[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





            PURCHASING PERSPECTIVE: VA'S PROSTHETICS PARADOX

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

                                HEARING

                               before the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                        WEDNESDAY, MAY 30, 2012

                               __________

                           Serial No. 112-63

                               __________

       Printed for the use of the Committee on Veterans' Affairs








[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]






                  U.S. GOVERNMENT PRINTING OFFICE

74-589                    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






a
                     COMMITTEE ON VETERANS' AFFAIRS

                     JEFF MILLER, Florida, Chairman

CLIFF STEARNS, Florida               BOB FILNER, California, Ranking
DOUG LAMBORN, Colorado               CORRINE BROWN, Florida
GUS M. BILIRAKIS, Florida            SILVESTRE REYES, Texas
DAVID P. ROE, Tennessee              MICHAEL H. MICHAUD, Maine
MARLIN A. STUTZMAN, Indiana          LINDA T. SANCHEZ, California
BILL FLORES, Texas                   BRUCE L. BRALEY, Iowa
BILL JOHNSON, Ohio                   JERRY McNERNEY, California
JEFF DENHAM, California              JOE DONNELLY, Indiana
JON RUNYAN, New Jersey               TIMOTHY J. WALZ, Minnesota
DAN BENISHEK, Michigan               JOHN BARROW, Georgia
ANN MARIE BUERKLE, New York          RUSS CARNAHAN, Missouri
TIM HUELSKAMP, Kansas
MARK E. AMODEI, Nevada
ROBERT L. TURNER, New York

            Helen W. Tolar, Staff Director and Chief Counsel

                                 ______

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                      BILL JOHNSON, Ohio, Chairman

CLIFF STEARNS, Florida               JOE DONNELLY, Indiana, Ranking
DOUG LAMBORN, Colorado               JERRY McNERNEY, California
DAVID P. ROE, Tennessee              JOHN BARROW, Georgia
DAN BENISHEK, Michigan               BOB FILNER, California
BILL FLORES, Texas

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















                            C O N T E N T S

                               __________

                              May 30, 2012

                                                                   Page

Purchasing Perspective: VA's Prosthetics Paradox.................     1

                           OPENING STATEMENTS

Chairman Bill Johnson............................................     1
    Prepared Statement of Chairman Johnson.......................    33
Hon. Joe Donnelly................................................     3

                               WITNESSES

Michael Oros, Board Member, American Orthotic and Prosthetics 
  Association....................................................     4
    Prepared Statement of Mr. Oros...............................    34
Daniel Shaw, Managing Partner, Academy Medical, LLC..............     6
    Prepared Statement of Mr. Shaw...............................    39
    Accompanied by:

      Steven Kent, Director of Government Sales, Academy Medical, 
          LLC
      Stephen Schurr, Consultant, Academy Medical, LLC
Dr. Charles Scoville, Chief of Amputee Patient Care Service, 
  Walter Reed National Military Medical Center, U.S. Department 
  of Defense.....................................................    16
    Prepared Statement of Dr. Scoville...........................    41
Linda Halliday, Assistant Inspector General for Audits and 
  Evaluations, Office of Inspector General, U.S. Department of 
  Veterans Affairs...............................................    18
    Prepared Statement of Ms. Halliday...........................    43
    Accompanied by:

      Nick Dahl, Director of Bedford Office of Audits and 
          Evaluations, Office of Inspector General, U.S. 
          Department of Veterans Affairs
      Kent Wrathall, Director of Atlanta Office of Audits and 
          Evaluations, Office of Inspector General, U.S. 
          Department of Veterans Affairs
Philip Matkovsky, Assistant Deputy Under Secretary for Health for 
  Administrative Operations, Veterans Health Administration, U.S. 
  Department of Veterans Affairs.................................    24
    Prepared Statement of Mr. Matkovsky..........................    47
    Accompanied by:

      Dr. Lucille Beck, Chief Consultant, Rehabilitation 
          Services; Director, Audiology and Speech Pathology; and 
          Acting Chief Consultant, Prosthetic and Sensory Aids 
          Service, Veterans Health Administration, U.S. 
          Department of Veterans Affairs
      Norbert Doyle, Chief Procurement Logistics Officer, 
          Veterans Health Administration, U.S. Department of 
          Veterans Affairs
      Ford Heard, Associate Deputy Assistant Secretary, Office of 
          Acquisitions and Logistics, U.S. Department of Veterans 
          Affairs

                       SUBMISSIONS FOR THE RECORD

Orthotic and Prosthetic Alliance.................................    50
National Association for the Advancement of Orthotics and 
  Prosthetics....................................................    52

                   MATERIAL SUBMITTED FOR THE RECORD

Letter from Hon. Bill Johnson, Chairman. Subcommittee on 
  Oversight and Investigations to Mr. George Opfer, Inspector 
  General, U.S. Department of Veterans Affair....................    55
Response from Mr. George Opfer, Inspector General, U.S. 
  Department of Veterans Affair to Hon. Bill Johnson, Chairman. 
  Subcommittee on Oversight and Investigations...................    56

 
            PURCHASING PERSPECTIVE: VA'S PROSTHETICS PARADOX

                              ----------                              


                        WEDNESDAY, MAY 30, 2012

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
              Subcommittee on Oversight and Investigations,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 4:00 p.m., in 
Room 334, Cannon House Office Building, Hon. Bill Johnson 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Johnson, Benishek, Donnelly, and 
Barrow.

           OPENING STATEMENT OF CHAIRMAN BILL JOHNSON

    Mr. Johnson. Good afternoon. I would like to welcome 
everyone to today's hearing titled: Purchasing Perspective: 
VA's Prosthetics Paradox.
    Section 8123 of Title 38, Procurement of Prosthetic 
Appliances, states the following: ``The Secretary may procure 
prosthetic appliances and necessary services required in the 
fitting, supplying, and training and use of prosthetic 
appliances by purchase, manufacture, contract, or in such other 
manner as the Secretary may determine to be proper without 
regard to any other provision of law.''
    Section 8123 originated in 1958, over 15 years before 
Federal Acquisition Regulations, or the FAR, were codified in 
law and has been slightly amended a handful of times since 
then.
    In March of this year, I sent a letter to the Secretary 
regarding the VA's procurement of biologics over the open 
market instead of from better-known small businesses already on 
the Federal supply schedule. One specific example I brought to 
the Secretary's attention involved a company that supplied 
biologics.
    In the timely response I received from Deputy Secretary 
Gould, I was informed that the VA considered biologics to fall 
under its lengthy and broad definition of prosthetics; and, 
therefore, it could acquire biologics through Section 8123 as 
it clearly had been doing.
    Those last words, and I quote, ``without regard to any 
other provision of law,'' mean at least to the VA that it does 
not have to follow Federal Acquisition Regulations, VA 
Acquisition Regulations, the VAR, or the Competition and 
Contracting Act. This interpretation was made clear in the 
Deputy Secretary's letter.
    In addition to informing the Oversight Investigation 
Subcommittee that the VA considered biologics as prosthetics, 
other answers throughout the Deputy Secretary's letter prompted 
several important follow-up questions which were relayed to the 
VA on March 28th. One part of the letter immediately following 
the interpretation that purchases made under Section 8123 were 
not subject to acquisition regulations stated that the VA would 
work on, and I quote, ``guidance to ensure that prosthetics 
purchasing agents and logisticians conform with VAR to the 
maximum extent practicable.''
    I have to wonder why the VA explicitly and publicly ignores 
the acquisition regulations when making these Section 8123 
purchases but now will attempt to comply with them.
    Among my follow-up questions was a request for a copy of 
the VA's guidance in how it would ensure purchasing agents 
follow the VAR. Just yesterday, a response to that and the 
other questions was provided. It is interesting that only now 
is the VA working to ensure that purchases using Section 8123 
are documented and in line with the FAR and the VAR. After all, 
the VA has had nearly three decades to work on this.
    Failing to document purchases under Section 8123, as 
acknowledged in the answers I received yesterday, is a reckless 
use of taxpayer dollars. To us on this Committee, it appears as 
though the VA operates as it sees fit until attention is called 
to its operation.
    What the Deputy Secretary's letter did not address is the 
VA's use of a VHA directive, and I quote, ``Prosthetics 
Simplified Acquisition Procedures Training'' that was issued 
July 16, 2003, and expired July 31st, 2008. An updated 
directive would probably have been useful over the last 4 years 
as the VA increased its prosthetics spending by 80 percent. 
However, we have seen no such update and have even learned that 
those in the field at the VA's central office has instructed 
VISNs to continue following it.
    That expired directive contains important language stating 
that Section 8123 was only to be used as a last resort, 
reinforcing the importance of compliance with Federal 
Acquisition Regulations. However, this Subcommittee has found 
substantial evidence of VA purchasing agents using Section 8123 
as a first resort. Given the broad language it contains, one 
can see why this easier approach can be so tempting, and it is 
certainly not the first time we have seen VA purchasers opting 
for the easy route.
    While there are over 100 definitions for prosthetics 
throughout the Federal Government, the definition used by the 
VA is a full paragraph in length. As we will hear today, some 
of the items falling under this broad definition do not sound 
like prosthetics to anyone except the VA.
    The VHA handbook's definition of prosthetic appliance is as 
follows: all aids, devices, parts, or accessories which 
patients require to replace, support, or substitute for 
impaired or missing anatomical parts of the body. The items 
include artificial limbs, terminal devices, stump socks, 
braces, hearing aids and batteries, cosmetic, facial, or body 
restorations, optical devices, manual or motorized wheelchairs, 
orthopedic shoes, and similar items. Perhaps this overly broad 
definition is a contributing factor to the VA's inability to 
effectively manage its prosthetics inventories.
    As one of the members of the first panel will note, the 
definition is confusing, and I am concerned that confusion is 
widespread inside the VA as well as outside of it. Recent 
audits from the VA's Office of Inspector General have 
substantiated that the Department does not effectively manage 
its prosthetic supply, nor does it have adequate control over 
its payments when procuring prosthetics. Given what we already 
know and what we will hear today, these findings are not 
surprising.
    A tailored definition of prosthetics is just one way the VA 
can better track and manage its prosthetics acquisition. For 
instance, the broad inclusion of durable medical equipment 
under its prosthetics definition could encourage the misuse of 
Section 8123 authority. In addition, as the IG noted about the 
VA's overpayments, excess inventories, and failure to receive 
the best value, and I quote, ``strengthening controls over 
these actions should not compromise the quality of the 
prosthetic limbs provided to veterans.''
    In short, the VA can be a better steward of taxpayer 
dollars while still providing veterans timely access to care, 
including in the area of prosthetics.
    Another way the VA can better manage the billions spent in 
prosthetics every year is to actually enforce the acquisition 
regulations that apply to Section 8123. In the response I 
received yesterday, the VA still fails to acknowledge the abuse 
of Section 8123 and the blatant circumvention of the FAR and 
the VAR by VA employees. We know the problem exists. Now is the 
time to fix it. If employees in the past have failed to follow 
internal guidance, then perhaps a legislative clarification is 
necessary to ensure best value for taxpayer dollars.
    Lastly, before simply reorganizing employee structures and 
moving chess pieces around on the board, I am requesting here 
today that the VA present to this Committee in detail its plan 
to improve its acquisition of prosthetics and the specific 
reasons for the changes before putting the plan in place. This 
effort at transparency will help both veterans and Congress see 
that meaningful reform is taking place.
    Mr. Johnson. With that, I now recognize the Ranking Member 
for his opening statement.

    [The prepared statement of Hon. Johnson appears in the 
Appendix]

             OPENING STATEMENT OF HON. JOE DONNELLY

    Mr. Donnelly. Thank you, Mr. Chairman.
    In response to the First and Second World Wars, physical, 
occupational, and rehabilitation therapy was introduced to 
respond to the needs of injured servicemembers. With the high 
number of servicemembers whose lives were altered due to limb 
loss from combat trauma, the Department of Veterans Affairs 
needed to provide assistive devices to help servicemembers and 
veterans lead a meaningful and independent lifestyle.
    VA now contracts with many companies across the country to 
provide prosthetics, including companies in my home State of 
Indiana, which is an important medical device hub. For example, 
Zimmer, in Warsaw, has a contract covering primary hip and knee 
implants; and I know the company is proud of its good working 
relationship with both the VA and DoD.
    Today, we have the opportunity to discuss VA's prosthetic 
acquisition and procurement policies. Following the 
Subcommittee on Health's hearing on May 16th, further 
discussion is needed on VA's prosthetic and orthotic 
purchasing. Over half a century ago, Congress gave VA the 
authority under Title 38, Section 8123, to pass over Federal 
Acquisition Regulations and purchase state-of-the-art 
prosthetic limbs efficiently and quickly. This exemption is 
written into VA acquisition regulations.
    By enacting Section 8123 exempting procurement of 
prosthetic limbs from other laws, VA would have the ability to 
provide veterans with services and prosthetic devices needed to 
obtain a lifestyle similar to the one they lived pre-injury. 
While Section 8123 may provide the flexibility the Veterans 
Health Administration needs to respond to veterans, we must 
also ensure this flexibility is used properly and not as a 
means of bypassing Federal Acquisition Regulations.
    Finally, I hope that by reviewing the Department of Defense 
prosthetic process we may gain further insight on how to 
improve VA's prosthetic procurement policies.
    I look forward to hearing from the VA, DoD, and other 
witnesses on how we can find this balance.
    Thank you, and I yield back.

    Mr. Johnson. Thank you.
    We are now going to welcome the first panel to the witness 
table. We will hear from Mr. Michael Oros, a member of the 
Board of Directors of the American Orthotic and Prosthetics 
Association, and Mr. Daniel Shaw, managing partner of Academy 
Medical, LLC.
    Both of your complete written statements will be made part 
of the hearing record.
    You can come to the table, please.
    Mr. Oros, you are now recognized for 5 minutes, sir.

STATEMENTS OF MICHAEL OROS, BOARD MEMBER, AMERICAN ORTHOTIC AND 
  PROSTHETICS ASSOCIATION; AND DANIEL SHAW, MANAGING PARTNER, 
 ACADEMY MEDICAL, LLC, ACCOMPANIED BY STEVEN KENT, DIRECTOR OF 
  GOVERNMENT SALES, ACADEMY MEDICAL, LLC, AND STEPHEN SCHURR, 
                CONSULTANT, ACADEMY MEDICAL, LLC

                   STATEMENT OF MICHAEL OROS

    Mr. Oros. Good afternoon and thank you for the invitation 
to testify on procurement of prosthetic and orthotic care for 
our veterans.
    My name is Michael Oros, and I am a member of the American 
Orthotic and Prosthetics Association's Board of Directors. I am 
also a licensed clinical prosthetist and the President of 
Scheck and Siress, a leading provider of orthotic and 
prosthetic services in the State of Illinois.
    My experience is with a subset of the VA's ``prosthetic'' 
services. If you asked someone on the street what a prosthesis 
is, the response would probably be an artificial leg or 
possibly an arm. If you talked about an orthosis, a few 
individuals with family members who have had a traumatic brain 
injury or a stroke might be able to describe a custom-made and 
fitted device to help damaged limbs function properly. I am 
fairly certain that nobody would suggest a seeing eye dog, 
wheelchair, or many of the other items that are in the VA's 
``prosthetics'' budget.
    Why does this matter? AOPA's concern is that an overly 
broad definition of prosthetics leads to policies that are 
inappropriate when it comes time to deliver replacement limbs 
and orthopedic devices. The result is barriers to care for 
veterans with limb loss who need prosthetics to provide for 
their families and to live their everyday lives.
    Only 2 weeks ago, Health Subcommittee Chairwoman Buerkle 
held a hearing on prosthetics as traditionally understood and 
defined. During that hearing, the chief procurement officer 
testified that because changes in procurement policies applied 
only to items that cost $3,000 or more, those changes would not 
apply to 97 percent of the prosthetics budget.
    While I am sure that statement is accurate, it is also 
unhelpful. Nearly all the components of a basic prosthetic limb 
cost more than $3,000. So policies that do not apply to 97 
percent of the VA's prosthetic purchasing program can still 
delay vitally needed care for our veterans with limb loss.
    Congress authorized the VA to go to great lengths to ensure 
veterans access to prosthetic services in his or her community. 
If you are a veteran in need of prosthetic care, VA has been 
given legal authority to do what it takes to secure prosthetics 
and orthotics from the provider of the veteran's choice.
    AOPA urges this Subcommittee to do everything in its power 
to ensure that the necessary procurement legislation, 
authority, and policies remain in place to guarantee the 
veterans' right to choose their own provider. It seems like we 
shouldn't have to urge the Committee to remain vigilant on this 
point, but we do, because AOPA shares the concerns of several 
veteran service organizations that the veterans' choice of 
providers is being eroded.
    There are real and increasing barriers being erected to 
non-VA-provided care. For one example: One veteran was recently 
told how he could receive a high-tech knee only from the VA 
services department that was more than 2 hours away, and not 
from the community-based prosthetist whom had been caring for 
him for more than 11 years. After much pushback from the 
veteran and his local prosthetist, the VA offered two 
solutions: one, he could receive the knee from the VA that was 
more than 2 hours away, or his local prosthetist could resubmit 
all the paperwork and it would take up to 3 months' time for 
the approval to come through. That veteran finally switched to 
the VA for care because he was tired of arguing for his own 
rights.
    AOPA doesn't believe this is an isolated incident, and I 
could go on with similar stories. The question really is, is 
why is the VA establishing policies to undermine the veteran's 
choice?
    It has been suggested by some the cost may be a factor. A 
recent IG audit claimed that the average cost of a prosthetic 
limb fabricated by the VA in-house is about 25 percent of what 
an outside contractor charges. That analysis almost certainly 
fails to take into consideration VA staff salaries, benefits, 
facility, and administrative costs. Community-based providers 
working under contract with the VA provide high-quality care to 
veterans at rates below the industry standards that have been 
approved by Medicare.
    The goal of procurement systems for prosthetics and 
orthotics should be to deliver the highest-quality timely 
prosthetic and orthotic care possible to all veterans, 
regardless of their age, their geographic location, their 
ability or willingness to become the ``squeaky wheel'' and 
demand appropriate care.
    Procurement policies should ensure four basic elements:
    Veterans have access to the prosthetics provider of their 
choice without having to overcome artificial and unnecessary 
barriers.
    Veterans must be able to receive timely care from the 
provider, whether that provider is VA or an independent 
practice.
    The prosthetist serving those veterans should not simply 
have the minimum certifications and qualifications needed, but 
actually have the training and experience to meet the 
specialized needs of veterans. This will become more and more 
of a challenge for the VA and for independent O&P practices as 
the requirement for a master's degree as an entry level is 
implemented.
    Contracting and other policies should require the 
measurement and continuous improvement of veterans' outcomes 
until each veteran achieves their highest level of restored 
function.
    Mr. Chairman, members of the Committee, thank you very much 
for the invitation to testify and for your commitment to 
providing the highest-quality prosthetic and orthotic care to 
our Nation's veterans. I look forward to answering any 
questions that you may have.

    [The prepared statement of Mr. Oros appears in the 
Appendix]

    Mr. Johnson. Thank you, Mr. Oros.
    Mr. Shaw, you are now recognized for 5 minutes.

                    STATEMENT OF DANIEL SHAW

    Mr. Shaw. Mr. Chairman, Ranking Member Donnelly, members of 
the Subcommittee, thank you for the opportunity to appear 
before you today to discuss the Department of Veterans Affairs 
prosthetic purchasing practices and their impact on Academy 
Medical, a VA-verified veteran-owned small business.
    My name is Daniel Shaw; and I am the managing partner of 
Academy Medical, located in Wellington, Florida. Academy is a 
reliable source of supply of biologics and holds a mandatory 
source Federal Supply Schedule, FSS, contract, issued by VA's 
National Acquisition Center. My fellow managing partner and I 
graduated from the U.S. Naval Academy in 1991. Academy Medical 
is so named to pay homage to our alma mater.
    Accompanying me here today is Mr. Steven Kent, our director 
of government sales, and Mr. Stephen Schurr, a subject matter 
expert in the field of biologics.
    My original testimony here today is pleasantly overtaken by 
events. By memorandum dated May 23, 2012, the Veterans Health 
Administration notified VHA procurement and prosthetic 
personnel engaged in the ordering of biological implants of its 
policy on ordering biological implants using the FSS program. 
We are very pleased with this change in VHA's position, one 
which levels the playing field and respects the mandatory 
source nature of VA's FSS program. We have worked long and hard 
to get VHA to adopt this policy. I have a copy of the policy 
and would like to offer it for inclusion in the record of 
today's hearing.

    [The attachment appears in the Appendix]

    Mr. Shaw. We hope the Subcommittee will encourage the VA to 
formalize this VHA policy memorandum by having it codified to 
amend the VA Acquisition Regulations. Policy of this magnitude 
should be formalized for perpetuity, as policies are easily 
forgotten as time goes on or through leadership changes. This 
is especially true given there is likely to be a short- and 
long-term resistance to this policy, especially by purchase 
card holders.
    One concern we have is whether the VHA policy applies to 
all biological implant procurements, to include those acquired 
as micro-purchases by government purchase card holders. We 
estimate nearly 95 percent of biological implants are acquired 
by purchase card holders who are neither trained nor nuanced in 
the use of FSS contracts. This will have a major impact on the 
success or failure of VHA's policies from a supplier 
perspective and could potentially result in no improvement for 
FSS contract holders.
    How VHA will implement, monitor, and enforce compliance 
with this policy is still unclear. The policy memorandum is 
silent on this.
    We hope this new VHA policy will make a difference. We 
estimate VA purchases approximately $175 million annually in 
biologics. This will be a nice cost-savings for the taxpayer.
    In addition, if VA makes better use of the schedule's 
program, it will avoid Competition in Contracting Act 
violations. It will be assured of receiving high-quality 
products and also reap the revenue from the FSS program 
industrial funding fee used to fund its supply chain management 
operations.
    What is hurting Academy is VHA's use of authority granted 
under Section 8123, Title 38, United States Code. Although 
VHA's new policy for the procurement of biological implants is 
welcome news to us and other FSS contract holders, Section 8123 
still looms large as long as this authority exists and is 
likely to be applied to open market procurements for biologics 
not procured through the FSS program.
    We recently learned VA determined and subsequently notified 
this Subcommittee the authorities in Section 8123 trump even 
the Veterans First Contracting Program authorities contained in 
Sections 8127 and 8128. The unprecedented and extraordinary 
contracting authorities granted to VA under its Veterans 
Contracting Program were effective June, 2007. It would seem in 
passing Public Law 109-461 the Veterans Benefits, Healthcare 
and Information Technology Act of 2006, Congress would have 
specifically exempted Section 8123 procurements from Sections 
502 and 503 Public Law 109-461, but it did not. In light of 
VHA's new biological implant procurement policy, this issue 
needs to be addressed, given that non-FSS biological 
procurements will be conducted on the open market.
    In closing, Mr. Chairman, the use of VHA's new biological 
implant procurement policy gives us hope and levels the playing 
field, and for that we are truly grateful. We seek only to be a 
reliable source of supply of biological implants, to be treated 
respectfully, and given the opportunity we have earned to be 
VA's industry partner. We have no axe to grind. We simply have 
a business to run and will work to create an environment that 
engenders trust, mutual respect, and cooperation as VA provides 
its services to America's heroes.
    Thank you, sir, for your distinguished leadership and for 
that of the Subcommittee. We hope to match our private-sector 
success in the VA marketplace. We never sought an adversarial 
relationship with VA. We seek only to be trusted business 
partners with VA and to be given the respect and opportunity we 
have earned.
    Thank you for holding this hearing, Mr. Chairman. We will 
be happy to respond to any questions you or your Subcommittee's 
members may have.

