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





 HEARING ON THE MEDICARE DURABLE MEDICAL EQUIPMENT COMPETITIVE BIDDING 
                                PROGRAM

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

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

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                              May 9, 2012


                               __________

                          Serial No. 112-HL11

                               __________

         Printed for the use of the Committee on Ways and Means






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                      COMMITTEE ON WAYS AND MEANS

                     DAVE CAMP, Michigan, Chairman

WALLY HERGER, California             SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
DEVIN NUNES, California              JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky                XAVIER BECERRA, California
DAVID G. REICHERT, Washington        LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, JR., Louisiana  MIKE THOMPSON, California
PETER J. ROSKAM, Illinois            JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania            EARL BLUMENAUER, Oregon
TOM PRICE, Georgia                   RON KIND, Wisconsin
VERN BUCHANAN, Florida               BILL PASCRELL, JR., New Jersey
ADRIAN SMITH, Nebraska               SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois               JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

        Jennifer M. Safavian, Staff Director and General Counsel

                  Janice Mays, Minority Chief Counsel

                                 ______

                         SUBCOMMITTEE ON HEALTH

                   WALLY HERGER, California, Chairman

SAM JOHNSON, Texas                   FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
DEVIN NUNES, California              RON KIND, Wisconsin
DAVID G. REICHERT, Washington        EARL BLUMENAUER, Oregon
PETER J. ROSKAM, Illinois            BILL PASCRELL, JR., New Jersey
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
VERN BUCHANAN, Florida














                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 9, 2012 announcing the hearing...................     2

                               WITNESSES

 Panel 1:

Laurence Wilson, Director of the Chronic Care Policy Group, 
  Center for Medicare, Centers for Medicare and Medicaid Services     6
Kathleen King, Director, Health Care, Government Accountability 
  Office.........................................................    18

Panel 2:

Joel D. Marx, Chair, Board of Directors, American Association for 
  Homecare.......................................................    48
H. Wayne Sale, Chair, Board of Directors, National Association of 
  Independent Medical Equipment Suppliers........................    61
Dino Martis, President, Ablecare Medical, Inc....................    68
Alfred J. Chiplin, Jr., Senior Policy Attorney, Center for 
  Medicare Advocacy, Inc.........................................    75

 
 HEARING ON THE MEDICARE DURABLE MEDICAL EQUIPMENT COMPETITIVE BIDDING 
                                PROGRAM

                              ----------                              


                         WEDNESDAY, MAY 9, 2012

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

    The subcommittee met, pursuant to call, at 9:03 a.m., in 
Room 1100, Longworth House Office Building, Honorable Wally 
Herger [chairman of the subcommittee] presiding.
    [The advisory of the hearing follows:]

HEARING ADVISORY

   Chairman Herger Announces Hearing on the Medicare Durable Medical 
                 Equipment Competitive Bidding Program

Wednesday, May 09, 2012

      
    House Ways and Means Health Subcommittee Chairman Wally Herger (R-
CA) today announced that the Subcommittee on Health will hold a hearing 
to examine the Medicare Durable Medical Equipment, Prosthetics, 
Orthotics, and Supplies (DMEPOS) competitive bidding program to 
understand how the program is impacting patients, suppliers, and 
program expenditures. This hearing will help the Subcommittee assess 
the Round 1 experience in nine Metropolitan Statistical Areas (MSAs) 
and the plans for its 2013 expansion into 91 additional MSAs. The 
hearing will take place on Wednesday, May 9, 2012, in 1100 Longworth 
House Office Building, beginning at 9:00 A.M.
      
    In view of the limited time available to hear from witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing. A list of witnesses 
will follow.
      

BACKGROUND:

      
    The Medicare Modernization Act of 2003 (MMA) established the DMEPOS 
competitive bidding program to bring Medicare payments for certain 
high-cost and high-volume items--such as hospital beds and diabetic 
testing supplies--in line with actual market prices, as Medicare 
reimbursement rates often far exceeded retail rates. The Centers for 
Medicare and Medicaid Services (CMS) competitive bidding process 
entails DMEPOS suppliers submitting bids that include the price at 
which they are willing to sell a specific item in an MSA and the 
percentage of the market they would serve at that price. Contracts have 
been offered to the lowest bidders with sufficient capacity to serve 
the market.
      
    MMA specified that Round 1 of the competitive bidding program was 
to begin in 10 MSAs in 2007. In response to concerns that the CMS 
handling of the process for awarding contracts to suppliers had 
significant flaws, Congress terminated Round 1 two weeks after the 
program began with passage of the Medicare Improvements for Patients 
and Providers Act of 2008 (MIPPA). In addition to making improvements 
to the program, MIPPA mandated that a modified version of Round 1 be 
re-bid and implemented in 2011, and that the number of MSAs be reduced 
to nine. The cost of this delay was offset by a 9.5 percent reduction 
in 2009 DMEPOS fee schedule payments for competitively bid items. 
Recently, the Medicare actuaries found that Round 1 has reduced program 
expenditures by $202 million in 2011.
      
    The competitive bidding program will soon undergo significant 
expansion beyond the initial nine MSAs. The Affordable Care Act (ACA) 
expanded the program so that Round 2 includes an additional 91 MSAs. 
CMS is now assessing supplier bids for Round 2 with the intent that 
competitively bid prices in these 91 MSAs take effect in mid-2013. The 
ACA directed the Secretary of the Department of Health and Human 
Services to use competitively bid prices nationwide beginning in 2016. 
The Medicare actuaries expect the competitive bidding program to save 
$43 billion over the next 10 years, including saving beneficiaries $17 
billion, relative to the prior fee schedule-based system.
      
    In announcing the hearing, Chairman Herger stated, ``Congress 
established the competitive bidding program in light of evidence that 
the Medicare fee schedule payments far exceeded retail rates, leaving 
the DMEPOS benefit prone to waste, fraud, and abuse. I believe strongly 
in the competitive forces of the private market and the first year of 
the program shows this process has resulted in lower costs for Medicare 
and its beneficiaries. While this is encouraging, it is important to 
ensure the process by which suppliers compete is fair and that 
beneficiaries receive needed care. This hearing will help the 
Subcommittee understand the successes and challenges with Round 1 
before the program's scheduled significant expansion next year.''
      

FOCUS OF THE HEARING:

      
    The hearing will focus on the impact of the DMEPOS competitive 
bidding program on beneficiaries, suppliers, and Medicare expenditures 
and the implications for program expansion.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
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From the Committee homepage, http://waysandmeans.house.gov, select 
``Hearings.'' Select the hearing for which you would like to submit, 
and click on the link entitled, ``Click here to provide a submission 
for the record.'' Once you have followed the online instructions, 
submit all requested information. ATTACH your submission as a Word 
document, in compliance with the formatting requirements listed below, 
by the close of business on Wednesday, May 23, 2012. Finally, please 
note that due to the change in House mail policy, the U.S. Capitol 
Police will refuse sealed-package deliveries to all House Office 
Buildings. For questions, or if you encounter technical problems, 
please call (202) 225-1721 or (202) 225-3625.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
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printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
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guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word format and MUST NOT exceed a total of 10 pages, including 
attachments. Witnesses and submitters are advised that the Committee 
relies on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
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these specifications will be maintained in the Committee files for 
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    3. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. A supplemental 
sheet must accompany each submission listing the name, company, 
address, telephone, and fax numbers of each witness.
      
    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
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materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available on 
the World Wide Web at http://www.waysandmeans.house.gov/.

                                 

    Chairman HERGER. The subcommittee will come to order. We 
are here today to assess the impact of the Medicare Durable 
Medical Equipment Competitive Bidding Program. Our intent is to 
understand the program's impact on beneficiaries, suppliers, 
and Medicare expenditures, and the implications or program 
expansion. Congress mandated the use of competitive bidding to 
establish payment rates for high cost and high volume DME and 
Medicare Modernization Act of 2003. Congress took this action 
in response to evidence that Medicare fee schedule payment 
rates often far exceed retail prices.
    In fact, in some cases, Medicare beneficiary copays 
exceeded the cost of the device on the open market. These 
generous payment rates also made the DME benefit especially 
vulnerable to waste, fraud, and abuse. A successful small-scale 
test required through the Balanced Budget Act of 1997 showed 
that competitive bidding for DME was feasible. Consistent with 
the statutes the Centers for Medicare and Medicaid Services 
implemented a competitive bidding process for nine DME product 
categories in nine geographic areas on January 1st, 2011.
    This first phase of implementation is known as Round 1. 
Medicare is in the process of expanding the competitive bidding 
program to an additional 91 areas with competition-based 
payment amounts to take effect in mid 2013. This expansion is 
referred to as Round 2. The DME supplier industry has long had 
concerns about the use of competitive bidding. It is important 
to understand these concerns, not only because numerous 
beneficiaries rely on medical equipment to keep them in their 
homes and out of the hospital, but also because many suppliers 
are the kinds of small businesses that form the background of 
our economy.
    Congress, with input from members of this committee, 
responded to supplier concerns that the initial CMS effort to 
implement competitive bidding was flawed. As a result, we 
passed the Medicare Improvements for Patients and Providers Act 
in 2008, which terminated the initial Round 1 and required that 
it be a bid once improvements were made. That said, it is 
important that Medicare pay a reasonable and responsible price 
for DME so that beneficiary and taxpayer dollars are used 
wisely.
    CMS has reported that the competitive bidding program 
resulted in $200 million in savings in 2011. These first-year 
program savings are derived largely from competition-based 
payment amounts that are on average, 32 percent lower than DME 
fee schedule prices. And these lower prices mean that 
beneficiaries are paying less in the form of their 20 percent 
coinsurance.
    A comparison of the Medicare payment for an oxygen 
concentrator, a common DME item, shows how the Medicare program 
and its beneficiaries benefit from lower prices derived from 
the competitive bidding. In the nine Round 1 MSAs, Medicare 
would have paid $2,080 under the DME fee schedule with a 
beneficiary paying 20 percent, or $416 on average. By contrast, 
with competitive bidding, Medicare paid $1,395 and the 
beneficiary paid $279 on average.
    While I strongly believe in the competitive forces of the 
private market, the process by which the competition is 
conducted must be fair. To help the subcommittee understand the 
successes and challenges associated with Round 1, before the 
program scheduled expansion next year, we will hear from 
witnesses who collectively provide a balanced range of 
perspectives on the competitive bidding program.
    Before I recognize Ranking Member Stark, but I understand 
we will have Congressman Thompson speaking for him, I ask 
unanimous consent that all members' written statements be 
included in the record. Without objection, so ordered.
    Chairman HERGER. I now recognize the gentleman from 
California, for 5 minutes.
    Mr. THOMPSON. Chairman Herger, thank you for holding this 
hearing on Medicare's Durable Medical Equipment Competitive 
Bidding Program. Last year, we held a hearing on this topic in 
May 2008, and what a different several years can make. That 
hearing revealed serious problems with the implementation of 
competitive bidding for DME. The health subcommittee worked 
together on bipartisan legislation to delay implementation of 
Round 1. Importantly, we didn't just give the industry a pass. 
We reduced DME payments nationwide by 9.5 percent for all 
product categories that would have been in the DME 
demonstration, and we required CMS to revise the program to 
avoid missteps from the initial implementation effort.
    Historically, this subcommittee has raised concerns with 
competitive bidding. We want higher quality and lower prices. 
We can simply implement those changes through the fee schedule 
and other administrative tools.
    I have serious concerns about using competitive bidding for 
other services, but purchasing equipment is a fairly 
straightforward transaction, and I have been pleasantly 
surprised by the outcome of the Round 1 rebid. Unlike the first 
try, we haven't heard an outcry from suppliers around the 
country facing difficulties in filling applications.
    CMS really seems to have worked diligently to address the 
operational programs--problems that plagued the inept attempt--
initial attempt. Not only does the demonstration appear to have 
been implemented smoothly, it also appears that many of our 
concerns about negative beneficiary effects haven't occurred. 
We typically hear directly from patients or their advocates 
when there are problems with such a substantial change to 
Medicare.
    I can report that we have not received any beneficiary 
complaints with regard to this demonstration. However, we need 
to be cautious as we proceed toward further expansion and 
remain ever diligent in looking out for negative effects for 
beneficiaries. I look forward to hearing from both CMS and the 
GAO today.
    In particular, I would like to thank the GAO for working 
with us to expedite release of their statutorily mandated 
report on the Round 1 rebid program. GAO's work is the first 
outside audit of this demonstration and I am especially 
interested in their expert evaluation.
    Our second panel will also be important. We will hear from 
several DME suppliers and a patient advocate, all of whom will 
present their opinions on the DME competitive bidding program 
to date.
    We need to be circumspect about drawing significant 
conclusions from this hearing. We will hear an overview of the 
program in only nine metropolitan statistical areas across our 
country. The program will expand next year to an additional 91 
areas. While Round 1 impacts 6 percent of Medicare's 
beneficiaries, Round 2 will increase that to more than half of 
all Medicare beneficiaries. That is a substantial increase. 
While the evidence appears to indicate that CMS can expand this 
program, while protecting beneficiary access to care, saving 
money for beneficiaries through lowered cost sharing, and 
recouping savings for taxpayers through lower overall Medicare 
spending, continued close scrutiny is necessary. DME is an 
important benefit. It enables people to remain in the 
community, and out of institutions.
    We have a duty, a duty to Medicare beneficiaries and to 
America's taxpayers to ensure that we maintain access to 
quality care at the best price available. With that, I yield 
back the balance of Mr. Stark's time.
    Chairman HERGER. Thank you. On our first panel the 
subcommittee will hear from two Government agencies. Laurence 
Wilson, who is the director of the Chronic Care Policy Group 
and the Center for Medicare at CMS will discuss the agency's 
efforts to implement the competitive bidding program. Our 
second Government witness is Kathleen King, who is the Director 
of Health Care at the Government Accounting Office. Congress 
mandated that GAO study the competitive bidding program. We 
look forward to hearing from Ms. King on what her agency has 
found.
    Mr. King, you are now recognized for 5 minutes--excuse me. 
Mr. Wilson, you are recognized for 5 minutes.

