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SUBCOMMITTEE HEARING ON

COMPETITIVE BIDDING FOR DURABLE

MEDICAL EQUIPMENT

SUBCOMMITTEE ON RURAL AND URBAN 

ENTREPRENEURSHIP 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MAY 21, 2008

Serial Number 110-95

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZALEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

Subcommittee on Rural and Urban Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Shuler, Hon. Heath .................................................................................................. 1

Fortenberry, Hon. Jeff ............................................................................................. 2

Vela ́zquez, Hon. Nydia ............................................................................................ 3

Braley, Hon. Bruce .................................................................................................. 4

WITNESSES

PANEL I: 

Wilson, Mr. Laurence B., Centers for Medicare & Medicaid Services ................ 6

PANEL II: 

Harlson, Dr. Bob, American Association of Orthopaedic Surgeons ..................... 26

Einfalt, Dr. Jon, Association of Community Pharmacists .................................... 29

Staub, Mr. Linwood, Advanced Medical Technology Association ........................ 31

Hite, Mr. Casey, AAHomecare & NC Assoc. of Medical Equipment Services .... 33

Sutton, Mr. Heath, NC Assoc. of Medical Equipment Services ........................... 36

PANEL III: 

Wartman, Dr. Rebecca, American Optometric Association .................................. 47

Weidemann, Ms. Julie, VGM Group ...................................................................... 49

Gilberti, Mr. Gary, National Coalition for Assistive and Rehab Technology ...... 51

APPENDIX

Prepared Statements: 

Shuler, Hon. Heath .................................................................................................. 56

Fortenberry, Hon. Jeff ............................................................................................. 58

Vela ́zquez, Hon. Nydia ............................................................................................ 59

Braley, Hon. Bruce .................................................................................................. 60

Altmire, Hon. Jason ................................................................................................. 62

Wilson, Mr. Laurence B. ......................................................................................... 63

Harlson, Dr. Bob ...................................................................................................... 77

Einfalt, Dr. Jon ........................................................................................................ 89

Staub, Mr. Linwood ................................................................................................. 96

Hite, Mr. Casey ........................................................................................................ 116

Sutton, Mr. Heath ................................................................................................... 126

Wartman, Dr. Rebecca ............................................................................................ 131

Weidemann, Ms. Julie ............................................................................................. 137

Gilberti, Mr. Gary .................................................................................................... 146

Statements for the Record: 

Quality Diabetes Care Coalition ............................................................................. 152

Independence Through Enhancement of Medicare and Medicaid Coalition ....... 156

Consortium for Citizens with Disabilities ............................................................. 161

The Orthotic and Prosthetic Alliance ..................................................................... 166

The Power Mobility Coalition ................................................................................. 171

Health Industry Distributors Association .............................................................. 177

National Association of Chain Drug Stores ........................................................... 182

(III) 

(1)

SUBCOMMITTEE HEARING ON 

COMPETITIVE BIDDING FOR 

DURABLE MEDICAL EQUIPMENT 

Wednesday, May 21, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:12 a.m., in Room 

1539, Longworth House Office Building, Hon. Heath Shuler [chairman of the Subcommittee] Presiding. 

Present: Representatives Shuler, Clarke, Fortenberry, and Davis. 

Also Present: Representatives Vela ́zquez, Braley, and Gonzalez. 

OPENING STATEMENT OF CHAIRMAN SHULER 

Chairman SHULER. This hearing for ′′Competitive Bidding For 

Durable Medical Equipment′′ will now come to order. 

First of all, I want to thank everyone for being here. For a Subcommittee hearing, we have standing room only, which is quite remarkable. I think that I told the ranking member here, Mr. 

Fortenberry, I said, wow, this is great. He said, well, they are not 

here for us. But thank you for being here and being actively involved in this due process. I think that is what makes our country 

so strong. 

Access to health care is becoming increasingly critical for our Nation’s seniors. By 2015, the baby-boom population in this country 

will reach 77 million. So it is critical to consider how we will care 

for these older adults and how we pay for that care. In 2007, health-care costs in the United States reached $2.3 trillion. Without a doubt, this is one of the greatest challenges of 

America, and if we are not careful, it will bankrupt our Nation. 

The question before us today is whether addressing America’s 

Medicare challenges requires hurting small health-care providers 

who have committed themselves to serving our seniors. This hearing will examine the implications of the competitive bidding process for durable medical equipment. While this program was created 

as a way to curb Medicare spending, this Subcommittee will review 

if CMS is properly considering the impacts on small health-care 

providers. 

CMS maintains that competitive bidding will not only ensure access to care but reduce out-of-pocket expenses for seniors and improve the effectiveness of payment. However, it is not clear that the 

program will meet the goals without driving health-care providers 

out of business and eliminating access to care. 

2

The results for the first bidding program were mixed at best. 

CMS’s competitive bidding program for durable medical equipment 

was implemented in 10 cities last year. The bidding process created 

a number of problems for durable medical equipment small-business providers. CMS incorrectly disqualified some companies from 

participating due to clerical problems. In a number of situations, 

contracts were awarded when the bidder had no local presence, no 

history of providing a given product or service. This clearly does 

not meet the goal of ensuring access to care for the beneficiaries. 

Since Asheville, North Carolina, is in the second round of competitive bidding, I have been hearing about this problem on a firsthand basis. Small firms are an essential part of the health-care 

market, as they will fill many of the gaps larger businesses either 

cannot or will not fill. Like a number of my colleagues, I am worried that CMS has not considered the unintended consequences 

that may result from this program. 

This includes the possibility that Medicare beneficiaries may lose 

the right to choose the trusted care and the services of their local 

provider. Eliminating suppliers could have a devastating impact on 

rural communities. Suppliers could have to limit the outreach to 

rural areas. At the time when these communities are already facing health-care shortages, CMS should not be making this problem 

worse. Also, I believe that rural communities would be unfairly impacted by competitive bidding because of the nature of this program. Health-care practices could be forced to close their doors and 

working families would lose their jobs. 

Unfortunately, CMS has not taken any corrective action to fix 

the competitive bidding process and the impact it will have on 

small suppliers. I think everyone in this room agrees that the Federal budget simply cannot sustain the current growth rate in Medicare spending. However, we must also ask, is there a better means 

to achieve this program? 

I look forward today to hearing the testimony. I thank the witnesses for their participation. 

At this time, I will yield to the ranking member, Mr. 

Fortenberry, for his opening statement. 

OPENING STATEMENT OF MR. FORTENBERRY 

Mr. FORTENBERRY. Well, thank you, Mr. Chairman, for holding 

this important hearing. 

And we thank you, as well, for attending today. 

The House Small Business Committee, this Subcommittee and 

our Nation recognize that small business is critical to the country’s 

overall economic well-being. The competitive pressures, creativity 

and innovation that small businesses bring to the marketplace are 

the hallmarks of entrepreneurship and the keys to job creation and 

economic growth. 

In many areas of our economy, the needs of rural America are 

uniquely different than those of urban areas. Few issues are more 

important to rural Nebraskans, for instance, than access to quality 

health care and services and providers. Small businesses particularly depend on access to quality health care as a key component 

of efforts to attract and retain a vibrant workforce. Small employers also play an important role in the delivery of health-care servVerDate 0ct 09 2002 15:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40860.TXT LEANN
3

ices and products in many rural markets. For example, 103 of the 

142 pharmacies in my district are small, independently run employers. 

As we all know, Congress, in 2003, mandated that the Centers 

for Medicare and Medicaid Services implement the Durable Medical Equipment, Prosthetics, Orthotics and Supplies Competitive 

Bidding Program. It is, therefore, appropriate that Congress and 

we provide oversight as this program moves forward. 

The competitive bidding program was established to reduce beneficiary out-of-pocket expenses and save taxpayer dollars, while ensuring beneficiary access to quality items and service. 

The Centers for Medicare and Medicaid Services is scheduled to 

implement the competitive bidding process in phases, as our chairman reviewed. Round one encompasses 10 competitive areas and is 

ongoing. Round two encompasses 70 competitive areas to be implemented in 2009. And additional areas are to follow after 2009. 

As a part of the bidding program, CMS is required to take appropriate steps to ensure that small suppliers have an opportunity to 

be considered for participation. Congress, through its oversight 

role, must ensure that this process is implemented in a way that 

does not impede the competitiveness of our small pharmacies and 

suppliers, particularly in rural areas. Many small firms remain 

competitive by delivering high-quality services and care to their patients. As CMS goes forward with this program, it is important to 

ensure that smaller suppliers, who particularly emphasize quality 

services, are left in a competitive position. 

Mr. Chairman, I believe we have excellent witnesses here today 

to provide insight into what issues need to be addressed to improve 

this program. 

Thank you again, Mr. Chairman, and I yield back the balance of 

my time.

Chairman SHULER. Thank you. 

At this time, I would like to introduce the chairwoman to the 

Small Business Committee. I think it is a perfect example of her 

continued commitment and exemplifies her commitment to small 

business. 

At this time, Chairwoman Vela ́zquez. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman, Chairman Shuler, 

and Ranking Member Fortenberry. Thank you so very much for 

holding this hearing. 

Mr. Wilson, if you look around this room, we hold hearings almost every week, it has never been this packed. I don’t think that 

it is because of Mr. Shuler. It is because of the issue. 

So I want to thank Mr. Shuler for this important hearing. He has 

been an advocate for small business on a number of fronts. Whether it is addressing energy costs, health costs or any other smallbusiness concern, he has made small business his priority. 

Congress must not forget that most durable medical equipment 

suppliers are not only important small businesses, they are a vital 

part of this Nation’s health-care safety net. Every day the elderly 

depend on DME suppliers for medical guidance and support, and 

4

they are often the only—the only—medical assistance some patients see in their community. 

Once again, I find myself before CMS and the health-care community asking the question, why has the agency ignored the impact on small health-care providers? Over the past month alone, 

the Small Business Committee has held three hearings involving 

the Centers for Medicare and Medicaid Services. I don’t think I 

would be alone in saying there is a problem. My concern is that 

CMS has little regard for how its decisions are impacting small 

businesses providing care for America’s elderly. 

I have heard from numerous health-care organizations and providers asking this committee to conduct oversight. CMS, like any 

agency, must be accountable. And today’s hearing is as much about 

accountability as it is about the challenges of the DME program. 

Again, thank you, Congressman Shuler and Ranking Member, 

for holding this hearing. And I yield back the balance of my time.

Chairman SHULER. Thank you, Madam Chair. 

At this time, I would like to introduce Mr. Braley, our colleague 

and my classmate. 

Welcome to our committee. 

OPENING STATEMENT OF MR. BRALEY 

Mr. BRALEY. Thank you, Chairman Shuler. And I would like to 

thank you and Ranking Member Fortenberry by not using the 

usual recording of ′′Rocky Top′′ and the Nebraska fight song to 

begin the hearing. We all appreciate that. 

I would also like to thank Julie Weidemann, a constituent from 

my district and director of Palmer Home Medical Supply, for taking 

the time from her busy life to coming come to Washington, D.C., 

to testify before the Small Business Subcommittee on Rural and 

Urban Entrepreneurship on this important issue. 

I grew up in rural America, and I represent a large district that 

has many, many rural communities in it. And that is why this 

issue is so important to my constituents back in the 1st District of 

Iowa. 

In 2003, Congress passed the Medicare Modernization Act, which 

required the Centers for Medicare and Medicaid Services to launch 

the Durable Medical Equipment, Prosthetics, Orthotics and Supplies Competitive Bidding Program. While on the surface this may 

seem like a good idea, there is evidence that it could have devastating impact on DMEPOS industries. 

Companies currently receive a Government-set fee to distribute 

durable medical equipment for patient home use. Under the competitive bidding system, however, companies would have to submit 

a bid indicating how low of a price they would be willing to accept. 

Medicare would then limit distribution rights in a particular geographic area to the lowest bidders. 

In 2007, the DMEPOS Competitive Bidding Program started in 

the 10 largest metropolitan statistical areas, and in 2009 it is 

scheduled to be expanded to the largest 80 MSAs. 

I have many concerns about this competitive bidding process. 

This year I joined many of my colleagues in sending a letter to 

CMS. In this letter, we expressed concerns with the level of smallVerDate 0ct 09 2002 15:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40860.TXT LEANN
5

business participation in the competitive bidding program. Even 

the small businesses who are awarded contracts will be challenged 

to conduct business at reduced reimbursement rates because they 

cannot compete with large companies that have economies of scale. 

Also, there are many bidders that have been rejected by CMS on 

claims they had not submitted sufficient financial information or 

they had made other minor errors on their applications. Although 

these rejected bidders have made claims that have evidence to the 

contrary, they have no appeal rights, which seems contrary to our 

Nation’s fundamental premise of due process. 

Furthermore, the program requires supplier accreditation for 

those participating in this program. This can create significant administrative and financial burdens on small suppliers and pharmacies. Many of these suppliers and pharmacies are already required to have a number of accreditations for providing care. 

The biggest concern I have, however, regarding CMS’s proposal 

is that it could put small providers like Palmer Medical Supply out 

of business. Palmer Home Medical Supply currently serves 10 

counties in rural northeast Iowa, and almost half of their business 

involves Medicare beneficiaries. The potential loss of suppliers 

could threaten these rural areas, which are more likely to have elderly populations, including the fact that Iowa has one of the highest levels of elderly populations per capita of any State in the country. It is essential that our communities continue to have access to 

high quality and great service from these small-business providers. 

I understand that the intent of the DME competitive bidding program is to provide cost savings for the Medicare program and its 

beneficiaries, and we all appreciate those efforts. But we need to 

ensure that beneficiary access, quality of care, and small businesses are not harmed by this program. 

The CMS competitive bidding for durable medical equipment 

project leaves too many questions unanswered. We need to take a 

step back to think about the true impact this project would have 

on the small providers and, ultimately, on the communities where 

they reside. It is important to explore whether there are rational 

alternatives to determining Medicare pricing for DME items and 

service. There are too many indications that the current bidding 

system is flawed. 