    [The prepared statement of Mr. Shaw appears in the 
Appendix]

    Mr. Johnson. Thank you, Mr. Shaw.
    We will now begin with questions, and I will yield myself 5 
minutes.
    Mr. Shaw, who is the national regulatory agency for 
biologics throughout the country?
    Mr. Schurr. If I may, the FDA is not a formal regulation 
body. It is the American Association of Tissue Banks. It is a 
voluntary regulatory body.
    Mr. Johnson. Okay. Could you briefly explain some of the 
criteria that the Association of Tissue Banks, AATB, has to 
ensure patient safety?
    Mr. Schurr. Yes, sir. The AATB monitors that there are 
safety regulations such as testing for each donor through a 
variety of tests, the cancers, the HIV, hepatitis, various 
screenings to make sure that each donor is safe to move on to 
processing.
    Mr. Johnson. And I am sorry. Let's go back. Mr. Schurr, and 
Mr. Kent, for the record, would you tell us where you are from, 
and who you represent?
    Mr. Schurr. Yes, sir. My name is Stephen Schurr. I am a 
consultant with Academy Medical. I am a subject matter expert 
with a long history in biologics.
    Mr. Johnson. Okay.
    Mr. Kent. I am Steven Kent. I am from Wellington, Florida, 
and I am the Director of government sales for Academy Medical.
    Mr. Johnson. Okay, thank you.
    How can a surgeon or VA facility be assured that the 
biologics they purchase are indeed safe for the patient?
    Mr. Schurr. All biologic companies that are in the hospital 
systems and are to serve patients and are implanted into 
patients follow the AATB guidelines. Therefore, all are deemed 
safe.
    Mr. Johnson. How can or do biologics vary from manufacturer 
to manufacturer?
    Mr. Schurr. All biologic companies share. There is just a 
handful of donor facilities that supply the processing plants. 
So pretty much they all come from the same sources.
    Mr. Johnson. Okay. Where do biologics manufacturers procure 
their donors?
    Mr. Schurr. Again, there is a handful of donor facilities 
that dispense and supply the donors to the processing 
facilities and they move on to the biologic companies.
    Mr. Johnson. Where exactly do these donors or cadavers, 
where are they procured from? Do they come from foreign 
countries or from the U.S.?
    Mr. Schurr. Well, as per the AATB, they all come from the 
United States.
    Mr. Johnson. Okay, how do the various biologics 
manufacturers work cohesively together? Do they commingle?
    Mr. Schurr. They certainly do. They all share in the donor 
pool.
    Mr. Johnson. Okay. Do they share and swap products and 
brands?
    Mr. Schurr. Absolutely.
    Mr. Johnson. Okay, with regard to traditional biologics, 
what special training, experience, tooling, or technique is 
required on behalf of the surgeon to use the various biological 
brands?
    Mr. Schurr. To my knowledge, all biologics pretty much 
follow the same technique guides with very little variance.
    Mr. Johnson. Regardless of the supplier?
    Mr. Schurr. Correct.
    Mr. Johnson. So, to clarify, you are stating that the 
surgeon's ability and technique to use brand A over brand B is 
identical, not altering the surgeon's skills in any way at all 
that would jeopardize patient safety?
    Mr. Schurr. It is pretty much just how it is prepared in 
the OR, whether it is rinsed or soaked to rehydrate 
demineralized bone product, for example. There might be 
variance in how many minutes that is. It is a small difference.
    Mr. Johnson. Okay.
    Mr. Oros, you talked about four elements of care that in 
your experience comprise quality.
    Mr. Oros. Yes.
    Mr. Johnson. How does the VA oversee, supervise, and 
otherwise hold community-based providers accountable for 
providing quality care to veterans? And how does that compare 
to the way in-house VA prosthetists are evaluated? I hope I 
pronounced that right.
    Mr. Oros. Prosthetists. It is close enough.
    Frankly, the system goes back to a clinic-based system. 
There aren't really any measured outcomes, if you will, from 
the time most veterans begin their care, at least in--
    I would say my experience is solely with the VA system. 
They will be seen in an amputee clinic, for example. The 
prosthesis is prescribed. The patient will receive their 
service on the outside, and then they will go back for a 
``clinic checkup''. But there is not really any sort of 
objective measure, if you will, other than asking the patient 
to walk around a little bit and demonstrate that they can, in 
fact, move with their prosthesis. But there aren't really any 
functional outcomes tied to the care that is provided either 
in-house or outside the system.
    Mr. Johnson. Okay, I have some additional questions, and we 
may have a second round for this panel, but at this time I will 
yield to my colleague, Representative Donnelly, for his 
questions.
    Mr. Donnelly. Thank you, Mr. Chairman; and, to all of you, 
thank you for your service to our country.
    And, Mr. Shaw, my nephew is a 2005 Academy graduate and 
flew helicopters in Iraq. And as a Notre Dame graduate, you 
have been unkind to us in football these past few years.
    Thank you very much for being--I am sorry?
    Mr. Shaw. That is a long time coming.
    Mr. Donnelly. Yes, it was.
    Mr. Johnson. I will point out that Ohio State is trying to 
be unkind to your football team, too.
    Mr. Donnelly. And it was well deserved, Mr. Shaw. Your 
players were extraordinary to watch every year I have had the 
chance.
    I wanted to ask you, has Section 8123 prevented the VA from 
providing veterans with assistive devices they may need?
    Mr. Shaw. I am not sure I understand the question, sir.
    Mr. Donnelly. Okay, have we been able to get the best 
products that the vets have needed through Section 8123, or do 
you think there are some better ways?
    Mr. Shaw. I think, as we have discussed, there really is 
very little difference in the products. And what we have tried 
to express to the VA is that there is no difference in 
biologics and particular products that we have on the Federal 
supply schedule. There is no difference. And our story is that 
we feel like, as an FSS contract holder, we can provide the 
same, if not better, products at a much more affordable price 
to the taxpayer.
    Mr. Donnelly. Okay, Mr. Oros, you indicated that you 
disagree with the Inspector General's audit which indicated the 
average cost of a prosthetic limb made by contractors is more 
expensive than if the VA made it in-house. What do you consider 
the average cost of a prosthetic limb made by contractors 
compared to the VA?
    Mr. Oros. It is hard to answer that question, only because 
when you describe a prosthetic limb you could be talking about 
a simple below-the-knee prosthesis, which might run in the 
neighborhood of 8 to--
    Mr. Donnelly. Well, I guess I mean on average, if the VA 
made it or--
    Mr. Oros. I think they would be remarkably similar if it 
was a true apples-to-apples comparison. Because the reality is 
the component costs should be relatively similar from the 
manufacturer to either the VA or the outside clinician. And 
then there are industry standards for what the practitioners 
make that should be relatively similar. Benefit costs, et 
cetera, should all be relatively similar.
    Mr. Donnelly. What do you think the comparison, like the 
audit, what do you think they are missing?
    Mr. Oros. Well, at the hearing 2 weeks ago, the IG said--it 
was actually footnoted in the report--that it really wasn't 
meant to be an apples-to-apples comparison because--and I am 
going to paraphrase here--the VA didn't have a good assessment 
of their own internal costs. And as someone who looks at our 
business' P&Ls pretty closely, my sense is that, without the 
costs, for human resources, et cetera, that is a big component 
of it.
    Mr. Donnelly. Well, let me ask you this: If there is no 
handle on--if there is no real estimate of the cost, as you 
said, does any comparison really stand up if the numbers are 
not the same?
    Mr. Oros. In my mind, no.
    Mr. Donnelly. Okay. Well, I yield back. And, again, thank 
you all for your service to the country; and as you well know, 
the most important thing we can do is to make sure that every 
veteran is served properly. So thanks again for what you do.
    Mr. Johnson. I thank the gentleman for yielding back.
    We will go to our colleague now from Michigan, Dr. 
Benishek.
    Mr. Benishek. Thank you, gentlemen, for coming and 
testifying today. I just have a couple of questions.
    Mr. Oros, are the people that work at the VA, the 
orthotists at the VA, are they members of your association, 
too? I mean, do they have the same access to the same 
prosthetics as the people on the outside?
    Mr. Oros. Yes, they should.
    Mr. Benishek. Because one of the questions I have, you 
know, I have done amputations and had to deal with orthotists 
and had people take care of it, of my patients; and one of the 
things that you brought up in your testimony was sometimes it 
is simply the fact of going to the VA. Sometimes there is a 
travel issue--
    Mr. Oros. Yes.
    Mr. Benishek. --or a comfort issue with the orthotist, you 
know, the guy is familiar with. Do all of these people already 
have contracts with the VA? I mean, are we having to deal with 
the special section a lot dealing with outside orthotists or 
they have a contract?
    Mr. Oros. Actually, the majority of VA care is actually 
provided outside the VA system through independent, contracted 
providers.
    Mr. Benishek. All right. Well, I am just trying to, you 
know, verify that the VA and the outside providers are 
providing comparable care. They have access to the highest-
quality orthotics and all that.
    Mr. Oros. The care should be comparable. It is more a 
matter of what is the veteran's choice. Is it to receive care 
locally, or to go to the VA? And I think AOPA's position is 
that that should be the veteran's choice. And it is fine if it 
is within the VA system, but it also should be fine if it is 
outside the system.
    Mr. Benishek. It seems like your testimony indicates that 
sometimes the VA seems to discourage the outside presence?
    Mr. Oros. That is absolutely the case.
    Mr. Benishek. All right, so is it the issue that we think 
that it is just charging--the VA thinks that they are charging 
too much or they already have their own overhead involved? I 
mean, is there a reasoning for that that you can--
    Mr. Oros. I can't speak for the VA's stated intention or, 
you know, unintended steering of patient care.
    Mr. Benishek. Right. Well, I know in my district, you know, 
I have a very rural district and people have to travel 
sometimes hours to get to the VA facility, and especially to 
contract with orthotists it might be even further to go to some 
specialty clinic, you know, way outside the area. So I think 
increased access to a local orthotist would be excellent.
    Let me ask Mr. Shaw a question. We are talking about 
biologics. Are you talking about bone implants for the most 
part?
    Mr. Shaw. Yes, sir, bone, any kind of cadaveric device, 
milled bone, ACL tendons, skin grafts, things of that nature.
    Mr. Benishek. Okay, so for now we have a contract, where 
before people were, for the most part, going out of the Section 
8123. Is that the issue here?
    Mr. Shaw. Yes, sir. We have an FSS contract, and we are one 
of the few vendors who took the time to get an FSS contract. 
And we are--our situation is, as we are going out and marketing 
our contract, we are coming up against leadership that is 
invoking 8123 and saying that, because with 8123 they don't 
have to abide by any contract, that our FSS contract is 
irrelevant for purchase of biologics.
    Mr. Benishek. I tend to agree with the Chairman on that. I 
don't believe that really biologics are the same thing as 
prosthetics, to tell you the truth. And I would prefer to see 
most people have a contract because--is there a wide variety in 
the price then, basically? Tell me the variety of prices.
    Mr. Shaw. We found that we are probably 20 to 30 percent 
more affordable than some of our competitors.
    Mr. Benishek. What percent of the business of the VA is 
with a contractor like yourself, then? Is it mostly 
noncontracted 8123?
    Mr. Shaw. Yes, sir. It is maybe 97 percent off contract, 
versus our small 3 percent. We estimate that the VA spends 
about $175 million annually in biologics. And, to be honest, 
there has never been a vendor putting these products on 
contract. And so we have kind of gone through that arduous task 
of getting it on contract; and we have let the VA know that, 
hey, we are out here, and as a veteran-owned small business we 
really want to be your partner. And it has relatively fallen on 
deaf ears.
    Mr. Benishek. Is there a different cost structure between 
your company and the other companies that make the difference 
in the price that you are aware of?
    Mr. Shaw. I can't really speak for my competitors and what 
their situations are, but I think that if you don't have to--if 
you are not asked for a discount when someone is swiping a 
purchase card, then they are not going to get one.
    Mr. Benishek. So how many different providers are there of 
these biologics?
    Mr. Shaw. Six or eight.
    Mr. Benishek. All right--throughout the country?
    Mr. Shaw. Probably six or eight that are comparable, that 
are AATB certified, that provide good-quality products.
    Mr. Benishek. Well, I guess my question to the Committee 
then would be to, you know, see if we can investigate this a 
little bit further. I mean, not only does it not seem to be an 
orthotic to me but just the process itself doesn't seem to be 
quite right. So I appreciate your testimony.
    I see my time is up. Thanks.
    Mr. Shaw. Yes, sir.
    Mr. Johnson. Thank you for yielding back.
    We will go to Mr. Barrow from Georgia.
    Mr. Barrow. Thank you, Mr. Chairman.
    Gentlemen, thank you all for your testimony today.
    I want you to pitch that hay down there real low where us 
goats can get at it, okay?
    If I understand the whole purpose of 8123, it is basically 
to say, with respect to something that is as important as 
prosthetic devices, money is no object. Cut through all of the 
red tape. There is no red tape. We are going to spend whatever 
is necessary to get folks what they need. There is a noble 
impulse in that, but if I understand what you are saying, we 
are spending a whole lot more and we are not getting enough 
value for the taxpayers and benefit for the veterans at the 
same time. Is that the upshot of this?
    Mr. Shaw. Yes, sir.
    Mr. Barrow. Help me understand how you would rewrite 8123 
in order to make sure that we preserve that prime directive of 
money is no object when it comes to trying to replace a vital 
function for folks. We are not going to cut corners. We are 
also not going to waste money in the process. How would you 
suggest that we change 8123 so that we can continue to take the 
attitude of we are going to get whatever you need to the folks 
who need it, when they need it, but not waste money and get 
value for the taxpayers and benefit for the vets at the same 
time. How should we change 8123?
    Mr. Shaw. Sir, I don't think you really need 8123. I think 
most purchases could be--the Federal Acquisition Regulation 
does a pretty nice job I think for acquisitions of even 
prosthetic limbs.
    Mr. Barrow. Do you have any concerns that the red tape 
associated with trying to making sure we get stuff off the 
shelf at the lowest price--bulk rates, discounts, that kind of 
stuff--isn't going to interfere with folks getting exactly what 
they need with respect to something that is much more out of 
the ordinary than something, you know, off the shelf?
    Mr. Shaw. There is a VA waiver form--if a clinician were to 
have a specific appliance that he felt that would be 
specifically needed for that particular patient, there is a 
waiver form that is quite easy for them to fill out; and I 
think that many clinicians are familiar with the waiver form 
and would most likely fill it out for that patient.
    Mr. Barrow. And, in that context, how would things work 
differently than they do right now, if we did that?
    Mr. Shaw. I think what would happen is there would be 
several contracted vendors, most likely your more reputable 
manufacturers, and that would be what most guys would most 
likely use on a straightforward case.
    But, again, if you have a patient that needed something in 
particular, the clinician could fill out a waiver form and the 
patient would get the care that he needed.
    Mr. Barrow. Thank you.
    Mr. Oros, same question for you. Do you have anything to 
add to that?
    Mr. Oros. I think there might be a slight difference when 
it comes to what I will call traditional orthotic and 
prosthetic care. I will highlight your first comment was to 
provide whatever is the best for those individual patients, and 
they are really not commodity services.
    Mr. Barrow. Exactly.
    Mr. Oros. So to that end, I think you want to eliminate 
whatever type of barriers. I don't think that you want to lump 
it in with something, for example, like biologics. So I would 
absolutely tighten the definition of 8123 to mean replacement 
of artificial limbs and orthopedic devices.
    Mr. Barrow. How about you, Mr. Shaw? Do you feel the same 
way? Do you think that would accomplish--
    Mr. Shaw. I would agree with that. I think if the Committee 
felt like there needed to be an 8123 and the leadership at VA 
felt that 8123 is necessary, I would definitely limit it to a 
very, very limited access; and I would certainly ensure that it 
could not be delegated down.
    Mr. Barrow. Thank you, gentlemen.
    I only have a minute and a half, and I would be happy to 
yield so much of that time as either the Ranking Member or the 
Chairman would like to have.
    Mr. Johnson. I thank the gentleman for yielding back.
    We will actually go into a second round. I do have a few 
more questions, and then we will see if our colleagues have 
any.
    Mr. Oros, you pointed out in your testimony that 80 to 90 
percent of veterans' prosthetic and orthotic care is provided 
by community-based providers. I am sure this is a significant 
and unwieldy system of contracts for the VA to manage. What in 
your view is the advantage to veterans of sustaining this 
contract-based system?
    Mr. Oros. It is simply that access to their individual 
provider.
    And the reality of the VA network, you are right. It is 
unwieldy. But the fact of the matter is that our injured 
veterans, they might be originally cared for in a VA, in a DoD 
facility, but they want to go back to their own community and 
live their own lives; and to have to go to a VA hospital that 
is 2 hours away is more than an inconvenience.
    Mr. Johnson. And maybe you have already answered this 
question in some of your comments, but if you were going to 
design a system, Mr. Oros, for the VA to evaluate the quality 
of care provided to veterans, what would you do? What 
provisions would you put in that system to improve the quality 
of care for veterans--that veterans receive?
    Mr. Oros. I would start to look at the implementation of 
some functional outcome measurements at the time of the 
original prescription and then follow it throughout that 
veteran's care so that you see that there has been restoration 
of function. And that can be done with validated instruments, 
and there is also technology available that can support that 
kind of measurement.
    Mr. Johnson. Okay, as one of the elements of quality you 
described the need to educate veterans about their right to 
choose a provider of prosthetic care. The Committee is starting 
to hear more and more stories about veterans who say that the 
VA is creating barriers to their selection of non-VA care. What 
has been your experience? Have you heard from veterans that 
this is a growing problem?
    Mr. Oros. I have seen it locally. I think what I can speak 
to most directly to, is, locally, we no longer have access. For 
at least the last 2 years our company, while we have had a VA 
contract, has not been invited to that amputee clinic that I 
referred to previously. Really that's where those referrals 
are, and the veteran's ability to communicate with the 
prosthetist as well as the referring VA physician, are all kind 
of present in the same building.
    Mr. Johnson. Okay, here is that word again. From your point 
of view, what barriers are preventing veterans from selecting a 
prosthetist of their own choice? Is it just that veterans don't 
know their rights?
    Mr. Oros. I think it is unfamiliarity with their rights.
    Mr. Johnson. Okay. You talked in your written testimony 
specifically about older veterans at your practice complaining 
that there appears to be new administrative hurdles to prevent 
their continuing to receive care at non-VA facilities. Can you 
give us some examples?
    Mr. Oros. We have seen in our own facility where veterans 
who have received care from our company for a number of years--
and, I have heard similar stories from other providers--
veterans have gone back to the VA for other services, 
prescriptions, et cetera. And the patient has been--I will use 
the word discovered--to be an amputee, and they have been 
directed to receive their care within the VA system versus, 
again, that outside provider.
    Mr. Johnson. Okay. I yield now to the Ranking Member, see 
if he has additional questions.
    Mr. Donnelly. No additional questions.
    Mr. Johnson. Dr. Benishek.
    Dr. Benishek, would you have any additional questions?
    Mr. Benishek. I have a couple of questions here.
    Mr. Johnson. Okay. Thank you.
    Mr. Benishek. Mr. Oros, you talked about the quality of the 
orthotic providers, and your testimony mentioned, you know, a 
master's degree program.
    Mr. Oros. Uh-huh.
    Mr. Benishek. Is it easy to find people that can do this 
work? I mean, is there a lot of people out there that do this? 
I am just kind of curious as to the experience that you have in 
finding qualified people to do this job.
    Mr. Oros. Frankly, there is probably not enough. Between 
certainly the growing problem we have in this country with 
diabetes, we have got increasing veteran population, the baby 
boomers in general. So even the demand for these services are 
growing, and the reality of it is we have a limited number of 
schools graduating students that have their training in 
orthotics and prosthetics. So it is an issue and a concern, 
yes, but it is one we face in the private practice as well as 
within the Veterans Administration.
    Mr. Benishek. Do you think the qualifications for the 
typical VA orthotist are pretty much the same as the private 
practice person?
    Mr. Oros. I would like to think they are. We have two 
national credentialing agencies, the American Board for 
Certification and the BOC. And I believe that both inside and 
outside the VA they should be--
    Mr. Benishek. Those folks are members of your--
    Mr. Oros. I believe so.
    Mr. Benishek. Is there ongoing certification required for 
that?
    Mr. Oros. Ongoing continuing education required, yes.
    Mr. Benishek. Right. Okay.
    I think that is about all I want to ask. Thank you very 
much, sir.
    Mr. Johnson. I thank the gentleman for yielding back.
    Mr. Barrow from Georgia.
    Mr. Barrow. I thank the Chairman. And my thanks to the 
witnesses. I have no further questions.
    Mr. Johnson. Well, our thanks to the panel. You are now 
excused. Thank you for your testimony today and for responding 
to our question.
    I now invite the second panel to the witness table.
    On our second panel we will hear from Dr. Charles Scoville, 
Chief of Amputee Patient Care Service at Walter Reed National 
Military Medical Center; and Ms. Linda Halliday, Assistant 
Inspector General for Audits and Evaluations at the U.S. 
Department of Veterans Affairs Office of Inspector General. Ms. 
Halliday is accompanied today by Mr. Nick Dahl, Director of the 
Bedford Office of Audits and Evaluations, and Mr. Kent 
Wrathall, Director of the Atlanta Office of Audits and 
Evaluations.
    Both of your complete written statements will be made part 
of the hearing record.
    Dr. Scoville, you are now recognized for 5 minutes.

 STATEMENTS OF CHARLES SCOVILLE, CHIEF OF AMPUTEE PATIENT CARE 
  SERVICE, WALTER REED NATIONAL MILITARY MEDICAL CENTER, U.S. 
DEPARTMENT OF DEFENSE; AND LINDA HALLIDAY, ASSISTANT INSPECTOR 
    GENERAL FOR AUDITS AND EVALUATIONS, OFFICE OF INSPECTOR 
 GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY 
      NICK DAHL, DIRECTOR OF BEDFORD OFFICE OF AUDITS AND 
 EVALUATIONS, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
VETERANS AFFAIRS, AND KENT WRATHALL, DIRECTOR OF ATLANTA OFFICE 
 OF AUDITS AND EVALUATIONS, OFFICE OF INSPECTOR GENERAL, U.S. 
                 DEPARTMENT OF VETERANS AFFAIRS

                 STATEMENT OF CHARLES SCOVILLE

    Dr. Scoville. Thank you, Chairman Johnson, Ranking Member 
Donnelly, and distinguished members of the Subcommittee. Thank 
you for the opportunity to provide a perspective on how the 
Department of Defense cares for individuals with limb loss and 
in particular prosthetic care, new technologies and our 
collaboration between DoD and the Department of Veterans 
Affairs.
    It is always important for us to look back before we look 
forward, to take lessons--take from lessons learned. The 
Washington D.C. Times-Herald reported, ``In a few days the Army 
will print a formal regulation which will give officers and 
enlisted of men who have lost arms, or legs, or both, in the 
line of duty the opportunity to return to active duty.''
    This was written in 1951. Fast forward to 2003. We repeated 
this within the military returning individuals to active duty. 
To date, we have had over 305 individuals with limb loss who 
remain on active duty, and over 53 of these have redeployed 
into Iraq or Afghanistan.
    The goal of our program is to return patients to tactical 
athleticism or to their pre-injury level of activity. The 
philosophy that we use for that program is to have the patient 
tell us how far they want to go, and then we work with them to 
achieve those goals.
    DoD has a significantly lower patient population than the 
VA. Our patients are significantly different than the vast 
majority of the VA patients. They are young, active 
servicemembers, frequently with severe trauma and multiple limb 
loss, that desire and deserve to return to the highest levels 
of function, including returning to active duty. These 
servicemembers are strong willed and impressive warriors who 
challenge us daily to improve how we care for them. We started 
with the very small decentralized program and have built it 
into an efficient progressive program recognized as a world 
leader in amputee care and in meeting our patients needs.
    The VA and DoD have long worked together. In 1945, the Army 
Prosthetic Research Lab was established at Walter Reed Army 
Medical Center. In 1948, the VA established the Prosthetic 
Research Department headquartered in New York City VA. Many of 
the devices they developed together were continuing to be used 
at the time the current conflict started.
    In 2004, Congress provided $2.5 million for prosthetic 
device technology enhancement and clinical evaluation at Walter 
Reed and added an additional $10 million in 2005, and the DARPA 
project for upper extremity prosthetic devices programmed $30 
million. Much of the research included partnership with the VA, 
and we would not have been able to complete the research 
without this partnership.
    For example, the advanced DARPA arms that have been 
developed have first been tested in VA facilities and then 
migrated to DoD facilities. And the newest research to help our 
patients return to the highest levels of function is a study 
projected to begin either later this year or early next year 
with the Salt Lake City VA on osseointegration. If this is 
successful, it will allow patients that are unable to wear 
prosthetic sockets the opportunity to use prosthetic devices to 
return to high-end activity.
    Several factors help us explain why DoD has led in the 
efforts to provide prosthetic care for our Wounded Warriors. 
One of the keys is the interdisciplinary program. We are 
pulling together providers from a wide range to address the 
basic patient daily needs. While the standard of care requires 
the Wounded Warrior is to be seen within 7 days, we at Walter 
Reed have set the standard, they are seen within 72 hours.
    Another factor is the integration of logistics and 
contracting within prosthetic services. Walter Reed embedded a 
warranted contract officer in the orthopedic and prosthetic 
service which enables same-day ordering of new prosthetic 
devices with next-day delivery. The development of blanket 
purchase agreements have ensured best value through discount 
pricing and fixed component costs. The logistics technician 
embedded within the service provides the ability to warehouse 
non-patient-specific items for fabrication and custom fitting, 
further reducing delay and delivery of care.
    A third factor in the success of the DoD has been the 
research efforts in partnership with industry and the VA in 
providing new devices such as the Genium/X2/X3 microprocessor 
knees, the BiOM robotic ankle, and Power Knee.
    So the Department uses both civilian and contract 
prosthetists within our facility, enabling the DoD with the 
contracts to rapidly expand or contract the staff to meet the 
basic requirements that we have. The best value is guaranteed 
within the contracts through pricing proposals provided by the 
vendor in a bid phase of the procurement. The civilian model 
has a wide degree of variability in costs based on the use of 
not otherwise classified codes within the health care common 
procedure coding system.
    The DoD requires offerors to list what not-otherwise-
classified procedures and components they propose to bill for 
and the amount of reimbursement they will seek. The DoD 
contract officer representative may reject any bid with a not-
otherwise-specified code determined to be excessive.
    A large percent of our patients receive a significant 
portion of their care within the Veterans Health Care 
Administration at VA. This is crucial to the success of both 
DoD and VA patient care. The DoD does not have the capacity to 
provide life-long prosthetic care for our Wounded Warriors.
    We continue to work closely with the VA, and we have their 
providers working in our clinics at Walter Reed and in San 
Antonio. Creates a great relationship where we share knowledge 
and assist the patients as they transition to long-term care 
within the VA system. Through our long history of DoD and VA 
collaborative research and patient care efforts, we continue to 
meet the needs of our Wounded Warriors and veterans.
    Thank you.