  STATEMENT OF LAURENCE WILSON, DIRECTOR, CHRONIC CARE POLICY 
 GROUP, CENTER FOR MEDICARE, CENTERS FOR MEDICARE AND MEDICAID 
                            SERVICES

    Mr. WILSON. Good morning, Chairman Herger, Mr. Thompson, 
and ranking members--and distinguished Members of the 
Subcommittee. I am pleased to be here today to discuss the 
Durable Medical Equipment Prosthetic Orthotics and Supplies 
Competitive Bidding Program. This important initiative, 
required under the Medicare Modernization Act of 2003, and 
recently expanded under the Affordable Care Act, has been 
effective in reducing beneficiary out-of-pocket costs, 
improving the accuracy of Medicare's payments, reducing 
overutilization and ensuring beneficiary access to high-quality 
items and services.
    CMS successfully implemented the program on January 1, 
2011, in nine metropolitan areas after making a number of 
important improvements based on new requirements from Congress 
and after listening to feedback from our stakeholders. We are 
pleased to report that the program has saved $202 million in 
its first year of operation a reduction of over 42 percent 
compared to 2010, with no disruption in access, or negative 
health consequences for beneficiaries. We are now continuing 
with the expansion of the program to 91 additional areas of the 
country as the law requires.
    CMS worked closely with stakeholders to design and 
implement the program in a way that is fair for suppliers, and 
sensitive to the care needs of beneficiaries. For example, the 
program includes provisions to promote small supplier 
participation and numerous protections for beneficiaries. The 
program results in a large number of winners so that 
beneficiaries are assured access and choice and there will 
continue to be competition among contract suppliers on the 
basis of customer service and quality.
    In addition, quality standards and accreditation combined 
with financial standards provide safeguards to support good 
quality and customer service, while acting to weed out bad 
actors and ensure a level playing field for legitimate 
suppliers. The many improvements made by Congress and CMS have 
been carried forward to successive rounds of the program. These 
changes provide for a fair process that is less complex for 
suppliers to navigate, and result in more effective scrutiny of 
suppliers' qualifications and the integrity of their bids. We 
continue to make further improvements as the program expands. 
For example, to help fulfill our commitment to beneficiaries to 
ensure quality and good service, our comprehensive monitoring 
system will be expanded to cover the 91 additional areas and 
the various new items.
    This state-of-the-art system examines 100 percent of 
Medicare claims and other data in close to real-time and 
provides important indications on whether access or quality is 
threatened. It tracks over 3,400 data points including 
mortality, utilization, hospitalizations, ER visits, and many 
others to provide us with information about the Medicare 
beneficiaries and the services they receive.
    As I noted before, we have observed no trends in these 
health status indicators that cause us concern. Where we have 
seen more significant reductions in utilization, we have 
followed through with further investigation. For example, for 
mail-order diabetic testing supplies, we surveyed beneficiaries 
and found that they were still testing, but not ordering new 
strips because they had stockpiles at home, up to a 10-month 
supply or more, which is an indication of the overutilization 
occurring prior to when the program took effect.
    Our experience with Round 1 has shown that the competitive 
bidding brings value to Medicare beneficiaries and taxpayers 
compared to the current fee schedule system. In fact, the 
average price discount across the nine metropolitan areas, is 
35 percent. The CMS actuary projects that the program will save 
$25.7 billion for Medicare over the next 10 years and another 
$17.1 billion for beneficiaries through lower coinsurance and 
premiums. In Orlando, the purchase amount of a standard 
wheelchair dropped by $1,362. That is a savings of $1,089 for 
Medicare, and the taxpayers, and an additional $272 in savings 
for beneficiaries.
    We are very pleased with the success of Round 1 of the 
program. Nevertheless, we recognize that the scope of the 
program is expanding and that it is a significant change for 
suppliers and patients. We will continue to monitor 
implementation closely, and be prepared to act swiftly to 
address any concerns that may arise on behalf of beneficiaries 
and suppliers.
    We have a network in place, built around our National 
ombudsman, local ombudsman, regional offices, CMS caseworkers, 
contractors, and Medicare call centers to address and track 
questions and concerns.
    In summary, we will be diligent and thoughtful in our 
implementation of this important program as it expands to more 
areas of the country, and we will continue to be open to 
further improvements suggested by our stakeholders, Members of 
Congress, and others.
    Again, I very much appreciate the invitation to testify 
before you today, and would be happy to take any questions.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Wilson follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Chairman HERGER. Ms. King, you are now recognized for 5 
minutes.

 STATEMENT OF KATHLEEN KING, DIRECTOR, HEALTH CARE, GOVERNMENT 
                     ACCOUNTABILITY OFFICE

    Ms. KING. Chairman Herger, and Members of the subcommittee, 
I am pleased to be here today.
    Chairman HERGER. Let's have you push the button.
    There is a button in front, I believe.
    Mr. RYAN. You have to turn it on.
    Ms. KING. It says talk.
    Mr. RYAN. Is there a green light that is on in front of you 
there?
    Ms. KING. Is that better?
    Chairman HERGER. That is much better.
    Ms. KING. I pressed the wrong talk. Chairman Herger, and 
Members of the Subcommittee, I am pleased to be here today to 
discuss a report that we are releasing on the Round 1 rebid of 
the Medicare Competitive Bidding Program for Durable Medical 
Equipment. Congress directed us to examine several issues 
regarding the Round 1 rebid, and those are the subject of our 
report today. We found that the number of bidding suppliers and 
the number of contracts awarded in the Round 1 rebid were very 
similar to Round 1. About a third of the 1,011 suppliers, or 
356 suppliers that bid in the Round 1 bidding, were awarded at 
least one contract. CMS made improvements to the bidding 
process for the Round 1 rebid, and many fewer bids were 
disqualified in the Round 1 rebid than in Round 1.
    However, many suppliers still had difficulty meeting the 
bid requirements. And, as in Round 1, CMS determined that some 
suppliers bids had been disqualified incorrectly. Subsequently, 
CMS extended contracts to seven of those suppliers.
    During the first year, few contract suppliers, about 6 
percent of those awarded contracts, had their contracts 
terminated by CMS, voluntarily canceled their contracts, or 
were involved in ownership changes. Under the program, many 
noncontract suppliers exercised the option to grandfather 
rental DME items for beneficiaries they were furnishing those 
services to prior to the program.
    We found that the number of these grandfathered suppliers 
generally decreased steadily throughout the year as the rental 
periods expired, or as beneficiaries chose a contract supplier.
    Some contracting suppliers entered into subcontracting 
agreements with noncontract suppliers to furnish services to 
beneficiaries. In July of last year, about 31 percent of 
contracting suppliers had subcontracting agreements. As the CBP 
allowed, 43 distinct or unique suppliers had contracts for 
product categories in which they did not have prior experience, 
and 44 distinct suppliers were awarded contracts in areas where 
they did not have a prior business location.
    CMS's beneficiary access monitoring efforts reported 
declining inquiries and complaints over the first year of the 
program, high levels of beneficiary satisfaction, and no 
changes in health outcomes. Although some of CMS's monitoring 
efforts have limitations, in the aggregate, they provide useful 
information to CMS regarding beneficiary access and 
satisfaction. Medicare claims data from the first 6 months of 
the Round 1, show that fewer distinct beneficiaries in the 
areas received DME items in 2011 than 2010 for the six product 
categories we analyzed. However, we do not assume that 
utilization in 2010 was the appropriate level of Medicare 
utilization.
    Further, the decline in the number of beneficiaries 
receiving services in 2011 does not necessarily indicate that 
beneficiaries did not have access to needed DME. It is too soon 
to determine the full effects on Medicare beneficiaries and 
suppliers. Although we found that in general, the Round 1 rebid 
was successfully implemented, our findings are based on the 
limited data available at the time we did our work. While the 
prevalence of grandfathered suppliers for some rental items may 
have ameliorated beneficiary access concerns during the first 
year, the number of grandfathered suppliers will continue to 
decline as rental agreements expire.
    Likewise, we don't know yet whether any change in the 
number of subcontracting suppliers will affect beneficiary 
access. Therefore, more experience with the program is needed, 
particularly to see if beneficiary access problems emerge. For 
that reason, it is important to continue to monitor changes in 
the number of suppliers covering beneficiaries, and trends in 
utilization.
    Mr. Chairman, that concludes my prepared remarks. I would 
be happy to answer questions.
    [The prepared statement of Ms. King follows:] 


