and I think that's something that you can provide us later, but 
the fact that you've admitted your willingness to support this 
PAYGO result I think is important. So, I thank you for stepping 
up. I thank you all for your testimony, and I would just yield 
back.
    Chairman STARK. Mr. Tiberi.
    Mr. TIBERI. Thank you, Mr. Chairman. To Mr. Ryan, what's 
the average size of your members of your association employee-
wise?
    Mr. RYAN. Our average member probably is in about a $3 
million range.
    Mr. TIBERI. How many employees?
    Mr. RYAN. Are you talking about my company or the 
association? I'm sorry.
    Mr. TIBERI. The members of the association, companies like 
yours that are members of the association.
    Mr. RYAN. Well, my particular company has 52 employees. 
We're a $6 million company.
    Mr. TIBERI. How many members are members of the 
association, how many companies?
    Mr. RYAN. Five hundred.
    Mr. TIBERI. What's the average? Is 52 the average or 25?
    Mr. RYAN. I would say it's in the area of 30 to 40 perhaps. 
Eighty-5 percent are considered small, and according to----
    Mr. TIBERI. Thank you. Thank you.
    Mr. RYAN [continuing]. Five million. I'm sorry, sir.
    Mr. TIBERI. Would you say that 100 percent of the members 
of this organization share your concern? Ninety percent? 
Seventy-five percent?
    Mr. RYAN. I believe that 100 percent of the members of my 
association share the concerns about national competitive 
bidding and the access to quality. I do believe that, sir.
    Mr. TIBERI. Thank you. I know we have limited time. Thank 
you, Mr. Chairman, for holding this hearing today.
    Chairman STARK. I want to thank my colleagues and the 
witnesses. It's arguably a program where the numbers are 
significant but there seems to be some impetus to see if we 
can't revise the system. I want to thank you, Mr. Ryan, because 
we are faced with rules. Mr. Camp and I might have written the 
rules differently, but we didn't write them. There is no other 
way. We're boxed into this. It would be better if CMS would 
cooperate with us, but they may not, in which case we're faced 
with meeting these budgetary requirements. We'll do our best, 
and I'm not sure of the legislative schedule being what it is 
this year that we'll be able to resolve it this year. 
Hopefully, we will because the more it expands across the 
country, the bigger the problem it will be. So I'd like to find 
a way to see if we couldn't get a resolution to this early on. 
Appreciate your industry. I appreciate representation of the 
consumers. It's important. GAO has got some more information to 
give us. We'll look forward to that. Dr. Hoerger, I think 
you're going to probably get another consulting contract before 
this is all done. We'll put you back to work, and thank our 
witnesses for participating, and the hearing is adjourned.
    [Whereupon, at 3:31 p.m., the hearing was adjourned.]
    [Questions for the Record follow:]
    Questions posed by Mr. Johnson to Kathleen M. King
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    Questions posed by Mr. Johnson to Thomas J. Hoerger

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    Questions for the record posed by Mr. Stark, Mr. Kind, and 
Mr. Johnson to Kerry Weems

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    [Submissions for the Record follow:]
                       Statement of David Soblick
    I am writing on behalf of the Accredited Medical Equipment 
Providers of America and also on behalf of my organization, Life 
Quality Home Health Care, Inc and Pharmacy 18, Inc.
    I am writing to address some major concerns related to the Medicare 
DMEPOS Competitive Bidding Program and the standpoint CMS has taken 
relative to these concerns.
    The issue at hand I am referring to is the erroneous 
disqualification of 63% of qualified bidders due to the poor 
implementation and mismanagement of the entire program on behalf of 
CMS' contractor Palmetto GBA, LLC. (CBIC)I would like to shed some 
light on the manipulation of application rules by the CBIC, Palmetto 
GBA, LLC and their gross negligence in regards to the program.
    Additionally, I would like to bring to your attention CMS's poor 
and inaccurate analogy purported to congressional staffers concerns 
about the program during the H.H.S Briefing in Rayburn B-318 on 
Tuesday, April 22, 2008.
    When asked repeatedly why they did not inform applicants of the 
supposed missing documentation per the original bidding rules, on CMS 
staffer used the anaolgy of making an application to college.
    ``Colleges either accept your application or they reject it, they 
do not call you to let you know that you didn't put something in.'' 
They added, ``All of the applicants are big boys and they know they are 
supposed to meet the requirements.''
    This rationale is not only illogical, it is completely false. I 
took it one set further just to debunk CMS's analogy some more.
    I contacted some admissions offices of various institutions, 
University of Miami, N.C State, University of Florida, and Southern 
Methodist University in Texas.
    These schools receive on average 30 to 50 times the amount of 
applications versus the 1,005 bid packages received by CBIC.
    They informed me that as with all applicants, ``applicant status 
reports'' are routinely mailed out throughout the application period to 
inform applicants of any change to an applicants file including:

      Change of Information,
      Receipt of New Information (test scores, transcripts, 
etc.), and
      Missing information (lack of pertinent information 
necessary for evaluation.)

    They further confirmed that when information is missing in an 
applicants file, they are notified numerous times via email and regular 
mail, that in order for their application to be properly evaluated by 
admission staff, they must submit the necessary items prior to the 
application deadline.
    To further apply this to CBIC logic and the original Rules for 
Bidding Instructions, CBIC had every opportunity and ability to 
properly notify bidders if information was truly missing. Furthermore 
the bidding deadline was extended twice, giving the CBIC an extra 60 
days for evaluation and notification of missing information.
    It is analogies like the one referenced above that parallel the 
poor rationale and illogical blueprint for the entire Medicare DMEPOS 
Competitive Bidding Program.
    I urge the Ways and Means Committee to examine the original biddin 
g rules that were modified 12 days before the window closed to excuse 
contractual responsibility for notifying bidders of missing information 
in their bid packets. We firmly believe that the 63% of disqualified 
bidders could have been greatly reduced if not eliminated, had CBIC 
properly managed the implementation of the Competitive Bidding Program.
            Sincerely,
                                                      David Soblick
                                 Life Quality Home Health Care, Inc
                                          5180 West Atlantic Avenue
                                             Delray Beach, FL 33484
                  Accredited Medical Equipment Providers of America
                                  20815 N.E. 16th Avenue-Suite B-32
                                                    Miami, FL 33179
                                                       305-654-5957
                                                       www.amepa.us
                                                       infoamepa.us

                                 

 Statement of Accredited Medical Equipment Providers of America, Letter
Dear Members of the Ways and Means Committee,

    I am writing to have a representative from our organization, the 
Accredited Medical Equipment Providers of America, Inc., speak at the 
Hearing HL-24. The issue at hand is the Competitive Bidding for Durable 
Medical Equipment, Orthotics, Prosthetics and Supplies. We have over 
100 members that feel that they have been disqualified erroneously or 
have failed to win a bid due to the poor implementation of the program 
by the Competitive Bidding Implementation Contractor, Palmetto GBA, 
LLC.
    There have been several problems with this new bidding process; 
from manipulation of application rules, the rejection of standard 
REGFLEX policies as required by law and the erroneous disqualification 
of 63% of the applicants with no ability to appeal. Senators, 
Congressmen and senior legislative staff have identified these problems 
as ``gross negligence'' by the Center for Medicare and Medicare 
Services (CMS). The results of which will be a limiting of access by 
patients to much needed care, unqualified companies will be providing 
incomplete services and major metropolitan areas will be grossly 
underserved during times of emergency. In addition 17,000 to 21,000 
gainfully employed Americans will lose their jobs.
    I have included the following attachments and would like to discuss 
the following developments:

    1)  A provider from Texas, which has won the Oxygen Category in 9 
Metropolitan Statistical Areas, never provided the item before outside 
of their own area. According to Florida State records, the company is 
not licensed by Florida's Agency for Healthcare Administration as a 
Home Medical Equipment Provider. The Bid Winner does not have a License 
to deliver Oxygen from the State's Accredited Medical Equipment 
Providers of America 20815 N.E. 16th Avenue--Suite B-32; Miami, FL 
33179; 305/654-5957; Fax 1-866-322-2060; www.amepa.us Department of 
Health either. I am not sure that the company has an Occupational 
License in the State either.
    2)  The first line in the Rules For Bid (RFB) states that ``All 
suppliers must--meet any local or state licensure requirements, if any 
for the item being bid'' Clearly this bid winner did not meet the 
requirements for the bid he won in Miami and Orlando. I also believe 
that it was not the intent of Congress to allow something like this to 
happen.
    3)  According to the Rules For Bid (RFB) companies were required to 
prove that they could cover the complete geographical area of the MSA 
prior to bidding. The attachment proves this Bid Winner did not have 
any subcontract agreements in place before they bid, as they are 
currently fishing for providers to do their work.
    4)  This bid winner and other out of state bid winners should 
clearly not win the bid for oxygen and CPAP. Their bid should be 
disqualified for not meeting proper licensure requirements. When their 
bid is disqualified, their bid price should be removed form the 
Composite Bid and all of the pricing would be affected and other bid 
losers should take their place.
    5)  Another attachment is from a bid winner in Miami and Orlando. 
This winner has changed their policy and as of April 1, 2008 (not July 
1, 2008) they are refusing to deliver a commode or other bath safety 
products unless the order accompanies Oxygen or another rented item. 
Providers currently compete in the market by providing equipment at a 
low margin in order to keep the referral source happy. Now the bid 
winner does not have to compete for business and is refusing to provide 
these Medicare covered items which are not subject to the bid as they 
are considered inexpensive. If the Bid winner will not provide these 
bath safety products then who will provide them?
    6)  This proves that the program will limit the patient's access to 
care. If the patient cannot get their prescribed medically necessary 
equipment from a bid winner they are unlikely able to get the equipment 
else where as the typical Medicare patient that needs a commode cannot 
travel to a store to purchase a 24 inch by 24 inch by 24 inch item on 
their own. It also typically does not fit in a standard compact or mid-
size automobile.
    7)  This patient will most likely not pay for the equipment to be 
delivered for an additional fee. The patient may likely not get the 
prescribed equipment at all. It is questionable that this patient may 
have a home fall due to the lack of proper equipment and that would put 
extra costs and utilization in Medicare part A programs such as 
Hospital, rehab and or future Home Health nursing.
    8)  This also brings into question the ability to discharge the 
patient from the hospital in a timely manner. As liability issues may 
not allow for the patient to be discharged without the proper home 
medical equipment in place. This will also create increased costs and 
utilization for Medicare Part A. The program may save money in Medicare 
Part B but again will increase costs for Medicare Part A. Accredited 
Medical Equipment Providers of America

                                 

    Statement of American Council on International Personnel, Letter
Dear Chairman McNulty and Members of the Subcommittee:

    Thank you for the opportunity to submit comments for the hearing on 
Employment Eligibility Verification Systems and the Potential Impacts 
on SSA's Ability to Serve Retirees, People with Disabilities, and 
Workers.
    American Council on International Personnel (ACIP) is an 
organization comprised of approximately 200 corporate and institutional 
members with an interest in the movement of personnel across national 
borders. Each of our members employs at least 500 employees worldwide, 
and in total, ACIP members employ millions of United States citizens 
and foreign nationals in all industries throughout the United States. 
ACIP sponsors seminars and produces publications aimed at educating 
human resource and legal professionals on compliance with immigration 
and employment verification laws, while working with Congress and the 
Executive Branch to facilitate the movement of international personnel.
    The College and University Professional Association for Human 
Resources (CUPA-HR) provides global leadership to the higher education 
human resources profession and the higher education community by 
offering essential knowledge, resources and connections that enhance 
individual and institutional capacity and competitiveness.
    HR Policy Association brings together the chief human resource 
officers of more than 250 of the largest corporations in the United 
States. Representing nearly every major industry sector, HR Policy 
members have a combined market capitalization of more than $7.5 
trillion and employ more than 18 million employees world wide
    The National Association of Home Builders (NAHB) is a trade 
association that helps promote the policies that make housing a 
national priority. NAHB exists to represent the building industry by 
serving its members and affiliated state and local builders 
associations.
    National Association of Manufacturers (NAM) mission is to advocate 
on behalf of its members to enhance the competitiveness of 
manufacturers by shaping a legislative and regulatory environment 
conducive to U.S. economic growth and to increase understanding among 
policymakers, the media and the general public about the vital role of 
manufacturing in America's economic and national security for today and 
in the future.
    The Society for Human Resources Management (SHRM) is the world's 
largest association devoted to human resource management. Representing 
more than 245,000 individual members, the Society's mission is both to 
serve human resource management professionals and to advance the 
profession.
    The above-named organizations share the common goal of creating an 
effective and efficient electronic employment verification system. E-
Verify, a voluntary pilot program since 1986, has provided valuable 
experience on the challenges that will confront any mandatory 
electronic verification system. For example, this pilot project has 
given us insight into the wide-variety of worksites and employment 
situations that must be accommodated, the time commitments and 
documentation required to resolve discrepancies, and the resources 
required by employers to train personnel to implement and maintain a 
compliant system. We believe the New Employee Verification Act (NEVA) 
(HR 5515) represents the next generation of electronic verification. 
NEVA builds upon the lessons learned from the pilot project but changes 
some fundamental aspects to ensure that any mandatory system meets the 
needs of both the government and employers. The following are the 
reasons we believe NEVA is a superior solution over simple mandatory 
expansion of E-verify.
NEVA Builds Upon Existing Programs in Which 90% of Employees are 
        Already Enrolled.
    According to the Department of Homeland Security (DHS), only 62,000 
of the nation's approximately 7 million employers are enrolled in E-
Verify. DHS notes that 2,000 employers are enrolling every week. These 
statistics belie the grave challenges in enrolling all U.S. employers. 
With less than 1% of employers currently enrolled, even at a rate of 
5,000 employers per week, it would take over 25 years to enroll all 
current U.S. employers! The problem of enrolling employers is 
illustrated in Arizona, which mandated E-verify use by all employers as 
of January 1, 2008. Despite the fact that businesses can lose their 
license for failing to use E-verify, fewer than 15% of employers have 
enrolled.
    NEVA avoids the tremendous burden of enrolling virtually all 
employers in a new system by building upon an existing system that has 
proven its effectiveness--the National Directory of New Hires. Over 90% 
of employers currently report new hires to this system which is used to 
check for child support enforcement. While modifying the National 
Directory of New Hires for this new purpose would admittedly require 
resources, the burden would be much less than expanding the current E-
Verify pilot program. Resources could be devoted to improving the 
databases instead of educating employers on enrollment. Employers have 
been participating in their states ``new hire'' database since 1986 and 
are already familiar with the processes and procedures for reporting 
necessary information. NEVA would utilize information in the new hire 
database to determine if a new employee's information is consistent 
with information maintained by SSA or by DHS.
NEVA Provides the Resources to Fix the Database Problems that Hamper E-
        Verify
    Our associations represent thousands of employers who desire a 
reliable system for determining who is authorized to work in the United 
States. Mistakes and delays in this process could prove to be costly 
for a number of employers and employees who are caught in the system. 
The current system, if mandatory, could prove to be unreliable in terms 
of providing employers with an effective and efficient electronic 
employment verification system.
    In 2006, SSA's Inspector General issued a report estimating that 
there are discrepancies in approximately 17.8million (4.1 percent) of 
the 435million social security records. These errors include incorrect 
social security numbers, names, dates of birth and citizenship status. 
A recent report compiled by the CATO Institute, and using the estimates 
from SSA's Inspector General, determined that a mandatory electronic 
employment verification system would result in 11,000 workers per day 
receiving a tentative non-confirmation throughout a given year (based 
on an average of 55 million hew hires per year).
    Furthermore, according to a Government Accountability Office (GAO) 
report released last year, ``resolving some DHS non-confirmations can 
take several days, or in a few cases even weeks.'' As more employers 
enroll, this timeframe is likely to get longer. As GAO noted, the 
expansion of E-Verify will ``affect the capacity of the system because 
of the increased number of employer queries.''
    NEVA takes several steps to resolve these database errors so that 
employers and employees will have fewer tentative non-confirmations to 
resolve. First, NEVA provides for advanced appropriated funds and 
staffing to clean up the databases. This will benefit not only work 
authorization, but also the other government programs that rely on 
these databases for information. Second, NEVA requires SSA and DHS to 
certify the accuracy of the system in advance of full implementation 
and annually thereafter. Finally, NEVA requires the GAO to evaluate the 
accuracy, efficiency and impact of the employment verification system. 
These checks in the system will ensure that employers are not hamstrung 
by a system that does not enable them to hire U.S. citizens and other 
legal workers with ease and certainty.
NEVA Is Truly ``Electronic''
    There is a great deal of misunderstanding about our current 
``electronic'' pilot program which is really not an all ``electronic'' 
system. While E-Verify requires employers to submit an inquiry via the 
internet to confirm work authorization, an employer can submit this 
only after it has completed the Form I-9 and examined one or more of 24 
paper-based documents to establish identity and work authorization. 
Employers must retain two sets of records--the electronic one and the 
Form I-9 (which can be maintained in paper, on microfiche or 
electronically). Some proposals would expand this dual-recordkeeping by 
requiring employers to keep photocopies of the documents examined and 
to record the electronic approval or denial number on the Form I-9. All 
of these steps cost employers time and money and open the possibility 
for recordkeeping mistakes.
    NEVA brings recordkeeping into the twenty-first century by creating 
a truly ``electronic'' verification system that eliminates the Form I-9 
(known as the Electronic Employment Verifications System (EEVS). In 
addition, NEVA provides flexibility and easy accessibility for all 
employers by allowing electronic inquiries over the internet and 
telephone and builds upon a database that is already used by many 
employers.
NEVA Protects Against Identity Theft
    One of the acknowledged weaknesses of E-Verify is that it cannot 
detect stolen identities. Thus, if an undocumented worker presents 
legitimate but stolen or forged documents that contain the identity of 
a U.S. citizen, the worker will appear to be work-authorized, duping 
the employer into hiring and training someone who may ultimately be 
deported.
    NEVA addresses this problem by allowing employers to elect to 
participate in a program that makes identity theft extremely difficult. 
The Secure Electronic Employment Verification System (SEEVS) enables 
employers to send newly hired employees to government certified private 
companies that will authenticate their identities through the use of 
publicly available databases. An employee's identity is temporarily 
``locked'' with a biometric tool until work authorization is verified 
by the government. Many employers are willing to pay for this 
additional assurance, particularly where it builds upon other 
background screening they are already doing.
    Individuals could also benefit from this more secure system. Under 
EEVS or SEEVS, employees could choose to ``lock'' their identity and 
their social security number, thus making it very difficult for anyone 
to steal their information.
    SEEVS is a more advanced system than the photo screening tool 
currently piloted by DHS. It does not require employers to make 
subjective determinations by visually comparing a scanned photo to a 
paper document. Furthermore, it does not require integration with state 
driver's license or Federal passport databases. The photo tool is 
currently limited to verifying the authenticity of Lawful Permanent 
Residents or individuals with Employment Authorization Documents that 
contain a photo which comprise a very small percentage of the 
workforce. Efforts to expand this tool to driver's licenses and 
passports will take years.
NEVA Preempts the Patchwork of State Employment Verification Laws
    Frustrated with Congressional inaction on immigration reform, a 
growing number of states are mandating the use of E-verify for 
employers or contractors, and the list continues to grow. The expanding 
patchwork of state employment verification laws is causing many 
problems for human resource managers and employers struggling to 
maintain consistent and compliant practices across the country. Federal 
relief is needed.
    Many states are exploiting the current INA provisions under 8 USCA 
1324 (a)(h)(2) on employment practices. While the language preempts 
``any State or local law imposing civil or criminal sanctions (other 
than through licensing and similar laws) upon those who employ, or 
recruit or refer for a fee for employment, unauthorized aliens,'' 
states like Arizona have been using the ``licensing exception'' 
language to mandate the use of the E-Verify system--a system that is 
not ready for large-scale expansion. NEVA clarifies that immigration is 
solely the purview of the Federal Government by establishing a clearer 
preemption standard that protects both employers and employees from a 
patchwork of state laws.
    Our organizations strongly support a uniform national policy 
towards employment verification. The employers we represent want an 
efficient, effective, and powerful electronic tool to prevent 
unauthorized employment. We need strong reform that is realistic and 
workable. That is why we, the listed associations, support HR 5515, the 
New Employee Verification Act (NEVA).
    Thank you for your attention and consideration of our association's 
views.

                                 

            Statement of American Hospital Association (AHA)
    On behalf of our nearly 5,000 member hospitals, health systems and 
other health care organizations, and our 37,000 individual members, the 
American Hospital Association (AHA) appreciates the opportunity to 
provide a statement for the record on Medicare's Durable Medical 
Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive 
Bidding Program.
    In an effort to reduce Medicare's costs for DMEPOS, the Medicare 
Modernization Act of 2003 directed the Centers for Medicare & Medicaid 
Services (CMS) to establish a competitive bidding process for these 
products and services. The AHA supports potential congressional efforts 
to allow hospitals to participate in the Medicare DMEPOS program but to 
be excluded from the bidding process. This would allow hospitals to 
continue to provide equipment and supplies directly to their patients 
during a hospital stay and upon discharge to their homes and 
communities.
    While the AHA supports the broad goal of Medicare's competitive 
bidding program, we remain concerned that the implementation of certain 
CMS regulations will restrict the ability of many hospitals to meet 
their patients' DME needs in a clinically comprehensive and timely 
manner. To avoid this problem, hospitals wish to continue participating 
in the DMEPOS program by accepting the price set through the 
competitive bidding process, without being required to submit a bid. 
This approach would treat hospitals in the same manner in which 
physicians are treated under the DMEPOS competitive bidding program. It 
recognizes that, unlike DMEPOS vendors, both physicians and hospitals 
are health care providers primarily focused on treating patients.
    This would allow hospitals to continue serving their patients 
without interfering with the DMEPOS prices set through the competitive 
bidding process and, therefore, would avoid adding costs to the 
Medicare program.
    This proposal would benefit patients who need DMEPOS, as well as 
patient education and support on the proper use of the DMEPOS. This is 
especially critical for medically complex patients who need more 
advanced DMEPOS to be able to return home safely. Large DME vendors 
place less emphasis on the training, education and ongoing technical 
support needed for this type of DMEPOS, instead preferring to focus on 
achieving the most cost-efficient methods of delivering high-volume 
DMEPOS. Without being able to rely on the hospital for comprehensive 
DMEPOS services, patients who need more customized care and specialized 
DMEPOS might not be discharged as directed by the treating physician in 
a timely fashion. In addition, the lack of comprehensive patient and 
caretaker education and technical support could result in the 
inappropriate and unsafe use of DMEPOS.
    To ensure that beneficiaries have timely access to DMEPOS and 
comprehensive service, we urge you to support legislation to allow 
hospitals to continue participating in the Medicare DMEPOS program 
without submitting a bid, thereby benefiting Medicare patients without 
adding cost to the program.
    We thank you again for the opportunity to submit a statement for 
the record on Medicare DMEPOS Competitive Bidding Program and look 
forward to collaborating further on this important issue.

                                 

              Statement of American College of Physicians
Mr. Chairman and Members of the Committee:

    We appreciate the opportunity to submit this statement for the 
record and will limit our joint comments to addressing two requirements 
established by the Medicare Modernization Act (MMA) in the Competitive 
Acquisition for Certain Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) that are problematic for the members 
of each of our organizations.
    First let us note that our organizations appreciate that the 
Centers for Medicare & Medicaid Services (CMS) exempted physicians and 
``treating practitioners'' from having to participate in the 
competitive bidding program when they provide certain specified DMEPOS 
to their own patients as part of their professional services, and when 
the items are billed using a billing number assigned to these 
practitioners.
    We are concerned, however, with two requirements that could have an 
adverse impact on Medicare patients. First, we believe that requiring 
physicians and licensed health care professionals (hereafter referred 
to as health care professionals) to be accredited in order to continue 
supplying DMEPOS when treating patients is both financially and 
administratively burdensome.
    Second, we believe that CMS is inconsistent in its application of 
competitive bidding requirements for health care professionals for such 
items as off-the-shelf orthotics (OTS), crutches, canes, walkers, 
eyeglasses following cataract surgery, and folding manual wheelchairs 
when provided as part of their professional service.
    The clinical judgment and expertise of health care professionals is 
critical for selecting, sizing, and fitting DMEPOS, as well as 
educating patients on their use. Many patients require immediate access 
to such items for immobilization, injury support, facilitation of safe 
mobility, or post-surgical recovery. It is unsafe and clinically 
inappropriate to delay or deny a patient's access to items such as 
orthotics, eyeglasses, or ambulatory support devices, or to send a 
patient out of a practitioner's office without the necessary DMEPOS.
Accreditation
    In the MMA, it appears there is no recognition that health care 
professionals who supply DMEPOS integral to patient care are wholly 
dissimilar from suppliers who furnish DMEPOS products to the public as 
their primary source of income. There is also a lack of recognition 
that health care professionals not only prescribe appropriate items of 
DMEPOS, but must frequently and expertly dispense and educate patients 
on their use at point of treatment.
    As a result, CMS has made relatively few accommodations for the 
more than 38,000 physicians who currently have DMEPOS supplier numbers, 
as required by CMS, in promulgating supplier accreditation standards. 
Health care professionals are not in the business of providing DMEPOS 
to the public as a business, and we believe it is unwarranted and 
unreasonable to require them to be accredited in order to provide the 
patient services for which they have been educated, trained, and 
licensed.
    Furthermore, as of March 1, 2008 Medicare required health care 
professionals who are either new to the program or are existing 
suppliers looking to open a new practice location to become accredited 
prior to obtaining a national supplier clearinghouse (NSC) number. This 
requirement is unduly burdensome and unjust to health care 
professionals who are just beginning to practice or are looking to 
expand the quality of the integral services they provide to their 
patients. The deadline for existing suppliers not changing their 
practice is September 30, 2009.
    Health care professionals who provide DMEPOS products to their 
Medicare patients are licensed by the state in which they practice and 
are thus subject to a wide range of state regulatory and other 
requirements. DMEPOS suppliers who are not health care professionals 
obviously do not and cannot satisfy these requirements.
    CMS' claims data indicates that DMEPOS products furnished by health 
care professionals make up a small portion of the Medicare-covered 
DMEPOS charges--slightly more than 3 percent according to 2004 claims 
data. It is unclear, therefore, what, if any, program improvement or 
cost savings would be realized by imposing these requirements on health 
care professionals who only dispense DMEPOS when providing patient 
treatment.
    Consider, for example, that some health care professionals who 
supply DMEPOS receive an average total reimbursement (gross) of $7,000 
per year from Medicare for these products. Accreditation costs 
approximately $3,000 per office for up to a three-year period. The 
accreditation process is time-consuming, expensive, and heavy on 
paperwork--precisely the type of barrier that large companies are 
equipped to surmount, but which pose special difficulties for small 
health professional businesses that do not or cannot afford to hire 
additional full-time regulatory compliance staff.
    A supplier manual from one of the CMS-sanctioned accrediting 
organizations for physicians is 128 pages, and represents the 
administrative red tape for meeting the CMS requirements. It is not 
difficult, therefore, to understand why health care professionals find 
it impractical to seek accreditation just to continue dispensing 
relatively small quantities of DMEPOS in their offices. It would 
essentially be impossible to recoup these costs given the amount 
Medicare pays for the small quantities of DMEPOS products furnished to 
their patients.
    Additionally, many of the DMEPOS supplier quality standards and 
proposed enrollment safeguards do not make sense in the context of a 
health care professional's practice. For example, it would not be 
practical nor would it appear to serve any useful purpose to require 
all the health care professionals in a large professional building to 
each have a sign visible at the main entrance of the building with 
their business hours (as recently proposed).
    Similarly, health care professionals are concerned that the 
proposed enrollment safeguard precluding a DMEPOS supplier from sharing 
a practice location with another Medicare supplier, ``including a 
physician/physician group or another DMEPOS supplier,'' would 
inappropriately prevent a health care professional from providing both 
DMEPOS products and professional services to patients in the same 
practice location.
    Ultimately, requiring additional, unnecessary, and redundant 
accreditation requirements of health care professionals may keep them 
from dispensing necessary DMEPOS items at point of treatment. 
Unfortunately, this could inconvenience or endanger Medicare 
beneficiaries, and compromise the health care professional's objective 
of providing the most appropriate quality care and of doing patients no 
harm.
    The only other available alternative would be to refer the 
beneficiary to a DMEPOS retail supplier, which may be unsafe for the 
beneficiary, prolong access to appropriate treatment, or, even worse, 
prevent the beneficiary from receiving the proper item because there is 
no DMEPOS retailer in close proximity. Sadly, either outcome would be a 
gross disservice to Medicare beneficiaries and place health care 
professionals at risk for not immediately providing necessary care.
Inconsistent Exemptions from the Competitive Bidding Process
    A second immediate concern is that, while we appreciate that CMS 
exempted physicians and ``treating practitioners'' from having to 
participate in the competitive bidding program when they provide 
certain specified DMEPOS to their own patients as part of their 
professional services, there seems to be an inconsistency in how the 
determinations were made for who would be exempt for what products.
    For instance, CMS did not exempt physicians and what they term 
``treating practitioners'' who dispense off-the-shelf (OTS) orthotics, 
but did exempt them from bidding for other DME (crutches, canes, 
walkers, and folding manual wheelchairs). Alternatively, physical 
therapists (PTs) and occupational therapists (OTs) are exempt for OTS 
orthotics, but not for crutches, canes, walkers, and folding manual 
wheelchairs.
    Failure to exempt physicians and ``treating practitioners'' from 
having to competitively bid to furnish OTS orthotics to their patients, 
and failure to exempt PTs and OTs from the competitive bidding process 
for select DME, including, crutches, canes, walkers, and folding manual 
wheelchairs, could cause significant access and patient safety issues.
    Providing such DMEPOS items is an integral part of patient care for 
many health care professionals. Failure to provide these exemptions to 
all health care professional groups is inconsistent and raises 
significant access and patient safety concerns.
    Given the inconsistency of the DMEPOS final rule, and the threat to 
patient care posed by health care professionals being effectively 
prohibited from providing certain DMEPOS, the undersigned organizations 
have strongly urged CMS to permit health care professionals to continue 
supplying the aforementioned DMEPOS items to their patients without 
participating in the competitive bidding or accreditation processes.
    We look forward to working with the House Ways and Means Committee 
and CMS to find a way to address these accreditation concerns and to 
avoid access issues for patients who rely on health care professionals 
to provide DMEPOS as part of their care.