    [The prepared statement of Mr. Scoville appears in the 
Appendix]

    Mr. Johnson. Thank you, Dr. Scoville.
    Ms. Halliday, you are now recognized for 5 minutes.

                  STATEMENT OF LINDA HALLIDAY

    Ms. Halliday. Chairman Johnson, Ranking Member Donnelly, 
and members of the Subcommittee, thank you for the opportunity 
to discuss the results of the OIG reports dealing with how VA 
acquires prosthetic limbs and manages its prosthetic 
inventories nationwide. We conducted these audits at the 
request of the House Veterans Affairs Committee.
    I am accompanied by Mr. Nick Dahl, Director of the OIG 
Bedford Audit office, and Mr. Kent Wrathall, Director of our 
Atlanta office.
    Before I discuss the results of our work, let me make one 
thing clear. The OIG supports that veterans should be able to 
receive the limbs that they and their clinicians determine are 
best for them from the source of their choice, either VA or 
commercial vendors.
    Our audit focused on the effectiveness of VA's acquisitions 
and contract administration practices. We did not examine nor 
do we offer an opinion on the definition of the prosthetics or 
whether the VA labs are the preferred source for prosthetic 
limbs rather than contract vendors based on cost comparisons or 
other factors.
    In our first report, we evaluated VHA's management and 
acquisition practices used to buy prosthetic limbs and we 
examined the procurement practices and costs paid for limbs. We 
identified opportunities for VHA to improve payment controls to 
avoid overpaying for prosthetic limbs and improved contract 
negotiations to obtain the best value for prosthetic limbs 
purchased from contract vendors.
    Overpayments for prosthetic limbs were a systemic issue at 
all 21 Veteran-Integrated Service Networks. We identified 
overpayments in 23 percent of the transactions paid in fiscal 
year 2010. We found VHA overpaid contract vendors about $2.2 
million of the total $49.3 million spent on prosthetic limbs in 
that year.
    The overpayments generally occurred because VHA paid vendor 
invoices that included charges in excess of the prices agreed 
to in the vendors' contracts with VA. We also found that 
contracting officers were not always negotiating to obtain the 
best discount rates with vendors. Without COs negotiating the 
best discount rate, VHA cannot be assured it receives the best 
value for prosthetic limbs. We noted that taking action to 
ensure COs consistently negotiate better discount rates should 
in no way compromise the quality of prosthetic limbs purchased 
for veterans.
    Ms. Halliday. In addition, prosthetic staff should 
periodically conduct evaluations to ensure prosthetic labs are 
operating as effectively and economically as possible.
    We found officials suspended the VISN-based review of labs 
in January 2011 after reviewing only nine of 21 VISNs 
nationwide. As a result, the prosthetic staff were unsure of 
its in-house fabrication capabilities and generally lacked the 
information needed to know if the labs were operating 
effectively and efficiently.
    Our second report provided a comprehensive perspective of 
the suitability of VHA's prosthetic inventory management 
policies and procedures. We reported that strengthening VA 
Medical Centers' management of prosthetic inventories will 
reduce costs and minimize risks of supply expiration and 
disruptions to patient care due to supply shortages.
    For almost 60 percent of the inventory prosthetic items, 
VAMCs did not maintain optimal inventory levels. For 
approximately 93,000 items, we estimated VAMC inventories 
exceeded current needs for about 43,000 of these items, and 
inventories on-hand were too low for another 10,000 items. This 
situation occurred because VA Medical Centers did not 
consistently apply basic inventory practices and techniques. 
For example, we found that VAMCs did not set normal, reorder, 
or emergency stock levels in automated inventory systems for 
over 90 percent of the prosthetic items.
    In conclusion, until VHA improves the acquisition and 
contract administration practices used to buy prosthetic limbs, 
VA will not have sufficient assurance that its practices are 
effective or economical. Improvements in inventory practices 
and accountability for these inventories needs strengthening, 
and VHA needs to remain committed to replacing its existing 
inventory systems with a more modern inventory system by 2015.
    We are pleased to see that VA is responding to the issues 
we identified in our reports and that they agreed with our 
recommendations. VA is adopting practices to ensure the 
financial stewardship of the funding needed for prosthetic 
care.
    Chairman Johnson, my colleagues and I would be happy to 
answer any questions.

    [The prepared statement of Ms. Halliday appears in the 
Appendix]

    Mr. Johnson. Thank you, Ms. Halliday.
    We will now begin with questions, and I recognize myself 
for 5 minutes. Ms. Halliday, did the Inspector General use the 
VA's definition for ``prosthetic'' in its recent audits?
    Ms. Halliday. We looked at the definition and I believe in 
the inventories report we really didn't find any real problems 
with it because it was defined, and we could then apply it 
against the purchases we reviewed.
    Mr. Johnson. Your testimony mentions that overpayments 
generally occur because VHA paid vendor invoices that included 
charges in excess of prices agreed to in the vendor's contracts 
with VA. Did you find any reason as to why or how the VA 
purchasers failed to obtain best value, even with the contract 
in place?
    Ms. Halliday. Well, the question on the best value led to 
the contracting officers' not trying to negotiate discount 
rates. The problem with the overpayments was because the 
invoices were not receiving adequate review by the COTRs prior 
to certification for payment so they just were not looking at 
the invoices in relationship to the terms of the contract.
    Mr. Johnson. You also discussed how VA purchasing agents, 
following the terms of contracts would not compromise, I quote, 
``the quality of the prosthetic limbs provided to veterans.'' 
Would the quality of prosthetic limbs decline if purchasing 
agents followed their training as well as the FAR and the VAR?
    Ms. Halliday. No, I don't see any reason for it.
    Mr. Johnson. Do you know why Prosthetic and Sensory Aid 
service suspended its review of labs last year after reviewing 
only nine VISNs?
    Mr. Dahl. My understanding is that at the time they made 
that decision, they weren't sure what the need was for 
conducting those reviews. There was a change in leadership and 
they decided that they weren't getting enough information from 
those reviews to continue them.
    Mr. Johnson. Why is there such widespread failure to use 
ECMS?
    Ms. Halliday. ECMS is not considered user-friendly. It does 
take some training. We have actually have had some of our staff 
get the training. It is difficult to put information in. What 
we have found through many of our reviews is that VA 
contracting staff use it as a shell. They will put the basic 
information in, but they won't put all the information in to 
give you a good understanding of the contract actions that lead 
to award and then through contract closeout.
    Mr. Johnson. Will the VA be able to effectively recover 
money that it overpaid to vendors?
    Ms. Halliday. Yes, they will, because these overpayments 
were in excess of the contract terms. And we do believe the 
$2.2 million is a conservative estimate. The VHA staff, and Dr. 
Beck took action immediately to start looking to recover those 
overpayments. Those moneys can then be reprogrammed for more 
prosthetics' care in VA.
    Mr. Johnson. Do you think overpayments will cease in the 
near future?
    Ms. Halliday. We would like to see a more rigorous review 
of invoices against contract terms throughout VA. I think that 
there is the knowledge now that this is a systemic problem, and 
I think more attention will be brought to that based on the 
discussions we have had with VA officials.
    Mr. Johnson. Turning to the DoD, does the Department of 
Defense use any mechanism similar to section 8123 of title 38 
for its acquisition of prosthetic appliances?
    Dr. Scoville. No, it does not have any similar.
    Mr. Johnson. Do you know whether or not DoD has any kind of 
procurement statute that allows it to procure items and 
disregard any other provision of law?
    Dr. Scoville. No it does not. We have researched that and 
there is no similar provision in the DoD.
    Mr. Johnson. Are there any instances where DoD doesn't 
document procurements, whether they are on- or off-contract?
    Dr. Scoville. None that I am aware of, sir.
    Mr. Johnson. That is all of my questions. I will yield to 
the Ranking Member for his questions.
    Mr. Donnelly. Thank you, Mr. Chairman.
    Dr. Scoville, when you look at the VA processes, what do 
you think are some of the best steps that they can take to 
provide even better care in this area? When you look at how 
things are done on DoD's side and on the VA side, what are some 
of the tips you can give us to operate better?
    Dr. Scoville. Again, the DoD and VA has a significantly 
different population as far as the number, the location. We 
have the advantage that we are treating the newly wounded that 
have not been out for a long period of time, and can provide 
the unified care at our facilities, so we don't need to rely on 
a large nationwide network.
    The approach that we found very successful was embedding 
the warranted contract officers within our facility, which is 
something the VA is now proposing or looking to do. What that 
did was it allowed our providers to have more time to work with 
the patients, and it gave us all the appropriate authorities to 
do the contracting side, making sure we were hitting all of the 
requirements, meeting all regulations.
    Mr. Donnelly. Is DoD's definition of ``prosthetics'' as 
broad as the VA's?
    Dr. Scoville. No. The DoD definition of ``prosthetics'' is 
an artificial substitute for a missing body part, determined to 
be necessary by the Secretary of Defense, because of 
significant conditions resulting from trauma, congenital 
abnormalities or disease, and it is limited to artificial 
limbs, eyes, voice prostheses, ears, nose, and fingers.
    Mr. Donnelly. So by that definition, ``biologics'' would 
not be included then?
    Dr. Scoville. No, sir.
    Mr. Donnelly. Can you explain why the use of blanket 
purchase agreements and indefinite delivery, indefinite 
quantity ensure the best value when acquiring prosthetics?
    Dr. Scoville. These are small business set-aside 
competitive contracts that provide the DoD to look at the cost 
and make assessment and then select the sole source that will 
provide the best value to DoD.
    Mr. Donnelly. This will be for Ms. Halliday.
    Do you have any opinions, as a result of what you have 
looked into, as to items the VA may be including in its 
definition of ``prosthetics'' that would be better suited for 
purchase outside of section 8123?
    Ms. Halliday. There was a large inventory of prosthetics 
when we looked at the medical centers. VA really has to take a 
look at which items are not unique, but just standardized items 
that you would use on a regular basis. I understand that the 
VHA is moving in that direction.
    There are just so many items. I think when it is unique 
like a limb, an arm, or extension, they are very specific 
requirements, and it has to be tailored to the veteran's needs, 
and the clinicians will work with the veterans. But when we get 
into the prosthetics inventory within the medical center, there 
are many items that can be standardized.
    Mr. Donnelly. Thank you. Thank you, Mr. Chairman.
    Mr. Johnson. Dr. Benishek.
    Mr. Benishek. Thank you, Mr. Chairman.
    Ms. Halliday, I have a couple of questions concerning the 
overpayment. You said on average there is like a $2,300 
overpayment. Was this systemic through all the hospitals you 
checked? Were there some hospitals that were paying their right 
amount and then others that weren't? I am just trying to figure 
out if it is just across the board.
    Ms. Halliday. I believe what we said was there was a 23 
percent error rate in overpayments. We looked at the contracts 
within the VISNs and all of the actions to buy the limbs and it 
was systemic across all 21 of the network offices in VA.
    Mr. Benishek. So it is apparent that the purchasing agents 
on the routine didn't look at the contracts at all, then? Is 
that the impression that you get from looking at how it was 
done?
    Ms. Halliday. The impression we got was that the 
contracting officers' technical representatives were not doing 
a good job of reviewing the invoices, once they are submitted 
by vendors, before they are certified for payment. Clearly, I 
think, this is called for in the VHA COTR handbook which 
requires them to do some review of those invoices against the 
contract terms, and that wasn't happening.
    Mr. Benishek. Was there some difficulty--you mentioned that 
the software is difficult to use or to call up these contracts; 
should these people have this at their fingertips as they are 
doing this? It seems to me that they would be--having these 
contracts right available to them and they should know all this 
as they were doing these reviews, right?
    Ms. Halliday. You could get transparency for contract 
actions if you had a good dedication to using the ECMS system, 
and you would be able to find out much more about the progress 
and what the contract was and the terms, and be able to do 
these reviews much quicker and better.
    Mr. Benishek. Is there a defined training level with the 
competency requirement for the people that do these reviews 
that include something like that, or are you aware of that?
    Ms. Halliday. Yes, there is. For COTRs, which is a 
contracting officer's technical rep, there is training. It 
takes them through a process where they are delegated the 
responsibilities, and the contracting officers will clearly lay 
out the responsibilities to review such things as the invoices, 
because normally the COTRs work is after the award of a 
contract. So they are looking to ensure contract administration 
actions.
    Mr. Benishek. So since your investigation, has anyone 
changed the way they are doing business here? Or is this going 
on the way it is? Is anyone reviewing the process? Has anyone 
been reprimanded for not following the rules? Has anything like 
that occurred?
    Ms. Halliday. At this point, I would have to say it is too 
early for us to assess that. The Department has accepted our 
recommendations in the report. They are moving forward on some 
18 different recommendations to tighten up the controls 
associated with what we saw as weaknesses in the contract 
administration. We have to provide time to put all of the 
controls in place, and then we would come back at a later date 
and assess the effectiveness of VA's actions.
    Mr. Benishek. Is there a timeline for that?
    Ms. Halliday. Normally, we give the Department a year after 
we have issued an audit, and I believe our audits were issued 
in March of this year, so we will be looking to do some testing 
and follow-up work within the next year.
    Mr. Benishek. I would be happy to see that report. Thank 
you. I yield back the remainder of my time.
    Mr. Johnson. I thank the gentleman for yielding back.
    We will go to Mr. Barrow from Georgia.
    Mr. Barrow. Thank you Mr. Chairman. Just to follow up a 
little bit more on the subject of overpayments, Ms. Halliday, 
just how is the government going to go about getting back some 
of the money that has been overpaid?
    Ms. Halliday. Could you ask that question again, sir? I 
don't believe I heard you.
    Mr. Barrow. Sure. I overheard you saw that we acknowledge 
that money has been overpaid because some of the officers were 
not scrutinizing before they were certifying. Some folks got 
paid something they shouldn't have got paid; I think at one 
point the subject was touched on. Are we going to walk away 
from it? And I think I got the impression that somehow we are 
going to be pursuing recoupment, reimbursement, something, 
compensation.
    Ms. Halliday. It is the responsibility of the contracting 
officer to make the final determination on funds that have been 
overpaid and set up bills of collection and work with the 
vendors to recoup those moneys.
    Mr. Barrow. And what if--is there any possibility or 
likelihood that it might be difficult to recoup the money 
because some of them don't want to pay it back? Or is this too 
small potatoes, with an ongoing book of businesses, for someone 
to get that kind of a problem?
    Ms. Halliday. I think the pressure to maintain ongoing 
business is really what brings about a cooperative relationship 
between the vendor and VA.
    Mr. Barrow. Glad to hear it. Thank you, ma'am.
    Mr. Johnson. I thank the gentleman for yielding back.
    Our thanks to the panel. You are now excused. And I invite 
the third panel to the witness table.
    Mr. Johnson. On this panel we will hear from Mr. Philip 
Matkovsky, Assistant Deputy Under Secretary for Health for 
Administrative Operations, Veterans Health Administration.
    He is accompanied by Dr. Lucille Beck, Chief Consultant for 
Rehabilitation Services, Director for Audiology and Speech 
Pathology and Acting Chief Consultant for Prosthetic and 
Sensory Aids Service in the Veterans Health Administration. He 
is also accompanied by Mr. Norbert Doyle, Chief Procurement 
Logistics Officer for the Veterans Health Administration, and 
Mr. Ford Heard, Associate Deputy Assistant Secretary in the 
Department of Veterans Affairs, Office of Acquisitions and 
Logistics.
    Mr. Matkovsky, your complete written statement will be made 
part of the hearing record, and you are now recognized for 5 
minutes.

STATEMENT OF PHILIP MATKOVSKY, ASSISTANT DEPUTY UNDER SECRETARY 
   FOR HEALTH FOR ADMINISTRATIVE OPERATIONS, VETERANS HEALTH 
     ADMINISTRATION, U.S. DEPARTMENT OF VETERANS AFFAIRS; 
      ACCOMPANIED BY DR. LUCILLE BECK, CHIEF CONSULTANT, 
    REHABILITATION SERVICES; DIRECTOR, AUDIOLOGY AND SPEECH 
 PATHOLOGY; AND ACTING CHIEF CONSULTANT, PROSTHETIC AND SENSOR 
 AIDS SERVICE, VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT 
OF VETERANS AFFAIRS; NORBERT DOYLE, CHIEF PROCUREMENT LOGISTICS 
  OFFICER, VETERANS HEALTH ADMINISTRATION, U.S. DEPARTMENT OF 
 VETERANS AFFAIRS; AND FORD HEARD, ASSOCIATE DEPUTY ASSISTANT 
     SECRETARY, OFFICE OF ACQUISITIONS AND LOGISTICS, U.S. 
                 DEPARTMENT OF VETERANS AFFAIRS

                 STATEMENT OF PHILIP MATKOVSKY

    Mr. Matkovsky. Chairman Johnson, Ranking Member Donnelly 
and members of the Subcommittee, thank you for the opportunity 
to speak about the Department of Veterans Affairs' ability to 
deliver quality care and acquire prosthetics and other devices 
for veterans in need of these items.
    I am accompanied today by Dr. Lucille Beck, chief 
consultant, rehabilitation services; and acting chief 
consultant, prosthetic and sensory aids service. Also, Mr. 
Norbert Doyle the chief procurement logistics officer; and Mr. 
Ford Heard, associate deputy assistant secretary for the Office 
of Acquisitions and Logistics.
    VA has been engaging in prudent and appropriate reform to 
improve the business processes governing the procurement of 
prosthetic devices for veterans. We are taking great care to 
ensure that these changes improve the accountability of these 
purchases while maintaining the high quality of care and 
clinical decision-making critical to veterans' health care. 
Enhancing access and tailoring devices and clinical solutions 
to the unique needs of veterans is and will remain our chief 
priority.
    In the few minutes I have now, I would like to broadly 
outline how we are exercising better oversight of our 
procurement operations and maintaining patient care.
    First, VA is transitioning the authority to purchase 
prosthetics from clinical support to contracting staff. The 
authority to select the most appropriate prosthetic device 
remains, however, with the clinical provider and the veteran.
    Technologies and equipment must be highly individualized to 
meet each veteran's unique rehabilitative needs. We are making 
this transition, though, to bring our practices more in line 
with Federal and VA acquisition regulations. While these 
regulations generally require full and open competition and 
procurement, section 8123, as we have heard today, authorizes 
VA to limit competition when physicians require specific 
devices or equipment for patient care. And the FAR and VAR 
similarly authorize limiting competition under these 
circumstances.
    If the Secretary elects to use section 8123 in this manner, 
all applicable FAR and VAR requirements must still be followed. 
When products are generally available and interchangeable, 
competitive procurements may be more appropriate. VA has 
aggressively pursued national contracts over the past 10 years 
for these types of items, achieving cost savings, and to 
standardize and to find commodities where appropriate.
    When we can purchase products, devices or supplies that are 
generally available and interchangeable, we will comply with 
the FAR to ensure we are obtaining the best price possible. In 
the long term, VHA will develop a catalogue of such items to 
facilitate better, more cost-effective purchasing decisions.
    We are also increasing the number of audits of purchases to 
identify best practices and to conduct better oversight to 
ensure we are realizing the best value.
    As we gather more data on how these changes are working, we 
can continue to refine and streamline and simplify our 
processes. We are using new templates, checklists and 
justifications, and we are improving the communication between 
staff and leadership so we have a comprehensive view of our 
procurement activities. We will correct noncompliant contracts 
as required, and evaluate contract or performance as required 
by the FAR, and institute collection activities when warranted.
    Finally, we are better defining our policies and guidance 
to the field, strengthening our training programs and 
increasing oversight and audit functions. We are directing our 
facilities to reconcile physical inventories and take action to 
eliminate excess inventories without creating supply shortages. 
We are reserving our standards for facilities to require at 
least one prosthetic supply inventory manager to become a 
certified VA supply chain manager.
    In conclusion, VHA's prosthetics and sensory aids service 
is the largest and most comprehensive provider of prosthetic 
devices and sensory aids in the world, offering a full range of 
equipment and services. VA supports high-quality amputation and 
prosthetics care by promoting ground-breaking research into new 
technologies, training a highly qualified cadre of staff in 
pursuing accreditation of all eligible prosthetic laboratories 
in VA's amputation system of care. We are improving our 
oversight and management of prosthetic purchasing and inventory 
management to better utilize the resources we have been 
appropriated by Congress as we serve America's veterans. 
However, we must always ensure our processes do not adversely 
affect our ability to provide veterans with high-quality 
individualized and timely prosthetic services they have earned.
    We appreciate the opportunity to appear before you today, 
sir, to discuss this important program. My colleagues and I are 
prepared to answer your questions.