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Chairman HERGER. Ms. King, thank you for your testimony, 
and I am grateful for the work that GAO has put into examining 
the performance of this program. As you know, Congress 
responded to initial concerns about the implementation of Round 
1 by stopping it and requiring CMS to rebid it using an 
improved process. Did Round 1 rebid go more smoothly than the 
initial Round 1, and were Congress' concerns addressed?
    Ms. KING. Yes, they were. The Round 1 rebid was definitely 
much more smooth than the Round 1, and we evaluated the Round 
1, and found a number of significant issues with that, and many 
of them were resolved. In particular, CMS gave more information 
about the kinds of financial documentation that were required 
and gave notice to a supplier when their financial 
documentation was incomplete. So most of the procedural aspects 
in Round 1 were definitely ameliorated.
    Chairman HERGER. Thank you, Mr. Wilson, I would like to get 
your reaction to some of the concerns we will be hearing from 
representatives of the supplier industry later today. One 
concern is that some suppliers may submit excessively low bids 
in order to be offered a contract. Some believe there is an 
additional incentive to submit low bids because bidders are not 
necessarily required to accept a contract when offered. Can you 
describe the process that CMS uses to determine which bids are 
not legitimate, and therefore, disqualified from competing on 
bid price, and whether the agency plans to expand this bona 
fide bid review process in Round 2?
    Mr. WILSON. I would be happy to address that, Mr. Chairman. 
That was an issue that we gave serious consideration to in the 
design and development of the system, and is in fact, the 
subject of a number of discussions with stakeholders. So for 
example, we looked at the program and wanted to ensure that 
bids were bona fide and ensure that we didn't have essentially 
low-ball bids accepted in the system that would be factored in 
the price. So we set up a system to essentially screen the bids 
statistically, and if they were aberrantly low, we would 
request information from the bidders that would support the 
price that they bid. We would ask for price sheets, 
manufacturer invoices, or other information that detailed 
service requirements in order to support the amount that they 
bid. And if they could not support that bid price, we actually 
threw out those bids. We feel that that process worked very, 
very well.
    And so we are carrying that forward to the next two, Round 
2 in the 91 areas and actually expanding it. We don't feel as 
though the lock-in aspect, or issue is necessarily practical 
and we do have a concern that the statute may not allow us to 
carry that type of aspect or approach forward within the 
system. But we don't have concerns because what we found in 
Round 2, was that essentially 92 percent of suppliers accepted 
their contract offers. The ones that did not accept their 
contract offers, essentially their prices were about half above 
the price or the median, and half below. So we didn't see that 
as a concern impacting price. That said, I think it is 
something that we should look at as the program moves forward, 
and consider.
    Chairman HERGER. Another concern we often hear is that 
because participation in Medicare will be limited to suppliers 
whose bids are accepted, other suppliers might be unable to 
stay in business, and there would be less competition when 
contracts are rebid in future years. What is your reaction to 
this concern, and could you also comment on why CMS believes it 
makes sense to limit participation to winning bidders rather 
than allowing any willing supplier to receive the competitively 
bid rate?
    Mr. WILSON. When we read the statute, it certainly tells us 
that we can only contract with the winners in the competition 
to provide services. But I think there is an important reason 
for that. If you allowed non-winners to subsequently 
participate, there would be no incentive to offer value to 
Medicare and the taxpayers, no incentive to bid a price that 
truly represented a true market price for the product. And so I 
think it is important, from an economic sense and from a 
program savings perspective, and value to beneficiaries, to 
keep the program the way it is in that regard.
    Chairman HERGER. Thank you. Mr. Thompson is recognized for 
5 minutes.
    Mr. THOMPSON. Thank you, Mr. Chairman. Mr. Wilson, in your 
testimony, you state that the Round 1 rebid saved about $200 
million so far.
    Mr. WILSON. Yes, sir.
    Mr. THOMPSON. Do those savings accrue to both the Federal 
Government, and to the beneficiaries?
    Mr. WILSON. They do.
    Mr. THOMPSON. If so, well, they do, so how much about the 
Government save, and how much did beneficiaries save?
    Mr. WILSON. I think we need to do further analysis of that. 
What I can tell you today, sir, is that at least $41 million of 
the $202 million, is direct beneficiary savings in terms of 
coinsurance. I think there are additional savings that are 
related to premium offsets, and I would be very happy to get 
back to you on that particular issue.
    Mr. THOMPSON. Okay, thank you. And how much does the 
average DME user in these areas save? Do you have that number?
    Mr. WILSON. Sure, the average price savings, is 35 percent, 
as I mentioned in my testimony, and so I think that on average, 
given that coinsurance is 20 percent for beneficiaries, that 
they would save that 35 percent on their coinsurance.
    Mr. THOMPSON. Well, and thanks for the good work of 
everyone on this committee on both sides of the aisle. The 
MIPPA strengthen accreditation requirements for all Medicare 
DME suppliers. Has this requirement helped prevent fraud, waste 
and abuse within the Medicare program?
    Mr. WILSON. I absolutely think it has. It does several 
important things. It elevates the standards by which suppliers, 
that suppliers need to meet in order to participate in the 
program. It also provides for some very, very important 
clinical requirements that relate to how beneficiaries are--how 
the items and services are delivered to beneficiaries, how they 
are educated, and what standard suppliers need to meet for the 
delivery of very, very important, and critical care items like 
oxygen and wheelchairs.
    Mr. THOMPSON. And how about the so-called illegitimate 
suppliers? Were you able to weed out some of those as well?
    Mr. WILSON. Well, we think that the accreditation program 
absolutely does that, because again, it sets standards. 
Accreditation agency goes out and survey suppliers. They need a 
physical location in order to be surveyed. Information is 
collected. And so I think that those kinds of standards erect 
barriers which filter out or stop at the front door some of 
those illegitimate suppliers.
    Mr. THOMPSON. The information that we have suggests that 
CMS has received about 130,000 beneficiary inquiries, and about 
150 beneficiary complaints about the competitive bidding 
program in 2011. And as you know, it is important that we 
figure this one out, and make sure that beneficiary access to 
necessary suppliers is appropriate. But we also need to make 
sure that suppliers are complying with the terms of their 
contracts. So can you give us an example, or any examples of 
beneficiary inquiry or complaints that indicated supplier 
access, or quality problems and the actions that your agency 
took to correct those?
    Mr. WILSON. Sure. I would be happy to do that. And the 
first thing I would say is we are very pleased with the 1-800 
response because we heavily marketed 1-800 to our information 
intermediaries like beneficiary groups and State health 
insurance programs and many, many others so that we could 
answer questions about the program and help our beneficiaries 
get the items and services they need.
    I think a good example of how we were able to address some 
concerns that came up through the call center process may go to 
wheelchair repairs. We had several instances of beneficiaries 
not being able to obtain repairs. The supplier was having 
difficulty getting parts from the manufacturer. We intervened 
in that process, facilitated a discussion between the 
manufacturer, the supplier, and the beneficiary in order to 
make sure the parts could be acquired to fix the wheelchair. 
And then beyond that, CMS went back and looked at its repair 
policy and expanded it to allow essentially any supplier to do 
any repair so that we could stem any future problems like that. 
So we had a policy response that worked. We had a response for 
the individual that worked, and I think that that was a very 
good result.
    Mr. THOMPSON. And then in the areas with competitive 
bidding, there has been some concerns that it has brought about 
an increased use in hospital care and ER visits. I know you are 
monitoring this. Can you speak about this complaint and about 
that increased hospital visit issue?
    Mr. WILSON. I would be happy to. We are not seeing 
increased hospitalizations. We have a very sophisticated 
monitoring system. We look at the entire competitive bidding 
area. We look at those beneficiaries that may be in a specific 
disease group, COPD, emphysema, that may use oxygen for 
example, that are likely to access the product, and then we 
look at the specific utilizers of the product. We look at all 
three cohorts to see if there are any types of concerns which 
would go to maybe their ability to get to a supplier, or even 
the quality of the product with looking at the ones that 
actually utilize it. We are not seeing increases in hospital 
utilization, hospital admissions compared to the comparator 
regions.
    Mr. THOMPSON. And the ER visits part?
    Mr. WILSON. And the ER visits, mortality, any of those 
important indicators. So we are very pleased with the health 
outcomes information that we are able to review. And I would 
just note as well, that we are looking at 100 percent of the 
Medicare database. We are not looking at a sample. We recreate 
this every 2 weeks. Policy staff, clinicians, physicians sit 
down and review this data, and so we are very, very attuned to 
what is going on and we take the monitoring program very 
seriously.
    Chairman HERGER. The gentleman's time is expired.
    Mr. THOMPSON. Yield back.
    Chairman HERGER. Thank you, the gentleman from Texas is 
recognized.
    Mr. JOHNSON. Thank you, Mr. Chairman. Mr. Wilson, you said 
in your testimony CMS has a goal of 30 percent of the contracts 
go to small businesses, or small suppliers as you call them. Is 
this an internal goal or requirement by Congress and do you 
feel 30 percent is an adequate target?
    Mr. WILSON. Well, I would just start by saying, 
Congressman, that we are very pleased with small supplier 
participation in the program. The statute tells us we need to 
have at least two suppliers in every competitive bidding area, 
and it says we need to essentially help or provide 
opportunities for small suppliers to participate. We have gone 
way beyond that by setting up networks, or setting up a policy 
to allow small suppliers to join into networks. A new 
definition that we worked through with the Small Business 
Administration about the definition of a small supplier, and 
then we tied an important policy to that that essentially set a 
30 percent target for small supplier participation, whereby, if 
30 percent of the winners in a particular competition, in a 
particular area, by product category, are not small suppliers, 
we would add small suppliers until we met that target.
    That was very successful. We ultimately had about 51 
percent of participating suppliers in the first nine areas 
meeting that definition of the small supplier. So we think that 
is a very good result.
    Mr. JOHNSON. Thank you. Is there any difference between 
metropolitan and rural?
    Mr. WILSON. I am sorry, Congressman, I couldn't quite hear 
that.
    Mr. JOHNSON. Is there any difference between metropolitan 
areas an rural areas?
    Mr. WILSON. There is quite a bit of difference between 
metropolitan and rural areas.
    Mr. JOHNSON. I know that. How do you address it?
    Mr. WILSON. Well, we address it in a few important ways. 
One, we follow the terms of the statute which essentially say 
we cannot bid in a rural area, so we do not. We also have 
authority under the statute to essentially carve out of 
metropolitan areas any low-population density areas. So we have 
done that in a number of cases so that we are truly looking at 
integrated urbanized areas where there is a competitive number 
of suppliers and beneficiaries that will make the program work, 
generate savings for the program, and patients.
    Mr. JOHNSON. Well, I think small businesses are important 
job creators in this country, and I am pleased to hear that 51 
percent of the contracts awarded went to small business. What 
are you doing to make sure that number holds steady and small 
businesses will always be part of the competitive program?
    Mr. WILSON. Well, we have offered the same opportunities in 
the current Round 2 of the program that we successfully brought 
forward in the initial round of the program. And we believe 
that that 30 percent target will allow us to have a lot of 
small suppliers participate.
    Mr. JOHNSON. You worked with the Small Business 
Administration several years ago to create the definition of 
small supplier for this program, and under this definition of 
small supplier is a supplier that generates gross revenues of 
$3.5 million of more--or less in annual receipts, including 
Medicare and non-Medicare. Do you feel this definition is still 
an accurate representation of the DME community?
    Mr. WILSON. It is the definition that we currently are 
using. I believe it is still accurate. I think that is a very 
good question that I would be happy to look into further to see 
if, you know, potentially it should be revisited, and I will 
say that we have not revisited it since 2009 so it may be time 
to do that.
    Mr. JOHNSON. Well, why was the definition lowered from your 
previous standard of $6.5 million?
    Mr. WILSON. Well, $6.5 million was the standard for a small 
business, which is a more general standard. What we wanted to 
do was specifically target DME suppliers, because that is a 
narrower definition, or a narrower term of business, and to see 
what was reflective of that cohort.
    Mr. JOHNSON. Thank you. Thank you, Mr. Chairman, I yield 
back.
    Chairman HERGER. Thank you, Mr. Nunes is recognized.
    Mr. NUNES. Thank you, Mr. Chairman. Mr. Wilson, I am told 
that 80 to 90 percent of American businesses are being excluded 
from supplying Medicare beneficiaries under the competitive 
bidding model that CMS has implemented in the nine competitive 
bid areas, and I have three examples here of this. The first 
one is there were 1,409 suppliers of CPAP respiratory devices 
and supplies. Now there is 105. That is a 93 percent reduction. 
The second example is, there were 1,433 suppliers for life-
support oxygen, and now, there are 211. That is 85 percent 
fewer.
    If a senior needs a walker, there used to be 1,501 
locations to choose from. Now there are just 133. That is about 
a 94 percent reduction. So I am not an expert here, but given 
the size of the senior population and the growth and what seems 
to be a limited number and dwindling number of people being 
able to win these competitive bids, and then by your own 
numbers, people who even won the bids backed out, do you know 
why people that win the bids are backing out?
    Mr. WILSON. Congressman, are you referring to the 8 percent 
that I cited; 8 percent of bidders that did not accept their 
contracts?
    Mr. NUNES. Yeah, why is that happening?
    Mr. WILSON. We do not know why they didn't accept their 
contracts.
    Mr. NUNES. Okay, so how it is possible that if you are 
going to reduce the number of suppliers that seniors won't be 
impacted? And if the program is working well, why would bidders 
be pulling out?
    Mr. WILSON. We don't know why that very small number of 
bidders decided not to accept our contract. It could have been 
for any number of reasons. We have suppliers that come into the 
program and out of the program all the time. That has always 
been the case, competitive bidding aside.
    I think the thing that I say about looking at the numbers 
you cited, and looking at this industry, there are a lot of 
supplier numbers, a lot of suppliers providing a small amount 
of DME. It is not a big part of their business and so the 
numbers you cited don't really go to full-service DME suppliers 
that are providing a lot of items, and I will give you an 
example. I will use Pittsburgh, a place that I am familiar 
with. In Pittsburgh, there were about, in 2010, about 815 DME 
supplier numbers. Only 169 were providing more than $10,000 in 
DME billing, so very small part of their business; maybe a 
cane, maybe a walker; maybe, you know, a few boxes of test 
strips, but not a big part of their business. I think seniors 
will not be impacted because we always award enough contracts 
to guarantee access.
    So when we looked, when we looked back at the 2008 round, 
what we saw was, we set a demand target that was generous in 
order to guarantee that beneficiaries would have access and 
choice, and the actual number of supplies and items delivered, 
fell far short of that. That way we were absolutely sure that 
we could guarantee access. We never want to worry about that.
    Mr. NUNES. But are you concerned with the three examples 
that I gave, like 85, to 95 percent reductions in suppliers. 
That seems like a just a huge change, or are you disagreeing 
with those numbers, or you agree that has happened?
    Mr. WILSON. I can't--I can't tell you if I agree that is 
happening. I would really have to look at the data. I think 
what I am saying is that when I looked at the data, I am seeing 
a much different picture about the composition of the industry, 
and who is providing a level of service that is important in 
the marketplace for ensuring access for our beneficiaries. And 
what I understand is that the great majority----
    Mr. NUNES. I will tell you what I will do. I will get you 
the data that I have, and the examples that I have, and I will 
get those to you in writing and where I got the data from, and 
we will see if that matches up with your data, and see if, in 
fact, the suppliers are reducing dramatically in the 
marketplace. And so at least then we can clarify here whether 
there has been an 85, 95 percent reduction in some areas of 
suppliers. Will that be okay?
    Mr. WILSON. I would be very pleased to look at it, sir.
    Mr. NUNES. Okay, thank you, Mr. Wilson. Thank you, Mr. 
Chairman.
    Chairman HERGER. Mr. Kind is recognized.
    Mr. KIND. Thank you, Mr. Chairman. I want to thank the 
witnesses for your testimony here today, and Mr. Wilson, start 
with you. It sounds, based on your testimony, that so far so 
good. We are seeing some promising significant cost savings 
without jeopardizing access of care, quality of care, 
utilization or choices of patients, and you also cited--I 
wasn't clear what this was referencing--$272 of savings per 
beneficiary. Is that an estimate of what the beneficiaries were 
receiving in the last year based on the savings?
    Mr. WILSON. That was an example that I used to show what a 
beneficiary would save in Orlando on a standard power 
wheelchair.
    Mr. KIND. Oh.
    Mr. WILSON. Based on coinsurance.
