[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



                  U.S. GOVERNMENT PRINTING OFFICE
78-132                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001


                    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

                              ----------                              
                                                                   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:]

    [GRAPHIC] [TIFF OMITTED] 78132A.001
    
    [GRAPHIC] [TIFF OMITTED] 78132A.002
    
    [GRAPHIC] [TIFF OMITTED] 78132A.003
    
    [GRAPHIC] [TIFF OMITTED] 78132A.004
    
    [GRAPHIC] [TIFF OMITTED] 78132A.005
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 78132A.007
    
    [GRAPHIC] [TIFF OMITTED] 78132A.008
    
    [GRAPHIC] [TIFF OMITTED] 78132A.009
    
    [GRAPHIC] [TIFF OMITTED] 78132A.010
    
    [GRAPHIC] [TIFF OMITTED] 78132A.011
    
    [GRAPHIC] [TIFF OMITTED] 78132A.012
    
    [GRAPHIC] [TIFF OMITTED] 78132A.013
    
    [GRAPHIC] [TIFF OMITTED] 78132A.014
    
    [GRAPHIC] [TIFF OMITTED] 78132A.015
    
    [GRAPHIC] [TIFF OMITTED] 78132A.016
    
    [GRAPHIC] [TIFF OMITTED] 78132A.017
    
    [GRAPHIC] [TIFF OMITTED] 78132A.018
    
    [GRAPHIC] [TIFF OMITTED] 78132A.019
    
    [GRAPHIC] [TIFF OMITTED] 78132A.020
    
    [GRAPHIC] [TIFF OMITTED] 78132A.021
    
    [GRAPHIC] [TIFF OMITTED] 78132A.022
    
    [GRAPHIC] [TIFF OMITTED] 78132A.023
    
    [GRAPHIC] [TIFF OMITTED] 78132A.024
    
    [GRAPHIC] [TIFF OMITTED] 78132A.025
    
    [GRAPHIC] [TIFF OMITTED] 78132A.026
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 78132A.027
    
    [GRAPHIC] [TIFF OMITTED] 78132A.028
    
    [GRAPHIC] [TIFF OMITTED] 78132A.029
    
    [GRAPHIC] [TIFF OMITTED] 78132A.030
    
    [GRAPHIC] [TIFF OMITTED] 78132A.031
    
    [GRAPHIC] [TIFF OMITTED] 78132A.032
    
    [GRAPHIC] [TIFF OMITTED] 78132A.033
    
    [GRAPHIC] [TIFF OMITTED] 78132A.034
    
    [GRAPHIC] [TIFF OMITTED] 78132A.035
    
    [GRAPHIC] [TIFF OMITTED] 78132A.036
    
    [GRAPHIC] [TIFF OMITTED] 78132A.037
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 78132A.038
    
    [GRAPHIC] [TIFF OMITTED] 78132A.039
    
    [GRAPHIC] [TIFF OMITTED] 78132A.040
    
    [GRAPHIC] [TIFF OMITTED] 78132A.041
    
    [GRAPHIC] [TIFF OMITTED] 78132A.042
    
    [GRAPHIC] [TIFF OMITTED] 78132A.043
    
    [GRAPHIC] [TIFF OMITTED] 78132A.044
    
    [GRAPHIC] [TIFF OMITTED] 78132A.045
    
    [GRAPHIC] [TIFF OMITTED] 78132A.046
    
    [GRAPHIC] [TIFF OMITTED] 78132A.047
    
    [GRAPHIC] [TIFF OMITTED] 78132A.048
    
    [GRAPHIC] [TIFF OMITTED] 78132A.049
    
    [GRAPHIC] [TIFF OMITTED] 78132A.050
    
    [GRAPHIC] [TIFF OMITTED] 78132A.051
    
    [GRAPHIC] [TIFF OMITTED] 78132A.052
    
    [GRAPHIC] [TIFF OMITTED] 78132A.053
    
    [GRAPHIC] [TIFF OMITTED] 78132A.054
    
    [GRAPHIC] [TIFF OMITTED] 78132A.055
    
    [GRAPHIC] [TIFF OMITTED] 78132A.056
    
    [GRAPHIC] [TIFF OMITTED] 78132A.057
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 78132A.058
    
    [GRAPHIC] [TIFF OMITTED] 78132A.059
    
    [GRAPHIC] [TIFF OMITTED] 78132A.060
    
    [GRAPHIC] [TIFF OMITTED] 78132A.061
    
    [GRAPHIC] [TIFF OMITTED] 78132A.062
    
    [GRAPHIC] [TIFF OMITTED] 78132A.063
    
    [GRAPHIC] [TIFF OMITTED] 78132A.064
    
    [GRAPHIC] [TIFF OMITTED] 78132A.065
    
    [GRAPHIC] [TIFF OMITTED] 78132A.066
    
    [GRAPHIC] [TIFF OMITTED] 78132A.067
    
    [GRAPHIC] [TIFF OMITTED] 78132A.068
    
    [GRAPHIC] [TIFF OMITTED] 78132A.069
    
    [GRAPHIC] [TIFF OMITTED] 78132A.070
    
    [GRAPHIC] [TIFF OMITTED] 78132A.071
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 78132A.072
    
    [GRAPHIC] [TIFF OMITTED] 78132A.073
    
    [GRAPHIC] [TIFF OMITTED] 78132A.074
    
    [GRAPHIC] [TIFF OMITTED] 78132A.075
    
    [GRAPHIC] [TIFF OMITTED] 78132A.076
    
    [GRAPHIC] [TIFF OMITTED] 78132A.077
    
    [GRAPHIC] [TIFF OMITTED] 78132A.078
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 78132A.079
    