    [The prepared statement of Mr. Matkovsky appears in the 
Appendix]

    Mr. Johnson. Thank you and we will begin with questions. I 
will recognize myself for 5 minutes.
    Is a procurement official responsible for documenting that 
a procurement is authorized under title 38, section 8123, as 
outlined in the FAR 6.2, 6.302-1, and 6.302-5?
    Mr. Matkovsky. Yes, they are.
    Mr. Johnson. Would the procurement official also be 
required to document the technical health care and other 
factors supporting this decision through justification and 
approval for other than full and open competition in the 
contract file?
    Mr. Matkovsky. We expect that the contracting official will 
document the basis for the sole-source justification and using 
8123. Especially as we have developed the templates moving 
forward, the basis for that justification is clinical 
indication, as in a physician's prescription, so noted, or a 
veteran's choice.
    Mr. Johnson. So the short answer is yes?
    Mr. Matkovsky. Yes, sir.
    Mr. Johnson. Why did Deputy Secretary Gould's letter to 
this Subcommittee in March cite section 8123 and further stated 
that the VA is not required to document waivers and deviations 
from the Federal supply schedule when invoking section 8123?
    Mr. Matkovsky. Sir, I believe the Deputy Secretary's letter 
was with respect to some specific acquisitions that were cited 
in the incoming correspondence, and in explaining why we did 
not actually have to cite or provide a prior waiver request, 
8123 was noted as the reason for not requiring a prior waiver 
from the VAR hierarchy of contracts, sir.
    Mr. Johnson. Many physicians at the VA are part-time 
employees and in this capacity can promote companies with which 
they are associated as consultants. Through section 8123, these 
physicians can also direct sole-source contracts.
    Are VA physicians required to disclose any outside 
partnerships that could create an ethical or moral dilemma for 
the VA?
    Mr. Matkovsky. They are absolutely required to do so, sir.
    Mr. Johnson. You note the VA's new policy for purchases 
over $3,000. Approximately 5 percent of biologics cost more 
than $3,000, so your policy will have minimal bearing on 95 
percent of biologics purchased. Can you describe how your 
policy will affect the other 95 percent of biologics purchased?
    Mr. Matkovsky. Well, I don't actually have the specific 
cost breakout for the biologics themselves. But the $3,000 
threshold was noted that it was 97 percent of the cost would 
below $3,000. Actually the number is a little bit north of 50, 
55 percent of all of the prosthetics purchases are greater than 
$3,000 in cost. It is the number of transactions, is the 3 
percent number.
    In terms of the biologics themselves, our expectation is 
that we are asking in this policy moving forward that we 
document that a waiver from FSS was requested and that part of 
what we hoped to achieve from this--and we expect to achieve 
from this--is that we will collect information about why FSS is 
actually not being selected as a source for biologics or for 
other items, or national contracts for that matter, and be able 
to attenuate practice through education, communication in the 
field as well.
    Mr. Johnson. Numerous contracts reviewed by this 
Subcommittee show VA purchasers splitting contracts in order to 
remain under a specific price threshold for purchase. In one 
case 12 purchases went to the same company for the same product 
from the same contracting officer one right after the other.
    Why is VHA not aggregating their micropurchases of 
biologics and other prosthetics appliances to properly follow 
the FAR and VAR or to be CICA-compliant, notwithstanding the 
section 8123 authority?
    Mr. Matkovsky. Sir, it is not appropriate to split 
transactions to remain below a micropurchase threshold. So if 
that is occurring, that is not a condoned practice.
    Mr. Johnson. What, then, would the VHA do to stop that?
    Mr. Matkovsky. Monitor the action and ensure that--look, 
every purchase cardholder who is committing a transaction below 
$3,000 has a supervisor who is supposed to be watching and 
monitoring that. They should be looking for any split 
transactions to remain below a threshold. That is an 
inappropriate action, and I would request taking that item for 
the record to research it.
    Mr. Johnson. I appreciate you recognizing that, sir. We 
have got page after page of examples of that kind of thing. So 
I would hope that the VHA would take that issue very seriously 
because we on this Committee do.
    Why are some prosthetic items purchased using FAR 
guidelines and procedures instead of section 8123?
    Mr. Matkovsky. I will initiate the discussion: 8123 and 
FAR-VAR are not actually as much in conflict as it seems in 
prior discussion today. Within FAR, part 6, 302-5, and VAR 
8302-5, there is reference to other statutory authority. The 
question is under what conditions does the physician prescribe 
a specific product, or does a veteran choice weigh in as the 
justification for sourcing a particular item, and that is 
primarily the scenario within which 8123 is used.
    VA over a number of years has been awarding national 
contracts. There are well above 50 national contracts for 
prosthetic supplies, some of the more high-performing being of 
course within the assistive audio devices. There are roughly 
600 contracts throughout the country for local regional 
contracts. All of those are precompeted price-negotiated as 
well.
    The use of 8123, the way we use it is for the source 
justification for other than full and open, when it is a 
physician prescription or a veteran choice.
    Mr. Johnson. Okay. I may have additional questions but I 
will yield to Mr. Barrow from Georgia at this time.
    Mr. Barrow. Thank you, Mr. Chairman. Mr. Matkovsky, when it 
comes to the exercising discretion under the statute 8123, what 
problems would you foresee if the VA were to adopt the DoD's 
definition of prosthetic?
    Mr. Matkovsky. Thank you for the question. I believe the 
concern that we would have is many of our veterans whom we 
serve have come to expect a certain degree of their own choice 
to be honored in the system, and frankly, the expectation that 
a physician doesn't have to defend his or her prescription 
through an administrative process.
    My concern would be that the degree of vigilance to ensure 
that those elements in our system are not lost is what I would 
worry about, that it would work 90 percent of the time. I would 
be concerned that as we try to constrain the definition of a 
prosthetic, our definition is because we have a broad system 
that is geographically distributed, serves veterans across many 
ages.
    My concern would be that we restrict the ability to source 
specifically what is for the benefit for a veteran, either 
through a physician prescription or through the veteran's 
choice, and that we would overcorrect and lose that dimension, 
sir.
    Mr. Barrow. I get that. I understand what I think the 
purpose of 8123 is. It is supposed to cut through the red tape, 
it is supposed to make sure that nothing is going to stand in 
the way of getting just what the person needs, it is tailored 
to fit them. But biologics don't seem to fit that definition. 
That is clearly something that a doctor is going to use, like 
something that comes off the shelf. How a doctor applies that, 
of course, is highly individual and specific to the patient and 
what is pulled off the shelf ain't.
    And what I am getting at is the DoD has a definition that 
seems to be fairly comprehensive and meets what most folks with 
walking-around sense have an idea of what we are talking about 
here. You all have a definition; it seems to be much broader 
than and allows for a whole bunch of slippage. I want to make 
sure that nothing that we do or nothing that we recommend puts 
a red-tape barrier between the provider and the veteran, the 
person who needs the benefit of a device or the technology that 
we are trying to make available to them.
    At the same time, though, I think we have an obligation 
both to the vet and to the taxpayer to make sure that we are 
not such a loosey-goosy definition, that we are cutting all 
kinds of corners and not applying best practices when it comes 
to making sure we are getting value for the taxpayer. What do 
you say to that?
    Mr. Matkovsky. Sir, when we compared our definitions at the 
Committee's request, we compared our definitions with other 
entities. And there are some commercial entities that actually 
use a definition of prosthetics that is comparable to our 
definition. Kaiser Permanente, for one.
    Mr. Barrow. Shouldn't there be folks who would use some 
that conform to yours? I'm sure there are folks that would use 
definitions that would be broad enough to conform to yours?
    Mr. Matkovsky. Correct. But the other thing I wanted to 
mention as we are committing this warrant transition process, 
and we are trying to commit that process as carefully as 
possible, but we are committed to completing it within this 
fiscal year, there is nothing in the use of a source 
justification that precludes us from engaging in a price 
negotiation. A warranted contracting officer is the only person 
authorized to make a fair and reasonable price determination 
within the VA. And it is our expectation as we transition, that 
price negotiation, even when source is under limited or 
restricted competition, that the price reasonableness 
determination would still continue; that is, I think, our 
mechanism that we are trying to use to balance the flexibility 
granted to source a physician's prescription or veteran's 
choice with FAR and VAR and procurement reform.
    Mr. Barrow. I understand your position. One last question. 
You heard from representatives of the provider community, you 
have heard from representatives of DoD, you have heard from 
representatives of VA-OIG. Is there anything you heard other 
folks talk about today that you think needs to be amplified or 
supplemented in order to give us a fuller appreciation of the 
issues before the Committee? Is there anything that you think 
needs to be said that has gone unsaid?
    Mr. Matkovsky. Well, yes. I don't think we heard from the 
veteran community today, and hearing directly from their 
concerns. This is not a process, this is not a rule that we 
invoke to make our life easier. This is a process that is in 
place to serve our clients. That would be it, sir.
    Mr. Barrow. I understand that. I appreciate that. How about 
any clarification or correction of what you have heard from 
these other folks?
    Mr. Matkovsky. I made one clarification point, which is 
what we are talking about in the warrant transition process, is 
over 50 percent of the prosthetics spend, and I think that is 
clarification that we wanted to make sure was understood. So as 
the warrants transition from the prosthetics community into 
procurement, that is well over 50, 55 percent of the 
procurement action in dollars.
    The next thing that I would indicate is that part of what 
our challenge is to ensure that we have available prosthetics 
timely for veterans. And this notion of ``timely'' has to be 
true across the entire system.
    Mr. Barrow. Thank you. Mr. Chairman, our time has expired. 
Thank you, Mr. Matkovsky.
    Mr. Johnson. I thank the gentleman for yielding.
    Mr. Matkovsky, I do have some follow-on questions.
    What you are saying here today is the exact opposite of 
what the Deputy Secretary's letter said in regards to the 
application of 8123. Why is that?
    Mr. Matkovsky. Sir, I do not believe it is the exact 
opposite. I think that with respect to the specific 
acquisitions that were noted we were asked a specific question 
about whether or not we had to seek waiver approval prior to 
sourcing the items that were not on Federal supply schedule. We 
cited 8123 as the source justification that would allow us to 
obviate the need for the waiver.
    I do want to emphasize one thing; that what we are doing 
here today is not something we have just embarked on over the 
last couple of months. The transition in prosthetics to the 
procurement community is something that Mr. Doyle and Dr. Beck 
began in last August and we have been working on. So this is 
not a new transition for us either.
    Mr. Johnson. Okay. What policies and processes does the VA 
have in place for its purchasing officials to determine when--
and when not--to use the FAR in purchasing prosthetics?
    Mr. Matkovsky. Well, we have mentioned a few policies that 
we have. We have a few policies that actually identify the 
conditions under which we would apply the 8123 source authority 
that remains. We also have the VAR which makes explicit 
reference to 8123 contained within it. We are updating our 
policies right now to ensure that they are current. We have 
reason to directives out to the field in the form of memorandum 
requesting that unless explicitly specified by a physician 
prescription, that for biologics the VAR hierarchy is to be 
followed.
    Mr. Johnson. Okay. Why does the VA not document purchases 
made under section 8123 in accordance with the FAR?
    Mr. Matkovsky. I could tell you that on a moving forward 
basis, all of our procurements that would use 8123 as a source 
justification will be templated and will contain the basis of 
justification within them. They will also be within the ECMS 
system, they will be our procurement contracting officers will 
actually initiate and conclude those purchase actions within 
ECMS and would be documented.
    Mr. Johnson. That would be helpful because for the last 30 
years they haven't been documented. The fact that you are going 
to do it moving forward will certainly be helpful.
    Does the VA have record or can it audit purchases made 
under section 8123?
    Mr. Matkovsky. On a point forward basis we expect, we don't 
expect--we expect all of our procurement officials to use ECMS 
as a contract writing, not as a shell system but as a contract 
writing system and contain all of their procurement actions and 
documentation within them. The justification for limited scope 
competition must be documented and there must be a 
justification contained in the contract file. That would be an 
auditable item, and we expect the ability to audit any 
prosthetics procurement action that contains a less than full 
and open competition contained within our ECMS system. Sir.
    Mr. Johnson. Does the VA need section 8123 to acquire 
prosthetics?
    Mr. Matkovsky. We believe section 8123 allows us to 
preserve intact the physician's prescription from their 
professional opinion and the veteran's choice, and not subject 
it to a second guess, a request for strengthening the 
definition or justification. We believe it codifies that for 
us. It actually, when used appropriately, allows us to actually 
have a standard basis for the justification for the 
prescription or veteran choice.
    Mr. Johnson. How and when did the VA's definition of 
prosthetics come into use?
    Mr. Matkovsky. I believe this went over time, but we have 
in our specific policy documents we have explicit definition of 
the prosthetics items that are contained in that definition.
    Mr. Johnson. When was the last time that policy and 
definition was updated?
    Mr. Matkovsky. I have to defer to Dr. Beck on this one.
    Dr. Beck. Our handbook is from 2001. We have an internal 
initiative now and are working on updating our regulations.
    Mr. Johnson. Eleven years. Wow. Does the VA employ VHA 
directive 2003-037, entitled ``Prosthetics Simplified 
Acquisitions Procedures Training'' in its prosthetics 
acquisition?
    Mr. Matkovsky. Yes we do, sir.
    Mr. Johnson. Okay. That directive expired on July 31, 2008.
    Mr. Matkovsky. That is correct. The directive that has 
expired, unless explicitly rescinded or replaced by another 
directive, remains in force until one of those two actions 
comes about.
    Mr. Johnson. There we go again. You know, not doing things 
for 30 years, working off of expired directives, 11 years 
between reviewing documents. That is part of what has gotten us 
into this mess now, wouldn't you agree?
    Mr. Matkovsky. I would say that we do need--
    Mr. Johnson. You won't run a business that way.
    Mr. Matkovsky. I would say that we need to strengthen some 
of our policies now. I would say that the definition--however, 
11 years for the definition of a prosthetic, I don't know that 
that in and of itself, sir, is problematic.
    Mr. Johnson. Okay. When can this Committee expect to see 
the full detailed plan on reorganizing your prosthetics 
purchasing process?
    Mr. Matkovsky. We are right now--and I will ask Mr. Doyle 
to elaborate a little bit on this for us--we are in the midst 
right now, as we testified earlier 2 weeks ago, in the process 
of transitioning. That process was documented in a plan that 
was approved by the Senior Procurement Executive within VA, 
September of last year. We committed to pilot-test that. We did 
not want to production change this, so we tested in three 
VISNs, and we are now in the process of completing that 
transition process. Again, our target date is July 1. We have 
some additional time built in to ensure that we don't take any 
unnecessary risks.
    Mr. Johnson. Let me re-ask my question because it sounds 
like you are saying that you have already gone into the 
execution phase of the plan. What I am asking is when can this 
Committee expect to see the full detailed plan of reorganizing 
your prosthetics purchasing process?
    Mr. Matkovsky. We will provide that to the Committee sir.
    Mr. Johnson. Let me ask it one more time. When?
    Mr. Matkovsky. I will go back and work on it, as soon as we 
can, sir. We have been executing--
    Mr. Johnson. A week? Two weeks?
    Mr. Matkovsky. I will commit to 2 weeks, sir.
    Mr. Johnson. Great. Great.
    I think those are all my questions. Let me go back to Mr. 
Barrow for a final round.
    Mr. Barrow. I thank you, Mr. Chairman. Mr. Matkovsky, thank 
you for being here today. I think we have a better 
understanding of where you are coming from, but I think you 
also have a better understanding of our concerns as well. And 
my thanks to you. I would like to thank Dr. Beck, Mr. Doyle, 
and Mr. Heard also for your service to our country.
    I think you get an idea of what we are concerned about. 
Please work with us. This conversation is not going to end 
today. We need to make progress on this to make sure you have 
the flexibility to do what needs to be done when it needs to be 
done and to make sure we are not going to have any unnecessary 
waste in this, because it all comes out of the same pocket and 
ends up affecting the folks we are trying to help ultimately. 
With that Mr. Chairman I yield back.
    Mr. Johnson. I thank you for your comments, Mr. Barrow, 
because, Mr. Matkovsky, I too sense your desire to do the right 
things, and we are all focused on the same issue here. I know 
the questioning at times appears potentially confrontational 
but that is because we have a responsibility here on the O&I 
Subcommittee to make sure that we are asking the right 
questions. We don't always get the answers that we want, but I 
certainly sense the sincerity in what you are trying to do and 
I appreciate that.
    I want to say thanks to the panel, and you are also now 
excused.
    [The panel was excused]
    Mr. Johnson. The VA's sweeping definition for prosthetics 
opens the door for confusion. I think we have heard that today. 
Such an inclusive definition means that small policy changes 
can have impacts on areas that would not otherwise be impacted 
under a traditional definition of prosthetic. However, it is 
also clear that actions by the VA's purchasing agents have 
greatly reduced the chances for getting the best value in 
prosthetics acquisition. While some guidance and regulations 
already existed that would have helped ensure that best value, 
even those were ignored, time and time again.
    As I mentioned earlier, the Committee looks forward to 
receiving the VA's detailed plan on changes to its acquisition 
structure for prosthetics before it moves forward. Once again, 
a partnership between the VA and the Committee can further 
assure that veterans continue to receive the best care 
possible.
    With that, this hearing is now adjourned. Thank you.

    [Whereupon, at 5:45 p.m., the Subcommittee was adjourned.]




                            A P P E N D I X

                              ----------                              

           Prepared Statement of Hon. Bill Johnson, Chairman
    Good afternoon. I would like to welcome everyone to today's hearing 
titled: ``Purchasing Perspective: VA's Prosthetics Paradox''.
    Section 8123 of Title 38, ``Procurement of Prosthetic Appliances,'' 
states the following: The Secretary may procure prosthetic appliances 
and necessary services required in the fitting, supplying, and training 
and use of prosthetic appliances by purchase, manufacture, contract, or 
in such other manner as the Secretary may determine to be proper, 
without regard to any other provision of law.
    Section 8123 originated in 1958, over fifteen years before Federal 
Acquisition Regulations were codified in law, and has been slightly 
amended a handful of times since then. In March of this year, I sent a 
letter to the Secretary regarding the VA's procurement of biologics 
over the open market instead of from Veteran-owned small businesses 
already on the Federal Supply Schedule. One specific example I brought 
to the Secretary's attention involved a company that supplied 
biologics. In the timely response I received from Deputy Secretary 
Gould, I was informed that the VA considered biologics to fall under 
its lengthy and broad definition of prosthetics, and therefore it could 
acquire biologics through Section 8123, as it clearly had been doing. 
Those last words- ``without regard to any other provision of law''- 
mean, at least to the VA, that it does not have to follow Federal 
Acquisition Regulations (FAR), VA Acquisition Regulations (VAAR), or 
the Competition in Contracting Act. This interpretation was made clear 
in the Deputy Secretary's letter.
    In addition to informing the Oversight and Investigations 
Subcommittee that the VA considered biologics as prosthetics, other 
answers throughout the Deputy Secretary's letter prompted several 
important follow-up questions, which were relayed to the VA on March 
28th. One part of the letter, immediately following the interpretation 
that purchases made under Section 8123 were not subject to acquisition 
regulations, stated that the VA would work on ``guidance to ensure that 
prosthetics purchasing agents and logisticians conform with VAAR . . . 
to the maximum extent practicable.'' I have to wonder why the VA 
explicitly and publicly ignores acquisition regulations when making 
these Section 8123 purchases, but now will attempt to comply with them.
    Among my follow-up questions was a request for a copy of the VA's 
guidance in how it would ensure purchasing agents followed the VAAR. 
Just yesterday, a response to that and the other questions was 
provided. It is interesting that only now is the VA working to ensure 
that purchasers using Section 8123 are documented and in line with the 
FAR and VAAR. After all, the VA has had nearly three decades to work on 
this. Failing to document purchases under 8123, as acknowledged in the 
answers I received yesterday, is a reckless use of taxpayer dollars. To 
us on this Committee, it appears as though the VA operates as it sees 
fit until attention is called to its operation.
    What the Deputy Secretary's letter did not address is the VA's use 
of a VHA directive, ``Prosthetics Simplified Acquisition Procedures 
Training,'' that was issued July 16, 2003, and expired July 31, 2008. 
An updated directive would probably have been useful over the last four 
years as the VA increased its prosthetics spending by 80 percent. 
However, we have seen no such update, and have even learned from those 
in the field that the VA's Central Office has instructed VISNs to 
continue following it.
    That expired directive contains important language stating that 
Section 8123 was only to be used as a last resort, reinforcing the 
importance of compliance with Federal Acquisition Regulations. However, 
this Subcommittee has found substantial evidence of VA purchasing 
agents using Section 8123 as a first resort. Given the broad language 
it contains, one can see why this easier approach could be so tempting, 
and it's certainly not the first time we have seen VA purchasers opting 
for the easy route.
    While there are over 100 definitions for prosthetics throughout the 
Federal government, the definition used by the VA is a full paragraph 
in length. As we will hear today, some of the items falling under this 
broad definition do not sound like a prosthetic to anyone except the 
VA. The VHA handbook's definition of prosthetic appliance is as 
follows:
    All aids, devices, parts or accessories which patients require to 
replace, support, or substitute for impaired or missing anatomical 
parts of the body. The items include artificial limbs, terminal 
devices, stump socks, braces, hearing aids and batteries, cosmetic 
facial or body restorations, optical devices, manual or motorized 
wheelchairs, orthopedic shoes, and similar items.
    Perhaps this overly broad definition is a contributing factor to 
the VA's inability to effectively manage its prosthetics inventories. 
As one of the members of the first panel will note, the definition is 
confusing, and I am concerned that confusion is widespread inside the 
VA as well as outside of it. Recent audits from the VA's Office of 
Inspector General have substantiated that the Department does not 
effectively manage its prosthetic supply, nor does it have adequate 
control over its payments when procuring prosthetics. Given what we 
already know, and what we will hear today, these findings are not 
surprising.
    A tailored definition of prosthetics is just one way the VA can 
better track and manage its prosthetics acquisition. For instance, the 
broad inclusion of durable medical equipment under its ``prosthetics'' 
definition could encourage the misuse of the Section 8123 authority. In 
addition, as the IG noted about the VA's overpayments, excess 
inventories, and failure to receive the best value: ``Strengthening 
controls over these actions should not compromise the quality of the 
prosthetic limbs provided to veterans.'' In short, the VA can be a 
better steward of taxpayer dollars while still providing veterans 
timely access to care, including in the area of prosthetics.
    Another way the VA can better manage the billions spent in 
prosthetics every year is to actually enforce the acquisition 
regulations that apply to Section 8123. In the response I received 
yesterday, the VA still fails to acknowledge the abuse of Section 8123 
and the blatant circumvention of the FAR and the VAAR by VA employees. 
We know the problem exists; now is the time to fix it. If employees in 
the past have failed to follow internal guidance, then perhaps a 
legislative clarification is necessary to ensure best value for 
taxpayer dollars.
    Lastly, before simply reorganizing employee structures and moving 
chess pieces around on the board, I am requesting here today that the 
VA present to this Committee, in detail, its plan to improve its 
acquisition of prosthetics and the specific reasons for the changes 
before putting the plan in place. This effort at transparency will help 
both veterans and Congress see that meaningful reform is taking place.
    With that, I now recognize the Ranking Member for his opening 
statement.

