[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
MEDICARE'S COMPETITIVE BIDDING PROGRAM FOR DURABLE MEDICAL EQUIPMENT:
IMPLICATIONS FOR QUALITY, COST AND ACCESS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 15, 2010
__________
Serial No. 111-155
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
HENRY A. WAXMAN, California, Chairman
JOHN D. DINGELL, Michigan JOE BARTON, Texas
Chairman Emeritus Ranking Member
EDWARD J. MARKEY, Massachusetts RALPH M. HALL, Texas
RICK BOUCHER, Virginia FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey CLIFF STEARNS, Florida
BART GORDON, Tennessee NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois ED WHITFIELD, Kentucky
ANNA G. ESHOO, California JOHN SHIMKUS, Illinois
BART STUPAK, Michigan JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York ROY BLUNT, Missouri
GENE GREEN, Texas STEVE BUYER, Indiana
DIANA DeGETTE, Colorado GEORGE RADANOVICH, California
Vice Chairman JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania GREG WALDEN, Oregon
JANE HARMAN, California LEE TERRY, Nebraska
TOM ALLEN, Maine MIKE ROGERS, Michigan
JANICE D. SCHAKOWSKY, Illinois SUE WILKINS MYRICK, North Carolina
CHARLES A. GONZALEZ, Texas JOHN SULLIVAN, Oklahoma
JAY INSLEE, Washington TIM MURPHY, Pennsylvania
TAMMY BALDWIN, Wisconsin MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York PHIL GINGREY, Georgia
JIM MATHESON, Utah STEVE SCALISE, Louisiana
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont
Subcommittee on Health
FRANK PALLONE, Jr., New Jersey, Chairman
JOHN D. DINGELL, Michigan NATHAN DEAL, Georgia,
BART GORDON, Tennessee Ranking Member
ANNA G. ESHOO, California RALPH M. HALL, Texas
ELIOT L. ENGEL, New York BARBARA CUBIN, Wyoming
GENE GREEN, Texas JOHN B. SHADEGG, Arizona
DIANA DeGETTE, Colorado STEVE BUYER, Indiana
LOIS CAPPS, California JOSEPH R. PITTS, Pennsylvania
JANICE D. SCHAKOWSKY, Illinois MARY BONO MACK, California
TAMMY BALDWIN, Wisconsin MIKE FERGUSON, New Jersey
MIKE ROSS, Arkansas MIKE ROGERS, Michigan
ANTHONY D. WEINER, New York SUE WILKINS MYRICK, North Carolina
JIM MATHESON, Utah JOHN SULLIVAN, Oklahoma
JANE HARMAN, California TIM MURPHY, Pennsylvania
CHARLES A. GONZALEZ, Texas MICHAEL C. BURGESS, Texas
JOHN BARROW, Georgia
DONNA M. CHRISTENSEN, Virgin
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
C O N T E N T S
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Page
Hon. Frank Pallone, Jr., a Representative in Congress from the
State of New Jersey, opening statement......................... 1
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 3
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 4
Prepared statement........................................... 6
Hon. Phil Gingrey, a Representative in Congress from the State of
Georgia, opening statement..................................... 11
Hon. Gene Green, a Representative in Congress from the State of
Texas, opening statement....................................... 12
Hon. Joseph R. Pitts, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 13
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, opening statement................................. 13
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, opening statement.............................. 14
Hon. Diana DeGette, a Representative in Congress from the State
of Colorado, opening statement................................. 16
Hon. Marsha Blackburn, a Representative in Congress from the
State of Tennessee, opening statement.......................... 16
Hon. John Barrow, a Representative in Congress from the State of
Georgia, prepared statement.................................... 18
Hon. Ralph M. Hall, a Representative in Congress from the State
of Texas, opening statement.................................... 19
Hon. Bruce L. Braley, a Representative in Congress from the State
of Iowa, opening statement..................................... 20
Hon. Betty Sutton, a Representative in Congress from the State of
Ohio, opening statement........................................ 21
Hon. Anna G. Eshoo, a Representative in Congress from the State
of California, opening statement............................... 22
Hon. Kathy Castor, a Representative in Congress from the State of
Florida, opening statement..................................... 23
Hon. Joe Barton, a Representative in Congress from the State of
Texas, prepared statement...................................... 158
Witnesses
Laurence Wilson, Director, Chronic Care Policy Group, Center for
Medicare and Medicaid Services, U.S. Department of Health and
Human Services................................................. 24
Prepared statement........................................... 27
Answers to submitted questions............................... 193
Daniel Levinson, Inspector General, Office of the Inspector
General, U.S. Department of Health and Human Services.......... 47
Prepared statement........................................... 49
Kathleen King, Director, Health Care, U.S. Government
Accountability Office.......................................... 60
Prepared statement........................................... 62
Answers to submitted questions............................... 210
Karen Lerner, Registered Nurse, Wound Care, Support Surface and
Rehab Specialist, Allcare Medical.............................. 106
Prepared statement........................................... 109
Alfred Chiplin, Jr., Managing Attorney, Center for Medical
Advocacy....................................................... 123
Prepared statement........................................... 124
Nancy Schlichting, President and CEO, Henry Food Health System... 131
Prepared statement........................................... 133
William Scanlon, Health Policy Consultant........................ 141
Prepared statement........................................... 143
Submitted Material
Statement of AARP, submitted by Mr. Waxman....................... 163
Statement of the American Hospital Association, submitted by Mr.
Dingell........................................................ 168
Statement of Premier, submitted by Mr. Dingell................... 169
Statement of ConvaTec, submitted by Mr. Burgess.................. 171
Press release by Lincare Holdings, Inc., submitted by Mr. Hall... 174
Letter of August 11, 2010, from 135 Members of Congress to the
Centers for Medicare and Medicaid Services..................... 175
Response from Administrator Berwick.......................... 182
Statement of Ron Klein, a Representatitve in Congress from the
State of Florida............................................... 185
Letter of Septemember 13, 2010, from Hon. Jim Langevin to U.S.
Department of Health and Human Services, submitted by Mr.
Shimkus........................................................ 187
Statement of the Diabetes Access to Care Coalition............... 188
MEDICARE'S COMPETITIVE BIDDING PROGRAM FOR DURABLE MEDICAL EQUIPMENT:
IMPLICATIONS FOR QUALITY, COST AND ACCESS
----------
WEDNESDAY, SEPTEMBER 15, 2010
House of Representatives,
Subcommittee on Health,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:10 a.m., in
Room 2123 of the Rayburn House Office Building, Hon. Frank
Pallone, Jr. [Chairman of the Subcommittee] presiding.
Members present: Representatives Pallone, Dingell, Eshoo,
Green, DeGette, Barrow, Castor, Sarbanes, Sutton, Braley,
Doyle, Waxman (ex officio), Shimkus, Hall, Whitfield, Pitts,
Burgess, Blackburn and Gingrey.
Staff present: Tim Gronniger, Professional Staff Member;
Virgil Miler, Professional Staff Member; Alvin Banks, Special
Assistant; and Sean Hayes, Minority Counsel, O&I.
OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Pallone. I call the meeting of the Health Subcommittee
to order.
Today the Health Subcommittee will examine Medicare's
competitive bidding program for durable medical equipment and
its implications for quality, cost and access, and I would
yield myself 5 minutes initially for an opening statement.
As I think many of you know, durable medical equipment,
prosthetics, orthotics and supplies--DME is the acronym--that
coverage has been a longstanding issue of this subcommittee and
I know it is an issue of great interest to many Members of the
House of Representatives. I want to thank our witnesses for
being here today, and I am told by my staff that this is one of
the most popular hearings she has staffed with a witness list
that was hotly sought after. Interestingly, though, I will say,
Tiffany, the reason I was late is because I had a political
science class from Rutgers, as you know, in my district that
was in the office, and they wanted to know why with the--I
don't know how they put it--with all the major issues of the
day, we were having a hearing on durable medical equipment, and
I explained to them that it had a lot of job implications and
that we were concerned about jobs and employment, and so then I
quieted them down because when I told them that this was a very
hotly contested hearing, there would be a lot of witnesses, and
people were a little surprised.
In any case, I want to especially recognize Karen Lerner
and Rich Lerner of Allcare Medical located in my district in
New Jersey. Karen will be testifying before us today about the
concerns of Medicare's program within the medical equipment
community.
As you know, the Medicare program covers DME under Part B,
the Supplementary Medical Insurance program, and pays suppliers
according to a fee schedule. Commonly furnished items under
this benefit include standard and power wheelchairs, oxygen
concentrators and tanks, hospital beds, diabetic testing
supplies and walkers. These and other DME items are essential
treatment to allow the approximately 9.85 million Medicare
beneficiaries with disabilities and other conditions to improve
or maintain their health and to live independently at home.
Over the past several decades, numerous reports have
documented overpayments in the DME fee schedule under Medicare.
As such, Congress acted to limit these costs by creating a
demonstration of the competitive bidding program in 1997. Its
evaluation resulted in reduced costs to Medicare by 19 percent
with no significant changes in access to supplies or changes in
utilization were observed.
Subsequently, the Medicare Prescription Drug, Improvement,
and Modernization and Act of 2003, which many of my colleagues
on this side voted against, mandated that CMS adopt competitive
bidding-based pricing for DME on a phased-in basis beginning in
2007. The Act mandated two rounds of bidding in MSAs, followed
by optional additional MSAs after those rounds. As I, along
with my colleagues witnessed, there were many problems with the
initial implementation, coupled with broad industry concerns.
This resulted in a bill that I led through Congress to both
delay implementation and established some of the reforms that
are supposed to be part of the program today.
Let me just briefly say that I have been skeptical of this
program in the past, and I am anxious to hear from CMS about
how this program is being run and, of course, how the round one
re-bid is developing.
That being said I am also aware of the fact that CMS is
carrying out the law as instructed by Congress. I know very
well the concerns of the DME suppliers and it is my hope that
CMS has done their best to address some of them. I think today
will allow us to hear more about what CMS has done and
continues to do to ensure that this program successfully
reduces costs to Medicare but maintains access and quality care
for Medicare beneficiaries.
It is obvious we cannot ignore what will become clear here
today, and that is, there remains a large constituency that is
simply opposed to this program, but meanwhile, the fear of
tremendous consequences persists from both industry and from
Members off Congress. So, regardless of where this committee
falls, it is our job to keep a watchful eye of its development
and be on guard to make changes if necessary.
My Rutgers class that caused me to be a little late today
was very concerned about Congress exercising its oversight
authority, that somehow over the last generation or so we have
not done enough for oversight, so I think we do need to do a
lot of oversight and this is obviously part of that effort.
With that, I yield to the gentleman from Kentucky.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. Mr. Chairman, thank you very much, and we
look forward to this hearing, the opportunity to examine the
impact of Medicare's competitive bidding program for durable
medical equipment, and before I make a few comments about that,
I would like to in a very respectful way touch on some of the
questions that your Rutgers political science class were asking
you.
All of us just came back from a 3-week district work
period, and practically everywhere we went, people were asking
questions about the recently passed health care bill, and
almost all of them were unanimous in the fact that they did not
understand the bill. They did not know when regulations were to
be expected, when the bill would be completely into effect, and
asking all sorts of questions that we really could not answer,
and I genuinely believe it would be to the benefit of the
American people if this committee did start having some
oversight hearings on that legislation because it impacts every
single person in this country, and I don't know of any
legislation that has passed the Congress since I have been here
in which people have been more confused than on this piece of
legislation. And I know that the gentleman has the same
concerns that I do but I do hope that we would have an
opportunity to start having some hearings about that
legislation.
Today we are very much interested in learning how this new
competitive bidding program, this pilot project, is it really
going to save Medicare money, and if it does, are we going to
be able to maintain the quality of care for the beneficiaries,
and I don't think there is any question but that we recognize
in the long term we do have to do something about Medicare
cost, not just for the fact of saving money, but if we are
going to continue to have a viable health care system for our
senior citizens, we have to be concerned about the quality of
care as well as the price. And many experts that I have talked
to, and I am certainly not an expert myself and I really don't
have any opinion about this pilot project yet, but many of the
experts have said that they believe that this pilot program is
poorly designed. They say they have concerns that the entire
program could collapse under its own weight, resulting in
drastically reducing the number of health care providers in
rural areas particularly as well as instead of decreasing cost
increasing cost. By having a 3-year contract combined with the
fact that relatively few providers are deemed winners results
in fewer competitors the next time that bidding occurs because
there is going to be a lot of people who will probably get out
of this business.
But less competition also in the future may very well
result in higher prices in the future and mitigate the
projected savings by CBO. And as I said, we all are very much
interested in solving some of these problems of cost and
improving quality of care. And I don't intend to be negative
about this today but I am delighted that we are having the
hearing to have a better understanding of really is this going
to work and is it going to be effective.
And then I might also say recently some of us sent a letter
to CMS asking that they provide a list of the winning bidders
that won the first round of bids so that Congress might have
the opportunity to examine those bids to see if those winners
are in fact capable of participating in the program, and we
only sent that letter a couple weeks ago so we have not had a
response yet.
But I want to thank you again, Mr. Chairman, for the
hearing and I look forward to the testimony of our witnesses
who I know will provide us with information that we need to get
an objective view of this program.
Mr. Pallone. Thank you, Mr. Whitfield.
The chairman of the committee, Mr. Waxman.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you, Chairman Pallone for holding today's
hearing on this important topic.
The health reform legislation contains many essential
innovations to improve the quality and efficiency of care in
Medicare and in fact the whole entire health care system. Today
we are discussing an innovation that predates health reform:
competitive bidding for durable medical equipment.
The DME benefit in Medicare is an essential benefit for the
nearly 10 million seniors who use it ever year. It pays for
wheelchairs to help seniors and persons with disabilities move
around their homes and communities. It covers diabetic testing
equipment so that beneficiaries can manage their condition and
avoid kidney failure or heart disease.
DME is an indispensable part of an indispensable program.
And yet, for many years, payments for DME in Medicare have been
the source of seemingly endless problems. DME has received some
truly remarkable overpayments. Take, for example, Medicare
paying 10 times the purchase cost for oxygen equipment, and DME
suppliers billing the program without even staffing their
offices or documenting their claims gave us last year's famous
``60 Minutes'' program on Medicare fraud.
These chronic problems are an embarrassment to a program
that has been, and must continue to be, a model for efficient
health care purchasing. Many suppliers are legitimate, honest
businesspeople trying to deliver the best care they can to
Medicare beneficiaries. Their reputations are unfairly
tarnished by the behavior of some of the other suppliers.
Congress has acted many times to try to address these
problems. Some of these reforms have been successful, and some
of them are just getting started.
Competitive bidding for DME is a market-based, bipartisan
idea. It has been tested successfully in Medicare in
demonstration programs under Presidents Clinton and Bush. And
it was enacted for program-wide adoption in the Medicare
prescription drug bill passed by a Republican Congress and
signed by President Bush.
This current round of competitive bidding is a re-bid of
round one, which was delayed in 2008. I supported that delay
because of implementation problems identified at that time.
Acting under Congress's direction, the Centers for Medicare
and Medicaid Services made many improvements to the re-bid of
round one. Those changes appear to have reduced confusion among
suppliers, though not opposition.
I take seriously the concerns raised by the supplier
community regarding potential threats to beneficiary access to
high-quality DME. Competitive bidding has been tested
successfully in Medicare, but not on a scale as large as what
the law requires CMS to implement over the next few years.
It is essential that we on this committee continue to
monitor developments in this competitive bidding program as it
unfolds. That is why I appreciate Chairman Pallone's initiative
in calling this morning's hearing.
It is also essential that CMS aggressively pursue supplier
and beneficiary education efforts in the time before January 1,
so as to minimize disruption to care with the start of the New
Year.
But I question those who say that we need to repeal the
program now because of speculative threats to beneficiary
access in the future. Where is the evidence for such a threat?
It is certainly not found in previous experience with
competitive bidding in the Medicare program.
Tellingly, those most concerned about beneficiary access--
the beneficiaries themselves, including AARP and the Center for
Medicare Advocacy--support going forward with the program and
vigorously monitoring its execution.
Based on what we've heard so far, it appears that the
current round of competitive bidding will save beneficiaries
significant amounts of money in cost-sharing and premiums.
Beneficiaries using oxygen concentrators over a 3-year rental
period would save $400. And the improvements made by Congress
and CMS offer important guarantees that winning suppliers will
be able to deliver items and services beneficiaries need. For
these reasons, I am cautiously optimistic that competitive
bidding for DME may soon begin to finally achieve its promise
of reducing Medicare spending while maintaining or improving
the quality of care received by beneficiaries.
I would also like, Mr. Chairman, to ask unanimous consent
to add to the record this statement from AARP that supports
competitive bidding so long as it does not compromise quality
and access for Medicare beneficiaries.
Mr. Pallone. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Waxman. And look forward to this morning's hearing.
[The prepared statement of Mr. Waxman follows:]
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Mr. Pallone. Thank you, Mr. Chairman.
Next is the gentleman from Georgia, Mr. Gingrey.
OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF GEORGIA
Mr. Gingrey. Mr. Chairman, thank you.
As far back as the Balanced Budget Act of 1997, Congress
has attempted to address the cost of durable medical equipment
on American taxpayers. In large part, Congressional action was
prompted by investigations that highlighted a Medicare program
paying way above market prices for certain durable medical
equipment items. Such overpayments may be due to a Medicare fee
schedule that is outdated, lacking what MEDPAC calls ``the
invisible hand of market forces'' that can keep costs down.
This antiquated system hurts our taxpayers. It makes it hard
for seniors to find a provider or a service when sick and it
undercuts financial solvency of the Medicare program.
The mechanism passed to correct this payment issue, the DME
competitive bidding program, was passed with bipartisan support
in Congress. However, some concerns arose with the manner in
which CMS was conducting the program and some businesses were
disadvantaged. I am sensitive to those concerns as I believe
that DME companies should be competitive with market prices and
not be protected by government rates at the expense of we, the
taxpayer.
However, I also believe that government programs should
allow DME companies to compete and not completely block the
market to so many, particularly the small entrepreneurs. These
are the principles of a free market economy that MEDPAC
suggests Medicare lacks and principles I believe we should all
support.
Therefore, I want to thank Chairman Pallone for calling
this hearing today and I certainly look forward to hearing from
our witnesses.
That being said, Mr. Chairman, I would like to ask again
that this committee call a hearing on Obamacare as soon as
possible because the news of its impact on Americans is getting
worse. Just this week, Secretary Sebelius sent a letter to
various health insurers condemning them for almost double-digit
premium increases for the coming year. In that letter, the
Secretary called reports of planned premium increases to
reflect the new mandated benefits in the law, and I quote
``misinformation and unjustified rate increases.'' Mr.
Chairman, I think it is important that we figure out what is
going on here. Why are health insurers raising costs by 10
percent if Obamacare is supposed to reduce cost? An op-ed in
the Wall Street Journal on Monday states that, and I quote,
``The tone of Ms. Sebelius's letter suggests that she doesn't
understand that if Congress mandates new benefits, premiums
will rise.''