                                 

                   Statement of Andrea Logan, Letter
Dear Mr. Chairman

    I am writing to you today regarding the upcoming DMEPOS Competitive 
Bidding hearing on May 6th, 2008. I am so very pleased that you and 
your colleagues are taking this issue so seriously.
    I have owned and operated a nursing home medical supply company in 
Michigan, since 1995. We currently supply over 500 beneficiaries with 
enteral nutrition therapy in skilled nursing centers throughout 
Michigan. I employ 25 exceptional people.
    The upcoming competitive bidding program will impact my business 
severely. Based on the ``Single Payment Amount'' that is offered in the 
first round of bidding we will see a dramatic decrease in profit and 
ability to serve the frail elderly here in our state. We are making 
plans to educate our customers on the upcoming second round that we 
will be part of and determining if we will even be interested in moving 
forward with this service.
    Our company did submit bid in the first round and were not offered 
a contract. The reason given was that our bid was too high. I based my 
bid on true ``cost the serve'' and considered the fact that 
beneficiaries should be able to receive whatever is clinically 
necessary and therefore there are times when we need to supply a 
product that does not cover our cost or at very little profit, once all 
the paperwork, delivery, set up and clinical in-servicing has taken 
place.
    Many suppliers underbid in the hopes of expanding their business 
through ``joint ventures or sub-contracted relationships''. Those 
relationships did NOT have to be accredited or meet ANY CMS 
requirements I do know this to be true as I too used a ``sub-contracted 
relationship'' to serve an area that we are currently not in. Low 
bidders also expect to receive additional discounts with the two 
manufactures of enteral nutrition. (Nestle/Abbot Nutrition).
    Unfortunately the manufactures (Nestle/Abbot Nutrition) are faced 
with the same issues that all businesses are facing: rising fuel, raw 
material costs and health care. The bottom line is that beneficiaries 
will suffer. The types of nutrition they may require will be ignored do 
to cost, additionally there was no verification process that assured a 
``sub-contracted relationships'' could actually perform the necessary 
services.
    We currently make a small profit on a few products today based on 
the current ``fee'' schedule; however we make it up on other product 
categories so it has not been an issue for us to provide what is 
clinically best for the beneficiary. For bidding purposes going forward 
that will be a greater consideration on what products are selected for 
bidding in a particular category.
    Here is an example of what I am referring to:


                                                             Billing      Cost per     Current Fee     Monthly
                                                          Units/ Month  Billing Unit     Screen     Profit/ Loss

Resident on 1800 calories
per day                                                           558          $.45          $.58       $ 72.54
Isosource 1.5 or Nutren
1.5
HCPC Code B4152





                                                                                         Single
                                                             Billing      Cost per       Payment     Net Profit
                                                          Units/ Month  Billing Unit     Amount      Loss w/SPAResident on 1800 calories
per day                                                           558          $.45          $.43      $(11.16)
Isosource 1.5 or Nutren
1.5
HCPC Code B4152

    The costs of these products are effective today 4/30/08. These 2 
products are high volume product codes for Nestle. The manufacture of 
these products have told us that pricing beginning 6/1/08 will increase 
approximately 8-10%, adding further to the loss on patients requiring 
these nutritional products.
    Lastly I would like to draw your attention to the latest practice 
by winning suppliers in round one. I received a letter today from a 
winning supplier that is offering suppliers who were not offered a bid 
the ability to ``purchase these patients from your organization''. In 
my opinion this is opening the door to beneficiary neglect at the 
highest level, it will also further add to confusion for the elderly in 
particular.
    As a supplier in good standing I certainly agree with the 
accreditation process, and need to lower the burden on the increasing 
demands of Medicare and Medicaid. I simply ask why could CMS not have 
lowered the current fee schedule? If in fact it was only to lower 
costs, then this would have been a very simple task and we as suppliers 
would have shared the burden. The fee schedule cut could also be 
immediate, unlike the Competitive Bidding program which I am sure has 
cost more to this point than any savings that may or may not be 
realized by CMS.
    I strongly urge you and your committee to not only delay the next 
round but seriously consider the future of the competitive bidding 
program altogether.
            Thank You,
                                                       Andrea Logan
                              President--All Med Medical Supply LLC
                                               All Care Billing LLC

                                 

                  Statement of Angelene Adler, Letter
Dear Members of the Subcommittee on Heath,

    The intent of this letter is to encourage your attention to the 
mis-administration of the Centers for Medicare and Medicaid (CMS) 
Durable Medical Equipment, Prosthetics, Orthotics, and Supplies 
(DMEPOS) Competitive Bidding Program. I am writing this letter as a 
deeply concerned citizen, constituent, and businessperson. Established 
in 1970, Care Medical Equipment, Inc. is an independent, family-owned 
company that has grown to include ten branch locations throughout both 
Oregon and Washington states. Care Medical specializes in home medical 
equipment services, rehabilitation equipment services including custom 
seating and positioning, bariatric equipment and respiratory equipment 
services including home medical oxygen, ventilators, and sleep apnea 
products and has been serving the needs of the Pacific Northwest for 
nearly 38 years.
    We continue to notice the inconsistencies in CMS' administration of 
the Medicare Modernization Act of 2003 (MMA), and are especially 
concerned with its recent implementation of the Competitive Bidding 
Program. This policy has the potential to adversely affect well over 42 
Million U.S. citizens who are current Medicare recipients (as of the 
most recent 2005 Centers for Medicare and Medicaid Services (CMS) 
Statistics Systems). CMS Secretary Leavitt and Administrator Weems' 
interpretation of this program disregards the individuality of our 
patients in need of complex rehabilitation equipment that takes a 
tremendous amount of customer attention to assure proper fit and 
function. Without individualized custom equipment, patients often 
develop alternative complications that ultimately cost the Medicare 
system considerably more.
    Several studies have demonstrated that competitive bidding will be 
a tragedy for the healthcare industry and Medicare beneficiaries alike. 
Furthermore, savings brought on by the CMS program will be 
substantially offset by increased administrative costs associated with 
implementation and oversight of the Competitive Bidding Program 
ensuring lowered standards of patient care. The first study I am 
referring to was a peer-reviewed study conducted jointly through 
Kennesaw State and Drexel University, and published in the Southern 
Economic Journal in January of 2008. The primary focus of this study 
was to examine the Polk County, Florida and San Antonio, Texas CMS 
Competitive Bidding demonstration projects. The main premise of the 
report found that the process was: ``inefficient, leads to price 
increases and may cause decreases in the quality of services.''
    The second report I would like to refer to is the recent Robert 
Morris University. That found the CMS bidding program is optimally 
designed to reduce the number of DME providers (business' such as 
mine), thus concentrating the home care market into a state of 
monopolies. This study points out that concentrated markets usually 
result in higher, not lower, prices of services, and consistently 
lowered standards of quality. This is not an acceptable practice for 
America's healthcare system. This study also concluded that loosing DME 
suppliers would likely be forced to terminate their businesses since 
approximately 40% of their business is Medicare related. The outlook of 
both studies casts heavy doubt as to the effectiveness of the current 
CMS Competitive Bidding Program.
    More poignantly, CMS recently received 6,300 bids from 1,005 
providers whoparticipatedin the first round of competitive bidding. Out 
of those initial 1,005 bidding providers, 630 (63%) were disqualified 
due to ``incomplete'' submissions or responses to the CMS Request for 
Proposal (RFP). Unfortunately, there seems to be significant problems 
with companies being inappropriately disqualified from consideration 
for the bidding program without sufficient evidence for dismissal. 
Those bidding providers have no recourse for reconsideration since bids 
will be awarded prior to resolution of provider grievances. This 
effectively renders their bids null, void, and victim to a CMS policy 
that adheres to meaningless process without recourse.
    The American Association of Homecare (AAHC) has begun to document 
DME companies that were disqualified from the CMS Competitive Bidding 
Program for: 1) not providing requested financial information--when the 
companies have hard copies demonstrating they did indeed provide the 
information, 2) not responding to requests for additional information--
when the companies have Fed Ex receipts and fax confirmations that the 
information was indeed sent, 3) failing to take adequately into account 
bidder's capacity to provide services to Medicare beneficiaries, and 4) 
awarding bids to companies who do not have established business 
locations in the prospective bidding area (as outlined in the CMS 
standards of participation).
    We believe that the large number of disqualifications raises 
serious questions regarding the adequacy, and competency of the CMS 
Competitive Bidding Program. Continuously, our industry has requested 
additional information regarding this program, and have been routinely 
denied adequate accommodation. What concerns us even more is the non-
disclosure policy CMS has taken making it impossible to ensure 
transparent government oversight of such essential services. We feel it 
imperative that prior to implementing round one of the CMS program that 
a minimum 6-month postponement for essential third-party evaluation be 
commissioned before patient care is potentially compromised.
    The home Durable Medical Equipment (DME) industry continues to be 
most cost-effective resource for the Medicare recipient. Unfortunately, 
as Medicare allowables continue to dwindle, our direct costs of service 
continue to exponentially increase. Nationwide, providers are 
evaluating whether they can simply survive at the current reduced 
Medicare allowables, let alone at the steep reductions that would make 
many essential items unprofitable. Essentially, the only willing 
bidders will be those ``low ball'' bidders incapable of rendering 
services once awarded contracts or non-scrupulous and unqualified 
parties interested in locking out competition for the sake of 
monopolization, which would lead to the further detriment of both 
healthcare providers and patients alike. This circumvents the 
competitive marketplace, and ensures making our healthcare market ripe 
for future fraud, collusion, and abuses in patient care.
    CMS needs to realize that competitive bidding eliminates incentives 
for suppliers whether the supplier ``wins'' the bid or not for any 
product category. Presently, beneficiaries have numerous choices 
regarding equipment selection because of our free-market enterprise 
system that allows patients to choose both their provider and type of 
equipment. Competitive bidding will force suppliers into providing 
lesser quality products and supplies in order to maintain sound 
business practices. Suppliers will simply be unable to provide 
equipment in as efficient a manner under competitive bidding 
regulations. Services to patients that include delivery, setup, 
maintenance, education, quality control, product availability, and 
patient access will decline as a direct result of this incentive 
elimination.
    With the implementation of Round 1 we have seen winning providers 
who currently have no physical location, are not accredited, and do not 
have certified & licensed staff. One of the major national competitors 
is recognized for these types of business practices, and in 2005 was 
fined $4 Million for its fraudulent practices in dealing with Medicare 
(available: http://www.hmetoday.com/news/2007-05-14--01.asp). We find 
it interesting that CMS continues to support policies detrimental to 
patient care, and yet supports fraudulent abuse in the marketplace.
    The CMS Competitive Bid Program is bid by product categories, such 
as Complex Rehabilitative Power Wheelchairs, Continuous Positive Airway 
Pressure Devices (CPAP), Hospital Beds, and Oxygen Supplies/Equipment. 
Providers of services who were able to provide prescribed equipment may 
not be able to do so in all product categories if they are not awarded 
the bid for that particular product category. In simple real-life 
terms, this means that a patient, caregiver, physician, discharge 
planner, case manager, or physical therapist could very likely be 
forced to call numerous providers to request each individual item such 
as a wheelchair, walker, and oxygen concentrator for patient 
discharges. Under the CMS Competitive Bidding Program these 
stakeholders may have to contact multiple providers just to meet the 
specific needs of the patient. Why is this bad? Because, DME providers 
currently compete for the business of both our customers and referral 
sources. If competition is alleviated there is no incentive to meet 
hospital or skilled nursing discharge timelines to return patients to 
the home setting. With such reductions in competitive quality control 
measures, increased hospitalization stays are inevitable, which results 
in increases to Medicare expenditures on the hospital side.
    Suppliers are being asked to make a bid that encompasses analyzing 
so many variables that are out of their control such as shipping costs, 
gas costs, and manufacturer price increases as well as increases in 
employee benefits such as health insurance. We propose that all 
suppliers be allowed to bid, regardless of the size of the 
organization. If suppliers agree to quality and financial standards set 
by CMS and they accept established payment amounts, suppliers should be 
allowed to service all Medicare beneficiaries in the areas they serve. 
CMS would be better off adhering to the inherent reasonableness (IR) 
methodology authorized by Congress under the Benefits Improvement and 
Patient Protection Act of 2000. The IR methodology includes procedural 
steps to protect stakeholders and requires an analysis of the factors 
that influence a determination to make a payment adjustment.
    The CMS Competitive Bidding system is only going to enhance the 
strength of the national DMEPOS providers who are already decreasing 
the volume of staff involved in customer service and education to meet 
the demands. We at Care Medical share the general consensus of the DME 
industry in that decreasing the number of DMEPOS suppliers in this 
manner will not allow for increased competition, but will rather 
encourage lowered quality product and reducing the level of customer 
service being provided to beneficiaries. Decreasing competition in the 
DME industry can only be detrimental to patient care. DME providers 
cannot increase prices charged to Medicare (they are set by the CMS 
governed fee schedule), and various state Medicaid programs.
    Providers of services earn the business by providing high quality 
products, services, and care. Simply stated, eliminating competition 
eliminates the incentives that our free-market economy is based on. We 
also find it abhorrent that apparently no thought or consideration has 
been given to the emotional or economic impacts of the resulting 
displaced workers. This is a much larger issue than realized at first 
glance. These employees and their families are dependent upon their 
jobs for basic food, shelter, and healthcare.
    Furthermore, Competitive Bidding is not a necessary strategy in 
reducing Medicare expenditures, nor is it an appropriate response to 
dealing with recent fraudulent practices in the industry. Allowables 
can be reduced, quality standards can be enacted/enforced, and 
accreditation requirements should be strictly upheld. These are the 
direct responsibilities that have been constantly neglected under 
Secretary Leavitt and Administrator Kerry Weems. Incidents of fraud and 
overutilization have occurred specifically due to lack of oversight and 
enforcement of CMS. Competitive Bidding will not resolve any of the 
underlying issues that support fraudulent practices such as 
overutilization. Perhaps the more pertinent question ought to be: Why 
did CMS supply so many fraudulent providers with supplier authorization 
numbers without inspections/enforcement of its own regulations?
    The Medicare Access to Complex Rehabilitation and Assistive 
Technology Act of 2008 (HR2231/S2931) would effectively exempt complex 
rehabilitation equipment from the CMS Competitive Bidding Program. 
Complex rehabilitation equipment is custom-configured items and 
requires extensive customization for each patient due to serious 
disease and disability. Often, these patients cannot afford the out-of-
pocket expenses associated with complex rehab equipment necessary to 
continue being productive members of society. We request your offices 
to contact Senator Baucus (D-MT) and urge for the addition of this 
legislation to the upcoming Medicare package.
    It is of our opinion that CMS Competitive Bidding Program is a 
lose-lose public policy for healthcare, citizens, and business' alike. 
Our company requests delaying Round 1 of the CMS DMEPOS Competitive 
Bidding Program for a minimum 6 months period to obtain a third-party 
evaluation of the program. This CMS program has been fraught with 
procedural and operational flaws that continue to threaten the 
integrity of the entire homecare industry, consequently affecting small 
businesses such as myself, and ultimately the access of those Medicare 
beneficiaries whom we serve.
            Respectfully yours,
                                     Angelene Adler, Vice President
                            Care Medical & Rehabilitation Equipment
                                                    1877 NE 7th Ave
                                                 Portland, OR 97212
                                                     (800) 952-9566

                                 

                       Statement of Annie Nation
To: Congressman Sam Johnson,

    I am writing to express a concern regarding the Competitive Bidding 
Program implemented by the Centers for Medicare and Medicaid Services. 
As a supplier of Durable Medical Equipment this program will force us 
to close our doors and the beneficiaries will lose.
    On July 10, 2007 I mailed all the required documents to the CBIC. 
They received the package tracking number EB57 3048 087US on July 11, 
2007 at 12:43 pm in Augusta GA. The items were signed b L BENEFIELD. 
The contracts were issued to suppliers on Friday 21, 2008 via Federal 
Express. I did not receive my letter because they mailed it to my home 
rather than my office which is on their files and every agency that is 
associated with this program. On July 21, 2008 I spoke to Jean Catalano 
(803) 763-8194 the Program Manager for Palmetto GBA who is overseeing 
the CBIC Program. Ms. Catalano statement to me was ``You better pray to 
God that the error was on our part rather than yours''. After 48 hours 
on Tuesday March 25, 2008 at 8:28 am Trish, called me and said they are 
still looking for the paperwork and someone will call back in 48 hours. 
On Friday March 28th 2008 Lisa Edwards from Palmetto called and stated 
it will be 30 days before we find your paperwork, but less than 30 
days. How is it possible for all the providers to have the same or 
similar documents missing?
     One day the CBIC told Congressman Johnson's office they found my 
paper work and that same evening I received an email saying they did 
not. As of May 1, 2008 the CBIC and CMS has told me that the 
documentation was never found and as of July 1, 2008 I will no longer 
be able to provide service for our patients. CMS has not provided any 
information nor have they found a resolution for the disqualified 
suppliers. Their answer is we will notify you in a letter what our 
findings are. This is a communistic way of doing business. CMS chooses 
who they want to do business with and eliminate the ones they don't. 
What happened to free enterprise? What happened to protecting the small 
businesses the very back bone of this country. What CMS and CBIC have 
said and what they did are very different. What they have told our 
elected officials are all lies. That is if they decide to communicate 
with them. They have entirely too much power. Not all suppliers are 
fraudulent.
            Sincerely,
                                                      Annie Nation,
                                                          President

                                 

            Statement of Capital Medical and Surgical, Inc.
    To: House Ways and Means Health Subcommittee
    From: Capital Medical and Surgical, Inc.
    Re: CMS DMEPOS Competitive Bidding Program

    The current CMS DMEPOS Competitive Bidding Program has many flaws, 
and is not good for the Medicare patients, or the DME/HME industry.
    Many providers will be prevented from servicing the senior 
population under this program. This will result in substandard patient 
care and service. By reducing the number of DME providers able to serve 
this population, many of these needed seniors will not be provided the 
level and quality of service that they require.
    Most of the DME providers are small business that are focused on 
providing the needed service for this senior population. With the 
competitive bidding program in its current form, many of these small 
providers will be forced to close their business.
    If the goal of CMS is to lower costs, there are better ways to do 
it than limit the number of providers for the growing senior 
population.

                                 

                   Statement of Cara C. Bachenheimer
Introduction
    Invacare Corporation (NYSE: IVC) is the global leader in the 
research, development, manufacture, and distribution of the broadest 
product offering of innovative home medical equipment (HME) that 
promotes recovery and active lifestyles for seniors and people with 
disabilities. We sell a broad array of products to approximately 10,000 
HME providers in the United States, including manual and power 
wheelchairs, other mobility aides such as canes and crutches; 
respiratory products such as oxygen concentrators, portable oxygen 
systems, and new oxygen technologies; nebulizer compressors and 
respiratory disposables; sleep therapy products; home care beds; low 
air loss therapy products; bath safety products; and patient transport 
equipment. In turn, our HME provider customers interface directly with 
Medicare beneficiaries in their homes by furnishing and servicing these 
items. The majority of this equipment falls under the definition of 
``durable medical equipment'' as defined under Part B of the Medicare 
Program.
Background
    Section 302(b)(1) of the Medicare Modernization Act of 2003 (MMA) 
requires, the Centers for Medicare and Medicaid Services (CMS) to 
implement a ``competitive acquisition'' program for certain items of 
durable medical equipment, prosthetics, orthotics and supplies 
(DMEPOS). In 2007, the bid submission process began in ten of the 
largest metropolitan statistical areas (MSAs), and bid rates will be 
implemented on July 1, 2008. The first ten bid areas are: Charlotte, 
Cincinnati, Cleveland, Dallas/Ft. Worth, Kansas City, Miami/Ft. 
Lauderdale; Palm Beach, Orlando, Pittsburgh, Riverside/San Bernadino, 
and San Juan. The ``competitive acquisition'' program will expand to 70 
additional MSAs in 2009, and beginning January 1, 2009, CMS has the 
authority to apply bid rates in non-bid areas. The MMA allows the 
Secretary to contract with only as many providers as the Secretary 
deems necessary to meet the demand of an area. Any provider not awarded 
a contract will be prohibited from participating in Medicare for bid 
items and services for up to three years.
    On March 21, 2008, CMS and its contractor, CBIC,\1\ notified 
bidders of whether they would be offered a contract to provide items 
the suppliers bid on in each of the initial ten metropolitan areas. The 
CBIC had six months to review the bids, and requested a 10-day 
turnaround for suppliers to respond with a ``Yes'' or ``No'' answer, 
and has stated that it needs four weeks thereafter to finalize the list 
of ``winning'' bidders. We expect CMS to announce today the list of 
winning bidders in each of the ten markets and the program is scheduled 
to be effective July 1, 2008. This means that patients will have no 
more than seven weeks to find a winning supplier if theirs did not 
``win'' and transition their products and services to the other 
supplier. Winning suppliers will take a 26% payment cut and will have a 
short period of time to ramp up product inventories (assuming they are 
credit worthy), hire and train new staff, purchase trucks and in many 
cases will have to establish a new business location in the MSA.
---------------------------------------------------------------------------
    \1\ The Centers for Medicare and Medicaid Services (CMS) contractor 
for administering the bid program is the CBIC, or Competitive Bidding 
Implementation Contractor. Palmetto GBA, based in Columbia, SC is the 
CBIC.
---------------------------------------------------------------------------
    The bid process forces HME providers to bid only lowest prices, 
despite current rapid inflation and dramatically increasing costs such 
as fuel. Winners of the bid do not really ``win'' as do military 
contractors who enjoy a guarantee of certain volume. Instead winners 
merely get the right to continue competing in the marketplace. Further, 
bidders were not obligated to sell at the prices they bid (unlike 
Medicare Part D contractors); providing skewed incentives that 
fundamentally distort the bid process so that bid prices have no 
relation to market prices. CMS allowed companies to bid who had no 
physical location in or near the bid area. For beneficiaries with 
respiratory and/or high end rehab needs, it is not possible to 
appropriately serve beneficiaries long distance.
    CMS is planning to implement Round Two of the program in an 
additional 70 areas, and will begin the bid process this summer. Round 
Two will add 18 million Medicare beneficiaries to the program.
Manufacturer Impacts
    On July 1, 2008, when the bid program goes live for the first ten 
MSAs, Invacare believes there may be significant problems in the credit 
markets for the industry. Many providers who lost bids have become 
bankruptcy risks for all manufacturers, if those providers rely heavily 
on Medicare as a payor. It will also be difficult for manufacturers to 
provide winning firms with the credit they are seeking given the lack 
of guaranteed volumes, the significant payment cuts, and in some cases, 
the size and financial stability of the company. These credit exposures 
will become larger and more difficult to manage as the bid program is 
rolled out nationwide. Further complicating the credit problem is the 
fact that CMS offered contracts to many bidders who have no presence in 
and have no history or experience in providing the product and services 
in the particular bid area. The impact of credit issues at the provider 
level may well ripple through to manufacturers particularly as the 
process continues into 2009.
Consumer Impacts
    Beneficiary Access to New Technology--Home respiratory technology 
has evolved substantially over the last ten years. New home oxygen 
technology is essential to meet the clinical needs of all 
beneficiaries. New oxygen technology is more complex, difficult and 
expensive to produce and is not a commodity class of goods. Physicians 
and patients prefer the innovative, new oxygen technologies due to the 
impact clinical outcomes and quality of life. Importantly, new oxygen 
technologies will prove to be more cost effective for the Medicare 
Program and the beneficiary. The President's intention to protect new 
oxygen technology was ignored in the bidding process.
    Despite the many advantages of newer oxygen technologies, the way 
that CMS has structured the bidding program will stymie consumer access 
to these technologies due to the antiquated code system that requires 
providers to use the same code to bill for traditional and new oxygen 
technologies. CMS could easily fix this problem by creating a separate 
billing code for the stationary component of new technology, as it has 
for the portable component of new technology. Beneficiary access to new 
oxygen technology is further exacerbated by the Deficit Reduction Act's 
requirement that the beneficiary assume ownership of all oxygen 
equipment at 36 months. Under the bid program, CMS' final rule requires 
contract suppliers to serve all beneficiaries; many beneficiaries will 
presumably transfer from their supplier who lost to a contract 
supplier. Contract suppliers will therefore begin to serve 
beneficiaries who have been on oxygen for some months; without the 
assurance of 36 months of payment. In fact, contract suppliers have no 
idea before the program starts how many home oxygen beneficiaries it 
will be serving, nor do they know at what month of medical need all 
these beneficiaries will be in. In this situation, the contract 
supplier will be forced to provide the least expensive oxygen system, 
which is certain to be the oldest equipment. As a result, new 
technology which physicians and patients prefer, and which requires 
significantly higher up front investment, is likely not to be provided 
to beneficiaries in the bid areas.
    Beneficiary Access to High End Rehab Services--Provision of complex 
rehab technology is not a commodity. Each consumer of complex rehab 
technology has individual and specialized needs that require extensive 
customization for the individual's needs. These items are simply not 
appropriate for a competitive bid process that is designed to attract 
low-ball bids on commodity items. Most importantly, if items or 
services of sub-standard quality are provided, consumers' conditions 
will be exacerbated, requiring more extensive medical intervention. The 
bidding program is based on HCPCS codes, not individual products. 
Herein lays the conflict for applying bidding to high-tech rehab and 
assistive technology products. These products are uniquely configured 
for the individual consumer based on diagnosis, prognosis and 
lifestyle. Moreover, while products may be classified in the same HCPCS 
code, they are not equal in regards to their ability to meet the 
medical need of a consumer. Competitive bidding is not appropriate for 
high-tech rehab and assistive technology. By nature, rehab companies 
have a unique business model that involves a high level of personal 
involvement between the provider and consumer and the integration of 
licensed health care professionals throughout the process. These 
products and integrally related services are particularly ill-suited 
for the bid program because the bid program will result in DME 
suppliers reducing services and selecting products provided based on 
cost, not appropriateness. A reduction in services or limitation of 
products based on price alone which would result from competitive 
bidding, will have a severe negative impact on clinical outcomes 
associated with the provision of high-tech rehab and assistive 
technology.
Referral Impacts--Physicians and Hospital Discharge Planners
    Physician referral sources as well as hospital discharge planners 
will be limited to referring beneficiaries only to the small number of 
contract suppliers in the bid areas. These contract suppliers are not 
chosen based upon the referral sources' preference; they may not be 
companies the referral sources are familiar with or have any assurance 
that their patients will obtain the care they need. Hospital discharge 
planners may have to wait longer period of time; requiring them to 
incur costs of longer hospital stays. These referral sources will 
likely have to arrange for services with multiple suppliers, since most 
did not win contracts for multiple product categories. Finally, 
referring physicians and hospital discharge planners will have no 
assurance that their patients will obtain the level of care they 
received in the past.
Summary of Unintended Beneficiary Impacts of the Bid Program
      The First Round of the bidding program will eliminate an 
estimated 71% of all suppliers in the first ten markets, including 
small, medium and large businesses. Many of these suppliers will not 
survive and will declare bankruptcy.
      Almost four million Medicare beneficiaries who may need 
DMEPOS are covered by the first ten competitive bid areas (CBAs). An 
additional 18 million Medicare beneficiaries will be impacted by Round 
Two.
      CMS' selection of a relatively small number of suppliers 
will result in an increase in ratio of beneficiaries to supplier of 
339%--numerous winning suppliers will be overwhelmed by the huge 
increase in volume which their systems and infrastructure may not be 
able to handle.
      Almost 224,000 Medicare beneficiaries who currently rely 
on home oxygen therapy may experience a disruption of their service if 
their provider does not grandfather, and tens of thousands of new 
patients prescribed the therapy will have severely limited access from 
July 1, 2008 forward. As they assume ownership of their equipment in 
January 2009, they may have to switch providers in order to obtain 
portable oxygen.
      The largest oxygen patient bases impacted are located in 
Miami/Ft. Lauderdale/Palm Beach, FL; Riverside/San Bernadino, CA; 
Dallas/Ft. Worth, TX; Orlando, FL; Kansas City, KS/MO; Charlotte, NC 
and Cleveland, OH.
      Over 143,000 beneficiaries currently receiving home-
delivered diabetic supplies may be forced to switch providers by July 1 
since there is no grandfathering provision and few of the providers 
currently serving Medicare won bids. Small winners will be overwhelmed 
by the rush of patients to switch by CMS' deadline.
      Over 10,000 beneficiaries currently receiving home 
enteral nutrition therapy may be forced to switch providers by July 1 
since there is no grandfathering provision and few of the providers 
currently serving them won bids.
      Over 16,000 beneficiaries currently being treated at home 
for Obstructive Sleep Apnea (OSA) may have to switch providers as they 
assume ownership of their equipment under the DRA.
      Almost 25,000 elderly beneficiaries currently relying on 
hospital beds to remain at home may have to switch if their providers 
do not grandfather due to irrationally low pricing in one or more 
markets.
      The 26% payment cuts, a significant reduction in revenue 
stream, will it difficult for contract supplier to obtain needed growth 
capital.
      Beneficiaries may be forced to sever long term 
relationships with their HME provider (particularly for beneficiaries 
with high end rehab and oxygen needs). Plus, beneficiaries will be 
forced to deal with increased paperwork (statements, deductibles) if 
they have multiple needs that will be provided by multiple suppliers. 
In addition, consumers will often be forced to choose a supplier they 
don't want.
Unintended Consequences of the Bid Program, Round One
      Ten major metropolitan areas will be directly negatively 
impacted with job loss and bankruptcies, starting July 1, 2008. Long-
standing local companies who have offered quality homecare services for 
decades were excluded from participating, and will be forced out of 
business based upon government fiat. This will result in significant 
local market disruption.
      Beneficiary Disruption--Almost four million Medicare 
beneficiaries will be impacted by Round One, and an additional 18 
million Medicare beneficiaries will be impacted by Round Two of the bid 
program. Beneficiaries have come to rely on the longstanding 
relationship they have with their home oxygen and DME providers. Not 
only will they be surprised to discover their long-time provider may no 
longer be able to serve them effective July 1, they will also be faced 
with obtaining services, equipment and supplies from multiple new 
suppliers (some of whom may not be local or experienced in providing 
the care they need).
      Good Companies Arbitrarily Eliminated--Many suppliers 
traditionally serving the initial ten bid areas did not win the bid for 
products representing their core business. It appears that many non-
traditional and ``long-distance'' providers with little or no history 
serving these markets won bids, simply because they bid the lowest 
prices. Many of the winning bidders in these areas have no physical 
presence where they won the bid; they have absolutely no ``skin in the 
game.'' With little other bid criteria, super low bid strategies worked 
to secure a winning position and potentially eliminating established 
and more experienced companies from participating. These winners are 
already contacting local providers who lost, with whom they wish to 
subcontract to serve these local markets because they have no physical 
presence in the market or competency in providing the products and 
services they won. The CBIC told many bid applicants that their bids 
were disqualified for technical reasons; no detailed explanation was 
provided and there is no appeal process allowed. We expect significant 
job loss and business bankruptcies in these communities. In a program 
designed in part to weed out unscrupulous providers, this ``roulette'' 
game will instead result in the financial demise or disqualification of 
some of the country's best providers on technicalities that cannot be 
corrected. They are shut out of the market for at least three years.
      Winners Did Not Necessarily ``Win''--Even suppliers who 
won bids are seriously concerned that the deep payment cuts will make 
it impossible to remain financially viable and be able to serve 
beneficiaries throughout the three year contract period, given the 
magnitude of the payment cuts (26% on average). Because of the median 
price methodology, 50% of the winners must accept pricing below their 
actual bid. Many will have difficulty in obtaining additional working 
capital in the current credit environment. These cuts, combined with 
the upcoming January 2009 implementation of the Deficit Reduction Act 
of 2005 (DRA), will jeopardize patient access to care and services. 
Finally, winning bidders cannot even sell their businesses without 
government approval.
      Program Threatens Long Term Viability of the Industry and 
Its Ability to Serve Beneficiaries--As the industry's largest industry 
creditor, Invacare foresees significant chaos in the credit market for 
this industry given the tight margins that currently exist. Good 
customers who lost bids have become instant bankruptcy risks. It will 
also be difficult to provide winning firms with the credit they are 
seeking given the significant payment cuts. Inflation rates for certain 
provider costs have escalated since the bids were prepared and 
submitted almost a year ago (e.g., fuel), yet providers must live with 
the new rates for three years without any opportunity for adjustment.
      Beneficiaries Will Suffer--When suppliers are forced to 
establish an artificially low bid to obtain a winning contract, two 
things often occur to the disadvantage of the beneficiaries they serve. 
First, suppliers may substitute cheaper products and reduce the non-
equipment services they have historically provided, as they must find 
ways to reduce their operating costs. Both the General Accounting 
Office (GAO) and MedPAC raised this concern specific to portable oxygen 
equipment, which CMS has identified and encouraged for its ability to 
reduce costs to the Medicare program as well as improve patient quality 
of life. Second, once budget pressures begin to set in for these 
suppliers, due to poor inflation projections or unexpected 
administrative costs from meeting capacity requirements, support 
services are eliminated, for example, services such as 24-hour on-call 
service, preventative maintenance, etc. Hospital discharge planners 
will be forced to place patients in the hands of suppliers with no 
track record of service. Further, a significant challenge for 
beneficiaries will be the fact that they will have to obtain 
competitively bid products from as many as nine different suppliers, 
depending on the products and services they need to treat their medical 
condition(s) at home. This is contrasted with their ability today to 
receive many services from a single, local provider.
Answers Needed From CMS