                                 
                   Prepared Statement of Michael Oros
    Good afternoon Chairman Johnson, Ranking Member Donnelly, and 
Members of the Subcommittee. Thank you for the opportunity to provide 
testimony today. The American Orthotic and Prosthetic Association 
(AOPA) is grateful for your work to ensure that Veterans with limb loss 
and limb impairment receive state of the art prosthetic and orthotic 
care. We appreciate the invitation to shed some light on current issues 
facing the fields of prosthetics and orthotics when it comes to 
procurement of high quality prosthetic and orthotic care for our 
Veterans.
    My name is Michael Oros, and I am a member of the AOPA Board of 
Directors. The American Orthotic & Prosthetic Association (AOPA), 
founded in 1917, is the country's largest national orthotic and 
prosthetic trade association. Our membership draws from all segments of 
the field of artificial limbs and customized bracing for the benefit of 
patients who have experienced limb loss, or limb impairment resulting 
from a traumatic injury, chronic disease or health condition. AOPA 
members include patient care facilities, manufacturers and distributors 
of prostheses (artificial limbs), orthoses (orthopedic braces such as 
those used by TBI and stroke patients) and related products, and 
educational and research institutions.
    In my day job, I am a licensed prosthetist and President of Scheck 
and Siress, Inc., a leading provider of O&P services based in Illinois. 
Like many other community-based providers, Scheck and Siress is 
committed to serving Veterans, and does so through contracts with the 
VA. Scheck and Siress is also proud to employ Melissa Stockwell, the 
first American service woman to lose a limb in Iraq. After sustaining 
the injury that resulted in her limb loss, Ms. Stockwell went on to 
become a Paralympic athlete, and had the honor of carrying the American 
flag at the closing ceremonies of the Paralympic Games in Beijing. 
Melissa is now a certified prosthetist, and a member of the staff at 
Scheck and Siress.
    I would like to begin by clarifying that my experience is with, and 
my comments will pertain to, a fairly small, but vitally important, 
subset of the goods and services that fall within the scope of 
``prosthetics'' at the VA. If you asked the man on the street what a 
``prosthesis'' is, the response would probably be an artificial leg or 
arm. If asked about an ``orthosis,'' a few folks with family members 
who have had Traumatic Brain Injury, stroke, or Multiple Sclerosis 
might be able to describe a custom-made and fitted device to help 
damaged limbs function properly. I am certain, however, that nobody 
would suggest seeing eye dogs, wheelchairs, eyeglasses, hearing aids, 
or myriad other items that are lumped together by the VA in its 
``prosthetics'' budget.
    Why does this matter? I would suggest that the very broad 
definition of ``prosthetics'' can lead to confusion and, worse, 
application of policies that are inappropriate to replacement limbs and 
orthotics. The result: inappropriate barriers to care for Veterans with 
limb loss who need timely access to high quality prosthetics in order 
to go to work, care for their families, and live their everyday lives.
    In fact, the Health Subcommittee saw that confusion on display in 
its hearing in this very room only two weeks ago. Chairwoman Buerkle 
held a hearing on ``Optimizing Care for Veterans with Prosthetics'' on 
May 16th. During the hearing, she clarified multiple times that the 
topic of the hearing was prosthetics as traditionally understood and 
defined. During that hearing, the VA's Chief Procurement and Logistics 
Officer told the Subcommittee that because changes in procurement 
policies applied only to items that cost $3,000 or more, those changes 
would not apply to 97% of the prosthetics budget.
    I'm sure that statement is accurate for everything included in the 
billion -dollar-plus line item described by the VA as ``prosthetics.'' 
However, for the approximately $58 million portion of that line item 
spent on replacement limbs and orthoses, that statement is confusing 
and unhelpful. Virtually every part of even a fairly low-tech 
prosthetic limb costs more than $3,000. So adopting procurement 
policies with the understanding that the policy does not apply to 97% 
of prosthetic purchases can lead to decisions that delay specialized 
and vitally needed care for Veterans with limb loss or limb impairment. 
The Veterans we see have already sacrificed enough. They are working 
hard to put their personal, family and professional lives back 
together. This task should not be made more difficult by the 
application of overly broad policies that do not take into 
consideration the very specialized and unique nature of prosthetics and 
orthotics.
    For prosthetics and orthotics are a very specialized medical 
service. An artificial leg or arm becomes an extension of the Veteran's 
body. It needs to be checked and potentially adjusted several times a 
year to maintain maximum comfort and functionality. If the Veteran 
loses or gains weight, or as the muscle structure changes, parts of the 
device may have to be re-fitted. A prosthesis that no longer fits 
properly or has come out of alignment is not merely an inconvenience; 
it can cause debilitating pain and complete loss of function.
    It is vital that Veterans with limb loss identify and have access 
to a clinician that they trust, who listens to them and works with them 
to ensure the best possible fit and function of their artificial limb 
or orthotic brace. Quite literally, their ability to get out of bed in 
the morning and go about their lives may depend on that relationship 
and timely access to appropriate assistance from that orthotic or 
prosthetic caregiver.
    Congress and the VA have acknowledged the vital need for Veterans 
to have access to a prosthetist they trust by establishing various 
policies to facilitate Veterans' timely access to prosthetic services.
    It is the VA's policy that Veterans may receive prosthetic care 
from the provider of their choice. To facilitate high quality, timely 
care in the communities in which Veterans live, the VA maintains 
contracts with more than 600 independent prosthetic and orthotic 
providers, in addition to serving Veterans at VA Medical Centers.
    But Congress authorized the VA to go even a step further in 
ensuring Veterans' choice and access. If you are a Veteran in need of 
prosthetic care, no VA bureaucrat is supposed to limit your choice to a 
list of ``approved'' providers that have contracts with the VA. 
Veterans are supposed to be able to choose the clinician that they work 
with best, who best meets their needs, and the VA has been given legal 
authority to do what it takes to secure prosthetics and orthotics from 
that provider even in the absence of a pre-existing VA contract. 
Congress acknowledged the unique status, role and needs in prosthetics, 
and took steps to ensure that procurement policies should facilitate, 
not stand in the way of, Veteran choice.
    AOPA agrees that it is necessary and appropriate for the VA to do 
whatever it takes to ensure that Veterans can receive their prosthetic 
and orthotic care from the provider of their choice. AOPA urges this 
Subcommittee to do everything in its power to ensure that the necessary 
procurement authorities, policies and oversight remain in place to 
guarantee the Veteran's right to choose.
    It seems like we shouldn't have to urge the Committee to remain 
vigilant on this point. But we do, because AOPA shares the concerns of 
Paralyzed Veterans of America, the Wounded Warrior Project, Disabled 
Veterans of America and other Veterans Service Organizations that that 
right to Veterans' choice of providers is being eroded.
    Anecdotal evidence from Veterans and providers suggest that there 
are real, and increasing, procurement barriers to non-VA care being 
erected.
    Two weeks ago, Veteran John Register, a Board Member for the 
National Association for the Advancement of Orthotics and Prosthetics 
and a sophisticated Veteran consumer of prosthetics, testified about 
his difficulty obtaining an advanced knee. He was told that he could 
not receive the knee from the prosthetics practice he sees, seven 
minutes from his home. Instead, he was told the only way he could 
obtain the advanced knee was to go to the VA, seventy miles away. While 
he is satisfied with the care he received at the VA, and with the 
advanced knee, he now has to take time off work several times a year to 
travel more than an hour away to have his new knee checked, adjusted 
and maintained. This is extremely disruptive, particularly when his own 
qualified prosthetist is just down the road.
    I'm aware of another example that arose with one Veteran who had 
been working with his independent prosthetist for eleven years. He had 
never before been to the VA for his prosthesis, in part because it is 
two hours away. Recently, this Veteran went to the VA amputee clinic 
for his prosthetics prescription. The clinic prescribed an above knee 
prosthesis, including an advanced knee. As per protocol and the VA 
contract, the company submitted L codes for approval through the VA to 
give him his prescribed prosthesis. The Certified Prosthetist-Orthotist 
(CPO) who works for the VA saw the codes come across his desk and 
called the Veteran. The Veteran was told that he had to come to that VA 
in order to get the prosthesis.
    The Veteran preferred to continue to receive his care from the 
outside provider, because they had taken care of him successfully, 
close to his home, for more than a decade. He told his prosthetist what 
was going on, and the contractor contacted the person in charge of 
prosthetics at that VISN. The contractor was told that the Veteran had 
received incorrect information, that Veterans have the right to choose, 
and since the independent firm had been providing this Veteran's care 
for eleven years he could continue. The VA then put pressure on the 
Veteran, telling him if he wanted the advanced knee he would still need 
to come two hours away to the VA. After more pushback, the VA's story 
changed: the VA told the Veteran he could get the advanced knee 
immediately, from the VA. The alternative: wait months to get it from 
his regular prosthetist as the approval process would have to start all 
over again from the beginning. Ultimately, the Veteran switched to the 
VA, two hours away, as the VA made him feel that it would be easy and 
quick to get the technology from the VA, and would be difficult and 
lengthy to obtain the technology from the community-based provider.
    I could go on and on with similar stories. The question is: why is 
the VA establishing procurement and other administrative policies to 
undermine Veteran choice?
    It has been suggested by some that cost may be a factor. AOPA 
believes that the vast majority of community-based providers working 
under contract with the VA provide high quality care to Veterans at 
highly competitive rates--rates, in fact, that represent an average 
discount of 10% below the published Medicare fee schedule, which 
establishes the prevailing industry rate (and is followed by insurance 
companies and other private sector payers). The IG's recent Audit of 
the Management and Acquisition of Prosthetic Limbs issued on March 9, 
2012, claimed that the average cost of a prosthetic limb fabricated by 
the VA in house is $2,900, while the average cost of a limb fabricated 
by a third party contractor was $12,000. We have been unable to 
determine precisely which costs were taken into account by the IG when 
making these calculations, but certainly, it fails to take into 
consideration VA staff salaries, the cost of benefits, facilities, 
administration and other overhead. In addition, it is not unusual for 
Veterans with extremely complicated devices to choose community-based 
providers rather than VA staff, which would skew the cost of devices 
provided in-house downwards.
    The IG's analysis does not present an apples to apples comparison, 
and the footnote in the report suggests that the difference in price is 
attributable to private sector profit and overhead. We reject this 
suggestion, and this analysis. We are disappointed that this statement 
was not challenged by the VA Prosthetics and Sensory Aids staff before 
the report was published. This so-called cost comparison offers the 
Subcommittee and the VA leadership no useful information. We believe 
that, with few exceptions, a complete and accurate cost comparison 
would show that community-based O&P contractors provide excellent value 
to Veterans and taxpayers.
    In fact, forcing Veterans to switch prosthetists can actually 
generate unnecessary additional costs. In the example I cited, the VA 
duplicated the socket the community-based practice had made for him, 
even though his socket was not due for replacement and was functioning 
well. We have heard of many other cases where the VA essentially 
requires Veterans to switch to VA facilities, and then provides them 
with a completely new prosthesis to replace a fully functional, 
warranteed and effective prosthesis that was made by the community-
based provider.
    The goal of the procurement system for prosthetics and orthotics 
should be to deliver the highest quality, timely prosthetic and 
orthotic care possible to all Veterans, regardless of age, geographic 
location, ability or willingness to become the squeaky wheel and demand 
appropriate care. What would such a procurement system drive towards? 
I'm not certain that I've ever seen an official VA definition of 
``quality'' care, so at the risk of being pushy, I'd like to suggest my 
own for the purposes of our discussion today. For me, as a practicing 
clinician who has been taking care of Veterans with limb loss for 26 
years, four major elements comprise quality prosthetic care:
    1) Access. Veterans must be able to receive care on a timely basis, 
without waiting for weeks or having to travel hundreds of miles for 
their prostheses to be checked, adjusted, repaired or replaced.
    2) Trust. Veterans must know about and be able to exercise their 
right to receive care from a provider they trust, who listens to them 
and works with them to achieve the most functional prosthesis possible. 
Fitting a good prosthesis is as much art as it is science, and a 
positive, ongoing working relationship between the Veteran and the 
prosthetist is an important element of getting it right.
    3) Expertise and experience. Clinicians serving Veterans must have 
the training and clinical know-how to select, custom-build, fit and 
adjust the best possible prosthetic device to address the complex 
challenges Veterans with limb loss face every day.
    4) Outcomes. The result of high quality prosthetic care is greater 
comfort, higher activity levels, more independence and greater 
restoration of function for Veterans with limb loss, so that they can 
live their everyday lives successfully and continue to do the things 
they want to do despite the absence of one or more limbs.
    VA procurement policies are critical to all four elements of 
quality. Procurement policies should ensure that:
    1) Veterans have access to the prosthetics provider of their choice 
without having to overcome artificial and unnecessary barriers to care.
    2) Veterans can receive timely care from their provider, whether 
that provider is in the VA or an independent practice, without 
artificially created hoops or delays established to influence their 
choice of caregiver.
    3) Prosthetists serving Veterans do not just have the minimum 
certifications and qualifications needed, but actually have the 
training and experience to meet the specialized needs of Veterans. This 
will become more and more of a challenge for the VA and for independent 
O&P practices as the requirement for a master's degree as an entry-
level qualification is implemented.
    4) Contracting (and other) policies should require measurement, and 
continuous improvement, of Veteran outcomes until Veterans achieve the 
highest level of restored function possible for that individual 
Veteran.
    I would like to take a few additional minutes to talk in greater 
detail about this last point, which AOPA believes is critically 
important. While AOPA is firm in our belief that the vast majority of 
private sector clinicians are providing care to Veterans that is as 
good or better than that they could receive at the VA, we also believe 
that it is important to hold O&P professionals accountable for the 
quality of care and the cost of that care. This poses something of a 
challenge for the VA, due to the fact that there is currently no body 
of objective, comparative outcomes research to support evidence-based 
practice in O&P. Currently, the only mechanism used by the VA to 
evaluate the quality of prosthetic and orthotic services offered by any 
provider--inside or outside the VA--is the patient satisfaction survey. 
While community-based providers typically score very highly on such 
surveys, we know that more could and should be done to evaluate O&P 
outcomes for Veterans.
    For example, the ``Amputee Mobility Predictor'' and the ``Timed Up 
and Go'' are two validated instruments to determine a baseline 
functional level that could be administered in the prosthetic clinic at 
the time the prescription is generated. Functional level can then be 
re-documented at routine intervals during the rehab process to record 
and evaluate progress in terms of functional activity. Quality 
prosthetic outcomes should mean functional mobility improvements. 
College Park's iPecs and Orthocare Innovations' Compas systems measure 
forces and provide objective data regarding proper alignment. Orthocare 
Innovations' Stepwatch and Galileo system are another example of a 
simple data collection device and software application to record real-
world activity outside the clinic. Having the ability to ``see'' our 
patients' real activity once they leave our facility is the best, most 
objective and most accurate measure of how successful the rehab process 
was.
    This leads me to my final point. Unlike other health professions, 
there is no body of comparative outcomes research to guide O&P 
professionals. Their judgments about which prosthetic device, service 
or support is most appropriate for which patient is based largely on 
personal experience and expertise developed over years in the field. 
However, there is almost no objective research on outcomes to validate 
or inform that experience.
    To give simplest of examples, there are more than 20 prosthetic 
feet on the market. The lowest tech, least expensive cost about $3,000. 
A little more than a year ago, CMS approved a foot that costs more than 
$15,000. Now, there is a new foot that will cost about $125,000. But 
there is no research to suggest and document which Veteran will benefit 
most from which foot.
    Please do not misunderstand me. I do not believe that cost 
considerations should guide selection of prosthetic components for 
Veterans. In some cases, the most expensive foot may restore 
significant additional functionality. But in other cases, Veterans may 
actually have better outcomes with less expensive or lower-tech 
components. It would be helpful to have objective research documenting 
which Veterans have the best outcomes from which prosthetic devices, 
services and supports.
    There are multiple elements of a coherent O&P research agenda, 
including but not limited to comparative outcomes of prosthetic 
components, that are vitally important to ensuring that Veterans 
receive appropriate, necessary care as well as to eliminating 
unnecessary future health care costs. An outcomes-based research 
portfolio, and the resulting body of evidence, in the field of O&P 
would increase the quality of care for Veterans and others with limb 
loss. It would give the VA an appropriate management tool for 
overseeing a decentralized system with procurement of prosthetics and 
orthotics from more than 600 VA and external sites. It would protect 
taxpayers by ensuring that patients receive the most appropriate care 
from the beginning, and that quality and cost effectiveness objectives 
are attained in a data-driven manner that generates the best possible 
outcomes. AOPA has invested significantly in the area of outcomes 
research, having developed two study instruments--accessing data from 
both patients and their O&P providers on outcomes. AOPA has both 
spearheaded and supported financially pending comparative effectiveness 
studies involving dynamic/non-dynamic response prosthetic feet, and 
microprocessor/non-microprocessor controlled prosthetic knees, and we 
support an annual program with thousands of dollars in grants from the 
underlying clinical research that are the building blocks of evidence-
based practice. AOPA would greatly welcome and value the opportunity to 
work with the VA in tracking patient outcomes and comparative 
effectiveness.
    AOPA applauds the VA for working toward this end by joining with 
the Department of Defense in March of 2010 to hold the joint State of 
the Art Conference on Orthotics and Prosthetics. This conference 
generated much discussion related to the creation and execution of an 
outcomes-based research portfolio in the field of O&P. While the 
discussion was encouraging, we have been disappointed to see that no 
progress toward the implementation of the recommendations has been 
made. No report on the conference has ever been made publicly 
available, and so far as we can tell, no steps have been taken by the 
VA or DoD to implement any of the conference recommendations.
    Despite the government-wide focus on health care outcomes, there is 
currently no Federal research agenda on prosthetic and orthotic 
outcomes. Not at the VA. Not at the DoD. Not at the NIH, the CDC, or 
NIDRR. AOPA strongly encourages the VA, DoD and NIH to help improve the 
care for Veterans, servicemembers, and seniors by implementing a robust 
comparative outcomes research agenda that addresses the questions in 
the field and helps to inform effective, efficient delivery of O&P care 
for the Veterans, seniors and civilians with limb loss and limb 
impairment. We believe this will also yield dividends in assuring that 
the major technological advances precipitated by research commitments 
from VA and DoD for Veterans and active duty military are actually 
pulled through to have a practical impact on care provided to our 
nation's seniors and other members of the general public.
    Mister Chairman, Members of the Committee, thank you very much for 
the invitation to testify, and for your commitment to providing the 
highest quality prosthetic and orthotic care to our nation's Veterans. 
I look forward to answering any questions that you might have.

                                 
                   Prepared Statement of Daniel Shaw
    Mr. Chairman, Ranking Member Donnelly, members of the Subcommittee, 
thank you for the opportunity to appear before you today to discuss the 
Department of Veterans Affairs (VA) prosthetic purchasing practices and 
their impact on Academy Medical, a VA-verified Veteran-Owned Small 
Business.
    My name is Dan Shaw, I am the managing partner of Academy Medical, 
L.L.C. (Academy), located in Wellington, FL. Academy is a reliable 
source of supply for biologics, and holds a mandatory-source Federal 
Supply Schedule (FSS) Contract issued by VA's National Acquisition 
Center. My fellow managing partner, Patrick Papa, and I graduated in 
1991 from the U.S. Naval Academy, where we first met in 1987. Academy 
Medical is so named to pay homage to our Alma Mater. Accompanying me 
here today is Mr. Steven Kent, our Director of Government Sales, and 
Mr. Stephen Schurr, a subject matter expert in the field of biologics.
    My testimony here today is pleasantly overtaken by events. By 
memorandum dated May 23, 2012, the Veterans Health Administration (VHA) 
notified VHA procurement and prosthetics personnel engaged in the 
ordering of biological implants of its policy on ordering biological 
implants using the FSS Program. We are very pleased with this change in 
VHA's position, one which will benefit Academy and other FSS contract 
holders for biologics--it levels the playing field and respects the 
mandatory source nature of VA's FSS Program. We have worked long and 
hard to get VHA to adopt this policy. I have a copy of the policy and 
would like to offer for inclusion in the record of today's hearing.
    We hope the Subcommittee will encourage VA to formalize this VHA 
policy memorandum by having it formally codified to amend the VA 
Acquisition Regulations. Policy of this magnitude should be formalized 
for perpetuity, as policies are easily forgotten as time goes on or 
through leadership changes. This is especially true given there is 
likely to be short and long-term resistance to this policy, especially 
by purchase cardholders.
    One concern we hope the Subcommittee will clear up with VA's 
witness here today, is whether the VHA policy applies to all biological 
implant procurements, to include those acquired as micropurchases by 
government purchase cardholders. We estimate nearly 95 percent of 
biological implants are acquired by purchase cardholders who are 
neither trained or nuanced in the use of FSS contracts. This will have 
a major impact on the success or failure of VHA's policy from a 
supplier perspective, and could potentially result in no improvement 
for FSS contract holders.
    With this new policy will come a new issue: Compliance and 
Enforcement. While we are elated with and applaud VHA's leadership for 
the new policy, our experiences show VHA currently fails to follow 
established waiver. Past performance, as in government contracting, is 
a good indicator of what can be expected in the future. To that end Mr. 
Chairman, if this policy is to be effective and successful, VHA have to 
develop and mechanism to monitor and enforce compliance The policy 
memorandum is silent on this. We know the devil is always in the 
details, and hopefully this Subcommittee will consider establishing 
some type of follow-up on this policy or reporting requirements from 
VHA in terms of the implementation, monitoring, compliance and 
enforcement with the program to determine if the spirit and intent of 
the policy is being embraced and executed.
    We hope this new VHA policy will make a difference. We estimate VA 
purchases approximately $175 million in biologics annually. As of May 
23, 2012, we sold only $74,000 in biologics to VA through our VA 
mandatory source Federal Supply Schedule contract in Fiscal Year 2012. 
We think this will be a good deal for the taxpayers too. We know we can 
save them money. In addition, if VA makes better use of the schedules 
program, it will avoid Competition in Contracting Act (CICA) 
violations, by fragment . In addition, VA will be assured of receiving 
high-quality Trade Agreement Act-compliant products and also reap the 
revenue from the FSS Program Industrial Funding Fee, used to fund its 
Supply Chain Management Operations.
    Academy will continue to take every logical step to be successful 
in the VA market place. We obtained our verification from VA's Center 
for Veterans Enterprise, as well as a mandatory-source Federal Supply 
Schedule contract, yet we continue to struggle in the VA market place. 
What is hurting Academy, and undoubtedly other Veteran-Owned Small 
Businesses (VOSBs) and Service-Disabled Veteran Small Businesses 
(SDVOSBs), is VA's use of authority granted it under Section 8123, 
Title 38, United States Code. Although VHA's new policy for the 
procurement of biological implants is welcome news to us and other FSS 
contract holders, Section 8123 still looms large as long as this 
authority exists and is likely to be applied to open market 
procurements for biologics not procured through the FSS Program.
    This authority, established in September 1958, grants VA sweeping 
and unprecedented authorities to acquire ``prosthetic appliances'' 
without regard to any other provision of Federal law. Simply put, this 
authority has become the easiest of easy buttons for VA to use to buy 
prosthetic appliances. VA is purported to spend about $3.5 billion 
annually for prosthetic appliances.
    Perhaps the Section 8123 authority was needed back in 1958, to 
assist Orthotist & Prosthetist trying to improve the quality of 
artificial limbs of World War II and Korean War Veterans upset about 
substandard appliances. But this was some 25 and a half years before 
the advent of the Federal Acquisition Regulation (FAR), when the old, 
arcane procurement system provided users with less flexibility. Clearly 
the authors of Section 8123 never envisioned a new and ensuing 
procurement regulatory system such as the FAR would provide such 
significant flexibility for the government to buy everything from A to 
Z, including biologics, while simultaneously providing much needed best 
value and transparency in the procurement process. It is also unlikely 
they realized VA's spend for prosthetic appliances would approach the 
significant spend it has today, nor is it likely they envisioned how 
the definition of prosthetic appliances would grow, now to even include 
biologics. Biologics were not even introduced into traditional health 
care practice until the 1960s.
    Many current and former government procurement professionals we 
spoke with opine the FAR's flexibilities actually obviate the need for 
the authority contained in Section 8123. If the Section 8123 authority 
is to remain, it should be significantly curtailed or controlled to the 
highest levels of VA's procurement infrastructure without power to re-
delegate this authority. Section 8123 must include the much needed 
transparency, and it must be the authority of last resort.
    VA's formal definition of prosthetic appliances does not officially 
include biologics. We learned on April 27, 2012, from officials in 
Veterans Integrated Service Network 8, the VA Sunshine Healthcare 
Network, that biologics are actually included in the definition of 
prosthetic appliances. It appears when VHA Directive 2003-037, 
Prosthetics Simplified Acquisition Procedures Training, Dated July 16, 
2003, expired July 31, 2008, the Veterans Health Administration 
prepared a new and ensuing directive which was never formalized or 
formally issued. The expired directive set forth procurement procedures 
for prosthetic appliances, and VA's use of Section 8123 was essentially 
the authority of last resort to buy prosthetic appliances.
    The new, un-issued directive expands the definition of prosthetic 
appliances to include anything implanted into the body for a period in 
excess of 30 days. This would include biologics. We have attempted to 
get the un-issued directive through a Freedom of Information Act 
request, but were denied because the document is considered ``pre-
decisional'' and is therefore exempt from release. Since VA is using 
the directive and makes decisions on buying its biologics in accordance 
with this directive, for nearly four years now, it would seem this is 
no longer ``pre-decisional.'' Since this is clearly no longer ``pre-
decisional,'' we hope the Subcommittee will encourage VHA to formalize 
this document and make it available to the public, as needed. This 
provides greater transparency and helps VA's industry partners 
understand the rules of the road at VA.
    We recently learned VA determined and subsequently notified this 
Subcommittee the authorities in Section 8123 trump even the Veterans 
First Contracting Program authorities contained in Sections 8127 and 
8128. The unprecedented and extraordinary contracting authorities 
granted to VA under its Veterans Contracting Program were effective 
June 20, 2007. It would seem in passing Public Law 109-461, the 
Veterans Benefits, Healthcare and Information Technology Act of 2006, 
Congress would have specifically exempted Section 8123 procurements 
from Sections 502 and 503 Public Law 109-461. But it did not. In light 
of VHA's new biological implant procurement policy, this issue needs to 
be addressed for non-FSS biological procurements which will be 
conducted on the open market.
    In closing Mr. Chairman, although the U.S. Naval Academy provided 
us with a stellar education and prepared us for some of the most 
challenging situations we would face as naval officers, nothing in our 
time at Annapolis could have adequately prepared us as entrepreneurs 
for the daunting challenge of dealing with an incalcitrant and non-
responsive bureaucracy such as VA. The news of VHA's new biological 
implant procurement policy gives us hope and levels the playing field, 
and for that we are very grateful. We seek only to be a reliable source 
of supply of biological implants, to be treated respectfully and given 
the opportunity we have earned to be VA's industry partner. We have no 
ax to grind, we simply have a business to run, and work to create an 
environment that engenders trust, mutual respect and cooperation, as VA 
provides its services to America's heroes.
    Thank you for your distinguished leadership and that of this 
Subcommittee. , our predicament and those of similarly situated VOSBs 
and SDVSOBs will improve; that we can match our private sector success 
in the VA market place. We never sought an adversarial relationship 
with VA, we seek only to be trusted business partners with VA, to be 
given the respect and opportunity we have earned.
    Thank you for holding this hearing Mr. Chairman. We will be happy 
to respond to any questions you or the Subcommittee's members have.