Mr. Chairman, my question is this: Is Secretary Sebelius
looking out for the American patients or is she covering up the
fact that Obamacare is making their health care unaffordable? I
believe the American people and this Congress deserve to know
whether these huge rate increases are the work of bad insurance
companies or the result of Obamacare. This committee did not
shy away from vilifying insurance companies in the past. I see
no reason why it should shy away from holding a hearing on this
issue now.
With that, Mr. Chairman, I yield back my time.
Mr. Pallone. Thank you.
Next is the gentleman from Texas, Mr. Green.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman, for holding the hearing
today on Medicare's competitive bidding program for durable
medical equipment.
Medicare Part B covers a wide variety of durable medical
equipment that is prescribed by physicians for beneficiaries
including prosthetics, orthotics, oxygen, wheelchairs, diabetes
testing strips, medical dressings and other various medical
supplies. According to the Congressional Research Office, in
April 2009 there were 107,000 durable medical equipment
suppliers in the United States with Medicare billing
privileges. Medical expenditures for durable medical equipment
were $10.6 billion in fiscal year 2008. In 2009, approximately
9.85 Medicare beneficiaries used Medicare-covered durable
medical equipment.
In general, Medicare pays for durable medical equipment on
a fee schedule updated each year by inflation. However, several
reports including investigations by the GAO, MEDPAC and the
Office of Inspector General have shown Medicare pays above
market prices for certain items of durable medical equipment.
These overpayments have been linked in part to a fee schedule
payment system which does not take into account market changes.
To remedy these systematic overpayments, two demonstrations
were conducted and a new system of competitive bidding for
durable medical equipment. However, this new system implemented
in 2007 by MMA was unsuccessful in monitoring, causing
confusion among suppliers including CMS delaying the bid
window, providing unclear instructions to bidders and
electronic document systems that failed and failed to notify
suppliers when bidding was complete. This caused Congress in
2008 to halt the program until 2009 so CMS could resolve the
issues within the competitive bidding program.
CMS allowed suppliers to submit new bids for the first
round re-bid in late October 2009 until December 2010, and in
July 2010 announced initial payment amounts and contract
winners. Final contracts and lists of suppliers of the first
round of re-bidding will be announced this fall and contract
will go into effect in January.
I think this hearing is especially important because
Congress has so many concerns with the initial bidding process,
and we want to ensure that the next go-around will be
successful. We want to ensure Medicare Part B beneficiaries
continue to have access to durable medical equipment. We also
want to ensure we are not raising their premiums because of the
waste or fraud in the system or because of overpricing. All new
programs and systems have some problems that need to be
addressed. Hearings like this are important because we have the
duty to ensure Congressionally implemented programs are working
and benefiting many Americans.
I look forward to the testimony today and I want to thank
the witnesses for taking the time to appear, and Mr. Chairman,
I yield back my time.
Mr. Pallone. Thank you, Mr. Green.
The gentleman from Pennsylvania, Mr. Pitts.
OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Pitts. Thank you, Mr. Chairman.
Medicare generally pays for most durable medical
equipment--prosthetics, orthotics and supplies--on the basis of
fee schedules. Unless otherwise specified by Congress, fee
schedule amounts are updated each year by a measure of price
inflation. However, investigations have shown that Medicare
pays above market prices for certain DME items.
The Medicare Modernization Act of 2003 established a
competitive bidding program for certain DME items which began
in 2008 only to be halted days later due to implementation
concerns. All contracts with suppliers were terminated and
round one of the competitive bidding program had to be re-bid.
The second round of bidding is schedule to begin early next
year.
CMS now estimates that Medicare will pay on average 32
percent less for items in the competitive bidding program than
it would pay for those same items under the current fee
schedule. However, patients and suppliers have concerns that
the competitive bidding process will reduce access to quality
items and squeeze smaller suppliers out of the market.
I would like to hear from our Administration witnesses and
stakeholder witnesses on how they view the program and how
Congress can make improvements to ensure that patients have
access to DME items they need while Medicare isn't overcharged.
This is a very important hearing. I look forward to hearing
the testimony. Thank you, and I yield back.
Mr. Pallone. Thank you, Mr. Pitts.
Our chairman, Chairman Emeritus, Mr. Dingell.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, thank you, and I commend you for
this hearing and I thank you for holding it. A number of us on
the committee requested it because of our concern about whether
or not the competitive bidding program is going to in fact
work.
First of all, it has, as you know, proven to be a very
controversial topic, not just among the members of the
committee but amongst suppliers, beneficiaries and providers
across the country. In the midst of all of this back and forth,
I am hopeful that the two sides can agree on two important
points: one, the pricing and integrity issues in the Medicare
DME are a cause for concern and need to be addressed for the
sake of the fiscal future of Medicare and to hold down the
costs for beneficiaries, and second, when legitimate problems
with implementation of the competitive bidding program are
identified, that Congress has acted to address these problems.
Today's hearing is going to give us a good opportunity to
assess the current state of the Medicare DME competitive
bidding program, its cost and the impact on the impact on cost
and quality and access and lessons learned and opportunities
for improvement. We should have a clearer understanding of
what, if any, changes should be made in the program as it is
expected to expand.
Though this morning's hearing is not specific on any
particular piece of legislation, I must mention the legislation
that I introduced last month to address a very legitimate
concern raised by hospitals in Michigan and others throughout
the country. Many hospitals have developed their own DME
companies in an effort to better integrate hospital care and
support the efficient management of the discharge process. I am
concerned that the competitive bidding program threatens the
ability of hospitals to continue to operate. H.R. 6095 would
allow the hospital-based DME providers to continue serving
their entity's patients while being at the same time
compensated at the competitively bid rate.
Let me make two things very clear. First, H.R. 6095 would
require those hospital-based DME providers to pay these prices
negotiated through the competitive bidding process, and two,
the providers would be only allowed to supply patients of their
hospital or affiliated physicians. H.R. 6095 enjoys the support
of the American Hospital Association and the Premier Health
Care Alliance.
Mr. Chairman, I ask unanimous consent to have the letter
from AHA and Premier in support of H.R. 6095 inserted into the
hearing record.
Mr. Pallone. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Dingell. I have the particular pleasure to welcome
Nancy M. Schlichting to the committee this morning. Nancy is an
extraordinarily capable woman. She is the President and Chief
Executive Officer of Henry Ford Health System, one of our
Nation's premier health care providers. For many years Henry
Ford has been committed to improving the health and well-being
of the diverse Michigan community. Nancy Schlichting and the
Henry Ford Health System has been an enormously valuable
resource to us in Michigan and to me on many important health
issues, and I am sure she will prove herself to be every bit as
valuable to the members of this committee on this important
issue.
I want to thank you again, Mr. Chairman, for obliging my
request to have Ms. Schlichting with us today and I know she
will be bringing much value to this very important hearing.
I thank you, and I yield back the balance of my time.
Mr. Pallone. Thank you, Chairman Dingell.
The gentleman from Texas, Mr. Burgess.
OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF TEXAS
Mr. Burgess. Thank you, Mr. Chairman.
This provision created in the Medicare Modernization Act to
create the competitive bidding program, it is hard to say you
don't support the goals of fair and equitable pricing for
medical devices for patients and at the same time reducing
inappropriate transfers. Certainly the idea holds promise and
takes the fundamental free market principle and puts it into
practice, allowing businesses to compete to general cost
savings.
We all know something needed to be done prior to the
Medicare Modernization Act. The work of this committee
demonstrated that Medicare beneficiaries were paying prices
that were frankly too high. However, the execution of this
attempt to address a very real problem has created problems of
its own. To say that the program was poorly executed would be
being unnecessarily kind. Fault lies with CMS. The Government
Accountability Office has found widespread challenges to
suppliers, and I am quoting here, ``including poor timing and
lack of clarity in bid submission information, a failure to
inform all suppliers that losing bids could be reviewed, and an
inadequate electronic bid submission system.'' Reports of
winners who were unlicensed and unaccredited and realistically
unable to serve a geographical region and showed a widespread
reduction in the majority of providers in each of the
competitive bidding areas. A fee schedule based on these bids
thus really cannot be considered to be a valid fee schedule at
all.
The first attempt at round one ran for 2 weeks. It was
stopped by Congress famously on July 15, 2008, because of some
of these concerns. The Government Accountability Office called
these results unclear and inconsistent. However, when round one
was restarted, for many it was more like getting to replay the
same hand of cards when everyone knew what everyone else's
cards were. So it really was a process that was deeply flawed.
I do not believe it is Congress's jobs to guarantee a
business's income. At the same time, a winner unable to
complete the job drives out competitors and leaves the
beneficiary with nothing. What the program was supposed to
accomplish was equal access for lower cost, and it really looks
as if the Center for Medicare and Medicaid Services didn't take
the first part of that equation seriously at all. CMS should
look at a company's previous year's market share and geographic
reach when considering awarding contracts while allowing for
desired company growth. However, it is my guess that a company
that is accustomed only to serving, say, a very small town in
my district may not be able to service the entire DFW metroplex
overnight. It is a simple condition we call common sense.
Now, Congress will have to explore what is the best policy
to contain cost while not threatening access. That may mean a
new policy or it may just mean that Congress needs to stay out
of the way and see if the market can adapt to the CMS rules,
knowing that we will not interfere. I am not sure which
direction is best at this point but I certainly look forward to
our witnesses for guidance.
Mr. Chairman, I would also ask unanimous consent for
testimony for the record from ConvaTec, a medical device
company specializing in osteotomy care and wound therapeutics,
be entered into the record.
Mr. Pallone. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Burgess. Thank you.
Mr. Pallone. Thank you, Mr. Burgess.
Next is our colleague, the gentlewoman from Colorado, Ms.
DeGette.
OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Ms. DeGette. Thank you, Mr. Chairman. We are all a little
rusty coming back after 6 weeks.
I am really happy also that you have had this hearing
today, and truly I am looking forward to hearing the testimony
because like all of the members of this committee, we are
concerned about saving money for our seniors and we are also
concerned about the investigations that show that Medicare pays
above market prices for certain durable medical equipment. And
the competitive bidding demonstration did result in a savings
but on the other hand, there are a lot of anxieties about
implementation and the expansion from nine to an additional 80
areas including my district of Denver most likely, and the
round one bidding process had a lot of complications, as we
have heard from our colleagues. So we need to make sure that
the guidelines for suppliers and information disseminated to
beneficiaries is clear and consistent before we expand the
bidding process, and we also have to ensure that Medicare
beneficiaries can receive the same quality of medical equipment
that they are accustomed to and also we need to make sure that
we have enough suppliers.
So there are a lot of issues here and I am glad you are
having this hearing so we can begin sorting them out, and I
yield back the balance of my time.
Mr. Pallone. Thank you.
The gentlewoman from Tennessee, Mrs. Blackburn.
OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TENNESSEE
Mrs. Blackburn. Thank you, Mr. Chairman. Thank you for the
hearing today.
You know, Medicare's competitive bidding program for
durable medical equipment has been contentious, to say the
least, and many issues in this competitive bidding program are
worthy of discussion and should be discussed. We need to talk
about access, transparency, accountability and the impact on
small businesses, and many of my constituents have very grave,
solid and valid concerns on the implementation of the program.
While the DME issues are worthy of discussion, we continue
to hear disturbing news about the implementation of Obamacare.
News broke last week that I believe deserves urgent attention
from this committee. Public opinion is heavily against the
program. The Obama Administration is dealing with fuzzy math
regarding soaring health care costs, and Health and Human
Services Secretary Sebelius is trying to bully insurance
companies into submission.
Now, since that bill passed, we have had 15 Health
hearings, seven O&I hearings, and not one of those, Mr.
Chairman, has been on the implementation of Obamacare. We need
to remedy that.
Last week, Secretary Sebelius sent what I think is a fairly
threatening letter regarding rate increases resulting from new
regulations and mandates in Obamacare. Apparently insurers
aren't supposed to explain the cause and effect of that program
to their consumers including rate increases with 1 percent
upwards to 16 percent in some areas. The Administration's
attempt to muzzle private companies from explaining to their
customers such rate increases as a result of Obamacare I find
to be the height of hypocrisy and irresponsibility. That anyone
is surprised that costs are rising rapidly under Obamacare is
beyond me. We are talking basic economics, the laws of supply
and demand. There is no such thing as free care. It has to come
from somewhere and it has to be paid by someone.
As I have detailed in countless hearings, we tried this in
Tennessee. I have tried to explain this to the President, to
the Secretary and my colleagues on the other side of the aisle.
TennCare was supposed to expand coverage and save money. In 10
years, it nearly bankrupted the State of Tennessee. TennCare
didn't save money. It didn't expand coverage as promised and
ultimately more than 100,000 people had to be removed from that
program.
As Tennessee learned, comprehensive health care packages
for all will not also be affordable. Government's resources to
provide care are fixed. As we learned, intervention can
exacerbate rather than control the growing costs of health
care. I would love to see us reviewing this issue.
I yield back.
Mr. Pallone. Thank you, Ms. Blackburn.
Next is the gentleman from Georgia, Mr. Barrow.
Mr. Barrow. I thank the Chair. In the interest of time, I
would like to ask unanimous consent to have 5 legislative days
to submit my statement for the record.
Mr. Pallone. Without objection, so ordered.
Mr. Barrow. Thank you.
[The prepared statement of Mr. Barrow follows:]
[GRAPHIC] [TIFF OMITTED] 78132A.006
Mr. Pallone. And next is the gentleman from Texas, Mr.
Hall.
OPENING STATEMENT OF HON. RALPH M. HALL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Hall. Mr. Chairman, thank you, and thanks for having
the hearing.
The issue of most concern to me is the lack of
accountability. When an out-of-area and inexperienced provider
can be in any area they choose, undercut the market and
withdraw from the program without any repercussion is very,
very disturbing.
But what is stunning is that CMS, I am told, then used the
abandoned low bids as a new rate and required other so-called
winners to adhere to a bid that they did not make. CMS claims
that it is a market-based program but contrary to their claims,
providers are forced lest their close their business to accept
prices 20 to 50 percent of what they bid.
Many are closing their doors and some are accepting
contracts for the sole purpose of staying in business with no
profit or at a loss until the program fails and the proper
health care can be restored. These are not proper business
practices and the program was never intended for this scenario.
It must be noted how flawed the program is when the
Nation's largest provider, Lincare, put out a press release
stating that they were offered contracts over 20 percent less
than their bids if they would accept the contracts even though
they would lose money on each Medicare patient and would have
to supplement these patients from the income they received from
other non-Medicare patients. I would like to submit this press
release in the record with your permission, Mr. Chairman.
Mr. Pallone. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Hall. Transparency of the bidding program has a major
problem throughout this process. CMS has refused to release the
names of the companies that set the bid rate. This information
is necessary so it can be determined if those companies are
local or out of the area, experienced, or if those companies
are financially viable. Without transparency, the program
cannot be fairly evaluated and the bids must be circumspect.
CMS seems to be hiding the many known flaws and problems until
after the program is implemented.
Here is a letter that I along with 135 of my colleagues
sent to CMS requesting their names of the winning bidders, and
here is CMS's response denying our request. With your
permission, Mr. Chairman, I would like to submit these into the
record.
Mr. Pallone. So ordered.
[The information appears at the conclusion of the hearing.]
Mr. Hall. CMS has claimed that they have performed the
diligence on providers and have assured that bidders are
financially qualified yet companies such as Rotech were able to
win bids that averaged 30 percent below their current rates,
even though at a current rate they are technically bankrupt.
Other companies that are in financial trouble have won bids as
well. In fact, when asked about the questionable financial
viability of companies who were awarded bid contracts, Laurence
Wilson of CMS stated on the record that 30 percent of the
bidding companies had questionable financials but CMS allowed
them to proceed through the process.
This disregard for their own directives reveals much about
the flaws in the bidding program. CMS has allowed bid rates to
be created that are functionally unviable. The average single
payment amount for portable oxygen, oxygen tanks that allow
patients to leave their homes and lead a normal life, is
averaging $21 a month while the actual cost to provide a liquid
portable system is over $100 a month. An additional oxygen
delivery service cost brings the actual monthly cost to over
$150 a month. Providers will have no choice but to stop
providing liquid oxygen, which will result in the suffering of
patients.
In a similar vein, diabetic supply price reductions are
averaging over 54 percent of their current reimbursement. No
industry in America can survive such a cut.
In closing, I will just stay at best that CMS required cut
will mean that only foreign-made supplies with less reliability
will be used by Medicare patients. American-made products will
no longer exist. An immediate service which is often required
by patients will be replaced by ground freight delivery. This
is disgraceful.
Thank you again for having this hearing today and I yield
back the balance of my time.
Mr. Pallone. Thank you, Mr. Hall.
Next is the gentleman from Iowa, Mr. Braley.
OPENING STATEMENT OF HON. BRUCE L. BRALEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF IOWA
Mr. Braley. Competitive bidding. It sounds like it would be
un-American to oppose something that sounds so important and
yet competitive bidding will lead to the now-disproven model of
too big to fail in the durable medical equipment industry
because companies that can lower margins and try to make it up
on volume are going to drive providers out of the market in
places like my State of Iowa. We know that is going to happen.
You don't need a Ph.D. to figure that out.
The competitive bidding program has been plagued with
problems from the beginning. Even proponents of the program
readily admit that the implementation process was problematic.
CMS delayed the bid window deadline several times, provided
bidding instructions while the bidding window was open,
sometimes provided unclear guidance to bidders, operated an
electronic document system that failed frequently, and didn't
notify suppliers that their bid information was incomplete. Put
frankly, this program has a poor track record.
Now we have evidence of the devastating impact on
beneficiaries like my constituents who depend on medical
supplies, especially in rural areas. A recent study by Dr.
Kenneth Brown, a professor of economics at the University of
Northern Iowa, concluded that the competitive bidding program
for DME will have a significant negative impact on rural areas,
which are specifically excluded from the bidding process. Dr.
Brown reached this conclusion based on a study of the current
state of the industry, the financial results across the
industry and the 32 percent average reduction in reimbursements
that is resulting from round one bids. Specifically, Dr. Brown
believes that my home State of Iowa will lose 40 to 50 percent
of its DME suppliers in the aftermath of competitive bidding.
That is unacceptable to me and the people I represent.
Now, despite the data and track record, CMS has moved
forward again on its round one re-bid and the problems are
surfacing again. In addition to questions about the impact in
rural areas, other questions have arisen about the level of
transparency in the process so far, and this is a bipartisan
issue that almost 150 of my colleagues have raised concerns
about. I would hope that CMS would go above and beyond to
provide full and open transparency into the bidding process,
which has been a high priority of the President. Unfortunately,
the vital information is unavailable for both Congress and the
program advisory and oversight committee about how those rates
have been determined, access to care for beneficiaries and the
impact on small providers.
For all of those reasons, Mr. Chairman, I am glad you
decided to hold the hearing and I look forward to having many
of these questions finally getting the answer they deserve.
And last, I would like to request unanimous consent to
submit the following items to the record: Dr. Kenneth Brown's
study on the impact of competitive bidding in rural areas,
testimony by Jim Tozzi, a member of the board of directors of
the Center for Regulatory Effectiveness, and on behalf of
Representative Jay Inslee, a letter from Care Medical and
Rehabilitation in Seattle, Washington.