    Mr. KIND. Just on a standard power wheelchair in the 
Orlando market.
    Mr. WILSON. Yes.
    Mr. KIND. Okay. And the $202 million in savings was a 42 
percent reduction from 2010 from the previous year?
    Mr. WILSON. That is correct, a straight-line comparison.
    Mr. KIND. All right. Well, let me ask you and Ms. King, in 
regards to, and I think Mr. Nunes was kind of alluding to this 
in his questioning, is there concerns as we move forward and 
clearly, we are going to have to be attentive and continue to 
monitor this program and see how it plays out, but through the 
competitive bidding process, it is going to lead to greater 
consolidation and more suppliers dropping out, and getting back 
to Mr. Johnson's line of inquiry, and the impact on small 
businesses, is that something we are going to have to keep an 
eye on; greater consolidation and ultimately losing the power 
of competitive bidding in certain areas? Why don't you go 
first, Mr. Wilson.
    Mr. WILSON. Thank you. You know, I think we always have to 
monitor what is going on in the marketplace to ensure that 
there are no threats or concerns, particularly with respect to 
beneficiary access. I think we want a viable market. I think 
what we have tried to do is ensure participation of suppliers 
even beyond winning a contract, so there is a process for 
allowing subcontractors. There is a process where grandfathered 
suppliers, essentially, you can maintain the beneficiaries that 
you had prior to competitive bidding, and keep those and bill 
Medicare. There are opportunities to bill other payers. There 
are opportunities to bill Medicare for things and items that 
aren't included under the competitive bidding program.
    Mr. KIND. A 30 percent figure for small businesses, is that 
a goal or is that a requirement?
    Mr. WILSON. That is a target for us, and the reason why we 
call it a target, sir, is that it may be that in certain 
competitions, although this was fairly rare, that there may not 
be enough small suppliers that won a contract, or bid.
    Mr. KIND. Let me ask you something more specific to my 
area. I represent Western Wisconsin, and Round 2 of the 
Minneapolis/St. Paul will be part of the competitive bidding 
MSA area. That leaks into some rural western counties in my 
congressional district. My concern is, my guess is, that most 
of the businesses winning the competitive bids are going to 
come from the Twin Cities area. And my guess again, I could be 
completely wrong, and getting back to Mr. Johnson, this is 
going to put the squeeze on a lot of my small suppliers in 
Western Wisconsin where they won't be awarded the contracts, 
and might go out of business.
    We know that those that win the competitive bids have to 
service the Medicare beneficiaries, but there is no requirement 
that they have to service private insurance beneficiaries, 
including in the surrounding areas of the MSA area. Is that a 
concern, something that we should keep an eye on as we move 
forward in Round 2?
    Mr. WILSON. Well, on the first part, sir, I think the--we 
are hopeful that a lot of small suppliers will participate. 
Based on our experience, we think they will. But we are going 
to look at that pretty closely. In terms of participating, 
participation with private insurance, I mean, we are seeing 
that with a lot of the suppliers currently in the Round 2--in 
the Round 1 areas. I think if that is a concern, that is 
something that we can look into and investigate for you.
    Mr. KIND. Yeah, because the counties that I describe in my 
district are heavily Medicare beneficiaries and so there is a 
smaller private presence in that. But even in the surrounding 
MSA area, and not within the MSA itself, the surrounding area, 
I am going to be, you know, concerned about the impact it is 
going to have on supplying private insurance beneficiaries 
through this next round. So that is something that you are 
sensitive to, or not aware of any potential problems?
    Mr. WILSON. Well, we are not aware of any potential 
problems; did not see any in the Round 1 areas. I think it is a 
very good point, and something that we can look into, because 
we do understand it is a broader marketplace and we don't want 
to have a deleterious effect on those beneficiaries.
    Mr. KIND. Right, right. Thank you.
    Mr. WILSON. Thank you.
    Chairman HERGER. Dr. Price is recognized for 5 minutes.
    Mr. PRICE. Thank you, Mr. Chairman. I want to thank the 
witnesses on a very important topic. Competitive bidding is 
extremely vital for--the supply of these things for our 
communities is extremely important. Many of us are concerned 
about the competitive bidding process. Many of us don't believe 
that it is actually competitive, and when we talk about canes 
and wheelchairs, as an orthopedic surgeon, that is one thing, 
but when you talk about oxygen supply, and CPAP machines, these 
are life-saving and life-threatening devices if they are not 
available. So I think it is absolutely vital that we remember 
the importance of what this means to patients, to patients in 
the community.
    Mr. Wilson, I have got a number of questions and I will 
follow-up with written questions afterward. But are you aware 
of how many Round 1 contract winners have gone out of business?
    Mr. WILSON. They won a contract and then subsequently went 
out of business?
    Mr. PRICE. Yes.
    Mr. WILSON. My understanding, I don't have an exact number 
for you. We would be happy to provide that, but I understand it 
is only a handful.
    Mr. PRICE. But you have that information?
    Mr. WILSON. We do.
    Mr. PRICE. Okay, if you could get that to us, that would be 
great. Does CMS screen the providers to determine whether or 
not they actually have the capacity to serve the Medicare 
population in an area?
    Mr. WILSON. We do very carefully.
    Mr. PRICE. How do you do that?
    Mr. WILSON. Well, there are a number of different tools 
that Medicare uses to screen a provider, both within the 
competitive bidding program and outside of the competitive 
bidding program. But we absolutely want to assure the 
qualifications of a provider. So there are many Medicare 
requirements, supplier standards that have to be met. We also 
look at the state licensing, the accreditation program, which 
relies on quality standards. There is a specific set of 
qualities.
    Mr. PRICE. Many States don't have licensing requirements, 
mine being one of them. Ms. King, you mentioned, I believe, I 
didn't see it in your written testimony, but in your oral 
testimony, you said 44 percent of the contracts were awarded to 
companies that had previously not served that geographic area. 
Is that accurate?
    Ms. KING. Not quite; 44 suppliers, not 44 percent.
    Mr. PRICE. So Mr. Wilson, how, with those 44 suppliers, how 
do you determine their capacity to serve a population if they 
are never served before?
    Mr. WILSON. Well, they all need to be accredited and meet a 
set of quality standards. The quality standards include 
product-specific standards for oxygen, and all other 
requirements under the Medicare program.
    Mr. PRICE. But they have never served that area before.
    Mr. WILSON. Well, I don't think that we see a lot of oxygen 
suppliers that have never provided oxygen before. I think what 
I would tell you is that 76 percent of all suppliers awarded a 
contract were experienced in an area providing the--providing 
the services for which they were awarded a contract.
    Mr. PRICE. Are you aware of the number that Mr. Nunes 
referred to in the nine CBAs, 1,409 suppliers of CPAP and 
respiratory devices before Round 1. Now there are 105, a 93 
percent reduction. This isn't a cane or a hospital bed. These 
are CPAP machines, respiratory devices, respiratory-assist 
devices, life and death issues. Are you aware of that number?
    Mr. WILSON. I am not aware of that specific number. I can 
tell you that there were over 950 oxygen suppliers in Miami 
prior to the competitive bidding program going into effect. We 
don't think that all of those providers and provider numbers 
were appropriate.
    Mr. PRICE. What if the patients think that one of those 
that is actually the most responsive in their experience ought 
to be the one providing their care? Does that come into play?
    Mr. WILSON. Well, we want to have patient choice under the 
program, and so we award more than enough contracts.
    Mr. PRICE. Tell me how patient choice is arrived at when 
you have 1,409 suppliers before CMS intervenes, and 105 
afterward. Tell me how that satisfies patient choice.
    Mr. WILSON. Well, for the items you mentioned, I would say 
that those are grandfathered items. They can elect to stay with 
their current supplier.
    Mr. PRICE. And as you know, the problem with that, is that 
as your program continues, the grandfathering ability to 
participate and the number of patients that they have dwindles; 
and therefore, they have much greater difficulty being able to 
continue their provision to the community.
    Mr. WILSON. That is true, but the individual patient can 
still elect to maintain their relationship with that supplier.
    Mr. PRICE. Are you aware of the number that was also quoted 
by Mr. Nunes, 1,433 suppliers of life-support oxygen; now there 
are 211, an 85 percent decrease?
    Mr. WILSON. I am not aware of that. I am aware of some of 
the very, very high number of suppliers in certain areas of 
the----
    Mr. PRICE. Understanding that it is patients who are 
affected by this most directly, not CMS?
    Mr. WILSON. We hope--we hope to provide choice for 
patients, and we hope to judge the qualifications of suppliers 
so that they meet the standards that allow them to provide.
    Mr. PRICE. I would encourage you to reread Ms. King's 
testimony which says that there is not the information 
available yet that allows us to draw that conclusion. Thank 
you, Mr. Chairman.
    Chairman HERGER. Thank you, Mr. Buchanan is recognized.
    Mr. BUCHANAN. Yeah, thank you, Mr. Chairman. And I want to 
also thank our witnesses for being here today. Mr. Wilson, back 
to your term, integrity of bidding. Is it true, that CMS has no 
mechanism to ensure that suppliers actually have the capacity 
to meet their claims in terms of their bid? For example, 
suppliers are not required to provide a letter of credit with a 
deposit or a surety bond.
    I guess I am talking about how do you determine whether a 
supplier is credible, or viable?
    Mr. WILSON. Well, we do have a process put in place by the 
Congress to ensure that they are viable providers that can meet 
the terms of their contract.
    Mr. BUCHANAN. What is that process? Do you have a letter of 
credit, or is there a surety bond? Some of the larger 
suppliers, what, you know, what how do you look at that, just 
so I know.
    Mr. WILSON. There are financial standards required under 
law, so we do look at a number of different data points, the 
same types of data elements, financial ratios that banks use to 
judge viability of either a borrower, or a business. And so we 
collect tax documents, balance sheets, cash flow. We get credit 
reports, credit scores, and other information that we can then 
use to evaluate whether or not the business, that the supplier 
is viable and able to meet the terms of their contract over a 
3-year period.
    Mr. BUCHANAN. Also, Mr. Wilson, if a contractor doesn't 
meet his commitments as a supplier, are there any penalties?
    Mr. WILSON. We do have an oversight process that we have 
used. We want to make sure that suppliers are following the 
terms of their contract and the regulations, and where they do 
not, we have intervened with the supplier, we have called in 
accreditation organizations to do surveys, and we have actually 
pulled contracts.
    Mr. BUCHANAN. Also, just at a conference last year, Mr. 
Blum stated he was concerned with overutilization. If 
overutilization is a problem, wouldn't it be more effective to 
redefine eligibility criteria? In terms of overutilization, 
that is what we are talking about here. That was his quote.
    Mr. WILSON. I think that the accreditation program is a way 
that Congress put in place as a way of redefining the 
eligibility criteria for suppliers. I think also the 
competitive bidding program is another way where we only offer 
contracts to those that meet financial standards accreditation 
and offer the best value for Medicare and its beneficiaries.
    So I think that has had an effect on overutilization. And 
in reading the GAO report and looking at our own extensive 
monitoring, we have seen overutilization come down in the 
competitive bidding areas; but also, for those requirements 
that apply more broadly, we have seen utilization come down in 
other areas of the country as well.
    Mr. BUCHANAN. Mr. Wilson, one other question here. It is my 
understanding that the CMS has added electrical stimulation 
devices, TENS, to a list of products included in the recompete. 
TENS is a noninvasive therapy used by physicians for treating 
chronic lower back pain. However, effective last month, CMS 
plans to roll back coverage for TENS devices while they study 
TENS, which has been approved by the FDA. In fact, it has been 
approved over the last 30 years. Why not continue coverage of 
TENS until you guys finalize your studies?
    Mr. WILSON. Well, I know that that is a proposed decision 
upon which we are accepting comments right now, and so it could 
be that that is given consideration by the folks in our Office 
of Clinical Standards and Quality. I am not personally working 
on that issue.
    What I would say about adding those devices to competitive 
bidding is that we are required by law to essentially phase in 
all items of DME over time, the particular order of which is 
that those at the highest cost, highest volume. So we are 
trying to meet the terms of the statute in that regard. 
However, I would say that we have been talking with our 
stakeholders about some of the items that we have brought in, 
received some feedback from some, and I expect to receive 
more----
    Mr. BUCHANAN. Let me just say that there are people that 
have hundreds of employees, a lot of different firms, that are 
in the same situation. You create a lot of uncertainty when it 
has been approved by the FDA for 30 years, and then all of a 
sudden you cut it back without even completing the study. So I 
would just suggest that, you know, these are a lot of companies 
that create jobs, have been in business for some time, and just 
to create this uncertainty for them, they don't know what 
exactly to do going forward, because these studies in terms of 
government could run on for years. So they are very concerned, 
a lot of them, about this. So I hope that you will take some of 
their thoughts and ideas into consideration.
    Mr. WILSON. I will carry that message back to the folks 
working on those coverage issues.
    Mr. BUCHANAN. Thank you, Mr. Chairman. I yield back.
    Chairman HERGER. Mr. Roskam is recognized.
    Mr. ROSKAM. Thank you, Mr. Chairman. Mr. Wilson and Ms. 
King, thank you for your testimony today.
    Mr. Wilson, I just wanted to focus in on a couple of the 
themes you have heard from other members and reflect on some of 
the concerns that I am hearing from providers in suburban 
Chicago that I represent.
    Could you walk me through the process by which you evaluate 
a meritorious bid? So, in other words, what happens if you miss 
it? What happens if you get it wrong? What happens if a bid 
gets through the process and basically poisons the well and 
creates something that in fact isn't sustainable? What is the 
remedy?
    Mr. WILSON. Well, let me walk you through the process 
initially, and I can tell you how we address some of the 
concerns that have been raised, for example low-ball bids and 
maybe other issues.
    Mr. ROSKAM. Go to low-ball bids, because that is really 
what I am hearing about.
    Mr. WILSON. The first thing we want to do is we want to 
qualify the supplier. We want to make sure they meet all of 
Medicare's requirements, State requirements, everything else. 
We have an extensive process for doing that. So we evaluate the 
provider and then we scrutinize the bid, and the bid scrutiny 
starts with our low-ball bid process, something that we worked 
on with our advisory committee, industry and stakeholder 
advisory committee going back to the inception of the program.
    Essentially we screen out the lowest bids in a product 
category. We use a statistical measure to screen out the bottom 
ones. And then we ask the supplier to support that bid by 
providing information that shows us that they can obtain the 
product for less than what they bid and allow for the cost of 
the services to deliver to a beneficiary.
    Mr. ROSKAM. Let me just jump in. Have you had any 
experience where bidders have not been able to fulfill the 
commitment of their bid?
    Mr. WILSON. Well, within the bona fide bid process, we have 
thrown out bids where they could not document a price.
    Mr. ROSKAM. After you have approved it.
    Mr. WILSON. Yes.
    Mr. ROSKAM. So take the screened ones. I accept at face 
value that you have that original screening done. Somebody 
comes in, they meet that screen, and then they come through and 
as it turns out, they can't do it. Have you had that 
experience?
    Mr. WILSON. We have had that experience where a supplier 
maybe did not meet the terms of their contract, where they were 
maybe unwilling to go deliver an item to a beneficiary that was 
a little bit far from their location or maybe not offering 
certain services that they should be offering, and we have put 
them on corrective action plans. This is a handful of cases. If 
they have not met the terms of that corrective action plan, we 
have sent in accreditation organizations to resurvey them, and 
if they have not come back into compliance, then we have pulled 
their contracts in a handful of cases.
    Mr. ROSKAM. Ms. King, you have done the evaluation. My 
memory is you have done the evaluation of those nine areas, is 
that correct?
    Ms. KING. We have.
    Mr. ROSKAM. Did GAO come across any examples of folks that 
had made a bid and not been able to follow through on the bid 
based on pricing, in other words, the so-called suicide bids 
where they come in too low?
    Ms. KING. That was not part of our analysis.
    Mr. ROSKAM. So you did not even look at that?
    Ms. KING. We did not.
    Mr. ROSKAM. Okay. Mr. Wilson, going back to you for just a 
minute, could you speak about--there is some controversy around 
this bidding process, obviously, and there is a public group of 
economists and others with some renown that have criticized the 
bidding process itself.
    What is it that animates the hope in you that they are 
wrong, that all these people that have criticized, it is just 
like they don't get it? Because it seems to me like there may 
be something ``there'' there, and you seem to have an 
extraordinary amount of confidence. From what does your 
confidence come?
    Mr. WILSON. I think there are two important goals for this 
program, and a bunch of others, but two important ones. One is 
to provide a savings for the taxpayers and beneficiaries of 
Medicare. The other is to ensure that our beneficiaries don't 
have any negative effects on their health.
    Mr. ROSKAM. Agreed completely.
    Mr. WILSON. And we have seen--and that access is 
maintained. We have monitored that very, very closely and have 
seen that those goals are met. So that makes us pleased with 
the result that we have.