                                 
               Prepared Statement of Dr. Charles Scoville
    Chairman Johnson, Ranking Member Donnelly and distinguished members 
of the Committee. Thank you for the opportunity to provide a 
perspective on how the Department of Defense (DoD) cares for 
individuals with limb loss, and in particular prosthetic care, new 
technologies, and the collaboration between DoD and the Department of 
Veterans Affairs (VA).
    It is always important to look back before looking forward, to take 
from lessons learned. The Washington D.C. Times-Herald reported ``In a 
few days the Army will print a formal regulation which will give 
officers and enlisted men who have lost arms, or legs, or both, in the 
line of duty, the opportunity to return to Active Duty.'' This was 
written on November 11, 1951. Fast forward to 2003 and the Army found 
itself repeating the effort to return individuals with limb loss back 
to Active Duty. To date we have had over 305 individuals with limb loss 
on Active Duty, and over 53 of these have deployed again into combat 
roles in Iraq and Afghanistan.
    On January 20, 2004 the Office of the U.S. Army Surgeon General in 
response to a request from the U.S. Congress as part of the Fiscal Year 
2004 Omnibus Bill submitted an infrastructure improvement plan for the 
U.S. Army Amputee Patient Care Program (USAAPCP). In this we stated 
``The goal of the USAAPCP is to return patients to ``tactical 
athleticism,'' or to their pre-injury level of activity. The philosophy 
of the program is ``Tell me how far you want to go, and we will work 
with you to achieve your goals.''
    The DoD Amputee Patient Care Program grew over the past 10 years 
out of necessity to meet the demands of a population that is 
significantly different from the typical VA patient. At the beginning 
of current military conflicts, the DoD treated patients with limb loss 
that primarily resulted from dysvascular disease, diabetes, and tumors. 
The DoD lagged the VA and many of the activities the VA was doing in 
the prevention of limb loss. DoD still has a significantly lower 
patient population than that of the VA. However, we are faced with a 
population that is much different from the typical patient seen in the 
VA. Our patients are young, active Service Members, frequently with 
severe trauma and multiple limb loss, that desire and deserve to be 
returned to the highest levels of activity and some deserve to be 
returned to Active Duty. These Service Members are strong-willed, 
impressive Warriors who challenge us daily to improve how we care for 
them. We started from a very decentralized, small program and built an 
efficient, progressive program. We developed a world leading, world 
recognized program for amputee patient care to meet our patients' 
needs.
    The DoD and the VA have long shared a strong working relationship 
in caring for our wounded warriors and make significant advances in the 
care of patients with limb loss through many focused programs. In April 
of 1945 the National Research Council Advisory, Committee on Artificial 
Limbs, a technical body within the National Academy of Science, tasked 
US Army to develop amputee research at its 7 amputee patient care 
centers. These were very quickly merged into one center, the Army 
Prosthetic Research Lab (APRL) at Walter Reed Army Medical Center 
(WRAMC) early in 1946. Shortly thereafter, on March 1, 1946 the 
Veterans Administration joined forces with the APRL in financing the 
research. In 1948, the VA established the Prosthetics Research 
Department headquartered in the NYC VA Center. In 1956 the VA expanded 
this by supporting the Prosthetics Research Lab (PRL) at Northwestern 
University. Working together, the DoD and VA efforts lead to many of 
the prosthetic advances that were still utilized at the beginning of 
the current conflicts.
    In 2004 Congress provided $2.5 million for Prosthetic Device 
Technology Enhancement and Clinical Evaluation at WRAMC, and added $10 
million in 2005. The Military Amputee Research Program was developed to 
best manage these funds across the DoD. At this same time Defense 
Advanced Research Projects Agency (DARPA) programmed $30 million for 
advancements in upper extremity prosthetics. Much of the research that 
has been completed has been in partnership with the VA, and would not 
have been easily completed without the VA's involvement. The advanced 
arms developed through the DARPA project were first tested within the 
VA facilities. The newest research to help our patients return to the 
highest levels of function is a study projected to begin in the Salt 
Lake City VA, late this year or early in 2013 on osseo-integration. 
This is based on earlier research which was partially funded by the DoD 
at the University of Utah. Successful osseo-integration could 
potentially provide patients that have difficulty wearing the 
traditional prosthetic socket the opportunity to wear prosthetic 
devices.
    In 2005 $10 million in military construction was reprogrammed to 
build the Military Advanced Training Center (MATC) at Walter Reed. At 
the same time the Intrepid Fallen Heroes Fund offered to build the 
Center for the Intrepid (CFI) in San Antonio, Texas. Shortly thereafter 
the U.S. Navy dedicated funds to renovate facilities at the Naval 
Medical Center San Diego to house the Comprehensive Complex and Combat 
Casualty Care Center. These three phenomenal centers are dedicated to 
providing world class care to our Wounded Warriors.
    Several factors explain why the DoD led efforts to provide 
prosthetic care for Wounded Warriors. One of the keys is DoD's 
interdisciplinary program, pulling together a range of providers who 
work with the patients on a daily basis to address patient needs. While 
the standard of care requires that a Wounded Warrior be seen within 
seven days, the standard at Walter Reed National Military Medical 
Center (WRNMMC) is 72 hours. Another factor has been the integration of 
logistics and contracting within the prosthetics service at WRNMMC. 
WRNMMC contracting provided blanket purchasing agreements to simplify 
the acquisition of all supplies and components required for treatment 
of the Wounded Warrior. Logistics embedded a warranted contracting 
officer into the Orthotic & Prosthetic Service at WRNMMC enabling same 
day ordering with next day delivery of prescribed components. The 
development of the blanket purchasing agreements insured best value 
through discounted pricing and fixed component costs. A logistics 
technician embedded within the Service provides the ability to 
warehouse non-patient-specific items for fabrication and custom 
fitting, further reducing delays in the delivery of care.
    A third factor is the success of DoD research efforts and 
partnership with industry that has led to the commercial availability 
of the Genium/X2/X3 microprocessor knees, the BiOM robotic ankle, and 
the Power Knee 2. Blanket purchase agreements for these items will not 
be developed until the technology matures and the price stabilizes. 
These items are purchased through sole source indefinite duration, 
indefinite quantity contract vehicles with the only suppliers for these 
unique medical devices. These contracts minimize delay in the provision 
of the required components.
    Department of the Army civilian prosthetic providers provide the 
most cost effective delivery of prosthetic patient care. Contract 
providers enable the DoD to rapidly expand or contract the requirements 
based on the size of mission at any moment in time. These contracts are 
small business set-aside, competitively bid contracts with a single 
provider award. Best value is guaranteed within these contracts through 
pricing proposals provided by the vendor in the bid phase of the 
procurement. The civilian model has a wide degree of variability in 
costs because of the use of ``not otherwise classified'' codes within 
the health care common procedure coding system. The DoD requires 
offerors to list what ``not otherwise classified'' procedures and 
components they propose to bill and the amount of reimbursement they 
that are seeking. DoD contract officer representative (COR) may reject 
any bid with a `not otherwise specified code'' determined to be 
excessive.
    A large percentage of our patients receive a significant portion of 
their care through the Veterans Health Administration at VA. This is 
crucial to the success of both DoD and VA patient care, as the DoD does 
not have the capacity to provide lifelong prosthetic care to all 
Wounded Warriors. In the early years of current conflicts, patients 
reported frustration with long delays in the VA process. Things have 
improved since the VA expanded its Amputation System of Care, 
organizing and structuring interdisciplinary care teams, increasing VA/
DoD collaboration including advanced technology training initiatives, 
clinical practice guidelines, the establishment of the DoD-VA Extremity 
Trauma and Amputation Center of Excellence (EACE), and the development 
of Regional Amputee Centers (RACs). These initiatives have demonstrated 
that there is a much closer relationship and greater parity with the 
DoD advanced rehabilitation centers. We are actively engaged with the 
transition of our Wounded Warrior amputee patients to VA care and 
recognize, as reflected in a recent VA Inspector General report, that 
the care provided by the VA is comprehensive and lifelong.
    We continue to work closely with the VA, we have their providers 
working in our clinics at both the CFI and at the MATC, to create a 
great relationship where we share knowledge and assist patients as they 
transition to long term care with the VA system. Through our long 
history of DoD and VA collaborative research and patient care efforts 
we are continuing to meet the needs of our Wounded Warriors and 
Veterans.

                                 
                  Prepared Statement of Linda Halliday
    Chairman Johnson, Ranking Member Donnelly, and Members of the 
Subcommittee, thank you for the opportunity to discuss the results of 
two recent Office of Inspector General (OIG) reports dealing with 
prosthetic contracting and supply issues. \1\ Based on the Committee's 
interest in how VA obtains prosthetic limbs and oversees its prosthetic 
supplies, we conducted audits of how VA acquires prosthetic limbs and 
manages its prosthetics inventory. I am accompanied by Mr. Nick Dahl, 
Director of the OIG's Bedford Office of Audits and Evaluations and Mr. 
Kent Wrathall, Director of the OIG's Atlanta Office of Audits and 
Evaluations.
---------------------------------------------------------------------------
    \1\ Veterans Health Administration--Audit of the Management and 
Acquisition of Prosthetic Limbs, March 8, 2012, and Veterans Health 
Administration--Audit of Prosthetics Supply Inventory Management, March 
30, 2012.
---------------------------------------------------------------------------
    Before we discuss the results of our audits, let me make one thing 
clear: the OIG believes veterans should be able to receive the limbs 
that their clinicians determine are the best for them whether the 
source is VA or commercial vendors. Our audits focused on the 
effectiveness of VA's acquisition and contract administration 
practices. We did not examine nor do we offer an opinion on whether VA 
labs are a preferred source of prosthetic limbs rather than contract 
vendors based on cost comparisons or other factors.
BACKGROUND
    The Veterans Health Administration (VHA) defines prosthetics as all 
aids, devices, parts or accessories which patients require to replace, 
support, or substitute for impaired or missing anatomical parts of the 
body. The items include artificial limbs, terminal devices, stump 
socks, braces, hearing aids and batteries, cosmetic facial or body 
restorations, optical devices, manual or motorized wheelchairs, 
orthopedic shoes, and similar items. \2\ VA maintains an inventory for 
most prosthetics items. However, for some prosthetic items, such as 
artificial limbs, VA Medical Centers (VAMCs) do not maintain 
inventories and instead order these items, as needed, for individual 
patients. From fiscal year (FY) 2007 through FY 2011, VHA's prosthetic 
costs increased from $1.0 billion to $1.8 billion.
---------------------------------------------------------------------------
    \2\ VHA Handbook 1173.1, Eligibility, November 2, 2000.
---------------------------------------------------------------------------
    VA uses two automated inventory systems to manage prosthetic 
inventories. VHA's Prosthetic and Sensory Aids Service (PSAS) uses the 
Prosthetic Inventory Package (PIP) to manage the majority of prosthetic 
inventories. Supply Processing and Distribution (SPD) Service uses the 
Generic Inventory Package (GIP) to manage prosthetic supplies stored in 
Surgery Service.
    Three VA organizations have responsibilities related to prosthetic 
inventory management. PSAS develops policies and procedures for 
providing prosthetics to veterans. VHA's Procurement and Logistics 
Office (P&LO) provides VAMCs logistics support and monitors compliance 
with inventory management policies and procedures. VA's Office of 
Acquisition, Logistics, and Construction supports VAMCs in acquiring 
and managing supplies and offers training to VA's acquisition 
professionals. All three organizations need to work together to provide 
the leadership and coordinated support needed to manage VA's prosthetic 
supplies.
AUDIT OF THE MANAGEMENT AND ACQUISITION OF PROSTHETIC LIMBS
    In this report, we evaluated VHA's management and acquisition 
practices used to procure prosthetic limbs, and examined the costs paid 
for prosthetic limbs. Overpayments for prosthetic limbs were a systemic 
issue at all 21 Veterans Integrated Service Networks (VISNs). Overall, 
we identified opportunities for VHA to: (1) improve controls to avoid 
overpaying for prosthetic limbs, (2) improve contract negotiations to 
obtain the best value for prosthetic limbs purchased from contract 
vendors, and (3) identify and assess the adequacy of in-house 
prosthetic limb fabrication capabilities to be better positioned to 
make decisions on the effectiveness of its labs.
Improved Internal Controls Needed
    We reported VHA's PSAS needed to strengthen payment controls for 
prosthetic limbs to minimize the risk of overpayments. We identified 
overpayments in 23 percent of all the transactions paid in FY 2010. VHA 
overpaid vendors about $2.2 million of the $49.3 million spent on 
prosthetic limbs in FY 2010. VHA could continue to overpay for 
prosthetic limbs by about $8.6 million over the next 4 years if it does 
not take action to strengthen controls. On average, VHA overpaid about 
$2,350 for each of these prosthetic payments. Overpayments generally 
occurred because VHA paid vendor invoices that included charges in 
excess of prices agreed to in the vendors' contracts with VA. 
Strengthening controls to ensure invoices submitted by vendors are 
consistent with contract terms should and can be accomplished without 
compromising the quality of the prosthetic limbs provided to veterans.
    At the four VISNs we visited (VISN 1, 8, 12, and 15 \3\), we found 
that Contracting Officer's Technical Representatives (COTRs) either did 
not conduct reviews of prosthetic limb invoices or conducted only 
limited reviews of invoices. Instead, Prosthetic Purchasing Agents were 
reviewing vendor quotes, creating purchase orders, and reviewing 
invoices prior to making final payments. This is contrary to the 
Government Accountability Office's Standards for Internal Controls in 
Federal Government that requires key duties and responsibilities be 
divided to reduce the risk of error or fraud. VHA should ensure 
responsibility for determining compliance with contract terms and for 
processing payments is kept separate to better ensure proper 
segregation of duties. Further, while Prosthetic Purchasing Agents at 
the four VISNs reported conducting reviews to ensure invoice prices 
matched Medicare pricing and appropriate vendor discounts, results of 
our audit revealed these reviews were not effective in preventing 
overpayments.
---------------------------------------------------------------------------
    \3\ VISN 1--New England Healthcare System; VISN 8--VA Sunshine 
Healthcare Network; VISN 12--VA Great Lakes Health Care System; and 
VISN 15--VA Heartland Network.
---------------------------------------------------------------------------
    Due to the frequency of overpayments, immediate attention is needed 
to prevent future overpayments and to recover current overpayments. By 
strengthening internal controls over payments for prosthetic limbs and 
properly separating duties, PSAS staff have the opportunity to improve 
their acquisition practices and provide better stewardship of funds.
Actions Needed To Ensure the Best Value When Procuring Prosthetic Limbs
    We found that VISN Contracting Officers were not always negotiating 
to obtain better discount rates with vendors and some items were 
purchased without specific pricing guidance from either the P&LO or 
PSAS. Without negotiating for the best discount rates obtainable, VHA 
cannot be assured it receives the best value for the funds it spends to 
procure prosthetic limbs. We noted that while strengthening acquisition 
practices to ensure contracting officers consistently negotiate better 
discount rates should result in lower costs, it should in no way 
compromise the quality of prosthetic limbs procured.
    We also reported VA paid almost $800,000 for about 400 prosthetic 
limb items using ``not otherwise classified'' (NOC) codes in FY 2010. 
NOC codes are used by VA to classify items that have not yet been 
classified or priced by Medicare. While this may not be a significant 
amount in aggregate, the prices paid for individual items that have not 
yet been classified can be significant. For example, absent pricing 
guidance VA was paying about $13,700 for a type of Helix joint before 
it was classified. Once the item was classified, the price dropped to 
about $4,300. To avoid situations like this, we reported VHA needed to 
develop guidance to help VISN staff determine reasonable prices for 
items that Medicare has yet to classify and price.
Improved Prosthetic Limb Fabrication and Acquisition Practices Needed
    We did not identify information that showed either how many limbs 
specific VHA labs could fabricate or how many limbs they should be 
fabricating. PSAS management did not know the current production 
capabilities of their labs and could not ensure labs were operating 
efficiently. VHA guidance states that PSAS should periodically conduct 
an evaluation to ensure prosthetic labs are operating as effectively 
and economically as possible. We found that PSAS suspended their review 
of labs in January 2011 after reviewing only 9 of 21 VISNs. Because 
reviews of all VISNs were not conducted, PSAS was unaware of its in-
house fabrication capabilities and management does not know if labs are 
operating as effectively and efficiently as possible.
    We also reported VISN prosthetic officials did not always identify 
the appropriate number of contractors needed to provide prosthetic 
limbs to veterans. VHA guidance recommends three to five vendors 
receive contract awards depending on the geographic area and workload 
volume. However, three of four VISN Prosthetic Managers interviewed 
were under the assumption they were to award contracts to all vendors 
who responded to their solicitation, provided those vendors met VA's 
criteria to qualify as a contract vendor. The VHA guidance conflicted 
with prosthetic limb contract guidance that states maximum flexibility 
be given to individual medical centers to determine the number of 
contracts required to meet their needs.
    Due to the inconsistencies in the guidance, differing procurement 
practices existed among the four VISNs visited. Three of the four VISNs 
did not identify an appropriate number of contract vendors and VISN 
Contracting Officers made awards to nearly all vendors that submitted 
proposals, many of which were located in the same general areas. As a 
result, overlaps and gaps in service existed and VISN contracting staff 
may have been performing unnecessary contract work. Additionally, VHA 
could not be assured the decision to make contract awards was 
effectively aligned with workload volume or with what individual 
medical centers required to meet their needs in serving patients.
    We reported VHA lacked the information to know whether its 
prosthetic limb fabrication and acquisition practices are working as 
effectively and economically as possible. By evaluating fabrication and 
acquisition practices, PSAS will be in a better position to know the 
current capabilities of its labs and to make decisions regarding the 
number of contracts needed to provide services to veterans in each 
VISN.
Use of VA's Electronic Contract Management System (eCMS) Needs To 
        Improve
    Use of eCMS is mandatory for all procurement actions valued at 
$25,000 or more. We found that VHA's contracting officers did not 
consistently use eCMS to document contract awards to prosthetic limb 
vendors, which was consistent with the findings from our recent audit 
of VISN contracts. \4\ Nearly all of the eCMS contract files for awards 
made to vendors at the four VISNs visited were missing key acquisition 
documentation.
---------------------------------------------------------------------------
    \4\ Veterans Health Administration--Audit of Veterans Integrated 
Service Network Contracts, December 1, 2011. This audit examined 
whether VHA's new contract oversight structure and review processes 
were effective in improving VISN procurement practices. Despite the new 
contract oversight structure, we still identified recurring systemic 
deficiencies associated with acquisition planning, contract award, and 
contract administration.
---------------------------------------------------------------------------
    Missing documentation included evidence of required contract 
oversight reviews and determinations of responsibility of the 
prospective contractors through a check of the Excluded Parties List 
System. Further, contract invoices were not included in eCMS. As a 
result, we could not readily verify whether a COTR had reviewed vendor 
invoices prior to certification to ensure they accurately reflected 
that goods received were in accordance with contract requirements, 
including prices charged. The lack of documentation in eCMS adversely 
affects management's ability to readily assess the quality, timeliness, 
and administration of contracts.
Recommendations
    We made eight recommendations to the Under Secretary of Health. 
They include strengthening controls over the process for reviewing 
vendor quotes, purchase orders, and verification of invoices and costs 
charged by prosthetic limb vendors. In conjunction with this, we 
recommended VHA take collection action to recover the $2.2 million 
overpaid to vendors. We also made recommendations to ensure contracting 
officers conduct price negotiations to obtain the best value for 
prosthetic limb items and for PSAS to assess the capabilities of VHA's 
prosthetic labs.
    The Under Secretary for Health agreed with our recommendations and 
presented an action plan. VHA reported that, as part of the 
reorganization of P&LO, contracting officers or delegated ordering 
officers will place prosthetic orders above the micro-purchase 
threshold of $3,000. VHA indicated this change will properly separate 
acquisition duties for reviewing vendor quotes, purchase orders, and 
invoices received from prosthetic limb vendors. VHA told us that their 
Service Area Organization offices will review every prosthetic limb 
contract to ensure price negotiations have occurred. These controls are 
critical for VA to receive the best value for prosthetic limbs. It is 
too early to measure the effectiveness of these changes, however we 
will follow-up as appropriate.
AUDIT OF VHA'S PROSTHETICS INVENTORY MANAGEMENT
    This report provides a comprehensive perspective of the suitability 
of VHA's prosthetic supply management policies. In assessing VAMC 
prosthetic inventory management, VHA agreed that inventories maintained 
above the 30-day level would be considered excessive unless there was 
evidence VAMCs needed a higher inventory level to meet replenishment 
and safety requirements. VHA also agreed prosthetic inventory levels of 
7 days or less would create a risk of supply shortages.
    We found VHA needs to strengthen VAMC management of prosthetic 
supply inventories to avoid disruption to patients, to avoid spending 
funds on excess supplies, and to minimize risks related to supply 
shortages. Further, because of weak inventory management practices, 
losses associated with diversion could go undetected. VHA needs to 
improve the completeness of its inventory information and standardize 
annual physical inventory requirements.
Inventory Systems Are Not Integrated
    VAMC Inventory Managers need real-time information from VA's 
Integrated Funds Distribution, Control Point Activity, Accounting, and 
Procurement System (IFCAP) and its Computerized Patient Record System 
(CPRS) to keep PIP quantities accurate and manage prosthetic 
inventories effectively. However, VHA's PIP does not integrate with 
IFCAP and CPRS. As a result, when warehouse staff record received 
supplies in IFCAP and when clinical staff record used supplies in CPRS, 
PIP is not automatically updated. Consequently, staff must manually 
record all supplies received and used in PIP. This work is labor-
intensive and reduces the time staff have to actively manage supply 
inventories, and introduces errors into these systems.
Inefficiencies from Using Two Inventory Systems
    VHA policies require VAMCs to use PIP to manage prosthetic supplies 
and GIP to manage surgical device implants (SDIs). VAMCs use of two 
inventory systems caused staff confusion about the responsibility for 
managing SDI inventories and created inefficiencies in managing SDIs 
stored in Surgery Service closets, crash carts, and operating rooms. As 
a result, VAMCs did not use either PIP or GIP to manage about 7,000 (28 
percent) of 25,000 SDIs. The estimated inventory value for these items 
was almost $8 million. By replacing PIP and GIP with one automated 
modern inventory system, VHA can help VAMCs manage these inventories 
and avoid excess prosthetic inventories and shortages.
Inadequate Staff Training
    Inadequate training was a major cause of VAMCs accumulating excess 
inventory and experiencing supply shortages. VHA's Inventory Management 
Handbook requires staff receive training from qualified instructors on 
basic inventory management principles, practices, and techniques on how 
to use PIP and GIP effectively. However, staff at the six VAMCs we 
visited had not received training from qualified instructors. \5\ 
Because staff did not receive adequate training, they did not 
consistently apply basic inventory management practices and techniques.
---------------------------------------------------------------------------
    \5\ VA Medical Centers in Decatur, Georgia; Indianapolis, Indiana; 
Northampton, Massachusetts; Nashville and Murfreesboro, Tennessee; 
Salem, Virginia; and Clarksburg, West Virginia.
---------------------------------------------------------------------------
    VHA requires VAMCs to complete annual wall-to-wall inventories of 
quantities on hand with inventory accuracy rates of at least 90 
percent. However, none of the six VAMCs we audited had the required 
documentation of completed physical inventories. VAMCs' failure to 
consistently complete and document physical inventories was also a 
contributing cause of reporting inaccurate quantities on hand. When 
VAMCs do not keep quantities on hand current, the automated inventory 
systems cannot accurately track item demand, which VAMCs must know in 
order to establish reasonable stock levels.
Insufficient Oversight
    Insufficient VHA Central Office and VISN oversight contributed to 
VAMCs maintaining excess inventory and supply shortages. VHA's 
Inventory Management Handbook states that GIP will be the source of 
reported inventory data and lists seven performance metrics VAMCs must 
report every month. However, because the Handbook does not specifically 
require VAMCs to extract performance metric data from PIP, VAMCs did 
not report the required performance metrics for prosthetic inventories.
    In addition, VHA's Handbook does not sufficiently define the role 
of VISN prosthetic representatives' (VPRs) inventory oversight 
responsibilities. The VPRs, who had jurisdiction over the audited 
VAMCs, stated they conducted VAMC site visits. However, the frequency 
of the site visits varied from quarterly to annually and during the 
site visits VPRs did not consistently perform a complete assessment of 
prosthetic supply inventory management.
VHA Handbook Inadequacies
    Although VHA's Inventory Management Handbook provided a reasonable 
foundation for VAMC management of prosthetic supplies, the Handbook 
needed more guidance to ensure VAMCs do not accumulate excess supplies 
or experience supply shortages. We identified several Handbook 
inadequacies VHA must improve to help ensure VAMCs maintain reasonable 
inventory levels. For example, the Handbook did not have clear guidance 
on establishing normal, reorder, and emergency stock levels or 
timeliness standards for recording supplies received and used in PIP 
and GIP. A comprehensive and clear Handbook is an essential VHA control 
to ensure proper stewardship and accountability of VAMC prosthetic 
inventories.
Recommendations
    Our second report made 10 recommendations to the Under Secretary of 
Health. They include requiring VISN and VAMC Directors to eliminate 
excess prosthetic inventories and avoid prosthetic shortages, 
developing a plan to implement a modern inventory system, and 
strengthening management of prosthetic supply inventories. In addition, 
we recommended VHA officials collaborate with the Executive Director, 
Office of Acquisition, Logistics, and Construction, to develop a 
training and certification program for prosthetic supply inventory 
managers. The Under Secretary for Health agreed with our 
recommendations and presented an action plan. We will follow-up as 
appropriate.
CONCLUSION
    VA needs to improve contract administration and inventory 
management practices. Improvements in contract administration and 
inventory management will help ensure more funds are available for 
prosthetic care in VA. We expect VA to follow through on its commitment 
to replace the current inventory systems.
    By strengthening internal controls, VA will reduce the financial 
risks associated with unused prosthetic supply inventories and waste. 
Until VHA strengthens the management and acquisition practices used to 
procure prosthetic limbs, VA will not have sufficient assurance that 
its practices are as effective and economical as possible.
    Chairman Johnson, thank you for the opportunity to discuss our 
work. We would be pleased to answer any questions that you or other 
members of the Subcommittee may have.