I look forward to hearing from our witnesses today, and I am 

hopeful that we can come up with a solution for Medicare reimbursement that does not pose so many potential risks for the providers and the patients they serve. 

So thank you, Mr. Chairman. 

And thank you to all the witnesses who have come so far to be 

with us today. 

And I yield back.

Chairman SHULER. Thank you, Mr. Braley. 

Our first witness is Mr. Laurence Wilson from the Centers for 

Medicare and Medicaid Services. Mr. Wilson is the director of the 

Chronic Care Policy Group in the CMS’s Center for Medicare Management. 

Mr. Wilson, thank you and welcome. You have 5 minutes for 

your testimony.

6

STATEMENT OF MR. LAURENCE D. WILSON, DIRECTOR, 

CHRONIC CARE POLICY GROUP, CENTERS FOR MEDICARE 

AND MEDICAID SERVICES 

Mr. WILSON. Thank you, sir. 

Good afternoon, Chairman Shuler, Representative Fortenberry, 

and distinguished members of the Subcommittee. I am pleased to 

be here today on behalf of CMS to discuss the Durable Medical 

Equipment Prosthetics, Orthotics and Supplies Competitive Bidding Program. 

This important initiative, required under the Medicare Modernization Act, has three key parts: quality standards and accreditation, financial standards, and competitive bidding. Together, 

these will help reduce beneficiary out-of-pocket costs, improve the 

accuracy of our payments, help combat fraud, and ensure beneficiary access to high-quality items and services. 

First, the quality standards and accreditation program and use 

of financial standards provide important safeguards for beneficiaries in the Medicare program. These safeguards also ensure a 

level playing field for suppliers competing under the competitive 

bidding program. Any bidder that failed to meet quality and financial standards was not qualified to participate in the program. The 

quality standards and accreditation program ensure that beneficiaries receive good customer service and have access to quality 

products from quality suppliers. 

CMS conducted a wide variety of activities to involve stakeholders in the development of these standards. Many, such as focus 

groups for small suppliers, were important parts of the development. 

The financial standards ensure that contracts only go to sound 

businesses that are capable of meeting beneficiaries’ needs for the 

long-term. Financial standards also help weed out fly-by-night operators that prey on Medicare and beneficiaries, in contrast to legitimate suppliers acting in the best interests of their patients. 

Under the competitive bidding program, qualified suppliers compete on price to be contract suppliers with Medicare. Contract suppliers then compete with each other based on quality and customer 

service to serve the beneficiaries in an area. 

CMS adopted numerous approaches to ensure small suppliers 

have the opportunity to participate. First, CMS worked closely with 

the Small Business Administration to develop a more targeted and 

new definition of a small supplier. CMS then designed policies 

linked to this definition to help small suppliers in the program. For 

example, suppliers are able to band together in networks in order 

to meet certain program requirements. 

The program also ensures a formula to provide that multiple contract suppliers are selected for each of the 10 product categories. 

Most importantly, there is a 30 percent target for small-supplier 

participation in the program. If the winning group of suppliers is 

not composed of 30 percent small suppliers, CMS added small suppliers to the list of winners to reach this target. 

The initial round of competitive bidding is now complete, with 

the announcement of 325 contract suppliers this past Monday. We 

are pleased with the results. Twenty-three percent of the bids submitted were in the winning range. Sixty-one percent of the bids 

7

were priced higher than the winning range, though some of those 

were also disqualified. The remaining 16 percent would have been 

in the winning range; they were also disqualified. 

In the initial round of contract offers, 64 percent of the contracts 

were offered, again, to small suppliers. Ultimately, about half the 

contracts signed were those associated with small suppliers, clearly 

exceeding our target. 

When the new payment rates take effect on July 1 for the first 

10 bidding areas, beneficiaries will begin saving money on 10 of the 

most commonly used durable medical equipment products, such as 

power wheelchairs and oxygen equipment. The average savings in 

their co-insurance and Medicare payments will be 26 percent. 

We understand that the implementation of this program may be 

difficult for some suppliers because the law anticipates that there 

must be both winning and losing bidders. Nonwinning bidders may 

still have opportunities to serve Medicare beneficiaries through 

providing nonbid products, subcontracting arrangements with winners, or as grandfathered suppliers for certain items, or by providing repairs and maintenance. 

We also understand that the new system represents a significant 

change in how suppliers operate under Medicare compared with 

the past. And we will continue to work closely with suppliers and 

make improvements in the program as we move forward. 

CMS is also conducting aggressive education and outreach to be 

sure that every beneficiary partner and supplier knows how to use 

the program well and ensure a smooth transition on July 1. CMS 

will also monitor the performance of contract suppliers through 

beneficiary satisfaction surveys, tracking the volume of questions 

and complaints that CHIPs and 1-800-MEDICARE receive. These 

and other activities will help us keep current on what is taking 

place on the front lines. 

In conclusion, CMS is committed to the success of this program. 

We have designed a program to provide beneficiaries with quality 

items and good customer service at a lower price from reliable suppliers. 

I very much appreciate your time today and the invitation to testify. I would be happy to take any questions. Thank you. 

[The prepared statement of Mr. Wilson may be found in the Appendix on page 63.]

Chairman SHULER. Thank you, Mr. Wilson, for your testimony. 

The first question I have, in the first round of the bidding process, a Texas-based supplier won a bid that serviced Charlotte, 

North Carolina, a Texas-based company. 

How does CMS evaluate the bidder’s statement of capacity when 

the provider has no offices, no employees in Charlotte? 

Mr. WILSON. A very good question. 

Consistent with how the Medicare program currently works, 

there are providers that operate out of State and move into new 

areas. Some suppliers are setting up subcontracting arrangements. 

Some may have distribution centers on the ground. 

Just yesterday, we talked to two suppliers that were moving into 

Pittsburgh. They already had, while they are listed in another 

State, they already had a distribution center on the ground. One 

8

of them already had existing contracts with University of Pittsburgh Medical Center and had been supplying services through W2 employees in Pittsburgh for years. 

So we think there are a lot of those type of arrangements being 

made. We are checking on these ones that are listed as out-of-State 

suppliers, because we think the issue you raised is an important 

issue. We want to make sure that the suppliers have a plan in 

place to provide services, provide access to our beneficiaries. 

And, in fact, through the bid process, we did ask for subcontracting information from suppliers, because we wanted to understand their expansion plans and know how they were going to provide services. And we are following through to check on it now. 

Chairman SHULER. During the process, one of the qualifications 

was their quality. Specifically tell me how the quality is measured 

from a particular company. 

Mr. WILSON. What the law requires—the Medicare Modernization Act provided this authority that CMS would establish a set of 

quality standards that independent accreditation organizations, selected by the Secretary, would use to go out, do on-site reviews, and 

accredit suppliers. 

So suppliers need to have a plan for things like business standards, personnel, but also how to provide care. That is, working with 

physicians, how they are going to do delivery, set up of equipment, 

how they are going to monitor complaints, collect performance information, and keep that information for the accreditation organizations. 

So we expect and require for this program, and will require nationally by September 30th for all suppliers, September 30th, 2009, 

that they be accredited in this manner. There are 10 private accreditation organizations currently accrediting suppliers. 

Chairman SHULER. So you look at the quality based upon the 

business. You know, I have been in business for many years, and 

occasionally we have subcontracted. How is a business able to regulate, or how does CMS, how are they qualifying a subcontractor of 

a company? 

I mean, if they are looking at quality based on that company, 

when in fact the supplier themselves is actually another company? 

If they are subcontracting it, what qualifications from the subcontractor has CMS taken in consideration? 

Mr. WILSON. Right now we hold the supplier that we have a contract with responsible for meeting the requirements and ensuring 

that the beneficiaries are provided the appropriate services. 

Do we have an accreditation requirement on the subcontracting 

suppliers? I don’t think we have that requirement in place right 

now. I think that is something that we need to look at as we roll 

out accreditation nationally for September of 2009. 

I think that is an important issue, because to the extent that 

suppliers have been subcontracting—and they have been for 

years—and we are moving into this world of accreditation, we need 

to consider what that relationship looks like. So I think it is an 

issue and one that we are looking at in the context of our progress 

on accreditation. 

Chairman SHULER. So, in fact, a company could be awarded a bid 

through the process, it could be rewarded that contract, and they 

9

could subcontract out to someone who was of substandard quality 

that you had actually already failed or denied? 

Mr. WILSON. If they had failed accreditation, I think that would 

be a concern for us. 

Chairman SHULER. So maybe that is something CMS should take 

into consideration? 

Mr. WILSON. I think that is something we ought to look at. And 

to the extent that we are interested in looking at subcontractor relationships and accreditation for all suppliers—

Ms. VELA ́ ZQUEZ. Would the gentleman yield? 

Chairman SHULER. I yield to the chairwoman. 

Ms. VELA ́ ZQUEZ. Mr. Wilson, the subcontractors, would they be licensed by the State? Will that be required, to be licensed by the 

State in which they are going to be providing the services? 

Mr. WILSON. I am not sure of the answer to that question. 

Ms. VELA ́ ZQUEZ. Don’t you think that is an important answer? 

Mr. WILSON. I think it is an important answer. I—

Ms. VELA ́ ZQUEZ. Because it will determine whether or not they 

have the ability to provide quality care and services. 

Mr. WILSON. I think we should do everything that we can to ensure that the beneficiaries get the services they deserve and that 

they are quality services. 

Ms. VELA ́ ZQUEZ. So what process are you going to have in place 

in order to make sure that appropriate oversight will be there to 

prevent those subcontractors that do not have the ability in the 

first place, because probably they submitted a bid and they failed? 

So if they fail, what do you think are the reasons for someone who 

submitted a bid and failing and not getting the award? 

Mr. WILSON. I think, to the first part of that question, what we 

need to do is rely very heavily on monitoring, especially as we roll 

out the program on July 1. I think we need to do things like collect 

data from 1-800-MEDICARE. We are doing that. We need to do 

beneficiary satisfaction surveys to ensure that people are happy 

with the services they are getting. I think you raise an issue that 

we may want to focus on in doing that type of review. 

We are also operating a program where, if there are concerns, 

they do arise, we will have ombudsmen, we have eight ombudsmen 

ready to work with beneficiaries and suppliers in each of the areas, 

or eight ombudsmen total that will be out there. 

And so I think we need to be able to address those types of concerns. 

Ms. VELA ́ ZQUEZ. Okay, Mr. Wilson, when I asked you the question whether or not licensing is an important requirement and you 

said that you don’t know the answer to that question, isn’t that 

part of the Medicare rule, that licensing? 

Mr. WILSON. I believe it is. They need to have a National Supplier Clearinghouse number, so they need to be enrolled with us. 

And to the extent the State requires licensure, which I believe 

it does, then whatever the requirements are for Medicare enrollment, they must be met by the supplier. 

Ms. VELA ́ ZQUEZ. I yield back. Thank you. 

Chairman SHULER. Obviously, we have indicated already a few 

of the many concerns and questions that the Committee has. 

10

Name the biggest problem that you have run into in the first bidding process. And the second thing to do is tell me some of the 

things that you are able to correct of the major problems. And in 

order, what is the biggest difference between the first bidding process and the second bid process? 

So, first of all, tell me the biggest problem that you have had in 

the first bidding process. 

Mr. WILSON. The biggest problem that I think we had was with 

the tool that we used to interface with suppliers in the process, and 

that was the online bidding system. 

There were problems with the online bidding system that caused 

a lot of frustration for suppliers. Again, bids were submitted electronically; hard copy documentation followed later. But bids were 

submitted electronically. The system would time-out. The system 

would lose information. That was a problem that we had to deal 

with. 

We have taken that issue and, for round two, developed an entirely new system that we expect will not have those types of problems. That was a concern, caused us to have to extend the bid window and, again, caused suppliers a lot of frustration. So I think 

that is, sort of, to the point that we are now, the biggest thing that 

we want to do for the next round of competitive bidding. 

The other thing I would add is that supplier education is always 

a key issue. To the extent that you have a new program, you have 

lots of suppliers across the country, you want to be transparent on 

the rules. We want to work on education. Learn from round one, 

where did people have concerns? Where were there problems in the 

bid? And focus our education on those issues. 

And then, finally, the last thing I would mention is we are just 

now moving forward with a big national beneficiary education program in the 10 areas. And I think we are looking at that to see 

how that works, where we might need to make changes for next 

time. That is one of the key parts of this endeavor, educating the 

beneficiaries and those that refer beneficiaries for services. 

Chairman SHULER. Is CMS completely prepared for the July 2nd 

bidding process? 

Mr. WILSON. Well, we have not announced a timeline for the second bidding process. We have not said that we are going to open 

the bid window in July. 

I think what we are doing right now is concentrating on round 

one in the 10 areas and ensuring that we are prepared to implement the system, meet beneficiary needs, and monitor to ensure 

beneficiaries get what they need. That is what we are focused on 

now. 

I think in the coming weeks or months we will publish a 

timeline, specific timeline, for round two so that suppliers will 

know what they need to do to get ready for round two. 

Chairman SHULER. Obviously, being a part of the Blue Dog caucus, we are very concerned about wasteful spending and being able 

to cut areas of wasteful spending in our budget when we are at a 

time of tremendous debt in our Nation’s history and we are passing 

it along to our children and grandchildren. So, you know, I commend CMS from the standpoint of being able to save money. 

11

What has been the overall value of savings? And the reason—and 

I caution when I ask this question, just the initial savings from the 

standpoint of from the suppliers’ standpoint. But let’s say, for instance, they are dropping off the equipment—basically a drop-off at 

a location, say, it’s home oxygen care, they drop it off. Well, if they 

are not able to regulate it and able to manage it, and have basically the case management with that particular patient, how many 

of those patients ultimately end up in the emergency room or an 

ambulance ride, a $600 ambulance ride? How many of those? 

So, in evaluating the equation of the overall cost, was that taken 

in consideration? How much savings were there in round one? 