Mr. Pallone. Without objection, so ordered.
[The information was unavailable at the time of printing.]
Mr. Braley. Thank you, Mr. Chairman.
Mr. Pallone. Thank you, Mr. Braley.
Next is the gentlewoman from Ohio, Ms. Sutton.
OPENING STATEMENT OF HON. BETTY SUTTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Ms. Sutton. Thank you, Mr. Chairman, for holding this very
important hearing today.
This hearing is not only about access to the health care
for the American people but it is also about jobs and it is
about our economy. It is about our seniors, veterans and other
patients and their ability to access wheelchairs and oxygen
tanks and other durable medical equipment. This equipment is
often essential for their survival. Many of these patients in
need are covered by Medicare, Medicaid and TRICARE, and this
process will make a difference in whether they will continue to
have access to the equipment they need and the help that they
need.
Today we are here to review the current durable medical
equipment bidding process and determine whether it works for
and with our patients and for our small businesses. While
restructuring the durable medical equipment bid program is
necessary to prevent the waste, fraud and abuse in the system,
it must not be done at the expense of losing thousands of jobs
and preventing patients from accessing what they need.
For manufacturers and suppliers, the transition to the so-
called competitive bidding program has been complex and time
consuming, and the irony of it all is it is not competitive.
Knowing as much information as possible is crucial to
submitting bids. CMS's plan to overhaul the system is well
intended but must be done carefully and sensibly. Initial
attempts by CMS to implement the first round of competitive
bidding were seriously flawed, and as a result the requirement
to resubmit all round one bids has delayed the entire program
by 2 years but CMS is already preparing for round two. If this
is truly being done in the spirit of transparency and before we
move to round two, we need to know who are the recipients of
round one bids. CMS has failed to identify them, even after 136
Members of Congress formally asked for the information.
Thirteen of those members are from Ohio.
The process must be immediately reviewed and changed. In my
district alone, thousands of jobs are at stake, and in the
State of Ohio thousands more are at stake. So let us be clear.
Our country needs to continue making things here. We must not
create a new bidding process that is less transparent and
encourages American businesses to move overseas. We want to
encourage businesses to keep making their products right here
and right in Ohio where I am so proud to represent. And at the
end of the day, if we don't fix this process, our manufacturers
will suffer, our employees will suffer and our patients will
suffer. It doesn't have to be that way but it is critically
important that we get it right.
I thank you for having the hearing, and I yield back the
balance of my time.
Mr. Pallone. Thank you.
Next is the gentlewoman from California, Ms. Eshoo.
OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Eshoo. Thank you, Mr. Chairman. I along with all the
members of the subcommittee thank you for holding this
important hearing on Medicare's competitive bidding program for
durable medical equipment. It is important for the committee to
examine the status of this program which for years has seen the
mismanagement and the fraud that has been a part of it. This is
all carried by Medicare. Anyone that cares about Medicare and
its solvency as well as seniors owe something to the
examination and that is what we are doing today.
We all know that durable medical equipment covers products
that range from wheelchairs, oxygen concentrators, hospital
beds, walkers and diabetic testing supplies. These are all
essential health care products and beneficiaries are
responsible for paying the other 20 percent in addition to any
unpaid deductible. I am familiar with every single one of these
products with the exception of the diabetic testing supplies. I
had to get them for either my mother or my father or for both,
so I am very familiar with who I went to, who delivered, what
they cost, what the rental costs were, all of that, because I
was in charge of their care.
There is inflated costs that hurt seniors directly and not
just the Medicare system as a whole. We place value on the
importance of comprehensive quality care for the elderly in our
country and the rates of fraud and abuse that the GAO has
uncovered, in my view, are sickening.
I just want to give some examples. In 2006, the HHS Office
of the IG reported that Medicare would allow $7,215 in payments
over 36 months to oxygen suppliers for oxygen concentrators
that cost $587 on average to purchase. In 2009, the OIG
reported that in 2007 Medicare allowed $4,018 for standard
power wheelchairs that cost suppliers $1,048 to acquire. Anyone
that stays up late at night sees these advertisements for
wheelchairs and that they will guarantee that Medicare picks up
the entire tab for it. So I am not against Medicare making
payments for these things, but you know what? I think we all
need to recognize that something is not right in this.
So this examination today is a very important one. I think
the early indicators are positive that the new competitive
bidding process is working. I understand that suppliers don't
like it, but this is a new day. We have the responsibility to
extend the life of the trust fund of Medicare. I have heard an
unending chorus relative to the new health law and saying all
kinds of things about Medicare. This is an area where like it
or not, we have to find ways to save money, find new ways to do
the old things in a better way and save money and still take
good care of people. We have had a system where people are used
to it, made a lot of money on it. I think that there has been
documented abuse of that system.
So I hope what we learn today is, what is working, what
isn't and what we can improve upon as we move forward. But I
think central to this really must be the cost to Medicare and
the cost to seniors. Medicare doesn't pick up the whole tab for
this, but as one member I am convinced that we can do this in a
much better way and save money. I think that is already
documented by the IG.
So thank you for having this hearing, Mr. Chairman, and I
look forward to the discussion and the debate.
Mr. Pallone. Thank you, Ms. Eshoo.
And last, I believe, is the gentlewoman from Florida, Ms.
Castor.
OPENING STATEMENT OF HON. KATHY CASTOR, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF FLORIDA
Ms. Castor. Good morning, Mr. Chairman, and thank you very
much for convening this hearing today.
The durable medical equipment competitive bidding program
is of great concern to both patients and suppliers in my home
State of Florida, so I am pleased today that we are going to
take a closer look at what is happening.
Florida is among the areas most affected by the DME bidding
program. In my Tampa Bay area community, the greatest concerns
about the bidding program deal with fairness. Longstanding
local suppliers now find themselves in trouble because they are
losing bids to larger companies outside of the community and
often out of state. According to the Florida Alliance of Home
Care Services, out-of-area companies without experience bid at
prices that are far below the cost of local services and then
later walk away from their bids, causing great turmoil.
Other concerns surround the program's efficacy in actually
targeting fraud in the right way. There are claims that some of
the companies that have been awarded bids are under fraud
investigation or have settled fraudulent claims with a large
payout, and in Florida where the MEDPAC has identified, and we
all know it, huge geographic disparities in Medicare spending,
especially in DME in certain parts of Florida, we have got to
make sure that if we are targeting fraud we are doing it in the
right way.
Competitive bidding can be great, as my colleague said from
Iowa. It sounds great. But we have got to make it work. It
can't just be totally arbitrary. If we are going to have
competitive bids, is it right that companies that have been
involved in fraud before Medicare are taking some of these bids
away from our local suppliers that have a proven history.
Today's hearing is critical to really getting to the bottom
of these issues and let us get a better understanding.
So at this time, Mr. Chairman, I would like to ask
unanimous consent that the committee receive for the record a
statement of my colleague, Ron Klein from Florida, regarding
the topic of concern today.
Mr. Pallone. Thank you, Ms. Castor.
Ms. Castor. I ask unanimous consent.
Mr. Pallone. Absolutely. Without objection, so ordered.
[The information appears at the conclusion of the hearing:]
Ms. Castor. I yield back.
Mr. Pallone. And if any other member wants to submit a
statement for the record, we will obviously have no problem
with that, if any other member wishes to do so.
Now, that ends our opening statements by members of the
subcommittee so I would ask our first panel to come forward at
this time, if you would. Let me welcome all of you and
introduce each of you. On the first panel, beginning on my
left, we have Mr. Laurence Wilson, who is Director, Chronic
Care Policy Group of the Center for Medicare and Medicaid
Services with U.S. Department of Health and Human Services.
Next we have the Hon. Daniel Levinson, who is Inspector General
from the Office of the Inspector General again with the
Department of Health and Human Services. And lastly is Ms.
Kathleen King, who is Director of Health Care for the U.S.
Government Accountability Office.
I think you, we try to keep the opening statements to 5
minutes and then those statements become part of the record,
and of course, if you want to submit additional brief or
pertinent statements in writing for inclusion in the record,
you may do so. And so I will start with Mr. Wilson.
STATEMENTS OF LAURENCE WILSON, DIRECTOR, CHRONIC CARE POLICY
GROUP, CENTER FOR MEDICARE AND MEDICAID SERVICES, U.S.
DEPARTMENT OF HEALTH AND HUMAN SERVICES; HON. DANIEL LEVINSON,
INSPECTOR GENERAL, OFFICE OF THE INSPECTOR GENERAL, U.S.
DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND KATHLEEN KING,
DIRECTOR, HEALTH CARE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
STATEMENT OF LAURENCE WILSON
Mr. Wilson. Good afternoon, Chairman Pallone, Ranking
Member Whitfield and distinguished members of the subcommittee.
I am pleased to be here today to discuss the durable medical
equipment, prosthetics, orthotic supplies competitive bidding
program. This important initiative required under the Medicare
Modernization Act of 2003 and recently expanded under the
Affordable Care Act will reduce beneficiary out-of-pocket
costs, improve the accuracy of Medicare's payments, help combat
fraud and ensure beneficiary access to high-quality items and
services.
CMS initially implemented the program on July 1, 2008, in
10 metropolitan areas. After 2 weeks of operation, the program
was delayed by the Medicare Improvements for Patients and
Providers Act. CMS has examined the program closely including
lessons learned from the initial round of bidding in 2008. We
have made the changes required by law and many other
significant improvements and are prepared to implement the re-
bid of the program on January 1, 2011. We will do so in a way
that ensures a smooth transition for beneficiaries and
suppliers while providing effective oversight and monitoring.
CMS had worked closely with stakeholders including its
external advisory committee to design and implement the
competitive bidding program in a way that is fair for suppliers
and sensitive to the care needs of beneficiaries. For example,
the program includes provisions to promote small supplier
participation and numerous protections for beneficiaries. As
designed, the program results in a large number of winners so
that beneficiaries have a choice and there will continue to be
competition among contract suppliers on the basis of customer
service and quality.
In addition, quality standards and accreditation combined
with financial standards provides safeguards to support good
quality and customer service while acting to weed out
illegitimate suppliers and ensure a level playing field for
suppliers competing under the program.
CMS made a number of important improvements to the program
in preparation for the re-bid in nine areas of the country.
These changes provide for a fair process and more effective
scrutiny of suppliers' qualifications and the integrity of
their bids. For example, CMS initiated a comprehensive bidder
education campaign much earlier in the process. CMS developed a
more user-friendly online bidding system, which did not
experience the glitches that troubled bidders in 2007. MIPPA
mandated a process to alert bidding suppliers if they were
missing certain financial bid documents. This was very
effective with three-quarters of suppliers taking advantage of
the process. CMS verified bidders' compliance with all state
licensure requirements early in the bid evaluation process and
CMS improved its process for evaluating bids to ensure they
reflect a bona fide amount that a provider can provide an item
for.
CMS also carefully reviewed the capacity of each supplier
to provide services. New suppliers and those that told us they
could greatly expand their businesses received higher scrutiny.
These and other changes helped ensure that payment amounts are
based on realistic bids and that there would be more than
enough qualified suppliers to serve patients. These process
improvements also tend to favor local experienced suppliers.
For example, 73 percent of contract offers made on July 1 went
to suppliers with a history of providing the specific product
in the local area. A full 95 percent of offers went to
experienced suppliers.
Our experience with the round one re-bid has also shown
that competitive bidding has the potential to bring value to
Medicare beneficiaries and taxpayers compared to the current
fee schedule. In fact, average savings across the nine
metropolitan areas is 32 percent. This translates into $17
billion in savings to Medicare over 10 years and another $11
billion in savings for beneficiaries through lower coinsurance
and premium reductions. As a specific example in my Miami, the
price of a standard power wheelchair will drop $1,274.
In the coming weeks, we will complete the contracting
process and publish the names of the new contract suppliers. At
the same time, we will ramp up our outreach and education
efforts focusing on beneficiaries, referral agents, suppliers
and others. As with any new program, we recognize this is a
change for suppliers and patients. We will monitor
implementation closely and are prepared to act swiftly to
address any concerns that may arise on behalf of beneficiaries
and suppliers. We have a network in place built around our
national competitive acquisition ombudsman, local ombudsmen,
regional office CMS caseworkers, contractors and Medicare call
centers to address and track questions and concerns. We will
also survey beneficiaries and perform active claims
surveillance aimed at ensuring Medicare beneficiaries are
receiving quality care.
In summary, we will be diligent and thoughtful in our
implementation of the program and continue to work closely with
our stakeholders. Again, I appreciate the invitation this
morning to testify before you and would be happy to take any
questions. Thank you.
[The prepared statement of Mr. Wilson follows:]
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Mr. Pallone. Thank you, Mr. Wilson.
Mr. Levinson.
STATEMENT OF DANIEL LEVINSON
Mr. Levinson. Good afternoon, Chairman Pallone, Mr.
Whitfield and members of the subcommittee. Thank you for the
opportunity to discuss the integrity of Medicare's coverage of
durable medical equipment and supplies, or DME.
Medicare pays for DME on behalf of more than 11 million
beneficiaries at a cost of more than $10 billion a year. In
2009, CMS estimated that more than half of DME claims were paid
in error.
The vast majority of Medicare suppliers are honest and well
intentioned. However, even a small minority of unscrupulous
suppliers drains Medicare funds and puts beneficiaries at risk.
OIG's work has demonstrated that this benefit is particularly
vulnerable to fraud, waste and abuse. My testimony focuses on
two key vulnerabilities described more fully in my written
statement. These are the ease with which fraudulent suppliers
obtain billing privileges and DME payment rates that exceed
market prices.
Although DME accounts for just 2 percent of Medicare
spending, approximately 14 percent of OIG's health care fraud
investigations involve DME. These investigations have found
that criminals set up sham DME storefronts and fraudulently
bill Medicare for millions of dollars. Then they close up shop
and reopen in a new location under a new name and repeat the
fraud. Entry into the DME business has been too easy, and
oversight and enforcement of Medicare enrollment standards has
been weak. For example, almost one-third of the 1,600 DME
suppliers billing Medicare in south Florida did not have an
open and staffed physical location when OIG conducted site
visits.
In addition, Medicaid frequently reimburses for DME federal
rate above acquisition costs resulting in waste and increased
beneficiary copayments and making fraudulent billing more
lucrative. For example, in 2007, OIG found that Medicare
reimbursed suppliers for wound therapy pumps based on a
purchase price of more than $17,000. However, suppliers paid
approximately $3,600 for new models of these pumps. Likewise,
in 2007 Medicare paid about $4,000 for standards power
wheelchairs that cost suppliers about $1,000 to acquire. Our
investigations have demonstrated that pricing disparities make
DME a lucrative target for criminals. In numerous cases,
criminals have supplied unneeded power wheelchairs and scooters
to beneficiaries because the Medicare payment is excessive
enough to make this scam profitable.
The profitability of DME fraud has given rise to
increasingly sophisticated schemes and more violent
perpetrators. For example, in southern California, an
individual established numerous sham DME companies using street
gang members to pose as owners. These sham suppliers enrolled
in Medicare and submitted millions of dollars in fraudulent
claims for power wheelchairs and orthotic devices. The gang
members involved had previously been convicted of charges
ranging from assault to narcotics violations.
In response, we are taking strong action to protect the
integrity of the Medicare DME benefit. Innovative uses of
information technology and data analysis have dramatically
enhanced the government's ability to detect, prevent and
respond to fraud. OIG analyses data to identify fraud hotspots
and to alert CMS to potential fraud so that it can implement
appropriate program safeguards.
OIG and the Department of Justice are accelerating the
government's response to fraud schemes. Medicare fraud Strike
Force can quickly detect, investigate and prosecute fraud
before the criminals and stolen funds disappear. The Strike
Force teams combine data analysis with field intelligence to
crack down on sham DME suppliers and other fraud perpetrators.
Our teams are working to stay ahead of the criminals as their
fraud schemes replicate and migrate.
CMS has taken some important steps such as requiring
accreditation and surety bonds to strengthen provider
enrollment standards. The Affordable Care Act requires CMS to
conduct more stringent risk-based provider enrollment
screening.
The Medicare competitive bidding program holds promise to
address payment vulnerabilities by better aligning DME
reimbursement with market prices. It also provides a mechanism
for ensuring that CMS has better information about suppliers
when granting billing privileges. If policymakers consider a
different course, it remains imperative to take prompt,
appropriate action to ensure the integrity of the benefit. My
office remains committed to monitoring program integrity and
beneficiary access to reasonably priced, medically necessary,
quality medical equipment and supplies.
In conclusion, I appreciate and share your commitment to
fighting DME fraud, waste and abuse and I welcome your
questions.
[The prepared statement of Mr. Levinson follows:]
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Mr. Pallone. Thank you, Mr. Levinson.
Ms. King.
STATEMENT OF KATHLEEN KING
Ms. King. Mr. Chairman and members of the subcommittee, I
am pleased to be here today to discuss Medicare's competitive
bidding program for DME.
Medicare's DME program for competitive bidding was
implemented in part to save Medicare money. Both we and the
Office of the HHS Inspector General have reported that Medicare
and its beneficiaries have paid higher than market prices for
various medical equipment and supplies. These overpayments
increase cost to both Medicare and its beneficiaries.
Today I am going to focus on three problem areas we
identified in our November 2009 report and how CMS is
addressing those problems. These three areas are: providing
suppliers with bid submission information, the electronic
bidding submission system and the bid disqualification
notification process.
First, in the bidding process for round one, we found
several problems regarding the timeliness of information
provided by CMS and lack of clarity in bid submission
information provided to bidders. We also found that CMS was not
able to inform suppliers what required financial documentation
was missing or incomplete. In contract, for the round one re-
bid, CMS provided information earlier to suppliers, took
several steps to make its financial documentation instructions
clear and notified suppliers when their financial documentation
was incomplete.
In response to concerns expressed during round one that
winning suppliers did not have the necessary capacity to
fulfill their contracts, for the re-bid CMS developed a
systematic method for reviewing suppliers' capacity and
expansion plans. To address concerns that some suppliers were
awarded contracts in round one in States for which they were
not licensed, CMS clarified the requirement that suppliers be
licensed in all States for which they submitted bids and
provided directories to assist suppliers in identifying state
licensing requirements.
Secondly, with regard to the electronic bid submissions, we
found that the bid submission system had several operational
problems that affected suppliers' ability to submit their bids.
For the re-bid, CMS developed a new electronic bid submission
system, DBidS, which was designed to be user friendly, easier
for suppliers to navigate and capable of providing detailed
bidding instructions in user-friendly language. DBidS also has
status indicators to show whether the bidding forms are
complete and links to direct bidders to incomplete data.
For the third issue, the bid disqualification process, in
the first round almost half of the bids were disqualified. CMS
conducted a post-bidding review process through which the
agency reversed some of these decisions. However, CMS did not
effectively notify suppliers about the opportunity for this
post-bidding review process. To improve future rounds, we
recommended that if CMS decides to conduct a review of
disqualification decisions made during round one, they should
notify all suppliers of that process, give suppliers and equal
opportunity for review and clearly indicate how they can
request a review. CMS agreed with our recommendations.