1.

CMS' one-page notification letter and grid of wining/non-winning products, 
along with reason codes, was simply inadequate for a program of this 
magnitude. CMS must be held accountable for its decisions regarding which 
suppliers won contracts and which did not. There was zero clarity around 
how CMS determined each supplier's ``capacity'' and determined how many 
winners were needed for each market. Since CMS disqualified many bidders 
for supposedly not providing the correct financial reports (without giving 
them the opportunity to rectify the situation), CMS must be fully 
transparent and publicly disclose the financial criteria it used to assess 
the financial information bidders submitted to CMS.

2.

CMS must publicly disclose how it calculated the single payment amount for 
all the HCPCS codes in each product category in each competitive bidding 
area. Some non-winning bidders lost by 1%, which represents pennies or 
dollars, and since CMS' definition of ``capacity'' remains unclear, 
arbitrary exclusions of high-quality, accredited providers occurred.

3.

CMS must explain why it relied on unsubstantiated ``supplier-reported'' 
capacity for growth (as explained by Mr. Weems on the March 20, 2008 
national conference call) and how it used that capacity data to determine 
the total number of winners needed for each market.

4.

If, in fact, errors occurred that were the fault of CMS and its CBIC 
contractor, will CMS/CBIC fix the errors and allow affected suppliers to 
participate?

5.

Since the Federal Acquisition Regulations are generally not applicable to 
this process (via the statute), what legal basis exists for CMS' refusal to 
provide information related to:

a.

The number of bids submitted in each product category for each of the ten 
areas?

b.

The financial criteria and review process that were applied to the 
supplier's financial information that was submitted?

c.

How CMS/CBIC calculated the single payment amount for each HCPCS code in 
each product category in the ten areas.

d.

How CMS determined that a provider with an office eight hours away could 
serve Medicare beneficiaries with home oxygen therapy?

Request to Congress
    Given the high likelihood of significant negative impacts starting 
July 1, 2008, and the series of fundamental procedural flaws already 
identified (see Attachment), we recommend that Congress suspend the bid 
program and work with the industry to establish a workable alternative 
system.
Summary
    This is a heavy handed government takeover of an industry, where 
CMS determines whether individual businesses live or die, CMS sets 
pricing, and controls an owner's individual right to even sell the 
business. This ``Russian Roulette'' process will be repeated every 
three years, steadily eliminating competition in the local markets 
until oligopolies/monopolies are established and ensuring that 
consumers have limited access to needed items. This is not the American 
way.
Attachment
Fundamental Procedural Flaws/Irregularities
    Following is a summary of the types of significant procedural flaws 
identified since bidders were notified on March 21, 2008 of whether or 
not they were offered a contract in any of the products and areas they 
bid. It appears that so many errors have been made during this initial 
supplier selection process that it has resulted in numerous suppliers 
being improperly and unfairly removed from the bidding program. There 
is no due process associated with this program. If these errors are not 
addressed and Round One proceeds as is currently planned, Medicare 
suppliers and the beneficiaries who rely on their items and services 
will be irreparably harmed.

    1.  Many suppliers submitting bids were improperly and unfairly 
disqualified from the process because of missing data, according to 
letters they received. However, most of these disqualified bidders can 
demonstrate that they did, in fact, provide the proper data to CMS and 
should not have been disqualified.
    2.  Some suppliers were erroneously rejected because they 
supposedly did not meet the requirement that they were accredited when, 
in fact, these suppliers were accredited by the deadline.
    3.  MEPOS suppliers that were offered contracts were provided less 
than ten days from the postmark date to accept the contract. This is a 
very short period of time for a firm to evaluate the pricing impact and 
contract terms and conditions and determine whether they will accept 
the contract. Moreover, at the time they were offered contracts, 
winning bidders had no information regarding how many other suppliers 
were offered contracts in the product category, to determine how many 
competitors will be serving the market. This is critical information to 
determine whether the supplier can financially sustain the business at 
the bid rate.
    4.  In some product categories, identical bid prices were 
calculated for multiple bid areas, suggests flaws in the bid 
calculation process. Unless the median bid submitted for these HCPCS 
codes in these multiple markets was identical, this is highly 
improbable mathematically, based upon CMS' final regulation on the bid 
program. For example, in the high end rehab wheelchair product 
category, there are 105 codes whose prices are identical in 2 markets, 
24 codes' prices are identical in 3 markets, and 14 codes' prices are 
identical in 4 markets. In the standard power wheelchair product 
category, there are 76 codes whose prices are identical in 2 markets, 
and 18 codes' prices are identical in 3 markets. In another example, 
the new single payment rate for stationary oxygen systems is exactly 
the same amount, to the penny--$136.90--in both Charlotte, NC and 
Pittsburgh, PA. Again, this is statistically highly unlikely.
    5.  Suppliers were rejected based upon criteria that were never 
communicated to bidders. For example, bidders submitted low prices for 
codes that had close to or zero utilization, to maximize the 
competitiveness of their ``composite bid,'' upon which they would be 
compared with other bidders. These suppliers' bids for the entire bid 
category were thrown out, supposedly because these items bids were too 
low. In reality, if utilization is zero or very small, suppliers can 
afford this. This type of application of financial criteria was never 
publicized. It illustrates the subjective nature of the reviewers who 
evaluated the bids, their lack of familiarity with DMEPOS business 
operations and is contrary to the process CMS set up for suppliers to 
submit bids.
    6.  On September 13, 2007, Twelve days before the bid window 
closed, CBIC changed the Request for Bids rules. The original RFB 
stated that ``beginning 10 business days before the bidding window 
ends, suppliers will be notified if there are any missing hard copy 
attachments.'' Two days before the bid window closed, the CBIC web site 
document stated that ``the system will remain open for at least 15 days 
after the bidding window ends to allow bidders to check the completion 
status of their electronic bids and verify receipt of hard copy 
documents by the CBIC.'' Therefore, at the last minute, the CBIC 
changed the rules without informing suppliers who had already submitted 
bids to require suppliers to verify receipt rather than the CBIC 
notifying suppliers if there was missing information.

    For more information, contact Cara C. Bachenheimer, Invacare's 
Senior Vice President, Government Relations at 
[email protected].

                                 

                       Statement for David Carey
    Arizona Bridge to Independent Living (ABIL) is urging you to 
support H.R. 2231 and S.2931, which will exempt complex rehabilitation 
products and assistive technology products from the Medicare 
Competitive Bidding Program.
    As an organization that promotes independence for people with 
people with disabilities we understand your concerns, however, a 
blanket approach is not the answer.
    In Arizona, the number of Durable Medical Providers (DME) has 
dwindled as have the quality of service. Creating barriers to service 
and causing many consumers, as well as some of our staff members to 
wait months in order to get repairs to their mobility devices (i.e. 
power wheelchairs). Besides losing taxable income from being unable to 
work some individuals have developed secondary conditions that have 
required medical attention. Which as you know, drives up the cost in 
another area.
    What we have now is a monopoly! A good approach would be to create 
an open market, which will create competition, manage costs and give 
consumers options to timely service similar to local automotive repair 
shops. Doing so will allow individuals to be productive taxpayers 
within the community, as well as remain healthy.
    We urge you to ask your colleagues to support H.R. 2231 and S. 
2931. On behalf of ABIL, your support is greatly appreciated!

                                 

                    Statement for Douglas T. Harris
Dear Chairman Stark and Ranking Member Camp:

    Thank you for the opportunity to present these comments to your 
committee. I enjoyed watching the hearing and I am anxious to see what 
results will follow. The Scooter Store is the nation's largest supplier 
of freedom and independence to Medicare beneficiaries via scooters and 
power wheelchairs. We have been in business for nearly 20 years and 
have over 1300 employee-owners (40% of the company is owned by our 
employees in an ESOP). We have over 60 company owned and operated 
locations in 42 states. We are proud to have a long standing tradition 
of making proactive suggestions to CMS and Congress to improve the 
Medicare benefit and continuously struggle to partner with CMS to 
combat fraud and abuse. While there are many ideas I would love to 
discuss with your committee, I will limit these comments to your recent 
hearing on Medicare's bidding program for DME.

    1.  Members of the committee mentioned that the results of the 
bidding showed that ``Suppliers are willing to take less, much less, 
than the current Medicare fee schedule''. The committee's comment 
demonstrates that the committee is not fully aware of how the bidding 
process worked. Any bid that was not less than the current fee schedule 
was automatically disqualified. The results do not necessarily indicate 
that suppliers are ``willing'' to take much less than the current 
Medicare fee schedule, it simply shows that some bidders understood the 
rule put in place by Medicare for this process; bid lower or be 
disqualified. Further, it shows how terrified some bidders were about 
being put out of business by losing a bid for their core business as 
they bid to sell some products at a LOSS.
    2.  Members of the committee mentioned a possible legislative 
solution of setting aside the bidding process and resetting the fee 
schedule at these new lower prices. We believe this would completely 
destroy the integrity of a ``bid'' process. As Ms. King from GAO, and 
Mr. Weems from CMS testified, suppliers that followed the rules in this 
process understood that the primary incentives to bid low were to 
retain Medicare business and gain market share. The committee's 
suggestion would make the winning bidders compete with these new 
substantial price reductions, AND eliminate any potential for increased 
market share. Suppliers should be able to survive with lower prices if 
they at least have the potential of increased volume. The committee's 
suggestion would eliminate that simple economic reality. When Mr. Ryan 
from AAHomecare said ``yes'' to that suggestion, he was clearly 
speaking on behalf of the losing bidders and not necessarily the 
winning bidders.
    3.  The Chairman expressed concerns about methods The Scooter Store 
might use to supply oxygen services. While we appreciate his humorous 
point to Mr. Weems at our expense, we can assure you that any and all 
respiratory patients we serve will receive the highest quality 
equipment and services. As one of the largest DME suppliers in the 
country, we have an outstanding family of over 1300 employee-owners, 
with operations in 42 states. We have been accredited for almost 5 
years for all DME items, and we will continue to meet and exceed CMS's 
highest standards. As noted later in the hearing by Administrator 
Weems, we meet all of the newly created higher standards for oxygen 
services. The Chairman also expressed concerns that we would be serving 
the beneficiary from hundreds of miles away. While our national 
headquarters are in New Braunfels, Texas, we also have over 60 company 
owned and operated facilities in 42 states.
    4.  Over 60% of the bidders were disqualified. The committee 
indicated that this must indicate some type of ``systemic problem'' 
with CMS' process. Clearly the other option that must be considered is 
that there are ``systemic problems'' with many suppliers. While we 
agree that CMS's online bidding tool was an absolute mess, it was not 
impossible; as evidenced by the other 40% that figured out how to make 
it work. CMS, Congress, and even some industry insiders have been 
advocating for many years that the entire DME industry needs to 
substantially raise its level of professionalism. We believe the high 
disqualification rate substantially supports that argument.
    5.  The committee questioned whether or not the bidding process 
would result in a reduction in the number of suppliers, and thus a 
reduction in competition. We do not think that will be the outcome. As 
an example: In 2006 for the Miami bid area there were approximately 900 
suppliers that furnished ``standard power mobility'' equipment to 
approximately 5000 beneficiaries; or an average of about 5 sales per 
supplier per year. Under the new bid process there will be less than 20 
suppliers servicing the same area. This process will prevent over 850 
suppliers from selling standard power mobility in Miami, but it was 
also allow the winning bidders to average 250 sales per year and thus 
achieve an economy of scale that could possibly create an opportunity 
for even greater savings to CMS and the beneficiary in the future.
    6.  The committee asked an outstanding question about the pricing 
for Medicare Advantage (MA). If the structure of this bid was so good 
that CMS wouldn't change a single thing, then why not bid MA this way. 
Remember, the simple mechanics of this DME bid were that if you did not 
bid LESS than the current Medicare price, your bid was automatically 
disqualified. So, how do we have MA costs that are $150 Billion higher 
than if those beneficiaries were on straight Medicare? MA companies are 
allowed to bid higher than the current Medicare cost. CMS had one 
pricing rule for DME bidding and not for MA bidding. So, what does this 
have to do with the current hearing questions? Simple again. The 
Chairman made it clear under ``Pay-Go'' rule we must find a $6 billion 
offset to delay or correct the problems with the current DME bid. Delay 
Round 1 of the DME bid for 6 months to get the obvious problems 
resolved, and delay Round 2 until there is clear information about the 
success or failure of the Round 1 implementation, AND at the same time 
add this really cool new rule (bid lower than current cost or be 
disqualified) to the MA bid and you have SAVED $140 BILLION.
    7.  The committee asked questions about tracking high cost DME 
items with serial numbers as a way to prevent fraud and abuse. We 
believe this is an excellent idea. The standard CMS claim form already 
has an input box for the product's serial number, and thus it could be 
submitted with every bill. This would give CMS the first tool of its 
kind to avoid improper payment BEFORE they are made, instead of the 
current method of paying now, and chasing down overpayments later. I 
would love the opportunity to discuss this idea with you or CMS at any 
time.
    8.  Additionally, as a fraud fighting method we encourage CMS to 
immediately implement the $65,000 surety bond for DME suppliers that 
was already authorized over ten years ago in the BBA of 1997. Earlier 
this year a bill was proposed to raise the $65,000 bond limit to 
$500,000 since someone believed the $65,000 clearly wasn't preventing 
fraudulent suppliers from stealing money from Medicare. However, the 
big news should be that the $65,000 bond has never been implemented. 
The amount doesn't need to be raised. CMS just needs to enact the 
project. We urge you to require CMS to add this fraud fighting tool 
immediately.

    Thank you again for looking into ways to make this bidding program 
work for everyone. If competitive bidding is done properly then CMS, 
beneficiaries, the tax payer, AND suppliers can win. If the bidding 
program is executed poorly, it might get a good score from CBO, but it 
will wrongfully and unfairly hurt suppliers, CMS, and worst of all 
disabled beneficiaries.
            Respectfully submitted,
                                                Douglas T. Harrison
                                              Founder and President
                                                  The SCOOTER Store
                                                     (830) 626-5802
                                                  The SCOOTER Store
                                            1650 Independence Drive
                                            New Braunfels, TX 78132

                                 

                 Statement of Ellen S. Durrence, Letter
The Honorable Pete Stark:

    Please accept this letter as our formal request to submit our 
comments for inclusion in the record of the hearing on Tuesday, May 6, 
2008.
    As a small, local DME provider in Charleston, SC, we have several 
concerns relating to the implementation of the competitive bidding 
program. We met with our State Representatives regarding this program 
and they feel, as we do, that it is ``Anti-American'' because it will 
eliminate the patient's freedom of choice, eliminate competition, 
create a significant loss of jobs, and destroy small businesses.
    We have served our community for more than 20 years and have 
provided much needed medical equipment to area residents, many of whom 
live in rural areas with little or no ability to access routine 
healthcare. We have established long-term relationships with many of 
these families and are concerned for their future ability to access a 
medical equipment provider if this competitive bid program is 
implemented. Additionally, we employ 35 dedicated people who take pride 
in delivering the much-needed items to our patients. We, with several 
other independent providers, are facing an imminent threat of losing 
both our patients and our employees.
    Following are urgent, legitimate concerns for our patients as well 
as small business providers and employees:
Round 1 eliminated 65% of bidding applicants
    Applicants were rejected for reasons CMS has yet to substantiate
Patients will suffer
    Patients will be required to get a bed from one provider, a bed-
side commode from another and a wheelchair from yet another provider
    Access to Durable Medical Equipment providers will be extremely 
limited, some patients will be hours away from the nearest provider
    Equipment standards will decline due to the significant 
reimbursement cuts; providers may supply sub-standard equipment in 
order to survive the drastic cuts
    There is no assurance that the ``winning'' providers will be able 
to stay in business with these reimbursement rates. If they are forced 
to close, what provisions are in place to assure patient access? By 
this time, the ``losing'' providers will have already been eliminated 
from the industry.
More than 60% of the nation's independent providers will be out of 
        business
    Because independent providers do not have the backing of a large 
national chain, the independent providers are typically the ones 
willing to ``go above and beyond'' for the patients and are willing to 
reach the outliers
Thousands of jobs will be lost
    Round 1 has already eliminated 2,500 jobs
    Round 2 is estimated to eliminate 15,000 jobs
CMS administrative costs will absorb the majority of any ``savings'' 
        projected
    Please, I urge you to stop the competitive bidding process. The 
durable medical equipment providers are more than willing to work with 
CMS to help reduce costs, however, this process will, inevitably, 
damage the industry and the patients relying on it.
            Sincerely,
                                         PHARMACEUTICAL HEALTH CARE
                                           Ellen S. Durrence, R.Ph.
                                                     Vice President
                                               Letter Submitted by:
                           Ellen S. Durrence, R.Ph., Vice President
                                         Pharmaceutical Health Care

                                 

       Statement of Eric Sokol and Stephen Azia, Letter
    Dear Chairman Stark and Ranking Member Camp:

    The Power Mobility Coalition (PMC), a nationwide association of 
suppliers and manufacturers of motorized wheelchairs and power operated 
vehicles, applauds the House Ways and Means Subcommittee on Health for 
holding a hearing examining the problems implementing the competitive 
bidding program for Medicare durable medical equipment, prosthetic and 
orthotic supplies (DMEPOS).
    As numerous witnesses at the hearing testified, various bidding 
irregularities were identified and an inordinate number of suppliers 
were unfairly disqualified during the first round of bidding. According 
to the American Association for Home Care, nearly two-thirds of 
accredited qualified DMEPOS suppliers who submitted bids were 
disqualified in the first round.[1]
    Moreover, single payment amounts for competitively bid DMEPOS items 
in the impacted Metropolitan Statistical Areas (MSAs) resulted in a 26% 
cut under current fee schedule amounts. For power mobility devices 
(PMDs), this translates to a 21% decrease across the ten impacted MSAs. 
This cut comes on the heels of a 27% reduction in PMD reimbursement 
when CMS established a new PMD fee schedule in November, 2006. In just 
17 months, therefore, PMD reimbursement will have been reduced by 
nearly 50% in competitive bidding areas.
    Even without these competitive bidding rates being implemented, 
utilization for PMDs has already been negatively impacted. According to 
CMS' own projections, 243,000 prescriptions for PMDs were expected to 
be written in 2007.[2] SADMERC data shows, however, that only 180,000 
PMDs were provided by Medicare or 30% (57,000 beneficiaries) below CMS' 
own forecast.
    As a result of these bidding irregularities, the possibility of 
systemic problems in the bidding process and the further cuts in DMEPOS 
reimbursement that threaten service and access, the PMC supports 
efforts to delay implementation of the program until the all problems 
and irregularities in the bidding process have been identified and 
resolved in a manner that will ensure beneficiaries access to high 
quality DMEPOS items.
    In the alternative, the PMC offers the following recommendations to 
improve the competitive bidding program by establishing a more level 
playing field among bidders, compelling greater supplier participation 
and establishing safeguards to ensure beneficiary access. These 
recommendations include:
             Increasing Transparency in the Bidding Process
    The current bidding process is shrouded in secrecy increasing the 
mistrust between bidders and the Competitive Bidding Independent 
Contractors (CBIC). The PMC recommends that the CBIC share bidding 
methodology and criteria used to establish the single payer amounts in 
impacted MSAs. The PMC recommends that the CBIC release a report, 
shortly after it awards contracts in each bidding round, which sets 
out:

    1) number of total unique bidders;
    2) number of bidders awarded contracts;
    3) criteria of how bidders financial statements were evaluated;
    4) how utilization and capacity was evaluated;
    5) was accreditation reviewed; and
    6) how the single payment amount was calculated for each MSA.
  Allowing Suppliers the Ability to Correct Minor Errors or Omissions
    As numerous witnesses at the hearing testified, many suppliers were 
unfairly disqualified from the initial round of competitive bidding 
because of missing information on their bidding application or 
confusion surrounding bidding instructions. Some of these applications 
could have been easily corrected and suppliers could have avoided 
disqualification if they had an opportunity to cure these applications 
prior to deadline. The PMC recommends that CMS instruct the CBIC to 
alert suppliers within 30 days of submission if their applications 
contain some minor errors or omissions and, further, provide suppliers 
with 10 days to make corrections and resubmit the application.
                    Establishing an Appeals Process
    Under the competitive bidding rules, suppliers have no 
administrative or judicial review for ``the awarding of contracts'' 
under the competitive bidding program.[3]
    The PMC has concerns that CMS can conduct the competitive program 
without any opportunity for administrative or judicial oversight of the 
process. Considering the number of procurements that are set aside each 
year by the General Accountability Office (GAO) and the United States 
Court of Federal Claims based upon government error, it is 
inconceivable that CMS would even suggest such a secret and insulated 
process. This is a recipe for arbitrary and erroneous awards.
    Suppliers who have a reasonable grievance should be able to 
challenge a determination of the CBIC before an independent entity or 
Administrative Law Judge to ensure fairness and due process. Suppliers 
will be staking resources and, in certain instances, survival of their 
business on contracts awarded by the CBIC. As a result, suppliers must 
be afforded the right to contest questionable determinations. Further, 
to ensure no disruption in DMEPOS services to beneficiaries, any 
independent appeals process must be expedited.
    As a result, the PMC recommends that Congress require any 
competitive bidding program to be subject to the traditional judicial 
review of procurements conducted by the government.
           Providing COLA Increase for Single Payment Amounts
    CMS should allow for cost of living adjustments (COLAs) to single 
payment amounts determined under the bidding process. COLA increases 
will ensure that suppliers are fairly compensated if costs increase as 
a result of inflation or other economic pressures. Such an adjustment, 
moreover, will ensure that suppliers won't have to cut back on quality 
or services in order to continue participation in the Medicare program 
and will aid suppliers in meeting capacity targets set out in the 
bidding contracts.
  Monitoring Supplier Capacity and Allow the CBIC to Make Mid-Course 
                              Corrections
    At the hearing, the GAO recommended that CMS closely monitor 
competitive bidding, through beneficiary and supplier surveys and other 
oversight, to ensure access and that contracted supplier's meet 
capacity. The PMC recommends that CMS give the CBIC the authority to 
contract with new suppliers if GAO reports potential beneficiary access 
issues as a result of suppliers failing to meet capacity for a 
particular product in a particular MSA.
Requiring at Least a 10% Savings Before a DMEPOS Item Can be Subjected 
                         to Competitive Bidding
    Given the costs to the Medicare program in establishing and 
implementing the competitive bidding program, the PMC recommends that 
CMS exempt those items and services for which the application of 
competitive bidding is not likely to result in significant savings of 
at least 10%. This will ensure the outlays made by the Medicare in 
implementing a bidding process will pay off in a net savings to the 
program.
     Prohibiting CMS from Extending Single Payment Amounts Beyond 
                       Competitive Bidding Areas
    Under competitive bidding rules, CMS has the authority to extend 
single payment amounts for DMEPOS items to areas that have not been 
subjected to competitive bidding after 2009. The PMC recommends that 
Congress repeal this authority since reimbursement reductions in rural 
or underserved areas will further exacerbate beneficiary access and 
jeopardize the mostly small, ``mom and pop'' operations that serve 
these communities. Suppliers who serve rural and underserved areas have 
to travel great distances to service beneficiaries and often their 
costs are higher since they serve fewer patients and cannot take 
advantage of volume discounts.
     Establishing a Serial Number Tracking Program for DMEPOS Items
    CMS has characterized competitive bidding as an additional anti-
fraud tool. Since the late 1990's, the agency has testified to Congress 
than more needed to be done to address fraud and abuse. In 2001, former 
Health and Human Services (HHS) Inspector General, June Gibbs-Brown 
testified to Congress that the two primary issues the Medicare faces 
with DMEPOS suppliers is paying for products never delivered and/or 
paying for more expensive items that what was actually delivered to the 
Medicare beneficiary.
    Rather than punitively punishing legitimate providers by 
drastically reducing the fee schedule, the PMC recommends that CMS 
establish a serial number identification program that can track 
individual DMEPOS items through the claims process. Under such a system 
DMEPOS manufacturers could report serial numbers to be included in a 
CMS data base. Suppliers would then have to include the serial number 
on their claims, allowing CMS to monitor and track supplies from 
manufacturer to supplier to beneficiary.
    The PMC appreciates the opportunity to comment on the establishment 
and implementation of the competitive bidding program for Medicare 
DMEPOS items. The PMC agrees with many members of the Subcommittee who 
question CMS' characterization of the program's implementation and 
urges Congress to delay any further implementation of the program or, 
in the alternative, implement the above-described recommendations.
    The PMC wishes to note that the Medicare PMD benefit provides 
thousands of beneficiaries with freedom, independence and the ability 
to live healthier and more active lives. PMDs save the Medicare program 
resources by keeping beneficiaries with compromised or limited mobility 
out of more costly institutional settings and decreasing their need for 
hospitalizations by making them safer in their environments. We look 
forward to working with the Subcommittee on appropriate competitive 
bidding program safeguards to ensure that qualified beneficiaries 
maintain access to high quality DMEPOS items and services, including 
PMDs
            Respectfully Submitted,
                                                         Eric Sokol
                                                       PMC Director
                                                       Stephen Azia
                                                        PMC Counsel

                                 

                      Statement of Ford C. Greene
SUBMISSION FOR THE RECORD
    1.  Please explain the rational for not letting everyone who will 
accept Medicare reimbursement for an item remain in the program and 
remain a provider. This decrease in providers WILL stop the advancement 
of NEW technology. In the Cincinnati MSA the three largest private 
companies who specialize in respiratory products and home oxygen are 
OUT of the Medicare program for three years. These three companies use 
the latest and smallest technology for it's patient's. The winning 
companies do not embrace this idea.
    2.  Competative Bidding WILL cost many job's in the MSA area's, 
effecting small business a disproportional amount!
    3.  Why were companies that did not have an office in the MSA 
allowed to bid?