Mr. WILSON. I don’t know if that type of a factor was—that type 

of qualitative factor was evaluated in round one. I am not sure how 

it would be. 

I think the thing that we have tried to do to address the issue 

overall, which would seem to me to mitigate the financial impact 

or the economic impact of that type of, you know—

Chairman SHULER. Loss of jobs, unemployment, layoffs—I mean, 

all those have to be taken into consideration. You just can’t look 

at the complete one implication when you say, ′′We have a bidding 

process and we are going to be able to save money in the initial 

cost,′′ when in fact more people are going to the emergency room, 

more people are getting an ambulance ride, more people are staying in the hospital, and ultimately more causes of health-care costs 

to rise. I mean, those have to be taken into consideration. 

The loss of jobs from our small businesses have to be taken into 

consideration. How many people went from a company of 10 to a 

company of two because they are subcontractors now, not the initial providers? 

I mean, all of those have to be taken into consideration for us, 

as Members of Congress, to help CMS to be able to help regulate. 

I am all for doing everything that we can to make sure that we provide—the quality of service has to be number one for the patient. 

But we also have to make sure that we manage it in the fact that 

we have the quality but we cut spending as best we possibly can. 

And I think that all of us on the Committee would agree we have 

to do something with our health-care problem, but we can’t provide 

more at cost and just as a pass-along to other industries. Because 

it ultimately is going to come down to the costs. And if we are not 

careful, then we are going to bankrupt our country on this healthcare problem. 

And, at this time, I will yield to the ranking member, Mr. 

Fortenberry, for his questions. 

Mr. FORTENBERRY. Thank you, Mr. Chairman. 

Thank you, Mr. Wilson, for coming today. 

Clearly, reducing cost and at the same time improving quality of 

service is a goal we all share and, I don’t believe, are incompatible. 

You had mentioned that there is a 26 percent average savings. 

Did you mean that for the beneficiary or for the Government or in 

totality? 

Mr. WILSON. I meant for both. So, compared to what Medicare 

currently pays under the fee schedule, which has been in place for 

about 23 years or so, prices under competitive bidding are, on average, 26 percent less. 

12

So Medicare will be paying less, and beneficiaries, our most vulnerable population of elders, seniors, that pay a 20 percent co-insurance on that price, will also be paying less. 

Mr. FORTENBERRY. I think it would be helpful to return to one 

of the questions that my colleague, Chairman Shuler, had raised 

regarding quality of service and unpack that a little bit further. 

Is distance for a beneficiary to travel to a provider a part of the 

quality-of-service measure? 

Mr. WILSON. Well, it is not part of the quality-of-service measure. 

It is an interesting question, because I think, in this industry, and 

if you look at the items that we bid, most of these items are delivered by truck or van or by the supplier in some way. And so, if you 

think about a wheelchair or a hospital bed or oxygen, those are 

suppliers that are responsible for delivery and set up and come out 

to the beneficiary. This is an in-the-home benefit. By statute, it is 

in the home, and so suppliers come out to the home. 

Mr. FORTENBERRY. It will take care of itself. 

Mr. WILSON. Right. And I would say that for diabetic supplies we 

did not include storefront diabetic test strips in competitive bidding 

so that beneficiaries would have an opportunity to still be able to 

get their drugs and their diabetic supplies in the same place, community pharmacies. 

Mr. FORTENBERRY. The 30 percent target of contracts to small 

suppliers, why don’t we define a small supplier? 

Mr. WILSON. It is—we worked with SBA on this. And in fact, this 

was recommended by this Committee, that we take a more targeted 

approach, in the comments to the rule, a more targeted approach 

in our definition of a small supplier. So rather than look at a small 

business, which under SBA rules at the time was $6 million, moving to $6.5 million, we relied on comments to establish a standard 

at $3.5 million. So about half of the SBA standard for a small business. Because we felt that was more in line with the relative size 

in terms of receipts, dollar receipts of this industry. And then, of 

course, we established the policies that I mentioned around that 

new definition. 

Mr. FORTENBERRY. And one of the other issues regarding definition of quality is to ensure that a potential beneficiary might not 

have to deal with multiple locations to obtain the sets of products 

that they would need for various complications. 

Is that a part of the quality assurance measure as well? 

Mr. WILSON. Well, it is not a part of the quality standards. I 

think what you are referring to, sir, is how we designed the bid 

process, how we designed the product categories. So a supplier’s bid 

on product categories—wheelchairs versus hospital beds—a beneficiary who needs both may have to go to two suppliers; you are 

absolutely correct. 

The reason we did it that way was out of a concern for small suppliers. We didn’t want to have the product grouping so large that 

a small business that only focused on one or two groups couldn’t 

bid for this broader array of services. So it was, sort of, a balancing 

act between a beneficiary issue and a small-supplier issue that we 

dealt with through rulemaking. 

Mr. FORTENBERRY. I see. All right. 

13

Thank you, Mr. Chairman. Those are the questions I have for 

now. 

Chairman SHULER. At this time, I would—Madam Chair, do you 

have any questions? 

Ms. VELA ́ ZQUEZ. Yes, I do have more. 

Mr. Wilson, the Committee has analyzed the list of 320 contract 

suppliers announced in the first round, and we found that, in the 

Cincinnati competitive bidding area, 19 out of 101 contract providers across all product categories were not in that area. That is 

20 percent. 

In the Cleveland competitive bidding area, 27 out of 113 contract 

providers were not in Ohio. That is 24 percent. 

But just this past Monday, Mr. Williams said that 90 percent of 

contract providers are in the areas where they are providing service. 

Can you discuss this discrepancy? 

Mr. WILSON. Well, I think we need to look at that number carefully. The thing that I will say about the 90 percent figure is this 

was constructed by my staff—

Ms. VELA ́ ZQUEZ. Uh-huh. 

Mr. WILSON. —and what it looks at is precisely this. It looks at 

suppliers that are, one, in the State, because suppliers across the 

State, they may not be in the CBA, the competitive bidding area, 

but they do business there because they have delivery arrangements there. 

Ms. VELA ́ ZQUEZ. Well—

Mr. WILSON. And, two, it excludes—

Ms. VELA ́ ZQUEZ. So you are telling me that Mr. Williams’s statement is incorrect? 

Mr. WILSON. I am giving you the parameters of that statement. 

Ms. VELA ́ ZQUEZ. Yeah, but I am asking you a question. Uh-huh. 

Mr. WILSON. And the second part of those parameters is it does 

not include diabetic supplies, which are only mail-order in this program and defined as ordered remotely. So that is a remote business. It is mail-order. You wouldn’t expect to see them necessarily 

in the competitive bidding area. 

Ms. VELA ́ ZQUEZ. Well, I didn’t make the statement. Mr. Williams 

made the statement. And he said clearly that 90 percent of contract 

providers are in the area where they are providing services. When 

I give you the example of Ohio with Cleveland, it is not such. 

Mr. WILSON. And, again, the statement is correct with respect to 

the parameters that I have outlined. 

Ms. VELA ́ ZQUEZ. I asked you a question before regarding the 325 

winning bidders and the fact that they will be able to subcontract. 

My question is, can you tell this Committee today that all the 325 

winning bidders are State-licensed? 

Mr. WILSON. Are licensed within the State? 

Ms. VELA ́ ZQUEZ. Yes. 

Mr. WILSON. I don’t know the answer to that question. 

Ms. VELA ́ ZQUEZ. But that is part of the rules of the Medicare requirements. 

Mr. WILSON. I would be very happy to get back to you on that 

issue. I just don’t know the answer to that question. It is a question that would be something I could check with the folks at CMS. 

14

Ms. VELA ́ ZQUEZ. Well, you have 1 week to submit in writing to 

this Committee what is the status of all those 325 bidders. 

Mr. WILSON. I can do that. 

I can tell you they are all enrolled in the Medicare program, all 

accredited by an accreditation organization. I just do not know the 

status of licensure, given there are different State licensure requirements. I am just not familiar with them. 

Ms. VELA ́ ZQUEZ. And that was not part of the requirements of 

the Medicare regulations at the time when they were submitting 

their bids? 

Mr. WILSON. I think there are standards that suppliers have to 

meet; I know there are. They involve their enrollment. I am not familiar with every standard personally. I am very happy to get back 

to you within 1 week. 

Ms. VELA ́ ZQUEZ. Thank you. 

Thank you, Mr. Chairman. 

Chairman SHULER. Thank you, Madam Chair. 

It is an honor to actually have somebody on the Committee who 

probably knows more about this issue than any Member of Congress. This is his profession, this is what he did before coming to 

serve his community in the 1st District of Tennessee. And so I yield 

to Mr. Davis from Tennessee. 

Mr. DAVIS. Thank you, Mr. Chairman. I appreciate the opportunity. And I would like to expound a little bit on what you were 

saying. 

And, Mr. Wilson, thank you so much for being here. 

I am a conservative Republican. I think we do need to save tax 

dollars. So I want that on the record. 

I am also a respiratory therapist by training. I also owned an 

HME DME company back in the 1980s and 1990s. My mother had 

emphysema COPD. My mother passed away. She was on home oxygen. And I can tell you, if my mother had had to depend on a supplier from a different State or a different region for her health care, 

my mother would have died years earlier. She would have ended 

up in the emergency room much more often. There would have 

been no way, in her chronic health condition, she would have been 

able to stay at home. 

Now, with all that said, going back to me being a conservative 

Republican, would it have been in the best interests of the taxpayers of America to have had my mother either, number one, pass 

away years earlier, or number two, end up in the emergency room 

much more often, which is much more costly, or number three, 

ended up in a nursing home, which would have been at least 10 

times more expensive than having home oxygen? So I think we 

have to take all of these things into consideration when we make 

these decisions. 

I was also a surveyor for the Joint Commission on Accreditation 

of Healthcare Organizations. So I visited health-care DME companies all across America, and I saw some good ones; quite frankly, 

I saw some bad ones. 

And if we are going to pass policy in Washington, I don’t think 

we ought to be passing policy to punish good suppliers or pass policy that is going to take away services from American senior 

adults. I think we need to pass policy—if someone is breaking the 

15

rule or a fraudulent actor, go after them. Throw the book at them. 

But don’t go after the 97 percent of suppliers that are doing the 

right thing. 

Have you done a study? Can you tell me how much 1 month on 

home oxygen costs? And then can you compare that to what 1 

month in a hospital would cost or 1 day in a hospital would cost? 

Mr. WILSON. Let me deal with the last question first. We pay 

about $200 a month for oxygen rental, rental of equipment. There 

are additional payments, I think in the area of about $70, for portable tanks. Depending upon the technology, there might be an additional add-on of $50 or so if there is certain types of new technology. 

Mr. DAVIS. So about $300 a month for home oxygen? 

Mr. WILSON. Probably $300 a month, maybe a little bit more. 

And certainly a hospital stay, depending on the diagnosis, can be 

anywhere from, you know, $8,000, $20,000, $30,000 just for a couple days in the hospital. 

Mr. DAVIS. Now, putting back on my conservative Republican 

hat, it doesn’t seem like a good process for the American taxpayer. 

We need to look at this on several fronts: quality front, affordability front, the taxpayer front. And I just hope that we do those 

things. 

And then, being a former joint commission surveyor, I hope that 

when we make these decisions and we start to look at who is going 

to win these competitive bids, that we use some common sense. I 

am hearing stories of people in Asheville, North Carolina, that 

need home oxygen and health care; actually their contracts are 

being won by companies in different States. I can tell you, when 

an oxygen machine goes down or a tank runs out at 2 o’clock in 

the morning, they have to have care. 

And I don’t think that many people in Congress understand that 

for that $300 that you said they are paid now they have to have 

respiratory therapists, they have to have people deliver, they have 

to pay the gas prices to get there. It is not just a piece of equipment that you drop off and you never see again until the patient 

dies. It is one of those things where you actually have to have some 

hands-on with the beneficiary. 

So I just hope, as we are awarding these contracts, that we are 

looking at cost and quality. 

And I yield back. 

Chairman SHULER. Thank you, Mr. Davis. 

At this time, I yield to Mr. Braley for his questions. 

Mr. BRALEY. Thank you, Mr. Chairman. 

I want to thank my friend from Tennessee for putting a compelling human face on the issues that bring us here today. I have the 

privilege of serving with him on the Subcommittee on Contracting 

and Technology, which has benefited greatly from his wisdom and 

personal experience. 

Mr. Wilson, it seems to me that this competitive bidding process 

started with the fundamental premise that bigger is better. Would 

you agree with that? 

Mr. WILSON. No, I would not agree with that. I am not sure what 

you mean, sir, by bigger is better. 

16

Mr. BRALEY. Well, it seems by setting up a competitive bidding 

process which, in principle, is going to eliminate many of the providers from the marketplace as a natural part of the bidding process is a determination made in advance that the largest companies 

are going to have the best chance of satisfying the criteria that 

were set up. 

Don’t you agree with that? 

Mr. WILSON. I don’t. And the reason is I think what we tried to 

do in the rulemaking is design policies, some of which, again, we 

received in comments from this Committee, other Committees, and 

from those in the industry, to allow small businesses, small suppliers an advantage. I mentioned those in my testimony. 

The result of that was 64 percent of the contracts offered going 

to small suppliers, meeting that $3.5 million threshold. And so I 

think the results there speak for themselves, sir. 

Mr. BRALEY. But one of the things that concerns many of us on 

this Committee is the point that Mr. Fortenberry raised, and that 

is the issue of service to rural areas and the distance involved in 

providing quality and affordable care to patients who are in need 

of these products and services. 

We have a witness who will be testifying here later from my district. She lives in Fayette County, population 22,000. Clayton 

County right next to it, population 22,000. Buchanan County in my 

district, 21,000. Delaware County, 18,000. Butler County, 15,000. 

Mr. Fortenberry, I am sure, has counties in his district which have 

lower populations than this. 

And as someone who has seen what has happened as services in 

particular segments of business are nationalized and the deterioration in the access and quality of services in rural parts of our country, I am at a loss to understand how this competitive bidding process is going to benefit the constituents I represent in these counties. 