Beginning in July 2010, CMS sent notification letters to
winning suppliers offering them contracts but did not notify
the losing suppliers. CMS informed us after the round one re-
bid contracting process is complete, they will send letters to
disqualified suppliers explaining why they were disqualified.
CMS said the letters will also explain the process through
which suppliers may ask questions and express concerns, and
they said if they find that in the course of responding to
these concerns they determine that an error has been made, it
is possible that a contract would be offered to a supplier.
We plan to do further work regarding the round one re-bid.
As required by MIPPA, we will examine the program's impact on
Medicare beneficiary access to items and services and on small
suppliers, among other topics. Our study is to be completed a
year after payments on the first round are made.
Mr. Chairman, this concludes my prepared statement. I would
be happy to answer any questions. Thank you.
[The prepared statement of Ms. King follows:]
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Mr. Pallone. Thank you, Ms. King, and now we will start and
ask questions from the members. It is generally 5 minutes for
each of us, and I will start with myself.
My questions are to you, Mr. Wilson. You probably heard
before, many suppliers have expressed the belief that winning
suppliers will be unable to meet their contract performance
requirements, in effect, you know, it happens a lot now with
the economy that they offer up a suicide bid just to stay in
the program without any actual ability to deliver on their
promises or maybe they think they can deliver but they can't
ultimately. Have you seen examines of what I call suicide
bidding and do you have any protections in place to guard
against inappropriate bids?
Mr. Wilson. Mr. Chairman, I don't know that I have seen an
example of a suicide bid. We have a process in place to
determine whether or not suppliers are qualified, licensed,
accredited, meet all the standards required by Medicare. The
second part of the process deals with whether or not their bids
are bona fide, and yes, we have found bids that aren't bona
fide. We do have a process where we analyze, request
information such as invoices from suppliers to show, to prove
and document that they can meet a certain price and we
requested that information and verified whether or not there
were what we would term a low-ball bid, unsustainable bid.
Mr. Pallone. I know you said you have a plan, but as
another follow-up, will referral agents, and I guess, you know,
would there be any kind of follow-up where people will be able
to report problems and, you know, you find out about those
problems as opposed to just looking at the plans?
Mr. Wilson. Well, I think that is a very important part of
the program. I think the key here for us is ensuring that we
have enough qualified, able suppliers in place to provide
quality services to our beneficiaries. That is the key to the
entire program. Our ability to educate, communicate with folks
that are involved in that process like referral agents
including physicians, hospitals----
Mr. Pallone. Social workers?
Mr. Wilson. Social workers, State health insurance
programs. That is all part of our communications plan that we
will ramp up. We have already started but we will ramp up
towards the end of this month when we release the list of
contract suppliers. It is a very key part of the program. To
the extent that either a supplier or a beneficiary has a
concern, we will be educating all of these entities on where
they go through direct mail, through documents, Web sites,
again talking with partner organizations that deal with
beneficiaries so that a beneficiary will know to call 1-800. A
complaint would get routed. We would track that complaint. We
have an ombudsman program that can deal with that complaint. We
have local ombudsman that can----
Mr. Pallone. And what if there is a shortage, I mean, if
there a problem? Do you have the ability to add capacity if
shortages arise, you know, like if a contractor fails?
Mr. Wilson. We believe we have offered contracts to more
than enough suppliers to provide access to beneficiaries in
these nine areas. A core principle in the program with respect
to offering contracts is to set a demand target that is very,
very high so that we can guarantee we have enough suppliers. So
if a supplier has a problem, maybe we lose one, maybe their
number gets revoked, we will still have enough suppliers. If we
need to add a supplier, we can certainly go out and offer a
contract.
Mr. Pallone. OK. My second question is more local, you
know, referring to my State. In the Medicare Improvement for
Patients and Providers Act of 2008, it gave CMS the authority
to split metropolitan statistical areas more than 8 million
people into separate bidding areas. Now, New Jersey is in one
of these very large metropolitan areas that includes New York
City, northern New Jersey, Long Island, Pennsylvania, you know,
like maybe 20 million people altogether. I think because the
geographic area and the number of people is so large, it is
essential that the MSA be divided into market areas that better
reflect prevailing medical practice, and it is my understanding
that CMS has proposed to subdivide this market into five
smaller competitive bidding areas. Is that correct, and isn't
it true that these smaller areas--well, I want to know is it
true, and secondly, if these smaller areas are going to better
reflect the differences between southern New Jersey, northern
New Jersey, New York. Do you want to respond to that?
Mr. Wilson. Sure. It is absolutely true, Mr. Chairman. We
did discuss that issue with our advisory committee. We received
advice. We put our proposal in a proposed rule this spring and
have received comments and are looking at the issue right now.
Mr. Pallone. So you have made a decision to subdivide the
market?
Mr. Wilson. We have proposed a methodology in a rule to
subdivide the market, and we do believe that is the correct
thing to do here.
Mr. Pallone. And how is that being done to reflect the
differences, you know, as I said, New Jersey versus New York,
north, south Jersey, whatever?
Mr. Wilson. Right. Well, the issue that we are dealing with
is really the New York metropolitan area so we are looking at
New Jersey counties that are west of the city as one area and
New Jersey counties that are immediately south of the city as
another area. We also added in Pike County, Pennsylvania, to
the western New Jersey counties. I don't think people like that
so we will be looking at that aspect of our proposal very
closely but we certainly did look at these market areas trying
to develop more homogeneous market areas that would better
serve suppliers' ability to deal with patients across a smaller
area.
Mr. Pallone. I don't want to take up any more time but I
may follow up with some written questions to you about that.
Mr. Wilson. Absolutely.
Mr. Pallone. Thank you.
Mr. Whitfield.
Mr. Whitfield. Thank you. Mr. Chairman, I would like to ask
unanimous consent that we enter into the record this testimony
from a representative of ConvaTec, a company on this issue.
Mr. Pallone. Without objection, so ordered.
Mr. Whitfield. Mr. Burgess is so fast, I didn't know he had
already done it.
Mr. Pallone. You have got to watch him.
Mr. Whitfield. Thank you for your testimony. We appreciate
it very much.
Mr. Wilson, let me just ask you, critics of this program
have noted that the first effort needed to be terminated, the
first bid effort needed to be terminated in 2008. Would you
please explain specifically why that was necessary and why CMS
believes that the second round will be different?
Mr. Wilson. Well, I can certainly talk to some of the
issues and concerns from the 2008 round of bidding that I think
we have tried to address and I believe that we have addressed
consistently with the GAO's testimony today, but there were a
number of concerns, particularly with regard to how the agency
communicated information about bidding, the timing of
communication that perhaps contributed to confusion about what
the rules were. That is something that we have acted to fix in
this round. We didn't revise instructions midway through the
bidding process this time, as we did last time. I think that
was very important to provide a level playing field for all
suppliers involved in the bidding. The online bidding system
last time, as I mentioned in my testimony, did not work. It was
frustrating. Suppliers would enter information, think they
saved it, and when they went back it was gone. There is a lot
of information associated with the bids and we recognize that
was a frustrating process. We fixed that. We did not have those
problems this time. Those were legitimate concerns that needed
to be addressed. We did not validate licensing up front in the
process in 2008 so we looked to verify licenses afterwards,
after the bids were submitted. What that may have led to is
speculative bids being submitted by certain suppliers that
maybe came in from out of state. This time we said you need to
have your licenses up front. They have to be in order and all
of your other qualifications in line such as accreditation so
that that tended to favor local suppliers since they really
just needed to have--local suppliers tended to be the ones that
had local licenses and so those were the ones that I think
benefited from that policy.
I think the scrutiny that we placed on bids this time was
more, that we heard a lot of concerns about, one, whether they
would be too many low-ball bids coming into the process. Again,
we looked at that very closely, revised our process this time.
We requested more information in terms of an explanation of
suppliers' bids where we found them to be aberrantly low. We
looked very closely at some of the invoices that were provided,
and when a supplier could not justify the level of their bid if
it was low, we would discard that bid.
Mr. Whitfield. Let me--I appreciate your responding. You
did a very good job of covering some areas but let me ask you
another question here. I was reading an article recently about
a provider in Tennessee that on this most recent round
submitted a bid for all areas in the wheelchair category, and
only about 10 percent of his business was really related to
these wheelchairs, and he evidently was offered--he won the bid
in basically half of those 10 areas, and he deliberately
submitted a low bid according to the article I read, and when
you all offered him the contract he refused the contract. Are
you aware of that particular situation?
Mr. Wilson. Yes, Congressman, I am aware of that situation.
I have looked into it. At the outset I would say I can't talk
about specific information in that supplier's bid. We consider
bid information proprietary. I will say that everything in that
article is not accurate.
The other thing that I would say is, looking at the article
the supplier was very clear that he felt his bid was a fair
price compared to the quote, unquote, cost of goods. In fact,
that leaves a higher gross margin and a lot less labor than
your average complex rehab chair. So he thought he had a profit
in there and that that was a good bid.
Mr. Whitfield. Even though he----
Mr. Wilson. Even though he refused it. The other thing that
he said is that the primary reason he didn't accept it was
because that particularly after round two utilization will drop
substantially. Marketing and advertising drives utilization, it
drives demand in reimbursement. It isn't going to allow for
$800 to $1,000 per chair for marketing and advertising anymore.
Mr. Whitfield. But I think the concern is that you have
someone like this that is really not in that business and he
does a low-bad bid and then in the matrix as they look at final
bid prices, it does put at a disadvantage a lot of the local
suppliers. At least there is the concern for that, which may be
valid or may not be valid. But my time is expired, so thank
you.
Mr. Pallone. Thank you.
Chairman Dingell.
Mr. Dingell. Mr. Chairman, thank you for your courtesy.
Ms. King, you allude to a situation in your testimony where
I am concerned. Would you say the DME program as currently
constituted is unusually conducive to fraud as compared to the
rest of Medicare? Yes or no.
Ms. King. Yes.
Mr. Dingell. Why do you feel that way?
Ms. King. Congressman Dingell, I think there are several
reasons for that. There are some parts of Medicare including
DME where the barriers to entry have been historically low so
that it doesn't take a lot to get into the market and it has
made it easier for unscrupulous providers to enter into the
market, to start billing Medicare, and then when people start
to catch up to them to close up shove and move on to somewhere
else.
Mr. Dingell. Thank you. Please submit for the record what
additional steps must be taken to see to it that we have
completed the addressing of the problem of fraud with regard to
durable medical equipment.
Now, Ms. King, I want to compliment you and GAO. You know
the respect I have for your agency.
Ms. King. Thank you.
Mr. Dingell. CMS has instituted many new requirements
outside of the DME competitive bidding program with more help
combating waste, fraud and abuse will come as a result of
health reform. But even apart from that, CMS argues that
competitive bidding will reduce fraud. In your testimony, you
note that competitive bidding has the potential to reduce
Medicare expenditures by using market forces. Question: Do you
think that it might also reduce fraud amongst DME suppliers as
CMS claims, yes or no?
Ms. King. Yes.
Mr. Dingell. Now, OIG draws a connection between
overpayments and fraud. Essentially they say honey draws flies.
Do you agree that there is a link between overpayments and
fraud?
Ms. King. I don't think that we have done work directly on
that point.
Mr. Dingell. Now, these questions are for Mr. Wilson or Ms.
King. Changes have been made since round one. You have
indicated in your testimony there are many problems reported
during the initial round of competitive bidding. GAO documented
unclear bidding instructions, poorly performing bidding
software and inadequate supplier education before commencement
of the bidding. MIPPA mandated many changes in the program that
have been adopted in round one re-bid including the requirement
that CMS allow suppliers a chance to complete their financial
documentation at a date certain for quality accreditation.
Question: Has CMS made other changes to facilitate fair
competition in the round one bid? Yes or no.
Mr. Wilson. I will answer, Congressman Dingell. Yes, I
believe we have.
Mr. Dingell. Ms. King?
Ms. King. We haven't seen the final results yet so I think
that we will reserve judgment until we see that.
Mr. Dingell. Would you review these questions and see
whether they are being fair to the bidders, and please report
to the committee for inclusion in the record?
Ms. King. Yes, we will.
Mr. Dingell. Now, one of the problems GAO documented was
that many suppliers were disqualified due to incomplete
financial documentation, a fact that they were often not aware
of. Based on your experience with regard to the round one re-
bid, do you believe that this problem of suppliers being
disqualified in large numbers due to incomplete documentation
has been fully addressed?
Ms. King. We haven't seen the results yet but I do think
that the new bidding system has the potential to really help
with that because it signals supplies when documentation is not
provided or is incomplete.
Mr. Dingell. Mr. Wilson?
Mr. Wilson. I believe in answer to your question,
Congressman, that the answer is affirmative. I can provide----
Mr. Dingell. Would you please each review that and tell me
what of the questions of basic fairness have not been properly
and fully addressed by CMS for submission in the record?
Now, another issue raised during MIPPA was again one of
fairness. It seemed unfair that because bid instructions were
changing, early bidders had to spend extra time to make sure
their bids were still appropriate, and it seemed unfair in the
GAO report that some suppliers were given a chance to review
all their disqualifications while others were not. First of
all, one, Mr. Wilson, is that true?
Mr. Wilson. It is true that bid instructions and additional
information were released during the bid window in 2007, and so
yes, it would be true.
Mr. Dingell. OK. Has that been corrected?
Mr. Wilson. It has been corrected.
Mr. Dingell. Are you satisfied with that?
Mr. Wilson. I am satisfied.
Mr. Dingell. Ms. King, what are your responses to those
questions?
Ms. King. Yes, we do think it has been corrected. With
regard to the disqualification process and the review process,
that has not occurred yet with the round one re-bid so we don't
know what the outcome will be yet.
Mr. Dingell. Is there anything that has to be done to
assure that the unfairnesses that we are discussing here have
been properly addressed?
Ms. King. CMS has told us that they intend to provide
notice to all suppliers about the reasons why they were
disqualified and give them an opportunity to express an
opinion.
Mr. Dingell. I think we are agreed that these matters must
be conducted fairly. Would you submit to us for the record any
matters which need to be addressed by CMS to assure fair
bidding?
Ms. King. Yes, sir.
Mr. Dingell. Now, again----
Mr. Pallone. Mr. Chairman, just to note, you are a minute
and a half over.
Mr. Dingell. I am sorry, sir?
Mr. Pallone. Just to note, you are a minute and a half
over. If you want, you can continue a little bit but----
Mr. Dingell. I ask that I be permitted to submit those
questions. Mr. Chairman, may I just ask this one important
question to each of the witnesses?
You have all seen H.R. 6095, the bill I have introduced.
Would you please tell me whether or not you have any concerns
about how that will adversely impact the cost to the government
of the program we are discussing? You may submit that for the
record.
Mr. Chairman, I yield back the balance of my time, and I
thank you for your courtesy to me.
Mr. Pallone. Thank you, Chairman Dingell.
Next is the gentleman from Pennsylvania, Mr. Pitts.
Mr. Pitts. Thank you, Mr. Chairman.
Mr. Wilson, you claim that the overall savings to Medicare
and beneficiaries will total $28 billion over the first 10
years without compromising quality or access. Can you explain
why you are so confident quality and access will be maintained
at current levels?
Mr. Wilson. Well, we will have a program in place to ensure
quality, provide oversight, communicate with beneficiaries,
communicate with beneficiaries, communicate with others
involved in their care. We will have complaint process if we
have of concerns. We will have a process in place to act
swiftly to address those concerns. There are certain underlying
features of the program which address quality, requirements on
suppliers in terms of accreditation and quality standards,
other parts of supplier standards which apply and with the
competitive bidding program comes a more focused oversight
effort on the suppliers that are involved in the program and
have contracts. So we believe we have the mechanisms in place,
the infrastructure in place to deal with individual beneficiary
issues and more systemic beneficiary issues.
One thing that is different in the program from 2008 is, we
will be doing active claims surveillance on the claims as they
come in to be able to see who is providing the care, who is
getting the care and whether or not there are any issues or
concerns. We can look and see things like are there more
emergency visits, are there longer hospitalizations, are there
some of the kinds of quality problems that we might be
concerned about. So we will be looking very closely and we will
have a plan in place and the resources in place to deal with
problems as they arise.
Mr. Pitts. What beneficiary protections are contained in
the program?
Mr. Wilson. There are a number of important beneficiary
protections. I think one of the key ones is something that was
provided in the law. It is called grandfathering. So for many
suppliers and many beneficiaries, the existing supplier, even
if they don't win a contract, they can stay in the program. The
last time in 2008 we saw that over 90 percent of oxygen
suppliers--and of course oxygen patients are the ones that we
would be most concerned about in terms of any quality adverse
outcomes. So we expect that there will be a lot of
grandfathering. We have selected a number of suppliers to be
contract suppliers so that beneficiaries will have choice. If
they don't like care somewhere, they can go somewhere else. We
have a safety net provision provided by Congress called the
physician authorization provision. If the physician for the
patient feels a specific brand or mode of treatment is
required, that has to be provided under the program by a
contract supplier. Anti-discrimination provisions--we require
suppliers under the program to provide the same treatments, the
same items and services, brands, models to their Medicare
patients as they do for their private patients. We have other
provisions which require transparency, so we will be publishing
and updating quarterly all the brands and all the models that
each contract supplier provides so that beneficiaries,
caregivers, referral agents can look and see what types of
products and brands they want and sort of vote with their feet
and go to suppliers that provide what they need, and that also
creates competition around the quality of the items and
services provided. And then as I mentioned----
Mr. Pitts. Go ahead.
Mr. Wilson. And then as I mentioned, the oversight and
monitoring efforts that we will have in place.
Mr. Pitts. Now, your testimony speaks of protections for
small suppliers. What are these protections and how were they
created?
Mr. Wilson. The law asks us to put in place a program that
allows suppliers the opportunity to participate in the program.
We feel like we have done a lot more than that. We worked with
the Small Business Administration to put a place a definition
of a small supplier, which is something less than the
definition or a lower threshold than a small business because
many suppliers are very small mom-and-pop entities. We built
some policies around that definition. We actually have what we
call a 30 percent target, really a set-aside where we make sure
that in every auction, in every bid in an area for a product
category we insert 30 percent of the suppliers meet that
definition, and if they don't, we add small suppliers.
We found that with respect to the current contract offers
that we have made, we have exceeded that target. It is almost
half, 48 or 49 percent are small suppliers that meet that
definition. We allow small suppliers to band together as a
network to meet all the requirements under the bidding program.
Those are just a few of I think the most important provisions.
Another key one I will mention is that we have the way the
policy works, the way the bidding program is structured results
in multiple suppliers so we try to select lots and lots of
suppliers. Ninety-two oxygen supply contracts are offered in
Miami. I think 42 wheelchair contracts offered in Riverside. We
try to make sure there are lots of suppliers so that
beneficiaries have choice, more suppliers can participate. That
also has an upward effect on price.
Mr. Pitts. My time is expired. Thank you, Mr. Chairman.
Mr. Pallone. Thank you, Mr. Pitts.
