[Senate Hearing 113-322]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-322
 
OVERSIGHT AND BUSINESS PRACTICES OF DURABLE MEDICAL EQUIPMENT COMPANIES 

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

                                HEARING

                               before the

          SUBCOMMITTEE ON FINANCIAL AND CONTRACTING OVERSIGHT

                                 of the

                              COMMITTEE ON
                         HOMELAND SECURITY AND
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                    APRIL 24, 2013 and MAY 22, 2013

                               __________

                   Available via http://www.fdsys.gov

       Printed for the use of the Committee on Homeland Security
                        and Governmental Affairs

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                  THOMAS R. CARPER, Delaware Chairman
CARL LEVIN, Michigan                 TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  MICHAEL B. ENZI, Wyoming
TAMMY BALDWIN, Wisconsin             KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota

                   Richard J. Kessler, Staff Director
               Keith B. Ashdown, Minority Staff Director
                     Trina D. Shiffman, Chief Clerk
                    Laura W. Kilbride, Hearing Clerk


          SUBCOMMITTEE ON FINANCIAL AND CONTRACTING OVERSIGHT

                  CLAIRE McCASKILL, Missouri Chairman
CARL LEVIN, Michigan                 RON JOHNSON, Wisconsin
MARK L. PRYOR, Arkansas              JOHN MCCAIN, Arizona
MARY L. LANDRIEU, Louisiana          MICHAEL B. ENZI, Wyoming
MARK BEGICH, Alaska                  KELLY AYOTTE, New Hampshire
TAMMY BALDWIN, Wisconsin
                     Margaret Daum, Staff Director
                 Rachel Weaver, Minority Staff Director
                      Lauren Corcoran, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statement:
                                                                   Page
    Senator McCaskill............................................ 1, 39
    Senator Johnson..............................................     4
    Senator Baldwin..............................................    19

                               WITNESSES
                       Wednesday, April 24, 2013

Peter Budetti, M.D., Deputy Administrator and Director, Center 
  for Program Integrity, Centers for Medicare and Medicaid 
  Services.......................................................     7
Laurence D. Wilson, Director, Chronic Care Policy Group, Center 
  for Medicare, Centers for Medicare and Medicaid Services.......     8
Charlene Stanley, Zone Program Integrity Contractor Operations 
  Director, AdvanceMed Corporation...............................    10

                       Wednesday, April 24, 2013

Jon Letko, U.S. Healthcare Supply, LLC...........................    40
Steve Silverman, M.D., Med-Care Diabetic and Medical Supplies....    41

                     Alphabetical List of Witnesses

Budetti, Peter, M.D.:
    Testimony....................................................     7
    Prepared statement...........................................    57
Letko, Jon:
    Testimony....................................................    40
Silverman, Steve, M.D.:
    Testimony....................................................    41
Stanley, Charlene:
    Testimony....................................................    10
    Prepared statement...........................................    73
Wilson, Laurence D.:
    Testimony....................................................     8
    Prepared statement...........................................    57

                                APPENDIX

Charts referenced by Senator McCaskill...........................    79
Letters from Med-Care to Sandra Pariseau.........................    85
Memorandum submitted by Dr. Kennedy..............................    87
Chart submitted by CMS...........................................    89
Statement submitted for the Record by American Association for 
  Homecare.......................................................    90
Statement submitted by the Med-Care Diabetic and Medical 
  Supplies, Inc..................................................    95
Responses to post-hearing questions for the Record from:
    Mr. Budetti..................................................   116


                    OVERSIGHT AND BUSINESS PRACTICES
                 OF DURABLE MEDICAL EQUIPMENT COMPANIES

                              ----------                              


                       WEDNESDAY, APRIL 24, 2013

                                 U.S. Senate,      
 Subcommittee on Financial and Contracting Oversight,      
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 342, Dirksen Senate Office Building, Hon. Claire 
McCaskill, Chairman of the Subcommittee, presiding.
    Present: Senators McCaskill, Baldwin, and Johnson.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. The hearing will come to order.
    This is the first hearing of the Subcommittee on Financial 
and Contracting Oversight (FCO). I know that both Senator 
Johnson and I are glad to have the opportunity to serve in this 
regard and I know I can speak for him in this way, that we both 
want to figure out ways that the government behaves better with 
taxpayer dollars, and that is what this Subcommittee is all 
about. We will work very hard to be responsible and fair, but 
at the same time be very aggressive about finding ways that the 
government can save money in the way they spend hard-earned 
taxpayers' dollars.
    This charter of this Subcommittee is to ensure that money 
is spent wisely and effectively, and we will continue to 
conduct investigations and hold hearings that will help fight 
and end some of the waste and some of the fraud in both 
government and the private sector that contracts with the 
Federal Government.
    We are not interested in making life difficult for 
companies that do not enjoy profit as a result of their work on 
behalf of the Federal Government. But if you work for the 
Federal Government, the Federal Government has the right to 
demand standards and to demand accountability, because, 
ultimately, you are, in fact, enjoying taxpayer funding.
    Today's hearing will focus on how the Centers for Medicare 
and Medicaid (CMS) pay businesses who supply durable medical 
equipment (DME), such as diabetic testing materials, machines 
that assist with sleep apnea, back braces, and power 
wheelchairs to Medicare beneficiaries under Medicare Part B. 
The hearing will also examine how these medical equipment 
suppliers market and promote these products to patients and 
their doctors.
    Medicare is a vital safety net for the elderly and the 
medical equipment provided to beneficiaries at a low cost to 
them can improve their quality of life and prevent costly 
visits to clinics and hospitals. Unfortunately, loopholes in 
the law and inadequate oversight may be allowing some companies 
to exploit Medicare for their personal gain.
    Most Americans have seen ads on TV or received calls or 
letters promising medical equipment at little or no cost to 
you. What is never made fully clear in these materials is that 
there is always a cost to you because it is taxpayer dollars. 
The products provided will be billed to Medicare and ultimately 
will be paid for by the American people.
    Last year, the Federal Government spent nearly $9 billion 
on payments for medical equipment under Medicare Part B, and we 
are not even sure about that figure. CMS estimates that as much 
as 66 percent of this, almost $6 billion, may have been 
improperly paid to companies who submitted claims for equipment 
that was not medically necessary, was not properly justified, 
or was never even delivered.
    One significant concern is that the prevalent practice 
among some medical equipment companies is that they 
aggressively call, e-mail, and write Medicare beneficiaries to 
directly market their products. I first learned of this 
practice from Dr. Charlotte Kennedy of Chesterfield, Missouri, 
who wrote to me about companies who were calling her patients 
to badger them into asking for medical supplies. Dr. Kennedy 
has been besieged by faxes from companies asking her to sign 
prescriptions for these patients so that the companies can bill 
Medicare.
    After I heard from Dr. Kennedy, I reached out to my 
constituents to find out if they had experienced similar 
problems. In less than 2 weeks, I had more than 150 replies. 
Among them is Victoria Anderson, who lives with her 87-year-old 
mother, Carol Hughes, in Southwest Missouri. Ms. Anderson and 
her mother get as many as three to four calls from medical 
marketing companies every single day. They are on the Federal 
Trade Commission's (FTC) ``Do Not Call List'' and have 
repeatedly told companies they are not interested in their 
products and have asked to have their names removed from all 
company call lists. But the calls have not stopped. Ms. 
Anderson told us that she and her mother would report these 
companies, but they cannot figure out their names. When they 
ask the telemarketers to identify the companies they are 
working for, the people on the other end of the line refuse to 
give them a straight answer.
    Medicare prohibits these type of phone calls unless the 
patient has given their prior written consent or the company 
has provided medical equipment to the patient previously. In 
fact, some of these companies may be using tactics which are 
unfair, deceptive, or illegal.
    What is clear to me is that the law, as written, does not 
appear to be working as intended to address the problems that I 
am hearing about from my constituents. Today, I intend to ask 
questions of CMS officials and one of the contractors 
responsible for program integrity about what tools the 
government has to crack down on these sorts of schemes and 
abuses. I also intend to ask how the government, taxpayers, or 
Medicare beneficiaries are served by permitting durable medical 
equipment companies to aggressively market their products to 
patients who do not need or want them until they are told they 
can have them for free or almost free, and I put that ``free'' 
in quotes.
    I will also ask CMS why it is failing to identify and 
recover improper payments to these suppliers. In 2011, the most 
recent year for which this information has been provided, CMS 
recovered less than 1 percent of the over $5 billion, with a 
``B'', in improper payments that the CMS has identified as 
having gone out to durable medical equipment suppliers. That is 
unacceptable.
    We have invited representatives of two durable medical 
equipment companies mentioned by Dr. Kennedy, Med-Care Medical 
and Diabetes Supply and U.S. Healthcare Supply, to provide 
testimony today about their companies' business practices. 
Sample reviews by CMS of these companies, which together have 
received almost $140 million from Medicare in the last 4 years, 
show a very high error rate and denial rates for durable 
medical equipment. The Subcommittee staff has prepared a 
memorandum outlining the information received by the 
Subcommittee, and at this time, I ask unanimous consent that 
this memorandum be included in the hearing record.
    I also ask for unanimous consent that the information 
provided by Dr. Kennedy\1\ about these two companies be 
included in the hearing record.
---------------------------------------------------------------------------
    \1\ Information provided by Dr. Kennedy appears in the Appendix on 
page 87.
---------------------------------------------------------------------------
    The Subcommittee invited Jon Letko, the head of U.S. 
Healthcare Supply, and Dr. Steve Silverman of Med-Care Diabetic 
and Medical Supplies, to testify at today's hearing. After 
receiving the Subcommittee's invitation to testify, both 
individuals, through their attorney, have declined to appear 
voluntarily before the Subcommittee today. I continue to 
believe that these companies can provide us useful information 
that would assist the Subcommittee in its oversight, and we 
will continue to discuss the possibility of these witnesses 
appearing in front of us at a future date.
    Keep in mind, these companies are profitable for one 
reason, and that is the American taxpayer. I look forward to 
the opportunity to talk with our witnesses today about what is 
needed to ensure that we do not continue to throw billions of 
dollars a year down the drain.
    I would like to take the opportunity to welcome Senator 
Johnson, the Ranking Member for the new Subcommittee on 
Financial and Contracting Oversight. I want to take this 
opportunity to publicly thank Senator Johnson and his staff for 
their cooperation and support during this hearing. I know that 
both of us share a desire to work in a bipartisan way, 
effectively and fairly, to try to recover money on behalf of 
the American taxpayer. This has been a genuinely bipartisan 
process and I am very grateful for their efforts and I continue 
to look forward to working with them as we get at these 
problems in every area of the Federal Government.
    I am also very grateful to Dr. Kennedy. There are many 
Americans who write letters to their Senators. There are many 
Americans that do not believe that their Senators pay much 
attention. I want to thank Dr. Kennedy for believing in her 
government and believing that if she brought this to our 
attention, something would happen.
    All the people who have helped the Subcommittee in this 
investigation have been very supportive, but I especially want 
to thank Dr. Kennedy and Ms. Anderson, my constituent who also 
pointed out the problems that she had dealing with this issue 
and her mother.
    I thank the witnesses for being here and I look forward to 
their testimony. Senator Johnson

              OPENING STATEMENT OF SENATOR JOHNSON

    Senator Johnson. Thank you, Madam Chairman, and really, 
thank you for delving into this issue here and holding this 
hearing.
    I agree with you that fraud and abuse of the system is 
costly to taxpayers and I am looking forward to working with 
you on an ongoing basis to continue to hold hearings like this 
to try and get some control over these systems, over some of 
these government programs. And as we were talking earlier, that 
is a real challenge.
    I think we all share the same goal. We want an effective 
and efficient government, and the trick is--I come from the 
private sector, and we were talking about earlier that in the 
private sector, you have the fiscal discipline of going 
bankrupt, of making sure that you not only just balance your 
budget, but have a surplus. You have to make a profit. And in 
government, as these programs grow, it is how do you institute 
the controls so that you have bad actors that take advantage of 
it. How do you prevent that going forward? It is a very 
difficult issue.
    But I think it might be interesting to just give a little 
history lesson on the expansion of the Medicare program and how 
we have such a difficult time controlling its cost. Both 
Medicare and Medicaid were basically set up in the mid-1960s. 
When they initially estimated how much Medicare would cost the 
American taxpayer, they projected about 25 years and they said 
that Medicare would cost $12 billion in the year 1990. In fact, 
it ended up costing $110 billion, nine times the original 
estimate.
    So the first thing you have to understand is government is 
not particularly good at estimating the future cost of some of 
these programs. Today, when you combine Medicare and Medicaid 
in terms of outlays from CMS, it is a little over $765 billion, 
which represents about 21 percent of our entire Federal budget 
and about 27 percent of the $2.8 trillion that we spend on 
health care every year.
    The program, in terms of number of Americans it serves, 
when you combine both of them, when they first started, they 
served about 29 million Americans. Today, they serve 107 
million Americans, about 35 percent of our population. So these 
are huge programs. Thirty-five percent of our population take 
advantage or are beneficiaries of the programs, so these are 
important programs and we need to make sure that they run 
efficiently, effectively, and they do not waste taxpayer 
dollars and that they are not abused by the suppliers of the 
system.
    In getting prepared for this hearing, you quoted some of 
these statistics, but I want to just kind of go back over the 
dollars spent on durable medical equipment--about $10 billion a 
year. I am rounding these figures. And the improper payment of 
that in 2011 was 61 percent, which is $5.9 billion. Now, you 
have to think about that. I come from the private sector. If 61 
percent of our expenditures were made improperly or paid to 
fraudulent suppliers, We would not be in business, and yet that 
has been going on in Medicare probably for years.
    And then as you mentioned, Madam Chairman, the amount that 
we recovered out of that year was $34 million, about 0.6 
percent of the improper payments. So I have some real questions 
in terms of how could that be. I mean, what is really the 
improper payment? Is it a technical violation in terms of 
paperwork or what? I mean, we really have to get our arms 
around that.
    I will conclude here quickly, but I just want to talk about 
the bureaucracy involved in Medicare, and I think that might be 
part of the problem, is Medicare contracts with a number of 
outside suppliers and it is a real alphabet soup of agencies. 
You have your Community Emergency Response Teams (CERTs). You 
have your National Supplier Clearinghouse (NSC), your Medicare 
Administrative Contractors (MACs), your Zone Program Integrity 
Contractors (ZPICs), your Receovery Audit Contractors (RACs), 
all these independent contractors are making payments and 
auditing, and it is obviously not working very well.
    And when you take a look--and one of the people testifying 
in the second panel lists the different types of frauds, and 
right now, she lists six of them. I just want to quickly list 
them. Telemarketing fraud scheme. You have your services not 
provided fraud scheme. You have items not medically necessary 
fraud scheme. No relationship with ordering physician fraud 
scheme. False-front suppliers. And this is one of my favorite, 
provision of DME while patient is under hospice care, residing 
in a skilled nursing facility fraud scheme.
    Now, again, we are dealing with an important government 
program that is just set up that can be preyed upon this way. 
And certainly as we were researching this, so many of these 
fraud schemes are perpetrated by individuals that set up shop, 
commit the fraud, and by the time the government is aware of 
them, they have already got their millions. They have left 
town.
    So, again, I really appreciate the fact that you are 
holding this hearing. I think it is extremely important for us 
to get to the bottom of these things and I am really looking 
forward to questioning particularly the witnesses from Medicare 
and CMS so I can try and get my arms around what is the problem 
here.
    Thank you, Madam Chairman.
    Senator McCaskill. Thank you, Senator Johnson.
    We also welcome Senator Baldwin. We are pleased that you 
have come to the hearing this morning. I hope you come often. 
We will always try to make these lively and interesting. And I 
can say with authority after 6 years, not every hearing is in 
the Senate. So I hope that you will make this a regular stop 
for your schedule, because we will try very hard to make sure 
every hearing is cutting edge.
    If I could, at this time, we will proceed. Since our 
witnesses have not appeared that we have invited that are 
medical equipment suppliers, we will proceed with testimony 
from our second panel of witnesses, if you would come to the 
table and we will introduce you. While you are sitting, if you 
do not mind, I will go ahead with the introductions so that we 
can proceed.
    Peter Budetti is Deputy Administrator for Program Integrity 
of the Centers for Medicare and Medicaid Services and Director 
of the CMS Center for Program Integrity. He has principal 
responsibility for program integrity policies and operations in 
the Medicare and Medicaid programs. Before joining CMS, Dr. 
Budetti worked in health care positions in government and the 
private sector. He holds a medical degree from Columbia 
University and a law degree from Boalt Hall at the University 
of California in Berkeley.
    Laurence D. Wilson is the Director of the Chronic Care 
Policy Group in the Centers for Medicare and Medicaid Services, 
the CMS Center for Medicare, where he has responsibility for 
policy on a broad range of fee-for-service (FFS) health care 
benefits, including post-acute care, home health, hospice, 
durable medical equipment, dialysis, and various hospital 
services. Mr. Wilson has worked for CMS since 1988, where he 
directed the design and implementation of a number of key 
Medicare reforms, including the establishment of prospective 
payment systems for inpatient rehabilitation facilities, 
skilled nursing facilities, and other health care services, and 
the competitive bidding program for Durable Medical Equipment, 
Prosthetics, Orthotics, and Supplies (DMEPOS). Mr. Wilson holds 
a Master's degree in public administration from Pennsylvania 
State University.
    Charlene Stanley is the ZPIC Operations Director for 
AdvanceMed. She has oversight for ZPIC Zones 2 and 3, and tell 
me what the acronym is for ZPIC.
    Ms. Stanley. Zone Program Integrity Contractor. It is 
actually Zones 2 and 5.
    Senator McCaskill. OK, it is 2 and 5. I did not say it? It 
is written 2 and 5. I misspoke. Say it again, because I do not 
want to say ZPIC anymore.
    Ms. Stanley. That is OK. Zone Program Integrity Contractor.
    Senator McCaskill. Zone Program Integrity Contractor. She 
has oversight of both Zone Program Integrity Contractor Zones 2 
and 5. She is a registered nurse and has worked in various 
clinical areas, including the emergency response and hospice 
settings earlier in her career. She also holds a Master of 
Business Administration (MBA) from Franklin University.
    Thank you all for being here. It is the custom of this 
Subcommittee to swear all witnesses that appear before us, so 
if you do not mind, I would ask you to stand.
    Do you swear that the testimony that you will give before 
the Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Dr. Budetti. I do.
    Mr. Wilson. I do.
    Ms. Stanley. I do.
    Senator McCaskill. Let the record reflect the witnesses 
have answered in the affirmative.
    We will be using a timing system today. We would ask that 
you try to hold your testimony to no more than 5 minutes. If 
you go slightly over, we will be understanding. Obviously, your 
entire written testimony will be part of our record, and we 
will begin with you, Dr. Budetti.