                                                       Ford C Green
                                                                CEO
                                    Green Respiratory Services Inc.
                                                       513-831-0507

                                 

                 Statement of Freeman H. Smith, Letter
Dear Chairman McNulty:

    The American Subcontractors Association, Inc. (ASA) appreciates the 
opportunity to submit comments for the record on employment eligibility 
verification systems and the potential impact on the Social Security 
Administration's core mission of serving retirees, workers and people 
with disabilities. We would like to commend the Subcommittee for its 
leadership on this important issue, and hope that our members' 
experience with work authorization might be useful as you work to 
determine the effects these new systems will have on SSA.
    ASA represents more than 5,000 businesses who are primarily engaged 
in non-residential construction subcontracting. We are also concerned 
about the burden these employment authorization systems will have on 
SSA and believe that both the extent of the burden and the costs that 
will inevitably be born by SSA have not been adequately studied.
    ASA remains committed to working with Congress to enact 
comprehensive immigration reform that will not unduly burden employers 
or Federal agencies. ASA's position on immigration reform calls for a 
comprehensive legislative package that:

      Addresses both future economic needs for workers through 
the creation of a guest worker program and practically
      addresses the estimated 7-11 million undocumented workers 
already in the United States.
      Creates an immigration system that functions efficiently 
for employers, workers, and government agencies.
      Creates a program that allows hard working, tax paying 
undocumented workers to earn legal status.
      Ensures that U.S. workers are not displaced by foreign 
workers.
      Ensures that all workers enjoy the same labor law 
protections.
      Strengthens national security by providing for the 
screening of foreign workers and creating a disincentive for illegal 
immigration.
      Strengthens the rule of law by establishing clear, 
sensible immigration laws that are efficiently and vigorously enforced.

    Thank you again for the opportunity to submit comments for the 
record. I hope you will let me know if we can be of assistance as the 
Subcommittee works to address this important issue.
            Very respectfully,
                                                  Freeman H. Smith,
                                   Director of Government Relations

                                 

                   Statement of Greg Butchko, Letter
To Whom It May Concern,

    My name is Greg Butchko. I own a Medical Supply company in Austin, 
TX that employs three full time employees, one part-time employee and a 
contract sales person. We are growing and expect to add another full-
time employee this summer. I started the company five years ago after 
being laid off from a High Tech Company that I moved my family here to 
work for, which almost sent us into bankruptcy.
    Although Austin is not scheduled to be in a competitive bid MSA 
until Round 2, I am extremely concerned with the information coming out 
as a result of the round one implementation of competitive bidding to 
date for a number of reasons:

      the overlooking of small providers
      a flawed certification/application process
      unfair bidder exclusions
      an excessively short period (10 days) for contract 
acceptance in round one

    My greater concern is that should the commercial payors, which 
already pay at a reduced percentage of the Medicare allowables, choose 
to adopt these new rates, every item we sell will be paid below our 
cost. We will have no choice but to shut down, and I will once again be 
on the street, looking for a way to feed my family.
    The House Ways and Means Health Subcommittee has scheduled a 
hearing on the Medicare bidding program tomorrow (Tuesday, May 6). The 
hearing will begin at 1 p.m. in the Longworth House Office Building. I 
hope that you or one of your staff will attend the meeting and let our 
concerns as a small business in your district be heard.
            Sincerely,
                                                       Greg Butchko
                                                    Sungate Medical

                                 

                 Statement of Henry Ford Health System
    Thank you for the opportunity to submit comments regarding the 
Medicare Competitive Bidding Program for Durable Medical Equipment, 
Prosthetics, Orthotics and Supplies (DMEPOS). I am Nancy Schlichting, 
President and CEO of Henry Ford Health System in Detroit, Michigan. I 
am also President-Elect of the Michigan Health and Hospital 
Association.
    About eighteen months ago, Henry Ford Health System (HFHS) began 
collaborating with health systems in Michigan and other states in an 
effort to prepare for the eventual rollout of the CMS competitive 
bidding program for DMEPOS in 2008 and 2009. Our coalition includes 
Michigan's premier healthcare organizations, such as the University of 
Michigan, Beaumont Hospitals, McLaren, Sparrow, St. John's Health-
Ascension, Munson, Mercy Memorial, Genesys Health System/Ascension and 
Oakwood Health. Michigan has many comprehensive health systems that 
have integrated the full continuum of care, including hospital, 
physician, home-health and DMEPOS services under a single health system 
entity. All hospitals and health systems in Michigan are not-for-
profit.
    Medicare and many private insurers, including Blue Cross of 
Michigan, have encouraged integration of care and reward cost-effective 
care management. Our experience demonstrates that DMEPOS services are 
vital to our ability to release patients from the hospital when they 
are clinically ready to go home, and secondly to prevent unnecessary 
readmissions. These are hallmarks of an efficient and cost-effective 
health system. In order to preserve our ability to integrate care, we 
are seeking legislation that will allow hospitals and health systems to 
provide DMEPOS services for our Medicare patients at a price determined 
through competitive bidding, without risking disqualification under 
competitive bidding.
    The Medicare Modernization Act of 2003 directs CMS to establish 
competitive acquisition strategies for DMEPOS, which CMS has translated 
into a program of competitive bidding with contracts awarded based on 
price, capacity to serve a large number of patients and quality 
standards. During consideration of the final CMS rule in 2006 and 2007, 
we filed comments requesting consideration for the hospitals and health 
systems. The American Hospital Association made similar requests. No 
changes to address our concerns were made in the final CMS rule. We 
fully support the broad goals of competitive bidding on cost savings 
and improved quality for patients. However, we are concerned that the 
final CMS rule fails to recognize a continuing role for hospitals and 
health systems; similar to what has been provided for physicians and 
others.
    Unlike DMEPOS vendors, physicians, hospitals and health systems are 
primarily focused on a broad spectrum of patient care. We are committed 
to doing what is best for the patient and to provide care in the least 
expensive setting. Home care and DMEPOS is an essential link in our 
strategies to provide safe and high quality care outside the hospital 
setting. Where patients and our hospitals currently can count on making 
one call to our own employees for all of the services covered by DMEPOS 
competitive bidding, we will now face an array of separate contractors 
for each of the ten services included under competitive bidding. The 
DMEPOS services are prescribed by physicians. Our hospital discharge 
planners work with patients and families to assure that everything is 
ready when the patient is ready to go home. The prospect of converting 
this efficient and cost-effective process of hospital discharge 
planning into what will necessarily involve a number of unaffiliated 
contractors is daunting and probably not feasible. Many of our Medicare 
patients leave the hospital with multiple DMEPOS requirements, such as 
a wheelchair, oxygen, surgical supplies, diabetic supplies and a bed. 
Coordinating this array of equipment and supplies among many 
contractors will destroy what is now a seamless process and introduce 
the opportunity for mistakes and unnecessary cost. Patients and 
families will face similar difficulties with the unbundling of services 
formerly available from us on a ``one stop shopping'' basis.
    A key barrier to hospital and health system participation in 
competitive bidding is the CMS requirement that all bidders demonstrate 
their ability to serve all Medicare patients in very large regions 
defined through zip codes by CMS. The Henry Ford Health System includes 
7 hospitals and the Henry Ford Medical Group, with more than 1,000 
salaried physicians and researchers in 40 specialties. We provide care 
to more than 1 million southeast Michigan residents per year, and we 
employ more than 22,000 health care workers and professional staff. 
Although our hospitals serve large numbers of Medicare patients (33% of 
total payer mix at HFHS), we are not ready to provide DMEPOS services 
to all Medicare patients in this region without significant new 
investment, and we have no incentive to compete for DMEPOS patients 
from other Michigan hospitals. The final CMS rule does not provide a 
safe haven that would allow us to forge relationships with other health 
systems and create regional hospital-based DMEPOS networks without 
violating anti-trust laws. Because our hospital-based DMEPOS services 
are owned and controlled by HFHS, which has more than $3.2 billion in 
annual revenues, the small business exemption for companies with less 
than $3.5 million in annual revenues does not apply. Our dilemma is 
similar to other health systems in Michigan and other states.
    Most hospitals and health systems are preparing to file bids for 
some or all of the DME services subject to competitive bidding, even 
though we do not expect contracts. Our colleagues in states already 
affected by competitive bidding in 2008 report either disqualification 
or failure to win contracts. For example, the SUMMA Health System in 
Ohio, serving 9 hospitals, was disqualified. BayCare in Florida, 
serving 11 hospitals, was disqualified. Cleveland Clinic in Ohio, 
serving 9 hospitals, was disqualified. The University of Pittsburgh 
Medical Center, serving 13 hospitals in Pennsylvania was not able to 
bid low enough to qualify for a contract. These companies are part of 
our coalition of hospitals and health systems and require immediate 
help.
    A losing bid or disqualification poses a huge threat to our 
hospitals and patients, as well as the communities that rely on us. The 
hospital is a key link in disaster planning, with our DMEPOS employees 
providing essential items and coordination that have proven effective 
for responding in the first critical hours of a natural disaster, such 
as flooding due to a hurricane (in Florida) or a terrorist attack (New 
York). Also, at Henry Ford, we are often called upon to provide DMEPOS 
services at no cost to patients who can't pay, along with home health 
services. We do this to help our patients, but also because the cost of 
equipment and supplies is often less than a hospitalization would be. 
These community benefits will be lost if hospitals and health systems 
are not allowed to participate in the Medicare DMEPOS program. CMS has 
no requirement that contractors participate in disaster planning or 
provide charity care.
    CMS has estimated more than $1 billion savings to the Medicare 
program and patients as a result of competitive bidding. We believe 
this estimate should be revisited to also encompass the significant new 
inpatient costs where our hospitals are not able to discharge patients 
and where patients are readmitted due to the inability or unwillingness 
of an outside contractor to provide services on a timely basis. We are 
also worried about repairs and replacement of equipment that is needed 
to prevent fragile home-based patients from returning to the hospital. 
During the recent power outage that left the Detroit area without 
electricity for several days, for example, DMEPOS vendors advised home-
based patients to call us or return to the emergency room for oxygen 
and other supplies until power could be restored and deliveries 
resumed. We were able to organize supplies with sister health systems 
in the Lansing area for these patients, even though we were not 
responsible for their DMEPOS services. If our hospital-based services 
cannot be maintained, this kind of safety net for DMEPOS services will 
disappear.
    We do not believe a grandfathering for hospital-based DMEPOS 
services would in any way interfere with competitive bidding. For 
example, we have reviewed the CMS listing of the top 100 suppliers of 
Medicare DMEPOS services, which provide approximately 50% of all 
Medicare DMEPOS care to patients. Less than 1% of revenues in this top 
100 group are part of a hospital or health system. The presence of 
hospital-based services in the marketplace is simply too small to 
adversely affect the number of bidders. Similarly, by accepting 
whatever pricing is determined through competitive bidding, we will 
actually contribute to the overall savings anticipated from the 
program.
    The CMS rule includes quality standards for DMEPOS companies, which 
are long over-due. High standards are not new for our hospital-based 
DMEPOS services, since they are already subject to accreditation 
reviews by the Joint Commission on Accreditation of Hospitals (JCAHO), 
as well as transparency of business practices required under IRS rules, 
because they are part of our non-profit health system.
    Our coalition of hospitals and health systems has come together to 
ask Congress for legislation that will preserve our role in providing 
DMEPOS services as part of our continuum of care. Because Medicare 
constitutes upwards of 30% to 40% of our DMEPOS service volume, we are 
not sure that we can continue this service without access to Medicare. 
Our coalition includes 60 hospital-based DMEPOS companies owned and 
controlled by health systems consisting of more than 225 hospitals in 
23 states:
  1. Alaska                       9. Michigan           17. Pennsylvania
 2. Arizona                     10.                       18. Tennessee
                                 Minnesota
 3. Colorado                    11. Missouri               19. Virginia
 4. Florida                     12. New York              20. Wisconsin
 5. Illinois                    13. North            21. North Carolina
                                 Dakota
 6. Indiana                     14. Ohio             22. South Carolina
 7. Iowa                        15. Oklahoma             23. Washington
 8. Maryland                    16. Oregon

    We respectfully ask the House Ways & Means Health Subcommittee to 
consider including in the Medicare package this year legislative 
language that preserves Medicare patient access to DMEPOS goods and 
services currently available through non-profit hospitals and health 
systems.
            Respectfully submitted,
                                               Nancy M. Schlichting
                                                    President & CEO
                                           Henry Ford Health System
                                                     One Ford Place
                                            Detroit, Michigan 48202

                                 

                 Statement of Hugh D. Durrence, Letter
    The Honorable Pete Stark:

    Please accept this letter as my formal request to submit our 
comments for inclusion in the record of the hearing on Tuesday, May 6, 
2008.
    I am a physician practicing family medicine in Charleston, South 
Carolina. As such, I see patients every day that have illnesses or 
injuries that can be treated easily in the patient's home. It is a good 
outcome for everyone; the patient desires to remain in his or her home 
and the government saves considerable money given this option in lieu 
of a hospital or facility stay.
    Having said that, I am deeply concerned that the Competitive 
Bidding Program currently being implemented by CMS is threatening the 
``patient home option''. As a physician, I foresee numerous challenges 
my patients and staff will face under this program.
    Following are some of my concerns:
    Patients, very possibly, will need to acquire home medical 
equipment from various suppliers. Typically, these patients are elderly 
and often times confused by the healthcare maze. Can you imagine an 80-
year old lady coordinating the delivery of home medical equipment from 
2, 3 or even 5 different suppliers for the husband she is caring for in 
the home? Couple that with the ``invasion'' of the suppliers' delivery 
technicians and the required documents each supplier will demand be 
completed upon delivery. You now have an overwhelming situation for the 
caregiver. I would also imagine that each supplier would demand the 
patient pay his or her deductible upon delivery. If equipment is being 
furnished by different sources, who will monitor when and if a patient 
has paid the deductible. For example, Company A is delivering a 
hospital bed and requires receipt of the patient's deductible amount. 
The patient complies, only to have the second supplier arrive moments 
later with the oxygen concentrator. They, too, demand a deductible from 
the patient because they have no confirmation that the patient has met 
the deductible with the first provider. This second provider will not 
leave the oxygen concentrator without payment because the reimbursement 
is such that they can't risk it. Now you have the patient paying 
duplicate deductibles with the hope of being reimbursed from Medicare 
some time later. These patients are often on fixed incomes. This has a 
great potential of being financially damaging to the patient.
    Case workers, discharge planners and physician office staff will 
have an extremely difficult time placing equipment for patients if they 
are required to call several different medical equipment providers. 
Currently, hospital caseworkers and discharge planners are overloaded. 
Thus, they attempt to discharge the patient quickly in order to manage 
their caseload. They must ensure the patient's needs have been met when 
they return home. Under the Competitive Bidding Process, caseworkers, 
discharge planners and physician office staff will triple their already 
overwhelming workload by trying to coordinate the medical equipment 
with various providers. I foresee the ``overloaded'' discharge planner 
or caseworker taking ``shortcuts'' to get the patient out. This could 
be potentially damaging to the patient if appropriate equipment is not 
placed in a timely manner, or not at all. We could expect to see 
hospitals admissions increase as a result, thus resulting in increased 
government expenditures. I would also imagine we could expect to see 
increased patient health issues if the patient does not receive 
appropriate or adequate equipment when ordered.
    Reimbursement rates have been reduced by an average of 26%. How can 
we expect a medical equipment provider to absorb such a significant 
cut? How will they remain in business and assure the patients get the 
necessary equipment? The providers offered a contract under this 
competitive bidding program must provide the equipment under these 
reduced rates for a period of 3 years. There are no accommodations for 
vendor price increases, economy fluctuations, employee wage increases 
or even cost of living increases. The providers that did not get 
awarded a contract will be long gone. What assurances are in place that 
contracted bidders will remain in business? The potential for complete 
loss of equipment access defiantly exists under the current Competitive 
Bidding process.
    I, and many other physicians, am terribly concerned for the 
patient's ability to maneuver this process. I respectfully request your 
immediate action to stop the Competitive Bidding Program and implement 
an alternative cost-cutting option for the medical equipment providers.
            Sincerely,
                                       Hugh D. Durrence, R.Ph, M.D.
                                                          President

                                 

                 Statement of James T. Bragiel, Letter
Dear Congressmen,

    The idea of competitive bidding for durable medical equipment sound 
good on the surface but, it WILL put many small suppliers out of 
business. My company is small compared to the nation-wide providers but 
we are average sized when compared to the multitude to oxygen providers 
throughout the nation. We have seven employees. We cannot even provide 
all the oxygen services to the city of Midland let alone the entire 
state. I cannot afford to staff or buy equipment to cover the state of 
Michigan, and I'm not sure I would even want to do it. I do understand 
that Medicare needs to save money and that there needs to be a 
reduction of prices, even if I don't like it. We now get paid less than 
half of what we did in 1997. I don't know of any other business that 
could survive if that reduction hit their company.
    What I am asking for is to allow the small providers (less than 50 
employee's) to accept whatever price the bidding decides and let those 
small providers continue to service Medicare patients. Please feel free 
to call me regarding this subject. My very existence as a business, and 
that of thousands of other suppliers, hinges on your decision.
            Sincerely,
                                                   James T. Bragiel

                                 

             Statement of Jann Sherin, BS, RRT, RCP, Letter
To the House Ways and Means Committee:

    I am a Respiratory Therapist, and have been a therapist for 38 
years, in homecare for the last 21 years. I was in healthcare when the 
first question that was asked of the patient was ``What's your 
problem?'' as opposed to today where the first question is ``What's 
your insurance?''--And the insurance will determine your treatment and/
or care. Maybe I am ``old school'', but as a healthcare worker, I 
resent it! What kind of treatment or care would you want for you or 
your relative? The sad fact is, ``care'' is exiting from healthcare.
    In an industry that is driven by third party payments with less 
coverage for needed items, higher co-pays, or no pays, and medical 
facilities providing less care, we

are setting ourselves up for disaster. I have never seen an insurance 
reimbursement go up, however gas goes up, heat light and power goes up, 
landlords want increases, but our reimbursements keep going down. In 
homecare, we want to keep the patient out of the hospital, however with 
completive bidding; the patient is going to have no choice but to go to 
the hospital, then watch the healthcare cost! Completive bidding will 
only result in less care. Anyone can deliver equipment. Knowing how to 
use the equipment to its full capacity, reinforcing physicians' orders 
and educating patient and caregivers on disease processes and 
additional ways to manage their disease will be missing. Dr's spend 5-8 
minutes with a patient. We spend whatever time is necessary to insure 
the patient and/or caregiver knows the uses, contraindications, and 
gets the most from the equipment.
    Large DME distributers view this as a distribution business. In my 
opinion by definition, this is a distribution and service business. The 
experts say things will be fine. I invite anyone and everyone on the 
committee to come see my America. Help patients decide on medication or 
food or rent, or electric because they can't afford it. Basics! 
Everyone wants studies. Come out with me and I promise not to let the 
facts get in the way. Please, I urge you to accept this invitation and 
see for yourself. Look at the people your decisions affect and explain 
your position. As an American, I realize that we are a nation of give 
and take. Time has come to stop taking from healthcare and give to the 
nation's assistance. Take care of your people. They make your Nation.
    Thank you for your time to read this communication.
            Sincerely,
                                          Jann Sherin, BS, RRT, RCP
                   Clinical Director, NBN Infusions and Respiratory

                                 

                    Statement of Jim Buteyn, Letter
Dear Member of the Ways and Means Committee,

    In the almost 20 years that I've been affiliated with DME industry 
I've never seen such sad and scary state of affairs as I do today in 
respect to the affects of Competitive Bidding on beneficiary care and 
access and the apparent deliberate attempt to put over 70% of the DME 
stores in this country out of business.
Fact:
    CMS, through its CBIC contractor Palmetto GBA did not contact 
suppliers regarding missing documentation in their applications.
    Palmetto GBA conference moderated by Cindy Dreher in June 2007. 
Page 13 of the document around the 3rd paragraph it states the 
following:
    ``If your bid is not considered complete, including hard copy 
documentation, you will receive an email advising you that your bid is 
not complete. This email is only telling you there is missing 
information. At this time there has been no evaluation of the accuracy 
or completeness of the information provided. The notification is simply 
letting you know whether or not we've received all necessary 
information.''
Fact:
    CMS, through its CBIC contractor Palmetto GBA silently changed the 
rule regarding contacting suppliers about missing documentation from 
their application. Suppliers around the country have before and after 
page prints of the CBIC web site to prove this. CMS, nor its 
contractor, did not disclose this rule change.
Fact:
    CMS, through its CBIC contractor Palmetto GBA awarded bids to 
suppliers who had never previously provided the bid item. Beneficiaries 
will now receive equipment by untrained suppliers who will ``muddle'' 
their way to make the correct assessment of the beneficiaries' needs. 
More disturbing is that some of these bids that were awarded to 
suppliers who had never previously provided the bid item are for 
oxygen, a life-sustaining DME item!
Fact:
    CMS, through its CBIC contractor Palmetto GBA offered 44 oxygen 
bids in the Miami MSA. The Miami MSA is currently served by 501 oxygen 
suppliers. A 91% decrease in oxygen suppliers will not only affect 
daily access by beneficiaries but is also in total disregard of 
Disaster Preparedness. When the next hurricane hits the Miami MSA 44 
oxygen suppliers (if their business has not been affected by the 
hurricane) will not be able to meet the needs of thousands of 
beneficiaries prior to and after the hurricane. It is physically 
impossible. Further review of other bid items shows the same trend.
Fact:
    CMS has been quoted that they disqualified 63% of all received bids 
due to missing documentation. Such a glaringly high number of 
applications missing documentation should have alerted the contractor 
that this figure was far beyond the normal 1-3% average and that they 
may have a problem with the submission system.
Fact:
    CMS, through its CBIC contractor Palmetto GBA awarded bids to 
suppliers in states the supplier is not licensed to provide medical 
equipment in. CMS ignored its own rules on competitive bidding.
Fact:
    CMS has ignored cost of goods increases that suppliers must absorb 
for three years, even if it means taking a loss on the bid item. 
Several bid items are already at or near cost due to the change in the 
current economy.
Fact:
    By CMS's own admission, over 70% of the DME suppliers in this 
country will be closed by the end of the implementation of Competitive 
Bidding. This will be detrimental to beneficiary access and put 
thousands of citizens on the unemployment roll. I do not believe this 
was the intent of Congress.
Fact:
    Some winning bid suppliers are already creating their own rules 
because they no longer have competition. They are doing this by 
refusing to deliver certain small inexpensive items to beneficiaries. 
With no competitors, the beneficiary does not have free access or 
choice. This type of conduct is the beginning of creating the monopoly 
which was forewarned by industry experts. When a monopoly is in place, 
prices go up, not down.
Fact:
    Due to the sporadic awarding of bids beneficiaries will end up 
dealing with multiple suppliers for their medical equipment. These are 
the geriatric citizens of our country, many of whom are confused, very 
ill, or simply do not understand how the system works. They are used to 
going to their local DME store and obtaining everything the physician 
ordered. Under competitive bidding the beneficiary could potentially 
deal with three or more suppliers in order to obtain the equipment.
Fact:
    The physician community is already frustrated and angry with the 
supplier community due to the amount of documentation CMS mandates the 
supplier must obtain from the physician. Under competitive bidding the 
documentation requirements will increase for the physician community 
because the physician will have to complete paperwork for multiple 
suppliers for the patient.
    In closing, I would also like to state that in my opinion the 
implementation of this type of a program is of great grievance to the 
Medicare beneficiaries in this country. Each and every beneficiary 
signed a contract in effect with the U.S. government when the 
beneficiary agreed to pay a premium for Part B Medicare coverage. In 
return for their premium the government agreed to provide the 
beneficiary with open choice for their Part B services. The 
implementation of a competitive bidding program takes away the 
beneficiary's choice and essentially creates the largest HMO in this 
country, financed by the U.S. taxpayer. Beneficiaries who agreed to 
Part B services chose that option because they wanted choice. The 
option for the beneficiary to use those same Part B premiums to 
participate in a Medicare HMO already exists.
            Respectfully,
                                                         Jim Buteyn
                                                Arrow Medical Mgmt.