Next is the gentlewoman from Ohio, Ms. Sutton.
Ms. Sutton. Thank you, Mr. Chairman.
Mr. Wilson, would you agree with me that it is absolutely
important to cut out waste, fraud and abuse and that we must do
so through a fair process?
Mr. Wilson. Absolutely.
Ms. Sutton. One that will permit patients to continue to
access appropriate and quality care and services?
Mr. Wilson. I do.
Ms. Sutton. OK. Is CMS monitoring whether beneficiaries in
the bid areas will be able to continue to access the same brand
products and the level of services, particularly for
beneficiaries with chronic conditions and needs?
Mr. Wilson. We certainly will be collecting that
information, asking suppliers to update it quarterly and
publishing it.
Ms. Sutton. OK. Mr. Wilson, as you are going forward with
the next bidding process--actually let me just direct this to
anybody who has information. We have heard a lot, and we have
heard some questions that reflect it. There are many reasons
why bids are low but industry is saying that out of the area
and inexperienced companies were allowed to bid and set area
rates, then withdraw from the bid process with no
repercussions, leaving the area and local providers to deal
with unrealistic bids, and I guess the question would be, why
would you allow out-of-area companies with no accountability to
bid in the first round areas, and after they withdraw then keep
those illegitimate bids in the matrix for crafting new bid
rates, if that is indeed what happened?
Mr. Wilson. Sure, I can provide some information I think to
address this issue, Congresswoman. I think during the first
round in 2008, 95 percent of contract offers were accepted. I
think while we are not done the contracting process, we expect
to see something similar so most contracts are being accepted.
I think the other thing that I would say is that 72 percent of
contract offers went to providers, local suppliers that provide
the product category for which they bid. A further 11 percent
were local suppliers that maybe provided a different product
category but local suppliers and a further 12 percent for a
total of 95 percent were maybe out-of-area suppliers but were
experienced in that product category. So I think that we see is
overall 95 percent of the suppliers being experienced meeting
all of our requirements. We have certainly never had
requirements in Medicare that say a particular provider can't
expand from one State to another State or one city to another
city, and we didn't see an ability to place such restrictions
on this program here.
Ms. Sutton. Well, there are a lot of concerns and of course
you have heard many of them expressed here today, and whether
it is the small suppliers, I will say that it is my
understanding that the Cleveland Clinic, for example, bid below
the allowable price and didn't win one contract. In January
they will no longer be able to provide services and patients
will have to wait until the DME provider that won the bid will
be able to provide it. So you can understand that there is a
lot of concern out there about how this is actually going to
play out in the lives of the people that we are so honored to
serve.
I guess one of the things, going back to--we know that CMS
is prepared to survey consumers regarding the level of service
and quality of care changes and the round two of the bid
process of course is scheduled to begin in the spring of 2011,
but how can the surveys provide a quantitative analysis in
order to determine the success of the program and to identify
any shortcomings and how quickly will the surveys be completed
and on what frequency?
Mr. Wilson. I would have to get back to you with respect to
some of the details of the survey. We will be conducting a
consumer satisfaction survey. We have already done a pre-
implementation survey to provide a baseline. So I think we will
be moving forward quickly. I will provide to you specific
information on when that follow-up survey will occur. But I
think there are, you know, many other things that we will be
doing in terms of monitoring. We will be collecting information
from Medicare 1-800, from our ombudsman program so that we can
review complaints, analyze complaints to see if there are
systematic problems. I already mentioned the active claims
surveillance that we will be doing. So we are really trying to
look on a broad basis using a number of different tools to
penetrate some of the issues and concerns.
Ms. Sutton. Let me just follow up on that line real quickly
here. What will happen if CMS identifies a reduction in quality
and service? Is there a particular change that will trigger
CMS's intervention? I mean, it is a very uncertain future.
Mr. Wilson. I guess that could take many, many forms, and
to the extent that it was a concern with respect to a
particular supplier not meeting the quality standards or doing
something in conflict with the quality standards, that may call
for a certain typed of targeted intervention. If we found that
there was a broader base concern, we would have to consider
what that is, what the circumstances are and move swiftly to
take appropriate action. So without sort of knowing what that
is, it is hard for me to say.
Ms. Sutton. I thank you, and Mr. Chairman, I have
additional questions I will submit for the record.
Mr. Pallone. Any member can submit additional written
questions and we will ask you to get back to us fairly quickly
if you can.
Next is the gentleman from Texas, Mr. Burgess.
Mr. Burgess. Thank you, Mr. Chairman.
You know, as I sit here and we have this hearing and if I
take myself back to July of 2008 when we passed MIPPA, you
know, as I recall, we passed that under suspension. I don't
think we had a markup here in the subcommittee. I don't think
we had a markup in full committee on the delay of the
competitive bidding program and it just underscores how when we
circumvent the normal process, how harmful it is. It is harmful
to businesses, it is harmful to patients and even the federal
agencies are left trying to make sense out of what
Congressional intent was. So while this committee probably
didn't play a role in allowing MIPPA to come to the floor
without any discussion under suspension, it was wrong, it was a
mistake, and I think going forward this committee needs to
assert its authority at the subcommittee and full committee
level.
I am very grateful to our witnesses for being here today.
Mr. Wilson, I know that you have heard from several members
that here we are, now we have the 6-month anniversary of the
Health Care Act coming upon us next week. The Secretary is
going out with some re-education that she talked about in the
newspapers last week. We haven't heard from her. I know she
can't just show up to this committee. She has to be invited. I
have here a copy of a letter. It is actually the second letter
that Mr. Barton and I have submitted to Mr. Waxman asking him
to invite the Secretary to come to the committee. I would ask
you today, sir, would you be kind enough to carry a copy of my
letter to Mr. Waxman asking him to invite the Secretary so that
she may be prepared for that invitation when I hope it
eventually comes? Can I ask you to carry this to the Secretary,
sir?
Mr. Wilson. Absolutely.
Mr. Burgess. Thank you. A couple of questions then for you.
You know, it appears as we go through this and hearing your
testimony, some of these competitive bidding contracts, I mean,
they are going to be--the amount of money coming in may be
substantially reduced, and that may be entirely appropriate,
but have you at HHS done any studies as to the market
feasibility of removing this amount, these amounts of dollars
from the business models of these companies that are the
suppliers?
Mr. Wilson. We have certainly examined the pricing
structure and some of the business models closely.
Mr. Burgess. So have you done studies as to the market
feasibility?
Mr. Wilson. I don't think we have done what I would call or
describe as a market feasibility study the way a corporation
might conduct such a study who wants to launch a product.
Mr. Burgess. But the only reason a corporation would do it
is because they want to be able to be competitive and provide
the good or service to the person, the customer, the end user
that needs it so it would make sense to do that. Well, let me
just ask you, have you done any studies on how this would
impact patient access to any of these supplies? We have heard
several people mention that today, Cleveland clinic, I think
Mr. Hall brought it up. Have you looked into that?
Mr. Wilson. Yes, I think that we know is that many of the
products through a number of different studies by GAO, OIG and
our own analysis of some of the information that we have now
from suppliers that many of the items under the current fee
schedule are very overpriced.
Mr. Burgess. And I don't disagree with that at all, and
shame on us as a committee, shame on the federal agencies for
not having addressed this problem sooner.
Now, Mr. Levinson, since you are here, and I am so glad you
are here, I don't really understand why you are here but I am
glad you are here because we need to have this discussion, and
in fact, I hope, Chairman Pallone, that you will convey to Mr.
Waxman that it would be good to get Mr. Levinson and perhaps
some of his counterparts at Department of Justice to come to
our oversight committee and talk to us about this in some
detail because in your written testimony you detail the
importance of oversight, and honestly, it has been lacking over
the last 3-1/2 years and I just hope going forward we can get
that--we can have that happen. I see, you know, the television
stories repetitively back in my home, basically the Dallas-Fort
Worth television market, a gentleman comes home and finds a
wheelchair in his living room they have never asked for. He is
fully ambulatory and he can't understand why he has a
wheelchair, and the reporter unraveling this Gordian knot comes
back to the fact that he went someplace for some blood test
some 6 or 12 months before. They got his billing information
and through a convoluted series of different providers, now he
ends up with a wheelchair in his house and he doesn't know what
to do with it because his house is not able to accommodate a
wheelchair and he doesn't need one. So these types of stories
just drive people crazy, and in my discussion with your
counterparts in our area and the Department of Justice, one of
the problems that they have is the lack of federal prosecutors.
When you guys develop a case and bring a case, the lack of
federal prosecutors to then pursue that has been very, very
difficult, and in fact, there was one foreign national who had
multiple provider numbers. One provider number was shut down--
and this was a home home, not a DME provider--but one provider
was shut down but they kept cutting checks to the same person
with different provider numbers and they all went to the same
post office box. Have you got no mechanism within HHS to
control for that seeming oversight, that we just keep sending
checks to a post office that we know the lady's going to jail
and we're sending checks to that same post office box? Are you
working on that?
Mr. Levinson. We certainly are working on it and we know
that CMS is also working on it because it is extremely
important to get the information technology right in order to
be able to be, if not the head of that criminal element, at
least able to quickly try to remedy that kind of problem, which
has plagued the system for many, many years.
Mr. Burgess. With all due respect, sir, sometimes it seems
like we are not even fielding a team to oppose them. We invite
them. We beg them, come take this money from us, we have too
much, please take it. And we have heard it over and over again
and it comes up in stories in our districts, and this is what
is driving people crazy. We have got to be smarter. I mean, you
referenced that perhaps there is an element of organized crime.
We need to be smarter in dealing with that and the punishment
needs to be swift and sure. We spend all this money going after
mom and pops that are doing the right thing and taking care of
our patients and we let the criminals escape.
I realize I have gone over. Thank you, Mr. Chairman, for
your indulgence. I will yield back.
Mr. Pallone. Thank you.
Mr. Burgess. Unless Mr. Levinson wants to respond to that.
Mr. Levinson. Well, I think one of the most promising
efforts just in the last couple of years has been the Strike
Force effort that has developed between our Office and the
degenerative joint disease with the help of CMS to close down
fraudulent DME operators, especially in south Florida. The
program is effective in southern California. We have important
operations around the Gulf area. So I think there is an
increasingly positive record of being able to really enforce
the law when it comes to DME fraud that is returning millions
and potentially billions to the trust fund. So this is actually
a very important turnaround for the program and I would be
happy to provide more detailed data.
Mr. Burgess. I would be grateful for that.
And Mr. Chairman, I would just reiterate my call that you
ask Chairman Waxman to convene a subcommittee, an oversight----
Mr. Pallone. I am not going to suggest anything to Chairman
Waxman but I would say----
Mr. Burgess. It is your duty.
Mr. Pallone [continuing]. I would appreciate if you would
get back to us further on that question that Mr. Burgess asked.
The next is the gentlewoman from California, Ms. Eshoo.
Ms. Eshoo. Thank you, Mr. Chairman. I think that this has
been quite instructive, both the questions of the members and
the answers and the testimony of the panelists, so thank you to
Ms. King, to Mr. Wilson and to Mr. Levinson.
Mr. Levinson, I was struck by many of the things you stated
in your oral testimony, particularly the idea that
overpayments, which we try to eliminate because they represent
waste on their own terms, actually contribute to and exacerbate
fraud. If we pay too much for something, we not only waste
money on that purchase, I think we are at the same time
creating a magnet to attract bad actors. I mean, we can't
forget as we are concentrating on the dollars that are abused
and the fraud that we know is in the system and how important
it is to fight it that there are very honest, good people that
own small businesses and do a very good job. I don't think that
is what this hearing is about. That is certainly not my intent,
but I am struck by the amount of money that you said in your
first few sentences that. Was it $20 billion or $10 billion a
year? I wanted you to restate that because I think everyone
needs to hear that number again.
And here are many questions to you. Can you give us any
examples of the nexus between overpayments and fraud? And I
think that you can probably do that off the top of your head.
And in your testimony, your testimony mentions wheelchairs and
negative-pressure wound therapy pumps. You say in your
testimony that competitive bidding by connecting prices paid in
the program to market prices could actually help address this
problem. So can you elaborate on that, and I think that there
is something that the subcommittee needs to re-appreciate all
over again, that this new process that is being set up
estimates that there would be $20 billion in savings over 10
years, $20 billion. I don't know the last time anyone ever saw
that in their checking account. But those dollars, those
precious dollars would be plowed right back into Medicare to
offer direct services to seniors in this country. So we are
talking big numbers and things that are really significant. So
would you like to answer my questions?
Mr. Levinson. Well, if I can please return to the numbers
that I started off my testimony with, we are talking about
approximately 11 million beneficiaries who have occasion to use
DME good over the course of the year at a cost to the program
of about $10 billion. What I said thereafter was that CMS
estimates that about half of the DME claims were paid in error.
Now, errors----
Ms. Eshoo. That is really stunning.
Mr. Levinson [continuing]. Have multiple causes. There
isn't one--this isn't necessarily overt fraud, and it is
important to understand that we are talking about a failure
very often of documentation, and the problem with not getting
accurate documentation of course is that you really can't
account for exactly what was provided and for what reason and
what appropriate cost. So documentation is really the lifeblood
of the program, and when we are talking about an error rate
that high, that does suggest a serious systemic problem just
being able to----
Ms. Eshoo. I would certainly say so if it represents 50
percent. There is something really wrong with whatever system
is there.
Mr. Levinson. Yes. The nexus of fraud with overpayments is
that if you have too much of a disparity between acquisition
costs and the price, that actually does provide an incentive
for those masquerading as legitimate, genuine DME suppliers as
they come into the marketplace, and indeed, we do have a lot of
pricing reports that indicate that there is a significant
disparity between what CMS allows and what the actual
acquisition costs or products like power wheelchairs, pressure
wound therapy pumps, home oxygen equipment, we do have a body
of work indicating that there are serious disparities that CMS
needs to remedy and in many case hopes to remedy I think as a
result of this program.
Ms. Eshoo. Thank you very much.
I think, Mr. Chairman, in this competitive bidding process
that for the businesses that provide these services and
equipment, they need consistency, they need clarity and they
need to be able to participate in a fair way. They need to know
where they stand and the process needs to be a very clear one,
but make no mistake about this, I think the overriding issue
here is, we do the right thing and in the right way, that this
represents billions of dollars. This isn't any small thing.
So I especially want to thank the OIG for the exceptional
work. I think every Member of Congress should really read your
report. It is outstanding. Thank you very much.
Mr. Pallone. I thank the gentlewoman. I agree
wholeheartedly with your last comments there. Thank you.
Mr. Hall is next.
Mr. Hall. Mr. Chairman, thank you.
I join the parade as the gentlelady from Florida who asked
you to take another look, Mrs. Eshoo that I have served with
for many years here and I have very rarely ever found on the
wrong side of anything, talks about a fair process and the bad
actors. I would like to ask the GAO and OIG--I think that is
Ms. King and Mr. Levinson--what are you doing and what is your
opinion on the fact that Medicare plans to reimburse portable
oxygen systems at an average of $21 a month for as many fills
or refills that the patient requires and wholesale cost with
the highest volume discounts to just a liquid oxygen refill,
not including equipment is $30 more than what Medicare proposes
in their single payment amount for portable oxygen? What is
your opinion on that?
Ms. King. Can we get back to you on that, sir?
Mr. Hall. You have no opinion?
Ms. King. I would have a more considered opinion if I had
time to look at it more carefully.
Mr. Hall. Will you do that?
Ms. King. Yes, sir, I will.
Mr. Hall. To Mr. Wilson, I would like to ask you, how can
you justify a $21 reimbursement for the portable liquid oxygen
system when the cost to fill the liquid system is at least $30
more than what you reimburse? Do you want to look at it some
more too?
Mr. Wilson. Well, I think what I would say, Congressman, is
that we have looked pretty closely at oxygen equipment. We
looked at the OIG reports and we looked at what we have been
paying, and you can find this equipment for a lot less than we
pay. If you look at our overall payments in oxygen in terms of
the monthly amounts, we are paying excessively for oxygen, and
I think the bids demonstrate that. And I would be happy to
provide more-specific information about the prices that you are
quoting. I just don't have those prices in front of me.
Mr. Hall. That is fair enough. We can always ask you for
them by letter and you would respond, wouldn't you?
Mr. Wilson. We would be happy to submit them to you after
the hearing.
Mr. Hall. You have always claimed, I think, that you
perform due diligence on providers and have assured that
bidders are financially qualified. That is necessary, isn't it,
in your opinion?
Mr. Wilson. Yes, certainly.
Mr. Hall. And you have problems with contracts, the out-of-
area companies are companies that have no experience?
Mr. Wilson. I don't think we saw a lot of those companies
bidding in this process.
Mr. Hall. You spoke in your opening remarks of smooth
transactions and transitions and realistic bidding. You did
state on the record that 30 percent of the bidding companies
had questionable financials. You said that, haven't you?
Mr. Wilson. I did not.
Mr. Hall. You did not say that?
Mr. Wilson. That quotation I have seen several times over
the last few days. It is different in every version, and I
would like to submit a statement for the record. I could tell
you what I was referring to if you like, sir.
Mr. Hall. I would like to hear anything. I am under the
impression that you said that, but if you didn't say it, what
did you mean to say----
Mr. Wilson. What I was talking about----
Mr. Hall [continuing]. On the record about bidding
companies with questionable financials, because I am also told
that you allowed them to proceed through the process, and that
seems to me to be a disregard for your own directives, and if
that is what you call a smooth transition, why, we have a
different opinion on what a smooth transition is.
Mr. Wilson. Well, that is right.
Mr. Hall. And a lot of other people must, because my mail
has been flooded with information on those things.
Mr. Wilson. I think you would find, sir, that I probably
agree with your position. That is certainly not what I said, so
it is inconsistent with my view and my statements.
Mr. Hall. OK. You have offered contracts to out-of-area
companies and you have offered contracts to those with little
or no experience, have you not, providing competitively bid
items and services?
Mr. Wilson. Well, the information I was able to provide
today, sir, is that about 72, 73 percent of all contract offers
went to experienced local suppliers, those with experience in
the product categories. Another 11 percent went to experienced
local suppliers that may have provided a different product
category. Another 12 percent went to suppliers that were
experienced in the product category but came in from the
outside area. That leaves about 5 percent that I don't have
information on. I expect a lot of those are mail order diabetic
supply outfits that are set up out of state somewhere and
because they operate through the mail.
Mr. Hall. I ask also of the GAO, it is my understanding
that you have done studies on wholesale purchase costs for
oxygen concentrators but the question is, have the agencies
done cost analysis on the other oxygen systems or any other
oxygen system that patients are required to use for their daily
living? Have the agencies done analysis on the cost to provide
portable liquid oxygen systems that are necessary for patients
that want to leave hospitals or visit their doctors or travel
outside their bedrooms or maintain employment? Have they done
studies on that?
Ms. King. We have some work on oxygen payments that is
currently underway and hasn't been released yet. We would be
happy to provide you with that when it comes out. And if that
doesn't answer your questions, you know, we could have further
conversations.
Mr. Hall. You are good on the word ``some'' there. How many
is ``some''?