    Beyond that, I think that when a group of economists of the 
type that we saw writes us a letter, we take it very, very 
seriously. And we looked at the particular issues that we 
raised, we talked about them internally with our lawyers and on 
the policy staff with our leadership to see if those are things 
that we could do.
    I think at the end of the day, at least where we are in the 
program now, we had some concerns about moving forward with 
those. One was this lock-in issue, about being able to, if you 
bid, and you are locked into your contract, you can't turn it 
down. I think from a practical matter, we don't feel we have 
the authority to do that, but, more importantly, do we want to 
lock in a supplier that doesn't want to participate and make 
them go into a beneficiary's home and give them critical health 
care services.
    Mr. ROSKAM. My time has expired. Thank you.
    Chairman HERGER. Mr. Pascrell is recognized.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Mr. Chairman, I think that our committee's hearing back in 
2008 showed that competitive bidding for durable medical 
equipment is a place where we can find some agreement, believe 
it or not. In 2008, when we saw the real problems with the 
initial incarnation of DME bidding, both sides came together to 
bring the program back to Earth.
    As this program is about to expand to 91 additional 
metropolitan areas, including northern New Jersey, I would say 
that we must ensure that beneficiaries continue to have access 
to lifesaving equipment at affordable prices. But it all comes 
back to our seniors. This needs to be about delivering the best 
care to beneficiaries for a lower price.
    Prior to implementation, Mr. Wilson, did CMS evaluate how 
the competitive bidding program would specifically impact 
patients residing in skilled nursing facilities, nursing 
facilities and intermediate care facilities? Secondly, what is 
CMS doing to ensure that these provider settings are not unduly 
impacted by the competitive bidding program prior to expanding 
the program to 91 additional MSAs nationwide. Could you answer 
those two questions, please?
    Mr. WILSON. Yes, sir. I think we did focus on the skilled 
nursing facility setting to see whether there were particular 
issues that we would need to address to make the program work. 
Really the only item that is a central concern for skilled 
nursing facilities under the DME competitive bidding program 
are the enteral nutrition services. So we did look at that 
issue. We did provide for a special category of bidding where a 
skilled nursing facility could bid to just provide services to 
their own patients. They wouldn't have to meet the other terms 
of the contract that other suppliers would.
    So we did allow this essentially exceptional process to 
exist for them, and we have been monitoring that area of the 
program closely to look and see whether there are concerns with 
respect to health outcomes for the patients receiving those 
services in skilled nursing facilities. We are not seeing any 
concerns right now and we haven't heard any either through the 
complaint or inquiry process. But if anyone, or you, sir, are 
hearing those, we would be happy to look into them.
    Mr. PASCRELL. So you don't see any impacts that we should 
be concerned about at this point?
    Mr. WILSON. I don't at this time. However, we will continue 
to monitor that closely as part of the system that we have put 
in place.
    Mr. PASCRELL. Mr. Chairman, I think that we need to follow 
up, particularly in terms of the impacts of each of these 
procedures in different specialties within these nursing homes, 
nursing facilities, and not just the nutritional area. But the 
other areas you said do not have any concerns of yours?
    Mr. WILSON. DME, durable medical equipment as a benefit 
category under Medicare is not covered in skilled nursing 
facilities. The skilled nursing facilities under Medicare law 
are expected to provide those items to their in-patients. So 
oxygen, wheelchairs, all of the rest are really outside of the 
program we are talking about today.
    Mr. PASCRELL. Okay. Thank you, Mr. Chairman.
    Chairman HERGER. Thank you. Mr. Tiberi is recognized.
    Mr. TIBERI. Thank you, Mr. Chairman.
    Mr. Wilson, I realize that based on your testimony, you see 
few problems with the current competitive bidding process. In 
your opinion, why are so many suppliers dissatisfied with this 
current program?
    Mr. WILSON. You know, we do understand that this represents 
a change for suppliers. We do understand that the program 
represents reduced prices and less access to the Medicare 
market. I think what we have tried to do is to work with our 
stakeholders, suppliers, beneficiaries to understand how we can 
provide greater access, are there changes we can make to make 
the program work better but still achieve our goals. But we do 
understand that there are some fundamental goals in the system 
that don't always maybe meet their goals.
    Mr. TIBERI. There are many that believe that the current 
program will lead to fewer suppliers sooner, maybe for sure 
later, meaning less competition and ultimately fewer to supply 
a growing number of beneficiaries which will lead to higher 
costs because of the less competition. What do you think about 
that?
    Mr. WILSON. You know, I think we have seen some 
consolidation in Medicare when you look at different benefit 
categories and different items. I think there is certainly the 
potential for some of that here. I think whether that results 
in a threat to access, I really don't see that coming. I think 
there is lots of access in the market now. I expect there will 
be access to meet the growing beneficiary population.
    Mr. TIBERI. Are either of you aware of auction expert and 
economist Dr. Peter Crampton's recent criticism of the 
competitive bid process. Has that caused CMS at all to 
reevaluate?
    Mr. WILSON. Yes, and I think I addressed that a little bit 
earlier. I think we heard the issues coming from the economists 
that I think wrote this committee and wrote us. Dr. Crampton 
was the principal economist behind that letter and behind the 
effort to sort of look at these issues.
    We met with him several times to hear his concerns and his 
ideas. I think at the end of the day, we were moved away from 
the two issues that he was really concerned about. One is this 
lock-in issue that I discussed, and the other is median price. 
We think the program worked well the way we set it up and that 
there were problems making the changes that he described.
    I think one of the fundamental differences here is that we 
very much view the program as a way to--as more of a Medicare 
payment system that employs competition, and I think the 
perspective of Dr. Crampton and the economists' letter is more 
this should be looked at as a commodities type auction. This is 
about providing services to patients in the home, and we have 
held that first.
    Mr. TIBERI. So have either of you read the industry's 
market pricing proposal, and, if so, what do you think?
    Ms. KING. It is not something that we have evaluated.
    Mr. TIBERI. Okay. Mr. Wilson?
    Mr. WILSON. I have been provided a copy of the legislative 
language and I read that several months ago.
    Mr. TIBERI. What do you think?
    Mr. WILSON. We have some fairly fundamental concerns with 
the program as we read that legislative language. I think the 
first thing that I have mentioned is that when you look at some 
of the mechanics of the system that they have set up, we 
believe that it will result in almost universal failures of the 
auctions that they set up.
    Mr. TIBERI. All right. The last question is how much has it 
cost to implement the competitive bidding program, and did CMS 
have to hire additional staff?
    Mr. WILSON. Yes, sir, CMS hired a few additional staff. I 
can get you a number in terms of what we have spent so far. I 
am sorry I don't have that today. When I did an analysis about 
a year ago, I can tell you that the administrative cost was 
about .04 percent of the savings that resulted from the 
program.
    Mr. TIBERI. Ms. King?
    Ms. KING. That is something that we were asked to look at 
as part of our work, and we collected some of the operational 
costs for operating the program and it was partly implemented 
through contractors, and costs that we were able to identify 
were about $19.6 million.
    Mr. TIBERI. To implement?
    Ms. KING. Yes.
    Mr. TIBERI. $19.6 million?
    Ms. KING. Yes.
    Mr. TIBERI. That is a number that will continue to grow, 
right, as it continues to be implemented, thus far?
    Mr. WILSON. It will grow as we expand the program to 
additional areas, yes, sir.
    Mr. TIBERI. And you will get back to me on the number of 
employees?
    Mr. WILSON. I can get you that.
    Mr. TIBERI. Thank you.
    Chairman HERGER. Ms. Black is recognized.
    Mrs. BLACK. Thank you, Mr. Chairman. Let me begin by 
thanking the chairman for allowing me to sit on the committee 
and hear the testimony and ask questions. I appreciate that.
    I want to just go down the future and look at what is going 
to happen in the future. So I wasn't able to find in the 
documentation, I wasn't here earlier for your oral testimony, 
you may have said this, but how long are these contracts for?
    Mr. WILSON. By law, the term is 3 years or fewer. So 
generally we have used a 3-year term.
    Mrs. BLACK. Okay. So we have 3 years worth of contracts. 
And then after that, we are going to put out bids again and we 
have already narrowed the pool of bidders. So how do we, going 
forward, I think you can show up to this point in time, by at 
least what I see here in this documentation, that there has 
been some savings. But when you narrow the pool of competitive 
bidders for the next round, how does that make sense? Now you 
have less people bidding.
    Mr. WILSON. Well, you may have less people bidding. You may 
have more. I don't any think we know that. I think we still see 
many, many suppliers in the marketplace continuing to provide 
services. So I think we are already recompeting Round 1 of the 
program. We just began that process.
    Mrs. BLACK. How do you have more suppliers coming into a 
program where they can't be reimbursed? Are you talking about 
subcontractors? Are they then going to be able to bid?
    Mr. WILSON. Sure. Subcontractors can bid, suppliers that 
are providing services maybe through Medicaid programs, those 
patients, private patients, those providing services that are 
not yet included in the Medicare program for competitive 
bidding.
    Mrs. BLACK. Ms. King, do you have any feeling on how this 
will affect future bidding when you narrow the pool?
    Ms. KING. I think that it is not something that we have 
examined, but we think that the program bears watching in the 
future to see what happens to the number of contract suppliers. 
But I think also, as Mr. Wilson said, it is not only the people 
who won in the first round who can bid in the second round. 
Other suppliers and subcontracting suppliers, new entrants into 
the market, people serving private beneficiaries will be able 
to bid in the second round.
    Mrs. BLACK. Well, I am concerned about access, and I have 
heard that. About 50 percent of my district is rural, so there 
are many of those suppliers that have gone out of business 
because they said they just, you know, are not able to compete, 
and I have heard from some of my constituents that they are not 
getting access the way they were previously. So I do have a 
concern about that.
    But, Ms. King, let me go to you because your report looks 
at utilization for product categories by comparing the first 6 
months of 2010 with the first 6 months of 2011. Does GAO 
believe that reduced utilization in these MSAs is a sign of 
access of care being restricted?
    Ms. KING. No, we don't necessarily draw that conclusion, 
because we don't start with the premise that the level of 
utilization in 2010 was the appropriate level of utilization. 
And given the fact that there aren't any demonstrated access 
problems in the first year, you know, we don't think that it 
necessarily means that beneficiaries did not have access to 
needed equipment.
    Mrs. BLACK. Also then back to you again, Ms. King, the GAO 
documents the numbers of contract suppliers that have not had 
previous experience with a product category or geographic area. 
Are there contract suppliers more likely to subcontract?
    Ms. KING. I don't actually know the answer about whether 
they are more likely to subcontract or not, but 31 percent of 
contracting suppliers had subcontracts as of the middle of the 
year last year, so it is a pretty common experience for 
contractors to have subs.
    Mrs. BLACK. I am sorry, what was the percentage?
    Ms. KING. Thirty-one percent.
    Mrs. BLACK. Okay, 31 percent. So there is no evidence right 
now that these suppliers are unable to fulfill their 
contractual agreements from what you have seen?
    Ms. KING. No.
    Mrs. BLACK. Thank you, Mr. Chairman. I yield back my time.
    Chairman HERGER. Thank you. Mr. Gerlach is recognized.
    Mr. GERLACH. Thank you, Mr. Chairman. I am sorry, I was out 
for a constituent meeting there. I am sorry if I ask a question 
that might have already been posed.
    But I was curious about, Mr. Wilson, the mail order 
diabetic supplies issue. Is that category of product, is that 
just as it says, mail order diabetic supplies versus a local 
pharmacist that might have a practice of doing home delivery of 
diabetic supplies, either to an individual senior's home or to 
a long-term care facility? Is the mail order diabetic supply 
that you are part of Round 1 that you were bidding and then 
providing reimbursement for just mail order?
    Mr. WILSON. In the Round 1 program, that is correct, sir. 
It was just mail order basically through a commercial or 
government mail carrier, and home delivery and walk-in retail 
could be treated separately. For the national mail order 
program that we are rolling out now, our definition of what 
constitutes mail order will change and essentially we will have 
deliveries to home through the mail or home delivery through a 
van, all of that will be subsumed in the national mail order 
program, although walk-in retail, if someone wants to go in, 
talk to their pharmacist, get their drugs from the same place 
they get their diabetic test strips, they will still be able to 
do that.
    Mr. GERLACH. But how will the independent community 
pharmacist be able to continue to provide that home delivery to 
a senior that has a very great difficulty getting out of her 
home to get to the local pharmacy, how will you properly 
reimburse the local pharmacist for that delivery to make sure 
that kind of patient access and patient care is maintained?
    Mr. WILSON. Well, I think we will be able----
    Mr. GERLACH. Will you provide a separate home delivery 
reimbursement to the pharmacist for doing the home delivery?
    Mr. WILSON. Essentially if it is a home delivery, it would 
have to be accomplished through the national mail order 
program.
    Mr. GERLACH. Okay. But that is not answering my question. 
My question is, how will you reimburse the pharmacist so the 
pharmacist can still get out into the home of that patient, see 
that patient, talk to that patient, answer questions for that 
patient, without making that patient, who has a very difficult 
time physically from leaving his or her home and driving X 
number of miles to the pharmacist, who is not necessarily going 
to get reimbursed anymore for that home delivery under this new 
model?
    Mr. WILSON. I don't know that our model accommodates that 
particular situation.
    Mr. GERLACH. So is that not then the patient access issue 
that might have been raised in Ms. King's statement saying that 
the accessibility issue is not fully vetted here in your review 
of this situation, and you are not sure of what the impacts 
might be on patient accessibility and patient care?
    Mr. WILSON. What we are talking about in the national mail 
order is just replacement test strips. So they have their 
monitor. They can--if they need replacement test strips, that 
is something that can be sent through the mail. It is a very 
commodity type of product. That supplier, mail order, that 
provides it, is required to still be able to educate the 
patient, answer their questions and provide the services that 
they would normally get.
    Mr. GERLACH. It is my understanding, I have a local 
pharmacist who supplies supplies to a local long-term care 
facility, and he delivers a certain kind of supply product that 
they have requested, a certain kind of testing equipment, 
testing product. Under this new mail order diabetic supply 
program that you are going to have, and if it goes to a lower 
bidder that may use a different kind of testing product than 
the one that the people at this particular facility want to 
use, how is that going to be accommodated under that new 
program? Will they have to accept a testing product that they 
think is inferior compared to the one that this pharmacist now 
delivers to that long-term care facility? Will they have to 
just basically bite the bullet, I guess, and take the more 
inferior product, because that is the one that was awarded 
through this program?
    Mr. WILSON. I would have to look into exactly how that 
model would work at a nursing home, but I believe a caregiver 
at the nursing home could pick up the test strips and bring 
them back. I will look into that question.
    Mr. GERLACH. Can I write to you maybe and give a little 
more facts and circumstances around that question so you have 
an opportunity to look at it a little more fully and then can 
get back to me on that?
    Mr. WILSON. I would absolutely appreciate it because I want 
to make sure there are no concerns here, and if there are some, 
then I would like an opportunity to address them.
    Mr. GERLACH. Thank you. I appreciate it very much. Thanks.
    Chairman HERGER. Thank you. I want to thank Mr. Wilson and 
Ms. King for testifying today. Your insights and perspectives 
are extremely helpful.
    I would now like to invite our second panel of witnesses to 
step forward so we may hear the supplier and beneficiary 
perspective on this important issue.
    On our second panel of the subcommittee, we will hear from 
representatives of the stakeholders directly affected by the 
competitive bidding program. Two of the witnesses are here on 
behalf of supplier organizations.
    Joel Marx is the chair of the Board of the American 
Association of Homecare, an organization that represents a 
large number of DME suppliers from around the country.
    Wayne Sale is the chair of the Board of the National 
Association of Independent Medical Equipment Suppliers, which 
is a national organization that focuses on small mom-and-pop 
suppliers. We look forward to hearing not only the concerns 
that these organizations have with the current program, but 
also what they see as an alternative.
    We will also hear from a small business owner, Dino Martis, 
who is President of Ablecare Medical, Incorporated. Mr. Martis 
is a Round 1 participant who believes that the current 
competitive bidding program functions relatively well.
    Our final witness is Alfred Chiplin, who is the senior 
policy attorney at the Center for Medicare Advocacy. We look 
forward to hearing Mr. Chiplin share the beneficiary 
perspective. Mr. Marx, you are now recognized for 5 minutes.