 TESTIMONY OF PETER BUDETTI,\1\ M.D., DEPUTY ADMINISTRATOR AND 
 DIRECTOR, CENTER FOR PROGRAM INTEGRITY, CENTERS FOR MEDICARE 
                     AND MEDICAID SERVICES

    Dr. Budetti. Thank you, and good morning, Chairman 
McCaskill, Ranking Member Johnson and Senator Baldwin. Thank 
you for this invitation to discuss the initiatives that we are 
taking at the Centers for Medicare Medicaid Services to deal 
with what we agree is a plague that has been with the DME 
program for some time now that involved a serious amount of 
fraud, waste, and abuse, as well as other forms of improper 
payments. So I am happy to be here to discuss our various 
initiatives to overcome those problems.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Budetti appears in the Appendix 
on page 57.
---------------------------------------------------------------------------
    With me is my colleague from CMS, Laurence Wilson, who will 
speak about one of the major initiatives that is being 
implemented to address this from a different perspective than 
simply fighting fraud, and that is our competitive bidding 
program, and so you will hear about that, as well. And you will 
also hear about the way that our private sector contractors, 
our investigative contractors, the Zone Program Integrity 
Contractors work with us as partners in fighting fraud, as 
well.
    I would like to focus on our initiatives to root out the 
bad actors who manage to get into the program and to keep them 
from getting into the program, and I would like to point out 
that we have had a series of initiatives in recent years that 
have had a degree of success in reducing the overall threat to 
the program from suppliers who should not be in the program, 
should not be billing us. This is an important aspect.
    One of the many tools that we are using along these lines 
is the structure that was set up by the Affordable Care Act 
under which we are implementing risk-based screening of new 
applicants and re-validation of existing suppliers. According 
to the requirements of the Affordable Care Act, we put all 
providers and suppliers into three categories of limited, 
moderate, or high-risk of fraud and abuse.
    New DME suppliers, we put into the high-risk category, and 
existing DME suppliers into the moderate risk category. All 
applicants and all current providers and suppliers are subject 
to background checks and licensure and other kinds of 
certification. The ones in the moderate category also get site 
visits, and we have, in fact, conducted some 86,000 site visits 
over the last couple of years, and the newly enrolling DME 
suppliers will also be subject to criminal background checks 
through the Federal Bureau of Investigation (FBI) and 
fingerprinting after we work out the terms of the arrangements 
for doing that.
    To date, due to our site visits and other controls on the 
new applicants, we have denied 430 DME applications because the 
entity was simply not operational. It just did not exist. And 
as part of our re-validation efforts, as well, we have since 
March 2011 deactivated nearly 25,000 DME enrollments and 
revoked over 1,700 DME supplier enrollments.
    That work, the enrollment and screening of DME suppliers, 
is the work of one dedicated contractor, and that is the 
National Supplier Clearinghouse that you referenced earlier, 
Senator Johnson, and that I will be delighted to talk about. 
But they do the background checks. They conduct the unannounced 
site visits. They make sure that the suppliers meet all of the 
Federal requirements.
    I also want to mention a major new initiative that we have 
underway, the Fraud Prevention System (FPS). We have been using 
highly sophisticated new tools to screen the pattern of claims 
that we are getting, as opposed to simply looking at one claim 
at a time, under the Fraud Prevention System, and we have been 
working very closely with our private sector colleagues, as 
well, on this. We have implemented a very sophisticated system 
that uses advanced analytics to identify problems and patterns, 
and I will be happy to answer more questions about that as we 
go on.
    And I would also like to emphasize that we continue to have 
and we continue to expand our collaboration with our law 
enforcement colleagues. We are working even closer than ever 
with our law enforcement colleagues. In fact, we have FBI 
agents and Office of Inspector General (OIG) staff now embedded 
with us in our headquarters at the Center for Program Integrity 
(CPI) on a regular basis. And that, of course, has been a very 
successful collaboration under the Health Care Fraud Prevention 
and Enforcement Action Team (HEAT) initiative that has operated 
in the context of the strike forces around the country.
    So I am pleased to highlight the activities that we have 
done so far. I look forward to working with the Subcommittee 
and the Congress to continue our progress in modernizing the 
way that we pay for and oversee the very important durable 
medical equipment benefit for Medicare beneficiaries, and I 
thank you for this opportunity.
    Senator McCaskill. Thank you very much, Dr. Budetti. Mr. 
Wilson.

  TESTIMONY OF LAURENCE D. WILSON,\1\ DIRECTOR, CHRONIC CARE 
  POLICY GROUP, CENTER FOR MEDICARE, CENTERS FOR MEDICARE AND 
                       MEDICAID SERVICES

    Mr. Wilson. Good morning, Chairman McCaskill, Ranking 
Member Johnson, and Senator Baldwin. I am very pleased to be 
here today to discuss an important payment reform CMS is 
implementing in the area of durable medical equipment, 
prosthetics, orthotics, and supplies.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Wilson appears in the Appendix on 
page 57.
---------------------------------------------------------------------------
    The competitive bidding program required under the Medicare 
Modernization Act (MMA) of 2003 has already 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. 
Lower, more accurate prices and other safeguards included in 
the program support CMS's overall efforts to address fraud, 
waste, and abuse in this important area.
    CMS successfully implemented the program on January 1, 
2011, in nine large metropolitan areas after making a number of 
important improvements based on new requirements from Congress 
and after working closely with stakeholders. The program has 
already saved in excess of $200 million in each of its first 2 
years of operation with no disruption in access or negative 
health consequences for our beneficiaries. We are now poised to 
expand the program to 91 additional areas of the country, 
including some of the largest, like New York, Los Angeles, 
Chicago, on July 1, as the law requires.
    Competitive bidding brings value to Medicare beneficiaries 
and taxpayers compared to the current fee schedule required by 
law. The average price discount across the initial nine areas 
was 35 percent. For the additional 91 areas, this discount 
climbs to 45 percent. The CMS Actuary projects that the program 
will save $25.7 billion for Medicare over the next 10 years and 
save an additional $17.1 billion for beneficiaries through 
lower co-insurance and premiums.
    A few examples I would share with you. In St. Louis, 
Missouri, the payment amount for a standard power wheelchair 
drops $2,034. That is a savings for Medicare of $1,627 and for 
the beneficiary of $407.
    Likewise, in Milwaukee, the payment amount for a powered 
mattress dropped $4,147. That is a savings for Medicare and the 
taxpayers of $3,318 and for the beneficiary of $829.
    The program also applies important safeguards, including 
quality standards, accreditation, financial standards, an 
active monitoring program, and enhanced oversight to protect 
beneficiaries and Medicare while supporting good quality. CMS 
has worked to implement the competitive bidding program in a 
way that is fair for suppliers and sensitive to the care needs 
of beneficiaries.
    For example, the program includes provisions to promote 
small supplier participation and numerous protections for 
beneficiaries to ensure they get the services they need. The 
program results in a large number of winners so that 
beneficiaries are ensured access and choice and that there will 
continue to be competition among contract suppliers on the 
basis of customer service and quality.
    We have continued to make improvements to the program to 
ensure a fair process that is less complex for suppliers to 
navigate and results in more effective scrutiny of suppliers' 
qualifications and the integrity of their bids.
    In addition, to help fulfill our commitment to ensure 
effective oversight and quality and access for our 
beneficiaries, we have put in place a comprehensive monitoring 
system which examines 100 percent of Medicare claims and other 
data, complaint data. We have observed no trends in health 
status indicators or access to care that cause concern. We have 
seen problem areas associated with overutilization, such as 
diabetes testing supplies, drop dramatically.
    We are very pleased with the success of round one of the 
program. We will continue to be diligent and thoughtful in our 
implementation of this important program as it expands to 
additional areas of the country. We will continue to monitor 
the implementation closely and be open to further improvements 
suggested by our stakeholders, Members of Congress, and others.
    In summary, by ensuring that Medicare pays accurately 
through competitively determined prices, we can provide better 
value to Medicare, to taxpayers, and beneficiaries. By 
eliminating excessive payments under the current fee schedule 
and paying the right price, we can also reduce incentives for 
fraud, waste, and abuse in the program.
    Again, I very much appreciate the invitation to testify 
before you today and we would be happy to take any questions at 
the close of testimony.
    Senator McCaskill. Thank you, Mr. Wilson. Ms. Stanley.