    [GRAPHIC] [TIFF OMITTED] 78132A.080
    
    [GRAPHIC] [TIFF OMITTED] 78132A.081
    
    [GRAPHIC] [TIFF OMITTED] 78132A.082
    
    [GRAPHIC] [TIFF OMITTED] 78132A.083
    
    [GRAPHIC] [TIFF OMITTED] 78132A.084
    
    [GRAPHIC] [TIFF OMITTED] 78132A.085
    
    [GRAPHIC] [TIFF OMITTED] 78132A.086
    
    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:]
    [GRAPHIC] [TIFF OMITTED] 78132A.087
    
    [GRAPHIC] [TIFF OMITTED] 78132A.088
    
    [GRAPHIC] [TIFF OMITTED] 78132A.089
    
    [GRAPHIC] [TIFF OMITTED] 78132A.090
    
    [GRAPHIC] [TIFF OMITTED] 78132A.091
    
    [GRAPHIC] [TIFF OMITTED] 78132A.092
    
    [GRAPHIC] [TIFF OMITTED] 78132A.093
    
    [GRAPHIC] [TIFF OMITTED] 78132A.094
    
    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.]
    [Material submitted for inclusion in the record follows:]
    [GRAPHIC] [TIFF OMITTED] 78132A.095
    
    [GRAPHIC] [TIFF OMITTED] 78132A.096
    
    [GRAPHIC] [TIFF OMITTED] 78132A.097
    
    [GRAPHIC] [TIFF OMITTED] 78132A.098
    
    [GRAPHIC] [TIFF OMITTED] 78132A.099
    
    [GRAPHIC] [TIFF OMITTED] 78132A.100
    
    [GRAPHIC] [TIFF OMITTED] 78132A.101
    
    [GRAPHIC] [TIFF OMITTED] 78132A.102
    
    [GRAPHIC] [TIFF OMITTED] 78132A.103
    
    [GRAPHIC] [TIFF OMITTED] 78132A.104
    
    [GRAPHIC] [TIFF OMITTED] 78132A.105
    
    [GRAPHIC] [TIFF OMITTED] 78132A.106
    
    [GRAPHIC] [TIFF OMITTED] 78132A.107
    
    [GRAPHIC] [TIFF OMITTED] 78132A.108
    
    [GRAPHIC] [TIFF OMITTED] 78132A.109
    
    [GRAPHIC] [TIFF OMITTED] 78132A.110
    
    [GRAPHIC] [TIFF OMITTED] 78132A.111
    
    [GRAPHIC] [TIFF OMITTED] 78132A.112
    
    [GRAPHIC] [TIFF OMITTED] 78132A.113
    
    [GRAPHIC] [TIFF OMITTED] 78132A.114
    
    [GRAPHIC] [TIFF OMITTED] 78132A.115
    
    [GRAPHIC] [TIFF OMITTED] 78132A.116
    
    [GRAPHIC] [TIFF OMITTED] 78132A.117
    
    [GRAPHIC] [TIFF OMITTED] 78132A.118
    
    [GRAPHIC] [TIFF OMITTED] 78132A.119
    
    [GRAPHIC] [TIFF OMITTED] 78132A.120
    
    [GRAPHIC] [TIFF OMITTED] 78132A.121
    
    [GRAPHIC] [TIFF OMITTED] 78132A.122
    
    [GRAPHIC] [TIFF OMITTED] 78132A.123
    
    [GRAPHIC] [TIFF OMITTED] 78132A.124
    
    [GRAPHIC] [TIFF OMITTED] 78132A.125
    
    [GRAPHIC] [TIFF OMITTED] 78132A.126
    
    [GRAPHIC] [TIFF OMITTED] 78132A.127
    
    [GRAPHIC] [TIFF OMITTED] 78132A.128
    
    [GRAPHIC] [TIFF OMITTED] 78132A.129
    
    [GRAPHIC] [TIFF OMITTED] 78132A.130
    
    [GRAPHIC] [TIFF OMITTED] 78132A.131
    
    [GRAPHIC] [TIFF OMITTED] 78132A.132
    
    [GRAPHIC] [TIFF OMITTED] 78132A.133
    
    [GRAPHIC] [TIFF OMITTED] 78132A.134
    
    [GRAPHIC] [TIFF OMITTED] 78132A.135
    
    [GRAPHIC] [TIFF OMITTED] 78132A.136
    
    [GRAPHIC] [TIFF OMITTED] 78132A.137
    
    [GRAPHIC] [TIFF OMITTED] 78132A.138
    
    [GRAPHIC] [TIFF OMITTED] 78132A.139
    
    [GRAPHIC] [TIFF OMITTED] 78132A.140
    
    [GRAPHIC] [TIFF OMITTED] 78132A.141
    
    [GRAPHIC] [TIFF OMITTED] 78132A.142
    
    [GRAPHIC] [TIFF OMITTED] 78132A.143
    
    [GRAPHIC] [TIFF OMITTED] 78132A.144
    
    [GRAPHIC] [TIFF OMITTED] 78132A.145
    
    [GRAPHIC] [TIFF OMITTED] 78132A.146
    
    [GRAPHIC] [TIFF OMITTED] 78132A.147
    
    [GRAPHIC] [TIFF OMITTED] 78132A.148
    
    [GRAPHIC] [TIFF OMITTED] 78132A.149
    