                                 
                 Prepared Statement of Philip Matkovsky
    Chairman Johnson, Ranking Member Donnelly, and Members of the 
Subcommittee: thank you for the opportunity to speak about the 
Department of Veterans Affairs' (VA) ability to deliver quality care 
and acquire prosthetics and other devices for Veterans in need of these 
items. I am accompanied today by Dr. Lucille Beck, Chief Consultant, 
Rehabilitation Services, Director, Audiology and Speech Pathology, and 
Acting Chief Consultant, Prosthetics and Sensory Aids Service, Veterans 
Health Administration; Norbert Doyle, Chief Procurement Logistics 
Officer, Veterans Health Administration, and Ford Heard, Associate 
Deputy Assistant Secretary, Office of Acquisition and Logistics.
    VA continually strives to improve our programs and we appreciate 
independent reviews that can validate our successes and offer 
recommendations for improvement. On March 8, 2012, VA's Office of 
Inspector General (OIG) published a report on the Management and 
Acquisition of Prosthetic Limbs. In this Report, OIG found that 
overpayment for prosthetic limbs was a systemic issue in each Veterans 
Integrated Service Network (VISN), and that internal controls needed to 
be strengthened to better control the process. VHA concurred with OIG's 
recommendations in this report. OIG found that VA spent approximately 
$54 million on artificial limbs in fiscal year (FY) 2010, including 
total contracts to vendors valued at close to $49 million. VA 
acknowledges it could have saved approximately 4 percent, or $2.2 
million, by strengthening its internal control processes for 
prosthetics procurement and has adopted such practices to achieve 
greater savings.
    Later that same month (March 30, 2012), OIG published a second 
report, an Audit of Prosthetics Supply Inventory Management. In this 
Report, OIG concluded that VA needs to strengthen management of 
prosthetic supply inventories at its medical centers and make better 
use of excess inventories. VHA concurred with OIG's recommendations in 
this report, and has developed action plans to improve oversight and 
management processes to better ensure VHA delivers the quality care 
Veterans deserve while exercising responsible stewardship of 
prosthetics supplies.
    My testimony today will begin by briefly describing initiatives we 
have taken to improve the quality of care for Veterans in need of 
prosthetics or devices, as well as how we define this term. It will 
then cover how VA acquires prosthetics, how VA maintains oversight of 
its prosthetics acquisitions, and how VA ensures the best value for 
Veterans and taxpayers when acquiring prosthetics.
Quality of Amputation and Prosthetic Care
    VHA's Prosthetic and Sensory Aids Service is the largest and most 
comprehensive provider of prosthetic devices and sensory aids in the 
world, offering a full range of equipment and services. All enrolled 
Veterans may receive any prosthetic item prescribed by a VA clinician, 
without regard to service-connection, when it is determined to promote, 
preserve, or restore the health of the individual and is in accord with 
generally accepted standards of medical practice. ``Prosthetic'' is a 
broad term used in VA to describe devices and equipment in the Veteran, 
on the Veteran, or for the Veteran intended to replace or support 
missing body parts or function. VA's definition is similar to that used 
by other Federal agencies and private health care systems.
    Once we have identified eligible Veterans in need of prosthetics 
and other devices, we can begin providing the specialty care they 
require. VA has initiatives falling under five general areas to improve 
the quality and availability of amputation care. These include staffing 
and community partnerships, accreditation of VA laboratories, improved 
training for VA staff, greater research into amputation clinical 
issues, and collaborations with the Department of Defense (DoD). I will 
briefly discuss each of these in turn.
    First, VHA's Prosthetic and Sensory Aids Service has a robust 
clinical staff of orthotists and prosthetists at more than 75 
locations, and also partners with the private sector to provide custom 
fabrication and fitting of state-of-the-art orthotic and prosthetic 
devices. VA maintains local contracts with more than 600 accredited 
Orthotic and Prosthetic (O&P) providers to help deliver care closer to 
home. Commercial partners help fabricate and fit prosthetic limbs for 
Veterans across the country. Since its creation in 2009, VA's 
Amputation System of Care (ASoC) has expanded to deliver more 
accessible, high quality amputation care and rehabilitation to Veterans 
across the country. The ASoC utilizes an integrated system of VA 
physicians, therapists, and prosthetists working together to provide 
the best devices and state-of-the-art care.
    Second, VA promotes the highest standards of professional expertise 
for its workforce of more than 300 certified prosthetists, orthotists, 
and fitters. Each VA lab that is eligible for accreditation is 
accredited either by the American Board for Certification in Orthotics, 
Prosthetics, and Pedorthics, Inc. (ABC), the Board of Certification/
Accreditation International (BOC), or both. This accreditation process 
ensures quality care and services are provided by trained and educated 
practitioners.
    Third, to support the continued delivery of high quality care, VA 
has developed a robust staff training program. We offer clinical 
education, technical education, and business process and policy 
education, in addition to specialty product training, to help our staff 
provide better services to Veterans. Further, VA has one of the largest 
orthotics and prosthetics residency programs in the Nation, with 18 
paid residency positions at 11 locations across the country.
    Fourth, VA's Office of Research and Development is investing 
heavily in prosthetics and amputation health care research. It is 
issuing Requests for Applications for studies to investigate a variety 
of upper limb amputation technologies and applications. VA also works 
with DoD to support joint research initiatives to determine the 
efficacy and incorporation of new technological advances.
    Finally, the partnership between VA and DoD extends further to 
provide a combined, collaborative approach to amputation care by 
developing a shared Amputation Rehabilitation Clinical Practice 
Guideline for care following lower limb amputation. VA is supporting 
DoD by collaborating on the establishment of the Extremity Trauma and 
Amputation Center of Excellence. The mission of this center encompasses 
clinical care, including outreach and clinical informatics, education, 
and research, and is designed to be the lead organization for policy, 
direction, and oversight in each of these areas. The center is 
currently being established and will obtain initial operating capacity 
by the end of this fiscal year.
    In summary, VA supports high quality amputation and prosthetics 
care by promoting ground-breaking research into new technologies, 
training a highly qualified cadre of staff, and pursuing accreditation 
of all eligible prosthetic laboratories in VA's Amputation System of 
Care.
Acquisition of Prosthetics, Oversight of Acquisitions, and Ensuring 
        Best Value
    The goal of VHA's Prosthetics and Sensory Aids Service is to 
provide devices, technologies, and equipment that assist Veterans in 
achieving maximal levels of independent function and a high quality of 
life. Technologies and equipment must be highly individualized to meet 
each Veteran's unique rehabilitative needs. Clinicians determine the 
prosthetic needs of Veterans as a part of their clinical care, and VA 
procures the devices necessary to achieve personal clinical outcomes. 
While our focus is on providing state-of-the-art clinical care, 
procurement, acquisition, and management policies reflect a 
complementary and essential piece of this system as well. VA is 
reforming its procurement practices to obtain better prices and more 
competition in obtaining the devices and supplies Veterans need where 
appropriate. We are doing this while maintaining the range of products 
available to Veterans and the services we offer. While price is an 
important consideration, our primary focus is on ensuring the product 
meets the Veteran's needs.
    Turning to how we acquire prosthetics, these devices are procured 
according to the Federal Acquisition Regulations (FAR) and VA 
Acquisition Regulations (VAAR). Due to the unique needs of Veterans in 
this area, VA uses its statutory authority under title 38, United 
States Code (U.S.C.), section 8123, as a sole source justification when 
required to ensure a Veteran receives medically needed items. 38 U.S.C. 
8123 grants VA authority to procure prosthetics and services in any 
manner ``the Secretary may determine to be proper without regard to any 
other provision of law.'' When exercising this authority the Department 
may ``procure prosthetic appliances and necessary services required in 
the fitting, supplying, and training and use of prosthetic appliances 
by purchase, manufacture, contract, or in such other manner as the 
Secretary may determine to be proper.'' This flexibility was granted to 
ensure that Veterans receive devices and supplies that are suitable for 
them and that meet their clinical needs. Many of the products VA 
purchases are either going to become a part of a Veteran or will be a 
critical part of their daily lives, helping them walk, work, and 
interact with their families. The Sec. 8123 authority permits VA to 
limit competition when physicians require specific devices or equipment 
for patient care. Also, FAR and VAAR authorize limiting competition 
under these circumstances. If the Secretary elects to use Sec. 8123 in 
this manner, all applicable FAR and VAAR requirements must still be 
followed.
    When products are generally available and interchangeable, 
competitive procurements may be more appropriate. VA must comply with 
all applicable FAR and VAAR requirements in such procurements. VA has 
aggressively pursued national contracts over the past 10 years for 
these types of items. VHA specifies contract requirements, such as 
nationally recognized quality and safety standards (e.g., 
Rehabilitation Engineering Society of North America's standards for 
wheelchairs and ISO good manufacturing systems for hearing aids), to 
support a high quality standard of care for rehabilitation products. As 
a result, Veterans receive high quality devices that are effective and 
safe. VA also pursues local and regional contracts for items and 
services, such as home oxygen, artificial limbs, and durable medical 
equipment (DME). The provision of prosthetic goods and services is 
complex, as a balance must be maintained between what is clinically 
indicated while ensuring we realize the best value.
    VA also continues to improve how it oversees these acquisitions. 
For example, VHA is working to place appropriate limits on the use of 
the title 38 authority so that it secures fair and reasonable prices 
for products while still delivering state-of-the-art care, and so we 
can improve opportunities for Veteran-owned and small businesses. VHA 
is pursuing three strategies to achieve greater cost savings while 
preserving high quality, patient-centered health care and appropriate 
clinical determinations. First, we are transitioning who procures this 
equipment to bring us more in line with the FAR, which requires that 
only fully trained contracting officers be able to obligate the 
government for purchases above the micro-purchase threshold of $3,000. 
This will also allow us to improve our business processes through 
better contracting practices and increased attention to post-award 
contract administration, including reconciliation of invoices. 
Specifically, we are transferring purchasing authority from prosthetics 
purchasing agents to contracting specialists for any purchase above 
$3,000 (the micro-purchase threshold). VHA has notified the field that 
warranted contracting officers will be required to contract for these 
items. For items less than $3,000, micro-purchase requirements continue 
to apply. We conducted a pilot program to evaluate the impact of this 
change from January until March in Veterans Integrated Service Networks 
(VISN) 6, 11, and 20, and beginning this month, we are transitioning to 
national implementation. This transition to warranted contracting 
officers will improve our business practices while ensuring clinical 
decision-making and treatment plans remain with the Veteran and 
provider.
    VHA is pursuing a phased approach to standardize and define 
commodities for its products where appropriate. When we can purchase 
products, devices, or supplies that are generally available and 
interchangeable, we will comply with the FAR to ensure we are obtaining 
the best price possible. In the long term, VHA will develop a catalog 
of such items to facilitate better, more cost effective purchasing 
decisions. Again, we must balance this goal with quality clinical and 
patient care.
    VHA is updating policies and directives to better guide clinical 
and procurement staff on the proper use of Sec. 8123. These updates 
will allow us to more accurately and timely provide services to the 
benefit of Veterans.
    VHA is also increasing its audits of purchases to identify best 
practices and conduct better oversight to ensure we are realizing the 
best value. As we gather more data on how these changes are working, we 
can continue to refine and enhance our programs. We are using new 
templates, checklists, and justifications to streamline and simplify 
our processes and improve communication between staff and leadership so 
we have a comprehensive view of our procurement activities. VHA will 
ensure proper controls are in place to review vendor quotes, purchase 
orders, and verify invoices and costs by developing a comprehensive 
database of all existing contracts. We will correct non-compliant 
contracts as required and evaluate contractor performance as required 
by the FAR, and institute collection activities when warranted for VA 
overpayments. To improve the guidance provided to certified 
prosthetists, we are developing contract templates, clearer guidance, 
and notices that will be disseminated later this summer to our VISN and 
facility contracting offices. VHA's Service Area Organizations, which 
provide support, oversight, and guidance to our facilities, will review 
the award of every new prosthetic limb base contract to ensure price 
negotiations took place, and will review a random sample of delivery 
orders between May and September 2012, to ensure the base contracts 
include the correct prices. We will determine if base prices can be 
established following a system-wide review of non-Medicare classified 
limb items by the end of the fiscal year. In some circumstances, VHA 
may be better suited to fabricate items in-house. To better identify 
when we should pursue this approach, we will be contracting for an 
external review to assess how expanded use of in-house functions would 
impact patient satisfaction, support Veterans' needs and capabilities, 
and staffing.
    Once VHA has procured devices and supplies, management of our 
inventories and resources is also essential. In the recently published 
OIG report auditing VHA's prosthetics and supply inventory management 
practices, OIG concluded VHA had made overpayments because of 
inefficiencies in our system and inadequate training and guidance. We 
appreciate OIG's efforts and recommendations, and in response, we are 
better defining our policies and guidance to the field, improving our 
information technology (IT) systems to better track supplies, 
strengthening our training programs, and increasing oversight and audit 
functions. We are directing our facilities to reconcile physical 
inventories and take action to eliminate excess inventories without 
creating supply shortages. We are revising our standards for facilities 
to require at least one prosthetic supply inventory manager to become a 
certified VA Supply Chain Manager. We have developed a patch that is 95 
percent complete that will enhance the ability of the prosthetics 
package to interface with inventory management software, facilitating 
better information sharing. Through these steps, we will better utilize 
existing and available resources as we deliver prosthetic and 
amputation services and products to Veterans.
Conclusion
    VA supports high quality amputation and prosthetics care by 
supporting ground-breaking research into new technologies, training a 
highly qualified cadre of staff, and pursuing accreditation of all 
eligible prosthetic laboratories in VA's Amputation System of Care. We 
are improving our oversight and management of prosthetic purchasing and 
inventory management to better utilize the resources we have been 
appropriated by Congress as we serve America's Veterans. High quality 
patient care is our top priority, but we understand we must pursue this 
objective in balance with other aims. These aims include: supporting 
Veteran-owned and service-disabled Veteran-owned small businesses, 
ensuring responsible fiscal stewardship of the funding provided to VA 
by Congress, and complying with all applicable laws and regulations in 
this regard. We appreciate the opportunity to appear before you today 
to discuss this important program. My colleagues and I are prepared to 
answer your questions.

                                 
         Prepared Statement of Orthotic and Prosthetic Alliance
    Chairman Johnson, Ranking Member Donnelly, and Members of the 
Subcommittee:
    The five members of the Orthotic and Prosthetic Alliance (O&P 
Alliance) thank you for this opportunity to submit for the written 
record testimony on the ability of the Department of Veterans Affairs 
(VA) to deliver state of the art care to veterans with amputations. The 
O&P Alliance represents the major organizations representing the 
clinical, scientific, provider, supplier, business, accreditation, and 
quality improvement aspects of the O&P field.
    One of our Alliance members, AOPA, testified in person at this 
hearing and another, NAAOP, submitted detailed written testimony on the 
issues that were the subject of this important hearing. The O&P 
Alliance submits this brief statement for the record to highlight some 
of the dialogue that occurred during the hearing itself on 38 U.S.C. 
Section 8123 as well as the three OIG reports recently issued by the 
Department of Veterans Affairs, including:
      Audit of the Management and Acquisition of Prosthetic 
Limbs,'' Report No. 11-02254-102, March 8, 2012;
      Healthcare Inspection: Prosthetic Limb Care in VA 
Facilities,'' Report No. 11-02138-116, March 8, 2012; and,
      Audit of Prosthetics Supply Inventory Management, Report 
No. 11-00312-127, March 30, 2012.
    Special Rules of Prosthetic Limb Purchases: Entitled ``Procurement 
of Prosthetic Appliances,'' 38 U.S.C. Sec.  8123 was enacted in 1958 
and was specifically designed to apply to prosthetic limbs provided by 
the VA to veteran amputees. This section of the law was enacted in 
response to protests by World War II veterans who marched on Washington 
D.C. in 1945 waving artificial limbs and protesting the quality of the 
prostheses provided through the Veterans' Administration relative to 
those received by civilians. The provision allowed the VA to contract 
directly with private prosthetists without respect to any other 
provision of VA acquisition law, thereby cutting through bureaucratic 
delay. The purpose was to provide the veteran amputee with the high 
quality, timely prosthetic limb care they needed, when they needed it. 
The need for the VA to continue meeting this standard continues today 
and is as important as ever, considering the new wave of injured and 
amputee veterans created by a decade of war.
    Highlights of the VA Hearing Testimony: The O&P Alliance highlights 
for the Subcommittee the following points to help guide it through its 
consideration of VA prosthetic procurement:
    1. If this Subcommittee contemplates legislative changes to Section 
8123, we strongly urge you to preserve the original intent of this 
provision which, in the end, was designed to empower the VA to cut 
through bureaucracy and deliver high quality, timely and convenient 
prosthetic limb care to veteran amputees. This goal remains all the 
more important today. We are grateful that both witnesses in the first 
panel of the hearing made this same point to the Subcommittee.
    2. A number of the VA witnesses testified during the hearing that 
the Section 8123 authority to procure prosthetics for veterans is used 
to ensure full compliance with the physician's prescription as well as 
veterans' choice. The O&P Alliance believes these are key principles 
that justify the invocation of this broad authority when the VA 
purchases prosthetics for injured and amputee veterans.
    3. Custom orthotics (orthopedic braces for the back, neck, legs, 
and arms) is a field closely aligned with prosthetics and has been 
treated under Section 8123 in the same way as prosthetics. It is 
critical that Section 8123 applies to injured and amputee veterans who 
require custom orthotic care in the same way it applies to amputees who 
require prosthetic limb care.
    4. The O&P Alliance questions several conclusions in the VA OIG 
Report entitled, ``Veterans Health Administration: Audit of the 
Management and Acquisition of Prosthetic Limbs'' (11-02254-102). The 
most egregious conclusion in this report is OIG's calculation of what 
it spends on prosthetic limb care. The OIG asserts that VA spent 
$12,000 on average for a prosthesis provided by a contract supplier 
while the average cost of a prosthesis fabricated in the VHA's 
prosthetic labs was approximately $2,900. This is a highly suspect 
calculation of VA's true costs of providing prosthetic care to veteran 
amputees and sends the erroneous signal that the VA is vastly 
overpaying for contract prosthetic care. This is simply not the case. 
It is not clear which costs the OIG factored into its analysis because 
the report offers no detail on its calculations, but it is highly 
likely that OIG failed to include the critical costs of labor (salaries 
for certified prosthetists and technicians), overhead (the costs of 
maintaining clinical facilities, laboratory machinery, information 
processing, etc.), and myriad other costs that go into the fabrication 
and fitting of prosthetic limbs. We note that in the testimony 
delivered before this Subcommittee at this hearing, the VA OIG 
essentially conceded the calculations in the report as to the cost of 
prosthetic limb care were not based on complete information or cost 
data.
    5. The O&P Alliance applauds the dialogue that occurred at the 
hearing that focused on the importance of certification of 
prosthetists/orthotists and accreditation of O&P facilities and 
programs, both internal to the VA and as a requirement in all contracts 
between the VA and private practitioners. The VA recognizes the two 
primary accrediting organizations for the O&P field, ABC and BOC (both 
signatories to this written testimony), and the standards those 
accreditors require. Professional certification and facility 
accreditation are important mechanisms to help ensure quality in the 
provision of orthotic and prosthetic care.
    6. The O&P Alliance is also gratified by the dialogue that occurred 
during the hearing on the issue of veterans' awareness of the processes 
that determine their access to appropriate prosthetic care. For 
instance, the hearing exposed that most veterans have little or no idea 
that the VA is statutorily permitted to contract directly with private 
prosthetists without respect to compliance with the Federal Acquisition 
Regulations or the Veterans Affairs Acquisition Regulations (see, 38 
U.S.C. Section 8123). This problem could be easily addressed by passage 
of H.R. 805, the Injured and Amputee Veterans Bill of Rights. This 
legislation calls for the posting of a list of rights and procedures at 
every O&P VA clinic across the country and on the VA Web site so that 
veterans can understand their rights and the proper procedures, and 
advocate for the care they need on their own behalf. H.R. 805 is 
pending before this Subcommittee and the O&P Alliance urges action on 
this legislation as expeditiously as possible.
    7. Finally, we are grateful to you, Mr. Chairman, for insisting 
that the VA issue within two weeks from the date of the hearing a 
written plan for its implementation of new procedures for the 
procurement of prosthetic limbs. There have been numerous changes under 
discussion by the VA in this regard but very little issued in writing. 
We hope this document is made public so that all stakeholders, 
including veterans themselves, can understand the changes taking place 
in an area that means so much to their ability to function and live 
fulfilling lives.
    Conclusion: The O&P Alliance thanks you, Mr. Chairman, and this 
Subcommittee for its leadership in examining this critical set of 
issues. We hope to continue working with this Subcommittee and the VA 
to help ensure that veterans with amputations and other injuries 
receive the highest quality prosthetic and orthotic care possible. We 
call on this Subcommittee to seriously consider passage of H.R. 805, 
the Injured and Amputee Veterans Bill of Rights, in subsequent 
legislative hearings as soon as possible, and to ultimately enact this 
legislation this year. We also look forward to learning more about the 
VA's specific plans to implement prosthetic procurement changes in a 
manner that does not impact the quality of care received by veterans 
who require prosthetic and orthotic care.
    We thank you for the opportunity to submit testimony to this 
Subcommittee for the written record.