Mr. Pallone. Mr. Hall, we will take that question but we
are about a minute and a half over. So if you will answer his
question----
Mr. Hall. Then I will yield back the balance of my time.
Mr. Pallone. No, we will let Ms. King answer that one.
Ms. King. I didn't understand his question, sir. If you can
repeat it, that would be helpful.
Mr. Hall. No, that is all right. I will write you a letter
and ask for that information, and I don't want an answer of
``some'' something. I would like an answer on the numbers if
you have them because you know how many letters you have, you
know how many inquiries you have made of Mr. Wilson, and his
answer I think was some letters were written. I will clarify
that in letters to you, and I thank you for your time.
Ms. King. I will get back to you.
Mr. Pallone. Thank you.
Next is the gentlewoman from Florida, Ms. Castor.
Ms. Castor. Thank you, Mr. Chairman, and thank you to the
witnesses very much for your helpful testimony.
The benefit of having durable medical equipment suppliers
in local communities is that the companies and their staff are
familiar with patients in their neighborhoods and are
accessible for patients and their families in the event that
they need assistance or service for their equipment. So a lot
of the frustration you hear comes from all across the country
in these small businesses that aren't the fraudulent companies
but have been working very hard and providing good service, and
it is just frustrating in this transition to competitive
bidding to see contracts offered to out-of-area companies that
may have little or no experience with durable medical equipment
and services and have no familiarity with the area of service
or direct access to patients that rely on their equipment, and
will this be cost-effectiveness in the long run, and what I am
hearing you all say is that we are going to monitor it, you are
going to wait and see.
Another concern is that there have been many complaints
that the financial vetting process used in the competitive
bidding process allows bankrupt companies or companies facing
bankruptcy to win bids at rates 30 to 40 percent less than
current reimbursement. Please explain this to me. What kind of
financial vetting process do you have that allows bankrupt
companies to win bids at 30 to 40 percent less than current
reimbursement while you are also awarding bids to viable
companies but they are saying that they are going to be
subsidizing the patients but it makes sense for them to try to
win these contracts because this competitive bidding process is
so unpredictable?
Mr. Wilson. At the outset, I would just say, Congresswoman,
that I am not aware of any bankrupt companies winning
contracts. I know there was some discussion in the trade press
about a particular company that had a high debt talking about
the potential for reorganization several years ago. They may
have been considering reorganization. They may have been trying
to pressure their creditors to give them a better deal. I don't
know. We do know that we looked carefully at their financials.
We used the same type of financial ratios that banks and other
financial institutions to use the viability of an entity. This
falls under our financial standards. It is the reason why we
collect the documents such as tax records, credit history and
things like that. So we did look at all those things for
every----
Ms. Castor. OK. I am going to submit this information that
was provided to me about the company in bankruptcy, and if you
would take a look at it and respond back, I would appreciate
it.
Mr. Wilson. Absolutely. Thank you.
Ms. Castor. And then one of my colleagues said when we are
going to get smarter about health fraud, and I thought it was
interesting because right now we are in the implementation
phase of the new health care law that contains numerous anti-
fraud provisions that will assist CMS and the Office of
Inspector General and the Justice Department in identifying
abusive suppliers and fraudulent billing practices including
the new authorities to screen providers before they enter the
program, the new requirements that physicians ordering DME be
enrolled in the Medicare program, new data-sharing and data
collection provisions, enhanced penalties for fraudulent
providers and new funding to identify preventive and punish
fraudulent providers. Where are you now in the implementation
phase? What is your timetable for these provisions?
Mr. Wilson. Those provisions fall within our Center of
Program Integrity. I work within our Medicare fee-for-service
policy component. I would be very happy to reply or respond for
the record to you on those issues.
Ms. Castor. Because certainly a lot of these new
requirements to root out the fraudulent practices in Medicare
must be taken into account in this DME transition to
competitive bidding.
Mr. Wilson. Well, I think they are absolutely important, I
agree. There is a number of things that are required by the new
law which will act to root out fraud here dealing with some of
the issues that the Inspector General mentioned already in
terms of documentation for claims. There is a new requirement
for face-to-face visits with physicians to document physician
orders for DME. I think that is going to be important.
Ms. Castor. We have to do this because the bad actors in
DME are painting a picture all across the country that anyone
that is in this business is involved in fraud. That is why I
think it is absolutely--and coming from Florida, I am
particularly sensitive of especially the Tampa Bay area that is
very different from Miami and south Florida and oftentimes a
lot of small businesses in my area have to bear the burden that
someone says I am a Medicare provider in Florida and people
wonder, and that is not fair. Thank you.
Mr. Pallone. Thank you, Ms. Castor.
Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman, and I apologize for
not being here for the opening testimony and statements. It is
a busy time for many of us. I appreciate Ed Whitfield sitting
in for me.
First, Mr. Chairman, for the record I have two submissions
that I would ask. One is from our colleague, Mr. Langevin,
which you have seen, and also from the Diabetes Access to Care
Coalition.
Mr. Pallone. Without objection, so ordered.
[The information appears at the conclusion of the hearing.]
Mr. Shimkus. Also, I don't know if it is appropriate but I
see our colleague, Nancy Johnson, in the hearing room, and she
has worked diligently in her time on Ways and Means in this
field, and Nancy, it is good to see you. You are not hiding
from me. I see you there.
I am going to talk macro and then I am going to talk micro.
The macro debate is this--and I am glad some comments were made
about the health care law because everybody knows, I am a
competitive market-based conservative. Now, we are the policy
people. You all have to implement. In the private practice,
auditing of payments happens for the most part before the
checks get sent because the private sector doesn't want to lose
the money and fraudulently spend money, and sometimes our
constituents have terrible times because they are fighting with
the auditors of the insurance companies or the HMOs begging for
the check to be sent. In our system, we send the check. We are
fee-for-service folks. We send the check, and we can send the
check for multiple years to one single mailbox for millions of
dollars and every candidate who runs for federal office when
they talk about the funding problems of Medicare, what do we
say? We are going to clean up waste, fraud and abuse, and what
do we point to? We point to this. And that is the frustration,
and I think it is a bigger problem than just getting our t's
crossed and our i's dotted. It is a fundamentally different
system of a one-payer system of fee-for-service that only
worries about the expense after the fact versus someone who is
watching the check and making sure the check is going to the
right place before. It is a government model versus a private-
sector competitive market model. That is the macro debate and
that is kind of why we are here. But that is our discussion.
You guys implement, and so we appreciate the challenges that
you have.
And also, you know, just adding to Dr. Burgess, we do have
a new health care law that is kind of going down in that
direction and it would be good for the Secretary to come talk
to us, and now I am on record at every hearing asking for that
so I will do that now and then I will do that this afternoon
and I will continue that record of saying, you know, it is
about time we at least had someone who wants to talk about this
law because no one wants to, and I would pretty much argue that
during the whole 6 weeks of break no one was talking about it.
Well, we were talking about it but no one else was really
defending the law out in America.
Now to a micro issue which I know is important. It is
important to the disabled community, it is important to some
producers, so I am going to go to Mr. Wilson. Mr. Wilson, do
you believe that a code that does not represent a distinct,
homogenous group of products should be included in competitive
bidding?
Mr. Wilson. As a general matter, yes, it should be
included.
Mr. Shimkus. The final rule for competitive bidding
stressed product categories would include items intended for
similar medical condition. Do you believe that the intended
uses of mobility and wound prevention and treatment are similar
medical conditions?
Mr. Wilson. If they are related products, yes.
Mr. Shimkus. Well, you should know the direction by which I
am heading, a litany of groups from the disabled veterans to
the Christopher Reeves Foundation have raised concerns over
seat cushions and mobility equipment being lumped in the same
category and then you exacerbate skin type injuries and
abrasions and really huge problems because they are in a unit
versus separate. Given--and I don't think that is really
debated. I would think that you could ask the physician
community and I think you can ask the disabled community, I
don't think this is a--I have seen them.
If that is the case, shouldn't we reconsider the inclusion
of these type of products in the future?
Mr. Wilson. I don't personally see a reason for
reconsidering their inclusion. That said, we have not posted,
made a decision on what items will be included in round two.
But for this round, I think it is important that they be
included. We think that the prices are excessive----
Mr. Shimkus. Let me end up. The letter from Mr. Langevin,
one of our colleagues, one of the really well-respected members
who has led us in a new era of understanding the disabled
community I think has a very strong position, and I would hope
that the Administration would listen to him and other people
who feel that this policy is harmful and I would suggest we
take a look at it again, and with that, Mr. Chairman, I yield
back.
Mr. Pallone. Thank you.
Mr. Braley.
Mr. Braley. Thank you, Mr. Chairman.
Mr. Wilson, I am going to start with you. I wasn't here
when competitive bidding was made law, but isn't it true that
there is a lot of ways that you can address the issues of
waste, fraud and abuse that wouldn't involve competitive
bidding?
Mr. Wilson. There are certainly many ways for addressing
this problem.
Mr. Braley. And in fact, in Mr. Levinson's written
testimony that he has provided to the committee, he documents a
lot of the work that the OIG has done to try to address the
enormous problem we have in health care delivery with waste,
fraud and abuse, and at the conclusion of his recommendations,
he notes, ``It is critical that these and other program
vulnerabilities be addressed be it through competitive bidding
or otherwise,'' and that ``otherwise'' is a huge sector of
health care delivery that involves diligent oversight and
management. You would agree with that?
Mr. Wilson. That is certainly one of the areas that we
would need to pursue in order to solve this problem.
Mr. Braley. Has CMS to your knowledge done an analysis of
the impact of the competitive bidding process, not just the
initial phase but as it is intended to be implemented
throughout its entirety on rural health care delivery?
Mr. Wilson. We have not done that type of analysis to this
point because rural areas are excluded from the program. We
have not yet done rulemaking on how to expand the use of those
prices by 2016 where we would do such an impact analysis.
Mr. Braley. Do you understand why patients in rural America
have serious concerns about a shrinking market to meet their
health care demands if the impact of the long-term competitive
bidding process results in the shrinking or available suppliers
and an unwillingness on the part of some of the remaining
people who are eligible to participate to go into areas where
volume will not allow them to achieve the type of margins they
could have factored in when they presented their initial bid
application?
Mr. Wilson. I think that what beneficiaries need is choice
and quality and I think that can be sustained under this
program.
Mr. Braley. Are you aware that in a host of other
purchasing opportunities that people in rural America have
substantially fewer choices in the marketplace than people in
more populated areas?
Mr. Wilson. I think it is certainly true that there are
challenges in rural health care.
Mr. Braley. Have you ever lived in rural America, Mr.
Wilson?
Mr. Wilson. I have not.
Mr. Braley. Well, I have. I grew up in a town of 1,500, and
most of my district is considered rural America, and we see
lots of policymakers who come to committee hearings like this
and try to tell us how they are going to fix the problems in
rural America but I can tell you that for those of who deal
with these problems on a daily basis, this is more than just
paranoia. This is what we have seen happen on the storefronts
and shops in our cities and towns. It is a problem where every
time a drugstore goes out of business in a rural community it
denies access to people who need durable medical equipment.
Every time a provider who is furnishing DME services to those
small town hospitals and health care providers, once they go
out of business, we aren't as confident maybe as CMS is that
the big players are going to be willing to come to our part of
the country and continue to compete for our health care
dollars. Do you believe that a decrease in the number of
supplies in rural areas could impact accessibility and
timeliness of receiving durable medical equipment?
Mr. Wilson. I am not sure that we are going to see a
decrease in suppliers in rural areas. I think we have not moved
forward with the authority that we have to apply the prices in
rural areas, and of course, competitive bidding does not apply
there.
Mr. Braley. Well, as Johnny Cash sang, ``I hear the train a
comin,'' and I think everybody in rural America knows that this
is inevitable.
Mr. Levinson, I really was interested in a number of the
comments that you made in your report. I want to focus on a few
of those. You appropriately noted the challenges that we are
facing in health care. We talk about this on this subcommittee.
And dealing with what some people have identified as a $500
billion to $700 billion problem in this country, not just in
Medicare and Medicaid but across the health care reimbursement
system in waste, fraud and abuse, and you have identified
enrollment, payment, compliance, oversight and response issues
that need to be addressed. One of the things you talked about
was that DME is one of those areas where we see problems with
people getting in at the entry level and then it becomes hard
to monitor them once they are set up and doing business, but I
guess I am a little confused because if the purpose of having a
certification requirement that a good or service is medically
necessary before it can be prescribed and paid for by public or
private reimbursement systems, why is it a challenge for
anybody receiving Medicare payments, whether they are DME
providers, pharmaceutical providers or other health care
providers to be identified at the point of entry and be held to
a level of accountability that protects consumers of health
care in this country?
Mr. Levinson. Well, over time it has certainly become
apparent that it has been too easy to get a provider number.
Enrollment has been a fundamental flaw for many years in terms
of just gaining entry to the program. When our auditors and
evaluators, for example, went to south Florida a couple of
years ago and just banged on doors or tried to bang on doors
because actually there were no doors to bang on, we found that
about one-third of the 1,500 or 1,600 DME providers in south
Florida, those who had registered and gotten a number, didn't
make even the most basic standards for being able to gain entry
to the program like having a physical location, like having
regular hours, staffed by somebody who could actually help. So
it is quite clear that it has simply been too easy to gain
access, and to the extent that we can fix the enrollment issue
among those five issues that you and we have identified, you
really solve a lot of the consequential issues that we have to
deal with when it comes to compliance, oversight and response.
It doesn't necessarily deal with pricing methodologies with
being able to align prices so that they better reflect market
realities, and some of our pricing reports indicate that
Medicare indeed pays too much and, you know, we have done some
comparative work, much as with VA, which one might argue is a
different kind of structure but with a federal employee health
benefits program as well and with Internet pricing.
So the pricing issues are perhaps somewhat related to
enrollment but I think that the enrollment issue to the extent
that we can get on top as a department of the enrollment
issues, that will solve a lot of the blatant fraud issues, and
again, you know, fraud is a segment of a larger issues but one
of the most promising aspects actually of the Affordable Care
Act is the mandating of a compliance program for health care
providers, and I think by having compliance built in to
Medicare going forward across a wide range of industries, we
will be able to do a much better job of protecting taxpayer
dollars and actually giving value to beneficiaries.
Mr. Braley. Thank you for your time. I yield back.
Mr. Pallone. Next is the gentleman from Maryland, Mr.
Sarbanes.
Mr. Sarbanes. Thank you, Mr. Chairman.
Mr. Wilson, I just want to make sure I understand the
problem. I got here a little bit late but I did watch some of
it on the monitor. The fee schedule that was put in place back
in the late 1980s, that has continued to inflate over time and
therefore bears much less connection, any kind of rational
connection or reasonable connection to the actual pricing
structures out there, at least with respect to some of these
durable medical equipment items, correct?
Mr. Wilson. That's correct.
Mr. Sarbanes. And the unreasonable relation is that it is
paying a lot more in many instances and one could justify just
looking at the market so the competitive bidding process is a
response to that, and we talked about what some of the issues
are with that process.
I had a couple questions. One was, where else has CMS done
this kind of competitive bidding as a response to similar kinds
of issues and what has the experience been with that? And what
are the reasons you go the competitive bidding route as opposed
to just working harder to come up with a fee schedule that
bears a more reasonable relationship year in and year out to
the underlying market and price structures that are out there?
Mr. Wilson. I think this program is pretty unique for
Medicare. There has been a lab demonstration on competitive
bidding. There are, I think, really not many other examples
that would be even close to this type of program, and I think
going to your second question, this program has a unique set of
challenges in terms of setting prices and calculating or
computing a new fee schedule. There is a lack of data on what
items actually cost, so I think one of the reasons for
competitive bidding was going to the only place to get to a
true market price, which was the suppliers and bidding.
Mr. Sarbanes. I guess drug pricing is another place where
the data sets are pretty opaque in terms of understanding why
things cost what they do.
Mr. Wilson. I am less familiar with that program. It
doesn't fall within my purview. But, you know, I think it is an
area where manufacturer information is one of the only areas to
get pricing information.
Mr. Sarbanes. When the original fee schedule was
established, would you say it was easier to get hold of the
kind of data that could construct a fee schedule at that time
than it is now or that was just the method to be used at that
point with all the flaws that it bore?
Mr. Wilson. Historically, there was a quote, unquote,
reasonable charge-based payment system, essentially some
discount off charges provided by suppliers. That was the only
information available. Those charges were in many cases
inflated or distorted but they were locked into the fee
schedule for 20 years.
Mr. Sarbanes. And just in terms of the details of the
competitive bidding process, I don't know enough about how it
is set up but are there baskets or ranges or parameters or
corridors in which the competitive bids can be submitted or is
this sort of anything goes in terms of being able to enter the
bid process?
Mr. Wilson. We----
Mr. Sarbanes. In other words, is it kind of a managed
competitive bid process in that sense or----
Mr. Wilson. Well, I think it is a managed process in that
we have a number of different criteria for qualifying suppliers
to bid that relates to quality standards, financial standards,
licensing, other things, and then we have processes to verify
that bids are what we call bona fide. We try to ensure that
they are not submitting a low-ball speculative bid.
Mr. Sarbanes. But there is no, like, floor, for example, on
what the bid can be?
Mr. Wilson. No, there is not a floor other than the ability
to document that a price is rational and feasible to provide
the service. There is a ceiling which is the current fee
schedule.
Mr. Sarbanes. OK. Thanks.
Mr. Pallone. Thank you.
Mr. Doyle.
Mr. Doyle. Thank you, Mr. Chairman, and I want to thank the
subcommittee's courtesy for allowing someone who is not a
member of the subcommittee to ask some questions.
I have the privilege of representing Pittsburgh in the
Congress, and Pittsburgh was one of the nine round one test
sites, and obviously I have been hearing from many of my
constituents in the Pittsburgh area that I think have very
valid concerns. Mr. Chairman, I have more questions than I have
time for so I would like to submit additional questions for the
record to maybe get them answered. One parallels Ms. Castor's
concern about a company that announced it was awarded 17
contracts, and this is a company that had publicly said back in
May that if they couldn't get their debt down they were filing
for bankruptcy in the spring. So we do have concerns that we
are not giving contracts to companies that aren't going to be
able to sustain themselves, and it is one of the real concerns
we have in Pittsburgh too with these bids coming in at
seemingly artificially low prices just for companies that want
to sustain themselves and stay in business whether these
companies are going to be able to be viable 3 years down the
road at some of these prices that they are competing with.
Before I get into that, I have a specific question on
glucose testing strips I want to ask you. Diabetes is a big
problem in my district, and I have concerns about the
availability of glucose testing strips. My understanding that
mail order suppliers are required only to carry one brand and
not necessarily the brand that patients use, and as you know,
these strips are unique to the machines that they use just like
razor blades are to certain razor handles. And I understand
that DME providers are permitted to provide a monetary
incentive to patients to switch monitors if they can't get the
test strips to go with their monitors, but a lot of my patients
in Pittsburgh, we have an elderly population. They are seniors.
It is very problematic for them having to switch monitors, and
what I want to know is, how does CMS know that the suppliers
are going to be able to furnish the volume of specific products
that will be demanded through the competitive bidding program?