   TESTIMONY OF CHARLENE STANLEY,\1\ ZONE PROGRAM INTEGRITY 
     CONTRACTOR OPERATIONS DIRECTOR, ADVANCEMED CORPORATION

    Ms. Stanley. Chairman McCaskill, Ranking Member Johnson, 
Senator Baldwin, thank you for the request to attend this 
hearing today to share with you our efforts to prevent, 
identify, and address fraud and abuse in the Medicare program, 
especially as it relates to durable medical equipment.
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    \1\ The prepared statement of Ms. Stanley appears in the Appendix 
on page 73.
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    As a Zone Program Integrity Contractor to CMS, we have a 
responsibility to note only protect the Medicare Trust Fund, 
but also to protect beneficiaries, providers, suppliers, and 
taxpayers from fraud, waste, and abuse. CMS awarded the 
umbrella to the Indefinite Delivery Indefinite Quantity (IDIQ) 
contract to ZPIC Zone 5 to AdvanceMed in February 2009 and the 
IDIQ contract for Zone 2 in September 2009.
    As a Zone Program Integrity Contractor, AdvanceMed conducts 
fraud, waste, and abuse detection and investigation in 10 
States as ZPIC Zone 5 and 14 States as ZPIC Zone 2. We also 
have seven fully operational Medicare-Medicaid data matching 
projects in the two zones.
    The fundamental activities of ZPICs are those that help 
ensure payments are appropriate and consistent with Medicare 
and Medicaid coverage, coding, and audit policy, and are aimed 
at identifying, preventing, and/or correcting potential fraud, 
waste, and abuse.
    I would like to give the Subcommittee a few examples of the 
kind of program integrity issues that we have identified within 
the durable medical equipment, prosthetics, orthotics, and 
supplies Medicare benefit.
    The first issue that I know the Subcommittee has an 
interest in is telemarketing to Medicare beneficiaries. As 
Chairman McCaskill mentioned in her opening remarks, DME 
suppliers are prohibited from soliciting the beneficiaries 
unless the beneficiary has given written permission to the 
supplier to make contact by telephone, the contact is regarding 
a covered item that the supplier has already furnished to the 
beneficiary, or the supplier has furnished at least one covered 
item to the beneficiary during the preceding 15 months.
    In our investigations of beneficiary complaints about 
telemarketing, we have discovered that suspect DME suppliers 
may question Medicare beneficiaries about whether or not they 
have common medical complaints or symptoms, such as an example 
would be back or neck pain, and then attempt to have a back or 
neck brace or other equipment shipped to the beneficiary 
without proper medical evaluation or order. Subsequently, of 
course, the item is billed to Medicare and paid.
    Telemarketing scams by suppliers have also become more 
sophisticated, with the sharing of beneficiary identifying 
information, such as beneficiary Health Insurance Claim (HIC) 
numbers, between suppliers and clearinghouses, and these are 
used to make mass calls. Companies many times will offer free 
items, such as cookbooks, glucometers, other items, in an 
attempt to get beneficiaries to provide their identifying 
information.
    As a part of CMS's efforts to identify and resolve 
complaints more efficiently, effectively, and timely, 
AdvanceMed has been contracted to conduct a pilot project that 
involves receiving, reviewing, and resolving complaints that 
are received by the 1-800-MEDICARE program. The Zone 5 
Beneficiary Complaint Pilot Project receives information 
regarding telemarketing and other issues from beneficiaries 
alleging that they have been contacted by DME companies or 
their subcontractors promising medical equipment at little or 
no charge to them, as Chairman McCaskill mentioned earlier, as 
well.
    When AdvanceMed receives these complaints, beneficiaries 
are interviewed by staff and subsequently asked to sign an 
attestation affirming that the contact was made without their 
consent and that the beneficiary does not want nor need the 
offered item. AdvanceMed then places an auto-deny edit in the 
claims processing system to prevent the suspect supplier from 
billing unnecessary equipment to the beneficiary. The 
beneficiary's Health Insurance Claim number is also added to 
the National Compromised Data base for further tracking and 
analysis. Additionally, they are sent an education letter, 
warning letter, about the telemarketing practice and the matter 
is referred to the National Supplier Clearinghouse that Dr. 
Budetti mentioned earlier for review and consideration of 
revocation and practices.
    Another issue that we have noted in both zones is that 
patients are receiving excessive amounts of glucose strips, 
which are used by diabetics to test their blood sugars. In 
October 2011, Zone 2 conducted proactive data analysis to 
review beneficiaries receiving excessive amounts of glucose 
strips. Although it is not uncommon for patients to require 
blood sugar testing multiple times per day, the amounts were 
well beyond policy limits. Subsequent analysis and beneficiary 
interviews showed that multiple DME suppliers were selling 
glucose test strips and other diabetic supplies to the same 
beneficiaries at the same time. It was also discovered that 
some DME suppliers were making unwanted and unsolicited 
marketing phone calls to beneficiaries for glucose strips and 
DME supplies.
    As Senator Johnson mentioned in his opening statement, and 
I will briefly go through these, the other trends that we are 
seeing in our investigations in suspect DME suppliers and 
supplies are for services not provided or services not 
medically necessary. In some cases, the supplier has an 
arrangement with a physician to approve orders for equipment, 
prosthetics, orthotics, or supplies, even though the physician 
has no prior relationship with that patient and never having 
assessed them for the need for such supplies. Typically, the 
physicians are paid on a fee-for-service basis based on the 
volume of orders they sign.
    Another issue that runs across the supplier types is the 
false-front providers, again, that Senator Johnson mentioned. 
In this scheme, a supplier number is established for a DME 
supplier that does not exist. There is no physical location for 
the supplier nor do they possess the appropriate equipment to 
deliver to Medicare beneficiaries. The supplier subsequently 
obtains Medicare beneficiary numbers, and through identity 
theft or purchasing them directly from the beneficiaries, bills 
for the supplies that are never delivered. These providers may 
work alone or with others to steal the identity of valid 
Medicare providers and then submit false claims directing.
    A final program issue is--that we have noted in a number of 
investigations--supplies being billed to Medicare when another 
entity has already paid for the service that includes DMS 
supplies, for instance, the Medicare beneficiary being under 
hospice care or skilled nursing facility and the equipment or 
supplies necessary for the treatment of the diagnosis relating 
to that admission often covered under the hospice benefit or 
within the payment to the skilled nursing facility. In this 
situation, that supplier, who may be affiliated with the 
hospice, unbundles the equipment and bills them separately to 
Medicare.
    This concludes my remarks on the efforts of the Zone 
Program Integrity Contractor for Zones 2 and 5 to identify, 
prevent, and address fraud, waste, and abuse in the Medicare 
program. I appreciate this Subcommittee's interest in 
protecting Medicare beneficiaries and taxpayers and thank you 
again for inviting me to present to this Subcommittee.
    As a nurse by trade, this is a topic that is near and dear 
to my heart. More detailed information is within my written 
testimony, and I look forward to answering any questions you 
may have.
    Senator McCaskill. Thank you all for your testimony.
    I am going to begin with some of the misleading and abusive 
tactics. I am going to ask to be included in the record letters 
that we received from someone who responded to our tweet asking 
people to let us know when they had been slammed or pressured 
by these marketers, and we got these letters from a woman, and 
we have redacted her personal information, but the letter says, 
``Welcome to our sleep apnea supply program. Congratulations 
and welcome. Based on your conversation with one of our intake 
professionals, your sleep apnea supply prescriptions have been 
sent to the following physician,'' and it has her doctor's name 
on the letter. When we receive your prescription, we will 
contact you, and then so forth.
    And then, basically, the interesting part of the second 
page of the letter is that it gives her the option of only 
opting out by calling. The only way that she can opt for a 
purchase or a rental, is by calling these people.
    And then she got a followup letter saying, ``We have been 
unable to reach you,'' and with her doctor's name in bold. ``We 
need a call today so we can get you your requested supplies.''
    Now, the interesting thing about this is this woman said, 
when she got the phone call, guess who she thought it was? The 
name is Med-Care. So she assumed Medicare was calling her.
    So my first question to all of you is, why would you let a 
company name itself Med-Care? I mean, that is asking for 
trouble, right?
    Dr. Budetti. I do not believe that we have the authority to 
control the choice of names by individual suppliers in the 
country. There may be some things that do violate Federal 
rules, but I am not aware that we have that authority, Senator.
    Senator McCaskill. Well, I think that is something we need 
to look into. So if a company came and said, we want to be a 
provider of medical equipment and we want to call ourselves 
Medicare----
    Dr. Budetti. I think there are limits. I think that there 
are some limits, but I am not aware of what those are.
    Senator McCaskill. Well, if verbally it sounds the same, 
because, obviously, Med-underscore-Care on paper does not look 
like Medicare, but if the rules are such--and as you all know, 
the rule is you have to have permission in order to start doing 
this. So in order to get permission, this company decided they 
would obviously use a name that would heighten the likelihood 
that a senior getting the call saying, ``This is Med-Care and 
we have something for you,'' I guarantee you, my mom, if 
somebody called and said they were Med-Care, she would assume 
that it was Medicare.
    So I would appreciate followup on that, if you all have the 
authority to--when a name is so similar that it is verbally 
going to be identical for purposes of marketing to Medicare, 
whether you have the authority to do that.
    Why should we not stop companies from doing this entirely? 
Why should not this be the doctor that is providing these 
prescriptions rather than having this middleman that is trying 
to work both ends of the stick, trying to entice the patients 
to think that their doctor wants it and trying to entice the 
doctors to think that their patient wants it, and meanwhile, 
nobody wants it but the one who is making the buck in the 
middle?
    Dr. Budetti. The order and the certification that the 
patient needs the durable medical equipment does have to come 
from an appropriate certified health care professional, most 
often, of course, physicians, in a lot of cases. And that is 
the order for it. And then the supply has to come from the 
supplier. There are some physicians who also serve as durable 
medical equipment suppliers in certain subspecialties, but 
generally, that is not the case. Generally, there is a separate 
process for the provision of the durable medical equipment to 
the beneficiary on the physician's order and on the 
certification that there has been a face-to-face, as required 
by the physician.
    So we have a process, of course, for assuring that the 
correct physicians are enrolled properly to be able to order 
the supplies and then we have a process for overseeing the 
suppliers of the medical equipment themselves and to make sure 
that they meet standards. So it is a continuum, much as it is 
going to the drug store and having a prescription filled by a 
pharmacy for a pharmaceutical.
    Mr. Wilson. Chairman McCaskill, if I may just add to that--
--
    Senator McCaskill. Sure.
    Mr. Wilson. Thank you. One of the reasons these kinds of 
companies engage in these type of schemes is because the items 
that they are supplying are so profitable under the Medicare 
fee schedule. So the fee schedule is set in law. It is based on 
charges from the early 1980s that have been updated over time. 
It does not represent the true market cost of the items. That 
is what we are paying.
    So to the extent that they are hugely profitable, that 
attracts them to generate revenues. If we can bring the price 
down, like we can in competitive bidding, we can get a 47 
percent discount. I think the discount for round two for the 
Continuous Positive Airway Pressure (CPAP) devices, which I 
think this mentions, is about 47 percent. That takes away that 
windfall profit and makes companies less likely to engage in 
providing stuff that people do not need.
    Senator McCaskill. I agree with you, and I do think the 
competitive bidding program is going to save our country a lot 
of money.
    By the way, if you do the math on our debt and deficit, you 
come to the inescapable conclusion that the debt and deficit is 
health care. So all the talk we have around this building, if 
you actually get into the numbers, you realize that it is 
health care costs that are driving the debt and deficit. And if 
we can reduce health care costs by 10 percent meaningfully, by 
10 percent, we do amazing things to both our deficit and our 
long-term debt curve.
    Let me ask you this. Are you worried with the competitive 
bidding, if we take the mass profit out, then these suppliers--
it is going to have to be volume, because they are not going to 
be able to make big money on each individual--they are going to 
have to sell a lot more of it. Are we prepared for a transition 
from a business model to see if you can worm your way into the 
doctor's office or the patient's home to how can we do mass 
marketing in a way that we can catch more fish because we are 
not going to make as much off each whale, the same kind of 
money as we have been making off the big whales?
    Mr. Wilson. Right. That is a very good question, Chairman 
McCaskill. When we implemented round one of the program in nine 
large areas of the country, including Miami, Riverside, 
Pittsburgh, a number of others, we did not see that. We saw 
actually utilization come down. We saw access maintained and 
health outcomes maintained. And we got over $200 million in 
savings in two successive years.
    So we did not see that type of attempt to increase 
utilization. In fact, by having a smaller number of contract 
suppliers that are accredited, that meet financial standards, 
including looking at credit scores, looking at their tax 
records, having more effective oversight, we were able to 
ensure that services were provided, that program integrity was 
a key focus, and, again, that was not a result that we saw.
    Senator McCaskill. And this is my last question and I want 
to move on to my colleagues, but why do we not require this 
prescription to be on the doctor's letterhead?
    Mr. Wilson. I will defer to my colleague on that.
    Dr. Budetti. So, the physician has to do the ordering of 
the supply, and that is one of the links in the chain that we 
are very conscious of. And, in fact, we published two years 
ago--an updated regulation that establishes the requirements 
for being able to order and refer in the Medicare program. It 
is one thing if the physician is seeing the patient and 
submitting a bill. Then we have a bill to track back to that 
physician. But if the physician is writing an order, then we 
have to have a process for making sure that the supplier knows 
that the physician who is ordering that supply is, in fact, 
credentialed, if you will, by the Medicare program to be able 
to order supplies----
    Senator McCaskill. But, Dr. Budetti, my point is that they 
are--some doctors are signing 400, 500 of these at once and 
they are getting these forms that are all done for them by the 
company that is moving the equipment. This is not being 
generated by the doctor. This is being checked off by the 
doctor. Why are we not requiring that the document be generated 
by the doctor with the appropriate information about the 
supplier and let the doctor decide what supplier to use and 
figure out what supplier to use? But it is clear from the 
documents we got that these documents are being prepared by the 
supplier, not by the doctor.
    Dr. Budetti. So, as I said, the control should be--and the 
ordering should all be in the hands of the physician. And so 
when we see patterns that look like the ones that you have 
described, that is exactly the kind of pattern that our new 
much more sophisticated system for looking at the kinds of 
bills that we are getting and the patterns of the billing that 
we are getting allows us now to spot and to take action on. And 
I think that is exactly one of the concerns that we have, is 
that this should not be generated--it should be generated by 
the patient's need and the patient's need should be reflected 
by the physician. And then the supplier should supply the 
durable medical equipment that the patient actually needs and 
that the physician has certified, and that is the----
    Senator McCaskill. I do not know that--and I do not want to 
cut you off, but I am over my time.
    Dr. Budetti. Sure.
    Senator McCaskill. I do not know that I have a great answer 
about why we cannot require the doctor to generate the form, 
but we will move on. Senator Johnson.
    Senator Johnson. Thank you, Madam Chairman.
    I have 30 years in manufacturing, so it is just in my DNA 
to try and get to the root cause, which may be difficult here.
    Mr. Wilson, I appreciate the competitive, whatever you call 
it, your competitive model, bidding model, but you mentioned 
something about the fee schedule, that Congress sets the fee 
schedule. I guess maybe the first lesson learned here is 
Congress is not particularly good or efficient at price fixing.
    So let us talk about why we would encumber ourselves with a 
fee schedule that, I think, Dr. Budetti, according to your 
testimony, saddles Medicare with paying three to four times the 
market price. Now, that should not be a very difficult thing to 
fix when you take a look at--especially with the Internet now, 
you can really get a competitive price very quickly. Why are we 
not changing the fee schedule, and maybe is that not the first 
thing we ought to do here, is go to Congress to get them to 
give you flexibility in the fee schedule?
    Mr. Wilson. Well, I think there are a few things I would 
say about that, sir. The fee schedule was set at a point in 
time when the Medicare program was just paying charges 
submitted by suppliers. Whatever you wanted to put on your 
claim in terms of charges, we would pay it.
    Senator Johnson. It is totally outdated now.
    Mr. Wilson. Yes, and so----
    Senator Johnson. And so why do we not change it?
    Mr. Wilson. We fixed that based on changes in the law to 
put a fee schedule in place. That became distorted over time, 
and there are a number of different OIG and the Government 
Accountability Office (GAO) reports pointing to excessive 
prices paid under the fee schedule for wheelchairs and negative 
pressure wound therapy devices and other things, diabetic 
testing supplies.
    But then Congress, in its wisdom, put in place the 
competitive bidding program, and that is what we have been 
using to try to drive down prices to a more reasonable, 
appropriate level. Congress also, in its wisdom, allows us, 
once we have put these initial set of prices in place under 
competitive bidding, to use that information and establish a 
new fee schedule.
    Senator Johnson. But would it not just be easier to just do 
away with the fee schedule and do something more competitive, I 
mean, on a case-by-case basis?
    Mr. Wilson. Well, I think one of the problems in this area, 
Senator Johnson, is that there is a lack of data on what a true 
market price is. So in order to----
    Senator Johnson. No, there is a plethora of data out there. 
You have the Internet now. This is easy to do, to actually 
figure out what is a fair price to pay for any product 
nowadays. It has never been easier. It is incredibly simple.
    Mr. Wilson. You can certainly find data on the Internet, 
and we certainly have looked at that in the past. I would say 
that the type of discounts we are getting by going to suppliers 
and asking them to bid actually provide better value to 
Medicare than some of the prices we find on the Internet.
    Senator Johnson. OK. I appreciate the numbers that you were 
throwing out, $27.5 billion saved estimated over the next 10 
years, but that is $2.7 billion divided by more than $700 
billion. That is 0.35 percent. It is better than nothing, but 
it is not much better than nothing.
    I want to go through the whole payment process here, 
because I do not understand it. CMS, Medicare, contracts out to 
Medicare Administrative Contractors, four of them, to actually 
make the payments, and then also, apparently, determine whether 
the payment they have made is improper. I mean, describe that 
to me.
    Dr. Budetti. So, there is a long history of interaction 
with the private sector in the Medicare program, and, in 
general, it is helpful to think about our contractors in 
certain functions. There are contractors who do, in fact, 
handle the money, pay the claims, and have initial 
responsibility for overseeing whether those claims are valid 
under the Medicare rules and whether they should be paid, and 
there is opportunity to stop the payment in that circumstance.
    Senator Johnson. Those are the MACs, right?
    Dr. Budetti. Those are the Medicare Administrative 
Contractors.
    Senator Johnson. How quickly are they required to make 
payment when a claim is submitted?
    Dr. Budetti. So, under the Medicare law, they are required 
to pay not sooner than 2 weeks and not more than 30 days. So 
there is a window after they get the bill. So it is a 
relatively quick payment requirement, but there is a window of 
a couple of weeks before the bill----
    Senator Johnson. That is the MAC that does that?
    Dr. Budetti. It is the Medicare Administrative Contractor 
that does that----
    Senator Johnson. Is that 100 percent of CMS claims paid 
through the MAC?
    Dr. Budetti. Of fee-for-service. On the Medicare fee-for-
service program, the MACs do handle the claims, yes, sir.
    Senator Johnson. OK. And then that would be different than 
for--Medicare Advantage is through private insurance.
    Dr. Budetti. So Medicare Advantage is through private 
insurance, and other parts of Medicare are administered by the 
Medicare Administrative Contractors other than the DME for 
the----
    Senator Johnson. Then who determines that, in 2011, for 
example, that 61 percent of the $9.7 billion that was paid by 
the MACs, who determines that 61 percent of that were improper 
payments?
    Dr. Budetti. So, that is the CERT that you referred to, 
which is a completely different process that is not related 
directly to payment or directly to oversight, but to 
statistical measurement of what the improper payment error rate 
is, which we are required by law to measure and to report, and 
we do. And so that consists of a statistically valid national 
sample of claims so that we know how many of them are not being 
paid properly.
    Now, improper payments span a very wide spectrum. At one 
end of the spectrum, of course, are fraudulent claims, and 
those are of great concern. But a lot of the improper payments 
are, I think as you referred to--I would not call them 
technicalities necessarily, but are for failure to follow the 
billing procedures, to document that the patient, for example, 
in a durable medical equipment situation actually had a 
physician contact and----
    Senator Johnson. So why is that not caught in the original 
17, or 14 to 30 days?
    Dr. Budetti. So, just to be clear, Senator, the MAC--the 
initial payment screening does look at whether or not all the 
information that is required to be on the claim is there and 
whether it is appropriate, and then there are thousands and 
thousands of cross-checks on whether or not this is a medically 
unlikely claim, given the type of person and the type of claim, 
or whether it is within what is covered for a beneficiary. And 
many claims get screened out at that point.
    But notwithstanding that, the claim may look good on its 
face, but behind the claim, there may not be the adequate 
documentation that----
    Senator Johnson. OK. So what is the sample size on the 
CERT? In coming up with 61 percent, are we actually testing 100 
percent and we are determining----
    Dr. Budetti. No.
    Senator Johnson [continuing]. Sixty-one percent, or are 
we----
    Dr. Budetti. No. I think for all of----
    Senator Johnson [continuing]. Testing 1 percent and----
    Dr. Budetti. The last time I had the number in front of me, 
Senator, it was for all of the Medicare fee-for-service, and I 
believe it was on the order of 70,000 or 80,000 in the national 
sample. It----
    Senator Johnson. Versus how many claims?
    Dr. Budetti. Versus our billions of claims every year. But 
it is valid enough to project what the error rate is in fee-
for-service claims across all of Medicare fee-for-service. And 
the specific question that you raised before about whether we 
are, in fact, going after that 66 percent improper payments--
first of all, we certainly agree that any level of improper 
payment is not acceptable, and certainly a two-thirds rate of 
improper payments is not acceptable.
    And so we use the information that we get when we find the 
improper payments. We use that in a wide variety of ways. We 
use it to work with the persons, the entities that submit the 
claims to make sure that they are, in fact, meeting the 
Medicare requirements in the first place. We----
    Senator Johnson. OK. Well, again, I----
    Dr. Budetti. OK.
    Senator Johnson. I am already over, but let me----
    Dr. Budetti. All right, but----
    Senator Johnson [continuing]. Because I want to drill down 
on this----
    Dr. Budetti. We would be happy to----
    Senator Johnson. So then what percent of the improper 
payments are actually followed up on?
    Dr. Budetti. So----
    Senator Johnson. I mean, so that the auditing firms, what 
percentage of claims that are viewed as improper do we actually 
take a look at and try and do something about?
    Dr. Budetti. So, in the national sample, all of the claims 
that are identified out of the 70,000 or 80,000 claims, all the 
ones that are identified as improper, which may be 7,000, 
8,000, 10,000 claims that are identified as improper, all of 
those are followed up on. But that is a very small sample, 
because then from that sample, we extrapolate to the national 
total of improper payments.
    Now, that is a very different issue, as I am sure you 
appreciate, that if you do a random national sample, you have 
identified what the number is, but you have not identified what 
the individuals are or entities are that you would need to go 
after----
    Senator Johnson. Right. So I realize that directs your 
efforts----
    Dr. Budetti. So, again----
    Senator Johnson. Next question. What percent----
    Dr. Budetti. So we have a separate set of contractors, yet 
another set of contractors called the recovery auditors, and 
one of the things that drives where the recovery auditors look 
to recover overpayments is the findings from the analysis of 
where the improper payments are. So if there are improper 
payments that are being made in a certain type of service, then 
the recovery auditors can target that and go after it, and that 
is very in-depth.
    Senator Johnson. OK. I think I understand that.
    Dr. Budetti. OK.
    Senator Johnson. Again, I am asking a question. What 
percent of the improper payments does Medicare do something 
with, I mean, to actually take a look at, audit, try and get 
recovery from? What percent is that?
    Dr. Budetti. I----
    Senator Johnson. Do you know or do not know?
    Dr. Budetti. Well, we do something with all of the----
    Senator Johnson. With 61 percent of all the claims that 
have been paid, you do something with it?
    Dr. Budetti. We do something with it, but there is no way 
to seek to recover all of those because--first of all, if there 
is inadequate documentation or if there is a failure to submit 
the bills in a way that meets full Medicare requirements, that 
is something that the recovery auditors can target, but they 
cannot target every type of improper payment. They can only do 
whatever they can do.
    But we use that information for restructuring our approach 
to dealing with the providers and suppliers, for dealing with 
beneficiaries, and, of course, we do look at the ones that look 
the most suspicious, and that is where we spend a lot of our 
time, looking at the ones that are suspicious for fraud or 
abuse.
    Senator Johnson. OK. Thank you, Madam Chairman, for 
indulging me. I still do not understand. I mean, this is 
incredibly frustrating, preparing for this hearing, trying to 
understand the system----
    Senator McCaskill. Welcome.
    Senator Johnson [continuing]. And simply not--OK----
    Senator McCaskill. We have a lot more to go.
    Senator Johnson. Welcome to big government.
    Senator McCaskill. We have a lot more to go. Senator 
Baldwin.