Could you explain that to me? 

Mr. WILSON. Well, I guess I would like to answer that in a couple 

ways. 

One, under the statute, we are only tasked to implement this 

program in 10 and then an additional 70 metropolitan areas. And 

in the future we can do other areas, but we do have authority to 

exclude rural areas. We are only working on the metropolitan areas 

right now, and we are only working on round one. 

In addition, the statute gave us authority to exempt low-population-density areas. So when we selected Riverside, for example, 

in California, we focused the competitive bidding on the city of Riverside and areas surrounding it and cut off half of the metropolitan 

area that was mostly desert and rural areas to the State. 

So my answer to that is that we are implementing the program, 

we think, consistent with the law and have used our authority to 

exclude these low-population-density, arguably rural areas when 

we can. 

Mr. BRALEY. But don’t you see the challenge that is going to create for small-business owners? Because in States like Iowa and Nebraska, if you are going to survive as a small-business owner you 

are going to have to have an ability to sell into both markets, those 

17

SMSAs as well as rural markets, in order to justify the costs of providing care in rural areas. 

When you cut out bidders from having access to an area where 

they have lower transportation costs and higher population densities, you are automatically imposing burdens on those small-business owners that are going to make it more difficult for them to 

compete and obtain reimbursement under this same scheme. 

Do you understand that? 

Mr. WILSON. I absolutely do. And I think we do recognize that 

concern, absolutely. And one of the reasons that we allowed suppliers to band together and into networks was to try to overcome 

that concern, as well as provide other opportunities for small businesses. So, again, yes, we do. 

Mr. BRALEY. And then my final question goes back to the point 

I made in my opening statement, and that is why it was necessary 

in the statute in the final rule to waive the requirements of the 

Federal acquisition regulations and providing no administrative or 

judicial review of six specific components of this process. 

That seems to be fundamentally an un-American philosophy, and 

I would like you to explain why that is part of the bidding process. 

Mr. WILSON. That waiver of judicial and administrative review 

was in the statute. We incorporated that as part of our regulations. 

The thing that I would say is I think it is appropriate for suppliers to have a hearing or for CMS to review an issue where they 

have a concern. 

That said, when we did disqualify a number of these bids, which 

is, I think, the greatest area of concern and tension on behalf of 

those suppliers that bid, we did allow them to come to the contractor and present their concerns. The contractor reviewed those 

concerns, made a recommendation to me and my staff, and we and 

me personally reviewed those concerns. And, in eight cases, we did 

overturn our contractor and allow that the bid evaluation move forward, and some of those suppliers are getting contracts. 

So we tried to incorporate that oversight, that review, take responsibility for our contractor and make some mitigating changes 

where it was appropriate. So I agree with that philosophy. 

Mr. BRALEY. Thank you. 

Chairman SHULER. Thank you, Mr. Braley. 

At this time, I would like to recognize Mr. Gonzalez, who is one 

of our great leaders here on the Small Business Committee, the one 

that we can rely upon, depend upon, and always ask for a lot of 

his advice. And at this time, Mr. Gonzalez. 

Mr. GONZALEZ. Thank you very much, Mr. Chairman, and thank 

you for allowing me to sit in since I am not a formal member of 

this Subcommittee. But it is an important issue, and just about all 

of the other Subcommittees have had a CMS representative testify. 

And I am going to make certain assumptions, and then I want 

to follow up on this. And it touches on some of the things that my 

colleagues have already touched on. 

But as you make this evaluation, as you have these contractors 

go out there and figure what the people will be bidding on, the suppliers, the first assumption is that you do take quality of the equipment and the product into consideration. All products, all equipment are not created equal. That is going to be an assumption. So 

18

when you go out there, there has to be certain characteristics, conditions and requirements of the particular equipment or product 

that you are seeking different companies to bid on. That is just an 

assumption, that you take that into consideration. 

The second assumption is the adequacy, the efficacy part of the 

particular equipment or product, that it will do the job that it is 

intended to do. And then, lastly, that there are certain products or 

services, equipment that require—and I think some of my colleagues touched on—instruction, guidance, follow-up, maintenance, 

support, and that whoever is going to bid has the capacity, the ability to do all of that. 

Those are my assumptions. Am I correct to assume all that? 

Mr. WILSON. You are. 

Mr. GONZALEZ. And how did you do it? Let us start off with the 

quality of the equipment or the product that is being submitted for 

bid, because all equipment is not created equally. 

So I just want to know, how do you fix those parameters? 

Mr. WILSON. Well, all equipment is not created equal, but the 

type of equipment we are dealing with, I think in all cases, thinking down the list—maybe not walker—is FDA approved. We are 

talking about FDA-approved products. So these are products that 

have been judged by the FDA and approved either through a PMA 

process or a—sorry—a premarket evaluation process or a 510(k) 

approval. That is what we are talking about. 

From there, we did do a few things in the rule to ensure that 

suppliers provided quality product, having a transparency process 

so that all products are listed on the Web site, publicly available 

for physicians, for families, for beneficiaries; and that is part of the 

competition. Beneficiaries will vote with their feet and go for the 

best products, and so will physicians. 

The other thing is an antidiscrimination clause, where a supplier 

can’t provide one type of product or brand to their Medicare patient 

and another to their private care patients. So we tried to do some 

things to support that and go sort of beyond FDA approval. 

The second thing I would say is, the—you know, the accreditation program which is an important program—on-site reviews, 

going out looking at the business model, the care model of suppliers—gets to many of the issues that you mentioned. So we are 

accredited based on quality standards that go to things like interaction with physicians by a supplier to ensure they get the right 

care, delivery, setup of equipment, and beneficiary education on the 

equipment consistent with the package insert or the guidelines. 

There are also special standards for important products like complex rehab mobility, complex power mobility and for oxygen, special 

accreditation standards on top of the basic ones. 

Mr. GONZALEZ. Once you go through this preliminary process you 

just described, is there room for input, what I consider in the real 

world; people that are utilizing the equipment, utilizing companies’ 

product, utilizing a company’s service follow-up, technical advice 

and so on? 

What I am talking about is, let’s say you have the physician community saying this particular piece of equipment, even though 

there are four different models out there or products by different 

19

manufacturers, this is the one that is the most efficient and effective, this is our choice. 

And then, of course, you have the hospitals that they agree we 

get the best results with this particular equipment. Then we have 

patients, too, that obviously had very good results. 

Is there room in this equation of yours for this type of input? 

Mr. WILSON. Two things I would say about that issue. 

The answer, sir, is ′′yes.′′ The two things I would say: One, the 

products we have seen—and we have looked at the products because we have asked suppliers to report what products and brands 

they are providing; and what we are seeing is a lot of the same national brands of wheelchairs, of oxygen equipment, diabetic supplies, et cetera. So we are seeing the same quality of products that 

beneficiaries are used to using. 

With respect to the issue of whether a patient needs a certain, 

specific brand or mode of treatment and the physician says, this 

patient has to have that brand, there is a process that is actually 

outlined in the statute and then carried forward in our regulations 

that allows a physician to say, where it is medically necessary, the 

supplier has to go through a process to obtain that brand or mode 

of delivery for a patient. 

So I think we have tried to factor that into the process. 

Mr. GONZALEZ. Part of the reason I am asking these questions, 

we are going to have witnesses later that I believe will probably 

have a difference of opinion. 

And my time is up. Mr. Chairman, if you will indulge me just 

a couple of seconds. 

Chairman SHULER. I yield an additional minute. 

Mr. GONZALEZ. I appreciate it. 

Everything that I just talked about—because obviously I am 

going somewhere with this on a particular product, and that is 

going to be the negative pressure wound therapy, the wound VACs 

and such. 

Are you familiar with, not necessarily controversy, but the discussion surrounding that particular type of medical equipment device, product, whatever we want to call it? 

Mr. WILSON. I am, sir. 

Mr. GONZALEZ. And do you feel that everything we just went over 

in my 5 minutes or 6 minutes now was applied, and you have 

reached a correct determination regarding what would be the most 

effective product out there that would be available under this competitive bidding scenario that you all have instituted? 

I know it was first with just 10, and now we are going to go to 

70 and so on areas. But do you believe you have followed that and 

you have come up with a good outcome? 

Mr. WILSON. I absolutely believe that. 

We have looked at this product very closely over the year, including encoding decisions, looking at this product relative to other 

products on the market in the same space, looking at the medical 

evidence that has been reported; and there are a number of different negative pressure wound therapy products on the market 

now. There are at least three, four, and we know that they are 

being—some by big device and drug companies that are being proVerDate 0ct 09 2002 15:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40860.TXT LEANN
20

vided, and they will be included in this process of competitive bidding in the 10 areas. 

Mr. GONZALEZ. I appreciate your answers. My fear, of course, is 

what is going to be available to a non-Medicare patient is a superior product that will not be available to the Medicare patient 

under the scheme of things, as instituted by the CMS. 

I yield back. Thank you very much for your indulgence. 

Chairman SHULER. Thank you, Mr. Gonzalez. Thank you. 

At this time, I would like to recognize Ms. Clarke for her questions. 

Ms. CLARKE. Thank you very much, Mr. Chairman. Thank you 

very much. 

I wanted to raise some questions around beneficiaries, quite 

frankly. You talked about this program being prescribed specifically for metropolitan and highly dense areas. I want to know 

whether CMS has looked at the disruption to beneficiary access, or 

beneficiaries that obtain competitively bid items from suppliers 

that were not awarded contracts, and what the proposal is to make 

sure that the continuity of care is there. 

Mr. WILSON. Well, that is, I think for us, moving to July 1 over 

the next 6 weeks, the key issue. That is where we are right now, 

having a ground game, having an approach to go forward and educate beneficiaries so that as of July 1, every beneficiary that needs 

a product will know where to go. When they get a physician, when 

they get a prescription from a physician or from a discharge planner, they know where to go. They know where the beneficiary 

needs to be sent. 

That is the key issue, so we have looked at that. We have an effort under way to educate beneficiaries, educate others. 

Ms. CLARKE. I am clear on that. But we are talking logistics 

here, and just as crucial is—our colleagues have spoken about the 

rural area. You are talking about densely—I am from New York 

City, and your agency could spend that period of time that you are 

talking about evaluating right now just on New York City alone, 

let alone all of the other metropolitan service areas around this Nation. 

And you are talking about a drastic change in what people, particularly the elderly and the infirm would have to do in order to 

have continuity of care. That transition is critical to their survival, 

to the quality of health care, that they continue on in terms of 

being able to access the appropriate equipment. And it is a huge 

change in behavior for a lot of these individuals, a lot of the companies. 

I wanted to raise that because I really want us to be very focused 

on, you know, unintended consequences here. 

What percentage of beneficiaries will have to switch suppliers in 

this program? Do you have a percentage? 

Mr. WILSON. We don’t have a percentage yet. And one of the reasons is that, you know, for many of the items—I think more than 

half—a supplier can continue to provide services as a grandfathered supplier. So for oxygen, for example, they could continue 

to supply their current patients. 

We don’t know how many—

21

Ms. CLARKE. Mr. Wilson, I understand that. But it would seem 

to me that that would have been sort of one of the things you 

would have done in tandem with issuing the RFP, because this way 

you already know what your catchment group is and what the gaps 

will be. 

There will be gaps particularly in highly dense populations, and 

there is going to be a concern about—and really a panic when people are reliant upon medical equipment for their day-to-day lives, 

and all of the sudden there is a switch and the educational piece 

does not necessarily come together in time. The next thing that is 

going to happen is panic, and that is going to exacerbate the health 

care concerns. 

So it would just seem to me that that would be—we would have 

to multitask here. 

And I am not comfortable with not knowing those percentages, 

so I just want to encourage you to really try to have a parallel 

track where that is concerned because, again, I am very concerned 

about the delivery systems that we have in place. We have looked 

at changing that delivery system in order to be more efficient, but 

at what cost? 

There is a cost to small businesses that are no longer in the loop, 

that have had relationships with the clients. And there has been 

a delivery system. Maybe you don’t believe that system was efficient enough, but this change can also mean a disruption in critical 

care that people need to receive. 

So I think that, you know, there are some ′′cart before the horse′′ scenarios here that were probably unanticipated or that, for whatever reason, were not dealt with in tandem with the rules that 

have been promulgated and the contracting arrangements that are 

now being put in place. 

Can you tell me what percentage of beneficiaries will have to obtain a new prescription for their competitively bid items? 

Mr. WILSON. I am not sure they will need a new prescription. 

Many items are—

Ms. CLARKE. Are you positive? It is not about whether you think 

or you are sure; it is, are you positive? 

You see, the thing about it is, at the end of the day, I am looking 

at the beneficiaries. And you may speculate today that may not be 

the case. What if it is? What if it is the case that people have to 

get new prescriptions because the distribution chain has been disrupted and reconfigured? 

We are talking about densely populated areas. These people are 

going to rush to the emergency rooms. And in these areas they are 

already inundated in the emergency rooms. 

So I am really glad that you are here today, because I wanted 

to raise these questions with you. And I know that the health care 

delivery system requires a response, a response before this implemented. 

I hope you will get back to this committee with a lot of answers. 

Dedicate some staff. Let them look at this. Because we have concerns about the entire United States of America. 

You have decided that the best way to be efficient here is to target metropolitan areas. Well, let’s talk about the density of those 

areas and how we are going to effectively and efficiently use this 

22

new paradigm that has been set up for delivery. And what is the 

backup plan if what you believe will happen has unintended consequences? 

I yield back the rest of my time, Mr. Chairman. 

Chairman SHULER. Thank you, Ms. Clarke. 

I do have a follow-up question, and if any of the other members 

would like to have a follow-up question as well, I will offer that at 

this time. 

Contracts were awarded. Are those contracts reassignable from 

the—from one company to another? If you win a contract, can you 

then reassign it to someone? If so, if that is the case, what actions 

is CMS taking to make sure they are a qualified company? 