For example, does CMS know, for instance, that suppliers who
contract for Pittsburgh will be stocking and selling strips
that work with Lifescan's One Touch Ultra meters. Thirty-five
percent of my district uses that monitor. And if a supplier
chooses not to offer strips that work with Life Scan's One
Touch Ultra or any other brand strips that a beneficiary uses,
what options are available to that beneficiary to obtain
replacement stripes?
Mr. Wilson. If I could just go back and reference a few of
the statements that you made, sir. We don't specifically say
you are only required to provide one brand of test strips. In
fact, when I look at the bid information that came in, and we
collect information on all the models, products and services
that will be provided under the program and will update it
quarterly, I see a full range of products in the particular
ones that I have looked at.
Mr. Doyle. Are you saying you don't require them only to
carry one brand, you require them to carry multiple brands?
Mr. Wilson. We require them to submit a bid on brands, on
the brands that they intend to provide.
Mr. Doyle. Are they required to carry more than one brand?
Mr. Wilson. We don't say that, no, sir.
Mr. Doyle. So theoretically, they could carry one brand and
be in compliance with the bid?
Mr. Wilson. Theoretically, but that is in fact not what
happens because suppliers come in, they want business. They
know they need to provide the items that beneficiaries want if
they are going to be viable.
The other thing that I would say is, I am not aware of any
ability to offer a monetary incentive. I am not the OIG. That
would possibly implicate anti-kickback, although I won't make
that judgment. That is for others.
Mr. Doyle. So tell me, what happens to--let us just say for
instance if I have seniors in my district that have a monitor
that needs a specific test strip and it's not available, what
are their options?
Mr. Wilson. Their options are several. If it is not
available, and we certainly hope and expect that it will be,
they could talk to their doctor about physician authorization
requirement, the law which allows them to certainly pursue
something that is medically necessary from a supplier. We have
not bid test strips in retail stores. A beneficiary could
obviously go to any retail store in Pittsburgh and----
Mr. Doyle. Yes, but doesn't that sort of defeat the purpose
of the competitive bidding program if they end up going to the
pharmacies? I am going to submit more questions. Boy, 5 minutes
goes fast. Because I want to ask you another question before my
time is up.
You know, a lot of people on the surface don't have a
problem with this idea of competitive bidding so long as it
doesn't affect quality and access, and I think that is really
the concern that we have about this quality and access, and I
know CMS is surveying customers regarding the level of service
and quality of care changes. My question is, what happens if
there is an identification of a change in quality or service?
Is there some percentage or formula that would trigger some
event or reaction by CMS and doesn't it concern you that your
analysis of round one won't be complete before you expand this
program to an additional 91 areas in round two? How do we
measure quality of care and access and at what point is that is
not happening? Is there a definitive formula? Is this
subjective? You know, tell me how that is going to work.
Mr. Wilson. Well, first of all, we are concerned about any
concern, whether it a systemic concern or individual
beneficiary concern and we will be collecting information and
have the infrastructure in place to evaluate those and deal
with them.
The other thing I would say is that we are evaluating the
program phase by phase as we move forward. I mentioned that we
are going to be collecting claims data, active claims
surveillance as the program moves forward so, you know,
beginning very soon after January when the claims start coming
in, we will be able to see what is going on. We will see who
the beneficiaries are, whether they are going to the doctor's
office, the emergency room, other types of problems.
Mr. Doyle. And if you are seeing these problems in quality
of service and access, how will you respond to that? How do you
change what you are doing?
Mr. Wilson. Well, we will have to examine the particular
situation and see what the problem is. We will have to identify
whether it is a particular problem with suppliers not meeting
quality standards, whether it is particular suppliers having
other types of difficulty. But we will certainly collect that
information and examine it.
Mr. Doyle. Mr. Chairman, you have been very generous with
your time and I appreciate it, and I will submit the rest of my
questions for the record.
Mr. Pallone. Absolutely. And let me----
Mr. Doyle. And so has the ranking member.
Mr. Pallone. Oh, yes, and the ranking member.
Let me mention, we had an unusual number of members
actually who said they are going to submit written questions,
which is fine. We try to get them to you within 10 days. The
clerk will try to get them to you within 10 days and then of
course we would like you to get back to us as quickly as
possible. I don't think I have ever had a hearing where there
were more members who said they were going to submit written
questions. So thank you very much and I appreciate your input
on such an important subject. Thank you. And I will ask the
second panel to come forward.
Let me welcome the second panel and introduce each of you
again. From my left is Ms. Karen Lerner, who is a Registered
Nurse with Wound Care, Support Surface, and she is also a Rehab
Specialist at Allcare Medical. Where is Allcare Medical
located?
Ms. Lerner. Sayreville, New Jersey.
Mr. Pallone. Sayreville, New Jersey. You are my witness. I
mentioned it earlier, and I was hoping that I was going to
mention that again. Thank you.
And then Mr. Alfred Chiplin, Jr., who is Managing Attorney
for the Center for Medicare Advocacy. And Ms. Nancy
Schlichting, who is President and CEO of Henry Ford Health
System. I am going to ask where that is also.
Ms. Schlichting. In Detroit.
Mr. Pallone. In Detroit. And Dr. William Scanlon, who is a
Health Policy Consultant. Where are you from, Dr. Scanlon?
Mr. Scanlon. Washington.
Mr. Pallone. From Washington. All right.
As I think I mentioned before, we try to keep everything to
5-minute opening statements. I think the panelists have been
pretty good about sticking to the 5 minutes. It is the members
that have not, so I am not going to say anything further, but
if you want to submit additional written comments as a follow-
up, you may well.
And I will start with Ms. Lerner.
STATEMENTS OF KAREN LERNER, REGISTERED NURSE, WOUND CARE,
SUPPORT SURFACE AND REHAB SPECIALIST, ALLCARE MEDICAL; ALFRED
CHIPLIN, JR., MANAGING ATTORNEY, CENTER FOR MEDICAL ADVOCACY;
NANCY SCHLICHTING, PRESIDENT AND CEO, HENRY FOOD HEALTH SYSTEM;
AND WILLIAM SCANLON, HEALTH POLICY CONSULTANT
STATEMENT OF KAREN LERNER
Ms. Lerner. Mr. Chairman and members of the subcommittee,
my name is Karen Lerner and I am a Registered Nurse and Wound
Care Support Surface and Rehab Specialist for Allcare Medical
in Sayreville, New Jersey. Allcare has been in business since
1963. We have 200 employees and serve about 25,000 patients per
year. Allcare Medical is a member of the Jersey Association of
Medical Equipment Services and the American Association for
Home Care.
I am here today representing the home care community. My
goal is to explain why this competitive bidding program as
designed by CMS will not achieve its desired outcomes and will
in fact reduce access to care for Medicare beneficiaries, lower
the quality of that care, increase cost and kill jobs.
We agree with the 255 members of the House of
Representatives who believe this program should be scrapped.
Numerous consumer and patient advocacy organizations also
believe the bidding program should be eliminated. The
fundamental flaw in the design of this bidding program for
durable medical equipment is that it treats home medical
equipment and services like a simple commodity. We are not
equipment deliverers; we are service provider.
In fact, effective home-based care for our Nation's seniors
and people with disabilities is an integral part of the
continuing care that helps move patients from hospital to the
home. It helps to keep people out of nursing homes and the
emergency room and it reduces hospital admissions. Many frail,
elderly and disabled Medicare beneficiaries require multiple
items of medical equipment. Consider the chaos that will occur
when a caregiver must call five or six different companies to
coordinate the medical equipment needs of a patient who
requires a hospital bed, support surface, oxygen, enteral
feedings and a walker. I have seen many, many patients like
this. As a Nurse and an Assistive Technology Professional who
helps patients get fitted for the right type of wheelchair, I
am in contact with patients every day, and it scares me to
think of what will happen to these patients if this bidding
program becomes reality.
The current marketplace without competitive bidding
requires home care providers to compete for patients on the
basis of service and choice to furnish the home medical
equipment that makes the most clinical sense for the
beneficiary. We are currently reimbursed under fee schedule in
Medicare CMS and Congress have cut repeatedly and
disproportionately over the past decade so the contention that
the DMEPOS fee schedule is outdated and is based on pricing
from 25 years ago is incorrect. The home medical equipment
sector has already seen reimbursements cut nearly 50 percent to
the Medicare fee schedule over the past decade. Despite all the
quality assuring and measuring tools that CMS has previously
touted, patients and even most physicians will not know if they
are getting clinically appropriate equipment and services until
negative outcomes appear.
With respect to all of the promised savings and advantages
of the competitive bidding program, I maintain that what sounds
too good to be true is too good to be true. This ill-conceived
program will single-handedly destroy the home medical service
sector, harm the patients we serve and ultimately increase
Medicare costs.
Now let me describe the problems we have seen in the re-bid
process. A provider in Ohio was offered a contract for a
respiratory device but they didn't have a respiratory therapist
on staff contrary to the bidding rules and contrary to Ohio
law. One of the largest home care companies announced in July
2010 that it was offered 17 contracts in the first bid despite
the fact that in June 2010 it had $513 million in long-term
debt, was considering restructuring or filing for bankruptcy
and expects to lose up to $900,000 in the bidding areas in the
first quarter of 2011.
Let me speak to the issue of transparency. One hundred and
thirty-six members of Congress who sent a letter to CMS
recently believe that CMS has not shared enough information
about the program. Transparency is intended to protect the
public. The lack of transparency makes deficiencies in the
program and makes it impossible to evaluate fully the way CMS
reached it various decisions at every stage of the process.
From an Administration that touts its openness and
transparency, we have seen none with this program.
On the question of fraud prevention, first let me say that
home medical equipment providers have no tolerance for fraud
but arbitrarily limiting the number of legitimate providers in
the marketplace will do nothing to stop those whose only intent
is to defraud the Medicare program. The HME community should
not be penalized when CMS grants Medicare billing credentials
to an empty closet. The government is simply not doing an
adequate job of site inspections before awarding suppliers. As
a Nurse and with direct experience in the home care medical
field, I believe this program will increase costs rather than
save money. Patients I see will suffer through limited access
to clinically appropriate equipment and services. It will
reduce the quality of equipment beneficiaries receive and many
will end up in the hospital. This program will not be fixed as
it is designed. Therefore, JAMES, AAHomecare and a large number
of patient organizations believe that Congress must immediately
stop the implementation of this bidding program and work with
the HME community to ensure accurate pricing while at the same
time ensuring access to quality care for Medicare
beneficiaries.
Thank you again for the opportunity to provide testimony.
[The prepared statement of Ms. Lerner follows:]
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Mr. Pallone. Thank you, Ms. Lerner.
Mr. Chiplin.
STATEMENT OF ALFRED CHIPLIN, JR.
Mr. Chiplin. Good afternoon, Mr. Chairman.
The Center for Medicare Advocacy takes a wait-and-see
approach to the competitive bidding process. We acknowledge
that it is a program that is extremely complex and confusing.
Our beneficiary clients have been the victims of many efforts
of misinformation. They have been frightened and confused about
what this program means.
We continue to worry about the complexity of the program
overall and the impact of that complexity on provider and
supplier participation and thus access to specific services and
items of DME that people might want.
We also are concerned that CMS's efforts at beneficiary
education need to be more vigorous and visible. We think we
need more to assure beneficiaries that where there might be
fewer suppliers in this competitive bidding area that that will
not jeopardize access.
Some major concerns that we have is that we do see that
there is put forth a strong beneficiary education and access
program and that the time of that education effort be very
clear and specific as different phases of the competitive
bidding process are rolled out. This is such a critical thing
because over time this approach will redefine how all of DME is
going to be meted out and I think that raises a very
significant set of points.
We also need to have better information on the Web site for
the Medicare beneficiaries, Medicare.gov. It is difficult to
find information about the competitive bidding process. We also
need better information points to access written materials. And
additionally, we need more clarity about the specific items
that fall within the initial rollouts of the program in 2011 so
the beneficiaries have more clarity about that.
We also need additional information about the importance
and significance of beneficiaries obtaining their DME within
the competitive bidding area in which they live. There are real
consequences for beneficiaries, particularly if they are
traveling on vacation and something happens and they need to
get an item fixed. So those are the kinds of concerns. As the
rollout goes on with mail orders, we think some of the same
kind of issues are raised in terms of the degree to which
beneficiaries are informed.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Chiplin follows:]
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Mr. Pallone. Thank you, Mr. Chiplin.
Ms. Schlichting.
STATEMENT OF NANCY SCHLICHTING
Ms. Schlichting. Good afternoon, Chairman Pallone, Ranking
Member Shimkus, Congressman Dingell and members of the
subcommittee. My name is Nancy Schlichting. I am the President
and CEO of the Henry Ford Health System in Detroit, Michigan,
and thank you so much for the opportunity to testify.
I appear today on behalf of hospitals and health systems
that own and operate their own durable medical equipment
services. We are deeply concerned about the impact of
competitive bidding on our patients and costs unless the
program can be revised to protect our health care delivery
model. The key value of our organizations is the ability to
integrate and coordinate post-acute care with hospital care.
Over the past 3 years we have worked as an informal coalition
of hospitals and health systems in 22 States that have their
own DME and other post-acute services as a tool for improving
quality and safety and service for our patients while
controlling costs. Durable medical equipment is one of many
services housed within our health system that allow us to
better manage and deliver patient care. All business units
including DME are aligned to coordinate and integrate care at
the best price in a very competitive marketplace with growing
burdens of uncompensated care.
One of our primary goals is to provide a smooth transition
between hospital and home so that patients can leave as soon as
they are clinically ready and make beds available for new
patients. In addition to reducing the length of stay, we also
work to prevent unnecessary readmissions and to lower the use
of the emergency department.
The ability to own and control virtually every aspect of
patient care including DME is essential to our success. Members
of our coalition are large and small and most are organized
similar to Henry Ford Health System. Our coalition includes the
Michigan Health and Hospital Association and many of the
Nation's premier health systems such as the University of
Michigan, University of Iowa, the University of Pittsburgh
Medical Center, Advocate Health in Illinois, Aurora Health Care
in Wisconsin, BayCare in Florida, the Cleveland Clinic and
SUMMA Health System in Ohio, Banner Health in Arizona and
Colorado, Providence in Oregon and Washington, and Meridian
Health in New Jersey.
Two of our members, BayCare and the University of Michigan,
have done studies showing that patient care and cost would be
adversely affected by the competitive bidding as it is now
structured. The Michigan study showed that the aggregate median
length of stay for referrals managed by hospital-based services
was 5.3 days compared to 6.8 days for referrals managed by non-
hospital based services.
I want to note that we have not opposed competitive
bidding. From the beginning our goal has been to advocate for
the flexibility we need to manage patient care in a structure
where pricing is the same for all DME providers in the area. In
today's hospitals, patient discharges take place throughout the
day. In many cases, the ability to send a patient home or into
nursing care depends on the availability of numerous items of
DME: a hospital bed, surgical or diabetic supplies, wheelchair,
a commode or oxygen. Coordinating the supply and delivery of
DME is critical to avoiding extra days in the hospital, extra
days that Medicare, Medicaid and private insurers will not pay
for immediately, but these costs do get folded into the overall
cost of health care.
When DME and other post-acute care is aligned with the
hospital, we can respond to the demands of Medicare and private
insurers for better care at a lower cost and less complexity
for the patient and family. Having to use an outside DME
supplier, or several suppliers in the case of complex patients,
destroys this crucial alignment and perpetrates an inefficient
and costly delivery system. Even though extra days in the
hospital may not immediately and directly cost Medicare Part A
more, the cost for unnecessary days remains in the health
system and eventually everyone pays for it. Savings estimates
for competitive bidding focus primarily on price reductions for
durable medical equipment under Part B. What is left out of the
picture are the increased costs that the hospital and within
our health systems.
A number of health systems in our coalition are affected by
phase one, which begins January of 2011, and very few have been
awarded contracts for Medicare patients. Cleveland Clinic in
Ohio and UPMC in Pennsylvania receive no contracts and are now
shut of Medicare for DME services. Some other systems receive
contracts for only one or two items. These results go in the
wrong direction. For these health systems and hospitals, costs
will be higher than necessary and support for families caring
for elderly patients in the home will be lost. Instead of
support and convenience, there will be 1-800 telephone numbers
and multiple suppliers who often tell families calling to
report malfunctioning equipment that they should go to their
nearest ER.
Finally, we have been advised by CMS that the Secretary has
no discretion in this matter and that there can be no
administrative solution without additional legislation. While
we have had good and constructive discussions with CMS,
especially on the importance of integrated care as a tool for
helping with issues of cost, CMS says that Congress must act.
To address this problem, we have worked with Congressman
Dingell and he has introduced H.R. 6095, giving qualified
health systems that own and operate a DME entity the ability to
continue to serve its patients at a reimbursement rate
determined by the competitive bidding process for its region.
We believe this is a limited, reasonable and commonsense remedy
and we thank Mr. Dingell for his support and understanding as
well as his remarks this morning. The bill will preserve
savings associated with lower prices for DME services and allow
us to preserve a critical patient management tool that allows
us to save money and better serve the patients that come to us
every day for quality medical care.
On behalf of our coalition, I ask for your support for Mr.
Dingell's bill and will be pleased to answer any questions.
Thank you very much.
[The prepared statement of Ms. Schlichting follows:]
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Mr. Pallone. Thank you.
Dr. Scanlon.
STATEMENT OF WILLIAM SCANLON
Mr. Scanlon. Thank you very much, Mr. Chairman. Chairman
Pallone, Ranking Member Shimkus and members of the
subcommittee, I am pleased to be here as you review the
implementation of Medicare's durable medical equipment
competitive bidding program.
I am an economist who has been involved in health policy
research for 35 years. Until 2004, I was the managing director
of health care issues at the U.S. General Accounting Office. I
have also been a member of the Medicare Payment Advisory
Commission, completing my second term this past May. My views
today are my own and do not reflect those of any organization
with which I have been affiliated.
Competitive bidding for durable medical equipment is one
step in attempting to make the Medicare program a more
efficient purchaser of services. There have been longstanding
concerns about the level and growth of Medicare spending that
growth while mirroring other sectors of health care has
consistently exceeded the growth of GDP, inflation and the
beneficiary population and imposes an increasing burden on
taxpayers as well as on beneficiaries in the form of higher
Part B premiums and cost sharing. It is essential to ask
whether the program is being as efficient as possible in
maintaining access to medically necessary services for its
beneficiaries.
Efforts to make Medicare a more efficient purchaser have
been underway for many years. Beginning in the early 1980s,
Medicare payment methods for most services have been reformed
in fundamental ways. DME payments stand out as an exception.
This is despite a large body of evidence produced by the
Department of Health and Human Services' Office of Inspector
General and the GAO on how much Medicare payments exceed the
prices charged to retail customers or a supplier acquisition
costs. You have heard examples in today's testimonies. Efforts
to refine Medicare DME payment levels administratively have
proven very cumbersome. The burden of collecting sufficient
retail price or acquisition cost data to change prices is
formidable and only a limited number of prices have been
changed over the years. Even when those data are available,
setting an efficient price for the Medicare program is
problematic. Medicare as a major purchaser should not have to
pay retail prices to obtain beneficiary access. The advantages
to suppliers of being able to sell to Medicare are likely
sufficient to make them willing to offer Medicare a discount.