              OPENING STATEMENT OF SENATOR BALDWIN

    Senator Baldwin. Thank you, Madam Chairman and Ranking 
Member Johnson, for holding this hearing. We do have a lot more 
work to do and I look forward to my service on this 
Subcommittee and the efforts we will take to protect taxpayer 
dollars by rooting out fraud, abuse in our government programs.
    At a time when so many lawmakers are looking at cuts to 
Medicare benefits for seniors, I believe it is critically 
important that we do everything in our power to eliminate 
Medicare waste. According to the GAO, Medicare reported more 
than $44 billion in improper payments in 2012, and a recent 
RAND Corporation study found that fraud and abuse cost Medicare 
and Medicaid as much as $98 billion in 2011. Every Medicare 
dollar saved through fraud prevention and detection protects 
Medicare benefits for current and future generations, and we 
know that every dollar invested to fight Medicare fraud results 
in approximately $1.75 in savings, according to the 
Congressional Budget Office (CBO).
    I really deeply appreciate the work that all of you do to 
maintain the integrity of the Medicare program, and I also 
appreciate the work of the Subcommittee to call attention to 
particular bad actors in the durable medical equipment 
industry. We must crack down on those companies whose business 
practices involve preying on our most vulnerable citizens and 
seniors.
    You all have a really tough job to do and I want to look at 
this in a slightly different way, because we have to be careful 
about attributing the practices of certain bad actors within 
the durable medical equipment industry to the industry as a 
whole because there are certainly good actors out there. And in 
my home State, we have a number of excellent durable medical 
equipment suppliers, including a vibrant community of small 
businesses, mom-and-pop shops that have been serving Medicare 
patients and health systems for more than 40 years.
    Along those lines, I want to perhaps ask you, Mr. Wilson, 
because you focus so much on the competitive bidding program as 
a tool for reducing Medicare spending, I support the overall 
goal of creating a fair marketplace for durable medical 
equipment suppliers and reducing costs, without question. 
However, I fear that the current competitive bidding program is 
designed in a way that will exclude many of Wisconsin's small 
businesses that have provided valuable medical products for 
many years.
    So round two of the competitive bidding program has reached 
Wisconsin and the prices go into effect, as you referenced, in 
July. And I have heard from a number of respected companies--
that are now completely shut out of providing services to 
Medicare beneficiaries for the next 3 years. It includes one 
company that has been serving Southeast Wisconsin for 39 years. 
Another, an independent business owner in Baraboo Wisconsin, 
serving principally a rural area who shares with me, she says, 
``I currently employ 13 full-time people and one part-time and 
I do not think our company is going to survive.''
    As the competitive bidding process expands over the coming 
months, I think we really have to monitor carefully the impact 
that this expansion has on small businesses in my State and 
throughout the country. And if the program hurts small business 
and patient access, particularly rural patient access, I think 
we have to continually evaluate and reevaluate. I also support 
consideration of other market-based bidding programs that will 
drive down Medicare spending without the adverse effects that I 
fear that the current program might have, or will have, on 
small businesses.
    Before turning to you, Mr. Wilson, to talk about how you 
are monitoring the effects on small businesses, I also want to 
just note that we have to really be mindful about how our 
current audit practices impact patient access to needed medical 
products. One of our small prosthetic makers in the city of 
Madison, for example, who creates prosthetic legs, he reports 
that his Medicare claims have been all tied up in audits, and 
these claims have ultimately been approved, but in some 
instances, he has waited for over a year for payment. And as a 
result, many of his clients have had to wait significant times 
to receive their prostheses. For someone who crafts legs for 
some of our most vulnerable Americans, including veterans, I 
think we have to make sure that our audit practices contemplate 
these challenges.
    So, again, you have a really difficult task and I am very 
excited that we are focusing on ways to really get at the 
fraud. Chairman McCaskill, I have to say, when you were talking 
about the example of Med-Care, you may know that I was raised 
by my grandparents and I remember not so much in this area but 
in perhaps the charitable realm, that my grandmother would get 
solicitations--she was a very generous woman--would get all 
these solicitations for charities that sounded like legitimate 
charities, but they were really just a word different and that 
is very troubling to me. I am so glad for what you do, but I 
would like to hear what your safeguards are for making sure 
that the good actors still have a fair shake.
    Mr. Wilson. Thank you, Senator Baldwin, for your comments 
and your questions. A few things I would say at the outset. I 
think that a lot of the problems related to fraud and abuse, 
related to audits, are symptomatic of a system where we pay too 
much and that generates sort of a dynamic of--and an incentive 
for--suppliers to bill for things that patients do not need. 
And I think, again, if we can bring the price down and deal 
with that underlying problem, I think that will go a long way 
toward some of these other things that we talked about.
    With respect to small suppliers and competitive bidding, 
that is something that Congress in statute asked us to look at 
very closely and be mindful of in our programs, and we did some 
very specific policies to address small supplier issues, worked 
with the Small Business Administration (SBA) to establish a 
definition of a small supplier, built policies around that 
definition, such as a small supplier target where 30 percent of 
the contracts would go to small suppliers. In fact, in round 
two, it is 63 percent of the contract suppliers meet that CMS 
Small Business Administration standard. So we are very 
delighted to see that.
    I think that it is true that the statute requires there be 
winners and losers under the competitive bidding program, so 
you do have other small suppliers that did not get a contract. 
One of the things that we are seeing now is many small 
suppliers working with contract suppliers as either a 
subcontractor or helping with distribution, patient set-up, 
patient education, so still being able to participate in the 
program and to earn a living.
    Other small suppliers can continue to participate with 
Medicare by being a grandfathered supplier. They can continue 
to treat their existing patients for oxygen, other types of 
rental equipment. So, again, another opportunity to 
participate.
    And they can also continue to provide other services that 
do not fall under competitive bidding. So there are 
opportunities to continue to operate and we hope that suppliers 
will take those. And, again, we are seeing it.
    Rural suppliers--the program does not affect areas other 
than metropolitan areas and surrounding suburban areas at this 
point. So true rural areas are not affected by competitive 
bidding. Those suppliers can continue to operate. So I think 
that is a very important point to make.
    And with respect to the supplier that is having difficulty 
with an audit for the prosthetics that they provide, if your 
office would like to provide us with information, that is 
something we would be happy to look into. I could not say what 
the particular issue is, and I may be speaking for Dr. Budetti, 
but I am happy to look into that.
    Senator Baldwin. We will take you up on that. Thanks.
    Senator McCaskill. So let me see if I can correctly state 
this. Although I have different numbers about what the total is 
that you spend on medical equipment, I think it is fair, if 
everyone would agree, that we can use a ballpark figure of $10 
billion. Any problem with that from any of the witnesses? OK. 
Is that fair, ballpark, $9, $10 billion?
    Mr. Wilson. Ballpark.
    Senator McCaskill. OK. $9, $10 billion. OK. So your 
statistically valid sample says your improper payments in that 
universe is 66 percent in 2011, correct?
    Dr. Budetti. Yes.
    Senator McCaskill. OK.
    Dr. Budetti. It is around 66----
    Senator McCaskill. So, now, for fee-for-service, the same 
statistically valid sample showed improper payments of 8.5 
percent, correct?
    Dr. Budetti. For things other than DME, yes.
    Senator McCaskill. OK. So DME is 66 percent and the rest of 
it is 8.5 percent.
    Dr. Budetti. Right.
    Senator McCaskill. OK. You are in trouble.
    Dr. Budetti. We are.
    Senator McCaskill. This is a big problem.
    Dr. Budetti. We acknowledge that----
    Senator McCaskill. OK.
    Dr. Budetti [continuing]. And that is why we have----
    Senator McCaskill. Now, let us take it one step further.
    Dr. Budetti [continuing]. Seriously.
    Senator McCaskill. In 2011, our investigation shows, based 
on facts and figures you gave us, that you recovered $34 
million in improper payments on DME in 2011.
    Dr. Budetti. I believe that is the right number, yes.
    Senator McCaskill. OK. So we have a ballpark $10 billion. 
Let us say $9 billion to be fair. We know 66 percent of it is 
improper in some regard. It may be technical. It may be fraud. 
It may be all kinds of problems there. And we are getting $34 
million back.
    Now, these auditors, these recovery auditors, that is 
terrible. So I have to assume they are not working on a 
contingency.
    Dr. Budetti. The recovery auditors do work on a 
contingency----
    Senator McCaskill. OK. Well, I cannot imagine how bad they 
must be.
    Dr. Budetti. Well, I think it has to do with which areas 
they are, in fact, looking at----
    Senator McCaskill. Doctor we have 66 percent improper 
payments on $10 billion and they find $34 million? That is 
like----
    Dr. Budetti. Senator, let me----
    Senator McCaskill. That is like me seeing a penny over 
there and saying, boy, I picked it up. Pay me for it. How much 
of their contract is based on how well they do and how much of 
it do they get regardless of whether or not they are complete 
failures at it?
    Dr. Budetti. So the recovery auditors look at all the 
possible sources of overpayment recoveries as well as, of 
course, making up for underpayments where we underpaid somebody 
across the Medicare fee-for-service program. So DME at $10 
billion does have a very high overpayment rate, improper 
payment rate. There is no doubt about that.
    But when I said, Senator, to Senator Johnson earlier that 
we were looking at three areas within DME that account for 
about half of that improper payment rate and that is oxygen 
supplies, glucose monitoring supplies, and nebulizers with 
related drugs. So these are generally legitimate services that 
went to legitimate beneficiaries, to a large part, and what we 
need to do is make sure that the documentation and the billing 
practices and all of the other approaches are correct. And then 
we have individual targets. We have individual initiatives to 
deal with each one of those. You pointed out----
    Senator McCaskill. OK, then let us break this down this 
way.
    Dr. Budetti. OK.
    Senator McCaskill. I get the point you are making. You are 
saying some of this is technical and it is not really somebody 
ripping off the system. It might be technical violations----
    Dr. Budetti. Right.
    Senator McCaskill [continuing]. Because of the areas where 
so many of them are. Let us do it this way. When you did the 
national sample and statistically valid, did you ask them to 
break out a statistically valid sample of how much of that was, 
in fact, fraud and waste?
    Dr. Budetti. So, that has been one of the areas that we 
have been working on, because the way that the statistical 
sample is structured and the way that it measures improper 
payments is not a very sensitive tool in terms of actually 
looking at fraud.
    Senator McCaskill. Well, then why do we have it? What is 
the point if we are not going to get the money back? Why are we 
auditing anything if we are not trying to get the money back? 
This is like a bureaucratic dance if it does not mean anything. 
This is a giant waste of money, that we are doing a 
statistically valid sample, we are figuring out a 66 percent 
figure, but we are collecting $34 million. Either you are 
sampling wrong--and I am a former auditor--either you are 
sampling wrong and you are not focusing your statistic sample 
on trying to find the fraud and waste, or your auditors are 
complete failures in going after the money.
    Now, the next question is for you, Ms. Stanley. We now know 
that we have 66 percent that is wrong some way. Now, you are 
supposed to be figuring this out. Why, when you know that 
somebody has more than 50 percent of the documentation they 
have sent in is wrong, why do you not quit paying them until 
you figure it out?
    Ms. Stanley. And that is really, what we do in----
    Senator McCaskill. No----
    Ms. Stanley [continuing]. From the ZPIC perspective. Well, 
I am just talking about from the ZPIC----
    Senator McCaskill. OK. When can you quit paying them?
    Ms. Stanley. Once we have a credible allegation of fraud, 
we can--or we have an overpayment that we know exists. We may 
not know exactly----
    Senator McCaskill. OK. Let me ask you this. Let me give you 
a hypothetical.
    Ms. Stanley. OK.
    Senator McCaskill. It comes to your attention that someone 
has billed Medicare for a sleep apnea machine for someone who 
is dead. Does everything stop in terms of paying that provider 
at that moment?
    Ms. Stanley. We would, of course, verify, in light of 
Senator Baldwin's comment about that whole balancing act of 
making sure that this is, as you say, a bad actor----
    Senator McCaskill. Really dead?
    Ms. Stanley. Well, we would want to verify that this is not 
just an error on their part. What normally we would see is--you 
are going to see that happen more than once. You are not going 
to just see that on one claim. You are going to know that this 
is a repeated thing----
    Senator McCaskill. When do you pull the plug?
    Ms. Stanley. As soon as we have a credible allegation----
    Senator McCaskill. So, what percentage of the cases that 
your Zone has worked, what percentage do you pull the plug on?
    Ms. Stanley. I do not know if I can give you a credible 
number of that----
    Senator McCaskill. Dr. Budetti, when are they allowed to 
pull the plug? When can they say, we are not paying you any 
more. There are too many problems--and especially with this 
analytics you are going to get. Do you all have the procedures 
in place? You say you are going to have advance analytics.
    Dr. Budetti. Yes----
    Senator McCaskill. At what point in time do you have the 
authority, and do we need to give you more authority to say, 
you are done. We are not paying you until we figure this out.
    Dr. Budetti. So, we do have very strong authority that was 
under the Affordable Care Act, which Ms. Stanley referred to, 
which is to suspend payments, ending the investigation of a 
credible allegation of fraud. And when we have a credible 
allegation of fraud, then we consult with the Office of 
Inspector General and if there is, after that consultation, we 
are in a position then to suspend payments. Suspending payments 
is an intermediate measure. It stops the payments at that point 
in time, but we still have to do all of our additional work to 
see whether or not that particular supplier or provider should 
be kicked out of the program, whether their billing privileges 
should be revoked----
    Senator McCaskill. Right.
    Dr. Budetti [continuing]. Whether we should refer them to 
law enforcement----
    Senator McCaskill. And maybe----
    Dr. Budetti [continuing]. For additional investigation----
    Senator McCaskill. Right, or maybe we go back and try to 
get some of the money.
    Dr. Budetti. And, in fact--well, when we suspend payments, 
then, depending upon the kind of claim that is coming in and 
whether it would otherwise have been approved for payment, that 
money can go into an escrow account that we then have if later 
on we can declare an overpayment exists and we can collect that 
overpayment. So that is a very useful tool. It is one of the 
tools that we use.
    Another way of stopping payments involves looking at the 
claims and not paying them until they have been reviewed, so 
pre-pay review also can stop the payments until the claim is 
being reviewed.
    And then, of course, there is also, as I mentioned before 
with the payment contractors, the MACs, there are many ways 
that we can introduce ways to block payment based upon the 
experience that----
    Senator McCaskill. Well, that all sounds good in theory, 
except we are going to followup on this subject over the next 2 
years. It does not do any good for us to have all this in place 
if you have these kind of numbers in terms of money going out 
the door.
    And I need to finally ask this question and then I will 
turn it over to Senator Johnson, and I will probably have some 
more after he finishes, but how are the auditors paid? Can you 
legally put out a proposal that you will hire people to go 
after improper payments in the durable medical equipment area 
and you will not pay them anything, except they get 10 percent 
of everything that they recover?
    Dr. Budetti. So that is the Recovery Auditor Program that 
is in statute, and that is how the recovery auditor 
contractors, what are called the RACs----
    Senator McCaskill. So they get nothing if they do not 
recover anything.
    Dr. Budetti. That is correct. Their payments are based upon 
their recoveries, and they work with the Centers for Medicare 
and Medicaid Services in terms of their priorities----
    Senator McCaskill. Well, how many contractors do you have, 
if you are only getting $34 million?
    Dr. Budetti. So, Senator, one of the aspects of this that 
maybe I have not communicated adequately is that improper 
payments are payments that were improper when they were made, 
but many of those improper payments could be proper payments if 
the billing was correct or if the documentation was correct----
    Senator McCaskill. But you do not know what percentage?
    Dr. Budetti. Well, actually, we do----
    Senator McCaskill. What is it?
    Dr. Budetti [continuing]. A very high percentage of them--
and that is why, when we review them, we learn from the 
experience----
    Senator McCaskill. OK. What percentage of the payments you 
are making should not have been made, based on a fraud, waste, 
or abuse? What percentage of the 66 percent? Half? A third? 
Twenty percent? Do you have any idea?
    Dr. Budetti. I can tell you that the two numbers are very 
different. We believe there is waste and fraud----
    Senator McCaskill. You do not know the number, Dr. Budetti, 
do you?
    Dr. Budetti. Senator, fraudsters are very good at making 
their claims look real----
    Senator McCaskill. I agree.
    Dr. Budetti [continuing]. So our system for measuring 
improper payments is not designed to--and is not really 
appropriate for measuring fraud. We are separately designing an 
approach to measure----
    Senator McCaskill. Where is the system that measures the 
fraud, then? That is what I am interested in.
    Dr. Budetti. So----
    Senator McCaskill. I want to get the money back.
    Dr. Budetti. I totally agree with you, Senator. Actually--
--
    Senator McCaskill. It does not appear that you are that 
focused on that, because it looks like you have this 
bureaucratic system where you are figuring out improper 
payments, and now you are trying to tell me, well, never mind 
that big number. It does not really matter because, really, 
that is just paperwork and it is not really fraud.
    That is what we are here about today. We are here to figure 
out how to get the money back from people who have ripped 
people off and how we keep our money being spent on that in the 
future. And if your systems now cannot tell you those numbers, 
if you cannot sit there as the Head of Integrity for CMS and 
tell me, we think about 20 percent of the money going out the 
door every year should not be going out the door, if you have 
no idea what that number is, then there is no integrity in your 
program. You are in charge of knowing whether there is 
integrity and you are telling me you do not know what 
percentage of the 66 percent is even money that should not have 
been paid.
    Dr. Budetti. Senator, I could not agree more with the 
direction you are going in terms of our job is to protect the 
Trust Funds and protect the taxpayers and to make sure that 
money is not paid improperly, and certainly to go after the 
people who are, in fact, stealing from the programs.
    We have been, and we are working on a separate approach 
that is designed to measure probable fraud. We cannot just go 
out and ask people, did you commit fraud? We cannot do an 
estimate that works that way----
    Senator McCaskill. I can show you how to do this. 
Prosecutors can.
    Dr. Budetti. Prosecutors could, yes.
    Senator McCaskill. We catch fraudsters all the time. And, 
by the way, you have----
    Dr. Budetti. Absolutely right.
    Senator McCaskill [continuing]. So much documentation here. 
I look at some of these letters that just were sent in to us, 
frankly, some of this is like taking candy from a baby. And if 
the Federal system is not interested in doing this, you have 
State and local prosecutors I think you could get interested.
    I will turn it over to Senator Johnson.
    Senator Johnson. Thank you, Madam Chairman. By the way, 
good questions. I have the exact same questions.
    I think what we really need to do is work together and work 
with CMS to get the answer to your question in terms of what 
percentage really is fraud related? How much of the improper 
payments really are paperwork violations, technicalities that 
are actually addressed by the suppliers and then get paid? I 
mean, we are missing some basic information. Again, welcome to 
big government.
    Also, I appreciate Senator Baldwin's comments about not 
painting with a broad brush in terms of the bad actors. We want 
to definitely discipline and go after bad actors versus the 
quality suppliers throughout the industry.
    In that vein, we were working with the American Association 
for Home Care to try and get answers to some of these 
questions, get their perspective, and they sent me a letter\1\ 
I would like to enter into the record, with unanimous consent.
---------------------------------------------------------------------------
    \1\ Letter submitted by American Association for Home Care appears 
in the Appendix on page 90.
---------------------------------------------------------------------------
    Senator McCaskill. Absolutely.
    Senator Johnson. Thank you. An interesting statistic that I 
came up with, also, that we found out, is that when the 
payments are being adjudicated, 53 percent that were termed 
``improper'' or where there was--I am not exactly sure what 
this represents, but 53 percent by Administrative Law Judge 
(ALJ) are actually overturned. So, in other words, if they were 
basically judged by CMS to be improper, now 53 percent when 
adjudicated are actually proper. So I am not quite sure what 
that tells us, but we have a problem here.
    What I would like to do is--again, this is welcome to big 
government--so, Ms. Stanley, you have some private sector 
experience, so I would like to talk a little bit about the 
difference between the problems we are seeing here in terms of 
how do we get our arms around, how do we control waste, fraud, 
and abuse in a public payment system, a big government system, 
versus how does the private sector do it, because we are 
talking about Medicare fee schedules paying three to four times 
the rate, I guess, of private insurers. And I know a lot of 
people like beating up on private insurers, but they do 
something to control that.
    Can you just speak, in general, to the difference in the 
type of fraud that private insurers are dealing with versus the 
Medicare system?
    Ms. Stanley. I will try. I think that a lot of the issues 
are similar that you see on both sides. One of the big 
differences that I noted when I came to Medicare was that, we 
had so much control, I guess, for lack of a better word, over 
our panel of physicians on the private side. If you are an 
Health Maintenance Organization (HMO), you are controlling kind 
of that market and who you are letting into that program.
    I think that CMS has made extreme progress in heading in 
that direction with more control over provider enrollment, 
especially around DME. The National Supplier Clearinghouse that 
Dr. Budetti mentioned really has taken, I think, just leaps and 
bounds of better controls around how they are looking at 
providers and treating it much more like the private side.
    Senator Johnson. OK, but in the private sector, a private 
insurance company does not make payments on claims and then 
auditors come in there and say, well, boy, 66 percent of those 
were improper----
    Ms. Stanley. Well, you are right.
    Senator Johnson. I mean, what percentage would it be?
    Ms. Stanley. One of the advantages--I would not want to 
answer that, but one of the--because I have been out of it for 
some time----
    Senator Johnson. OK.
    Ms. Stanley [continuing]. But one of the big differences, I 
think, as well, is things like precertification. Private 
insurers will set up and they will say, look, in order to get 
this supply or this surgery, we are going to have you 
precertify. Medicare is a fee-for-service program and so we 
have not went in that direction. Of course, on the managed care 
side, you have HMOs manage care for Medicare, but under the 
fee-for-service side----
    Senator Johnson. But, also, you just have private 
insurance. Again, I know that some people just really hate the 
thought of profit, but it is a pretty strong discipline in 
terms of controlling costs, is it not?
    Ms. Stanley. Well, absolutely----
    Senator Johnson. And the private sector----
    Ms. Stanley [continuing]. Is looking at----
    Senator Johnson [continuing]. Does just a far better job 
controlling costs, preventing fraud within the private 
reimbursement system. Again, if you want to really know the 
root cause of the problem with the out-of-control health care 
spending in general, it is because we have separated the 
consumer of the product from the payment of the product. We did 
that back in the 1940s and we started the third-party payer 
system. Whether it is government paying for it or insurance 
companies paying for it, the consumer of the product, by and 
large, does not care what something costs because they really 
do not have that much skin in the game. Yes, there are 
deductibles. There is co-insurance. But, in general, just give 
me the best and we end up with that basic result.
    In terms of how the private sector operates, in terms of 
how they control those costs, talk about their auditing system 