                                 
Prepared Statement of National Association For Advancement of Orthotics 
                             & Prosthetics
    Chairman Johnson, Ranking Member Donnelly, and Members of the 
Subcommittee:
    Thank you for this opportunity to submit for the written record 
testimony on the ability of the Department of Veterans Affairs (VA) to 
deliver state of the art care to veterans with amputations. The 
National Association for the Advancement of Orthotics and Prosthetics 
(NAAOP) is a non-profit trade association dedicated to educating the 
public and promoting public policy that is in the interests of orthotic 
and prosthetic (``O&P'') patients and the providers who serve them.
    The issues to be addressed in this hearing are critical to the 
ability of veterans with amputations and other injuries and conditions 
to live active, fulfilling lives, to live as independently as possible, 
to participate in community and recreational activities, to raise 
families, and ultimately to work and participate fully in society.
    Office of Inspector General Reports on Prosthetics: We have 
reviewed the three reports recently issued by the Office of Inspector 
General and have some general observations to offer. Two reports were 
issued on March 8th and are entitled, ``Veterans Health Administration: 
Audit of the Management and Acquisition of Prosthetic Limbs,'' Report 
No. 11-02254-102, and ``Healthcare Inspection: Prosthetic Limb Care in 
VA Facilities,'' Report No. 11-02138-116. The third report was issued 
by the OIG on March 30, 2012 (Report No. 11-00312-127) and is entitled, 
``Audit of Prosthetics Supply Inventory Management.'' This report 
addresses the broader VA prosthetics benefit and goes well beyond limb 
prosthetics. Before we offer our general observations on these reports, 
it is important to examine one of this Subcommittee's priorities in 
this hearing, a close review of 38 U.S.C. Section 8123.
    Background on 38 U.S.C. Sec.  8123: 38 U.S.C. Sec.  8123, entitled 
``Procurement of Prosthetic Appliances,'' dates back to 1958 when 
Congress passed the Veterans' Benefits Act to consolidate the laws 
applicable to the Veterans' Administration passed previously. Section 
8123 has only been minimally updated since then to incorporate a few, 
minor language changes, but the meaning of the provision has not been 
altered since its original enactment.
    The purpose and scope of Section 8123 was confirmed in Comments 
from the Veterans' Administration in connection with H.R. Report No. 
1298 of the 85th Congress, the 1958 Veterans' Benefits Act and in the 
Senate Report No. 2259 pertaining to the same Act. Many veterans 
benefits laws were passed in the legislative environment following 
World War II, and many of those concerning prosthetics for veterans 
specifically trace their origins to 1945. In that year, World War II 
veterans marched on Washington D.C. waving artificial limbs and 
protesting the quality of the prosthetics provided through the 
Veterans' Administration relative to those received by civilians. The 
quality of these limbs was viewed by veteran amputees as substandard as 
the administration had been purchasing these limbs from the lowest 
bidder. In response to public outrage, and the need to provide for the 
increasingly large number of veterans covered by the VA, Congress 
passed a law creating the Prosthetic Appliance Service in 1945, later 
expanded in 1948 to the Prosthetics and Sensory Aids Service, and began 
to invest in research into more advanced limbs. \1\ A Committee of 
veteran amputees was also established in 1945 by then Surgeon General, 
Major General Paul R. Hawley, to advise the VA on the quality of any 
new limb types it was considering for its programs. \2\
---------------------------------------------------------------------------
    \1\ James McAleer, Mobility Redux: Post World War II Prosthetics 
and Functional Aids for Veterans, 48 J. Rehabilitation Res. & Dev. 2011 
WLNR 3664126 (2011)
    \2\ Charles Hurd, Veterans to Pass on Artificial Limbs; Committee 
on Amputees Will Advise Administration on Merits of New Types, N.Y. 
Times, Nov. 3 1945
---------------------------------------------------------------------------
    Laws governing the provision of prosthetic appliances under VA 
benefits have--from the beginning--included coverage of artificial 
limbs and still do today. In comparison to the VA's definition of 
``prosthetics,'' other Federal health care programs, including 
Medicare, specifically cover ``artificial legs, arms and eyes'' in the 
definition of the term ``prosthetics and orthotics.'' However, durable 
medical equipment and other prosthetic devices (such as colostomy bags) 
are covered by separate provisions under Medicare law (See, 42 U.S.C. 
Section 1861(s)). No matter how the VA has expanded its definition of 
prosthetic appliances over time, it cannot be denied that artificial 
limbs were intended to be covered under 38 U.S.C. Sec.  8123, and that 
the provision of quality prosthetic limb care was--and continues to 
be--of great importance to Congress and the VA.
    If this Subcommittee contemplates legislative changes to Section 
8123, we strongly urge you to preserve the original intent of this 
provision which, in the end, was designed to empower the VA to cut 
through bureaucracy and get the veteran amputee the quality prosthetic 
limb care they need, when they need it. This goal remains all the more 
important with the new wave of veterans with amputations and other 
injuries and disabilities.
    General Observations on the OIG Reports: NAAOP offers the following 
comments on the three OIG Reports issued in March of this year for the 
Subcommittee's consideration.
      The term ``Prosthetics'' is used by the VA to describe a 
wide variety of devices that have nothing to do with limb prosthetics 
or artificial limbs. In fact, the data establish that of the $1.8 
billion spent by the VA on ``prosthetics'' in FY 2010, only $54 million 
(or 3 percent) was spent on prosthetic limbs. This is a relatively 
small portion of dollars spent by the VA on the broader category of 
prosthetics.
      The VA's nomenclature (i.e., defining ``prosthetics'' 
more broadly than virtually any other health care program or payer, has 
implications on the VA's use of the authority granted to it in 38 
U.S.C. Section 8123, which permits the VA to purchase ``prosthetic 
appliances'' without respect to any other provision of law. This 
provision was enacted in 1958 in direct response to veterans who were 
not satisfied with the VA's capacity to provide quality prosthetic care 
in-house. This provision allowed veterans to obtain prosthetic limb 
services from private prosthetists under contract with the VA without 
the requirement that VA follow the Federal acquisition regulations in 
the process. This authority has allowed the VA to provide timely and 
high quality, convenient prosthetic limb care to veteran amputees for 
decades since passage of that law. Custom orthotics (orthopedic braces 
for the back, neck, legs, and arms) is a field closely aligned with 
prosthetics and has been treated under Section 8123 in much the same 
way as prosthetics.
      The VA has made a major investment in its internal limb 
prosthetics capacity since 2009 with the development of the Amputee 
Systems of Care (ASoC) program, a series of prosthetic centers with 
differing levels of prosthetic expertise and capacity. The VA has 
emphasized accreditation of these programs and certification of the 
professionals in these programs as a measure on quality. The new 
investments in amputee care are designed to integrate care for veterans 
and treat the whole patient, not just the prosthetic needs of the 
amputee. Maintaining internal VA capacity and expertise to treat 
amputees in an integrated manner is important and the VA should be 
commended for its commitment and focus on this important population. 
But this new internal VA capacity does change in any way the legal 
authority the VA has to contract with qualified, private practitioners 
who may be located more conveniently to veteran amputees' home and 
communities.
      We note that despite some internal payment controls that 
need improvement, the Healthcare Inspection Report (11-02138-116) 
concludes that the vast majority of veteran amputees have high 
satisfaction rates with their prosthetic care which are primarily 
provided by private practitioners under contract with the VA.
      NAAOP questions several conclusions in the VA OIG Report 
entitled, ``Veterans Health Administration: Audit of the Management and 
Acquisition of Prosthetic Limbs'' (11-02254-102).
      NAAOP takes strong issue with the OIG's calculation of 
the difference in what it asserts it costs the VA to provide a 
prosthesis, on average, to a veteran through its in-house capability at 
the Veterans Health Administration (VHA) versus what it costs the VA to 
purchase an average prosthesis under contract from a private 
prosthetist. The OIG asserts that VA spent $12,000 on average for a 
prosthesis while the average cost of a prosthetic limb fabricated in 
the VHA's prosthetic labs was approximately $2,900. This is a highly 
suspect calculation of VA's true costs of providing prosthetic care to 
veteran amputees and sends the erroneous signal that the VA is vastly 
overpaying for contract prosthetic care. This is simply not the case. 
It is not clear which costs the OIG factored into its analysis because 
the report offers no detail on its calculations, but it is highly 
likely that OIG failed to include the critical costs of labor (salaries 
for certified prosthetists and technicians), overhead (the costs of 
maintaining clinical facilities, laboratory machinery, information 
processing, etc.), and myriad other costs that go into the fabrication 
and fitting of prosthetic limbs. In fact, if the OIG were to factor 
into the calculation the recent investments the VA has made on its 
Amputee Systems of Care initiative, the cost of providing prostheses to 
veterans through its internal capacity would be significantly higher 
than calculated. We note that in the testimony delivered before this 
Subcommittee at this hearing, the VA OIG essentially conceded the 
calculations in the report as to the cost of prosthetic limb care were 
not based on complete information or cost data.
      As this Subcommittee examines the implications of Section 
8123 on the VA's ability to purchase prosthetics in the most cost-
effective manner, it is important to recognize the legitimate role that 
private prosthetists have played for decades in providing prosthetic 
care to veterans under contract with the VA. Allowing veterans to 
access private prosthetists in their own communities preserves quality 
by allowing choice of provider. The relationship between a prosthetist 
and a patient can mean all the difference in successful prosthetic 
rehabilitation. Proximity to care is also very important for veterans. 
It is important that the VA maintains access to local private 
prosthetists under contract with the VA to conveniently serve 
veterans--within the overall plan of care designed by the VA clinical 
team. Finally, choice of prosthetic technology is critical in order to 
allow veterans to access the most effective prosthetic alternatives 
that address their medical and functional needs.
      NAAOP agrees with and strongly supports the 
recommendation in the Healthcare Inspection Report (11-02138-116) that 
VA's Under Secretary for Health consider veterans' concerns with the VA 
approval processes for fee-basis and VA contract care for prosthetic 
services to meet the needs of veterans with amputations. This is a key 
area that addresses the satisfaction of prosthetic care among amputee 
veterans. In fact, there is legislation pending before this Committee 
that seeks to address this very issue, H.R. 805, the Injured and 
Amputee Veterans Bill of Rights.
    Support for H.R. 805, the Injured and Amputee Veterans Bill of 
Rights: H.R. 805, the Injured and Amputee Veterans Bill of Rights, has 
been introduced in the past three Congresses by Ranking Member Bob 
Filner. In fact, this bill--its predecessor, H.R. 5730--passed the 
House in December 2010 but the Senate did not have time to act before 
the 111th Congress adjourned. This legislation proposes the 
establishment and posting of a ``Bill of Rights'' for recipients of VA 
health care who require O&P services. This Bill of Rights will help 
ensure that all veterans across our country have consistent access to 
the highest quality of care, timely service, and the most effective and 
technologically advanced treatments available, all in concert with the 
enhanced internal capacity of the VA in the prosthetic field. NAAOP 
believes that adoption of this ``Bill of Rights'' will establish a 
consistent set of standards that will form the basis of expectations of 
all veterans who have incurred an amputation or injury requiring 
orthotic or prosthetic care.
    The bill proposes a straightforward mechanism for ``enforcement'' 
of this ``Bill of Rights,'' with an explicit requirement that every O&P 
clinic and rehabilitation department in every VA facility throughout 
the country be required to prominently display the list of rights. In 
addition, the VA's Web sites would also post this Bill of Rights for 
the interest of injured and amputee veterans. In this manner, veterans 
across the country would be able to read and understand what they can 
expect from the VA health care system in terms of their orthotic and 
prosthetic care. And if a veteran is not having their orthotic or 
prosthetic needs met, they will be able to avail themselves of their 
rights and become their own best advocate. But above all, no veteran 
will be in the position of resigning him or herself to the fact that 
they are not functioning well with their O&P care for lack of 
information about their rights.
    This bill would simply condense to writing the O&P rules and 
procedures that the VA has used for years. An analysis of Congressional 
testimony delivered in 2008 by the Chief of the VA Prosthetic and 
Sensory Aids Service before the House Small Business Committee confirms 
that none of the rights listed in H.R. 805 (and its predecessor, H.R. 
5730) would expand the rights the VA has granted veterans for years, 
including in the area of practitioner choice and choice of prosthetic 
technology. \3\ But the bill would, in fact, put these rights in 
writing and post them for veterans to see, understand, and employ to 
help ensure they receive the quality O&P care they need and deserve. 
This bill would also provide Congress with easy access to the level of 
compliance with this ``Bill of Rights'' across the country and could 
identify particular regions of the country where problems persist.
---------------------------------------------------------------------------
    \3\ Congressional Testimony of Frederick Downs, House Small 
Business Committee, Subcommittee on Contracting and Technology, Hearing 
on Ensuring Continuity of Care for Veteran Amputees; The Role of Small 
Prosthetic Practices, Serial No. 110-105 (July 16, 2008).
---------------------------------------------------------------------------
    We understand the Congressional Budget Office gave the bill a 
nominal ``score'' in terms of what this would cost the VA. This is 
because none of the rights in the bill expand the rules and procedures 
the VA has acknowledged it uses for veterans in need of O&P care. 
Thirty-five veterans' organizations, rehabilitation associations, and 
consumer and disability groups support passage of H.R. 805. While 
passage of H.R. 805 will not solve every problem raised with the 
current VA prosthetics program, we believe it will have a material 
effect on the ability of the VA to deliver consistent, state of the art 
care to all veterans with amputations.
    In fact, testimony from this Subcommittee's hearing clearly 
indicated that rank and file veterans simply do not know that VA law 
permits them to access prosthetists outside of VA clinics and 
facilities. H.R. 805 would go a long way toward addressing this lack of 
knowledge among veterans who require prosthetic and orthotic services 
and devices.
    NAAOP and a number of national O&P associations recently met with 
senior VA officials in charge of the Prosthetic and Sensory Aids 
Service. While the VA does not appear to support passage of the 
legislation, we have agreed to continue discussions to see if there are 
ways to address issues raised by H.R. 805. But passage of legislation 
would establish, in law, a baseline of expectations for injured and 
amputee veterans that would not subject the contents of the ``Bill of 
Rights'' to the discretion of future VA administrations.
    Conclusion: NAAOP thanks you, Mr. Chairman, and this Subcommittee 
for examining this critical set of issues. NAAOP hopes to continue 
working with this Subcommittee and the VA to help ensure that veterans 
with amputations and other injuries receive the highest quality 
prosthetic and orthotic benefit possible. We call on this Subcommittee 
to seriously consider passage of H.R. 805, the Injured and Amputee 
Veterans Bill of Rights, in subsequent legislative hearings as soon as 
possible, and to ultimately enact this legislation this year.
    We thank you for the opportunity to submit testimony to this 
Subcommittee for the written record.
    1501 M Street, NW, Seventh Floor ( Washington, DC 20005-1700 ( PH 
202-624-0064 ( FAX 202-785-1756 ( [email protected] ( www.naaop.org

                                 
                           MATERIAL SUBMITTED
    Letter from Hon. Bill Johnson, Chairman, Subcommittee on Oversight 
and Investigations to Mr. George J. Opfer, Inspector General, U.S. 
Department of Veterans Affairs

    June 26, 2012

    Mr. George J. Opfer
    Inspector General
    U.S. Department of Veterans Affairs
    801 I Street, NW
    Washington DC 20001

    Dear Mr. Opfer:

    I request your response to the enclosed questions for the record I 
am submitting in reference to the Oversight and Investigations 
Subcommittee hearing entitled ``Purchasing Perspective: VA's 
Prosthetics Paradox'' that took place on May 30, 2012. The questions 
are in respect to the audit of the Department of Veterans Affairs 
management and acquisition of prosthetic limbs. I would appreciate if 
you could answer the enclosed hearing questions by the close of 
business on July 31, 2012.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for materials for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively and single-spaced. In 
addition, please restate the question in its entirety before the 
answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Bernadine Dotson at [email protected]. If you have 
any questions, please call Mr. Eric Hannel, Majority Staff Director of 
the Oversight & Investigations Subcommittee, at 202-225-3527.

    Sincerely,

    Bill Johnson
    Chairman
    Subcommittee on Oversight & Investigations

    Enclosure

    BJ/rm

    Questions:

    1) What data was analyzed to reach the conclusion that the average 
cost of a prosthesis made by the Department of Veterans Affairs (VA) 
was approximately one-quarter the cost of a prosthesis made by a 
contractor?
    2) The VA has recently made significant investments in prosthetics, 
including upgrading labs and hiring new staff in some areas. How are 
those costs factored into your analysis?
    3) What additional information would you have needed to make an 
apples-to-apples comparison between VA and contractor costs? Do you 
believe that the VA has the information needed to make an apples-to-
apples comparison?
    4) How are relative costs tracked and monitored by the VA? 
Contractor costs are very simple to account for. What steps are taken 
to ensure that all VA costs are appropriately accounted for?
    5) Were any adjustments made to account for the relative complexity 
of devices provided by VA and contractor staff?
    6) VA contractors who have looked at your figures have suggested 
that the estimated for the VA-made prostheses represents only the 
direct cost of components, without VA salaries, benefits, facilities, 
administration, and other costs. Do you have any information to 
indicate that this suggestion is inaccurate?
    7) Footnote 1 in the report suggests that the difference between 
VA-made and contractor-made prosthetics is due to overhead and profit. 
What information does the IG have to indicate that these may be the 
only differences between the two figures? Do you believe that other 
costs were omitted from the information you analyzed?
    8) If the comparison was not an apples-to-apples comparison, what 
value does that analysis have? What useful information does it provide 
to the Congress and to the VA?
    9) If the comparison was not apples-to- apples, then why was it 
included in the report?
    10) When the draft report that included the $2,900-$12,000 
comparison was submitted to Prosthetic and Sensory Aids Service (PSAS) 
for comments, did PSAS submit comments on that figure? If so, what were 
the comments?

    Response from Mr. George J. Opfer, Inspector General, U.S. 
Department of Veterans Affairs to Hon. Bill Johnson, Chairman, 
Subcommittee on Oversight and Investigations

    DEPARTMENT OF VETERANS AFFAIRS
    INSPECTOR GENERAL
    WASHINGTON DC 20420

    July 31, 2012

    The Honorable Bill Johnson
    Chairman, Subcommittee on
    Oversight and Investigations
    Committee on Veterans' Affairs
    United States House of Representatives
    Washington, DC 20515

    Dear Mr. Chairman:

    Enclosed are the Office of Inspector General's responses to the 
questions for the record from the May 30, 2012, hearing before the 
Subcommittee, ``Purchasing Perspective: VA's Prosthetics Paradox.'' We 
appreciate the opportunity to testify on our work in this area.
    Thank you for your interest in the Department of Veterans Affairs.

    Sincerely,

    /s/

    GEORGE J. OPFER

    Enclosure

    VA Office of Inspector General Responses to Questions for the 
Record from the May 30, 2012, Hearing Before the Subcommittee on 
Oversight and Investigations, Committee on Veterans Affairs, United 
States House of Representatives on ``Purchasing Perspective: VA's 
Prosthetics Paradox''

    Question 1: What data was analyzed to reach the conclusion that the 
average cost of a prosthesis made by the Department of Veterans Affairs 
(VA) was approximately one-quarter the costs of a prosthesis made by a 
contractor?
    The VA Office of Inspector General (OIG) report, Audit of VHA 
Acquisition and Management of Prosthetic Limbs, focused on the 
effectiveness of VA's acquisition and contract administration practices 
used to procure prosthetic limbs. Our primary focus was the accuracy of 
the vendor payments. We did not assess the completeness or accuracy of 
VHA's reported data on the internal costs to fabricate limbs. We 
presented VA's reported costs as background information in the 
introduction to our report.
    Question 2: The VA has recently made significant investments in 
prosthetics, including upgrading labs and hiring staff in some areas. 
How are those costs factored into your analysis?
    The costs we reported for prosthetic limbs fabricated at Veterans 
Health Administration (VHA) labs were included in an Orthotic 
Laboratory Workorder report provided to us by the Prosthetic and 
Sensory Aids Service (PSAS). The report summarized and categorized the 
total quantity, lab hours, labor costs, material costs, and average 
unit cost for each prosthetic limb fabricated by these labs. We did not 
assess the impact of any lab upgrades or staff hiring on VHA's reported 
costs nor did we assess the completeness and accuracy of this data.
    Question 3: What additional information would you have needed to 
make an apples-to-apples comparison between VA and contractor costs? Do 
you believe that the VA has the information needed to make an apples-
to-apples comparison?
    While PSAS provided us with an Orthotic Laboratory Workload report 
that we used to calculate costs for prosthetic limbs manufactured at 
VHA labs, we determined that PSAS was unaware of their in-house 
fabrication capabilities because the Chief Consultant of PSAS had not 
conducted periodic evaluations of labs, as required by VHA Handbook 
1173.2, Furnishing Prosthetic Appliances and Services, to ensure the 
labs were operating as effectively and economically as possible. Until 
VA tracks all of the necessary information, including general 
administrative expenses, related to in-house and contractor prosthetic 
limb fabrication, the OIG and other interested parties will not be able 
to fully compare VHA and vendor fabrication costs.
    Question 4: How are relative costs tracked and monitored by the VA? 
Contractor costs are very simple to account for. What steps are taken 
to ensure that all VA costs are appropriately accounted for?
    At that time of the OIG's review, costs for limbs fabricated at VHA 
labs were tracked in the Orthotic Laboratory Workload system. A senior 
PSAS official provided us with information from this system for FY 
2010. This information summarized and categorized the total quantity, 
lab hours, labor costs, material costs, and average unit cost for each 
prosthetic limb fabricated by VHA's labs. The same official also 
provided our auditors with vendors' costs, which included the total 
quantity and total cost of all prosthetic limbs fabricated by vendors 
for veterans. After calculating the costs for VHA in-house and vendor 
fabrication, we contacted this official regarding the significant 
difference between the two costs. The difference behind the two costs 
was attributed to vendor costs for materials and profit. Accounting for 
VHA's internal costs to fabricate limbs or VHA's process for capturing 
costs was not within the scope of our audit.
    Question 5: Were any adjustments made to account for the relative 
complexity of devices provided by VA and contractor staff?
    We did not make any adjustments to account for the relative 
complexity of devices provided by VA and contractor staff because it 
was not in the scope of our audit. Any questions about such adjustments 
should be addressed by VA.
    Question 6: VA contractors who have looked at your figures have 
suggested that the estimates for the VA-made prosthesis represents only 
the direct cost of components, without VA salaries, benefits, 
facilities, administration, and other costs. Do you have any 
information to indicate that this suggestion is inaccurate?
    We reported on data that was provided by PSAS. Any discussion about 
cost comparisons should be addressed by VA.
    Question 7: Footnote 1 in the report suggests that the difference 
between VA-made and contractor-made prosthetics is due to overhead and 
profit. What information does the IG have to indicate that these may be 
the only differences between the two figures? Do you believe that other 
costs were omitted from the information you analyzed?
    A senior PSAS official reported the price discrepancy between VHA 
in-house fabrication and vendor fabrication was due to material costs 
and profits. Determining whether the costs VHA reported for fabricating 
limbs were complete was outside the purview of this audit.
    Question 8: If the comparison was not an apples-to-apples 
comparison, what value does that analysis have? What useful information 
does it provide to the Congress and to the VA?
    Based on the Committee's interest in how VA obtains prosthetic 
limbs, we conducted an audit of how VA acquires prosthetic limbs. As a 
result, the OIG reported on VA's prosthetic limb workload (that is, 
limbs fabricated and costs to fabricate) for FY 2010. In describing 
VA's prosthetic limb workload, we reported on the funds spent on 
prosthetic items overall, as well as the funds spent specifically on 
prosthetic limbs. As the VA acquires limbs through in-house labs and 
contract vendors, we also reported on workload for those two groups. As 
noted in our report, VHA does not know their in-house capabilities 
because they did not do the required evaluations of labs.
    Question 9: If the comparison is not apples-to-apples, then why was 
it included in the report?
    See response to Question 8.
    Question 10: When the draft report that included the $2,900-$12,000 
comparison was submitted to Prosthetic and Sensory Aids Service (PSAS) 
for comments, did PSAS submit comments on that figure? If so, what were 
the comments?
    The Under Secretary for Health concurred with our findings and 
recommendations and provided an appropriate action plan. His comments, 
which are included in our report, did not include any remarks on VA's 
prosthetic limb workload or the costs included in the draft report.

                                  