                                 

                   Statement of Joe Fernandez, Letter
To whom it may concern:

     My name is Joe Fernandez, the owner of Harrisonville Home Health 
Equipment, which has been serving Harrisonville and the surrounding 
rural communities since may of 2002. This prevents many of patients 
from having to travel into Kansas City to take care of their Durable 
Medical Equipment services. We provide an alternative to the bigger 
corporations. For example, we are a friendly face that they recognize 
and trust for all of their home medical equipment and repair services. 
We are a small business that treats each new customer as ``family''. 
They are not just another number to us. We provide a valuable service 
to the people in the Cass County area.
     We find it difficult to compete with the large corporations but by 
offering friendly and quick service we have found our corner of the 
market. However, what Medicare has done with competitive bidding is 
completely unfair and unreasonable for the small business owners of 
America. Competitive Bidding will force the small businessman out of 
business. I have done every thing I could to stay in business. I became 
Joint Commission Accredited and I submitted my bids, only to get back 
bid disqualifications for all my bids. I received BSE-4: (Bidder did 
not submit along with its bid the applicable financial documentation 
specified in the request for bids). I called Medicare and found out 
specifically what I needed to send in for financial documentation very 
early in the bidding process. So I sent in the financial documentation 
along with all 5 of my bids. Harrisonville Home Health Equipment deals 
in many areas of medical equipment and supplies. We provide a valuable 
service to the community and physicians. However if we lose our 
contract with Medicare to supply Standard Power Wheelchairs, Scooters 
and Related Accessories we will be forced into Bankruptcy and we will 
have to close our business.
     It doesn't make any since with the way the economy is right now to 
force a large volume of businesses into bankruptcy and increase 
unemployment for hardworking Americans. This is a big industry and it 
will have a big impact that will be felt everywhere in the United 
States. In most cases the government would step in and stop such a 
hostel take-over or prevent certain disaster for American businesses. 
But the government just wants to add kindling to the fire we our 
already under.
            Thank you for your time
                                                      Joe Fernandez

                                 

                    Statement of Joel Israel, Letter
To whom it may concern,

    I received an e-mail from HomeCare Magazine this morning advising 
me of this hearing to take place on May 6th.
    It is my opinion that this whole Competitive Bidding process is 
nothing short of ridiculous. My DME business has been caring for people 
in my area for nearly 70 years, and between the cut backs and now the 
Competitive Bidding, I will probably be forced to close my doors, 
placing my staff on unemployment, and forcing myself into early 
retirement.
    You seem to have completely overlooked the small business people, 
who have been around for very long periods of time, and have built 
long-standing relationships with local customers, their families, their 
doctors and therapists. This is something that most of the so-called 
``chain'' stores can never hope to do.
    Whatever happened to patient care?
    My company employs 5 full time staff members. How can I possibly 
afford the thousands of dollars as well as the man-hours involved in 
the accreditation process? Not to even mention the whole competitive 
bidding process? There is no way I could ever compete with the pricing 
that's afforded to these larger companies.
            Respectfully,
                                                 Joel Israel, Owner
                                           Best Care Medical Supply
                                                 61 Lakeview Avenue
                                                  Clifton, NJ 07011

                                 

  Statement of Laura Cohen, PhD, PT, ATP, and Barbara Crane, PhD, PT, 
                              ATP, Letter
Dear Chairman Stark,

    The Clinician Task Force (CTF) is writing to express member 
concerns and make recommendations regarding competitive acquisition for 
Durable Medical Equipment, Prosthetics, Orthotics and Supplies 
(DMEPOS). Our group is comprised of a nationwide group of 39 members, 
primarily physical and occupational therapists, whose work involves 
providing complex wheelchair seating and mobility services to 
individuals with severe disabilities. All of our members care deeply 
about individuals with disabilities who require wheeled mobility and 
aim to ensure appropriate access to medically necessary technologies. 
Most members of the Clinician Task Force have over 15 years of 
experience practicing in seating and wheeled mobility evaluation, 
recommendation and training.
Overview
    People with severe disabilities need individualized, custom-fit 
power wheelchairs and rehab devices. These complex rehab devices 
represent a very small percentage of the overall power mobility 
benefit. These devices differ greatly from standard power wheelchairs 
in technology and associated services required to provide these 
devices. In order to accomplish the medical and functional goals of 
this small population of Medicare beneficiaries, off the shelf products 
will not suffice; a wide variety of technologies must be available in 
order to meet the specific and unique needs of an individual. As 
clinicians involved in the provision of complex rehab devices to people 
with severe disabilities we believe that competitive bidding will no 
longer allow access to the variety of necessary features and options, 
and the extensive service component that produce highly customized 
equipment. While it is important to remain fiscally responsible 
implementation of this flawed program is incomprehensible. We request 
that Congress intervene by supporting a statutory exemption of Complex 
Rehab from the competitive bidding program.
Round 1 Issues
    Now results of Round 1 of the CMS competitive bidding program are 
available revealing the following concerns:

    1.  the number of suppliers being offered contracts in any given 
CBA is too low to ensure adequate choice of supplier and timely access 
to technologies and services;
    2.  equipment suppliers inexperienced and unknowledgeable regarding 
complex power wheelchairs and rehab devices have been offered contracts 
leaving few, if any experienced suppliers in contracted areas to 
provide complex technologies to Medicare beneficiaries; and
    3.  single payment amounts established for the category of complex 
rehab technology are inadequate to provide access to the range of 
products within specific codes severely restricting beneficiary access 
to medically necessary, custom rehab power mobility, which is needed to 
meet a beneficiaries' daily mobility needs.
Inadequate access to contract suppliers
    Supplier and Quality Standards do not require that a contract 
supplier have a physical location in a CBA or proximal to the Medicare 
beneficiary. Due to the custom nature of complex rehab it is our 
concern that Medicare beneficiaries will not have adequate choice of 
contract suppliers or timely access to contract suppliers. Loop holes 
in the Supplier Standards and Quality Standards have resulted in an 
alarming trend. Companies without local facilities or trained certified 
staff are predominantly the companies that have been offered contracts 
in multiple CBAs. Safeguards implemented have instead left out 
reputable companies with long track records of successful service 
provision.
Inexperienced suppliers without certified Assistive Technology Supplier 
        Staff
    It is alarming to CTF members to learn that the experienced 
suppliers that we have worked with providing complex rehab technology 
services for years have been left out of the competitive bidding 
program. We are told that many have not been offered contracts due to 
errors in application processing. Suppliers have been told that 
requisite materials submitted were missing from their application 
eliminating them from the program with no option for appeal. It is the 
Medicare beneficiaries that will loose when they can no longer work 
with experienced and certified ATSs that they have life long 
relationships with in regard to their complex rehab technologies. The 
combination of price reductions eliminating the related services that 
accompany complex rehab and the availability of primarily suppliers 
with little to no experience in complex rehab will completely disrupt 
the service delivery process.
Severely restrict product availability
    It is apparent from the announced single payment amounts that 
beneficiaries will be denied access to the range of products included 
within specific code categories. Similar to the issues identified by 
CMS in relation to full support surfaces included in the bidding 
process for complex rehab technologies are not distinct enough and 
cover a variety of clinical applications, features, levels of 
adjustability and levels of durability. This lack of distinction makes 
applying competitive bidding to those codes difficult and complex.
    It is apparent from the single payment amounts announced for Round 
1 that pricing is based on the lowest product cost within a code 
category. More complex chairs, cushions and postural supports, within 
the same code, significantly exceed announced payment amounts. 
Contracted suppliers will not provide products that exceed their costs 
and therefore Medicare beneficiaries will no longer have access to a 
variety of product within a code category. Furthermore, there simply is 
inadequate reimbursement in most competitive bid areas (CBAs) for many 
bid items further restricting beneficiary access.
Negatively impact clinical outcomes
    CMS requires Medicare beneficiaries to be evaluated by a licensed/
certified medical provider (LCMP) to determine complex rehab technology 
needs. Yet the competitive bidding process undermines this requirement. 
The contracted supplier is not required to provide the specified 
product even when a LCMP specifies and justifies an item. The 
contracted supplier can substitute product for ``comparable'' product 
under the same code. The problem is that ``comparable products'' do not 
necessarily have the same distinct functionalities as the product 
specified as a result of an individual evaluation. Complex Rehab 
Products--chairs to cushions are not easily interchanged. As a result 
contract supplier substitution of specified product with product from 
within the same code will not result in a comparable system negatively 
impacting the functionality of the final system.
    Beneficiaries provided with inappropriate product are prone to 
secondary medical problems such as pain, decrease in functional 
ability, pressure ulcers, aspiration, and orthopedic deformities. Costs 
associated with the treatment of secondary complications can range from 
medication to hospitalization and surgery. For instance the cost to 
heal an ulcer can range from $5,000--$40,000. The occurrence of 
secondary medical complications resulting from the provision of 
inappropriate bid products can easily negate any savings that may be 
obtained from the bidding program especially for complex rehab 
technologies.
Increased costs to beneficiaries
    Beneficiaries in medical need of products that exceed the single 
payment amounts can obtain medical documentation from a medical 
professional indicating the need for a specific product however the 
contract supplier is not required to provide that product even if ample 
justification and rationale are provided. The Medicare beneficiary will 
need to go to each of the other contracted suppliers to determine if 
they can obtain the required product elsewhere. If all contracted 
suppliers refuse to supply the needed item (because supplier cost 
exceeds single payment amounts) the only other option the Medicare 
beneficiary has is to go to a non-contract supplier, sign an advanced 
beneficiary notice (ABN), and pay cash to obtain the product. 
Previously reimbursed products obtained by Medicare beneficiaries are 
now only available by self pay further constricting the DMEPOS benefit.
    Medicare beneficiaries will only obtain access to the lowest cost 
products. Cheaper less robust products will be provided to Medicare 
beneficiaries. The final rule regarding competitive bidding does not 
require contract suppliers to repair beneficiary owned equipment, 
therefore, contract suppliers will not be required to service the items 
they sell. And, since unreasonable bids were used to develop the single 
payment amount, other non-contract suppliers will not be able to afford 
to repair these items either, leaving Medicare beneficiaries struggling 
to find a supplier willing to repair their power wheelchairs or paying 
for repairs directly.
    For the beneficiary who relies on a power chair for mobility, 
getting payment for a repair is almost secondary to getting the repair 
done in a timely and efficient method. Reliability of product is of 
primary importance to beneficiaries relying on power chairs.
Summary
    By design the competitive acquisition program reduces cost to the 
Medicare program at the expense of product quality and access. It is 
clear from the published single payment amounts for round one that 
contract suppliers can only provide the lowest level product within 
each code category simply because supplier cost for most complex 
technologies exceed the single payment amounts in many codes.
    We urge Congress to take the following steps:

    1.  Exempt complex rehab devices from the competitive bidding 
requirement as the cost savings resulting from competitive bidding will 
be derived from inferior equipment and a decrease in service resulting 
in devices ill-suited for use by those with severe disabilities. The 
average savings that Medicare will experience due to competitive 
bidding of complex rehab technology is much less than reported.
    2.  Exempt complex rehab from the competitive bidding program. 
Competitively bidding complex rehab technologies is inappropriate, 
undermines the evaluation by the licensed/certified provider and puts 
the clinical outcome of Medicare beneficiaries at risk.
    3.  Request an audit and report from CMS of all potential contract 
suppliers of complex rehab to ensure there is a physical location with 
full service repair facilities within the CBA in proximity to the 
Medicare Beneficiary and ensure that certified Assistive Technology 
Supplier staff is employed on staff PRIOR to announcing winning 
contractors.
    4.  Request that CMS conduct a thorough assessment of the variety 
of products in each HCPCS code compared to the single payment amount to 
ensure that beneficiaries will continue to have access to medically 
necessary products through a viable reimbursement structure and report 
back to Congress.
    5.  Mandate that CMS rescind the pricing established for 
replacement parts and allow the current fee schedule amount to be paid 
for replacement parts for power mobility devices to ensure beneficiary 
access to repairs.

    In the end it is the Medicare beneficiaries in greatest need of 
power mobility that are harmed by a bidding program which may be 
applicable to ``commodity'' products being applied to ``Complex Rehab 
Products''. To date CMS has failed to pay attention to ongoing public 
comment and concern. Now we ask Congress to intervene.
    These same beneficiaries are the ones that have been most affected 
by the many policy changes that have occurred over the past several 
years restricting access to power mobility devices in the name of 
fighting fraud and abuse. There needs to be a balance between fiscal 
responsibility and ensuring access to quality technologies for the 
beneficiaries that need it.
    We appreciate your consideration of our requests and hope you 
understand our concerns. If additional information is required, please 
contact either Laura Cohen at 404-370-6172 or Barbara Crane at 860-529-
4936.
            Sincerely,
                                           Laura Cohen PhD, PT, ATP
                                        Barbara Crane, PhD, PT, ATP

                                 

                 Statement of Manyvone Champavannarath
    In my opinion the system is never going to be right. The people who 
are making these decisions will never understand what people with 
disabilities go through every day. All they see are words and numbers 
on paper.
    I challenge each person who is making the decisions to think about 
the following when making decisions: Imagine you are a quadriplegic and 
have limited services. Can you imagine what it's like having to depend 
on someone for everything? Can you understand how it feels to have to 
wait for four hours to use the bathroom? Do you know what it's like to 
sit in your own excrement for hours? Can you understand how disgusting 
that feels? Can you imagine having to ask a stranger to help you get a 
coke at the store? Imagine being hungry and not being able to get 
something to eat for yourself. Can you imagine what it's like to have 
your stomach growl and you cannot do anything about it? Can you 
understand what it's like to drool and not be able to wipe your own 
face? Imagine what it's like to have your eyes burn and not be able to 
do something about it. Can you imagine what it's like to sit at the 
computer and not be able to turn on the lights when it gets dark? 
Imagine what it's like to come home and not able to do anything until a 
staff person comes on duty. Can you understand what it's like to drop 
something on the street and you cannot pick it up? Imagine having to 
wait for a stranger to come by and then you have to ask that stranger 
to pick up the thing you dropped. Imagine being alone and have your 
nose itch and you cannot scratch it. Imagine what it's like to be in 
one position for fourteen hours a day. These questions need to be 
considered when decisions are being made regarding the disabled.
    Please do not tell me that you understand because you truly cannot 
understand unless you are disabled. No one understands unless they are 
disabled or have taken care of a person with disabilities. Don't get me 
wrong--I love my life, but the system makes lives for people with 
disabilities tremendously more difficult than it already is.
                                           Manyvone Champavannarath
                                                            Area 14

                                 

                 Statement of Matthew J. Rowan, Letter
Dear Chairman Stark:

    Thank you for holding the Health Subcommittee hearing on May 6 
regarding Medicare's competitive bidding program for durable medical 
equipment, prosthetics, orthotics and supplies (DMEPOS). On behalf of 
the Health Industry Distributors Association (HIDA), we appreciate your 
consideration of the following comments for the record. HIDA is a 
nonprofit trade association representing approximately 200 distributor 
companies that provide medical-surgical supplies and equipment to 
numerous hospitals, nursing homes, and home health agencies across the 
United States. Our members account for roughly 80 percent of the 
medical products distributed through the healthcare supply chain. The 
competitive bidding program will significantly impact providers that 
serve Medicare beneficiaries in the nursing home, homecare, and 
extended care markets.
    HIDA strongly recommends that the Centers for Medicare and Medicaid 
Services (CMS) postpone the July 1, 2008 implementation of Round 1 in 
order to address procedural flaws surrounding the implementation of the 
DMEPOS competitive bidding program. We also ask the agency to delay 
further implementation of Round 2 until the effects of Round 1 can be 
fully evaluated. With administrative spending becoming one of the 
fastest growing expenditures in healthcare, HIDA feels that Congress 
needs to evaluate the projected vs. actual administrative costs thus 
far associated with implementing the competitive bidding program. In 
the final rule 42 CFR Parts 411 and 414, CMS estimates internal costs 
and costs to its contractors to be approximately $1 million in 
immediate fixed calendar year costs for contractor startup and system 
changes for Round 1. HIDA believes that the analysis in the final rule 
significantly underestimates the actual administrative costs associated 
with implementing the program, therefore further reducing the program's 
net savings.

    1. Medicare beneficiaries are poised to face disruptions in 
service, in addition to reduced quality. In an effort to preserve their 
business opportunities with Medicare, suppliers may substitute products 
with lower quality and less expensive equipment and reduce the non-
equipment services they historically provided as part of the bidding 
package of home medical equipment and services. This occurs as 
suppliers strive for ways to reduce operation costs. Suppliers are 
beginning to feel the impact of the lackluster economic conditions 
currently afflicting the country. Costs associated with the price of 
raw materials needed for packaging, nutrition, and transportation have 
escalated since the September 25, 2007, Round 1 bidding deadline. 
Financial pressures on suppliers may result in a reduction of support 
services that have been traditionally offered to beneficiaries, or 
planned for prior to the increase in production costs. Hospital 
discharge planners will be forced to either place patients under the 
care of suppliers with no established track record of service, or to 
delay discharge. Additionally, a significant challenge facing 
beneficiaries will be obtaining competitively bid products from 
multiple and unfamiliar contract suppliers, depending on the types of 
home medical equipment services and items that are needed.
    2. CMS must allow more time to educate beneficiaries on the effects 
and resulting changes of the competitive bidding program. It has been 
projected that close to four million Medicare beneficiaries will be 
impacted by Round 1 of the competitive bidding program. With the 
apparent lack of beneficiary education tools in place prior to the 
Round 1 implementation date, the program will inevitably undermine 
access to quality care for millions of beneficiaries that rely on the 
Medicare Part B benefit. The current implementation timeline indicates 
that CMS has only allowed one month to bring Medicare beneficiaries up 
to speed on the impact of the program. The current timeline will cause 
confusion and interrupt the continuity of care for beneficiaries. 
Unless Round 1 is delayed, and proper steps are taken to adequately 
educate beneficiaries, CMS will be forced to inform patients and 
physicians that their Medicare beneficiary access will suffer as they 
can no longer utilize their current provider on most supplies.
    3. The contract evaluation process needs to be re-evaluated. 
Medical-surgical suppliers with winning bids were only allowed ten days 
to assess the contract. However, the competitive bidding implementation 
contractor (CBIC) had six months to review the bids. This is a very 
short period of time for a supplier to evaluate the pricing impact, 
contract terms and conditions and determine whether they will accept 
the contract. Moreover, winning bidders have no information regarding 
how many other suppliers were offered contracts in the product 
category, to determine how many competitors will be serving the market. 
This is critical information to determine whether the supplier can 
financially sustain the business at the bid rate.
    Furthermore, an alarmingly high number of legitimate long-standing 
companies who have been offering extended care and homecare services 
for decades were unfairly disqualified from the program for reasons 
that appear to be erroneous. Reports from various suppliers indicate 
that the CBIC has made serious errors that led to disqualifications of 
round one bids in nearly all of the first ten bidding regions. 
Disqualification from the supplier selection process has serious 
ramifications for Medical-Surgical providers, and CMS needs to 
immediately develop a diligent and thorough review process to ensure 
that all disqualification decisions are valid. Those who have been 
improperly disqualified need to be readmitted into the contracting 
process.
    4. Further implementation of Round 2 needs to be delayed until 
Round 1 can be properly assessed. On January 8, CMS announced 70 
additional metropolitan statistical areas (MSAs) and eight product 
categories for the second round of the competitive bidding program. 
Moving forward without a thorough evaluation of Round 1 will limit the 
ability of suppliers to continue to serve key providers and patients--a 
dangerous process that will have negative effects on patient and 
provider choice and the downstream quality of care. The program may 
also force suppliers to serve markets where they have no experience--a 
shift that's poised to significantly diminish the quality of service 
and patient care. CMS must carefully evaluate phase one of the 
competitive bidding program in order to ensure that subsequent phases 
are successful and implemented in a rational and logical manner. CMS 
must use beneficiary surveys, as well as supplier surveys, to evaluate 
the success of Round 1 and share this information with the provider 
community and the public, solicit feedback, and make necessary changes 
to improve the developing program.
    5. Long term care (LTC) facilities should be excluded from Round 2 
of the DMEPOS competitive bidding program because the Medicare 
Modernization Act addresses the delivery of products and services in a 
home health care setting. Nursing homes are a very unique setting 
compared to home care:

      LTC distributors prepare unique utilization and control 
procedures to conform to each nursing home's needs, which are 
integrated into their clinical staff requirements.
      LTC distributors' products are standardized to all 
residents based upon each nursing home's specific clinical protocol.
      Product availability is a major requirement for a 
provider serving a skilled nursing facility (SNF). A typical LTC 
distributor carries ample DMEPOS stock to service the Part B patient's 
and non-Part B patient's requirements of all SNFs in their MSA. A 
typical LTC distributor has 20,000-40,000 square feet of storage and 
stocks all major manufacturers and formulas. The LTC distributor has 
the ``safety stock'' to respond to multiple emergency requests for 
DMEPOS from multiple SNFs within hours. Home care providers do not have 
the storage, or the ``safety stock,'' to respond in less than several 
days. These shortcomings are a clear detriment to the patient.

    DMEPOS suppliers that serve these two separate and distinct end-
users are well-qualified and experienced in their specific markets. To 
force one or the other to serve both end-users will result in 
confusion, errors, and the failure to serve patients adequately. In 
addition, CMS allowed LTC facilities to ``opt out'' of the DMEPOS 
competitive bidding 3-year demonstration projects in the chosen MSAs. 
Given this information, it appears clear that CMS recognizes the 
difficulties in requiring LTC facilities to adhere to the same 
requirements as a home care setting.
    6. The citing of competitive bidding site demonstrations as 
beneficiary ``quality and access success stories'' for the program is 
inaccurate. The bidding that occurred during the demonstration projects 
in the Polk County, Florida and San Antonio, Texas MSAs were served by 
current beneficiaries that were grandfathered in using their current 
supplier. This is the reason that no complaints or problems with 
beneficiary access were recorded, as the demonstration project only 
affected new patients in these areas. HIDA strongly believes that 
without implementation of the changes above, the competitive bidding 
program is poised to limit the ability of suppliers to continue to 
serve key providers and patients--a dangerous process that will have 
negative effects on patient and provider choice and the downstream 
quality of care. CMS needs time to examine the issues that HIDA has 
risen on behalf of our member companies participating in competitive 
bidding. The integrity of the competitive bidding system, Medicare 
beneficiary access, and the financial viability of medical-surgical 
distributors are at stake.
    HIDA appreciates the Subcommittee's proactive approach and we look 
forward to working with Congress and CMS on this critical issue. Thank 
you for taking the time to review our concerns and consider our 
comments.
            Sincerely,
                                                   Matthew J. Rowan
                                                  President and CEO

                                 

  Statement of National Association for the Support of Long Term Care 
                                 (NASL)
    The National Association for the Support of Long Term Care (NASL) 
submits this statement for the record in connection with the Ways and 
Means Subcommittee on Health hearing on May 6, 2008 regarding the 
Medicare competitive acquQisition program for Part B items and 
services.
    NASL is a national trade association representing providers of 
ancillary products and services to the long-term care and home care 
industries. Our member companies provide medical equipment, as well as 
therapy services, diagnostic services, software systems and other 
ancillary services, to those care settings.
    The focus of this hearing was the new competitive bidding program 
for medical equipment, prosthetics, orthotics, and supplies (DMEPOS), 
created by Congress in the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Public Law 108-173). The Centers for 
Medicare & Medicaid Services (CMS) in the Department of Health and 
Humans Services (HHS) issued final regulations in April of 2007 
implementing the program. Currently, the first phase of the program 
(Phase 1) is slated to begin on July 1, 2008 for ten product categories 
in ten of the largest metropolitan statistical areas (MSAs) in the 
country. The program is scheduled to be expanded to seventy additional 
MSAs in 2009 and to additional areas after 2009.
    Our statement may be summarized as follows:

    1.  The competitive bidding program is likely to impair beneficiary 
choice and access to care because the limited number of ``winning'' 
suppliers probably do not have the capacity to serve all beneficiaries 
in the competitive bidding areas. CMS grossly miscalculated the number 
of suppliers that would submit bids and we are concerned that many of 
the ``winning'' suppliers may lack the expertise, knowledge of the 
localities and overall capacity to adequately serve entire competitive 
bidding areas.
    2.  Long-term care facilities should not have been included in the 
program. Despite the fact that Congress's clear intent and the entire 
legislative debate on the competitive acquisition provisions of the MMA 
were focused on home care, CMS decided to include the nation's long 
term care facilities (``LTC facilities'' or ``nursing facilities'') in 
the very first phase of the new, largely untested program. In 
particular, this will affect the provision of enteral nutrition (tube 
feeding for patients who cannot take food orally and/or digest and 
absorb adequate nutrition from traditional nutrient sources), the 
product area where there would be the biggest impact on LTC facilities 
in the first phase of the competitive bidding program.
    3.  The median price methodology utilized to determine the 
``winning bids'' is flawed. Under the median price methodology, half of 
the ``winning bidders'' will be reimbursed at a rate below what they 
bid. This untested method is dramatically different from the approach 
used in the pilot programs and has the potential to negatively impact 
both access to and quality of DMEPOS items and services.

    NASL supports fully the Congressional goals of promoting high-
quality care for Medicare beneficiaries while achieving improved 
management of costs. However, we are worried that immediate 
implementation of the program without modification likely will limit 
beneficiaries' access to and choice of quality DMEPOS. We also are 
concerned that application of this program to DMEPOS provided to 
patients in LTC settings will not only fail to meet the goals set by 
Congress, but will unfairly disadvantage small suppliers that have 
special expertise in supplying these necessary items to LTC patients 
and thereby harm patient care. We believe that Congress should rethink 
the competitive bidding program, and at a minimum, we appeal to 
Congress to delay its implementation.