versus what you are doing.
    Ms. Stanley. Wow. I do not know that it is that different. 
I mean, many times, they are responding to complaints. They are 
doing some data analysis. In some cases, to be honest, it is at 
least, and again, I have not been on that side of the house----
    Senator Johnson. OK. So let me change gears, then.
    Ms. Stanley [continuing]. For 13 years.
    Senator Johnson. Let us talk about----
    Senator McCaskill. She was about to say something nice 
about----
    Senator Johnson. Oh, I am sorry. It is----
    Senator McCaskill. Let her say something----
    Senator Johnson. Oh, OK. Sure. Well, I am running out of 
time.
    Senator McCaskill. You can take more time----
    Senator Johnson. No, go ahead.
    Ms. Stanley. Go ahead. That is fine.
    Senator Johnson. No, go ahead if you were going to say 
something really nice.
    Ms. Stanley. I was going to say that I think that, in some 
ways, Medicare is so much more sophisticated. I mean, when I 
came from the private side, we based everything on how Medicare 
designed their payment structures, and that is really what we 
based a lot of our policy and procedure on because Medicare was 
really so sophisticated in terms of the specific policies and 
in looking at medical necessity and those kinds of things, not 
necessarily talking about the payment specifically, but just 
the way that you are administering that.
    And I think that looking at the data analytics side, the 
fact that we are trying to go, CMS is looking more at risk-
based, which sort of gets to your point, of trying to look at 
where is the highest risk to this program? Where are we going 
to get the biggest bang for our buck, and let us focus those 
resources on those areas. That also keeps us from sort of 
hounding those physicians or suppliers that are trying to do 
the right things.
    Senator Johnson. Let me just move into the private sector 
side of the public system here and Medicare Advantage. Talk 
about the fraud that we are seeing in Medicare Advantage in 
terms of reimbursements there versus what we see in Medicare 
and Medicaid, because, I mean, my understanding of that is that 
is a, I guess, a voucher program, something like that, where 
seniors are actually buying private health care plans and they 
have a little more skin in the game that way. Do we see the 
same problem in that, which is about a $232 billion a year 
program, is that about accurate, with Medicare Advantage? Dr. 
Budetti.
    Dr. Budetti. So, the improper payment error rate, which is 
what we do measure across Medicare, is--I am trying to come up 
with the number--I think it was on the order of 11 percent this 
year. But, again, that is not a measure of fraud.
    Senator, because you are so interested in the private 
sector, and I would be delighted to provide you with more 
information on this, we have launched over the past year and 
recently really moved into an advanced phase of an active 
ongoing partnership with the private sector, with health plans, 
with the Health Care Anti-Fraud Association, with the States. 
We are all now working together under a Health Care Fraud 
Prevention Partnership, and this will involve everybody sharing 
information on who is perpetrating exactly which kind of scams. 
We are very encouraged. The private sector plans and 
associations that are working with us are extremely 
enthusiastic about this.
    We are building this as a long-term interaction that will 
mean that fraudsters will not be able to, for example, bill one 
health plan for 8 hours a day, bill another health plan for 8 
hours a day, bill Medicare for 8 hours a day, and bill Medicaid 
for 8 hours a day and get away with it because nobody is seeing 
32 hours of billing because we will be sharing the information 
among all of the payers and building the sophisticated 
analytics around the shared information.
    And so this is a very important step forward, that if you 
would be interested, we would be delighted to provide you with 
more information on.
    Senator Johnson. OK. Again, that sounds like a positive 
cooperation and coordination. But, again, it is not speaking to 
the benefit of utilizing more of a private sector model, where 
individuals have more skin in the game or more control over 
what they are spending, making wise consumer choices, versus 
the government just coming up with a fee schedule that is 
paying three or four times the cost of different types of 
products.
    My concern is you will never made that system work, and I 
think that is really what we are seeing here in this hearing. 
Medicare is how many years old, and it is just coming to grips 
with some of these, really, overpayment issues.
    But, anyway, that is enough for my time right now. Thank 
you.
    Senator McCaskill. Let me talk about the specifics of some 
of the complaints that I got from constituents. It is my 
understanding that the rule does not allow telephone 
solicitation, correct, without some kind of previous permission 
from the Medicare member that is being solicited?
    Dr. Budetti. That is correct.
    Senator McCaskill. OK.
    Dr. Budetti. Cold calls are not allowed.
    Senator McCaskill. Cold calls are not allowed. Clearly, we 
have received a lot of complaints about cold calls. I think we 
got almost as many as you did, according to your information 
you gave us. You all briefed us that you had 70 complaints that 
were investigated last year. We got more than that--I am sure 
you got many that were not investigated, but you had 70 that 
were investigated.
    Has a DME supplier ever been excluded from the program 
based on being caught doing this?
    Dr. Budetti. I believe you are aware from the information 
we provided, Senator, that growing out of the 75, I believe it 
was, that were investigated, most of those led to various kinds 
of corrective actions. There were problems, but most of them 
led to various kinds of corrective actions. One of the 
suppliers did, in fact, have their billing privileges revoked, 
but then was able to demonstrate that they were stopping and 
that they were engaging in proper conduct and so they were 
readmitted into the program.
    But I point out that there are lots of other consequences 
or people who are engaging in unlawful telemarketing to 
Medicare beneficiaries. In particular, any claims that they 
subsequently submit that were generated by that unlawful 
telemarketing are false claims against the government, and both 
the telemarketers and the suppliers can be liable criminally, 
civilly, for submitting false claims. And recently, there was a 
case that was reported where, I believe it was close to $18 
million was paid in precisely that circumstance.
    So in addition to the work that we do to impose 
administrative controls and corrective actions, there are lots 
of other consequences for telemarketers if that leads to false 
claims against the government.
    Senator McCaskill. I would really like a breakdown of how 
many immediate consequences resulted from a violation of the 
telemarketing laws, because this is one of these areas where I 
really believe a zero tolerance would have a wonderful 
deterrent effect. You all have an awful lot on your plate.
    And I do want to compliment you. I know I am tough on you, 
Dr. Budetti, but I do want to compliment you in that, overall, 
the administrative costs of Medicare are very reasonable. In 
fact, I believe--and this is where my friend and I, we agree on 
going after fraud and waste, we probably have some other 
differences of opinion--I am aware that the administrative 
costs for Medicare Advantage are higher than Medicare, that, in 
fact, we spend more on overhead on Medicare Advantage than we 
do on the basic Medicare program, and that was--Medicare 
Advantage came about because the private sector came and said, 
give us Medicare. We can do it cheaper.
    Well, as it turned out--in fact, the $500 billion that is 
thrown around in political campaigns is all about pulling back 
some of that money that has enhanced the bottom line of those 
private Medicare Advantage companies that said they could do it 
cheaper, and it turned out they could not. They did not do it 
cheaper. It was more expensive, not less expensive. And that is 
the $500 billion that I think the Republicans and Democrats 
agree on, because it is in everybody's budget. It just becomes 
the whipping post at election time.
    I really am worried about whether or not we are sending the 
right signal about the tolerance of this and whether or not 
cases are being criminally prosecuted. Do you know, Dr. 
Budetti, what percentage of the cases that are referred to law 
enforcement end up in a civil settlement versus a criminal 
conviction versus time behind bars?
    Dr. Budetti. With respect to telemarketing per se or with 
respect to wider----
    Senator McCaskill. The whole caboodle, fraud and DME.
    Dr. Budetti. I do not have that breakout, Senator, but I 
would be delighted to work with our law enforcement colleagues 
and get you a response.
    Senator McCaskill. I found out the hard way in this 
Committee that when I first talked to the U.S. Immigration and 
Customs Enforcement (ICE) about how many employers had gone to 
jail for knowingly hiring undocumented immigrants, they had no 
idea. And the reason they had no idea is because, frankly, they 
were not doing it. They did not want to keep track of it 
because it was not very good.
    So I know if you keep track of it, we can hold you 
accountable. And I would certainly urge you to get that 
information to us and then have it in a way, just like you 
tracked how many overall suppliers you have, track how 
successful you are at putting people in prison that do this, 
not saying, we are going to slap you on the hand and we paid 
you $140 million and you gave us five, so we are going to call 
it a day. You have probably got money stashed no telling where, 
and we are going to take $5 million from you and you are going 
to walk away, and before you know it, you will be in a fancy 
place somewhere else with all the money you have made off this 
program and you are never going to spend a day behind bars.
    Dr. Budetti. Senator, I can tell you that the Health Care 
Fraud Prevention Enforcement Action Team and the associated 
strike forces have been extremely successful in both increasing 
the likelihood of convictions and also the speed with which 
convictions are occurring----
    Senator McCaskill. That is terrific.
    Dr. Budetti [continuing]. And I will be delighted to get 
you the detailed data on that. But I must say, I think that 
what you just expressed, I can identify with many of the 
comments you just made, Senator.
    Senator McCaskill. Thank you. And why was the rule scaled 
back just to include phone calls? Why can we not include e-
mails and text messages and all of those? Is this over-hyper 
legal counsel? Is that what this is?
    Dr. Budetti. It is--I would never use that phrase, Senator.
    Senator McCaskill. I can. I am a lawyer. [Laughter.]
    Dr. Budetti. We do not have the statutory authority to 
regulate beyond telephone marketing, and we would be delighted 
to discuss that with you further if you would like to.
    Senator McCaskill. And I should know--and I will check--the 
lawyer said the underlying statute specifically says telephone 
only?
    Dr. Budetti. Yes. We are limited to telephone only. That is 
the way----
    Senator McCaskill. And when was this all written?
    Dr. Budetti. I do not know the date of that, but I will be 
happy to get you all the details.
    Senator McCaskill. Shame on you.
    Dr. Budetti. We would be delighted to discuss this with you 
in more detail, Senator----
    Senator McCaskill. Yes, because as you know, our challenge 
on Medicare is the demographics, and I can assure everyone that 
in the not-too-distant future, you are going to have a whole 
lot of Medicare participants that are relying more on e-mail 
and text message than they are phone calls, if my life is any 
example. I am not there yet. I do not even want to say how 
close I am because it is, frankly, frightening to me that I am 
going to be there before too long. I really think we have to do 
whatever is necessary.
    So I would look for some guidance from you on specific 
statutory language you need to prohibit this cold calling in 
any form.
    Dr. Budetti. So, we would be delighted to work with you and 
your staff and the Subcommittee and any interested members, 
Senator.
    Senator McCaskill. How about the bonding? I know we have 
bonding now. How successful have we been at going after these 
bonds?
    Dr. Budetti. The durable medical equipment suppliers are 
required, as part of their enrollment process--and we have 
verified that this is the case--to have security bonds in 
place. The security bonds have been in place, I believe it is 
now since 2009, and when we get to the point where there is a 
debt that has not been collected, then we are able to move 
against the security bonds.
    We have, in the past a little over a year been implementing 
the collection procedures against the surety bonds. We have our 
work cut out for us to improve that process and to make sure 
that we are going against it. Fortunately, although the bond 
may have been held by somebody who has disappeared and who has 
no assets, the security--the surety is still there that holds 
the surety bond, and so we can go after the surety bonds. And 
so this is an area that is very active in terms of improving 
our process and improving our collections against the surety 
bonds and we are pursuing this with a great deal of energy.
    Senator McCaskill. I would like the accountability metrics 
on that, too. I would like to know how many bonds we have gone 
after, what percentage of the bonds have been recovered, 
because I want to make sure that we are building the data, 
because I believe that the Secretary has the authority to 
increase the size of those bonds----
    Dr. Budetti. That is correct.
    Senator McCaskill [continuing]. And if we do not have that 
data at the tips of our fingertips, then there is really never 
going to be a time she is going to increase those bonds because 
she is not going to have the data to support the decision.
    Dr. Budetti. Senator, I share that entirely, and we are in 
the process now of building the reporting and data systems so 
that we can do exactly what you just said.
    Senator McCaskill. OK. That is great. I believe you covered 
the competition very well, and I know we are going to take a 
lot of the excess out with that.
    I am happy now to turn it over to Senator Johnson, if you 
have any other final questions.
    Senator Johnson. Yes. Thank you, Madam Chairman.
    As long as we are talking about different types of 
certification, do you have the statistics on how many suppliers 
there are? I have seen 100,000. I have seen 15,000. How many 
suppliers are there----
    Dr. Budetti. We are down to about 96,000 now, Senator.
    Senator Johnson. Ninety-six thousand. How many of those--do 
you have the statistics on terms of how many are certified, how 
many have been certified with a site visit?
    Dr. Budetti. So, all of those suppliers went through the 
initial enrollment process and screening, and then when they 
were subject to surety bonds a few years ago and now are 
subject to advanced scrutiny, enhanced scrutiny under the 
Affordable Care Act and revalidation. We are in the process of 
revalidating all 1.5 million----
    Senator Johnson. Is that like a desk revalidation, though, 
or is it site visits or----
    Dr. Budetti. No, Senator. They are all subject to 
unannounced site visits, and when the National Supplier 
Clearinghouse notices any kind of elevated fraud risk for a 
given supplier, they raise the likelihood of scrutiny of going 
back and doing----
    Senator Johnson. OK. Again----
    Dr. Budetti [continuing]. Subsequent site visits and so 
forth.
    Senator Johnson. Subject to is different from actual site 
visits. So I----
    Dr. Budetti. No----
    Senator Johnson. Let me just ask----
    Dr. Budetti. That is the 86,000 site visits that I referred 
to, Senator, so far.
    Senator Johnson. Eighty-six thousand site visits. OK. Good. 
So we may just ask for more detail on that a little later on.
    Dr. Budetti. Sure.
    Senator Johnson. We talked about some of these 
telemarketing scams and the requirements that you have to have 
been a customer. I know one of the companies we invited has 
been in the acquisition mode. What is the law? What are the 
rules governing a business that acquires a bunch of other 
businesses that have a bunch of customers? Does that become 
part of their customer base so that they can take those 
Medicare numbers and apply them to their entire product line 
against all their companies?
    Senator McCaskill. That is a good question.
    Senator Johnson. Do you know if that is?
    Dr. Budetti. So, I think it would depend on whether they 
are going to be essentially a new supplier or because they are 
all subject to the enrollment and oversight responsibilities. I 
think that our ability to track that will be greatly enhanced 
with some enhanced proposed rules that actually we are 
announcing today, Senator. And so--but the companies--it is a 
marketplace. The companies can engage in the transactions that 
you mention. But then they are going to be subject to the exact 
same kind of scrutiny. They cannot just simply----
    Senator Johnson. I understand, but that is a way to 
dramatically increase your reach in terms of being able to 
telemarket to customers, because now you can legally do it 
because you bought a company who has a lot of customers and now 
you can spread that over your entire product line, correct? OK.
    Ms. Stanley, let us talk a little bit about the private 
sector. You had mentioned those six frauds. Do those same six 
types of frauds--are those commonplace in private sector 
insurance companies, I mean, doing the exact same thing, and 
how prevalent?
    Ms. Stanley. Well, it kind of depends on the individual 
insurance plan. If you are talking about an HMO, where they are 
doing precertification, you are not going to see things like 
services not medically necessary because you have already 
screened that up front. But most of the same thing with, say, 
the example that I gave of hospice----
    Senator Johnson. I mean, telemarketing fraud? Is that 
common in private insurance?
    Ms. Stanley. Again, I have not done that----
    Senator Johnson. Probably not. What about services not 
provided? I mean, generally, are not private sector--again, I 
bought health care. We were paying these claims. I----
    Ms. Stanley. I know that we would have--again, this has 
been 13, 14 years ago--we would certainly have instances of 
services not provided, but I think moreover it was more focused 
on either the coordination of benefits issues around who was 
supposed to be paying and also--some of these things, however, 
are definitely----
    Senator Johnson. But it is----
    Ms. Stanley. You see them on both sides.
    Senator Johnson. It is safe to say, though, that the 
instance of fraud is far less in the private insurance market, 
correct?
    Ms. Stanley. I do not know the answer to that.
    Senator Johnson. OK. Let me just conclude with just a 
couple more facts. You raised the $500 billion figure, so let 
me talk a little bit more about that, because that was an old 
figure. What we are looking at right now in terms of the health 
care law is when it was originally passed, it was going to cost 
a trillion dollars over 10 years. The current budget window is 
about $1.7 trillion. And when it really kicks in 2016, it will 
cost about $2.4 trillion over 10 years. Again, that is going to 
be, I am afraid, another government program that may not be 
particularly efficient in terms of how the money is spent.
    It was going to be financed by about a half-a-billion 
dollars' worth of taxes, fees, and penalties, which gives you 
in the first 10 years about a half-a-trillion dollars' 
reductions in payments from Medicare in some way, shape, or 
form, Medicare Advantage. In the second 10 years, I believe it 
was going to be about a trillion dollars in taxes, which 
means--that is the $716 billion of reduction from Medicare, 
Medicare Advantage, in some way, shape, or form. In the full 
implementation, 2016 through 2025, now you are talking about 
$1.5 trillion of taxes, and that is leaving about a trillion 
dollars coming from somewhere, I guess, Medicare, Medicare 
Advantage. That concerns me.
    When I was at dinner with President Obama--listen, I 
appreciate the fact that he reached out and we start that 
process of building relationships and start solving these 
problems--it was interesting during that dinner when he laid 
out the extent of the problem. Pretty accurate, I thought. In 
terms of the budget, he said it is health care spending, which 
it is. And in particular, he said, the problem we have 
reforming Medicare is that for every dollar that Americans pay 
into the system, they are going to be getting about three 
dollars out in benefits. He also went on to say that most 
Americans do not understand that, which I agree. I do town 
halls all the time. People do not understand the extent of the 
problem.
    Now, the only way you are going to fix a problem is you 
have to first admit you have one and you have to properly 
define it, and that is what we are trying to do here today, 
just on the fraud. We are trying to get to the definition of 
the problem. But if you go back on a macro basis and you look 
at the enormous problem, the enormous challenge facing 
Medicare, I am highly concerned.
    Madam Chairman, again, I appreciate the bipartisan effort 
here. I think as the first act of bipartisanship, we need to 
come together, figure out what we agree on, agree on the facts 
and figures, whether it is in this micro problem in terms of--
overall, it is a big problem, but it is small compared to what 
we are talking about here, a dollar going in and three dollars 
going out. Now, I really wish the President would publicly tell 
the American public what he told us in private, because all I 
have heard him say publicly is that we just need modest reforms 
to Medicare. I think the result of this hearing is that we need 
far more than modest reforms to Medicare.
    So with that, again, Madam Chairman, I really appreciate 
this hearing. I want to keep working with you on this. I want 
to get to the bottom of what is happening with waste, fraud, 
and abuse in the Medicare system. Thank you.
    Senator McCaskill. Well, I think we can, and I think we can 
agree for a lot of reasons--I have heard the President say that 
publicly. I have heard him say that we have the average 
recipient of Medicare services is getting three times as much 
in benefits as they have paid into the system. I think he said 
it a number of times in public.
    Senator Johnson. OK. I stand corrected.
    Senator McCaskill. Yes. And I think we all know that is the 
problem, and part of that is, in fact, incentivizing the system 
appropriately, and I agree with you about making sure that we 
have skin in the game, making sure that we have means testing, 
making sure that we have a system that does not allow bad 
actors to take advantage of the fee-for-service scenario. And 
some of it is just the business models that we have allowed to 
buildup around Medicare, where the more you do, the more you 
make--not how healthy you are, but the more you do.
    I have told this story before, and I will close the hearing 
with this. You would not believe how hard it was for me to get 
my mother to say to her doctor, ``I had blood work 3 days ago 
at another doctor. I am not going to do it again.'' She said, 
``Well, I cannot say that to the doctor.'' I said, ``Yes, you 
can. You have had enough blood work for this 10-day period. You 
do not need five sets of blood work in a month. We are paying 
for that. You do not need it.''
    But the doctors know that every time they do that, that is 
something Medicare is going to pay for. And until we get this 
primary care system where we have a lot more oversight from 
beginning to end and more of a continuum of care with the 
emphasis on healthy, the emphasis on skin in the game, I think 
we are going to continue to struggle in trying to bring these 
health costs under control.
    But this is a big deal, because not only does it cost us a 
lot of money, it is rewarding exactly the kind of behavior that 
we need to be putting in prison in terms of this fraud, and 
particularly the fraud.
    So I look forward to working with you, Dr. Budetti and Mr. 
Wilson and all of the--I will use the acronym now--ZPICs--and 
the MACs. I would love to meet the MACs. I want to know if they 
are getting only paid for what they recover. They need to 
hire--there are some really good auditors out there that could 
make a lot more money if they went to work for them, because I 
guarantee you, there is a lot of money to be made on going 
after this money. Maybe they do not have the tools. Maybe I 
need to learn what tools they need they do not have in terms of 
getting after these improper payments that are recoverable, 
because you are doing a miserable job at getting the money back 
in the door.
    So I will look forward to working with you and I will look 
forward to you having clear and crisp answers to what is the 
extent of money that is being paid that should not be paid in 
DME, in medical equipment. How much is going out the door that 
should not be going out the door? I would love that number. 
Surely we can come up with a number that you are comfortable 
with, and then we can start measuring it and see if we cannot 
bring it down. I would love to see us save a billion dollars in 
the next 2 years. That is a goal that I would like us to set 
and I think it is achievable if we all work together on this, 
and I look forward to working with Senator Johnson.
    We will consider compelling the witnesses' appearance that 
did not appear today. I think that we want to be very careful 
about this because we do not want to have government being 
onerous or overreaching when it comes to asking people to 
appear in front of the Senate for Committee and oversight work. 
I will look forward to visiting and getting the counsel and 
advice of the Ranking Member on that, as to how we proceed. I 
do know that there is a lot of private sector that is making a 
lot of money off the government, and part of our job in terms 
of accountability is making sure that we are getting the 
answers from those companies.
    I have found in the contracting world that when I did 
listen to the companies, not only did I figure out how we could 
save money, I figured out how to make it easier for the 
majority of the contractors that do business with the 
government that are doing the right things for good value and 
are saving us money. The privatization in many instances does 
save us money and I want to make sure that I always mention 
that. But getting insight from the private sector is very 
important to this oversight work when those companies do depend 
on the government for their cash-flow and for their profit and 
loss (P&L).
    So I will look forward to working with you all. I want to 
thank the staff for their hard work on this. I certainly want 
to thank Senator Johnson, and this hearing is adjourned.
    [Whereupon, at 11:59 a.m., the Subcommittee was adjourned.]