Mr. WILSON. I don’t believe they are reassignable, Mr. Chairman. 

I think that in the course of business, a supplier could be bought. 

But we reserve the right to terminate a contract any time we like 

if we feel like the terms of the contract will not be met. And if we 

do that, we will withdraw the contract and we will place another 

contract supplier in their place. You can’t just reassign that. 

Chairman SHULER. So as you look at who purchases a smaller 

company by a larger company, are you looking at that process in 

every single contract? 

Mr. WILSON. They are required to report to us if that is going 

to happen. 

Chairman SHULER. Let’s say a large company buys out a small 

company that the large company was denied. Can they assume 

that contract then? 

Mr. WILSON. I think that, again, we have the right to not accept 

that. 

Chairman SHULER. They were qualified the first time, though. 

You are saying they weren’t qualified the first time they submitted 

the bid. 

Mr. WILSON. So we have the right to review that and make a determination that we are not going to accept that. 

Chairman SHULER. So it only seems rightfully so, if you denied 

them the first time, if they buy a company that has a contract, 

then they should not be—they shouldn’t be able to have that contract. 

Mr. WILSON. Well, if we deny them on a price issue, and that is 

now moot, it may not be the case. But if we denied them on another type of issue that was more of a program integrity concern 

or something else, that could be a concern. 

Chairman SHULER. Back to the quality of care based upon the 

company’s accreditation, a company—some of these companies were 

actually awarded contracts in areas which they have never serviced. So how do you look at quality of care, from the beneficiary 

standpoint, if they have never been in that type—you know, what 

gives them the qualifications that you would be able to award them 

with a contract if they have never been in that business? 

Mr. WILSON. That is a very good question. I think what we have 

said is, we do understand that companies come into new areas all 

the time, have for years. What we have now in place is an accreditation program and financial standards to ensure that we have viable entities there for the long term to meet beneficiary needs and 

those that meet our quality requirements; that is, standards in 

23

place that didn’t exist before that we think give us some assurance 

of quality of care in viable entities. 

Chairman SHULER. Ms. Clarke, do you have any follow-up? 

Ms. CLARKE. Yeah, I actually do, Mr. Chairman. Thank you. And 

it really harkens back to a question that was raised by yourself and 

our chairwoman; And it has to do with the subcontracting. 

What wasn’t clear to me was the level of accreditation that is required for the subcontractors to maintain a certain quality of care, 

in that your agency has documentation that affirms their accreditation and ability to do this. It becomes even more of a concern if we 

have prime contractors, for lack of a better term, that don’t have 

any experience in the industry. 

What kind of liability are we taking on here if a beneficiary, as 

a result of us not having this information, is harmed in some way? 

Have you taken that into consideration? And what are you prepared to do to address this? 

Mr. WILSON. Let me quickly address the premise. First of all, accreditation is new. Every single supplier that was a contract supplier is accredited and meets all of our other standards of Medicare. 

The question the chairwoman raised had to do with subcontractors and when they are accredited. There is not a national accreditation requirement until September 30, 2009, because that is new. 

So they may not be now; they may be later. 

I think what we have to look at is whether we make that a permanent requirement. 

Ms. CLARKE. But there was some doubt in your response as to 

whether all the 325, currently who are awarded, actually have the 

accreditation and licensure that is required. 

Mr. WILSON. No doubt in my mind on accreditation in meeting 

all of Medicare’s enrollment standards. I am not familiar with 

every aspect of State licensure. It is different in each State, and I 

am not familiar with that particular requirement in our standards 

as it has to do with State licensure. 

I will get back to the committee on that. 

Ms. CLARKE. Yeah, I think that that is going to be important because it is part of the Medicare rule. That is critical. 

And, again, I am concerned about liability. You are saying that 

the prime contractors, for lack of a better term, are the individuals 

that you are holding to this standard, but if you have a new company that has met this, it has never done this work before, and 

they go to a subcontractor that you may have found to be unworthy 

now and they are subcontracting with them, isn’t that a diminishing of the quality of care for whomever they are going to be delivering these services to? 

Mr. WILSON. I think we would be worried about a situation like 

that. I would hold the contractor accountable for the quality of the 

care. 

Ms. CLARKE. You are going to be holding the contractor accountable. That is all well and good. But on the end of that is the beneficiary. And you won’t know until something happens to that beneficiary, because we didn’t take the time to do the due diligence 

around the subcontractors. 

24

And I think that that is really, really important because, again, 

you have changed the whole paradigm here; and I think everyone 

in the food chain, for lack of a better term, needs to have the same 

level of scrutiny applied. We need to be able to affirm to the American people that we have set that standard across the board, and 

that different companies haven’t been given a different preference 

in that we are not vigilant in the quality and standard in the delivery of care and supplies that maintain lives in our society. 

I submit to you that that is just as important. And the owner 

should not only be on those companies that, for whatever reason, 

rose to the level where they have obtained this contract. How do 

you get accountability out of that? 

Mr. WILSON. And I guess the thing I would say is, I don’t disagree with anything that you said. But I think what I would say 

is that, where we are now, is in a far better place than where we 

were before we implemented the quality standards, accreditation 

and financial standards. 

So we have upped the game, improved the system; and I think 

you are pointing out some areas that we need to look at closely as 

we move the system forward and see if there are other—

Ms. CLARKE. Because we left a hole; there are unintended consequences. And if we are going to move and step up our game—

and there is this glaring hole there that even a layperson like me 

can see—then it would seem to me that those within your agency 

whose full-time work is to make this thing happen, would be able 

to see it as well. 

And so it becomes almost negligent if we don’t apply the same 

level of standard to the entire process, so that the American people 

can feel assured that we have put in a top-notch health care delivery system that they can rely on. 

There will be a lot of trepidation out there. Like I said, you have 

got a huge task here. You are going to be changing this and you 

are going into major metropolitan areas, densely populated, a lot 

of health care challenges in many of the areas, a lot of people relying on these supplies and equipment. 

It is going to be really critical that we have our finger on the 

pulse of every single part of this system; and I submit to you, Mr. 

Wilson, that that subcontracting piece is just as important as the 

325 awardees that you have already identified. 

Thank you very much, Mr. Chair. 

Chairman SHULER. Thank you, Ms. Clarke. 

Mr. Gonzalez. 

Mr. GONZALEZ. Thank you very much, Mr. Chairman. 

First of all, Mr. Wilson, I appreciate your testimony today; and 

I think you have been forthright and candid. We appreciate the 

work of CMS. We mandate that you save money, we legislate that 

you save money; but the question is how you go about doing it. And 

sometimes I think you have to report back to us that, if we want 

quality care, it may be hard to save as much money as we are asking you to save. 

And that is the reality of it. And whether you are a Republican 

or a Democrat, we don’t want fat, we don’t want excess spending; 

we want to reduce taxes, but we want a realistic assessment of 

25

what it takes to deliver quality health care to our Medicare population and, also, Medicaid. 

But I am just talking about the—the next step that is really important and what I have discovered—and I am sure that this is not 

going to be any different; whatever CMS does sets the baseline and 

the standard, and then is adopted by the private sector, the private 

payer. 

So if you determine what is proper protocol, if you determine 

what is the proper equipment, if you determine what are those 

guidelines and restrictions and so on and what you are going to 

pay for, my understanding is, private sector is real happy, they 

adopt it and—I mean, there are tremendous consequences to what 

you do. 

Staff always prepares a memo—and I always want to thank staff 

for preparing these memos; these are just incredible—and this is 

what it says. ′′The CMS bidding process consists of three stages. 

The stages are fairly complex, but simply stated the process involves the following: one, a prescreening stage; two, a bid submission stage; and three, a pricing stage.′′ And I am always caught up in process. I love process because the 

quality of the process determines the quality of the product. I am 

wondering, was this all done in house, or did you contract out? Because CMS does that. 

I know that we have this RAC program with physicians, where 

private contractors go out there and try to find overpayments. And 

that is private-sector run; and it is a contingency fee, and that has 

always bothered me. 

But I am just wondering—I am just assuming all this 

prescreening and the bidding process was conducted by in-house 

CMS personnel. Or was that contracted out? 

Mr. WILSON. Most of the work was contracted out to a competitive bidding implementation contractor, or CBIC. 

Mr. GONZALEZ. And what was the basis for payment? I mean, 

there is no contingency. I would imagine because they are just putting out that we can save money. But surely the incentive would 

be there to come back and tell you, This is the way we are going 

to save money. You didn’t hire them to come back and tell you we 

can’t save you any money. 

But what was the contractual relationship? Was it just a straight 

payment for their work, or was there an incentive to say, if you 

come back with a 10 percent savings, then your compensation may 

be predicated on what you can save? Anything like that? 

Mr. WILSON. Absolutely not. This program is based on a fairly 

well prescribed methodology for pricing bid evaluation that was put 

forward in a regulation through a public process with an advisory 

committee composed of industry, beneficiaries and practitioners 

and, I think, very well thought out in that regard. 

But nothing like that. 

Mr. GONZALEZ. All right. Well, I appreciate it very much. I yield 

back. 

Chairman SHULER. Thank you, Mr. Gonzalez. 

Mr. Wilson, thank you for your testimony. And I want to thank 

your staff, as well, and I hope that—I assume some of the CMS 

staff is here. I think it is even more important and more vital, and 

26

I know that your time is very valuable. It is even more important 

that you hear the testimony from the next two panels. 

We can talk about it. We have discussed it with so many of the 

panels, but I think it is vital that you—as many of you as can stay 

and listen to the testimony. So that would be very helpful. 

And I think we have a work in progress, as so often we do here 

in Washington. Sometimes policy looks good on paper, and then 

when we enact it, then we have got work to do. We have got our 

work cut out for us. 

I think, as you see, this committee has always been very bipartisan. We try to work together. And I think you have seen it from 

David Davis in Tennessee to Ms. Clarke in New York that we have 

some work to do. And the most important thing is quality of care. 

So let’s please take that into consideration, and I do commend 

you for your testimony and for your honesty. Thank you. 

Mr. WILSON. Thank you, sir. 

Chairman SHULER. Let’s go ahead and have the second panel 

take their seats. 

[Discussion off the record.] 

Chairman SHULER. I would like to welcome the second panel to 

this very important hearing that we are having today. I thank you 

for your testimony ahead of time, and also I thank you for your 

commitment to whether it be your association or your own community and, most important, to the patient care. 

Chairman SHULER. At this time, our next witness will be Mr. 

Bob Haralson, the Medical Director of the American Association of 

Orthopedic Surgeons, from Rosemont, Illinois. Dr. Haralson is testifying on behalf of the American Association of Orthopedic Surgeons, a group that I know all too well at times. 

Dr. Haralson. 

STATEMENT OF DR. ROBERT H. HARALSON, M.D., M.B.A., MEDICAL DIRECTOR, AMERICAN ASSOCIATION OF ORTHOPEDIC 

SURGEONS, ON BEHALF OF THE ASSOCIATION 

Dr. HARALSON. Thank you, Mr. Chairman and Mr. Fortenberry 

and members of the committee. I am Bob Haralson. I am an orthopedic surgeon. I am here on behalf of the American Association of 

Orthopedic Surgeons, which represents 17,000 Board certified orthopedic surgeons. 

I practiced in Knoxville, Tennessee, for 33 years and we implemented DME in all nine of our offices, and so I am very familiar 

with the issues regarding DME. But I would like to thank you for 

the opportunity to present our concerns with the many changes 

being implemented by law and regulation concerning DMEPOS. 

We share Congress’ aims at increasing the quality of patient 

care, eliminating fraud and abuse in the Federal health care programs and reducing the cost of delivering care to beneficiaries. And 

it is our pleasure to appear before you today to continue our work 

towards those goals. 

With that said, I would like to highlight what we believe are 

some unintended consequences of applying rules meant to—for retail DMEPOS suppliers, to physicians and small practices across 

the country. 

27

As part of providing high-quality care to our patients, it is important to note that we are talking about physicians who supply 

DMEPOS only to their patients, not to the general public. And because many of our physicians who provide DMEPOS are essentially 

small businesses and many provide those items to their patients 

because they are the only supplier in the rural areas, we are especially appreciative of your willingness to discuss this today. 

I can take you through some of the concerns we have regarding 

new and revised rules pertaining the provision of DMEPOS to our 

patients. Specifically, I would like to address the application of 

DMEPOS quality standards to physician suppliers, the quality 

standard accreditation process for physician-suppliers and the impact of the DMEPOS competitive bidding program on physiciansuppliers. 

Collectively, these changes threaten to interfere with the continuity of patient care and the primacy of the patient-physician relationship and significantly increase the financial and administrative burden on many physicians participating in the Medicare program. Currently, the rules make no difference between large retail 

DMEPOS suppliers and physicians who are also serving as 

DMEPOS suppliers solely during the course of caring for their patients. 

I would like to personally thank CMS staff for their willingness 

to work with us on how quality standards are applied to physicians 

who enroll as DMEPOS suppliers. However the AAOS believes that 

the one-size-fits-all approach to the quality of standards is not in 

the best interest of patients and will have an adverse impact on the 

patients’ ability to access DMEPOS from their physicians. 

We have made CMS aware of these concerns, and while staff 

have acknowledged the difficulties of applying quality standards to 

physician-suppliers, the AAOS is concerned that CMS believes it 

lacks authority from Congress to provide flexibility for physiciansuppliers in setting quality standards. This is certainly an area 

where we would request the committee’s assistance. 

The second major topic I would bring to your attention is the 

burden of the quality standard accreditation process. We acknowledge and share congressional and CMS interest in assuring Medicare beneficiaries receive high-quality care, supplies and services. 

We are equally committed to ensuring that patients have access to 

the care and supplies that they need in a safe, efficient and timely 

manner. 

Unfortunately, our members are finding it increasingly difficult 

to participate as DMEPOS suppliers. In most cases, orthopedic surgeons are submitting claims for a small number of DMEPOS items. 