1. Medicare Beneficiaries' Access to and Choice of Quality DMEPOS will 
        be Limited because the Low Number of ``Winning'' Suppliers Lack 
        the Established Capacity to Fully and Effectively Provide 
        DMEPOS Items and Services.
    NASL believes that beneficiaries' access to and choice of quality 
DMEPOS will be impaired if the competitive biding program is 
implemented on July 1. Only 1,335 bids across the ten product 
categories in ten MSAs were ultimately selected as ``winning bids,'' 
representing 22 percent of the 6,209 bids received by CMS. The number 
of bids actually received and selected by CMS pales in comparison to 
the 15,973 bids that CMS anticipated receiving and CMS' estimation that 
a bidding supplier would have a 60 percent chance of being selected as 
a winning bidder in at least one product category. See 72 Fed. Reg. 
17992, 18069, 18080 (April 10, 2007). Beneficiaries' access to care and 
choice of suppliers will be limited due to the small number of 
suppliers that will be involved in the program.
    In addition, it appears that many of the suppliers that have been 
offered contracts are not the current primary providers of DMEPOS in 
the competitive bidding areas. For that reason, it appears that CMS is 
in effect turning the DMEPOS program over to suppliers that were 
previously unable to succeed in the market. As a result, many 
beneficiaries will experience a disruption in their services as they 
are forced to transition their care to new DMEPOS suppliers in less 
than two months. The capacity of these suppliers to provide quality 
items and services remains largely unknown and therefore poses an 
excessive and unnecessary risk to Medicare beneficiaries.
    In reviewing the suppliers' capacity issue, we look at three 
elements: 1) a supplier's expertise, 2) a supplier's experience in 
particular geographic areas and 3) whether a supplier can adequately 
service an entire competitive bidding area. Several of the suppliers 
awarded contracts have admitted that they do not have the expertise in 
the product category that they were selected to service. Due to the 
complexities involved with providing DMEPOS items and services, 
expertise in supplying one product category does not translate to 
proficiency in supplying other types of items and services. In 
addition, a surprisingly high number of the suppliers that were awarded 
contracts do not have experience with the geographic regions they will 
be serving. This lack of familiarity with the locality has to affect 
their ability to effectively serve the beneficiaries in the area. 
Finally, the ability of each ``winning'' supplier to provide quality 
DMEPOS items and services to an entire CBA is still an open question. 
Many of the suppliers awarded contracts are small in scope and may not 
have experience providing items and services across a broad service 
area.
    Clearly, there does not appear to be a nexus between the suppliers 
that were awarded contracts and their expertise, experience in 
particular geographic areas or whether they can adequately service an 
entire competitive bidding area. This raises serious questions about 
the suppliers' abilities to successfully service the beneficiaries in 
their competitive bidding areas. It is puzzling how CMS can be sanguine 
with respect to access, quality and choice in light of its 
miscalculation related to the bidding process and its aftermath.
    As a trade association representing suppliers with experience in 
providing DMEPOS to Medicare beneficiaries, NASL is highly skeptical 
that the items and services can be provided as anticipated due to basic 
uncertainties related to the number of suppliers and the overall 
capacity of participating suppliers. It seems unreasonably risky to 
gamble with beneficiaries' access to and choice of medically necessary 
DMEPOS, as well as the quality of items and services that they will be 
receiving, by having the vulnerable elderly and disabled populations 
participate in a program with so many untested and unknown aspects. 
CMS, and Congress, should act on the basis of facts, not assumptions 
that have no precedence.
2. The Competitive Bidding Program Presently Cannot Address the Unique 
        Challenges of Providing Medical Equipment and Services to 
        Patients in Long Term Care Facilities.
    Most Part B items and services within the scope of the competitive 
bidding program are provided in a home care setting by suppliers who 
focus on the home care market and may not have the familiarity or 
expertise to service residents of a nursing facility. As a result, the 
program was developed based on a home care model, which generally 
involves a distribution process designed for beneficiaries who are 
mobile and not institutionalized. However, the clinical needs of 
patients using enteral products in LTC facilities, how these products 
are distributed in the LTC setting, and the particular quality 
standards applicable to nursing facilities are quite distinct from the 
home care setting.
LTC Facility Patients Have Special Needs.
    Residents in LTC facilities are usually older and more impaired 
than home care patients, often admitted after an acute care stay or 
unsuccessful home stay, and require a different regimen of care. For 
example, more than 80 percent of all enteral patients residing in LTC 
facilities require an enteral pump for safe delivery of nutrition, 
while less than half of all enteral patients residing in their home 
have such a need. LTC facility residents often have multiple clinical 
conditions, significant physical limitations, and the need for 
assistance with activities of daily living. In short, they often 
require a range of services beyond enteral nutrition.
LTC Facilities Have Special Relationships With Patients and Third-Party 
        Suppliers.
    LTC facilities have a special relationship with their residents. 
These facilities assume responsibility for coordinating the work of an 
array of clinicians, providers and suppliers to meet residents' 
healthcare needs. Indeed, LTC facilities are subject to Federal 
requirements mandating that ``each resident must receive and the 
facility must provide the necessary care and service to attain or 
maintain the highest practicable physical, mental, and psychosocial 
well-being, in accordance with the comprehensive assessment and plan of 
care.'' 42 C.F.R. Part 483.
    Items furnished to LTC facility residents typically are furnished 
by either the facility itself or by highly specialized suppliers 
working in a close clinical relationship with the facility's nursing 
personnel. The level of clinical management and services related to the 
furnishing of DMEPOS to patients in institutionalized settings is 
substantially higher than that for non-institutionalized patients. In 
fact, the Joint Commission on Accreditation of Healthcare Organizations 
(JCAHO) publishes separate Standards for Tube Feeding for the home care 
versus nursing facility setting. As a result, LTC facilities working 
with third-party suppliers traditionally have established longstanding 
relationships with selected suppliers based on experience, trust and 
respect for their level of professionalism. We believe it is critical 
that these facilities continue to have the ability to select a supplier 
that meets performance and service criteria necessary for the needs of 
their patients. The competitive acquisition program could force nursing 
facilities to use unfamiliar suppliers and potentially interrupt 
ongoing relationships and established and functioning care plans that 
have worked to the benefit of their residents.
Applying the Competitive Bidding Program to Products Supplied to LTC 
        Patients Will Not Fulfill the Purposes of the Program.
    The use of competitive bidding to set prices and pay for therapies 
provided primarily in a LTC setting has not been tested sufficiently or 
successfully. CMS previously conducted a DMEPOS competitive bidding 
demonstration to test the feasibility and the program impacts of using 
competitive bidding to set prices for DMEPOS. CMS included only one 
therapy in the demonstration where the majority of patients are in a 
setting other than the home (i.e., enteral nutrition). The agency 
ultimately removed enteral nutrition from the first demonstration 
project and concluded it was not well suited for competitive 
acquisition in its final report to Congress, due to the complexity of 
the nursing home setting. Importantly, there was no conclusive evidence 
that competitive bidding would produce any clinical benefits for 
residents of nursing facilities.
There is Precedent for Treating the Long Term Care Setting Differently 
        Under Medicare.
    There is precedent for treating the coverage and payments of items 
and services provided to residents in LTC facilities differently than 
those provided to other beneficiaries--namely, in the Part D 
prescription drug benefit. CMS' regulations implementing this benefit 
artfully distinguish between providing drugs to the general Medicare 
population and providing those same drugs to Medicare beneficiaries in 
a LTC facility, subjecting pharmacies that serve LTC facilities to 
different quality and performance criteria than other pharmacies and 
providing distinct payments. According to CMS, providing drugs to LTC 
residents requires ``special attention to ensure the unique needs of 
the vulnerable population are met without compromising the quality of 
pharmaceutical care.'' Issue Paper #26, High-Quality Access to Long 
Term Care Pharmacies (Jan. 21, 2005). Until now, CMS has consistently 
recognized the unique needs of nursing facility residents in receiving 
covered benefits under Medicare law.
3. The Median Price Methodology Utilized to Determine the ``Winning 
        Bids'' is Untested and Unsound.
    Under the median price methodology used to determine the ``winning 
bids,'' half of the ``winning'' suppliers will be reimbursed at a rate 
below their bid. The median price methodology is dramatically different 
from the approach used in the pilot programs, which averaged the 
adjusted bids in the competitive category to determine the payment 
amount. Final Report to Congress: Evaluation of Medicare's Competitive 
Bidding Demonstration For Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (2004). Additionally, the median price 
methodology is not observed in any other Federal bid construct.
    Therefore, contrary to CMS' continuous assertion that the pricing 
methodology has been proven effective, the median price methodology is, 
in essence, an untested initiative. Additionally, the demonstration 
project included a vigorous ombudsman and beneficiary response 
mechanism, which cannot be replicated in the competitive bidding areas.
    Although many of the ``winning'' suppliers may choose to 
participate, beneficiaries' access still could be negatively affected 
if ``winning'' suppliers are unable to provide quality items and 
products to all of the beneficiaries requiring services at amounts 
below their submitted bid prices. Additionally, it would be tragic if 
the quality of DMEPOS items and services were sacrificed in order for 
suppliers to meet the demand in each MSA at an insufficient price. The 
potential for harm to beneficiaries due to reduced access and quality 
is heightened by the absence of the beneficiary protections that were 
present in the demonstration.
Request for Congressional Action
    NASL and several other organizations have raised the concerns 
outlined above with CMS in detailed comments responding to the proposed 
rule to implement the competitive bidding program. Unfortunately, CMS 
did not effectively address these concerns in finalizing the rule and 
is clearly determined to implement Phase 1 on July 1. Because of the 
enormous risk the competitive acquisition program imposes on 
beneficiaries, we ask Congress to delay Phase 1 until the Government 
Accountability Office has conducted an analysis of the impact of the 
reduced supplier pool and capacity issues on beneficiaries' choices and 
access to quality care.
    We also ask that Congress act to limit this competitive bidding 
program to those services where it makes sense and to exempt nursing 
facilities. This exemption would be consistent with congressional 
intent and the plain language of the Social Security Act creating the 
competitive bidding program. LTC facilities already purchase DMEPOS 
through what is essentially a private competitive bidding process. 
There is nothing to suggest that Congress intended to undermine 
institutional purchasing power or replace the current private system 
with a public system.
    For further information, please contact Peter C. Clendenin, 
Executive Vice President, NASL.

                                 

         Statement of National Association of Chain Drug Stores
INTRODUCTION
    Thank you for allowing the National Association of Chain Drug 
Stores (NACDS) the opportunity submit a statement on the impact of 
Centers for Medicare and Medicaid Services' (CMS) competitive bidding 
program for Durable Medical Equipment, Prosthetics, Orthotics and 
Supplies (DMEPOS) on Medicare beneficiary access to life-saving DMEPOS 
items and services from their local community pharmacies. NACDS 
represents approximately 200 companies operating retail pharmacies in 
virtually every community in the country. NACDS represents national 
companies with thousands of retail pharmacies as well as local chains 
that operate as few as four pharmacies. Regardless of their size, all 
NACDS members are very concerned about the competitive bidding program 
and the potential impact it will have on Medicare beneficiaries' 
health.
    Medicare patients obtain coverage for DMEPOS through the Medicare 
Part B program. Durable medical equipment includes such items as 
diabetic testing supplies and monitors, walkers, hospital beds, wheel 
chairs, and oxygen equipment and supplies. Many Medicare beneficiaries 
obtain these supplies from their local pharmacies. In fact, a recent 
study conducted by HealthPolicy R&D found that nearly two-thirds of 
older diabetic patients obtain their diabetic test strips from their 
retail-based community pharmacies.\1\ Retail pharmacies are the largest 
providers of DMEPOS services to Medicare patients and are in a unique 
position to assist patients with their care and treatment and to 
monitor disease trends and therapy outcomes. In many cases, a 
pharmacist is the most readily accessible health care provider in the 
community for the Medicare beneficiary. One-on-one patient-pharmacist 
consultations can often provide the first opportunity to identify 
chronic illnesses and changes in patient conditions, and these 
consultations often result in early detection, referral, and treatment. 
In addition to helping to preserve the patient's health, early 
detection and treatment provides tremendous savings for the Medicare 
program. For many of these patients, the pharmacist serves as a 
gatekeeper assisting them and their caregivers in their health care 
management needs. Continued participation of community retail 
pharmacies in serving Medicare patients should therefore be an 
important consideration in the Medicare program.
---------------------------------------------------------------------------
    \1\ HealthPolicy R&D, Medicare's New Competitive Acquisition 
Program for Durable Medical Equipment: Policy Considerations Involving 
Beneficiaries with Diabetes, Community-Based Retail Pharmacies and 
Blood Glucose Monitoring, Washington, DC, January 2006.
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RECOMMENDATIONS TO ENSURE BENEFICIARY ACCESS TO HIGH QUALITY PRODUCTS 
        AND SERVICES IN THE MEDICARE DMEPOS PROGRAM
    We raise the following concerns and offer our recommendations to 
help the Committee ensure that Medicare beneficiaries have access to 
high quality products and services from their pharmacies. First, CMS' 
requirement for DMEPOS supplier accreditation creates significant 
administrative and financial burdens for pharmacies. Congress should 
require CMS to exempt state-licensed pharmacies from this onerous 
requirement. Second, expansion of the competitive acquisition program 
for DMEPOS to include diabetic supplies sold at retail, or CMS' plan to 
establish national or regional competitive bidding areas for mail-order 
diabetic testing supplies, could limit participation by pharmacies and 
reduce diabetic patients' access to life-saving supplies and services. 
Thus, diabetic supplies sold at retail should not be subject to the 
program and CMS should not expand the mail-order program to include 
these products. Third, we ask Congress to reject any cut and/or freeze 
to the DME fee schedule update as an offset for a delay of the 
competitive bidding program or as a pay-for for other initiatives under 
consideration. We are deeply troubled any proposal to cut and/or freeze 
to the DME fee schedule as that will create significant confusion, 
frustration, and access problems for Medicare beneficiaries and their 
healthcare providers. Fourth, we urge Congress and CMS to monitor and 
review beneficiary experiences and quality of products and services as 
it moves forward with the competitive bidding program. Experiences from 
the first round will help secure beneficiaries' interest and enhance 
the program as CMS moves forward. Finally, we are very concerned that 
beneficiaries in the competitive bidding areas may mistakenly believe 
that they are required to utilize a mail-order pharmacy to obtain their 
diabetic products and services. Thus, we urge Congress to require that 
CMS involve pharmacists and other providers in creating patient 
communication materials to ensure that beneficiaries are properly 
educated about the program.
    State-licensed pharmacies should be exempt from the accreditation 
requirement. The MMA requires DMEPOS suppliers to be accredited to sell 
covered items to Medicare patients and to participate in the 
competitive bidding program.\2\ The goal of this requirement is to 
reduce fraud, waste and abuse in the Medicare program. While we agree 
with CMS on the importance of eliminating fraud, waste and abuse from 
the Medicare program, we do not believe that requiring accreditation of 
state-licensed pharmacies will accomplish this goal. CMS has at its 
disposal a variety of tools to ensure provider integrity in the 
Medicare program, which CMS could pursue instead of the onerous 
accreditation requirement. Accreditation of state-licensed pharmacies 
is an unnecessary requirement that could threaten patients' access to 
DMEPOS supplies from their most accessible health care provider
---------------------------------------------------------------------------
    \2\ CMS has announced that all suppliers must be accredited by 
September 30, 2009 to maintain billing privileges under Medicare Part 
B. Those participating in the competitive bidding program are required 
to be accredited even sooner.
---------------------------------------------------------------------------
    We are concerned that requiring accreditation of pharmacies could 
result in reducing the number of pharmacies that are available to 
supply DMEPOS to Medicare beneficiaries. The costs associated with the 
accreditation process, which can amount to several thousand dollars and 
hundreds of man-hours for each pharmacy, creates a tremendous financial 
barrier for pharmacies that provide DMEPOS items to their patients. 
Pharmacies already struggle to minimize operational expenses to remain 
competitive in the marketplace, and are skeptical of the accreditation 
process because even if they undergo the accreditation process, they 
have no guarantees that they will ultimately be allowed to participate 
in the DMEPOS program. Combine this requirement with the proposed 
reimbursement cuts in Medicaid and other state programs and pharmacies 
are forced to closely examine their expenses.
    Accreditation of state-licensed pharmacies is unnecessary due to 
the comprehensive licensure requirements for pharmacies and 
pharmacists. Pharmacies are licensed by the board of pharmacy of their 
respective states to provide services to patients. As part of their 
licensing process, pharmacies submit to rigorous requirements for their 
operations and compliance with Federal and state laws. Further, state 
pharmacy laws mandate that each pharmacy have a designated pharmacist 
who is responsible and accountable for the operation of that pharmacy 
in compliance with appropriate laws and regulation. Today's pharmacists 
are highly educated, licensed experts in the use of medications and 
medical devices who advise patients and health care providers. These 
pharmacists are ideally situated to provide Medicare patients using 
diabetic supplies and other DME items with appropriate counseling and 
information on the proper use of these items. These qualifications 
clearly distinguish pharmacies and pharmacists from other unlicensed 
and unregulated suppliers.
    While we believe that accreditation should not be required of 
pharmacies, we understand the mandate on CMS to implement the 
accreditation requirement under Medicare Prescription Drug, Improvement 
and Modernization Act (MMA) of 2003. Nevertheless, CMS' recent 
implementation of the accreditation requirement through different 
deadline dates for suppliers with less than 25 locations has resulted 
in inequitable and unfair treatment of smaller suppliers. On December 
19, 2007, CMS announced that existing DMEPOS suppliers enrolled in the 
Medicare program must obtain and submit an approved accreditation to 
the National Supplier Clearinghouse (NSC) by September 30, 2009. New 
DMEPOS suppliers who are enrolled for the first time before March 1, 
2008 must obtain and submit an approved accreditation to the NSC by 
January 1, 2009. However, new DMEPOS suppliers with less than 25 
locations submitting an enrollment application to the NSC on or after 
March 1, 2008 are required to be accredited prior to submitting their 
Medicare enrollment application.
    The accelerated accreditation requirement for existing chain 
suppliers with less than 25 locations that open new stores on or after 
March 1, 2008 is arbitrary and unfair. The tiered accreditation 
deadline based on number of locations creates differential treatment 
for suppliers. Because CMS has conditioned the Medicare supplier 
numbers for new locations of an existing supplier on accreditation of 
the entire chain, the accelerated accreditation deadline also creates a 
back-log for accrediting organizations. Although CMS provided 
additional time, until September 30, 2009, for new and existing 
locations of chain suppliers that have 25 or more enrolled locations to 
become accredited, CMS retained the unfair tiered approach for 
suppliers that do not meet the 25 location threshold. While we 
appreciate the extension provided to suppliers with 25 or more 
locations, CMS should treat all existing chain suppliers with the same 
degree of fairness and create a single accreditation deadline.
    Recommendation: To reduce the difficulties posed by the 
accreditation requirement on pharmacy providers and to ensure patients' 
continued access to DMEPOS items, we urge Congress to specifically 
exempt state-licensed pharmacies from the accreditation requirement. We 
also urge Congress to ensure careful oversight of CMS' administration 
of this and other elements of the DMEPOS program to ensure fair 
treatment of small providers.
    Congress should not allow CMS to expand the competitive bidding 
program to include diabetic supplies sold at retail or to create 
national or regional competitive bidding areas for mail-order diabetic 
supplies.
    The DMEPOS competitive bidding program was mandated by the MMA. The 
program is currently limited to 10 metropolitan statistical areas 
(MSAs) during the initial round and includes bidding for ten categories 
of medical equipment and supplies. CMS has also recently announced the 
second round of the program, which expands the program to an additional 
70 MSAs. While CMS has excluded diabetic supplies sold at retail from 
both rounds of competitive bidding, we urge Congress to require CMS to 
continue this exemption in the future.
    Currently, Medicare beneficiaries can obtain their diabetic glucose 
monitors and testing supplies from any retail pharmacy that 
participates in the Medicare program, allowing beneficiaries to obtain 
all of their covered equipment, supplies, and prescription drugs for 
managing their diabetes from the same qualified pharmacist. As 
mentioned earlier, the majority of older diabetic patients rely on 
their retail pharmacies for their diabetic supplies. Evidence shows 
that pharmacist-based programs can result in clinically significant 
improvements in health outcomes for diabetic patients. Through programs 
such as the ``Asheville Project,'' the pharmacy setting has been shown 
to provide a successful platform for initiatives to improve adherence 
to testing and treatment regimens for patients with diabetes.\3\ Other 
private and public health care programs have also placed the pharmacist 
in a central role in the management of diabetes and other chronic 
diseases. It would be ill-advised to risk disrupting these pharmacist-
patient relationships while further experience is being gained in the 
effectiveness of community-based pharmacies in promoting adherence to 
blood glucose treatment and monitoring regimens.
---------------------------------------------------------------------------
    \3\ Pharmacy Times, The Ashville Project: A Special Report 
(October, 1998), available at http://www.pharmacytimes.com/files/
articlefiles/TheAshevilleProject.pdf (last accessed May 12, 2008).
---------------------------------------------------------------------------
    Unlike other DME supplies, CMS did not evaluate the effects of 
competitive bidding of diabetic supplies during the competitive bidding 
demonstration projects. Thus, expansion of the competitive bidding 
program to diabetic supplies sold at retail pharmacies will create 
significant confusion and frustration to diabetic patients and their 
providers. At a time when Medicare is attempting to move away from 
fragmented care, competitive bidding is likely to interfere with 
patient access and could adversely affect diabetes management.
    Further, the study conducted by HealthPolicy R&D examined issues 
related to competitive bidding of diabetic products and associated 
services under Medicare Part B and noted the following:

      Costs to the Medicare program will increase if access to 
the full range of monitoring options is lost or if the frequent in-
person counseling by retail pharmacists is disrupted.
      The complexity of using glucose monitors, particularly 
for an elderly beneficiary, is a major concern. Pharmacists play an 
important role in helping beneficiaries select the optimal monitors and 
in the correct use of such monitors, both in terms of initial 
instruction and subsequent reinforcement of that instruction over time. 
Much of the professional support originates from the ongoing 
relationship between beneficiaries and pharmacists.
      CMS excluded blood glucose monitors and supplies from the 
DME competitive bidding demonstration project, due, in part, to 
concerns regarding the complexity of matching glucose monitors with the 
appropriate testing supplies.
      The competitive bidding program could operate contrary to 
Medicare's current and future initiatives that are designed to promote 
adherence to blood glucose regimens and reduce overall costs in 
managing diabetes.

    Although CMS excluded diabetic supplies sold at retail from the 
first and second rounds of competitive bidding and diabetic supplies 
sold anywhere from the second round, CMS continues to maintain that it 
will soon create a national or regional mail-order program for diabetic 
supplies.
    CMS' decision to expand the mail-order program for diabetic 
products would not be supported by any evidence that mail-order program 
would ensure quality products and services or guarantees as to 
patients' access to life-saving diabetic products. As CMS' primary 
motivation appears to be financial savings, it is quite likely that a 
winning mail-order supplier may limit access to high quality products 
and eliminate patients' choice in their diabetes care in order to cover 
reduced reimbursement under the mail-order competitive bidding program.
    Further, CMS has not engaged in any study or evaluation of the 
impact of a mail-order diabetes program on patients' health outcomes 
and overall increase in cost to the Medicare program from patients' 
failure to abide to their prescribed testing regimen. As mentioned 
earlier, proper match between diabetic test strips and monitor is 
critical to optimal diabetes management. If patients are unable to 
access proper diabetes test products or find it difficult to manage 
their diabetes with low-quality products, they are much more likely to 
stray from proper testing regimen or stop testing entirely. These 
behaviors are likely in a program that denies access to retail 
pharmacies and could harm patients and increase Medicare spending.
    Like many other chronic diseases, diabetes has a disproportionate 
impact on minority and low income patients. These populations are less 
likely to be able to navigate a competitively bid mail-order market for 
their diabetes products. As retail pharmacies and providers are 
selectively forced out of diabetic supplies business through the 
expansion of the mail-order program, minority and low income 
populations will find it increasingly difficult to access these 
products. Expansion of the mail-order program will effectively compel 
these vulnerable populations to go without proper diabetes management.
    As previously stated, the majority of older patients prefer to 
obtain DME supplies for conditions such as diabetes from their local 
pharmacist with whom they have an ongoing relationship. The presence of 
a licensed pharmacist at their community retail pharmacy gives patients 
the opportunity to discuss the best glucose test monitors for their 
individual needs and the proper matching of the test strips to the 
glucose test monitors. This individualized attention is critical to 
helping increase patient compliance with therapy regimen and improving 
health outcomes for diabetic patients. The benefit of such interaction 
should not be taken lightly as it provides a valuable patient care 
forum for early awareness and treatment of diseases, and translates 
into substantial savings for the Medicare program. Expansion of the 
mail-order diabetes program will make it more difficult for Medicare 
patients to gain access to the community pharmacist they trust creating 
a likelihood for miscommunications and misunderstandings and eroding 
the benefits of the pharmacist-patient relationship that has been 
proven to improve health outcomes and reduce overall health care 
spending.
    Congress should reject proposals to cut and/or freeze the DME fee 
schedule.
    Despite inflation and increased costs in providing DME services, 
some have proposed that the DME fee schedule be cut or the fee updates 
remain frozen as an offset for a delay of the competitive bidding 
program or as a pay-for for other initiatives under consideration. 
Foremost, Congress should recognize that DME fee schedules have not 
been updated to reflect the true cost of providing these products and 
services. We urge Congress to evaluate the administrative costs 
incurred by providers in the DMEPOS program and require the update of 
these schedules accordingly. Absent meaningful reforms, a delay of the 
program funded through cuts to providers will harm Medicare 
beneficiaries and small businesses.
    CMS excluded diabetic products sold at retail pharmacies from the 
first two rounds of the Medicare competitive bidding program in part 
because of the unique nature of this disease and the potential harm to 
beneficiaries. Management of diabetes requires very careful monitoring 
of blood glucose and pharmacists serve in a team comprising of doctors, 
patients and diabetes educators to help patients properly manage the 
disease. Medicare beneficiaries understand that interaction with a 
pharmacist is critical in proper diabetes management, and therefore a 
vast majority of beneficiaries rely on their community pharmacies for 
their diabetic products and services. Therefore, we urge Congress to 
preserve these relationships by ensuring patients have access to their 
local pharmacies and reject any proposal that would cut and/or freeze 
DME fee schedule updates.
    CMS should monitor and review beneficiary experiences and quality 
of products and services.
    NACDS is concerned that CMS' focus on reducing costs of the DMEPOS 
program may force many suppliers to substitute lower quality products 
and services to cover reduced reimbursement under the competitive 
bidding model. We urge Congress to require that CMS evaluate 
experiences from the implementation of the first round of the program 
as it moves forward. In particular, CMS should carefully monitor and 
evaluate whether contract suppliers are able to satisfy demand. CMS 
should also be required to evaluate the impact of the program on 
beneficiaries' access to high quality products and services. All 
results from CMS' evaluation or surveys should be made available to the 
public.
    We also urge Congress to require the Government Accountability 
Office (GAO) to conduct a thorough analysis of beneficiary experiences 
in the program. These analyses should include, among other things, 
impact on health outcomes and increased costs to the Medicare program 
from missed therapies due to beneficiaries' inability to access 
products or navigate a competitive bidding program. We believe that a 
thorough analysis of round one is necessary in advance of implementing 
further rounds of the program.
    CMS should involve pharmacists and other providers in drafting 
patient communication materials.
    With less than two months remaining before first round mail-order 
diabetic supplies contracts go into effect in the 10 MSAs, CMS has yet 
to embark upon an effective patient outreach program. As the first 
round becomes effective on July 1, 2008, patients are likely to be 
confused about where they can obtain their DMEPOS products and 
services.
    In particular, diabetic patients in the 10 MSAs may mistakenly 
believe that they are required to utilize a mail-order facility for 
their diabetic supplies. CMS should be required to clearly state on any 
beneficiary communication material that patients in the 10 MSAs may 
continue to utilize their local pharmacies for their diabetic test 
supplies. As mentioned earlier, interaction with licensed pharmacists 
at retail pharmacies provides benefits that are not achievable when 
patients receive their diabetic products through mail-order. Congress 
should require CMS to work with pharmacists and other healthcare 
providers in developing proper communication materials to ensure that 
patients are not steered away from retail pharmacies, depriving them of 
professional counseling of their pharmacists.
CONCLUSION
    NACDS appreciates the opportunity to work with Congress to ensure 
that our seniors have access to the best healthcare products and 
services. We thank you for this opportunity.

                                 

   Statement of National Coalition for Assistive and Rehab Technology
    The National Coalition for Assistive and Rehab Technology (NCART) 
appreciates the opportunity to submit the following written comments 
regarding Medicare's Durable Medical Equipment, Prosthetics, Orthotics, 
and Suppliers (DMEPOS) Competitive Bidding Program. NCART is a 
coalition of suppliers and manufacturers of assistive and rehab 
technologies. The coalition's mission is to ensure proper and 
appropriate access to rehab and assistive technologies, which CMS 
classifies under durable medical equipment (DME). We sincerely 
appreciate the consideration of the committee and its concerns 
regarding the implementation of the competitive bidding program.
    Throughout the planning through today we have been advocating for 
the exemption of complex rehab products from Competitive Bidding. 
Complex rehab products are medically necessary adaptive seating, 
positioning, and mobility devices that are evaluated, fitted, 
configured, adjusted, or programmed to meet the specific and unique 
needs of an individual with a primary diagnosis resulting from injury 
or trauma or which is neuromuscular in nature. A good example of these 
products is the type of power wheelchair and seating system used by the 
late Christopher Reeve These represent a very small subset of the 
Medicare expenditures yet have a major impact on Medicare beneficiaries 
who are severely disabled.
    The Program Advisory and Oversight Committee (PAOC) advised CMS to 
exempt complex rehab from competitive bidding due to the fact that none 
of the demonstration projects included customized items. Because of 
this, CMS lacked the necessary knowledge regarding the impact to 
consumers. In addition, the PAOC believed that competitively bidding 
complex rehab devices would produce insufficient savings and would 
negatively impact the clinical outcomes of beneficiaries. NCART as well 
as clinical groups and consumer advocacy groups have advised CMS that 
complex rehab technologies are not appropriate for competitive bidding 
and our position on this has not wavered. However, this advice was 
generally ignored and many items classified as complex rehab are 
included in Round 1. Many groups involved in protecting access to this 
technology for Medicare beneficiaries with disabilities are involved in 
on-going efforts to exempt these items from the competitive bidding 
program.
    The exemption of complex rehab has a solid base of support. Major 
disability advocacy groups have held meetings with Congress and 
provided written support. These include the Muscular Dystrophy 
Association, the ALS Association, and the National Council for 
Independent Living. In addition, legislation has been introduced in the 
House and the Senate to provide for this exemption, H.R. 2231 and S. 
2931.
Complex Rehab Should be Exempt
    There are a variety of essential reasons that complex rehab 
technology should be exempt from the competitive bidding program:
    The original Legislation specifically exempted custom orthotic 
devices because they require individual evaluation and fitting. The 
items falling under complex rehab meet this same definition and we 
believe Congress did not intend that these types of items be included.
    Moreover, these items are a very small subset of the Medicare DME 
expenditure, for example less than 10% of the total dollar spent for 
power mobility, yet they are critically necessary for those Medicare 
beneficiaries with diagnoses such as spinal cord injury, traumatic 
brain injury, cerebral palsy, muscular dystrophy, spinal muscular 
atrophy, spina bifida, amyotrophic lateral sclerosis, and multiple 
sclerosis.
    Decreased access to individually prescribed devices will lead to 
poor clinical outcomes--This level of customization does not lend 
itself to competitive bidding. Current HCPCS codes do not adequately 
define or distinguish technologies. Devices that vary in intended use, 
clinical application, technology and price are amalgamated into single 
HCPCS codes with a single payment amount. In many cases the current 
Medicare fee schedule does not allow access to the full range of 
technologies within a code; the reduced single payment amount will 
further block access to critical technologies. Items within a single 
HCPCS code are not interchangeable and therefore will not meet the 
identified medical needs of the Medicare beneficiary. Complex rehab 
devices are individually fit, measured, adjusted, programmed and 
otherwise modified to meet the specific needs of an individual.
    Insufficient savings--Complex power mobility is an extremely small 
portion of power mobility utilization, less than 10 percent of the 
power mobility benefit, according to a CMS contractor. Furthermore, an 
analysis completed by The Moran Company estimated exempting complex 
rehab from competitive bidding would only reduce savings by $46 Million 
over five (5) years.
Implementation Issues Providing Further Evidence of the Need to Exempt 
        Complex Rehab from the Competitive Bidding Program:
    Inexperienced suppliers are allowed to bid--Suppliers that were 
accredited prior to the release of the Quality Standards are considered 
to be accredited and compliant with the quality standards even though 
the criterion used to survey these suppliers at the time does not meet 
the current standards. As a result, inexperienced suppliers, suppliers 
who have never provided complex technology and who do not employ 
knowledgeable or credentialed staff are being allowed to contract under 
competitive bidding. This will impact the clinical outcome of Medicare 
beneficiaries. In addition, these suppliers do not have the needed 
knowledge of the HCPCS codes and the range of technology represented by 
the codes to submit a reasonable bid.
    Suppliers are not required to have a physical location--The 
cumulative effect of Medicare policy and regulation is that suppliers 
are not required to have a physical location in a service area or CBA, 
they are not required to have a technical support staff or credentialed 
rehab technology supplier on their direct payroll. The ability to gain 
market share with no direct costs; the ability to only incur cost 
associated with the provision of a product certainly allows suppliers 
to reduce their over-head and therefore submit a lower bid price. 
However, the impact to individuals with severe disabilities will be 
reduced local presence and reduced access to the critical services 
associated with complex rehab technologies.
    Supplier's express two basic reasons for bidding in an area they do 
not currently have a presence:

      The opportunity to move into a new market and rapidly 
gain market share. With current market leaders potentially eliminated 
combined with the mandatory requirement for beneficiaries to receive 
product from contracted suppliers, there is a strong opportunity to 
gain market share with no financial investment. However, these 
suppliers lack an understanding of the market and the cost to properly 
service the market.
      Opportunity to ``practice'' the bid process. This allows 
suppliers to be prepared to submit a bid in subsequent bidding rounds. 
These bids offered an opportunity for these bidders to understand the 
bid evaluation and to understand how to improve the chance of winning 
contracts in their market. They did not have to worry about the impact 
of their bid amount on the ultimate payment.