STATEMENT OF JOEL D. MARX, CHAIR, BOARD OF DIRECTORS, AMERICAN 
                    ASSOCIATION FOR HOMECARE

    Mr. MARX. Good morning, Chairman Herger and Members of the 
Subcommittee. My name is Joel Marx. I have submitted written 
testimony which I hope will be accepted.
    I operate a medical service company which is based in 
Cleveland, Ohio. We provide virtually all types of home medical 
equipment and services, including oxygen therapy, wheelchairs 
and hospital beds. My company was founded by my parents in 
1950, and we have grown over the years and are now somewhat 
larger than the typical provider in our sector. We serve more 
than 25,000 patients annually through 14 locations in Ohio, 
Pennsylvania, upstate New York and West Virginia. My company 
was awarded several contracts under the bidding program.
    I am also testifying today as the proud chairman of the 
board of the American Association for Homecare, which is the 
primary trade association for providers of home medical 
equipment. The vast majority of the Association's members are 
small family operations that, like my company, have served 
seniors and people with disabilities in their communities for 
many years.
    Let me cut straight to the heart of the issue. We do not 
oppose a properly designed competitive bidding program for home 
medical equipment in Medicare. Let me repeat that. We do not 
oppose a properly designed competitive bid program for home 
medical equipment. In fact, we favor and strongly endorse a 
state-of-the-art auction system that would provide true market-
based pricing, save exactly the same amount of Medicare and 
beneficiary dollars that the current bidding system is 
projected to save, and corrects the fundamental flaws in the 
current system.
    The current system limits Medicare beneficiaries' access to 
care, it limits choices for consumers, and it will eliminate 
the Nation's existing network of home care providers, which 
will ultimately result in hardship and added costs for 
patients. That would be extremely shortsighted since home care 
is cost-effective and preferred by patients.
    The existing Medicare bidding program designed by CMS 
distorts the marketplace and the intent of Congress. It 
radically reduces the number of providers, that is, 
competitors, allowed to serve Medicare patients, thereby 
creating oligopolies in the marketplace. It is forcing home 
care providers to reduce supporting services in order to accept 
manipulated reimbursement rates obtained through a flawed 
process. These sufficiencies have been highlighted numerous 
times before Congress.
    More than 240 economists and auction experts, including 
several Nobel Laureates, have told CMS that significant 
modifications are needed to fix the current bidding program. 
More than 30 patient advocacy groups believe that the bidding 
program as structured today is flawed and needs to be changed. 
I describe the flaws in the current bidding program in detail 
in my written testimony, but let me mention a few of them 
briefly.
    The bids are not binding. This is unheard of in any auction 
system. The pricing calculation uses a median bid rather than a 
clearing price, and, as CMS has testified, half the bidders bid 
their best price and ended up with a price lower than that. And 
there has been a troubling lack of transparency at CMS.
    To fix the fundamental flaws in the bidding program, an 
alternative market-based pricing program for home medical 
equipment has been proposed by market auction experts and 
providers. That proposal, known as the Market Pricing Program, 
or MPP, would require changes to ensure a sustainable program. 
These changes are consistent with the original intent of 
Congress and save the same dollars originally expected.
    Let me just mention a few key features of the program. It 
is designed to be budget neutral, and it is now before CBO for 
scoring. The bids are binding. You stand behind your bid. There 
are bid bonds, performance guarantees. And only serious bidders 
will participate and no one will game the system.
    The bid price is based on the clearing price, not the 
median price, which conforms with standard auction design. 
Reimbursement rates in areas would be adjusted based on the 
auctions conducted in comparable geographic areas. Rural areas 
that are currently exempted would remain exempt.
    And finally, bid areas would be smaller than metropolitan 
statistical areas and more homogeneous. Current bidding areas 
can encompass up to three States with differing laws, 
regulations and costs. This ensures fairness to smaller 
community providers.
    We strongly urge Congress to pass legislation that would 
change the current bidding system to a sustainable market 
pricing program at the earliest legislative opportunity. This 
will not result in higher costs to Medicare beneficiaries and 
will fix a flawed program.
    We hope that Congress will take the advice of auction 
experts, listen to patient advocacy groups and work with the 
affected stakeholders to create a sustainable bidding system 
that will serve as a model for other parts of Medicare and not 
serve as a cautionary tale.
    I thank you and would be pleased to answer any questions 
the committee may have.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Marx follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Chairman HERGER. Mr. Sale, you are recognized for 5 
minutes.

STATEMENT OF H. WAYNE SALE, CHAIR, BOARD OF DIRECTORS, NATIONAL 
     ASSOCIATION OF INDEPENDENT MEDICAL EQUIPMENT SUPPLIERS

    Mr. SALE. Good morning and Members of the Committee.
    Chairman HERGER. If you could hit the button for your mic, 
please.
    Mr. SALE. I am sorry. Thank you, sir.
    Good morning Chairman Herger and members of committee. 
Thank you for calling this hearing. I appreciate the invitation 
and the opportunity.
    My name is Wayne Sale. I am the chairman of the National 
Association of Independent Medical Equipment Suppliers, NAIMES. 
I have been asked to present my observations of the CMS version 
of Congress' 2003 mandated competitive bidding program and 
forecast its effect when expanded into 91 additional CBAs.
    For many years, I have enjoyed going to auctions and 
bidding on everything from antiques to cars to artwork. At 
every one, I registered and was required to stand behind my 
bid. If I bid on it and I was the last guy to raise my hand, I 
bought it. If I scratched my head or waved my hand to a friend, 
I may buy it. So that is how auctions work. The high bidder 
wins when the buyer is bidding and the low bidder wins when the 
seller is bidding. Your bid is your word and your word is your 
bond. How else can it work?
    Well, CMS has developed a bidding process that is 
different. The bid that the sellers of medical equipment submit 
don't count. They go into a pile and are sorted from the lowest 
to the highest and CMS picks the one in the middle and assigns 
it to the product that they are bidding on. If you bid low, 
below the median price, they may ask you if you want to sell to 
Medicare, and if you decline, then they go to the next bidder 
and they ask them. Does that sound like an auction you have 
ever heard of?
    Well, that is the competitive bidding process that CMS has 
created in response to your 2003 directive. And a taxpayer may 
ask, did you get what you asked for? I am not an auction 
expert, but this is not an auction at all. There are no market 
forces at play here. There is no competition in the pricing 
mechanism when prices are chosen behind closed doors and then 
released in a memo that says these are the prices, take them or 
leave them. CMS has taken years of time and $20 million to 
develop a competitive bidding system that contains everything 
but competition.
    Oh, those auctions I enjoy going to? I can see who I am 
bidding against and I know what the bid is and I know what I 
must do to win. In the CMS bidding process, I have no idea who 
is bidding or what they are bidding or how to win a product 
category. All of the bids are submitted through a closed-door 
process. It takes months and months to hear from them, and, if 
you win, you don't know how, and if you lose, you don't know 
why. And it is legal. This federally-funded and 
congressionally-mandated bidding process is contrived entirely 
in secrecy and then announced and implemented as if it were the 
result of a fair competitive price process.
    That is the truth, and that is the problem. You are one 
year into a competitive bidding process that has resulted in 
administratively assigned prices with zero transparency. There 
is more to their design that is built to fail, but I only have 
a minute and a half left, so let me get to the remedy that we 
believe will satisfy Congress' mandate.
    Today my colleagues and I bring a fix for your 
consideration. It is called real competition. A real 
competitive bidding program will work better than an old 
administrative pricing program. The process we are suggesting 
is that you replace CMS's bidding scheme with one we call a 
market pricing plan. It is more like a real auction, where 
bidders are committed to their bids and the veil of secrecy is 
eliminated and transparency enters the process to keep it 
honest. The result will be good prices that will bring more 
beneficiary access, better beneficiary service, and progressive 
products and ideas. And a good healthy competition will bring 
Medicare good prices.
    An added benefit to the MPP is its sustainability. It is a 
program that will last through the challenging times that we 
have ahead as 78 million baby-boomers march into the Medicare 
system over the next 30 years. The effects of the 
implementation of Round 1 competitive bid have not been pretty, 
nor have they been fully recognized at this point. The 
reduction of the number of suppliers in each CBA has made 
equipment and supplies difficult for Medicare beneficiaries to 
acquire.
    My written testimony will tell in greater detail the 
specifics, but for now, I ask the chairman that I be allowed to 
submit a CD for the record that contains the testimony of 
patients who have summoned the will to speak to you whenever 
you have a chance to listen. Their experiences with this 
pseudo-competitive bidding will say more than I ever could, and 
the complaints will grow if this version of competitive bidding 
is expanded into 91 additional CBAs.
    Chairman HERGER. Without objection.
    Mr. SALE. Thank you very much, sir. This small industry is 
only 1.4 percent of the Medicare spending, and it has a lot of 
potential as a community-based supplier to meet patients' 
needs. Avoiding expensive hospitalizations is our specialty. 
Keeping people at home keeps costs low. Don't overlook our 
value by focusing just on our cost. We can help bring savings 
to this table and this country. I guarantee it.
    Thank you.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Sale follows:] 


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    Chairman HERGER. Mr. Martis is recognized for 5 minutes.

  STATEMENT OF DINO MARTIS, PRESIDENT, ABLECARE MEDICAL, INC.

    Mr. MARTIS. Thank you. Chairman Herger and Congressmen, 
thank you for inviting me to testify today on the Medicare 
Durable Medical Equipment Competitive Bidding Program.
    I am president of Ablecare Medical. We are a small business 
based in Cincinnati, Ohio, and we began operations in 1991. We 
are a full service respiratory and DME company. Currently we 
take care of about 3,000 Medicare patients who depend on us to 
provide their care.
    Numerous studies have documented the problems in Medicare's 
DME benefit; inappropriate reimbursement, fraud, lack of 
clearly defined services and outcomes. Competitive bidding has 
brought some pressure to bear on those problems, but concern 
remains. Fortunately, the debate is no longer centered on 
whether reimbursement should be reformed, but whether 
competitive bidding is the right approach.
    Based on my experience in Round 1, competitive bidding is 
working and we are excited about our involvement in this 
program. In the past, taxpayers and beneficiaries have paid for 
product that in some instances are tens of times greater than 
market rates. GAO and the Health and Human Services Inspector 
General found problems in documenting actual services provided 
to beneficiaries and the quality of those services. Our 
industry as a whole was unable to show a positive correlation 
between prices and clinical outcomes. There are many reasons 
for this and they have been outlined in my written statement.
    It is important to note that reimbursement prior to 
competitive bidding was not sustainable given continually 
rising overall health care costs and expected growth in the 
Medicare and Medicaid population over the next decade. This 
committee has heard testimony about beneficiaries paying more 
in cost sharing for certain DME than the typical cost of 
purchasing that equipment outright.
    We have seen that economic hardship has depressed patient 
utilization of health care services. It has been our experience 
over the last few years that consumers are reducing demand due 
to a combination of falling incomes and rising cost sharing 
requirements. With the introduction of competitive bidding, CMS 
has reduced the out-of-pocket burden for beneficiaries, many of 
whom, if not all, are on fixed incomes by lowering the cost of 
DME and by extension the required beneficiary cost sharing.
    From my perspective, the benefit to DME companies is that a 
greater probability exists that with lower out-of-pocket costs 
there will be more beneficiaries who are better engaged in 
their care over the long term as recommended by their 
physician. This will also increase patient volume, which will, 
in turn, compensate for loss reimbursement.
    In Round 1, we bid on oxygen, hospital beds, PAP, enteral 
and diabetic supplies. We did not win diabetic supplies. When 
we bid, our oxygen bid was exactly, in fact to the penny, the 
same as the current allowable by Medicare. For the other bids, 
we were 0.05 percent from the current allowables. Competitive 
bid has forced changes in our business, but it has not reduced 
patient access or the quality of care.
    DME providers take pride in providing quality service 
services and access and the quality of service provided is 
market-based. We cannot afford to provide a lesser quality 
product if we intend to continue in business. We do have to 
become more efficient. We have recognized that, and we have to 
use technology. We have recognized that as well.
    We commend CMS for the way they have structured the 
competitive bid process. The agency appropriately provided an 
opportunity to small- and medium-size businesses to be a part 
of this program, and they provided these same businesses the 
flexibility and opportunity to engage with the program as they 
saw fit.
    Our experience suggests that while no single solution will 
address all the issues generated by the transitioning to 
competitive bidding or delivery model, I think it would be a 
mistake to abandon competitive bidding. The alternative system 
proposed would encourage higher bids and it would mean higher 
cost sharing for patients. Various studies have shown that as 
out-of-pocket costs increase, beneficiary engagement and 
adherence to physician prescription decreases. This is 
detrimental to the beneficiary, to the DME industry, CMS and 
the taxpayer.
    In the interest of taxpayers, program beneficiaries and the 
DME industry, we respectfully urge Congress to let this program 
continue, making adjustments as needed. We stand ready and 
willing to assist in any effort.
    Thank you.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Martis follows:]


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    Chairman HERGER. Mr. Chiplin, you are recognized for 5 
minutes.

 STATEMENT OF ALFRED J. CHIPLIN, JR., SENIOR POLICY ATTORNEY, 
               CENTER FOR MEDICARE ADVOCACY, INC.