                    OVERSIGHT AND BUSINESS PRACTICES
             OF DURABLE MEDICAL EQUIPMENT COMPANIES, PART 2

                              ----------                              


                        WEDNESDAY, MAY 22, 2013

                                 U.S. Senate,      
 Subcommittee on Financial and Contracting Oversight,      
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:02 p.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Claire 
McCaskill, Chairman of the Subcommittee, presiding.
    Present: Senator McCaskill.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Welcome. This hearing is a continuation 
of the hearing that the Subcommittee began on April 24, 2013. 
Today, we will continue the Subcommittee's oversight of how the 
Centers for Medicare and Medicaid Services pays businesses who 
supply durable medical equipment such as diabetic testing 
materials, CPAP machines, back braces, and power wheelchairs to 
Medicare beneficiaries under Medicare Part B.
    During the hearing on April 24, we heard testimony from CMS 
officials and one of the contractors responsible for conducting 
oversight of payments for medical equipment.
    We invited representatives of two durable medical equipment 
companies, Med-care Diabetic and Medical Supplies and U.S. 
Healthcare Supply to provide testimony about their companies' 
business practices, including how their companies market and 
promote medical equipment supplies to patients and their 
doctors.
    We also wanted the company representatives to address 
sample reviews by CMS which show very high error rates and 
denial rates for durable medical equipment payments made to the 
companies by the government.
    After receiving the Subcommittee's invitation to testify, 
both individuals, through their attorneys, declined to appear 
voluntarily before the Subcommittee. Because Ranking Member 
Johnson and I continue to believe that these companies could 
provide useful information that would assist the Subcommittee 
in its oversight of this very important government program, we 
issued subpoenas to compel their attendance at today's hearing.
    I regret that we were forced to use subpoenas to have the 
opportunity to ask these questions. I believe these witnesses 
today can provide important insights about both the operations 
of their industry and the oversight and performance of the 
government.
    I also welcome the opportunity to have a constructive 
dialogue about how to make the system more efficient and 
effective. I look forward to discussing those issues with the 
witnesses today.
    It is the custom of this Subcommittee to swear in all 
witnesses that appear before us. So, if you do not mind, I 
would ask you to stand.
    Do you swear that the testimony that you will give before 
this Subcommittee will be the truth, the whole truth, and 
nothing but the truth so help you, God?
    Mr. Letko. Yes.
    Dr. Silverman. Yes.
    Senator McCaskill. Thank you very much.
    Let the record reflect the witnesses have answered in the 
affirmative.
    We will be using a timing system today. We ask that your 
oral testimony be no more than 5 minutes and your written 
testimony can be put in the record at whatever length that you 
would so desire.
    The first witness to come before us today is John Letko of 
U.S. Healthcare Supply LLC.
    Mr. Letko, it is my understanding that--let me start with 
this. What is your company's primary business purpose?

      TESTIMONY OF JON LETKO, U.S. HEALTHCARE SUPPLY, LLC

    Mr. Letko. Chairman McCaskill, I would like to answer your 
question, but based upon the advice of my counsel, I 
respectfully decline at this time to answer your question based 
on my Fifth Amendment rights in the Constitution.
    Senator McCaskill. OK. We respect that right under the 
Constitution, and we thank you for being here today. We know 
that your company has been speaking to the press about this 
issue and we are hopeful that at some point in time your 
company will be in a position that you could speak to the 
Committee under oath in the same manner that you are willing to 
speak to the press about this issue and we thank you for being 
here today and you are dismissed.
    Mr. Letko. Thank you.
    Senator McCaskill. The record should reflect that Mr. Letko 
has availed himself of the privileges afforded under the Fifth 
Amendment of the Constitution to not give testimony that might 
incriminate him. The Subcommittee hereby respects that right to 
decline to answer the questions and the witness has been 
excused.
    [Witness excused.]
    We will now go to you, to Mr. Silverman. Mr. Silverman, we 
appreciate you being here and I am hopeful that we will be able 
to get a lot of good information out of you today.
    Let me start by asking what your role at the company is.
    Dr. Silverman. Good afternoon, Madam Chairman. I would like 
to make an opening statement.
    Senator McCaskill. I am sorry. Go ahead.
    Dr. Silverman. Thank you, ma'am.
    Senator McCaskill. We are not used to what just happened so 
I got a little off my script here. So, go ahead and make your 
statement. I appreciate it.
    Dr. Silverman. Thank you, Madam Chairman.