Competitive bidding offers an alternative to setting prices
administratively which is less burdensome and more likely to
result in better prices for the program. Suppliers have the
incentive to offer better prices to be able to win a contract.
The potential of competitive bidding has been demonstrated by
the price reductions in the Texas and Florida demonstrations
authorized by the Balanced Budget Act and in the two rounds of
bidding under the Medicare Modernization Act authorized
program.
Suppliers' willingness to offer prices is predicated on
their expectation that winning a contract will result in a
bigger market share. For this to be true, Medicare has to move
away from its traditional any-willing-provider approach and
limit the number of winning contracts. This is a significant
change and there are legitimate concerns about potential
disruptions and negative impacts on beneficiaries and
providers. Taking steps to minimize such impacts and ameliorate
them promptly is essential because the importance of making
Medicare a more efficient purchaser cannot be ignored.
Two important steps to reduce some of these disruptions
that have been taken are to award multiple contracts in each
area and to award small businesses a very significant share of
contracts. This preserves a range of supplier choices for
beneficiaries. These provisions strike a balance between
reducing potential disruptions and getting a better price for
the program. Having more winners lowers bidders' incentives to
offer lower prices. While having more winning contracts may
result in somewhat higher prices in the short term, it also is
likely to keep the program competitive over the longer term and
guarantee savings in the future.
How the program is implemented on the ground as well as its
design are incredibly important to minimizing disruption. As
you have heard from Ms. King, there were legitimate concerns
about the aspects of implementation in the first round of
bidding in 2007. Some of the shortcomings identified in that
first round may be the unfortunate but very common outcome of
introducing such fundamental change. Substantial change
requires a learning process on the part of providers and
beneficiaries as well as CMS. This learning should not,
however, be allowed to be a gradual process. It is important
that CMS invest heavily in provider and beneficiary education
and in monitoring the process of bidding and contract awards.
Requesting bids and securing better prices is only the
first phase of making Medicare a more efficient, prudent
purchaser of DME. Continued oversight to assure that access to
and quality of products purchased meet expectations is also
essential. Congress has required GAO to provide a report on the
experience with the program including beneficiary access and
satisfaction, quality issues, impacts on suppliers, especially
small businesses, and opportunities for greater efficiencies.
CMS needs to be able to answer those same questions on an
ongoing basis. Simply identifying problems, however, is not
sufficient. CMS also must be in a position to be able to
resolve them as quickly as they are identified.
Let me end by underscoring, making the Medicare program a
more efficient purchaser is critical to preserving access for
beneficiaries and keeping the program more affordable for both
taxpayers and beneficiaries. Competitive bidding for DME
provides an opportunity to improve program efficiency.
Competitive bidding itself, though, is only about setting the
price. How one administers the purchasing of the products after
contracts have been awarded is critical to assuring that the
goals of access and quality are preserved. These things cannot
be understated.
Thank you very much, Mr. Chairman. I would be happy to
answer any questions you or members of the subcommittee have.
[The prepared statement of Mr. Scanlon follows:]
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Mr. Pallone. Thank you, Dr. Scanlon, and we will have
questions now from the members.
I guess I have to start with Ms. Lerner's doomsday scenario
because she really did paint a picture. I mean, I am looking at
the written testimony where she says we are going to drive
thousands of qualified HME providers out of the Medicare
marketplace and the result is a loss of ability to serve
patients, layoffs, business failures, etc. I mean, obviously
that is the concern, and of course, Mr. Chiplin was talking
about how beneficiaries need to understand that their provider
might change, and a lot of people are going to actually end up
having a change in providers, so to speak.
But I wanted to go back to what Ms. Lerner said and I
wanted to ask her and maybe Dr. Scanlon along those lines, I
mean, basically the argument is that Medicare will contract
with a reduced number of DME suppliers relative to the number
of suppliers enrolled today, that competition will actually
decrease under competitive bidding and over time this will
actually lead to an increase in prices because there will be
fewer bidders. Is that part of what you are saying, Ms. Lerner?
I will start with you and then I will ask Dr. Scanlon the same
thing, if you think that that is a convincing argument, and
even if prices were to rise somewhat above the 32 percent
savings projected by CMS for the round one re-bid, it would
seem to me that prices would have a long way to go upwards to
get back to current levels. So my question is, is this just a
question of the competition? I mean, I know you mentioned all
the problems with layoffs. Are you also arguing, Ms. Lerner,
that competition is going to disappear and that ultimately we
are going to end up--is that ultimately going to cost us more
in the future or is it just the fact that we are going to have
fewer suppliers and you are worried about the layoffs, so to
speak?
Ms. Lerner. No, I think the competitive bidding bill is
inherently anti-competitive. Studies show that 75 percent to 90
percent of the suppliers will not be able to compete in the
marketplace and will be forced out of business or be acquired
by existing DME. We are reimbursed by Medicare by product code.
It doesn't matter the cost of the product, has no relevance to
how we are reimbursed. So it is a competitive marketplace. We
offer a better product. There are other clinicians that are----
Mr. Pallone. The problem is--I know I am interrupting you.
You know, we have heard all the testimony earlier about how
there are so many of these providers out there. It is very easy
to get in the business. They are charging too much. Medicare is
losing money. There is fraud. I mean, obviously the competitive
bidding was a response to that. I mean, you have to kind of
tell me where you think we are on the spectrum. In other words,
you don't see the competitive bidding as actually helping us in
dealing with all this excessive cost; you think the opposite is
going to happen?
Ms. Lerner. I absolutely think the opposite will happen. I
think because of increased ER visits, readmissions to hospitals
and not being able to discharge a patient, those are all costs
that need to be factored in. I think Ms. Schlichting said
length of stay is going to increase in a hospital because by
the time you call five or six providers, one for the bed, one
for the support surface, one for oxygen, you can't get them out
of the hospital so they are going to stay in the hospital
longer. Hospital stay is much more expensive than home care.
Mr. Pallone. Let me ask Dr. Scanlon to respond to this. She
makes a good argument. What do you say?
Mr. Scanlon. I think it is important sort of to go back to
one of the things that I mentioned, which is that there has
been a balance struck in the way this program is being
designed. Rather than being more aggressive in terms of trying
to get the best price and awarding, say, only a single contract
for a product in an area, there is going to be an award for
multiple contracts and including sort of a proportion of those
contracts going to small businesses. This is a part of
maintaining sort of robust----
Mr. Pallone. So you don't see this argument that
competition is actually going to decrease and the costs will
start to go up again?
Mr. Scanlon. I think there will be adequate competition
over time. There will be a decrease in the number of suppliers
but I think one of the questions we should be asking ourselves
is, how many suppliers of DME should we have. There is a strong
contrast between DME suppliers, the supply of DME sort of
providers and suppliers, with the other types of providers in
the Medicare program.
Mr. Pallone. But you don't see the competition----
Mr. Scanlon. No. We have 100,000 DME suppliers compared to
the--the next biggest number is 16,000 nursing homes.
Mr. Pallone. All right. Let me ask Mr. Chiplin just because
I am trying to keep to the time, although I am failing here,
what about the whole education process? In other words, you
know, obviously a lot of people are going to have a different
provider. They may not know it. And I guess CMS has some kind
of program to provide for this transition but what is your
opinion of that? Is that good enough or do you want to comment
on it a little bit?
Mr. Chiplin. Well, I applaud them for what they are doing.
I know they have a very complex program to implement and to
explain to beneficiaries. Our concern is that the beneficiary
education effort to this point has been rather invisible. It is
hard to find things, as I said, on their Web site. I think
there needs to be more attention to those kinds of details
about where you put beneficiary information and how it is made
available to people. I think those are some of the fundamental
things that can happen that will allow advocates such as our
organization to have better access at trying to find the bits
and pieces of information that can be translated into pamphlets
and other things that would be of help to beneficiaries in
understanding the program going forward. So I think one of the
fundamental things with respect to beneficiary education, that
it shouldn't be viewed as just an add-on the process but it
should be an integral part of the rollout all the way across
the board.
Mr. Pallone. All right. Thank you. My time has run out.
Mr. Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. I have not a lot of
time and a lot of questions so I am going to try to go quickly.
Ms. Lerner, as an RN and as a provider of DME equipment,
are all seat cushions equal?
Ms. Lerner. Not by a long shot.
Mr. Shimkus. And let me follow up. Do patients have
different needs for different seat cushion arrangements?
Ms. Lerner. Of course.
Mr. Shimkus. And that kind of segues into the previous
panel and this whole issue about lumping then in in the
process, and I think many of us would argue that they should be
separate. Let them compete but let them be separate based upon
patient need.
Dr. Schlichting, I have been following Chairman Emeritus
Dingell's bill. There are some compelling arguments in support
of that legislation because in the bidding process--I don't
know, I am not the person doing the bidding process but you
would think--again, this is the difference between government
and the competitive marketplace. If I was doing a bid contract
and I needed stuff 24/7, I think I would write that into my bid
process, but obviously CMS does not do that, and the concern
is, no matter how the system--you just can't get the equipment
on hand or the patient can't get it to leave in a timely manner
through the hospital. Is that a simple synopsis of the concern?
So you want to control that so you can move on?
Ms. Schlichting. Well, you know, I think for any of us who
have had to navigate through health care in this country, ways
that we can make it simpler for patient and families and
improve the efficiency by having that control of the continuum,
we find that it has a real added value and that is what we are
trying to preserve in this legislation.
Mr. Shimkus. Well, we definitely haven't moved in
simplicity in the last 18 months.
Off the DME thing for a second. You are aware that the
Administration's own Chief Actuary of Medicare estimated that
15 percent of hospitals will become unprofitable based upon the
health care law. You are probably big enough that you are not
one of them. Is that, am I safe to assume?
Ms. Schlichting. Well, actually, one of the reasons we are
profitable is the integration that we created Henry Ford. We
have a salaried medical group. We have ambulatory and full
continuum of care services, and we have a very high
uncompensated care burden in Detroit as our flagship provider
is one of the safety net providers in the State.
Mr. Shimkus. But you wouldn't dispute the 15 percent from
the actuary talking about hospitals throughout the country who
will probably have to close because of the provision?
Ms. Schlichting. I can't speak to that, but I do think
there will probably be more consolidation to create more
efficiency of care.
Mr. Shimkus. Which is language for closures. Thank you.
Let me go to Dr. Scanlon real quick. Can't we put on
quality measures for the bidding process to meet Ms.
Schlichting's need for 24/7 delivery of equipment?
Mr. Scanlon. Certainly we can make that a requirement. I
think on of the things that we need to think about are the
contract specifications. What does it take to be a qualified
provider. If that turns out to be one of the essential
attributes, then we should make that a requirement. One of the
instructive things about looking at the Veterans Administration
is that they have used competitive bidding for a long time and
they have actually have had stronger specifications in terms of
the products they receive and services they receive than does
the Medicare program.
Mr. Shimkus. And let me go, because of your expertise in
government health care and also your experience in being an
accountable. The health care law, do you believe it will lower
costs or the deficit?
Mr. Scanlon. The deficit is a macroeconomic issue which is
well beyond a health economist's purview so let me----
Mr. Shimkus. No, that is not true because there is a
Medicaid expansion in the bill and it is projected by obviously
the executive branch to be $10 million and we think more likely
it will be $30 million, which is a burden to us, which is a
burden to the States, especially who is a 50 percent payer.
Mr. Scanlon. I know, and I think I want to leave that to
CBO in terms of----
Mr. Shimkus. I deal with the Army War College and we
prepare them for Congressional testimony. One thing when I do
talk to these soon-to-be senior leaders is that you better be
prepared to answer any questions. You are an accountant, so I
would expect--that is the advantage and disadvantage of coming
before us.
Quickly, Mr. Chiplin, the final question for you is, if
there are $575 billion cuts in Medicare reported by the Chief
Actuary, is that harmful to senior citizens on Medicare?
Mr. Chiplin. Well, that is a very big number you just
recited. It depends. I think the question really would be,
where would those cuts come?
Mr. Shimkus. Well, they are coming from Medicare.
Mr. Chiplin. But I mean, even having said that, what
particular services are cut, what access there might be that
has been traded off in some----
Mr. Shimkus. Would it be safe to say that there is some
concern?
Mr. Chiplin. Absolutely. That has been my testimony all
along. I am not saying----
Mr. Shimkus. Right, and I got it. Thank you very much.
Yield back, Mr. Chairman.
Mr. Pallone. Thank you, Mr. Shimkus.
Chairman Dingell.
Mr. Dingell. Thank you, Mr. Chairman.
These questions to Ms. Schlichting. Are you for or against
competitive bidding?
Ms. Schlichting. Well, as part of this process, we have
been very clear about the fact that we are not taking a
position on competitive bidding. We accept competitive bidding
as part of the process and we are trying to make sure that we
have clarity around those organizations that are hospitals and
health systems that have DME, that they will be able to
continue to provide that integrated care.
Mr. Dingell. Thank you.
Now, Congress has delayed competitive bidding for 18 months
with a 10 percent price cut. In addition, Congress provided for
an exemption for hospitals for certain products. Now, why is it
that we need the legislation, H.R. 6095, that you have been
discussing?
Ms. Schlichting. There were two issues there. One is that
it really only identified hospitals as opposed to health
systems, and we need broader inclusion of health systems in the
legislation, and secondly, it didn't include all products
frankly that hospitals and DME providers supply.
Mr. Dingell. Would you submit to the committee the products
that were not included that really should have been in there?
Ms. Schlichting. We will be happy to do that.
Mr. Dingell. Now, when I go into the hospital, I walk out,
if I have had a broken leg or something, they give me a boot or
they give me crutches or they hand me a cane and then they give
me pills and such as that, or if I have had surgery on my eye
they give me shields for the eye and things of that kind. If
this is to be done by then some third party, how is that the
hospital without the language of H.R. 6095 is going to properly
be able to assign what it is I need and see to it that I have
at expeditiously when I depart the hospital to go home?
Ms. Schlichting. Hospitals may continue to provide certain
elements that are absolutely essential for that patient to walk
out the door but what they won't be able to do is provide those
needed services in the home so that they get home safely, they
have what they need. It is more complicated certainly for
patients and families who often end up being the one that have
to secure some of those needed supplies and equipment. So we
believe that there is a much greater opportunity if our health
systems have the chance to really fulfill all those needs.
Mr. Dingell. Thank you. Now, the exemption that we have
referred to earlier does not mean that hospital-based companies
do not have to be accredited like everybody else. Isn't that
so?
Ms. Schlichting. That is correct.
Mr. Dingell. Thank you. Now, CMS rules allow for smaller
DME suppliers to form networks and to participate in Medicare
as network suppliers. Why is this not a solution for hospital-
based companies?
Ms. Schlichting. Well, it basically still won't allow for
the hospital-based companies to compete in terms of the size
and scope of most of the hospital-based organizations so we
believe again that the opportunity to create the integration at
the hospital and health system level is very important.
Mr. Dingell. Now, Ms. Schlichting, you have attached a
study by the University of Michigan Health System. They looked
at a longer length of stay for patients when they were outside
the home, or rather when outside the home care providers were
used. Can you elaborate on this and do you think that this is
representative of the experiences of the other members of your
coalition?
Ms. Schlichting. We believe it is. In fact, the University
of Michigan is much like Henry Ford. It is a very large health
system. And they looked at considerable detail around this over
a three-month period, and another of our members, BayCare, also
studied the impact, and in cases where the hospital did not use
its own DME but was required by insurance contracts to use
outside suppliers, there were extra days in the hospital,
higher readmissions and more use of the ER as compared to
outside providers.
Mr. Dingell. Thank you.
Now, Dr. Scanlon, how many major suppliers of durable
medical equipment will there be in this country because of the
concentration of power and market in the hands of a few
dominant distributors of these commodities under the form that
we are discussing today? Just give me the number, if you
please.
Mr. Scanlon. I am afraid I don't have the number. I can say
that it is totally a function of how CMS awards the contracts,
what kinds of targets they set in terms of how many----
Mr. Dingell. Then answer this question. First of all, the
number will be reduced, yes or no?
Mr. Scanlon. Yes, it will. It is 100,000 now.
Mr. Dingell. And what will that do with regard to
competition elsewhere in the industry with regard to other
people? There will be less competition for their business
because there are going to be a few very dominant larger
suppliers, right?
Mr. Scanlon. I think there will be fewer suppliers and some
reduction in competition but there may still be ample
competition to keep prices at reasonable levels. Medicare is
about a quarter of the durable medical equipment market, so
three-quarters of the revenues are coming from other
purchasers.
Mr. Dingell. My time is running out, and this question is
very important. But then we are going to confront a situation
where there will be just a few dominant suppliers in any of the
regional markets that are being created by this matter by
concentrating the power in the hands of just a few suppliers.
For example, in our Detroit area there will probably only be
one. Maybe in New York there will be five or six. But that will
be instead of a much larger number of people we have doing
business there. Isn't that going to be a consequence of this?
Mr. Scanlon. I think that again it is going to depend upon
how CMS chooses to award contracts, what kinds of requirements
they have for local presence because a large company may be
able to supply a very large share of the market to mail order
but may not be able to supply sort of things locally when it
requires a physical presence in each area.
Mr. Dingell. There is nothing to say that one of these near
monopolists is not going to all of a sudden decide well, by
golly, I think this would be very nice if we all of a sudden
went into the mail order business, and using that the power
that they have of the economy for large sales stimulated by
their recognition under Medicare they can all of a sudden then
dominant not only the market for Medicare supplies but also the
mail order supplies because of the market power they have and
do like the Japanese do, subsidized because of the monopoly in
their own market.
Mr. Scanlon. Again, I think that that scenario depends upon
sort of how CMS chooses to award contracts----
Mr. Dingell. Are either----
Mr. Scanlon [continuing]. What kinds of specifications they
have that would allow the transfer of----
Mr. Dingell. Are either of these scenarios that I am
discussing illogical or improbable?
Mr. Scanlon. They are not impossible. I would say that I do
not expect them in the intermediate term.
Mr. Dingell. So we can figure that perhaps the millennium
has descended upon us. The good Lord will assure us that these
untoward events will not be visited us by the monopoly that we
are creating. Am I right or wrong?
Mr. Scanlon. I think you are right.
Mr. Dingell. Thank you.
Thank you, Mr. Chairman, for your courtesy.
Mr. Pallone. Thank you.
Thank you again, I mean, obviously this is very spirited
because there are areas where you agree and there are other
areas where you disagree, but I think the bottom line is that
this was very helpful to us today in terms of oversight of what
is going on with this issue. Again, you may get additional
questions from us, usually within 10 days, from the clerk in
writing and get back to us as soon as possible. I think that
this hearing today was extremely helpful in terms of knowing
some of the problems but also we are going to have to dig a
little deeper as well. So thank you very much.
Unless anyone else has any questions, without objection,
this hearing of the subcommittee is adjourned. Thank you.
[Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
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