    Mr. CHIPLIN. Thank you, Mr. Chairman and Members of the 
Subcommittee. We have also submitted written testimony for the 
record.
    The subcommittee's continued focus on Medicare's durable 
medical equipment, prosthetics, orthotics and supplies 
competitive bidding program is important. We remain cautious 
about beneficiary access to the scope and quality of DMEPOS 
items and services as suppliers continue to jockey to do 
business in this new environment. We think, nonetheless, that 
if properly implemented, including the development and 
expansion of appropriate beneficiary education and safeguards, 
the program could be a positive vehicle for ensuring that 
beneficiaries get the supplies that they need while holding 
down cost to the taxpayers.
    We are pleased to see that the Medicare agency in its April 
2012 assessment of the DMEPOS program is projecting savings to 
the Medicare Part B trust fund of $25.7 billion between 2013 
and 2022 and a reduction in beneficiary and coinsurance amount 
of $17.1 billion during that same period.
    Out-of-pocket savings in the area of the CMS report is the 
most exciting. We hope over time that the cost savings will 
increase and that access is not impacted by decreasing costs. 
As has been cited, out-of-pocket savings have an important 
impact on access.
    We remain concerned that providers carry a range of 
products within product categories and that beneficiaries are 
not inappropriately required to change brands or types of items 
and services in order to stay within cost parameters dictated 
by the competitive bidding process in local markets. On the 
whole, we feel that the Medicare agency should be required to 
step up its efforts to educate beneficiaries about the program, 
including a special Web site specifically for Medicare 
beneficiaries.
    As to the standards for DME that have been developed, we 
are pleased to see that they are extensive and comprehensive. 
We do have a few areas that we would like to see looked at. One 
is that there continues to be broad monitoring. We would also 
like to see that the data that is gathered include information 
about the level of beneficiary appeals through the appeals 
process in addition to complaints. Complaints and appeals are 
different matters. So we would like to see that tightened.
    We also would like to see Congress address how it might 
deal with the suppliers who are not awarded contracts and do 
continue to provide services in some areas. This, we think, may 
well be a problem. We would like to have some attention devoted 
to that.
    We also think it is important to give more attention and 
clarity for beneficiaries on the question of how grandfathering 
works. It is a complicated area and beneficiaries are often 
confused. In our work, we hear from beneficiaries more about 
the confusion about things than anything else at this point, 
just about how the program will work.
    We would also like to see that further analysis from the 
Medicare agency look at the broader comparison of the number of 
beneficiary complaints filed. Simply looking at what has come 
in on the 800 number is not really enough. Over the years, our 
experience has been that even when serious problems occur, few 
beneficiaries file complaints and even fewer enter Medicare's 
administrative process, and we think data analysis should have 
some mechanism for recognizing this reality.
    In conclusion, we remain cautious about the DMEPOS program. 
We think, nonetheless, that if properly implemented, including 
expanded beneficiary education efforts and safeguards, the 
program could be a positive force toward reducing cost to 
beneficiaries and saving costs to the Nation as a whole.
    Thank you very much.
    Chairman HERGER. Thank you.
    [The prepared statement of Mr. Chiplin follows:] 