TESTIMONY OF STEVE SILVERMAN, MD, MED-CARE DIABETIC AND MEDICAL 
                            SUPPLIES

    Dr. Silverman. I welcome the opportunity to be here at this 
meeting today. My name is Dr. Steve Silverman. I received an AS 
degree in biology in 1975 from Nassau College in New York. I 
attended the University of Missouri in Columbia, Missouri from 
1975 to 1976. I then graduated from Logan College of 
Chiropractic in Chesterfield, Missouri in 1979 with a dual 
degree, a BS in human biology and a Doctor of Chiropractic.
    I am licensed in the States of Florida and New York. I 
started a multi-specialty center in Florida from 1979 to 1998. 
The name of my practice was American Med-Care Centers, 
comprised of chiropractors, medical doctors, and exercise 
physiologists.
    We served private insurance as well as Medicare patients. 
In 1999 I left the practice group to form a medical supply 
company named Med-Care Diabetic and Medical Supplies 
Incorporated.
    Today, my company has in excess of 435 employees all 
located in the United States. Medicare represents less than one 
half of our revenues. We are accredited by the Joint 
Commission. We are duly licensed in all 50 States and 
territories and I appreciate the opportunity to be here and 
look forward to your questions.
    Senator McCaskill. Thank you very much. You indicated in 
your opening statement that half of your company's revenues are 
Medicare?
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. What percentage of the revenues--are any 
of the revenues attributed to Medicaid?
    Dr. Silverman. No. A very small percentage, ma'am.
    Senator McCaskill. OK. So basically, you are half Medicare 
and half private pay?
    Dr. Silverman. We are also, we have a licensed pharmacy in 
all 50 States. We have licensed pharmacists and pharmacy techs. 
So, the other aspect of our income comes through our 
pharmacies.
    Senator McCaskill. I see. OK. Do you know what percentage 
of that might be Medicare D?
    Dr. Silverman. No, ma'am.
    Senator McCaskill. Was that information that you could 
possibly obtain for the committee?
    Dr. Silverman. I am sure I can obtain the information.
    Senator McCaskill. That would be helpful. Thank you.
    And, you may have said this in your opening statement and I 
missed it. Did you indicate, is this a privately owned company 
or publicly owned?
    Dr. Silverman. It is privately owned, Madam Chairman.
    Senator McCaskill. What did your company receive in 2012? 
What was the total amount of money you received from medical 
equipment supply payments from Medicare in 2012?
    Dr. Silverman. To the best of my knowledge, it was 
approximately $35 million.
    Senator McCaskill. And, is that average for the last 4 or 5 
years? Is that approximately what you received on a consistent 
basis or is that significantly more than you received in prior 
years?
    Dr. Silverman. It is not significantly more. We have been 
in business since 1999; and subsequently as years have gone on, 
our revenues have increased.
    Senator McCaskill. I want to make sure that you know I 
would never ask you to provide any information about specific 
actions that you may or may not be addressing in various 
inquiries that are being made by other parts of the government, 
but I am only interested in what actions you have taken in 
response to the finding by CMS that you had such a high 
percentage of claims that should have been denied.
    In the sample of more than 1,200 claims, they said that 99 
percent of them should have been declined and they found, the 
authors found that over 400 of the more than 590 Medicare 
claims reviewed were improper and demanded repayment in 
overpayments. I assume you are aware of these findings.
    Dr. Silverman. The first time I became aware of any of the 
information that you are stating was from your last 
Subcommittee meeting. I do not know if you are specifically 
addressing my company.
    Senator McCaskill. I am.
    Dr. Silverman. OK. We have requested information regarding 
those statements and we have yet to receive it. But may I just 
state that as a result of what I read from the last meeting, we 
went back, we are part of the large provider outreach program 
for CMS. We have in excess of 200,000 patients and CMS has 
asked us and we voluntarily agreed to work with them. So, we 
get report cards every quarter from--I was able to go back and 
review our CERT error rates. From 2010 through most recently of 
2012, our error rates were anywhere between 3 and 7.8 percent.
    Senator McCaskill. So----
    Dr. Silverman. Excuse me.
    Senator McCaskill. Go ahead. I am sorry.
    Dr. Silverman. Some of the error rates were based upon 
equipment that is not paid for by Medicare. In other words, if 
a patient requested insulin or syringes to treat their 
diabetes, it is not a covered item from Medicare.
    So, we have to submit those claims to Medicare, and those 
claims then get rejected so that we can bill their other 
insurance. That is just an example of how some of these claims 
are attributed to an error rates.
    Senator McCaskill. OK. So, I am confused. CMS is telling us 
that your error rate, that when they look closely at reviews, 
400 of 590 claims reviewed were improper. And, you are saying 
that you did not know until the hearing that they had demanded 
repayment for overpayment on some of those?
    Dr. Silverman. To my knowledge, we have not been demanded 
repayment for overpayment on anything, on any of those items 
brought up.
    Senator McCaskill. So, this is really important that you 
came today because what you are telling me is CMS is telling 
you to pay them back and you are saying they never told you to 
pay them back.
    Dr. Silverman. I am not saying that. I do not know--to my 
knowledge, I have no understanding of CMS asking us to pay back 
money associated with the review you have mentioned above, and 
I am not really clear of where the report and what period that 
report is from. I requested the information. Our attorneys 
requested to review the information, and I have not been able 
to review it yet.
    Senator McCaskill. We certainly can give you all the 
information that has been part of the public record as part of 
this hearing, and I can assure you that no one will beat down 
the door faster at CMS to resolve what appears to be a huge 
discrepancy in the information that they have provided and the 
information that you are representing today. They cannot say 
that you have a gross problem with improper payments and then 
you not know anything about it.
    So, clearly there is a break down here.
    Dr. Silverman. I appreciate that and that is one of the 
reasons I am here today basically just to clear up these issues 
and not to muddy our name but we work closely with CMS and we 
would be very happy to go over those results.
    And, since 1999 I can tell you that we have had a small 
minority of audits, never any substantial prepayment audits, 
and we had actually voluntarily in 2012 given back $750,000 
back to CMS.
    So, I look forward to working with CMS closely and I would 
like to clear it up just as quickly as----
    Senator McCaskill. Well, I can facilitate you getting with 
CMS I cannot assure you.
    Dr. Silverman. Thank you.
    Senator McCaskill. And we will get to the bottom of it----
    Dr. Silverman. OK.
    Senator McCaskill [continuing]. Because I want to be 
confident that the problem that is out there which it is a 
problem in that we have had--and that is why I want to talk 
about the specifics. I mean, you understand how your company 
came to light to this Committee?
    Dr. Silverman. From the last meeting, yes, Senator.
    Senator McCaskill. That it was a doctor that contacted us 
that she was having a great deal of difficulty getting you to 
stand down in your marketing of these devices to one of her 
patients.
    Dr. Silverman. I would like to comment on that issue if you 
let me.
    Senator McCaskill. Absolutely. I am going to ask you some 
questions about it but go ahead.
    Dr. Silverman. Do you want to ask those?
    Senator McCaskill. No. Go ahead.
    Dr. Silverman. Thank you, Senator.
    I was able to review the testimony from the physician 
regarding the claims that her patient were, was cold called 
basically by our company, and I have empathy toward her in 
regards to getting many faxes and many paperworks. Many of my 
friends are physicians and the they would much rather practice 
medicine than be boggled down with faxes and paperwork.
    In this instance, the doctors stated that she was 
representing her patient and the patient was cold called and 
the evidence shown was a fax request from our company, Med-Care 
Diabetic and Medical Supplies, for authorization to give this 
patient CPAP equipment.
    Our policies and procedures regarding advertising, 
basically we advertise on a website and web health sites. Every 
one of our advertising basically has a box that a patient must 
check that essentially gives express written permission for our 
company, Med-Care Diabetic and Medical Supplies, to call them.
    In this particular instance with this physician's patient, 
we have documentation showing express written permission from 
this patient to allow our staff to call them.
    So, No. 1----
    Senator McCaskill. Do you know where--this is Mrs. 
Pariseau?
    Dr. Silverman. Ah. Can I mention names?
    Senator McCaskill. Sure. Her letters and faxes and her 
information.
    Dr. Silverman. Dr. Kennedy's patient, and I just want to be 
respectful of any Health Insurance Portability and 
Accountability Act (HIPAA) guidelines so. Dr. Kennedy's patient 
was not Mrs. Pariseau, and also I would like to add that Dr. 
Kennedy's patient---- [Pause.]
    Senator McCaskill. OK. I want to make sure you see these. 
Did you get copies of the letters that I am referring to?
    Dr. Silverman. I have a copy of Dr. Kennedy's letter to 
you.
    Senator McCaskill. Right.
    Dr. Silverman. I just want to also state regarding this 
patient, this patient did not have Medicare benefits. Her 
benefits were actually United Healthcare, which is a private 
insurance.
    Senator McCaskill. OK.
    Dr. Silverman. So in this instance, Dr. Kennedy is 
basically stating the patient did not request any of these 
devices or products, but we have expressed written permission 
from this patient for our office to contact her.
    They were not cold calls, and the only other evidence that 
was presented was a prescription faxed to Dr. Kennedy where she 
had said that the patient did not require a CPAP machine 
because they already had one.
    At this point, we did not further contact the patient. And, 
the patient was not contacted again. We did not contact Dr. 
Kennedy after this. The patient was never billed, shipped 
supplies.
    Senator McCaskill. OK. So, let me back up about the written 
consent. So, you are saying you are not calling patients until 
you have expressed written consent?
    Dr. Silverman. Yes, ma'am. Our program has been reviewed 
and approved by CMS.
    Senator McCaskill. And, is the written consent in the form 
most times of somebody checking a box on an Internet ad?
    Dr. Silverman. The written consent on our website shows 
that the patient, we explain our privacy policy to the patient 
and we also explain the fact that the patient is agreeing to be 
called Med-Care.
    Senator McCaskill. Tell me exactly how they get there. Say 
it is my elderly aunt, and she is looking up something about 
her diabetes, and she sees an ad on that page, and she clicks 
on that ad. It says you can get free testing equipment.
    Dr. Silverman. We do not ever state anything free.
    Senator McCaskill. OK. You can get testing equipment at 
little or no cost to you.
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. I think that is the phrase that is most 
frequently used.
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. Little or no cost to you, and you click 
on that box. And, then where does she go?
    Dr. Silverman. She immediately gets an e-mail from our 
company, and the e-mail basically----
    Senator McCaskill. Without her entering in her e-mail 
address she gets an e-mail from you?
    Dr. Silverman. No, I am sorry, Ma'am. On our website, we 
have----
    Senator McCaskill. So, she clicks through and she gets to 
your website.
    Dr. Silverman. Yes. There is a place on the website.
    Senator McCaskill. And, she has to fill in her e-mail 
address.
    Dr. Silverman. Her name, her e-mail address, and her 
telephone number----
    Senator McCaskill. So, the woman who----
    Dr. Silverman [continuing]. Then there is a box that she 
needs to check that she is giving us express written permission 
to contact, and those are the CMS guidelines.
    Senator McCaskill. OK. And, are there any that you are 
calling that you are giving some way other than that visit to 
your website?
    Dr. Silverman. No, ma'am.
    Senator McCaskill. So, you do not have any other methods. 
So, if someone does not have a computer and they are saying 
that they got a call from you and you had a doctor's name, you 
had their named, and you said that you were Med-Care and they 
thought you meant Medicare because your name sounds just like 
Medicare, you do not think that is really happening?
    Dr. Silverman. No, ma'am. First of all, we do not present 
ourselves as Medicare.
    Senator McCaskill. Why did you name yourself that then?
    Dr. Silverman. My medical office was named American Med-
Care Centers; and when I left that office, that name was still 
in use. So, I just abbreviated it to Med-Care Diabetic and 
Medical Supplies.
    Senator McCaskill. And, it is just a convenience or a 
coincidence that when someone calls and says this is blah blah 
blah from Med-Care that elderly people just might accidentally 
think they are talking to Medicare.
    Dr. Silverman. We do not present ourselves that way.
    Senator McCaskill. So, do they say we are not Medicare?
    Dr. Silverman. We say we are Med-Care Diabetic and Medical 
Supplies; and if a patient were to ask, are you Medicare, of 
course, we say no, we are not Medicare.
    Senator McCaskill. OK. Do you have any contracts with third 
parties to get phone numbers, call lists, or information about 
Medicare beneficiaries?
    Dr. Silverman. No, ma'am.
    Senator McCaskill. And, you are not buying lists from 
anyone?
    Dr. Silverman. No, ma'am.
    Senator McCaskill. OK.
    Dr. Silverman. Our advertising is purely web-based; and 
like I said, the Joint Commission and CMS has reviewed it and 
has approved it.
    Senator McCaskill. OK. Have you been investigated for 
violating this prohibition on direct marketing?
    Dr. Silverman. In terms of investigated by whom?
    Senator McCaskill. By CMS.
    Dr. Silverman. We had a corrective action procedure this 
past fall. Our advertising, CMS had done their yearly 
inspections last summer and we had given them copies of our 
advertising.
    In a couple of our advertisements, the patient request to 
be contacted was in our privacy policy. So, CMS reviewed this 
and they essentially wanted us to be more clear about where it 
was.
    So, there were a few ads that, like I said, were in the 
privacy policy and we corrected that. CMS, it was called a 
corrective action procedure. CMS approved it. They reviewed all 
of our advertising and----
    Senator McCaskill. So, now do you have to check two boxes? 
One that you understand the privacy policy and one you are 
willing to be contacted?
    Dr. Silverman. No, just the willing to be contacted. Our 
privacy policy is in regards to HIPAA, and we want our patients 
to understand that their patient information is protected.
    Senator McCaskill. OK. So, the only action they can take is 
clearly delineated now ``I am willing to be contacted by your 
company? ''
    Dr. Silverman. Yes. And, CMS, just getting back to CMS, we 
were retroactively approved. We never lost any billing. We 
never lost any licensure. They just wanted clarification; and 
unfortunately, it was over Christmas. So, it took a little bit 
of a period of time but, it was fine.
    That is the only actions that my company has had, and I 
have been billing Medicare since I started out in practice 
since 1979 without major incident.
    Senator McCaskill. So, I am back to Mrs. Pariseau. She 
claims that you called her and that she had no idea what was 
going on and that she did not understand that she was talking 
to a company and that she thought it was Medicare because you 
had all of her information.
    She indicated she never asked for a prescription and yet 
she is getting a letter that says our sleep apnea prescriptions 
have been approved.
    Dr. Silverman. In this particular instance, Senator 
McCaskill, I was also able to go back to our records and we 
have a form, a document that basically has shown that Mrs. 
Pariseau has given us express written permission to contact.
    Senator McCaskill. And, how did you get that.
    Dr. Silverman. She apparently went on a website and filled 
out that document.
    Senator McCaskill. Will you share those documents with us?
    Dr. Silverman. Absolutely.
    Senator McCaskill. OK. So, I would like to see where Mrs. 
Pariseau gave you permission, and where did you get her phone 
number?
    Dr. Silverman. On the website, the patient fills out her 
name, her e-mail address, her phone number.
    Senator McCaskill. So, she gave you her phone number on a 
website.
    Dr. Silverman. Yes, ma'am, and that is why when we contact 
them, again just to talk about our current marketing, the 
patient gets an e-mail right away; and if they do not want to 
be contacted, they had the right to be put on a do not call 
list and we do not contact.
    Senator McCaskill. What if she does not respond to your e-
mail? Do you send her a letter?
    Dr. Silverman. No. We contact her by phone; and then at 
that point in time, if the patient has any confusion, the 
patient says I did not fill this out, I do not want the 
supplies, then we apologize. We tell them we are sorry we 
bothered them, and no further actions are taken.
    Senator McCaskill. OK. So, in this instance, you are saying 
Mrs. Pariseau went on your website, she filled in her e-mail 
address, she filled in her phone number, and then you send her 
an e-mail.
    Did she respond to your e-mail or not respond to your e-
mail?
    Dr. Silverman. No. We contacted the patient and then we 
sent out prescriptions requests.
    Senator McCaskill. Wait. I want to know how you contacted 
her. You are saying the first thing she did is she went on your 
website and she gave you all this personal information.
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. Then, you are saying that you contacted 
her. Did you contact her by e-mail first?
    Dr. Silverman. No, ma'am, by phone.
    Senator McCaskill. OK. So, you did not e-mail her. I 
thought you just said you always e-mailed them.
    Dr. Silverman. It is the policy of our office to e-mail. In 
this particular instance, I would think that, according to our 
office policy, we would have e-mailed her. I have no e-mail 
back from her so I do not have any documentation to show you.
    But our next procedure, once we receive the documentation 
that allows us to call, we then call the patient and speak with 
the patient and we get their insurance information from the 
phone call. We ask them about the type of supplies they are 
desiring and we get the physician information so we can contact 
the physician for a prescription for that item.
    Senator McCaskill. OK. So, in this instance, you did not, 
you do not know whether you e-mailed her or not but you know 
that you called her.
    Do you know for sure whether you e-mailed Mrs. Pariseau or 
not?
    Dr. Silverman. I do not know for sure.
    Senator McCaskill. So, you are saying the policy would be 
that you would e-mail her; and that if she does not respond to 
your e-mail, then you call her?
    Dr. Silverman. No, ma'am. The express policy of our office 
is if the patient gives us permission to contact them, we call 
them on the phone.
    Senator McCaskill. Oh, OK. So, the e-mail is superfluous to 
the policy. The policy is----
    Dr. Silverman. The e-mail is another fail-safe method that 
we actually put in place to protect citizens and to protect 
their rights so as not to bother them.
    But if a patient gives us express permission to call them, 
then we call them; and if there are any issues at that time, we 
resolve the issues; and if the patient does not want us to 
followup with a physician's request for supplies, we do not 
send out a physician's request.
    Senator McCaskill. And, I want to apologize to you because 
I should have spent sometime on your website and I should have 
already seen all of this and I wish I had of because I would be 
much better at questioning you now had I.
    But does it expressly say on the website, you can call me?
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. OK.
    Dr. Silverman. It says----
    Senator McCaskill. So, they know when they are filling in 
their phone number that they are asking for you to call them?
    Dr. Silverman. Yes. Yes, ma'am.
    Senator McCaskill. OK.
    Dr. Silverman. Yes, Senator.
    Senator McCaskill. So, Mrs. Pariseau, according to you, 
filled in this website, gave her phone number, but she did not 
give her doctor's name or her prescription, did she?