However, in order to go through the accreditation process, a physician’s practice will be charged approximately $3,000 per location 

for accreditation. We have spoken to some small practices that provide as little as $1,500 a year for DMEPOS billings. 

This leads me to the specifics surrounding the competitive bidding process. Using the public commenting period, we expressed 

our concerns to CMS about the cost and burden associated with 

competitive bidding. We would like to applaud CMS for their decision to exempt physicians from having to competitively bid, particularly DME, including crutches, canes, walkers and folding manVerDate 0ct 09 2002 15:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40860.TXT LEANN
28

ual wheelchairs. We are, however, extremely dismayed regarding 

one of the other categories of products subject to the competitive 

bidding program, and that is off-the-shelf orthotics. In the final 

rule, CMS did create a separate exception from the competitive bidding process for off-the-shelf orthotics, but only extended the exception to occupational and physical therapists and did not include 

physicians. 

Many patients require immediate access to these items for mobilization of injury support, facilitation of safe mobility or post-surgical recovery. It is unsafe and clinically inappropriate to delay a 

patient’s access to items by sending a patient out of the physician’s 

office without the necessary DMEPOS. We are hard pressed to understand why CMS did not include physicians in the exception. 

Finally, I would like to leave you with a few recommendations. 

First, regarding quality standards and accreditation, we seek your 

support in recognizing that physicians are already trained to provide and administer DMEPOS to patients. We firmly believe that 

given the complexity of today’s health environment, steps must be 

taken to ensure that there are not unnecessary or duplicative efforts required of program participants that would discourage patient access to care. 

In terms of providing public confidence that the providers and 

suppliers of orthotics are trained and qualified, we believe that professional society credentialing and training processes and State 

regulation of practitioners already provide the necessary safeguards in this area. Therefore, while we understand the need for 

a process of this nature, we ask not that physicians and health care 

professionals be exempted from having to be accredited, but rather 

that they be deemed as having met requirements and accreditations once they are licensed or credentialed to practice medicine 

under State law. In the event that this is not possible, we ask for 

a delay of accreditation deadlines for new and existing suppliers so 

that a more coherent set of quality standards can be applied. 

Lastly, with regard to the DMEPOS competitive bidding program, my recommendation is simple: Add physicians to the already 

existing exception for off-the-shelf orthotics. Failure to exempt physicians would cause significant access and patient safety issues. 

I would like to thank you, Chairman Shuler and Ranking Member Fortenberry and members of the subcommittee, for the opportunity to speak to you. 

[The prepared statement of Dr. Haralson may be found in the 

Appendix on page 77.]

Chairman SHULER. Dr. Haralson, thank you for your opening testimony. 

At this time, I will yield to the Ranking Member, Mr. 

Fortenberry for his introduction of the next witness.

Mr. FORTENBERRY. Thank you, Mr. Chairman. 

I would like to thank all of the witnesses for joining us today, 

and at this time, I would like to introduce fellow Nebraskan, Dr. 

Jon Einfalt, from my district. 

Jon is a pharmacist at Tom’s Rexall Drug, a family-run business 

in West Point, Nebraska. Thank you, Jon, for coming today. 

29

I would like to add parenthetically, Mr. Chairman, that I am also 

on the House Foreign Affairs Committee and, this weekend, was in 

the Middle East. And one of the meetings that we had was with 

the President of Afghanistan, President Karzai who, by the way, 

has visited West Point, Nebraska. 

I told him how impressed the town still is with the fact that he 

jumped on a horse to tour one of the cattle lots, feedlots that we 

have there. And we were very proud that he visited. He immediately responded, how amazed and delighted he was that all of the 

children of the village, as he said, waved the Afghan flag as he 

went by. 

So, Jon, thank you for joining us today. We are not only engaged 

in Nebraska in the critical issues of durable medical equipment, 

but those faced in the international affairs arena. Thank you. 

STATEMENT OF DR. JON R. EINFALT, PharmD, RP, OWNER, 

TOM’S REXALL DRUG, ON BEHALF OF THE ASSOCIATION OF 

COMMUNITY PHARMACISTS 

Mr. EINFALT. Thank you, Chairman Shuler and Ranking Member 

Fortenberry, for allowing me to share my thoughts on the CMS 

competitive bidding process for durable medical equipment. 

My name is Dr. Jon Einfalt, and I am a pharmacist and co-owner 

of Tom’s Rexall Drug, a small, independent, rural pharmacy in 

West Point, Nebraska. I am a third-generation pharmacist, and all 

that experience is in rural Nebraska. 

Tom’s Rexall Drug provides the West Point area with a wide 

range of pharmacy services. We have 10 employees. The building 

our store is located in has been an independent pharmacy for over 

100 years. We have a high concentration of elderly patients, and 

it is higher than other parts of Nebraska. 

There are approximately 23,000 independent pharmacies located 

across the country. Many are located in rural areas and represent 

the only health care available in their community. Currently, Nebraska has 19 of 93 counties without a pharmacy. 

In the day-to-day care of my patients, I sell durable medical 

equipment. For years, my patients have depended on me to provide 

these products and the education necessary to use them properly 

and effectively. 

Even before the implementation of competitive bidding, CMS 

controlled the reimbursement for these items. In fact, the reimbursement for diabetic testing supplies has not changed for many 

years. In addition, CMS has greatly curtailed the ability of the 

independent pharmacist to provide some of these supplies to patients by setting reimbursement rates well below the acquisition 

costs of the supplies. 

Competitive bidding was introduced by CMS as a tool to control 

costs. I believe the rules and regulations CMS has implemented 

with this program will eventually have the exact opposite effect. 

Competitive bidding and accreditation will eliminate rural independent pharmacies and other small suppliers from the program. 

Rural jobs will be lost; patient access to health care will be limited. 

Access is not just a rural problem. Patients will stop using their 

durable medical equipment, hospital long term care visits will increase, and the small savings garnered in the first few years of the 

30

competitive bidding program will quickly be lost due to increased 

utilization of these higher-cost health care facilities. 

I can think of several instances like this involving my patients 

just in the last year. Let’s look at blood glucose testing strips, just 

because they are such an important part of treating my patients, 

the diabetics. Although exempt from bidding right now in the competitive bidding process, they will fall under the accreditation 

standard that starts September 30, 2009. 

Blood glucose testing is a relatively simple process and modern 

equipment is fairly user friendly. However, seldom does a week go 

by that we aren’t helping a patient deal with a blood glucose testing issue. All these contacts require face-to-face interaction and 

hands-on equipment. I cannot remember the last time I was able 

to resolve one of these issues over the telephone. 

Some of these patients receive their supplies through the mail, 

so obviously the mail order supplier wasn’t able to resolve the 

issue. Pharmacists routinely provide this type of valuable consultation, often at little or no cost to the patient. That will be difficult 

when we are no longer around. 

The costs and time and money to implement competitive bidding 

and accreditation are prohibitive for small independent pharmacies. Current estimates to comply and participate are estimated 

to be $8,000 to $20,000 and 200-plus hours over a 6-month period 

of time. 

Most rural independent pharmacies are single owner operations. 

I don’t know how they are going to find time to prepare for and 

implement accreditation. With the cost to participate exceeding the 

profits from DME sales, you can understand that I will not be seeking accreditation or selling any durable medical equipment. 

There is, however, a more ominous and perhaps catastrophic 

problem looming here. If CMS requires accreditation to participate 

in Medicare Part B, then the next contract I have to sign with the 

pharmaceutical benefit managers to fill prescriptions will require 

accreditation. Ninety-three percent of the prescriptions I fill are 

governed by a pharmacy benefit manager contract. Say goodbye to 

Tom’s Rexall Drug. 

Pharmacies in Nebraska are licensed and inspected by the State 

of Nebraska on an annual basis. Pharmacists are also licensed by 

the State. Both are governed by a comprehensive set of rules and 

regulations overseen by the Nebraska Department of Health and 

the Nebraska Board of Pharmacy. I do not need Federal accreditation to practice pharmacy or sell durable medical equipment. I 

could negotiate that section out of a future contract, but without 

Congress negotiating capabilities to small pharmacies by passing 

legislation like H.R. 971, my ability to negotiate fair contracts with 

giant PBMs is nonexistent. 

So where does this leave the patients, your constituents? A misguided plan to produce some short-term savings and DME costs 

has suddenly changed into a plan that has decimated the access to 

quality health care for rural Americans and increased the overall 

health care costs for the government. 

A mailbox is not a pharmacy. If a patient needs an antibiotic, 

pain medication, insulin, asthma medication or even a blood glucose testing strip, they can’t wait 3 to 10 days to get it in the mail. 

31

That means a long drive or doing without. That certainly does not 

provide an improved quality of life, and in some cases, it will mean 

something much worse. 

Independent pharmacies are under the gun and need the help of 

Congress to fix this mess with competitive bidding for durable medical equipment. The results of the first round of competitive bidding 

are due to be implemented July 1, 2008. The drop-dead date for accreditation is September 30, 2009. Early statistics from the first 

round of competitive bidding show the scenario I have outlined is 

already under way. 

There is little or no cost to the government to fix these problems. 

The government already controls the cost of durable medical equipment. 

Thanks for inviting me to participate in your discussions. 

[The prepared statement of Mr. Einfalt may be found in the Appendix on page 89.]

Chairman SHULER. Dr. Einfalt, thank you for your testimony. 

At this time I yield to Mr. Gonzalez for our next witness.

Mr. GONZALEZ. Thank you very much, Mr. Chairman. I appreciate it. 

It is my privilege to introduce Mr. Linwood Staub, who is President of Global VAC Therapy for Kinetic Concepts, Inc., which is 

headquartered in my hometown of San Antonio, Texas. KCI is a 

global medical technology company that develops and markets advanced therapeutic systems. 

Mr. Staub has over 20 years of global experience in the medical 

device space. He is here, though, testifying on behalf of the Advanced Medical Technology Association. AdvaMed represents over 

1,600 of the world’s leading medical technology innovators, who 

manufacture over 90 percent of the medical devices, diagnostic 

products, medical information systems purchased annually in this 

country. 

And again, welcome, Mr. Staub. 

Thank you, Mr. Chairman. I yield back. 

Chairman SHULER. Thank you, Mr. Gonzalez. 

STATEMENT OF MR. LINWOOD STAUB, PRESIDENT, GLOBAL 

VAC THERAPY, KINETIC CONCEPTS, INC., ON BEHALF OF 

THE ADVANCED MEDICAL TECHNOLOGY ASSOCIATION 

Mr. STAUB. Thank you, Mr. Chairman and members of the committee. Thank you for holding this hearing. 

I am here today on behalf of AdvaMed, the Advanced Medical 

Technology Association. Seventy percent of our members are relatively small companies with sales of less than $30 million a year. 

The company I work for, KCI, is a medium-sized company today, 

but it started out as small, family-owned business 30 years ago, so 

we understand the role that small, innovative businesses play in 

driving progress. 

Our message today is very simple. Advanced medical technologies is a smart investment for patients and taxpayers alike. 

Medical innovation saves lives, it improves patients’ health, and in 

32

doing so, it very often saves money—for example, by allowing patients to be at home as opposed to being in the hospital. 

Whereas doctors like to say, the most expensive equipment is the 

one that doesn’t work, that is why we are concerned about the design and implementation of CMS’s competitive bidding program. 

Specifically, we have three concerns relating to product interchangeability, cost savings and supplier capability issues. 

Regarding interchangeability, as you know, CMS has chosen 10 

specific product categories for this program I want to share with 

you. Two of these are walkers and negative pressure wound therapy devices, which are depicted here on the slide at the very back 

of your packet. Some of you may have seen that. 

Competitive bidding treats both of these product categories the 

same way, yet obviously they are very different. One product is a 

simple, functional device that helps you walk; hence, the name 

′′walker.′′ It is pretty straightforward. 

The other product category is negative pressure wound therapy, 

a category created by CMS that includes CMS’s VAC therapy. VAC 

therapy is a complex, sophisticated, therapeutic system that is used 

to treat some of the most severe and hard-to-heal wounds, often in 

highly compromised patients. 

So, for example, a typical patient who relies on this type of treatment is a diabetic who has co-morbidities such as obesity and hypertension and may be at risk of an amputation due to poor blood 

circulation in the arms and legs. VAC therapy reduces swelling, 

prepares the tissue for healing and removes toxic fluids. So, as you 

can imagine, this is a technology that significantly reduces healing 

times, reduces infection rates, prevents amputations and shortens 

or eliminates hospital stays. 

Basically, the VAC has proven to save lives, limbs and money, 

yet starting on July 1st, because of a flawed competitive bidding 

program, Medicare will deny access to this therapy for elderly, disabled Americans living in these communities. 

Now, this loss of access wouldn’t be so bad if all offerings in 

CMS’s MPWT category were interchangeable, like walkers, but 

that is not the case. VAC therapy is unique and not clinically comparable with other products. In fact, only VAC has scientific studies to prove that it produces the positive effects that I described a 

moment ago. 

We wheeled in some of the paper that the clinical studies, the 

peer reviewed journals, the appointments in different medical 

books. It took quite a job to get that in. You will see it on the table 

behind me. But VAC therapy has the largest body of clinical evidence in virtually any wound care product; and it is why VAC therapy is the only product cleared by the FDA specifically for use in 

the home, and it is why our military forces in Iraq use the VAC 

exclusively for the severe, complicated wounds that they treat 

every day. 

Physicians and medical societies, including two of the Nation’s 

largest wound care associations, told CMS that products in the 

MPWT categories are not clinically equivalent and that the category shouldn’t be competitively bid. But the Agency didn’t listen. 

Our second concern has to do with the claimed cost savings of 

the program. CMS estimates competitive bidding will save 20 perVerDate 0ct 09 2002 15:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40860.TXT LEANN
33

cent in all product categories on average, but the estimate only 

looks at line-item prices. As suggested earlier, you also need to look 

at outcomes and total costs to determine the true value. Unfortunately, Medicare officials only plan to look at line-item price savings. 