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    Chairman HERGER. Mr. Marx, CMS has stated that the Medicare 
actuaries' estimate that the current competitive bidding 
program will save more than $25 billion over the next 10 years 
with the Congressional Budget Office offering a figure in the 
same ballpark over the same period, realizing that it is 
challenging the past legislation that increases expenditures. 
What impact do you expect that the market pricing program that 
you support as a replacement would have on Medicare 
expenditures?
    Mr. MARX. Thank you for that question, Chairman Herger. The 
MPP, Market Pricing Program, is designed to be budget neutral. 
The Association and the industry supports a program that will 
keep the same savings for Medicare and beneficiaries through 
that 10-year program, and we are prepared once we get the 
scoring to make sure that it does reach that goal.
    Chairman HERGER. If CBO were to come back with an estimate 
showing that MPP would increase spending, would the industry be 
willing to accept additional reductions to ensure that 
replacing competitive bidding with MPP is budget neutral?
    Mr. MARX. I would not expect that, but we are certainly 
open to looking at any alternative to fix a flawed program that 
is going to harm beneficiaries in the long run.
    Chairman HERGER. Thank you.
    Mr. Sale, your organization has focused on small suppliers 
and as someone who comes from a small business background 
myself, I certainly want to make sure that small businesses are 
able to compete on a level playing field. Considering that CMS 
set a target for small supplier participation to equal 30 
percent, and both CMS and GAO state that actual participation 
exceeds 50 percent, do you believe that small suppliers are 
adequately represented in the competitive bidding program?
    Mr. SALE. Thank you for that question, sir. I have heard 
the numbers 30 and 50, 51 percent thrown around today several 
times. In looking at the Round 1 bidders, there are looked to 
be around 7,000 bidders. There were 350 or so winners. My 
membership is comprised of about--well, of those 7,000 bidders, 
about 96 percent of them are small businesses. So when you 
eliminate 90 percent of 7,000, you eliminate 6,300 small 
businesses. The 30 percent of the 350 that they were supposed 
to hit, they hit 50 percent. So you got 175 of that 350 are 
small businesses. The rest of larger. Just applying the 
percentages. It may not be totally accurate.
    So the answer is the competitive bidding process leaves a 
vast majority of small businesses outside of the Medicare 
program and subsequently, reduces the competition in the 
marketplace to frightening levels where service, access and 
innovation we believe will suffer. How could it not?
    Chairman HERGER. Thank you. Mr. Martis, I would expect a 
supplier to be firmly in the camp that higher Medicare fee 
schedule payment rates are strongly preferable. And I 
understand you have experienced no significant problems with 
lower reimbursements that resulted from the competitive bidding 
program. How was your company able to continue operating while 
seeing significant reductions in Medicare payments?
    Mr. MARTIS. Thank you, Chairman Herger. There are a number 
of reasons for that. One of the reasons is with the method that 
competitive bidding was structured, the very same issues that 
have been brought up here have actually benefited us in higher 
volumes, so higher volumes have, in fact, replaced the per-
service reimbursement reduction.
    The second thing that we had to do at our company is, we 
had to learn how to use technology, and how to become more 
efficient in our service provision. That does not mean that we, 
in any way, decreased service provision to the beneficiary, or 
the quality of services. It just meant using technology for 
greater efficiencies.
    In fact, in some cases, Chairman Herger, we have increased 
the provision of equipment to the patient, which has increased 
the quality of care and has decreased our cost. For example, 
Dr. Price was mentioning oxygen and PAP as life-saving care. 
And we have now started to use portable concentrators. We have 
started to use APAPs instead of just plain CPAPs, which is 
increasing the quality to the patient, but decreasing our 
service costs.
    Chairman HERGER. Thank you, Mr. Thompson is recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman, and thank you to the 
witnesses for being here. Mr. Chiplin, the savings achieved 
through competitive bidding, is certainly a preferable proposal 
than one that would increase cost to beneficiaries, or erode 
the guaranteed benefits in my view. And I am pleased that this 
rebid seems to be running much better than the original 
program, and I am glad that beneficiaries are saving money.
    My question to you is, if we went back to the--if we didn't 
do it this way, would we, in fact, raise cost to beneficiaries 
or erode the Medicare guarantee, such as premiums support, 
increased cost-sharing, and income-related premiums? And would 
you agree that that would be the case, and would have a 
negative impact on the beneficiaries?
    Mr. CHIPLIN. Thank you, Mr. Thompson. In general, yes, I 
think those are very serious areas of concern.
    Mr. THOMPSON. Now, in your testimony before the Energy and 
Commerce Subcommittee on Health in 2010, you noted that it was 
difficult to find beneficiary-specific information on CMS's Web 
site. Is that correct?
    Mr. CHIPLIN. Yes, sir.
    Mr. THOMPSON. Has CMS addressed these problems?
    Mr. CHIPLIN. Well, I did a little homework before coming 
over, and it is still difficult to find, get to the 
information. Once you get to the information, it is actually 
pretty good. It is a big scavenger hunt. That is the term that 
I use for it. That is why I propose that we have a special Web 
site that is dedicated to seniors, to beneficiaries that really 
starts with their concerns and not just an add-on to what we 
are dealing with with the suppliers. Because their issues and 
concerns are different, although there are overlaps, but they 
are basically different.
    Mr. THOMPSON. So that would be your recommendation?
    Mr. CHIPLIN. Yes, sir.
    Mr. THOMPSON. How about, a lot of beneficiaries, Medicare 
beneficiaries don't have access to the Internet. How do you 
deal with that universe?
    Mr. CHIPLIN. Well, actually, the Medicare population is 
increasing its access to the----
    Mr. THOMPSON. It is increasing, but it is not all there 
yet.
    Mr. CHIPLIN. Is the not all there, but it is certainly on 
the uptick. I think that you have to educate beneficiaries in a 
variety of ways. You have to use all kinds of media, written, 
word of mouth, television, all kinds of things, and also an 
intergenerational education approach, because seniors rely on 
their family members and children for basic information about 
all kinds of services.
    Mr. THOMPSON. Mr. Marx, I would like to look at the 
estimated costs of the market pricing proposal, and one of the 
key elements of your proposal would be higher payments using a 
clearing price as opposed to the median price, and have you had 
this scored? Has this been scored? Push the button.
    Mr. MARX. The industry has had it scored, but not through 
CBO yet. It is at CBO awaiting scoring.
    Mr. THOMPSON. How is it that you assert that it would be 
revenue neutral if you haven't yet had it scored?
    Mr. MARX. Well, there is an estimated increase in payments 
going from the market price to the clearing price, but we are 
expanding the universe of patients, which in Round 2, is going 
to affect right now in somewhere in the 50 to 60 percent range, 
and our program expands it to about 70 percent of the Nation, 
still maintaining that rural exemption. So we are picking up a 
greater population base at a slightly increased cost, which 
keeps businesses afloat, and that 3, 4, 5 percent difference 
will make a difference long-term.
    Mr. THOMPSON. But the price would still be higher than 
under the current program?
    Mr. MARX. It will be higher for those in that 50 percent 
range. It will be substantially lower for the 20 percent of the 
patients that are added additionally.
    Mr. THOMPSON. You had mentioned in your initial remarks 
that--I think you said bids are not binding.
    Mr. MARX. Currently, yes.
    Mr. THOMPSON. Currently. I find that difficult to deal 
with, and I, along with Mr. Sale, believe that once the bid is 
made and it is accepted, the deal is the deal. And if it is a 
moving target, it is extremely difficult to do business, and I 
would think that the beneficiaries are on a little shaky ground 
as well as far as knowing that they are--that their needs are 
going to be addressed. Is there anything that you want to add 
to that nonbinding binding bid?
    Mr. MARX. Not only are the bids not binding, March 30th, we 
placed our bids for the Round 2 locations, and that period is 
from July 1st, 2013, until June 30, 2016. So not only are the 
bids not binding, the bids that we are submitting don't even go 
into effect for 15 months, and then they are in effect for 36 
months after that. And how do I estimate my costs for gasoline 
4\1/2\ years from now? You can't make a valid bid when you have 
that long a period between the time you placed the bid and the 
response you get back from the seller.
    Mr. THOMPSON. Thank you.
    Chairman HERGER. Mr. Nunes is recognized.
    Mr. NUNES. Thank you, Mr. Chairman. Mr. Wilson testified in 
the last panel that essentially everything was going forward, 
working well, there were no problems and he disputed the letter 
from the 200 economists who said that this program was not 
working well and needed to be fixed, changed, in some way.
    So who is right? The economists, or Mr. Wilson? We will 
start with Mr. Marx and I will let you all answer.
    Mr. MARX. The economists did not say that the program is 
affecting beneficiaries today. What they are saying is, the 
long-term success of the program will ultimately decimate the 
industry, and you will have an access issue down the road. The 
pricing that is being used today is less than the best price 
submitted by half of the providers. So how can they--if they 
are putting in their best price, and the bid comes back lower 
than that, how can they maintain that long-term? That is the 
real issue. And when you only have 6 percent of the population 
affected by it right now, there is a lot of cost shifting and 
support from outside of the markets.
    Mr. NUNES. What about the examples that we were, that some 
of us gave to Mr. Wilson, and he disputed the data or seemed 
not to be aware of the data, how we have reduced 90 percent in 
terms of the numbers of suppliers. The data that we presented 
in the questioning that the members of this panel presented 
to--of the committee presented to the panel, are those, are you 
aware of these numbers that 90 percent of the suppliers in many 
areas are basically not able to compete?
    Mr. MARX. I am fully aware. That has been ameliorated a 
little bit by the grandfathering position, which gradually, 
which allowed existing patients to continue with their existing 
suppliers up till January 1st of this year. So that is just 
starting to kick in. Last year existing patients were not 
disrupted, which was an appropriate decision from the 
beneficiary's perspective, not forcing them to change 
providers.
    Mr. NUNES. Mr. Sale? Would you like to comment?
    Mr. SALE. Yes, sir, thank you for the question. I have 
heard both sides, and I think the economists are looking at the 
future growth of the Medicare population, along with the 
trillions of dollars in unfunded debt that our country is 
looking at. I think the economists are looking forward and up. 
I think CMS is looking backward and down at the performance of 
a program that has lots of numbers that we don't know about, 
and lots of data that we can't see.
    Mr. NUNES. So I want to just to drill down this a little 
bit. So the CBO number of $25 billion, you don't believe that 
that savings is going to be realized?
    Mr. SALE. I believe that it is forced savings, if it is 
correct. I tend to think they are inflated.
    Mr. NUNES. Maybe meaning that there will be lack of 
coverage at some point?
    Mr. SALE. Well, I don't see how, when you eliminate 90, or 
95 percent in your example, of the competitors in the 
marketplace you can't--you eliminate competition subsequently 
in every economic example I have seen. Prices go up in such an 
environment. So yes, I think it is unsustainable. Since the 
program seems to be unsustainable, certainly the savings would 
be, I think, overstated, yes.
    Mr. NUNES. Okay, Mr. Martis.
    Mr. MARTIS. Thank you, Congressman. While I cannot speak to 
the numbers of the economists, I can speak to what CMS has done 
with this program. So I would say I think CMS, or since you 
asked, Mr. Wilson, I think is correct. It has been said that we 
are depleting competition. We are not depleting competition. 
While there are reduced number of providers, the providers that 
remain are adequately able to take care of the demand and we 
are also aware of the numbers of participants or beneficiaries 
that are expected into this system.
    I think CMS has done a very good job at deciding what a 
company's capacity in actuality can be. They had conflicting 
mandates. I mean, on one hand, we are saying we will give them 
choice, or we have to give a patient a beneficiary choice; on 
the other, we are saying, well, we have to also do a bid. In 
normal bids, the lowest price wins as long as they have a 
certain accepted quality, and they have a certain accepted 
capacity. But here we have a number of different providers. I 
don't believe if we allow every single provider back in, and we 
reduce costs, I don't believe it is sustainable. I believe it 
sustainable as it stands today. I think CMS has designed the 
best program they could within the mandates that they have been 
given.
    Mr. NUNES. Okay, thank you, Mr. Martis. My time is expired. 
Thank you, Mr. Chairman.
    Chairman HERGER. Dr. Price is recognized.
    Mr. PRICE. Thank you, Mr. Chairman. Mr. Sale, I just want 
to commend you for what I think was probably the most eloquent 
description of the lack of competition in competitive bidding. 
I think we will probably replay that over and over and over. 
Mr. Martis, I am struck by your last comment. Do you believe it 
is the role of the Federal Government to determine how many 
providers are out there?
    Mr. MARTIS. No, sir, I----
    Mr. PRICE. You just said that the number of providers that 
CMS has determined are an adequate number, so I--is my 
conclusion correct that you believe it is CMS's role to 
determine how many providers are out there?
    Mr. MARTIS. No, sir, I think it is CMS's role to reduce 
expenses to beneficiaries, to keep the program viable for the 
beneficiary, and for the DME dealer, and to ensure a certain 
amount of quality and access to care. I believe they have done 
that.
    Mr. PRICE. And I guess that is my concern, that CMS, a 
certain amount of quality, which is what I heard you and what I 
hear CMS talking about all the time. But it may not be the 
level of quality that the patients desire or want.
    Mr. Marx, I was struck by CMS's comment that there were, 
and kind of offhand comment, that there were some suppliers who 
``didn't meet the terms of the contract.'' What does that mean 
to patients when somebody doesn't meet the terms of a contract?
    Mr. MARX. My guess would be that----
    Mr. PRICE. Want to turn your mic on please.
    Mr. MARX. My assumption would mean that they are not 
providing the service to the patients that they contracted to 
provide.
    Mr. PRICE. What does that mean?
    Mr. MARX. I don't know what Mr. Wilson meant, whether a 
patient called and asked for a service, and it was too late in 
the day to provide it, or it was in an outlying area. Those 
could be areas where the provider let the patient down.
    Mr. PRICE. And the service might be a hospital bed, or a 
walker, or a cane, but it might be an oxygen supply.
    Mr. MARX. Oh, it could be oxygen. It would be CPAP. It 
could be life-sustaining items.
    Mr. PRICE. Life-sustaining items?
    Mr. MARX. Yes.
    Mr. PRICE. So when CMS selects suppliers who don't 
necessarily meet ``the terms of the contract,'' that could be 
life-threatening to patient?
    Mr. MARX. Yes, it would be life-threatening.
    Mr. PRICE. I am impressed by this MPP, the Market Pricing 
Program that has been proposed that you all have proposed, 
because I think that it gets to the same level of savings in a 
way that provides much more efficient and higher quality, and 
more responsive care to patients as well as continuing to allow 
for innovation. Would you take a little time and just describe 
the Market Pricing Program for us?
    Mr. MARX. The Market Pricing Program is an auction program 
run by auction experts. It is proposed to be run electronically 
through an iterative process that reduces the pricing down to a 
true cost to do business. It is competitive. It allows multiple 
contracted providers, and it requires that if you want to bid, 
you have to be viable, you have to have a bid bond, a 
performance guarantee. If you bid it, and the pricing is above 
your bid, you will contract or forfeit your bid bond.
    It makes a fair pricing program, but it also preserves the 
choice of consumers. It keeps a larger population of local 
providers. It reduces the size of the bid area, whereas in an 
area of Cincinnati, there are three States the provider must 
serve to serve patients in that contract: Ohio, Kentucky and 
Indiana. They are all part of that competitive bid area, and 
for a small provider to be licensed in three States and meet 
three States' regulations and a territory that could amount to 
80 or 100 miles across, it is very difficult.
    The MPP reduces the size of the markets so that local 
providers can serve their local community as they have done for 
years.
    Mr. PRICE. So by exclusion of the small local providers 
CMS, by design of their program, CMS is, in essence, decreasing 
the responsiveness and the ability for patients to receive the 
care that they received in the past. Would you agree with that 
statement?
    Mr. MARX. I do.
    Mr. PRICE. Thank you, Mr. Chairman.
    Chairman HERGER. Thank you. Mr. Tiberi is recognized.
    Mr. TIBERI. Thank you, and thank you for allowing me to be 
here today, Mr. Chairman, to participate in this hearing. Mr. 
Marx, do you believe that allowing bids to be nonbinding 
encourages low-balling?
    Mr. MARTIS. Congressman, if a provider would like to low-
ball, yes, the answer is yes, it could. I don't know whether it 
encourages low-balling, but a submission of a low-ball bid is 
possible. However, my understanding of what CMS did in this bid 
process, is they took out the outlier bids, the highest and the 
lowest, and tried to come to a median bid on the remainder.
    My own personal experience, what we did with our company, 
is, as I stated before, for the majority of the bids, or 
actually all of the bids, except for oxygen, where we were 
dead-on. For all of the other bids, we are .05 percent away 
from the current allowed amount. So I don't see why providers 
would low-ball the bid to a level where they know they can't 
provide service.
    Mr. TIBERI. Did you enter into all contracts that you were 
awarded?
    Mr. MARTIS. Did we enter all contracts that we were 
awarded, sir? Yes, we did.
    Mr. TIBERI. Were the payment amounts adequate to cover the 
project categories that you talked about that you were involved 
in?
    Mr. MARTIS. We believed so, because as I said, Congressman, 
we were .05 percent away from the allowed amount, so yes.
    Mr. TIBERI. Do you plan on participating into Round 2, and 
if so, like areas like Columbus, Ohio?
    Mr. MARTIS. We do, yes, sir.
    Mr. TIBERI. So you plan on participating?
    Mr. MARTIS. Yes, sir.
    Mr. TIBERI. Mr. Sale, you talked about this process of 
Market Pricing Program, or this new proposal. Would it have 
similar effects on reducing expenditures and beneficiary costs 
in your opinion?
    Mr. SALE. Would it have effects on reducing what, sir?
    Mr. TIBERI. Beneficiary cost, and cost to Medicare's over 
all expenditures that CMS argues their current process does?
    Mr. SALE. I certainly think it would reduce the 
expenditures from where they are now, and I think 20 percent of 
that is going to reduce and save beneficiaries. I would like to 
say, though, that the 20 percent coinsurance that is left after 
Medicare has paid its 80 percent, generally is paid by 
insurance companies. We talk about beneficiary savings, but 89 
percent of my patient population that is Medicare, has a 
coinsurance; some through, you know, any other the Anthems, the 
AARPs. So they pay a monthly premium to someone to cover that 
$17 billion.
    So I would like to nullify the fact that these are really 
beneficiary savings. In many cases, these are insurance 
savings, and if you put that into context, the answer is both 
numbers will go down, yes.
    Mr. TIBERI. Thank you, you mentioned something that I don't 
know if you were in the room when I was questioning Mr. Wilson, 
but I asked him with respect to the current process, did he 
believe that you would have--the current process would force 
fewer suppliers ultimately, sooner but certainly later, fewer 
suppliers in the business and then ultimately, we would have 
more beneficiaries? Everyone knows that we are going to have 
more beneficiaries, fewer suppliers. Would that lead to 
increased costs ultimately? He said no. Can you comment further 
on that based upon what you already said?
    Mr. SALE. Well, I am not.
    Mr. TIBERI. Why you believe that there will be fewer 
suppliers under the current system?
    Mr. SALE. Several reasons. First of all, this program as it 
is designed, has been in play a year. And already, 40 percent 
of those who submitted bids that are in bid areas that didn't 
get them, 40 percent of those businesses are going out of 
business.
    I have brought letters with me from people in CBAs. One 
company in particular that was almost 30 years old, they were 
left out of the Medicare system. And when their patients were 
moved over, they went out of business. And it is not unusual to 
see those businesses fall in the process that is happening now.
    As the prices go down and the incentives to improve service 
and access are decreased, I believe service and access will 
decrease. And as businesses go out of business, and the 3-year 
contracts run on, when the rebid comes, there will be fewer and 
fewer people to bid, and subsequently, bids will go up. It is a 
supply/demand axiom that is pure, is true in every area.
    Mr. TIBERI. Thank you, Mr. Chairman, for indulging me and 
allowing me to go over. If I can just ask the chairman if we 
could ask both the--Mr. Sale's association, and Mr. Marx's 
association to provide some additional information regarding 
the number of folks who have gone out of business, because that 
is in direct conflict to what Mr. Wilson said.
    Chairman HERGER. Without objection, if you would supply the 
committee with that information, we would appreciate it. 
Certainly.
    Mr. SALE. Yes, sir.
    Chairman HERGER. Thank you. Mr. Stark is recognized.
    Mr. STARK. Thank you, Mr. Chairman, and I thank the panel 
for their informative testimony. My concern is that outside of 
the fact that I get more emails from the Scooter Store than I 
do from Viagra telling me that I can have the scooter free, and 
Medicare will pay for it, the small supplier who doesn't bid is 
pretty much put out of business by the person who wins the bid. 
I don't see that that is particularly fair.
    I guess, to cut to the chase, I would suggest, and I would 
ask Mr. Chiplin if there would be any real problem? We do it in 
most other things that we just set through negotiation or 
comparative shopping, set a price. This is what we will pay for 
oxygen. I don't know that I would want to pay any more than a 
welding shop does, but the same guy delivers the oxygen to the 
welding shop as to grandma. I see absolutely no difference 
there.
    It has to be there at a certain time. They don't want to 
let them run out. A tank is a tank. They are all standard. 
There are only a couple of suppliers of oxygen tanks. They are 
all alike. And I presume they are all priced the same. Perhaps 
they are made in different parts of the country for shipping 
reasons, so why wouldn't it be possible for the government to 
set a price? And then anybody who chooses to provide the 
equipment or the service can do it?
    Mr. CHIPLIN. Well, thank you, Mr. Stark. In general, there 
are many ways that you could have designed the program, and 
achieved the similar kind of goal. I think what you have 
recommended should be explored. The bottom line for the 
beneficiary community is that they are able to get the services 
that they need, timely, and in the sufficient amount and 
quality.
    Mr. STARK. All of these products, it seems to me, are 
something I could go to the medical supply store and buy.
    Mr. CHIPLIN. Yes, sir.
    Mr. STARK. And so why should a Medicare beneficiary, or 
myself, or anybody else have anything different? If we go out 
and the government goes out to buy a pickup truck, we set a 
price. And then if you want to deal, if you are a local agency 
with a local Ford dealer, Chevy dealer go ahead, wherever you 
happen to like the service. Same thing is true of Star Wars or 
nuclear weapons. We don't have to put those out to bid. We 
don't have a lot of suppliers for them, but----
    Mr. CHIPLIN. It I think what you are----
    Mr. STARK. [continuing]. But what we have in particularly 
small suppliers, who are apt to, you know, the Scooter Store 
guys go around and get the bid in the community, and then they 
subcontract through the local person and skim off the top. I 
don't know why we should have to continue that. Is there any 
good reason?
    Mr. CHIPLIN. Not to my knowledge, sir.
    Mr. STARK. Anybody else think of any reason why we 
shouldn't just set a price, and if you want to sell at the 
price, fine.
    Mr. SALE. My I respond?
    Mr. STARK. Sure.
    Mr. SALE. Thank you for the question, Congressman Stark. I 
hear intermittently as we are talking about the services that 
Medicare offers under the DME benefit, and I would like to 
clear up, there are no services paid for under the DME benefit. 
It is only equipment, one. Two, when we are paid, we are only 
paid for the equipment, but the list of things that we must do 
in order to get paid continues to grow through the years as CMS 
has added requirement after requirement after requirement.
    Mr. STARK. You buy a jet fighter, you are paying for the 
jet and not all of the fussing, so----
    Mr. SALE. That is true. You pay for the jet and the 
building and the labor that goes into it. You don't pay 
anything for--you have an oxygen machine delivered, they don't 
pay anything for the on-call, the 24/7 on-call. They don't pay 
anything for the billing requirements.
    Mr. STARK. Why should they? That is part of the service, 
for heaven's sakes. I mean, come on.
    Mr. SALE. They don't pay for service.
    Mr. STARK. McDonald's is there 24/7. I don't pay any more 
for the hamburger at midnight than I do at noon.
    Mr. SALE. We are an emergency service, and the calculations 
that they have put in place for reimbursing oxygen, and CPAPs, 
are based only on the cost of the equipment.
    Mr. STARK. Fine.
    Mr. SALE. They don't include the service. We have to put 
that in, that is the small business' investment in its 
community and in the patient care.
    Mr. STARK. Right. And why should anybody be excluded?
    Mr. SALE. Well, we have to supply that, otherwise you could 
go to an Internet and get what you wanted.
    Mr. STARK. That is even better.
    Mr. SALE. But they can't bill Medicare. They don't meet the 
requirements that are----
    Mr. STARK. If it is at a price, I mean, all of this mumbo 
jumbo about bidding is nonsense. Government could set a price, 
and anybody that could provide it would. That is how it should 
work.
    Mr. SALE. And I think that is the way it was. They were 
administratively set for years, and then Congress came up with 
the idea to see if we could drive the cost down a little bit 
through competition. And competition is fine. We don't mind 
competition. We just want fair competition, and if you are 
going to have a bidding process, we would like to have 
competition as one of the factors of it.
    Mr. STARK. I say, let's do away with the bidding process. 
Set a price.
    Mr. SALE. Really, we should do away with the CMS process 
that is cumbersome and time-consuming and takes years and years 
and years; put an MPP plan in place that could be done in 6 
months, and rebid it every 2 years so that we can be 
sustainable for decades to come.
    Mr. STARK. Well, we are not here in the business to sustain 
your business for decades to come. That is hardly competitive.
    Mr. SALE. No, I have 78 million baby-boomers coming and 
aging is a disabling process.
    Mr. STARK. I don't care.
    Mr. SALE. We are planning for that.
    Mr. STARK. Okay. Thank you, Mr. Chairman.
    Chairman HERGER. Thank you, and it would be nice if we 
could set a price. Maybe set it a little bit above free, but 
how do we know what that price is? I think that is what the 
question is. How do we know what the price is, and I think the 
success of this great Nation of ours is the free enterprise 
system where the marketplace has set what that price is. And I 
think that is what really the purpose of our hearing is today, 
to how do we get the lowest price that we can have and still 
sustain the quality that we need.
    With that, I want to thank each of our witnesses for your 
testimony today. Hearing such a range of perspectives has been 
helpful to the subcommittee. It is important for members to 
understand the impact that competitive bidding has on 
beneficiaries, suppliers, and Medicare expenditures. Since it 
would not be prudent, or viable to simply return to the often, 
excessive payment rates of the old DME fee schedule, I want to 
commend the supplier industry for offering an alternative that 
is based on competition and aims to set prices using market 
forces.
    The subcommittee will carefully consider all of this 
information. It is my hope that the Congressional Budget Office 
will soon inform us as to the spending implications of moving 
to such a proposal. As a reminder, any member wishing to submit 
a question for the record will have 14 days to do so. If any 
questions are submitted, I ask that the witnesses respond in a 
timely manner. With that, the subcommittee is adjourned.
    [Whereupon, at 11:32 a.m., the subcommittee was adjourned.]
    Questions For The Record

    Member Questions


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