    Suppliers are not required to provide service and repair--Because 
contract suppliers knew they would not be required to service and 
repair the devices on which they bid, they had an incentive to lower 
the bid on these parts to strengthen their overall bid. However, the 
bid did establish the single payment amount that will apply to all 
suppliers. Noncontract suppliers will be unable to ensure ongoing 
access to service and repairs because the contracted bid price is too 
low.
Claimed Savings is Erroneous
      CMS used 2005 utilization data to establish item 
weighting--This did not allow a distinction between standard and 
complex power mobility bases and did not identify accessory utilization 
by category. As a result, substantial errors were made in the savings 
calculation:
      2006 coverage and coding changes established a ``Basic 
Equipment Package''--revised code-set and coverage policies were 
implemented in November 2006. The coding changes also added a ``Basic 
Equipment Package''. This package contains many items which had been 
highly utilized with standard power mobility. This package is included 
in the base fee schedule for the power wheelchair and the items are no 
longer separately billable. As a result, there are no additional 
savings for these items; therefore, they should not be included in the 
savings calculation.
      Rarely used or non-covered items included in savings 
calculation--CMS was not able to distinguish accessory use by category 
(standard v complex rehab). As a result accessories were included in 
the complex rehab category bid which are not billed with these complex 
bases. An example is U1 batteries, with an item weighting of 
0.128529214, were included in the complex rehab bid. These batteries 
are not used in complex rehab power mobility bases due to the fact that 
they do not provide enough power to meet the performance requirements 
of the code-set. These smaller batteries are routinely utilized in the 
smaller bases characteristic of standard power mobility. This item and 
others like it should not be included in the calculation of savings.
Conclusion
    It is critical that complex rehab devices be exempted. The strong 
support of the disability groups such as the Muscular Dystrophy 
Association, the ALS Association and the National Council for 
Independent Living.provide solid evidence that Medicare beneficiaries 
are very concerned about the negative impact that is sure to come. The 
legislation introduced in Congress will provide for this relief and 
protection for the Medicare beneficiaries with the most severe 
disabilities. We urge members of the Committee and all members of 
congress to support the passage of HR 2231 and S 2931 at the first 
opportunity.

                                 

               Statement of National Competitive Bidding
    National Competitive Bidding is a way for the Centers for Medicare 
and Medicaid Services (CMS) to reduce the number of providers who will 
be able to deliver and bill for services which are patient preferred 
and provided in the home setting.
    CMS uses Fraud and Abuse as the initiative for reducing the number 
of providers. What is wrong with this? Let us ask you to have CMS 
address the following issues:

      First and foremost over the last 15 years HCFA and now 
CMS has implemented more stringent requirements to become a provider of 
durable medical equipment. One needs to ask; if there is fraud and 
abuse who is overseeing the CMS contractors who implement the 
requirements?
      CMS has the authority to reduce prices through inherent 
reasonableness. Why reduce the number of providers at an expense yet to 
be determined to implement this program?
      Services of Durable Medical Equipment Providers are not 
reimbursed, but they are provided. In order to continue those services 
providers must do business locally. The Competitive Bidding Program has 
few providers in a large geographic area and although the winners are 
permitted to subcontract, who will oversee the quality of services 
delivered? The contracted provider must guarantee quality. If CMS 
cannot control their own perceived fraud and abuse now, how will they 
oversee multi-tiered services?
      Accreditation is mandatory at an expense to the provider. 
In essence CMS has implemented a program where someone will see to it 
that standards are met, at the provider's expense. Most providers were 
voluntarily accredited for years and those who are scrambling to do it 
now are providing minimum services. Many will no longer participate in 
the program leaving the beneficiary with limited choice. Has that been 
considered?
      Gasoline prices were not what they are today when the 
initial bids were submitted. This will certainly impact the service 
component that is not reimbursed, who will oversee that deliveries are 
coordinated and timely?
      CMS pronounces that Beneficiaries will save since their 
co-pay will also be reduced when reimbursement is reduced. The majority 
of Beneficiaries have supplemental insurance or Medicaid. It is those 
on the border of being eligible for Medicaid with an out of pocket 
expense. Will CMS, or Congress ask those supplemental carriers to 
reduce their premiums, because it is they who benefit from a reduction 
in co-pay amounts? The beneficiary saves nothing.
      Limiting the number of providers just limits the 
beneficiary's access to local services. Many are accustomed to going to 
the provider of their choice and have developed a relationship with 
them. Has that been considered?
      Competitive Bidding could and will result in the 
beneficiary receiving services from multiple providers. How will they 
cope with all of that? Did anyone consider that?
      Referral sources handling the continuum of care in the 
home will have to juggle multiple calls to multiple providers to 
coordinate this care. Did anyone consider that?

    While the savings that CMS anticipates are not guaranteed and are 
speculative at best; services to beneficiaries will be negatively 
impacted. There is no doubt that will happen. The beneficiary is not 
considered at all in this obsession to reduce costs at the expense of 
the providers that are relied upon by many. This is especially true 
when CMS could reduce reimbursement without the added cost of 
overseeing yet another contractor and this program.
    If the winning provider fails, what does the beneficiary do then? 
By the time CMS finds out there is a problem you can be guaranteed 
there will not be another provider so eager take over, if there is one 
available at all.
    New Jersey is listed in two MSAs in Round Two, but we have yet to 
receive the area of the state. Is it northern NJ, or all of NJ? The CMS 
Contractor states they do not have the information. Will a provider be 
expected to deliver services from Montauk Point, NY to Cape May, NJ? Or 
is it Allentown, PA to Camden, NJ? We are listed with PA locations and 
NY locations. How could this crucial information not be available?
    With the questions that remain unanswered, we believe that the 
Congressional Oversight Committee should ask specific questions of CMS 
detailing its own oversight of their own contractors. Ask yourself if 
there is fraud and abuse, who pays the claim, who does an on-sight 
inspection of the provider's location, who writes the rules and 
policies, how does CMS measure the quality of service these contractors 
provide? Maybe we should start there before we reduce reimbursement, 
access and the quality of care beneficiaries currently require to 
remain in their homes. The alternative is institutional care, at a far 
greater cost to the program, the patient's family, and ultimately the 
beneficiary that CMS tells us they are protecting. This is a systematic 
dismantling of the program under the guise of reducing fraud and abuse 
and achieving costs savings.

                                 

         Statement of National Home Oxygen Patients Association
    The National Home Oxygen Patients Association (NHOPA) welcomes the 
opportunity to comment on competitive bidding as it affects our 
members, users of home oxygen therapy.
    Our comments focus on what we have seen so far as implemented by 
the Centers for Medicare and Medicaid Services (CMS), what we have not 
seen, and what we anticipate will occur July 1st and thereafter based 
on competitive bidding for home oxygen therapy.
    First and foremost, we must strongly emphasize that bidding for 
oxygen and related services is, by definition, a flawed process because 
the current payment methodology for home oxygen is seriously flawed. 
Competitive bidding for oxygen will likely exacerbate the situation, 
not improve it. Under current statute, payment for new technologies 
such as lightweight liquid systems, portable oxygen concentrators, and 
transfilling systems is based on the pricing for stationary 
concentrators. Simply stated, the statute that ties the payment of 
devices that today cost approximately $2500-$3500 to devices that cost 
$450 is irreparably flawed. Access to these lightweight technologies is 
critical to the oxygen user population, and any effort to reduce 
payment for these devices will unquestionably put a greater strain on 
access to these technologies.
    For example, in non competitive bidding areas, stationary 
concentrators trigger a $199 payment, with an ``add-on'' of either $31 
or $51 for the newer technologies. The former costs a supplier around 
$450, while the latter costs $2500-$3500. The very appropriate downward 
pressure on payment for stationary concentrators has the unfortunate 
effect of reducing payment for other devices, making access to them 
even more problematic.
    Secondly, we were quite chagrined by CMS' claim at the public 
hearing on May 6th indicating that its advisory committee, the PAOC, 
served as an important liaison for input from the consumer community. 
Oxygen is far and away the largest single component of the durable 
medical equipment benefit, yet CMS did not include either an oxygen 
user or a pulmonary physician as part of its advisory board. Our views 
have, bluntly, been ignored by CMS.
    Additionally, in 2007 we were approached by CMS contractor Abt 
Associates to assist in the development of a questionnaire/survey 
instrument to help assess the impact of competitive bidding, yet Abt 
ended that process before completion. It is very difficult to believe 
that there will be an accurate and appropriate assessment of 
competitive bidding unless there is an accurate picture of access and 
quality prior to competitive bidding in the 10 MSAs where competitive 
bidding is slated to begin July 1st, 2008. Simply, one cannot assess 
impact unless one has a fair picture of the provision of oxygen and 
related services prior to July 1st.
    With competitive bidding less than 8 weeks away, to our knowledge 
there has been no direct outreach to oxygen users in any affected MSA. 
If we understand the program correctly, a beneficiary whose supplier is 
not a winning bidder and chooses not to accept the winning bid under 
the ``grandfather'' provisions, will be required to find a new 
supplier. That new supplier is unlikely to provide the identical oxygen 
system, and we understand and appreciate that some educational 
information will need to be provided regarding new stationary systems, 
new portable systems, and new oxygen conserving devices. NHOPA has 
already begun that effort, but we see no movement by CMS to educate 
beneficiaries.
    The beneficiary who must find a new supplier will likely have a 
chaotic July 1st as new equipment arrives and old equipment disappears. 
While a seamless process is possible, we are not exactly confident that 
such a transition will occur. Once the old supplier pulls his equipment 
from the home, unless the new equipment is present and ready for use, 
there could be significant clinical risk.
    In terms of replacement equipment by the new supplier, CMS' own 
pilot study of competitive bidding/oxygen usage in Polk County, FL and 
San Antonio, TX saw a reduction of 30% in access to lightweight oxygen 
systems. CMS has never pursued our concerns regarding that matter, and 
implementation of this program absent such program changes will 
unquestionably trigger similar, dramatic access issues. There is 
already some evidence that access to liquid oxygen systems in 
competitive bidding areas may be problematic, and this is of major 
concern to NHOPA.
    There has been important discussion within the oxygen community 
regarding a slow down of Phase Two of competitive bidding. We believe 
that it is appropriate to implement Phase Two once there has been a 
reasonable and accurate assessment of the impact of Phase One of 
competitive bidding AND time for CMS to adjust the program based upon 
that assessment. We find it hard to believe that such an assessment 
could occur in time for a January 1, 2009 commencement date. We also 
believe that there are ways to achieve ample savings within the 
Medicare home oxygen therapy benefit that would, in the aggregate, save 
Medicare, and the Congress/taxpayers, millions. By establishment of a 
payment system that bases payment on a patient's clinical need as 
determined by the prescribing physician rather than the supplier, and 
basing those payments to align on the cost associated with acquisition, 
delivery, etc., significant savings could be achieved. It would take, 
however, aggressive action by the Congress to implement such changes.

                                 

      Statement of Pennsylvania Association of Medical Suppliers, 
                        Mechanicsburg, PA 17050
Introduction
    The Pennsylvania Association of Medical Suppliers (PAMS) is 
America's oldest state advocacy organization representing the interests 
of home medical equipment (HME) providers. Our membership is comprised 
of companies that are overwhelmingly small and independently owned. Our 
members are in the business of helping people with serious health 
conditions live comfortable lives in their own homes. In doing this, 
our members help the health system save substantial dollars.
    We are able to introduce savings to an ever-more-expensive health 
system because homecare is a low-cost alternative to some of the most 
expensive forms of health care, such as long-term care and 
hospitalization.
Homecare is Cost Effective
    In Pennsylvania alone, the cost to the state's Medical Assistance 
(Medicaid) system to place a single individual in a long-term care 
facility runs an average of about $56,000 per year. In comparison, it 
costs about $23,000 per year to give that person the same level of care 
in their own homes.
    But the savings potential from HME providers doesn't end as an 
alternative to long-term care facilities. People with long-term 
respiratory problems, such as COPD, can receive home treatment for an 
entire year for less than the cost of a single day's visit to the 
hospital. That's an average of about $6.65 per day for in-home oxygen 
care vs. a national average in excess of $4,600 per day for a hospital 
stay. Our home infusion therapy providers offer a variety of life-
sustaining intravenous medications, including chemotherapy, which are 
far more cost-effective than the alternatives of in-patient or out-
patient treatments. The average cost per day of home therapy was $122, 
compared to $798 in the hospital and $541 in a skilled nursing facility 
setting.
    PAMS would respectfully urge you to remember these numbers as 
Congress searches for ways to find savings in the Medicare and Medicaid 
systems. Our industry, in conjunction with home healthcare 
professionals, can provide individual, in-home care for roughly 40 
percent of the cost of long-term institutionalization. We challenge you 
to find another healthcare sector that is capable of making a similar 
claim. And who wouldn't want to remain in their own home given the 
choice?
Competitive Bidding
    The National Competitive Bidding (NCB) program for Durable Medical 
Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) as designed by 
CMS is a fatally flawed and highly unusual version of government 
competitive bidding programs. It is a program that has managed to 
disqualify more than six out of ten bidders for technical reasons not 
related to pricing. The fact that these hearings are even necessary 
should serve as fair warning that CMS managed to do something terribly 
wrong to an exercise that is commonplace at virtually every level of 
government.
    We all know that competitive bidding is normally a simple, 
straight-forward and cost effective process. It is utilized by local 
governments to ensure that trash is collected reliably and at the 
lowest cost possible. It is used by state governments for cost-
effective highway construction and maintenance projects. Our nation's 
military preparedness is largely dependent on a series of defense 
contracts supplying everything from meals and boots to fighter jets and 
aircraft carriers.
    Why is it that these government-run competitive bidding projects 
seem to work flawlessly and yet the CMS DMEPOS competitive bidding 
program has been subject to problems, complaints and criticisms since 
its inception?
    The problems with the CMS bidding process are numerous, but we can 
point to three major problems that differentiate it from successful 
competitive bidding programs and form the foundation for our claim that 
the program is fundamentally flawed--that is, that the program is 
incapable of operating successfully and that it will jeopardize patient 
care if not delayed immediately and thoroughly overhauled.
    The three major problems that create the fundamental flaws in the 
CMS bidding process are as follows:

          It is anti-competitive;
          It misunderstands the nature of successful bidding 
        programs; and
          It is conducted at the retail level.
It is anti-competitive.
    The first major flaw with the CMS bidding process is that it was 
designed to eliminate competition rather than promote it. In the 
Pittsburgh MSA, for example, CMS reported the presence of 289 DME 
providers. In Round One, CMS reported that it offered contracts to 52 
bidders. This means that 82 percent of the competitors in this market 
have been frozen out of competing for Medicare business. More 
importantly, it means that Medicare beneficiaries have lost eight out 
of ten choices for finding the best and most convenient DME suppliers 
to serve their in-home medical needs.
    Eliminating community-based competition on an order of this 
magnitude makes very little sense. Policy makers like the idea of 
competitive bidding because experience has taught us that competition 
is a good thing--especially for consumers. But how can we call a 
program ``competitive'' when one of its chief purposes is to eliminate 
competitors from the marketplace?
    According to the report The Impact of Competitive Bidding on the 
Market for DME (copy attached) by Robert Morris University economics 
professors Brian O'Roark, PhD and Stephen Foreman, PhD, JD, MPA, 
``interference with competitive markets inevitably leads to higher, not 
lower, prices. Indeed, the customer base for medical equipment and 
supplies is expected to grow dramatically during the next 20 years. 
Artificially restricting the market now will lead to substantial market 
failure in 10 to 20 years.''
    Drs. O'Roark and Foreman note that there are many reasons why 
competition is desirable to consumers and the overall public welfare: 
``Prices tend to be lower and consumer options greater.'' The study 
concludes that there may be ``a short-run advantage to CMS if 
successful bidders are willing to cut price (or pay a premium) to gain 
market power, and it may be easier to regulate fewer firms. However, in 
the long-run, the bidding scheme will have traded a competitive market 
for a government-mandated concentrated market. As a result, we will 
have traded small, short-run benefits for major, long-run problems--
poor public policy indeed.''
    The study further points out that the selective capture of such 
major, competitive and established markets runs counter to the most 
fundamental standards of fairness governing the normal operation of 
U.S. markets. ``United States antitrust laws promote and maintain 
competition in the marketplace. Artificial limits on competition are so 
serious that collusion to limit competition is a criminal offense and 
may result in the award of treble damages.''
    The CMS bidding program blatantly manipulates the market for DME, 
eliminates a large number of well established and reputable DME 
providers, and further erects an impenetrable barrier to new entries 
into the market. If privately owned companies were to attempt this 
level of market manipulation, it would be illegal because it would be 
anti-competitive.
    Real competition keeps prices low, gives consumers choices, and 
holds competitors accountable for the quality of their products and 
services. Open markets and competition deliver lower prices and better 
service. The current competitive market for home medical equipment 
works well for consumers and patients and should not be traded for a 
government-mandated scheme that compromises patient care.
It misunderstands the nature of successful bidding programs.
    The CMS bidding process is radically different from successful 
government competitive bidding programs in its incredibly broad scope. 
Normal competitive bidding programs tend to deal with a single and well 
defined product or service. The DMEPOS bidding program, by comparison, 
deals with hundreds of widely varying products that were thrown 
together into a stew in order to arrive at what CMS refers to as a 
``composite bid'' price for each bid category.
    In a peer-reviewed economic study that appeared in the January 2008 
issue of prestigious Southern Economic Journal (copy attached), 
researchers studying the DMEPOS competitive bidding demonstration 
projects in Polk County, FL and San Antonio, TX said that the CMS 
program design demonstrated ``a fundamental misunderstanding of 
auctions.'' In other words, CMS doesn't know how to run a competitive 
bidding program (auction).
    The study said that it is a ``common misconception is that the 
desirable properties of single-unit auctions extend to multi-unit 
auctions. However, recent theoretical breakthroughs show that there are 
actually very few multi-unit auctions that possess the famous 
efficiency and revenue-generating properties of single-unit auctions. 
In fact, the majority of multi-unit auctions are inefficient and can 
deliver vastly different expected outcomes.''
    It should come as no surprise to the authors of the study that the 
CMS bidding program for Round One experienced problems at virtually 
every level and at every stage. The only thing that should surprise 
anyone at this point is CMS's stubborn insistence on pushing through 
such a thoroughly flawed and discredited program. Even the so-called 
``successful'' results invite serious skepticism from anyone familiar 
with this industry. But CMS has not exhibited any curiosity as to how 
it is that the smallest companies with lesser competitive advantages 
were able to outbid the largest companies with superior competitive 
advantages and the greatest incentive to capture market share by 
``purchasing the franchise'' for the markets bid in the form of 
artificially low prices. Although this result may have been an 
undesirable outcome, it at least would have been an economically 
predictable and understandable outcome. The actual outcome of the 
DMEPOS bidding process was neither predictable nor understandable from 
an economic standpoint.
    In addition to the complexities created by the ``multiple units'' 
that were put out to bid in the CMS DEMPOS bidding program, bidders had 
very little guidance on how many units were to be bid. It is standard 
operating procedure for such bids to provide this basic detail so that 
bidders can determine optimal pricing.
    When a local government bids trash collection, the number of 
households and the square mileage of the municipality are known to 
bidders. When a state highway department bids a roadway construction 
project, the length of roadway, number of lanes and materials to be 
used are known quantities. When the Defense Department bids fighter 
jets, the design specifications and number of aircraft to be 
manufactured are known. Again, these are all examples of successful 
government bidding programs.
    By contrast, the CMS program, in addition to the ``multiple units'' 
problem, provided wide latitude on quality specifications and no 
direction on the number of units to be supplied. The latitude on 
quality standards creates an incentive to use low-cost, foreign-made 
medical equipment from foreign manufacturers, such as China, where 
quality control issues in other areas have been widely reported as 
problematic. The lack of specificity on the number of units to be 
supplied created the untenable situation where vendors were left to 
literally guess at how many of any given product they actually would be 
supplying if successful. The fact that anyone bid at all is an 
indication of the extreme duress that the world's largest purchaser of 
medical equipment and supplies placed on the overwhelmingly small 
community-based DME suppliers who populate this industry.
    To make matters worse, CMS and its Competitive Bidding 
Implementation Contractor (CBIC) created the impression that bids would 
be granted in intervals ``not to exceed 20 percent.'' Most bidders and 
other industry observers assumed that contracts were to be assigned to 
five or six providers in each product category. It came as a surprise 
to most to learn that contract awards were offered to 20, 30 or more 
bidders in different MSAs for different product categories. It is a 
very big difference for a bidder to seek product pricing on the 
assumption that someone would be supplying 20 percent of a market only 
to be offered five percent of that market. This is a very significant 
flaw for a competitive bidding program.
    The CMS bidding process was both unusual and unprecedented in its 
scope, sheer size and complexity. This created confusion for most at 
virtually every stage of the process.
It is conducted at the retail level.
    Finally, it is highly unusual for a national product procurement 
process of this magnitude to be conducted at the local retail level. 
Because of the enormous purchasing power of the Federal Government, its 
competitive purchasing programs are typically conducted among a 
relative handful of very large national competitors.
    As has already been noted, retail providers of medical equipment 
and supplies are overwhelmingly small, independently owned and locally 
operated. Such small retailers do not control the costs of production 
or wholesale distribution. Our members are at the very end of the 
distribution chain. They deliver these products and services and make 
sure that patients are properly trained in the safe and proper use of 
the equipment and further ensure that the equipment is properly 
maintained. DME providers are in a very poor position to guarantee 
product pricing for three years since they do not establish product 
pricing.
    It is no more appropriate to ask local DME retailers to bid 
competitively for Medicare business than it would be to ask local 
physicians or dentists. Medicare beneficiaries who utilize such medical 
equipment and supplies are typically elderly, disabled or both. They 
look for DME providers who are competent, reliable and conveniently 
located--just as most would look for a physician. Eliminating 
conveniently located providers, while simultaneously eliminating market 
pressures to provide quality care, is simply wrong-headed.
    Federal bidding programs are normally structured to protect small 
business interests from both larger competitors and the massive 
purchasing power of the Federal Government. CMS is quick to point out 
that 64 percent of its DMEPOS contract offers went to small providers. 
This number is terribly misleading. A large percentage of a small 
number of winning bidders simply covers up the fact that an even higher 
percentage of the overwhelming majority of small retail operations 
serving communities and Medicare beneficiaries throughout the country 
are being placed at the risk of financial failure as a result of this 
program. As already mentioned, 82 percent of DME providers in the 
Pittsburgh MSA will be excluded from participating in the Medicare 
program as a result of this program.
    It is simply wrong for CMS to run roughshod over so many small 
businesses as a matter of administrative ease--the only possible reason 
to seek to eliminate an established and reliable network of retail 
providers of these important medical goods and services. This is a 
network that came into existence because it provides ease of access and 
quality care to Medicare beneficiaries, no different than the network 
of local and independent physicians and dentists throughout the 
country.
    Everyone understands the need to save money in the Medicare 
program. This is an inappropriate and unworkable means toward that end.
Program Viability
    Pennsylvania is home to the Pittsburgh CBA in Round One of NCB and 
the Scranton/Wilkes-Barre and Allentown/Bethlehem/Easton CBAs in Round 
Two. As such, PAMS is greatly concerned about the impact that the CMS 
bidding program will have on our Medicare beneficiaries and the DME 
providers who serve their medical needs.
    At best, we believe that the program savings reported by CMS as a 
result of Round One bidding are questionable. CMS, at the urging of the 
Small Business Administration, once felt certain that it was necessary 
to carve out a guarantee that 30 percent of contract offers would go to 
smaller providers earning less than $3.5 million in gross annual sales. 
The assumption was clear: smaller providers could not compete against 
the overwhelming advantages of the large national and regional 
providers. No one disputed that assumption. Yet, somehow, the smallest 
suppliers managed to not only survive the bidding process, but to 
substantially dominate it, winning 64 percent of Round One contract 
offers according to CMS.
    How did that happen? One theory holds that smaller suppliers were 
fearful that larger suppliers had a competitive advantage in the 
bidding system and didn't trust CMS to recognize them as part of the 
program small business set-aside. The result was that smaller suppliers 
felt compelled to remain viable by bidding at levels that were 
unsustainable. This theory further assumes that bids from larger 
suppliers would reflect more-accurate pricing and would serve as a 
moderating influence on the final composite bid price.
    What, in fact, is likely to have occurred based on the number of 
small suppliers who ``won'' contracts, is that the small suppliers met 
the CMS capacity requirements and larger supplier bids were not needed 
to meet unspecified capacity requirements. The RMU study mentioned 
previously cited the potential for such unfortunate ``favorable'' 
outcomes. It is known in economic literature as the ``winner's curse.'' 
In this case, the so-called winner's curse has led to pricing that is 
not likely to be sustainable over the longer term.
    Industry observers are highly skeptical of the final bid awards and 
this Committee should be concerned about the viability of this 
important segment of the Medicare program. According to Drs. O'Roark 
and Foreman, ``Often the successful bidder will have the low bid 
because it has made mistakes in estimating its future costs at the time 
of bidding. In this case the firms that have won the bids have offered 
to sell the products at inordinately low prices,'' perhaps lower than 
affordable or sustainable--especially in light of skyrocketing gas 
prices and current economic conditions. Consider that gasoline prices 
have risen by more than 65 percent in the nine months since bids were 
originally submitted to CMS in September of 2007. Considering that home 
delivery is a critical component of this business, it should stand to 
reason that something has to give.
    Thus, ``winning'' firms must cut costs. ``The most likely targets 
for cost reductions,'' according to the RMU study, ``are customer 
service and product quality. Such reductions are made easier because 
the NCB program has reduced the number of competitors in each market 
and each of those competitors will be facing the identical cash flow 
problems. ``Consumers will have few alternatives available, so poor 
service is likely to become commonplace.''
    In short, the service provided to Medicare beneficiaries will 
probably fall victim to the proposed DME bidding scheme--as will future 
prices paid by CMS and the public. This is simply the law of unintended 
consequences at work.
    Moreover, the argument that the pricing levels established through 
bidding are indicative of market pricing is misleading. The purchase of 
a commodity through an online internet vendor, for example, is void of 
compliance with any healthcare insurance or accreditation system. It is 
a cash commodity transaction without any regulatory obstacles and does 
not account for any service costs such as 24/7 on-call service, 
facility overhead costs, credentialed personnel, or the significant 
costs associated with billing Medicare. Therefore, it is inappropriate 
to make any comparison to the internet pricing and Medicare allowables.
    Also, as we have previously noted, lesser quality items, reduced 
and disrupted services, access problems and beneficiary confusion will 
lead to additional program costs in the form of hospitals stays, 
physician visits and an increase in 9-1-1 emergency calls in the 
absence of the high quality, around-the-clock service provided by most 
HME providers operating in the current competitive environment. None of 
these factors has ever been identified by CMS in its presentation of 
savings that can be achieved through bidding.
    PAMS strongly urges this committee and this Congress to immediately 
impose a significant delay the implementation of this program, which 
otherwise will be implemented on July 1, 2008. The wide range of 
problems and questions about the program must be independently 
evaluated, and an alternative process to determine payment rates for 
home medical equipment must be explored.
    Homecare is part of the solution for Medicare. It is not the 
problem.