Here again, the VAC provides a good example of why this is pennywise and pound foolish. A study of Medicare patients treated 

with VAC therapy in the home found that patients had lower rates 

of hospitalization, lower need for emergency room care, as well as 

less pain and a higher degree of mobility. And when compared with 

patients who were not treated with the VAC, patients treated with 

the VAC at home had average cost savings between $3,600 and 

$12,000 per patient. Again, those savings were not factored in. 

Our third concern has to do with the clinical support. Patients 

using therapeutic equipment require training to ensure that the 

products are used safely and effectively. They and their caregivers 

also need access to clinical and technical support 24 hours a day, 

7 days a week, in case complications arise. Without this, patients 

could be jeopardized. 

Many MPWT contract suppliers appear to lack sufficient capabilities to provide an acceptable level of patient support. We know 

many of them failed this test because a number of them contacted 

KCI, inquiring whether they could obtain VAC supplies from us 

and revealing that they had no experience with this therapeutic 

category, no supply of product, no guaranteed access to supply and 

no clinical or customer support capabilities specific to the therapeutic option. 

So, in conclusion, we believe competitive bidding as designed and 

implemented by CMS suffers from serious flaws that should be addressed before the program goes forward. 

And, finally, in sophisticated product categories such as this, we 

believe that CMS is fooling itself if it believes that low bid prices 

will reap lower costs. Just the opposite; there will be costs. Those 

costs won’t come in dollars, but rather in lost limbs and in quality 

of life. 

And in the long run, Mr. Chairman, members of the committee, 

we feel superior outcomes, not price alone, will save money. 

[The prepared statement of Mr. Staub may be found in the Appendix on page 96.]

Chairman SHULER. Thank you. 

Our next witness is Mr. Casey Hite. Mr. Casey Hite is Vice 

President and co-owner of Aeroflow Healthcare in Asheville, North 

Carolina. He is testifying on behalf of AAHomecare and the North 

Carolina Association of Medical Equipment Services. 

Casey, you have 5 minutes. 

STATEMENT OF MR. CASEY HITE, VICE PRESIDENT, 

AEROFLOW HEALTHCARE, ON BEHALF OF AAHOMECARE 

AND THE NORTH CAROLINA ASSOCIATION OF MEDICAL 

EQUIPMENT SERVICES 

Mr. HITE. Thank you, Mr. Chairman, and distinguished members 

of the subcommittee. My name is Casey Hite, and I am a small 

34

business owner and vice president of Aeroflow Healthcare, a small 

home medical equipment located in Asheville, North Carolina. 

Aeroflow Healthcare is a company that my brother and I founded 

in 2001. We provide oxygen and mobility equipment and services 

to approximately 13,000 active patients in North Carolina, South 

Carolina and Tennessee. 

We decided to enter this industry after visiting our grandmother, 

who was slowly dying from chronic heart failure in a local nursing 

home. The nursing home provided her with oxygen from a dilapidated oxygen concentrator which broke down frequently. This gave 

her severe anxiety about the possibility of suffocating in her sleep. 

As I am sure as I can tell you, that is a scary feeling. At that time, 

the only home medical equipment providers in the area were large 

corporations that were based in Florida, or as far away as California. We believed there had to be a better way. 

I appreciate this opportunity to testify before you today, on behalf of the North Carolina Association of Medical Equipment Services, the American Association for Homecare and small home medical equipment providers nationwide. 

Our company is scheduled to be in Round Two of the program 

bidding. I have heard and seen in detail Round One problems that 

have plagued this high-profile program. I am well aware of the program’s anticipated effects on both Medicare beneficiaries and suppliers. The Medicare bidding program is poorly conceived and fundamentally flawed. This program is showing many of the serious 

breakdowns that the American Association for Homecare predicted, 

based on the failure of CMS to recognize and account for the way 

that home medical equipment is provided to Medicare beneficiaries. 

The current bidding program will literally drive thousands of 

qualified home medical equipment providers out of the Medicare 

marketplace. One of the consequences will be limitations on services available to millions of seniors and people with disabilities. 

Nearly two-thirds of qualified homecare providers that submitted 

bids were disqualified in the first round of bidding. Two-thirds. 

That is a huge amount. That dramatic reduction in the number of 

homecare providers will result in reduced access and quality of 

service that we currently provide to beneficiaries. 

HME providers are overwhelmingly small to mid-sized practices 

that typically receive about 40 to 50 percent of their business from 

Medicare patients. The loss in the ability to serve this patient population will result in layoffs and many business failures. 

We have been using this term ′′competitive bidding′′ all day, but 

the term ′′competitive bidding′′ is very misleading because CMS is 

radically reducing the number of suppliers that compete in a given 

area, resulting in market concentration rather than a competitive 

marketplace. The changes that will result from the bidding program will affect over three million beneficiaries who reside in 

Round One areas. CMS has indicated that if Round Two is implemented, approximately 18 million, or about half of all Medicare 

beneficiaries requiring home medical equipment could be affected. 

The bidding program could also quickly affect all Medicare beneficiaries in the U.S. as early as January, 2009, when CMS will 

have the authority to apply bid pricing in non-bidding areas. The 

ability of CMS to apply bid pricing to non-bidding areas, especially 

35

rural areas with hard-to-reach patients, is clearly not marketbased. 

Homecare providers, like my company, are on the frontline in 

caring for Medicare beneficiaries. Outside of their families, we are 

the first person they call. If beneficiaries are not caring for themselves adequately, we are the ones who notify their family members and their physicians. This flawed bidding program will cause 

major disruption in service to these beneficiaries across the country. Beneficiaries have three choices. They can choose to enter a 

hospital, a nursing institution, or stay at home. The vast majority 

of beneficiaries choose to stay home. Homecare is not only the preferred choice for the patient but it is also the most cost-effective 

health care solution. 

The Medicare bidding program is expected to immediately impact 

more than 4,500 home medical equipment companies in the first 10 

metropolitan statistical areas. 

We believe that the Medicare bidding program will radically 

change the HME marketplace and dismantle the nation’s home 

medical infrastructure, if implemented in its current form. CMS 

will selectively contract with approximately 300 unique suppliers in 

the first 10 metropolitan areas under the program. CMS’ own statistics have shown approximately 4,500 unique companies reside in 

these 10 bidding areas. So essentially this would indicate that CMS 

intends to contract with approximately 7 percent of the existing 

home medical equipment companies. Even if we only account for 

the unique companies that took part in the program, which was 

1,005 companies, CMS is still threatening the financial viability of 

70 percent of otherwise qualified and accredited suppliers in the 

current homecare marketplace. 

Homecare has shown to be the most cost-effective and patientpreferred type of care provided to beneficiaries. As baby boomers 

retire and become eligible for the Medicare program, the demand 

for home medical equipment is likely to increase. These beneficiaries will prefer the advancements in technology that allow 

them to live full lives in the home setting. Arbitrarily limiting the 

number of homecare companies that the market will support 

should be viewed as selective contracting, not competitive bidding. 

Due to the flaws, errors, and questions that have plagued Round 

One, and will certainly carry through to Round Two, we urge Congress to delay the implementation of this bidding program. We support the implementation of a rational alternative process to determine Medicare pricing for DME items and services. 

AAHomecare stands ready to work with members of this Subcommittee and other Members of Congress to address these complex challenges and ensure the provision of cost-effective and quality home care to deserving Medicare beneficiaries. 

[The prepared statement of Mr. Hite may be found in the Appendix on page 116.]

Chairman SHULER. Thank you, Mr. Hite. 

At this time I would like to introduce Mr. Heath Sutton, president and founder of Mountaineer Oxygen Services in Waynesville, 

North Carolina. Mr. Sutton is testifying on behalf of North Carolina Association for Medical Equipment Services. 

36

Mr. Sutton, you have 5 minutes for your testimony. 

STATEMENT OF MR. HEATH SUTTON, OWNER, MOUNTAINEER 

OXYGEN SERVICES, ON BELAHF OF THE NORTH CAROLINA 

ASSOCIATION OF MEDICAL EQUIPMENT SERVICES 

Mr. SUTTON. Thank you, Mr. Chairman and distinguished members of the House Small Business Committee for the opportunity 

to share my story. I am a private registered respiratory therapist 

of 13 years. My wife and I started our company in Waynesville, 

North Carolina, years ago with one goal in mind, to better serve 

the needs of home medical equipment patients in the western counties of North Carolina. 

Many patients and doctors in our area were experiencing serious 

difficulties in locating even adequate homecare for oxygen and 

sleep disorder needs, so we began our company with the motto 

′′Treating Patients Like Family,′′ a motto which remains on our 

homecare truck today. By very hard work and frugal management, 

we have built a business in a small town area that serves over 400 

home oxygen patients and 500 CPAP patients (patients with sleep 

disorders) with the highest quality homecare at a very reasonable 

cost to both insurers and to patients. 

The original intent of competitive bidding was to control the increasing costs of Medicare and was mandated by Congress. As providers, we heard the call and supported the efforts as concerned 

citizens who wished to make government-insured care more economical. However, the results of the initial phase of the program 

have clearly shown that this program cannot ensure access to care 

or quality care, nor will it lower costs. 

Implementation of Round One will create access issues and make 

quality care more difficult to provide. The Center for Medicare and 

Medicate Services is excluding almost two of every three qualified 

and accredited bidders with no specific information as to why, and 

is confirming their reliance on less than 10 percent of current suppliers to provide service to the entire 10 Metropolitan Statistical 

Areas (MSA) in the first round. We are certain that such a limited 

list of suppliers will not allow us to properly service the needs of 

patient markets. 

By mandating that even noncontracted suppliers be reimbursed 

at contract pricing beginning January 1st, 2009, all who serve this 

market understand that lower pricing will lead to lower quality 

equipment. I understand from a small business perspective the desire to submit a bid in the competitive bidding program in order 

to try to protect some level of margin to make the business they 

own sustain itself and be profitable. However, thousands of small 

businesses will quickly fail because they simply cannot afford to 

stay in business, since the bidding program’s median bid pulled 

them below what they can afford to stay in business. 

Furthermore, there is no requirement for subcontractors to be accredited. Those few providers who received contracts will not be 

able to fully serve their markets without subcontracting. With two 

entities seeking margin through bid processes, quality equipment 

will be quickly replaced by lower quality product, and we will soon 

find ourselves in a market no longer known as durable. Disruption 

37

in both quality and availability will most assuredly follow, because 

price is most important in the economic equation. 

The large majority of beneficiaries of homecare have chosen their 

home providers from those available locally, most with the assistance of their physician. Now, this new program will force many, 

possibly most, to switch to new providers. Estimates are that literally hundreds of thousands of patients may face service disruption as a small number of new CMS-mandated providers scramble 

to find a way to serve these new homecare patients. Is this the 

very best method to assure our elderly we have their best interests 

at heart? These citizens are generally being well-served now, and 

the ultimate question rests with whether they will continue to be 

well-served by a ′′lower priced-dictated′′ marketplace. We also know 

that some suppliers who won contracts did so for products they 

have never provided. How can this process be seen as either fair 

or ethical under these conditions? 

My company currently serves an elderly patient with severe 

chronic lung disease and chronic hypercapnea. She just happens to 

be the very first oxygen patient that Mountaineer Oxygen Services 

set up on home oxygen in October 2003. She lives alone and has 

no family and is stricken with arthritic hands. At least once a 

week, in a panic, she calls our on-call service between 9 and 10 

p.m. on her way to bed because she cannot attach her water bottle 

to her oxygen machine correctly. For the past 4 years, our on-call 

person has received a weekly call from this patient and drives out 

to assist her. Several times, however, she has panicked, causing 

her to be unable to dial our number, and she calls 911. This patient 

will suffer emotional stress if we lose the bid in Round Two, not 

to mention the problems she will encounter if the Round Two contract winners are over 100 to 200 miles away. She relies on us to 

care for her needs. 

As a homecare professional, I believe fundamentally that the system, as it is currently designed, is fatally flawed and will result in 

large-scale discord in the market structure for both providers and, 

much more importantly, patients, who are indeed members of our 

community and families, and should be treated as such. 

Any system which disqualifies almost two of every three qualified 

providers should be questioned as to its validity and serviceability. 

We strongly implore you to reconsider competitive bidding. This 

program is flawed, and we ask that you stop it in its tracks and 

delay it before large-scale damage is done to our elderly citizens. 

There are much better ways to derive excellent homecare at lower 

costs and those of us who have spent our lives in this market stand 

ready to help you establish them. 

We sincerely hope you will listen to our pleas and serve as our 

champions. You, as our representatives, can change this course and 

keep it from ruining our businesses and negatively impacting elderly Medicare beneficiaries. Thank you for your time. 

[The prepared statement of Mr. Sutton may be found in the Appendix on page 126.]

Chairman SHULER. Thank you, Mr. Sutton, for your testimony 

and the panel’s testimony. 

38

At this time, I am going to yield my questions for later, and I 

will yield to the ranking member, Mr. Fortenberry, for his questions.

Mr. FORTENBERRY. Thank you, Mr. Chairman, for indulging me. 

Dr. Haralson, I am glad we changed your sign. We needed to get 

the title right. Actually, I am going to direct my questions to Dr. 

Einfalt, but any of you, if you are willing to provide an insight, I 

would be happy to hear that as well. 

You mentioned two aspects of this issue that I want to unpack 

a little further. H.R. 971, which would allow small independent 

pharmacies or suppliers to band together to basically compete for 

these contracts, is a bill that I am a cosponsor of. Let’s talk about 

the potential impact that could have in addressing some of the 

issues that you all raise. 

Secondly, you talked about the cost of accreditation being be- tween $8,000 to $20,000. I am assuming there is no process currently at the Federal level to accept State accreditation, which 

would allow for waiving the Federal accreditation process. In other 

words, if a State meets the Federal requirements, you are certified 

by the State, then that would be acceptable at the Federal level if 

I am understanding this correctly. That might be a way in which 

we could address that particular issue of this. But I wanted to hear 

your comments on it, as well as anyone else who might have insight into this. 