    Dr. Silverman. Yes, Senator, she gave----
    Senator McCaskill. On the website?
    Dr. Silverman. Not on the website. Once the patient----
    Senator McCaskill. Well, I am still at the website.
    Dr. Silverman. The patient basically grants us expressed 
permission to call them.
    Senator McCaskill. OK. Now, she says when you called her, 
you already knew our name, her prescriptions, and her doctor. 
Is she mistaken?
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. So, that is not true.
    Dr. Silverman. To my knowledge, I can----
    Senator McCaskill. Would there be any way your company 
would have her name, her prescriptions, and her doctor before 
you talk to her?
    Dr. Silverman. No, ma'am.
    Senator McCaskill. OK.
    Dr. Silverman. We have all this----
    Senator McCaskill. So, you understand from her perspective 
you called her, you said you were Med-Care, you knew her 
doctor, you knew her prescription, this is what she is telling 
us.
    You knew her doctor, you knew her prescriptions, and then 
she started getting letters that she needed to sign off on her 
getting her new sleep apnea machine.
    Dr. Silverman. I would like to explain to you, because if 
that is this woman's perception, that is her perception. But I 
would like to explain to you our policies and procedures.
    In this instance, her perception is incorrect. Based upon 
her requesting information for us to contact her, we then will 
phone her; and at that point, we would get her physician 
information. We would get her insurance information; and at 
that point if she did not want any further contact from our 
company or if she had misconceptions of who we were, we would 
have straightened it out right then and there.
    But in this particular instance, we were given the name of 
her physician and then we contacted her physician. We then sent 
the patient a new patient letter which, again from our 
perspective, introduces our company, introduces our procedures, 
and again tells the patient that no further action is taken in 
the future unless we speak to them again.
    So, we sent out the new patient letter; and from the last 
hearing, you basically attributed that to aggressive sales 
advertising. But from my perspective, it is good patient 
management and care because it is another way of explaining the 
program to the patient. It is another way of the patient not 
going forward with the program if they want to opt out.
    Senator McCaskill. I appreciate that, Dr. Silverman. I do.
    Dr. Silverman. Thank you.
    Senator McCaskill. I am coming at this from the perspective 
of the Medicare patient who is complaining to Congress that she 
was aggressively marketed in a way that made her uncomfortable, 
that she did not understand how this happened or why it 
happened and that this is a problem. I guess----
    Dr. Silverman. Thank you for allowing me to explain that.
    Senator McCaskill. From your perspective, I get that that 
is what you think occurred. I----
    Dr. Silverman. And again, Senator, we have----
    Senator McCaskill. Is it possible that any of your people 
working for your company, are they compensated based on how 
much they sell?
    Dr. Silverman. No, ma'am.
    Senator McCaskill. There is no commissions?
    Dr. Silverman. They are a salaried employee.
    Senator McCaskill. No commissions?
    Dr. Silverman. They----
    Senator McCaskill. I want to make sure. You are saying that 
everybody at your company makes the same amount no matter how 
many machines----
    Dr. Silverman. No, ma'am.
    Senator McCaskill [continuing]. They sell.
    Dr. Silverman. They have incentives, yes.
    Senator McCaskill. OK. And, the incentives are based on how 
many machines they sell.
    Dr. Silverman. Not necessarily machines. There is no 
monetary basis but it is based upon who they speak to and how 
many orders they get.
    Senator McCaskill. OK. So, it is based on how many orders 
they get?
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. And, the orders are for machines. They 
are for braces or they are for apnea or for diabetic testing. I 
mean, let us not mince words here. You get compensated more 
money if you sell more.
    Dr. Silverman. We are an equal opportunity employer.
    Senator McCaskill. Of course. I get that and I am not----
    Dr. Silverman. But it is----
    Senator McCaskill. Listen. The government set up a system 
here that allowed what I think at one point people believed it 
would be a free market of competition that would drive costs 
down. It turns out without competitive bidding and a free-for-
all among seniors in terms of marketing that it did not work 
out that way.
    So now, we are trying to put the cow back in the barn in a 
way that protects legitimate businesses that have this 
equipment that they want to sell and have a right to make a 
profit.
    Dr. Silverman. Yes.
    Senator McCaskill. But I guess when we revised, when the 
regulations were revised on direct marketing that prohibited 
in-person contacts, when they tried to revise them to include 
e-mails and instant messaging, do you understand that perhaps 
those changes might be necessary?
    Dr. Silverman. I follow all the standards and rules. I do 
not make the rules. But believe me, based upon my past and I am 
very aware of consumer, protecting the consumer but regarding 
the rules and regulations, we are regulated, we are inspected, 
and whatever the rules and regulations are there I give our 
best effort for myself and all my employees to follow them.
    Senator McCaskill. And I appreciate that. I guess I am 
asking you about changing the rules. Do you see a benefit other 
than, I mean, this is kind of mean because I am asking you, are 
you OK with the rule that is going to allow you to sell less 
because if you are worried about selling more this is not going 
to help you.
    Dr. Silverman. I am not worried about selling more. I want 
to play by the rules.
    Senator McCaskill. OK. Well, if you are not worried about 
selling more, do you understand that it seems, I think, a 
little weird that you would try to, even if someone clicked, 
believe me, my mother who I miss very much click a lot of 
things on the Internet she should not have clicked.
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. She gave out a lot of information that 
she should not have given. I kept saying, mom, bridge, play 
bridge. E-mail your grandchildren.
    With a senior population, do not you think if they need 
medical equipment, it should come from their doctor and not 
from a go-between between the patient and the doctor that is 
contacting the patient directly even if you are actually 
following the rules that allows you, for purposes of this 
hypothetical, assuming every single person you call is somebody 
who has given you their phone number and their name and their 
e-mail on your website----
    Dr. Silverman. Yes.
    Senator McCaskill [continuing]. Every single phone call 
that you make is attributable to that, assuming that that is 
correct, and I got to tell you that is a hard assumption for me 
to make but I am going to make it out of deference to your 
testimony.
    Dr. Silverman. I have documentation.
    Senator McCaskill. Do you understand that it seems from 
this side of the table that it would make a lot more sense for 
that marketing to go on to the doctor as to the efficacy of 
your equipment, the reliability and efficiency of your company, 
your customer service, and that the doctor should be the only 
one making the decision or requesting that the patient gets the 
equipment?
    Dr. Silverman. I have been a physician for many years so I 
can talk to the you from both sides from an office standpoint, 
and I still think that patients do have rights to choose who 
they want to get services from.
    Sometimes patients are intimidated by their physician. They 
do not agree with their physician. They do other things. So, I 
think primarily a patient has the right to choose.
    As far as----
    Senator McCaskill. Do you think that these seniors, though, 
are making knowing choices? You know the ones----
    Dr. Silverman. I----
    Senator McCaskill. Do you think when my mom ended up with 
five diabetic testing machines, you think that is because she 
needed five.
    Dr. Silverman. We have----
    Senator McCaskill. Or do you think it was because she kept 
getting contacted because the company had her as a patient 
before and they had the right to contact her again and say, 
hey, we have a new and improved model we can send you out at 
little or no cost to you----
    Dr. Silverman. I do not----
    Senator McCaskill [continuing]. Which read underneath that 
means the Federal Government is going to pay for it?
    Dr. Silverman. I do know that everything we do is based 
upon signed prescriptions from physicians. So, the physicians 
are basically telling their patients that they can go and 
utilize our services. So that is that from that perspective.
    Going back to your original question regarding physicians, 
I do not know if a physician can efficiently offer all these 
medical devices to their patients. It is an industry that is 
very regulated. It is an industry that requires a lot of work, 
and physicians are busy treating their patients. So----
    Senator McCaskill. No, I do not mean them provide it. I 
mean that they are the ones that contact you and Pariseau's 
doctor would call, A member of my family got a sleep apnea 
machine. It did not happen because somebody, he did not click a 
website.
    The member of my family that got it, you know, what 
happened? He went to the doctor. He had a sleep test, and the 
doctor said, I am going to prescribe you this machine and here 
is three choices you have of the equipment. Here is the 
relative pros and cons of each kind of the equipment, and you 
can call all three of these companies and they will talk to you 
about their equipment or you can pick one. That is completely 
up to you but you need this machine.
    It was not that he had gone on a website and clicked and 
put in his phone number and then gotten a call and said at 
little or no cost to you, we are going to run this fax to your 
doctor's office and see if we can get them to sign off and you 
are good to go.
    Dr. Silverman. I understand; but again if the doctor did 
not want that patient to utilize our services and supplies, 
they just would not sign that prescription.
    Senator McCaskill. So maybe, do you think if we are going 
to try to tighten it up that we need to begin at the doctor's 
office and give them some kind of disincentive to sign off on 
these prescriptions without actually looking at the files and 
discussing it with the patient?
    Dr. Silverman. I am not a policymaker.
    Senator McCaskill. Well, maybe that is the answer. Maybe we 
stop it there. Does your company have a surety bond?
    Dr. Silverman. Yes, ma'am.
    Senator McCaskill. Tell me what you think about----
    Dr. Silverman. I am sorry. Regarding this patient, we 
actually have prescriptions signed from the physician saying 
the patient can get services from our company.
    Senator McCaskill. Was that before or after you sent her 
the letters?
    Dr. Silverman. At the same time. We sent out a new patient 
letter and we request a prescription from the physician. So, we 
have physician authorization to treat this patient.
    What happened in this particular instance, to be perfectly 
honest and blunt with you, the physician's prescription was not 
filled out correctly. The physician did not date the 
prescription.
    So, we were not able to supply this patient with their 
supplies, and we had contacted the physician's office telling--
--
    Senator McCaskill. It was a good thing because they did not 
want it.
    Dr. Silverman. Well, in that case, what happened was, based 
upon the fact that the physician did not fill out the 
prescription, there was somewhat of a time lag and then we 
contacted the patient. At that point, the patient said that she 
decided to stay with her original provider, and that is 
essentially what happened in this case.
    Senator McCaskill. OK. Well, we will go back and obviously 
I want to see the documentation from your end on this and we 
will go back and analyze this case. Obviously, this is one case 
out of, we have a lot of people that contacted our office.
    Dr. Silverman. Yes, ma'am, and that being said, I would 
like you to speak to counsel regarding releasing the 
information that you are requesting.
    Senator McCaskill. Well, how about, I think that is fine if 
I get the permission of the patient.
    Dr. Silverman. Yes.
    Senator McCaskill. Obviously, I do not think you have any 
HIPAA concerns if I have the permission of the patient.
    Dr. Silverman. I have no----
    Senator McCaskill. She contacted us. We did not----
    Dr. Silverman. As long as we are compliant, Senator, I have 
no concerns.
    Senator McCaskill. OK. Tell me what you think about the 
competitive bidding program.
    Dr. Silverman. Excuse me, Senator. [Pause.]
    I would very much like to answer your question regarding 
competitive bidding but just for your information also when you 
request documents, we have a patient comment report that is 
dated that has all the comments from the patient.
    Senator McCaskill. Great. We will look forward to seeing 
that.
    Dr. Silverman. OK. My opinion on competitive bidding is I 
am in favor of competitive bidding. I have some concerns based 
upon the pricing. I have some concerns based upon the capacity.
    I think that for diabetic patients, there are 25 million 
diabetic patients in the country and competitive bid contracts 
were awarded to only 10 to 15 providers.
    Senator McCaskill. As compared to how many providers are 
out there now?
    Dr. Silverman. I do not know the exact number of providers 
but there are thousands and thousands. At one point there were 
50,000 providers, and the CMS has done its job, and its 
policies have gotten rid of a lot of the providers in that who 
were not doing the job properly.
    But there is an estimate that maybe there will be a 
thousand providers to participate in competitive bidding; and 
out of the thousand, 10 to 15 providers will be able to help 
people requiring diabetic testing supplies.
    So, in this instance, that chosen provider is going to need 
a large capacity office to really provide these seniors with 
product, and I fear that there will be confusion. I fear that 
seniors will not know where to turn. I fear that they will not 
be able to test, and it is well documented that if patients do 
not test themselves, their disease can get worse. The medical 
bills skyrocket. That is my concern.
    Senator McCaskill. And, I appreciate; and one of the 
reasons that I am trying to work in this area is because I 
think it is ripe for confusion, and I think the current system 
allows a lot of that also.
    I think that is one of the reasons why we had so many 
people contact our office on this subject. When asked if they 
have been solicited for medical equipment directly, we got a 
lot of people that stepped up and those are the ones that are 
paying attention to what is being said in the news or on TV 
about Congress.
    And frankly, most people right now in America just hope we 
go away. So, the fact that we had a lot, that is from a pretty 
small universe because there is a lot of people out there for a 
lot of good reasons who are not paying much attention to us.
    Dr. Silverman. I appreciate you protecting the consumer and 
it is my job too to do the right thing.
    Senator McCaskill. And the Treasury both, I mean, because 
both of them are having lots of people trying to sell them 
equipment, while it is disruptive and confusing to seniors, 
what it really is is expensive for the Medicare program.
    Dr. Silverman. I think that is the answer with competitive 
bidding. I just hope that it will be efficient and not cause 
more confusion to seniors.
    Senator McCaskill. Does Mr. Porush have any relationship 
with Med-Care at the current time?
    Dr. Silverman. Yes. Mr. Porush is an employee, not an 
owner, a Med-Care Diabetic and Medical Supplies.
    Senator McCaskill. OK. Is he a consultant or an employee?
    Dr. Silverman. He is an employee.
    Senator McCaskill. And, how long has he been an employee?
    Dr. Silverman. He has been an employee since 2004.
    Senator McCaskill. OK. Is the information that was 
contained in the Forbes article about Mr. Porush and Florida 
residents complaining about your company's sales tactics 
including cold calling Medicare recipients to persuade them to 
order diabetic supplies, did that pre-date the regulations that 
do not allow cold calling, the cold calling complaints that 
were written about in the Forbes article?
    Dr. Silverman. I do not know. But the Forbes article in my 
opinion, is not true.
    Senator McCaskill. OK. So, was there a time that your 
company did do cold calling?
    Dr. Silverman. To my knowledge, no.
    Senator McCaskill. OK. We deeply appreciate you being here, 
and I will make sure that we get you information that you want 
from us that is part of the public record. There may be some 
information CMS has given us that we have used to prepare for 
this hearing that we are not at liberty to give you and vice 
versa.
    We would appreciate any documentation you can give us. In 
fact, we would provide to you some of the names of the people 
that complained about being contacted by your company when they 
do not believe they had ever given you permission to contact 
them and we would appreciate you providing us the documentation 
that they had given you the express authorization to contact 
them.
    Dr. Silverman. Yes, Senator.
    Senator McCaskill. How would it change your business model 
if you could no longer get people to give you their phone 
numbers on a website?
    Dr. Silverman. We would no longer do that. So, I am sure--
--
    Senator McCaskill. What percentage of your business comes 
from the calls you make to seniors from the numbers on your 
website?
    Dr. Silverman. Well, I do not have those numbers.
    Senator McCaskill. But you could get them.
    Dr. Silverman. Yes, ma'am. But also I would like to state 
again that less than half of our revenues are from seniors.
    Senator McCaskill. No, I am not talking about within the 
Medicare space.
    Dr. Silverman. Yes.
    Senator McCaskill. I mean frankly the prescription stuff, 
that is another hearing for another day. You can look forward 
to that, Dr. Silverman. We will get there.
    Dr. Silverman. I would be happy.
    Senator McCaskill. I am on a mission. We are going to bring 
down these health care costs in a way that is not harmful to 
seniors. If we can do it at all, we are going to try to do it 
because Medicare is going to bust this country if we are not 
careful. We cannot afford to be running the Medicare program 
the way it has been run.
    Dr. Silverman. I appreciate the opportunity for you to 
allow me to explain some of the misconceptions from the last 
meeting and clear up our name.
    Senator McCaskill. Well, what I would like is to find out 
of the Federal Government stream of money, the 35 million last 
year, what percentage of that came from you being contacted by 
a doctor versus you contacting a patient.
    Dr. Silverman. OK. If I can provide that information to 
you, I will be happy to.
    Senator McCaskill. I bet you have it because it is going to 
be very hard for you to give incentives if people cannot prove 
that they were the ones that actually moved the product, and so 
I am betting you have it internally, and it would be very 
helpful for us to see what percentage of your business is 
coming from the contact to seniors.
    And, do you believe if we took that away, if we change the 
rule and said, you cannot call patients directly, you can only, 
they can only receive their prescriptions through 
recommendation of their doctors----
    Dr. Silverman. Well, I think competitive bidding is the 
answer to that right now.
    Senator McCaskill. Because you are not going to advertise 
anymore because it is not going to be----
    Dr. Silverman. Well, it is a capacity issue. With 
competitive bidding, we are going to be busy enough just trying 
to deal with capacity so.
    Senator McCaskill. Are you going to be one of the 
participants?
    Dr. Silverman. We look forward to participating.
    Senator McCaskill. And so, have you been awarded?
    Dr. Silverman. At this present time, we are waiting 
approval and our bid is being reviewed. So, we look forward to 
participating.
    Senator McCaskill. Then, you would be part of the 93 cities 
that are going to be rolled out this summer?
    Dr. Silverman. Yes, and I think we have the capacity. 
Because of our large facility and the amount of employees, I 
think we are a perfect candidate to make this program 
successful.
    Senator McCaskill. Well, then, we probably will not see the 
last of you then. You can look forward to more appearances in 
front of this Committee. I know you cannot wait.
    Dr. Silverman. I am becoming comfortable.
    Senator McCaskill. Thank you, Dr. Silverman.
    Dr. Silverman. Thank you, Senator.
    Senator McCaskill. The hearing is adjourned.
    [Whereupon, at 2:50 p.m., the Subcommittee was adjourned.]



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