                                 

                       Statement of Robert Brant
    To addresses and raise the specific issues of the hundreds of 
companies affected by the turmoil of the bidding process, and to speak 
on behalf of the millions of patients whose care will be significantly 
negatively affected by the roll out of this process, We formally 
request a representative of the Accredited Medical Equipment Providers 
of America, Inc. (AMEPA) speak at the Hearing HL-24.
    This ongoing bid process was begun in 10 MSA and is slated to be 
rolled out across the nation over the next two years. The initial 
process has been a fiasco, there was a serious manipulation of 
applications' rules after a majority of applications were submitted, 
REGLFEX policies (though required by Federal law) were rejected, and 63 
percent of the applicants were erroneously disqualified with no ability 
the appeal. Senators, Congressmen and senior legislative staff have 
identified these problems as ``gross negligence'' by the Center for 
Medicare and Medicare Services (CMS). The results of which will be a 
limiting of access by patients to much needed care, unqualified 
companies will be providing incomplete services and major metropolitan 
areas will be grossly underserved during times of emergency. In 
addition 17,000 to 21,000 gainfully employed Americans will lose their 
jobs.
    AMEPA is an organization founded by medical equipment providers 
affected in the initial 10 MSA's and is now gaining strength in the 
next 70 MSA's soon to be subject to this flawed process. We are working 
with 100's of providers who were disqualified erroneously or have 
failed to win a bid due to the poor implementation of the program by 
the Competitive Bidding Implementation Contractor, Palmetto GBA, LLC. 
They have joined AMEPA in the hope to communicate with Congress on this 
issue.
    We have included two attachments; the information below is related 
to them and to new developments regarding the competitive bidding 
process. Please review:

      A provider from Texas, applied for and won the Oxygen 
Category in 9 out of the 10 Metropolitan Statistical Areas (MSA's). 
This bid winner has never provided the item before outside of their own 
area. According to Florida State records, the company is not licensed 
by Florida's Agency for Healthcare Administration as a Home Medical 
Equipment Provider. The bid winner does not have a License to deliver 
Oxygen from the State's Department of Health either. They are not 
licensed.
      The first line in the Rules For Bid (RFB) states that 
``All suppliers must--meet any local or state licensure requirements, 
if any, for the item being bid''. Clearly this bid winner did not meet 
the requirements for the bid he won in Miami and Orlando. We believe 
that it was not the intent of Congress to allow something like this to 
happen.
      According to the Rules For Bid (RFB) companies were 
required to prove that they could cover the complete geographical area 
of the MSA prior to bidding. The attachment proves this Bid Winner did 
not have any subcontract agreements in place before they bid, as they 
are currently attempting to find existing providers to do their work.
      This bid winner and other out of state bid winners should 
clearly not have won the bid for oxygen and CPAP. Their bid should have 
been disqualified for not meeting proper licensure requirements. If 
their bid was properly disqualified, their bid price would have been 
removed from the Composite Bid, and all pricing would be affected, and 
other bid losers should take their place.
      Another attachment is from a bid winner in Miami and 
Orlando. This winner has changed their policy and as of April 1, 2008 
(not July 1, 2008) they are refusing to deliver a commode or other bath 
safety products unless the order accompanies Oxygen or another rented 
item. Providers currently compete in the market by providing equipment 
at a low margin in order to keep the referral source happy. Now the bid 
winner does not have to compete for business and is refusing to provide 
these Medicare covered items which are not subject to the bid as they 
are considered inexpensive. If the Bid winner will not provide these 
bath safety products then who will provide them?
      This proves that the program will limit the patient's 
access to care. If the patient cannot get their prescribed medically 
necessary equipment from a bid winner they are unlikely able to get the 
equipment else where as the typical Medicare patient that needs a 
commode cannot travel to a store to purchase a 24 inch by 24 inch by 24 
inch item on their own. It also typically does not fit in a standard 
compact or mid-size automobile. This patient will most likely not pay 
for the equipment to be delivered for an additional fee. The patient 
may likely not get the prescribed equipment at all. It is conceivable 
that this patient may have a home fall due to the lack of proper 
equipment, placing extra costs and utilization in Medicare Part A 
programs such as Hospital, rehab and or future Home Health nursing.
      This also brings into question the ability to discharge 
the patient from the hospital in a timely manner. As liability issues 
often do not allow for the patient to be discharged without the proper 
home medical equipment in place. This will also create increased costs 
and utilization for Medicare Part A. The program may save money in 
Medicare Part B but again will substantially increase costs for 
Medicare Part A.

    There are many specific issues related to the process of bidding 
and the expected results of once this process is in full effect. 
Therefore we again we request the opportunity to have a representative 
discuss these and other findings that AMEPA has discovered at the 
hearing.

                                 

                       Statement of Robert Brant
    The issue at hand is the Competitive Bidding for Durable Medical 
Equipment, Orthotics, Prosthetics and Supplies. We have over 100 
members that feel that they have been disqualified erroneously or have 
failed to win a bid due to the poor implementation of the program by 
the Competitive Bidding Implementation Contractor, Palmetto GBA, LLC.
    There have been several problems with this new bidding process; 
from manipulation of application rules, the rejection of standard 
REGFLEX policies as required by law and the erroneous disqualification 
of 63% of the applicants with no ability to appeal. Senators, 
Congressmen and senior legislative staff have identified these problems 
as ``gross negligence'' by the Center for Medicare and Medicare 
Services (CMS). The results of which will be a limiting of access by 
patients to much needed care, unqualified companies will be providing 
incomplete services and major metropolitan areas will be grossly 
underserved during times of emergency. In addition 17,000 to 21,000 
gainfully employed Americans will lose their jobs.
    I have included the following attachments and would like to discuss 
the following developments:
    A provider from Texas, which has won the Oxygen Category in 9 
Metropolitan Statistical Areas, never provided the item before outside 
of their own area. According to Florida State records, the company is 
not licensed by Florida's Agency for Healthcare Administration as a 
Home Medical Equipment Provider. The Bid Winner does not have a License 
to deliver Oxygen from the State's Department of Health either. I am 
not sure that the company has an Occupational License in the State 
either.
    The first line in the Rules For Bid (RFB) states that ``All 
suppliers must--meet any local or state licensure requirements, if any 
for the item being bid'' Clearly this bid winner did not meet the 
requirements for the bid he won in Miami and Orlando. I also believe 
that it was not the intent of Congress to allow something like this to 
happen.
    According to the Rules For Bid (RFB) companies were required to 
prove that they could cover the complete geographical area of the MSA 
prior to bidding. The attachment proves this Bid Winner did not have 
any subcontract agreements in place before they bid, as they are 
currently fishing for providers to do their work.
    This bid winner and other out of state bid winners should clearly 
not win the bid for oxygen and CPAP. Their bid should be disqualified 
for not meeting proper licensure requirements. When their bid is 
disqualified, their bid price should be removed form the Composite Bid 
and all of the pricing would be affected and other bid losers should 
take their place.
    Another attachment is from a bid winner in Miami and Orlando. This 
winner has changed their policy and as of April 1, 2008 (not July 1, 
2008) they are refusing to deliver a commode or other bath safety 
products unless the order accompanies Oxygen or another rented item. 
Providers currently compete in the market by providing equipment at a 
low margin in order to keep the referral source happy. Now the bid 
winner does not have to compete for business and is refusing to provide 
these Medicare covered items which are not subject to the bid as they 
are considered inexpensive. If the Bid winner will not provide these 
bath safety products then who will provide them?
    This proves that the program will limit the patient's access to 
care. If the patient cannot get their prescribed medically necessary 
equipment from a bid winner they are unlikely able to get the equipment 
else where as the typical Medicare patient that needs a commode cannot 
travel to a store to purchase a 24 inch by 24 inch by 24 inch item on 
their own. It also typically does not fit in a standard compact or mid-
size automobile.
    This patient will most likely not pay for the equipment to be 
delivered for an additional fee. The patient may likely not get the 
prescribed equipment at all. It is questionable that this patient may 
have a home fall due to the lack of proper equipment and that would put 
extra costs and utilization in Medicare part A programs such as 
Hospital, rehab and or future Home Health nursing.
    This also brings into question the ability to discharge the patient 
from the hospital in a timely manner. As liability issues may not allow 
for the patient to be discharged without the proper home medical 
equipment in place. This will also create increased costs and 
utilization for Medicare Part A. The program may save money in Medicare 
Part B but again will increase costs for Medicare Part A.

                                 

                      Statement of Ryan Stevenson
    According to the MLN Matters #SE0807 about competitive bidding, 
``Beneficiaries who are receiving oxygen, oxygen equipment or rented 
DME at the time the competitive bidding program becomes effective may 
elect to continue to receive these items from a non-contract supplier, 
if the supplier is willing to continue furnishing these items''. It 
also states ``if the beneficiary stays with a ``grandfathered'' 
supplier, he or she may elect to change to a contract supplier at any 
time, and the contract supplier would be required to accept the 
beneficiary as a customer''.
    According to current Medicare guidelines, oxygen rents for 36 
months, and then is capped. What happens to the contract supplier that 
has a beneficiary come in to their store that has had oxygen for 35 
months with a non-contract supplier and decides to switch to that 
supplier? They are force to provide oxygen to a beneficiary for one 
months rental, and then give the beneficiary that equipment because is 
has capped.
    Who is to stop non-contract suppliers from recommending to there 
patients to do just that, so that after 35 months, they could get new 
equipment?

                                 

            Statement of Tennessee Association for Home Care
    Views regarding the credibility and viability of the recent low bid 
companies that saturated Round 1 are doubtful to dismal in the minds of 
most industry leaders across the nation. Nearly everyone was surprised 
by these prices. They were much lower than anyone expected and much 
lower than most existing companies with heavy patient demand feel can 
be safely managed. Even the national companies, some of which won no 
bids in some of the MSA sites bid out, were surprised at the final 
price of the bids. How did it happen that far too many of those who 
studied the program the most, who know their business the most, and who 
know better than anyone what it takes to provide the products and 
services to patients in an efficient, cost effective manner now are 
surprised and many cases eliminated by providers who say they can do it 
cheaper? Even CMS forecasted savings 10% less than these prices as 
recent as 2006 according to its final rule for Round 1.
    Is this the great price savings that CMS has bragged about for 
weeks, or is this actually a red flag that may already be signaling 
some of the systemic deep problems with the competitive biding program? 
This question is critically important and must be answered, especially 
in light of the unexpected and radically wide range of prices received 
in these 10 MSA Round 1 zones. We have to find out the answer to this 
and several other questions before we go further into this uncharted 
water. Although HME providers currently do not have the authority to 
obtain this and other important information from CMS, Congress must 
make sure that they receive and review these answers and represent the 
effected Medicare population before this test program advances further. 
It is relevant to know how many of the bid winners have never provided 
services in the bid area before and how many intend to ship most of 
their products to patients via UPS. It is important to know who these 
companies were that sent in these low bids. What percentage of these 
companies did not follow through and actually sign their winning bid 
award that was used to calculate these low prices? For those that did 
sign the contract, what percentage of them are not currently prepared 
today to immediately take on significant amounts of business in the MSA 
market they won?
    We also need to know more about who did not get offered bids. We 
need to know the number of small business bid losers as well as those 
who simply did not try to bid knowing they could not keep up with the 
added costs and reduced fees. If this program was intended to find the 
true market price, why did so many bidders have their bids kicked out 
and rejected entirely because their bids were higher than the 
predetermined limits manipulated and set by CMS? In essence, CMS 
imposed a superficial and unrealistic glass ceiling resulting in CMS 
arbitrarily kicking out all bids that did not meet its contrived preset 
charge limits, resulting in only an extremely small remnant of provider 
bids surviving this arbitrary award process. These results have now 
been disingenuously presented to Congress under the banner of true 
competitive bid market prices that saves 26%. How can such a decision 
of capriciously and recklessly eliminating large numbers of bidders 
that submitted charges over this erroneous glass ceiling, who in good 
faith submitted real market price bids, be allowed to be called a true 
market prices from an open bid process? Since the original intent of 
Congress with this competitive bid program was to find true market 
prices available in each MSA community, all bids should have been 
allowed in the setting of the price rather than only those bids that 
were arbitrarily filtered and hand picked by CMS. If Congress had 
wanted CMS to arbitrarily reset prices for these products this way 
without regard to the true market prices submitted by all providers, 
this could have been done much more simply without all the expensive 
and burdensome process of a competitive bidding process which will cost 
the government hundreds of millions of dollars a year to run. How many 
previous small business providers (as defined by the Small Business 
Association--not CMS) just got eliminated from the marketplace due to 
this careless process, and what will be the impact on the patients in 
those communities?
    John Gallagher, Vice President of Government Affairs for VGM Buying 
Group, who represents over 3,500 independent Home Medical Equipment 
Providers, had some very interesting public comments about this at the 
recent Tennessee Association for Home Care Spring Conference held on 
April 1-3, 2008, in Nashville, Tennessee. He stated ``VGM believes that 
although CMS has stated that small business providers won 64% of the 
bids, by VGM's calculations, 95% of the small businesses in the 
marketplace were actually eliminated.'' There are growing suspicions 
now that far too many of the bid winners do not have locations within 
the MSA market they have been awarded bids for. It is highly likely 
that groups of products were actually bid by out-of-state bidders who 
fully intend to ship the products into that marketplace rather than 
offer them via an existing brick and mortar storefront with accessible 
staff. This begs the obvious question. Just how many bid winners are 
not currently operating in each MSA they won--and never will?
    Several weeks ago I received a phone call from a Tennessee provider 
who has inside information on a small local pharmacy in St. Petersburg, 
Florida, who won the CPAP bid in 8 of the 10 bid areas for Round 1. The 
pharmacy reportedly has no experience with this kind of volume of 
business. The pharmacy owner reports that he is not planning to open 
locations in each MSA but will drop ship all the products via UPS. In 
Tennessee, CPAP items are one of six respiratory items that by state 
law may only be fitted on a patient in the home by a licensed 
respiratory therapist. Most patients require extensive training; over a 
period of several months many need setting adjustments to their CPAP 
equipment and often require a change of mask to for a better fitting to 
obtain patient compliance with the therapy. Patients using this type of 
product need a local provider available to them. Unless the patient 
obtains a good fitting and works closely with their provider, the 
investment in their product by Medicare will be of no value. There is 
no savings on a product that has so poor a service component with it 
that patient ends up not using it. Although this particular provider in 
Florida can not be identified due to a confidentiality agreement 
between the pharmacy owner and the source for this information, it can 
certainly be used as a starting point for congressional investigation 
into the over all nature of this competitive bid model that would 
result in this type of bid award. It reveals just how these prices 
actually ended up lower than expected and lower than what most industry 
experts say is viably possible. I do not believe this type of scenario 
was how Congress expected competitive bidding to be carried out by CMS.
    This model also could very likely be imbedded in all the bids 
throughout the country for several product categories. Whether these 
companies whose winning bids are structured with plans to simply ship 
the products in, later place a storefront there, or not even sign the 
contract once offered, it is all the same in one regard: an extremely 
large number of bid winners and price setters very likely are not tried 
and true tested businesses that are capable and willing to provide 
significant amounts of products and services into that local bid 
market. Many are nothing but speculative start-ups or companies with 
risky accelerated branch growth plans into these markets. Medicare 
patients deserve better. For legitimate quality providers who want this 
privilege and want the option of growing their business into these new 
markets, the option may seem fair. However, a realistic view of the 
players who did this might soon wipe out all the fairness in this 
opportunity as it exists in this current competitive bid model. This 
option may very well have opened the door to careless opportunists, 
insincere players, and companies set on gaming the system causing 
damage to the price formula. Companies new to a MSA can claim the 
smallest of all capacities in order to qualify as a bid, yet their 
price weighs as much as the largest company in the MSA. As currently 
designed, the competitive bid program lacks the checks and balances 
needed to separate these types of bidders from more capable, serious 
providers. The bidding program must be delayed immediately to prevent 
this from harming patients. The system as designed does not prevent 
speculative type bidders from having as much weight and price effect as 
those heavily invested and currently accountable to large patent 
populations within the MSA. As result, bids from providers outside the 
MSA should not be factored in the pricing of the MSA. Providers 
currently with no operations inside the MSA should only be allowed to 
be factored as eligible bidders from a capacity perspective if their 
bid is low enough, but their bid offer should not be factored in the 
final MSA price. Outside bids are too arbitrary, meaningless, and 
unaccountable since they have no current or any guaranteed future 
obligation to service patients in that MSA. As such, there is 
absolutely no credibility in the 26% savings initially announced by 
CMS.
    New problems associated with this new phenomenon are plentiful. Too 
many bidders were permitted to bid who have no significant current 
investment cost--or any risk for that matter--related to the submission 
of their speculative bid into these markets. Even if their lower bid 
causes them to be offered a contract, they can simply say no to the 
offer without losing any preexisting revenue or profit streams from 
that market. The bid, however, remains in the formula for that MSA 
affecting other providers as if it was valid. This careless 
unreasonable decision is another example of why CMS must have more 
accountability and Congress must permit judicial review for this 
program. Should the low bidder from outside the market choose to sign a 
contract, they would also be able to do so with unfair and unreasonable 
options not available to the other bidders located in the area with 
preexisting business revenue. In fact, under the current competitive 
bidding rules, the new company could operate in a way that they could 
choose to never take on any significant revenue by limiting their 
marketing for their services. In essence, they become a bid winner with 
nothing invested and nothing to lose, but they have equal power to 
change the ``reasonable price'' of that market even though they have no 
real accountability or risk to prove the price is in fact reasonable 
(more reason to not factor their bid in the final price). If and when 
they begin operations, if things do not work out, they can simply close 
operations and leave before they make too sizeable investment into the 
marketplace. The failure of this system is that the weight of their bid 
is equally as heavy as the bid of an existing company who is fully 
invested with the necessary overhead required to legitimately run a HME 
program and already burdened with the heavy demand of existing 
patients.
    The real world cost of doing business is naturally and rightfully 
factored into the bids of pre-existing providers in a MSA. In general, 
their bids should in most cases be higher. Speculative bidders and 
bidders who would have the right to enter the marketplace in a timid 
and cautious manner do not have the same risk factors as existing 
providers. This is unfair and unreasonable gaming of the system at its 
worst. More importantly, they do not have the same responsibility or 
accountability to immediately provide for the needs of the Medicare 
patient community in ways that can predictably be assured or in ways 
that preexisting companies must factor into their bids. Bid winners new 
to a MSA with no current operation there should suffer significant 
penalties if they fail to fulfill their bid capacity obligation 
assigned to them at the expense of an existing provider who is 
currently providing services to beneficiaries. No such penalties exist 
under this competitive bid model. Their current lack of accountability 
to the program and the patient community disrupts and discredits the 
entire competitive bid system and puts patients at risk. This problem 
and the fact that their low bids weigh the same as a high volume bidder 
are two critical key issues that must be cured before the competitive 
bidding program is allowed to continue. As the model is currently 
designed, companies bidding in a new MSA are free and able to be bid 
spoilers with no risk, no loss, and no consequences for placing a bid 
that is below their actual ability and in many cases their will to 
perform. This is simply wrong.
    These speculative bidders who have nothing to lose may well have 
damaged the integrity of the entire bidding process in Round 1 with 
their low speculative bids, and they could lead to destroying the 
entire viability of the competitive bidding program in the future 
rounds if the model is unchanged. This should never have been 
permitted. The model is flawed. Two separate competitive bidding 
financial studies predicted such gaming of this system, and one 
notified CMS as early as 4 years ago that this would occur. More 
detailed information about both of these studies will be presented as 
part of the comments to the House Ways and Means Committee today by the 
American Association for Homecare. CMS has paid no regard to such 
warnings and therefore has now permitted the systemic problems related 
to the poor design of this competitive bidding model to begin to 
recklessly and dangerously eliminate a large number of legitimate cost 
effective providers in these Round 1 MSA communities. This is poor 
public health management and irresponsible government at its worst, yet 
there is no judicial review, no due process, and no regulatory 
oversight in place to investigate, mitigate, or cure any of these 
problems. Our legislators deliberately granted CMS the ability to run 
this program unchecked as they saw fit regardless of its potential harm 
to Medicare patients, their families, and the HME provider network. 
This must be reversed. It is simply un-American.
    I suspect if we could go further into the peeling off the onion, we 
would find more and more areas that prove this program, in its current 
format, stinks from one end to the other. Therefore, it is critically 
important that Congress quickly recover from the initial intoxication 
of the announced 26% savings and look at the real picture. Congress 
must intervene immediately before it is too late, requesting a delay in 
Round I and Round II and demanding needed transparency of these issues 
so that these pitfalls can be identified and altered before they are 
allowed to harm patients and destroy a large portion of the quality 
providers throughout these MSA communities all over the country.

                                 

                    Statement of Wayne E. Stanfield
    There is a crisis facing over 40 million Medicare beneficiaries 
called Competitive bidding for durable medical equipment (DME). On 
behalf of those patients served by over 113,000 DME suppliers, I am 
writing to ask for your help.
    The Medicare Modernization Act of 2003 (MMA03) included, in 10 of 
its 415 pages, a sweeping change that is now being implemented. This 
portion of the law, giving broad power to the Center for Medicare and 
Medicaid Services (CMS) and removing all due process from suppliers, 
will have a devastating impact on Medicare beneficiaries who need care 
in their homes. This program puts the most needed categories of medical 
equipment out to the lowest bidders. It will begin July 1, 2008 in 10 
cities and will expand to 70 additional cities next July.
    The outcry from this small but vital component of patient care has 
not been heard and we ask for your support to end this pending disaster 
about to affect millions of lives. CMS has turned a blind eye to the 
true impact this ill-conceived program will have on the lives of our 
seniors.
    This is bad public policy and in reality there is nothing 
competitive about a process that will reduce access to physician 
ordered medical equipment for Medicare patients at a time when that 
population is growing everyday by 7918 seniors who turn 65 year old.
    For more than four years patient advocates, political leaders, DME 
industry leaders, and economists have advised members of both the House 
and Senate of this impending train wreck. Now is the time to act on 
this matter and we ask you to intervene. Economic studies clearly 
indicate that this program will harm patients and will decimate tens of 
thousands of small businesses in every state.
    Congress must stop the implementation of this program before it is 
too late. I implore you to stand and be counted on this issue. The 
enclosed disk has a petition with signatures and comments of over 5000 
Americans who clearly see the human disaster this program will cause. 
Included also are facts that have already come to light about the 
problems with the program as well as the studies produced by two 
leading universities.
    We believe in our democratic process and know that Congress can act 
to stop this travesty from happening. As a spokesman for the patients 
and suppliers that will be so harshly affected by competitive bidding, 
I ask you to join other members of Congress in telling CMS to STOP 
implementing this program and I urge you to support legislation to 
repeal this portion of the MMA03.
    Thank you for your support for this time sensitive, critical issue 
and look forward to hearing from you on this matter. Please contact my 
office if I can provide any additional information.

                                 

                   Statement of Zachary A. Schiffman
    My name is Zachary Schiffman. I am the owner of United States 
Medical Supply, Inc., a licensed and accredited national durable 
medical equipment (DME) provider of primarily mail-order diabetic 
supplies employing over 170 people in Miami, FL. As an accredited DME 
provider for over 10 years, we support Medicare's efforts to save money 
and reduce fraud; however, CMS's (Center for Medicare & Medicaid 
Services) Competitive Bidding Implementation Contractor (CBIC) has not 
performed its fiduciary responsibility to run a fair process in the 
DMEPOS Competitive Bidding Program mandated by Congress through the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003. 
I am requesting the committee petition to CMS to stop and reevaluate 
the competitive bidding program due to the implementation contractor's 
complete bungling of the bidding process. I urge this on behalf of 
myself, my company, the Medicare program's integrity, the DME industry, 
and all Medicare beneficiaries.
History of events
    Medicare was charged by the MMA Act of 2003 to institute 
competitive bidding program for DME items initially in 10 cities and 
then to roll it out in phases nationally. To institute the program, CMS 
hired a Competitive Bidding Implementation Contractor (CBIC). The CBIC 
failed in its job to properly administer the program in many ways most 
notable being 1) the bid price; and 2) the bid capacity; and therefore 
this first round of bidding must be halted and reassessed immediately.
Bid Price
    The CBIC was supposed to ensure the integrity of bids by ensuring 
that low ball bidders did not corrupt the system. The CBIC failed to 
perform this fiduciary duty. Case in point, mail order diabetic 
supplies were dealt a 43% drop in reimbursement as proposed by the 
CBIC. At first glance, this would appear to be a windfall savings for 
the Medicare program. It is not. This low price is the result of low 
ball bidding by unsophisticated mom and pop operations and a few 
unscrupulous larger low ball bidders. We have personally conducted 
interviews with some of the winning bidders and can attest that they 
consciously bid below what they could realistically provide in order to 
just ``win the bid.''
    The CBIC requested financial statements from all bidders. A simple 
analysis by the CBIC of these financial statements would have shown 
that a 43% reduction in reimbursement was unsustainable and 
unprofitable for even the lowest operating cost companies. This 
analysis could have been easily been performed by the CBIC simply by 
reducing a company's revenue line by said company's proposed percentage 
discount of the company's bid versus the current allowable price paid 
by Medicare. With keeping all expenses the same, a new ``post bid'' net 
income could be attained. I can assure you that no legitimate company 
in this industry would be in any way even close to profitable with a 
43% revenue reduction. It could be said that perhaps some expenses 
could be reduced such as marketing and some trimming of the fat, but 
such cost savings would not nearly bring any company close to 
profitable at a 43% revenue reduction. In fact, with the small number 
of winning bidders, the winning bidders will have to make substantial 
capital investment to handle such capacity increases (see capacity 
section) and with such a cut in reimbursement, there would be no money 
to pay for said expansion.
    In example of the lack of proper vetting of low ball bidders, 
Liberty Medical (owned by Polymedica and since purchased by Medco) 
provides about 50% of the mail-order diabetic supplies to Medicare 
beneficiaries. Due to their sheer size and market dominance, they 
arguably have the lowest costs for product available. Their EBITDA 
(earnings before interest, taxes, depreciation, and amortization; and a 
close barometer of cash flow) margin is about 13% per SEC filings. 
Therefore, Liberty, the lowest cost provider, could not bid more than a 
13% reduction in reimbursement and be able to sustain its business. 
Now, perhaps say they could trim some expenses and advertising. This 
could not account for increasing the maximum discount they could bid to 
more than about 20%. This is a far cry from the 43% reduction to be 
implemented by CMS as per the CBIC's negligent handling of this 
process.
    Suffice it to say, Liberty (the 50% market share holder) did not 
win a bid. Neither did any of the other public companies that had a 
fiduciary responsibility to bid in such a way to run a sustainable 
business. Proof positive that the CBIC failed in its job to not allow 
low ball bidders.
    The CBIC should have disqualified any bid that would have 
bankrupted a company by negating its profit margin or at the very least 
they should have changed said implied discount on low ball bidders bids 
to be equal to their EBITDA margin thus to not allow them to submit a 
price that they could not sustain.
    The CBIC performed no such analysis. As per interviews we have 
performed with said low ball bidders, the CBIC simply asked to see 
invoices for products from extremely low bidders to determine if their 
bids were too low. Said bidders simply submitted invoices for their 
lowest cost, lowest quality off brands and the CBIC took the bids as 
the gospel with no analysis of other basic operating costs such as 
payroll, rent, etc., etc. In fact, the proposed bid price by the CBIC 
is below the actual contract prices of 90% of the manufactured products 
by market share such as those of Lifescan, Roche, and Bayer.
    This in and of itself would be a travesty to let go further and 
Medicare beneficiaries will suffer with low cost, low quality products 
much less if these low ball bidders even remain in business.
Bid Capacity
    The CBIC was supposed to ensure the integrity of bids by ensuring 
that the selected providers would be able in total to service the 
capacity demand of the markets they service. The CBIC failed to perform 
this fiduciary duty. The CBIC requested all bidders estimate the 
capacity increase that they could absorb if they won a bid. The CBIC 
was supposed to assess whether this proposed capacity increase was 
indeed accurate and throw out the bids of providers who overstated 
their potential capacity to block out other providers. The CBIC appears 
to have done no such analysis.
    In mail-order diabetic supplies, there are over 500 providers. Only 
about 20 companies won bids. What are the other companies to do? In 
fact, the top 3 companies, Liberty, CCS Medical, and Access Medical, 
totaling a market share over 75% did not win bids. In order to meet the 
same capacity of these top 3 providers, the CBIC would have had to 
select more than the next 50 providers. They obviously did not. The 
drop off in volume of the providers past the top 10 drops off so 
substantially that providers 11 to more than 200 would have to be 
selected to reach the same capacity as the top 3 providers. Since less 
than 20 providers won and none of the top 3 won AND at least 25% were 
mandated to be small providers, it is obvious that the CBIC made no 
efforts to ensure that unscrupulous bidders didn't bid low and grossly 
over estimate capacity to knock legitimate companies out of the 
process.
    At the very least, the CBIC should have capped any provider's given 
capacity increase to an arguably aggressive 20-50% over the capacity 
for the previous year. They did no such thing. In fact, given that it 
is obvious that the CBIC accepted tremendous capacity increase 
estimates from its bidders, substantial capital investment will be 
required by these providers. As per the extremely low bid prices (see 
previous section) these winning bidders will have no resources to even 
attempt to achieve these capacity increases let alone the fact that the 
creation of a growth platform takes not only money, but time in 
numerous regards such as acquiring space, training people, implementing 
infrastructure, etc. In fact, The CBIC proposes that these winning 
bidders (who will obviously have to substantially increase their 
capacity beyond reason) begin to be the sole providers to Medicare 
beneficiaries for the product categories they won in 3 months! Another 
example of the bungling of this process by the CBIC.
    In light of the above, I implore you to make all due haste in 
stopping the DME Competitive Program until the CBIC can justify its 
methods in light of the above obvious errors.

                                  
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