Mr. EINFALT. Currently what you are speaking of, there is no 

plan that I know of to allow States to certify and then thereby 

qualify them for CMS or to participate then at that point. I do 

know that hospitals in the State of Nebraska can utilize the Department of Health to acquire accreditation or certification, and 

then that certification can be passed on so that they can serve 

Medicare beneficiaries. So that does exist. So if there is a route for 

doing that certainly with pharmacies, that would be a possibility, 

because I don’t believe there is a State around that doesn’t license 

their pharmacies and also license their pharmacists. I think that 

is all in place in each of the individual States to take care of that. 

Mr. FORTENBERRY. Are those accreditation standards fairly uniform across the country, or do they vary greatly do you know? 

Mr. EINFALT. I wouldn’t know. I would suspect there is some variation just from what I know of pharmacy law from a couple different States. 

Mr. FORTENBERRY. And there might not be exact applicability in 

terms of being a part of the approved for bidding process, but nonetheless that might be something that could be examined to see if 

there is reasonable applicability given a State licensure, meaning 

you set up certain quality standards that would then apply for your 

Federal program. 

Mr. EINFALT. I believe that would be something to look at, yeah. 

Mr. FORTENBERRY. The second issue regarding the ability to cooperate with other independent pharmacies or providers in order to 

be placed in a better competitive bidding position, would that approach potentially allow for greater flexibility or put smaller independent pharmacies as well as suppliers in a greater competitive 

position? 

39

Mr. EINFALT. Listening to the CMS testimony earlier, I believe 

that already exists, the ability to band together to submit a bid in 

the DME area. My concern with H.R. 971, and the reason H.R. 971 

came into being or was proposed, deals with what Mr. Gonzalez 

was speaking to earlier. And that is, anything that the Federal 

Government does in implementing accreditation or standards immediately flows to the private sector. And that is what is going to 

have a huge impact on rural pharmacies, particularly in Nebraska, 

is their inability to deal with the private sector and the pharmacy 

benefit managers. 

Mr. FORTENBERRY. So this is more of a reimbursement issue with 

private insurance. 

Mr. EINFALT. Well, the impact is going to have there because 

those standards that are taken from the Federal level into the private sector, they are going to just say you have to be accredited by 

CMS in order to participate now in Medicare part D, and probably 

then all the rest of the commercial contracts that we have; 93 percent of our business is governed by those pharmacy benefit managers. So if they do that, I am done. I don’t have accreditation with 

CMS. I don’t plan to go after it. We can probably survive without—

it is a smaller part of our business, and we will figure out a way 

to try to get around that and not sell DME. But the bigger problem 

is that now that standard is in the prescription arena. And when 

that comes in, we are done. We are gone. There is no negotiating. 

The pharmacy benefit managers come in and tell you what is going 

to happen. And we are done at that point. And that is where the 

problem really gets serious in Nebraska as far as access. 

Mr. FORTENBERRY. The two issues are unrelated on the surface, 

but after implementation, they would be inextricably intertwined. 

Mr. EINFALT. That is correct. 

Mr. FORTENBERRY. Anybody else have input on that particular 

issue? 

Okay. 

Thank you, Mr. Chairman. 

Chairman SHULER. Just as a follow-up to Mr. Fortenberry’s question, so if you decide not to participate, then what is going to happen to the patients in that rural community? I mean, what is going 

to happen, as far as their access? 

Mr. EINFALT. There is a small chain, a regional chain that has 

a location in West Point. So I would suspect that it will be channeled, that business will be channeled to that business, or Wilfred 

Brimley will come in and pick up the pieces and sell test strips to 

all the guys that couldn’t get them locally. 

Chairman SHULER. And you service how many communities? 

Mr. EINFALT. We just have a store in West Point. But our service 

area encompasses probably, depending upon which direction you go 

from West Point, anywhere from 10 to 20 miles out from West 

Point. 

Chairman SHULER. So there are going to be a lot of people impacted based upon—and they are not going to have much of a 

choice. 

Mr. EINFALT. There will be no choice, basically. It will just happen. And we hate to do that. It has happened to us in other areas 

of the DME. We try to help the patients. As long as we are there, 

40

we are going to help them. In my testimony, I brought in the part 

about they need help with dealing with the equipment that they 

can’t get taken care of by mail order or some other supplier. As 

long as we are there, we do that. We don’t charge for it. Doesn’t 

matter where you got those strips from, doesn’t matter—you got a 

problem, we are going to help you out with it. And we will continue 

to do that as long as we are there. 

Chairman SHULER. Very good. 

Dr. Haralson, according to your testimony, physicians’ practices 

will be charged as much as $3,000 per location to be accredited by 

CMS. What do you believe is going to be the long-term effects from 

the pharmacist services to the Medicare beneficiaries. 

Dr. HARALSON. Well, first of all, the regulations are you have to 

have a DMEPOS number, a unique DMEPOS number for each address. So in our situation, for instance, we had nine offices, so we 

had to have nine separate DMEPOS numbers, which means we are 

going to have nine separate accreditations. And it is $3,000 apiece. 

So we had technically a large, 37-physician practice. We operate in 

four what we call care centers. And my little care center in Maryville, Tennessee, was only four physicians. So that group of physicians probably are not going to be able to afford to provide DME 

from their offices. 

Chairman SHULER. And once again, who—the patient care, I 

mean, who do they fall to? 

Dr. HARALSON. Well, they go to whoever supplies them. Some of 

the drugstores have some of the smaller items. They don’t have the 

bigger items. The most common scenario is the boot walker. The 

boot walker has revolutionized the way we treat ankle and foot injuries. Used to be, you had to have a cast. I am not sure which one 

you had. 

Chairman SHULER. I had the boot walker, DeRoyal Industries, 

yes, 6 months on that. 

Dr. HARALSON. The neat thing about the boot walker is you can 

take it off. If you have an ankle fracture that you have operated 

on, you would like to inspect the wound. You can inspect the 

wound one of two ways. You can take the cast off, which means you 

have to put another one, or you can cut a window in the cast, 

which means that’s the only place that swelling can occur. And 

that is detrimental to the wound. The nice thing about the boot 

walker is that you can take it off, the patient can exercise nonambulatory and can care for the wound and wash the extremity. 

Those high end things like that are usually not available in the 

common drugstore. 

Chairman SHULER. And washing being a very important role. 

Dr. HARALSON. Keeps it from smelling, yes, a real problem. If you 

really want to see something, you go swim in the ocean in one of 

these waterproof casts. I would suggest you not try that. But anyway, those high-end DME products are not available in the drugstores. And they need to be adjusted, which is not available in the 

routine drugstore. So I think, in those situations, in my little town, 

they will have to go to Knoxville. 

Chairman SHULER. So they will have to travel. 

Dr. HARALSON. Yes, sir. 

41

Chairman SHULER. How will the quality of care be impacted if 

you are prohibited from providing off-the-shelf orthotics? 

Dr. HARALSON. You know, Mr. Shuler, that is an extremely important question. As you are probably aware, CMS as well as all 

the medical societies are really getting involved in evidence-based 

quality medicine. And our fuss with some of the payers is that you 

cannot look at costs without looking at quality. I can reduce the 

cost by providing sorry medicine. Most of the DME suppliers, the 

manufacturers, have at least two and three, and usually three, levels of quality. They have a cheap one, which is usually made out 

of the country because they have a competitive bidding program 

with the hospitals, and the hospitals take the cheapest. They are 

not worried about quality. So I think that if we implement this as 

it is suggested, that the quality really is going to take a hit. And 

we just insist that if you are going to measure cost, you have to 

include a measure of quality along with that. 

Chairman SHULER. So if you are taking one of the lesser products, then basically the long-term care could be compounded over 

the time of the patient’s life. 

Dr. HARALSON. Absolutely. And the second thing about the poor 

quality is they wear out. And so, frequently, you have to replace 

them. If you are in a boot walker for 6 months and you had low 

quality, you are going to have three or four of those things. 

Chairman SHULER. Oh, yeah. I had good quality and had several 

during that time period. 

Dr. HARALSON. Great. 

Chairman SHULER. Yes, sir. 

To Mr. Hite, kind of give me an overview of—you know, they 

talked about during the competitive bidding process that in Charlotte, for instance, someone in Texas won a bid in Charlotte that 

was not skilled or had any expertise in providing care in that particular field. So let’s say that they were in the electric mobile devices, and they wanted to go to oxygen, providing oxygen to our 

seniors in our community. I mean, what all are they going to have 

to go through and what concerns do you have in your business? 

Mr. HITE. They are going to have to go through a lot. When I 

saw the list of winning bidders, I was actually shocked to see that 

there were providers there that had won bids in categories that 

they had never provided before. Now, we talked about accreditation. Accreditation, at least to my knowledge, even though we are 

an accredited company, it doesn’t necessarily address the products 

that you are providing. It addresses your general infrastructure 

and, you know, that you have the right policies and procedures in 

place. So how CMS is going to look at quality when there is no 

track record is absolutely beyond me. I don’t understand how it can 

happen. 

Chairman SHULER. So, in fact, maybe a company in Dallas, or 

any part of the United States, could win a contract in Asheville, 

and next thing you know, you have lost your entire company that 

you and your brother have built from scratch based on looking at 

the lack of quality from your grandmother. So they could, in a 

sense, basically take out your entire company based upon one bid 

process. 

42

Mr. HITE. Yeah, they certainly could. You know, and I think the 

company might—a company like this might be based, I want to be 

as accurate as possible, a company might be based like somewhere 

in Texas or California, and they might have a distribution center, 

a quickly opened distribution center in a place like Asheville. But 

with no track record in supplying a particular bid group, you know, 

it would take me an hour to describe how difficult that would be. 

I am shocked if somebody had the courage to bid on something that 

they had never done because you have to build—it takes time to 

build infrastructure. And the infrastructure it takes to support a 

large group of oxygen patients is huge. There are a lot of details 

involved in it. 

Chairman SHULER. Mr. Staub, do you think the way that CMS 

has structured the product categories would serve a significant disincentive to small firms conducting research and development in 

new medical technologies? 

Mr. STAUB. Well, I think that it probably goes back to some of 

the comments earlier on around, if we are really paying for low bid, 

right, we are paying for the lowest price. We are not paying for an 

outcome. In many cases, there is not even really good clinical data 

to support the efficacy of that product. As Mr. Wilson said earlier 

on, some of those products are 510(k) approved, which means that 

they just need to prove that they function. They don’t have clinical 

studies behind them to show that they are efficacious or that they 

are clinically capable. So I think what happens is you end up getting a low price issue so, you know, the companies now try to, instead of developing new technology that is moving us forward in 

health care, you are going to develop very, very inexpensive products that we can deliver for less than anyone else but don’t have 

good long-term clinical outcomes. And I think that is the direction 

the free market economy will take you at that point in time. 

Chairman SHULER. What impact do you see or foresee CMS’s 

program having on the technology innovation in medicine? 

Mr. STAUB. You know, I think that is probably one of the most 

critical aspects. And we look at it in pharmaceutical and medical 

devices alike. It is very expensive in today’s day and time to develop products and do the appropriate clinical studies and trials 

that are required to get a product on the market and make certain 

that they are moving health care forward. I think again when you 

shut down some of these small companies—as we said, ours was 

a small start-up from Dr. Jim Leininger, an ER physician, 30 years 

ago, and it is now a $1.5 billion company, so I think some of these 

startups won’t have the opportunity really to get their feet off—or 

get off the ground. And that is very unfortunate in this environment. 

Chairman SHULER. Mr. Sutton, you were telling me that you had 

beneficiaries who would call you at 1 o’clock in the morning. Why 

do you service them? Why don’t you just tell them to call 911? 

Mr. SUTTON. Well, Congressman Shuler, thank you for the question. You know, our business is 24/7, 365, and oxygen is vital for 

folks that are chronically, you know, hypoxic or have low oxygen 

in their blood. So, that is our job, and it is service-based. And we 

are on call, and that is what we signed up to do. And so that is 

why we are in the business we are in. 

43

And what frustrates me, an example I would like to elaborate a 

little bit on, you know, is skilled facilities in our area in western 

North Carolina frequently have contracts with companies in Virginia and Tennessee and different areas. And we routinely get calls 

from these facilities that say, you know, this patient is qualified for 

oxygen. They have moved into our skilled facility and need a continuous positive airway pressure machine for sleep apnea. And the 

company that we contracted with, it is going to take 2 or 3 days 

to get the equipment. That is the comment we get from them, and 

so they want to pay us for a couple of days of service. And of 

course, we graciously go and help them out because we have to 

help patients, and that is what we signed up to do, even though 

we don’t have that contract. But those are instances where those 

folks, if they don’t get the care they need, 2 or 3 nights without 

a sleep apnea machine, they could have a stroke, you know, and 

a week extended stay in a hospital. Patients that can’t get oxygen 

on time, if we don’t take those calls at 1 or 2 o’clock in the morning 

and the patients are elderly, they live at home alone; they can’t 

change a tank with the power out because they don’t have the 

strength to do it; so if we don’t make that visit out there to either 

change the tank or help that patient, they call 911. And that costs 

patients who are on Medicare more than $4,500 for one day in the 

hospital. The patients spend money in the hospital and make frequent visits to physicians’ offices. So, you know, those are some unintended consequences that, you know, I request that you folks 

really look at and pay attention to. And I urge CMS to not just assume that, you know, we may save 26 percent up front, but what 

is going to happen a month into the program with these folks with 

disruption in service? The unintended consequences I can’t implore 

enough on you to research before it happens. 

Chairman SHULER. And I am sure you get paid extra after hours, 

after 10 o’clock at night, you get paid extra. 

Mr. SUTTON. You know, Congressman Shuler, I think that is an 

interesting question, in that, earlier, the gentleman from CMS said 

that we get approximately $300 a month. And it is somewhere 

around $239 to be exact. And that is if you don’t get a call from 

the patient or you don’t have to deliver supplies or you don’t have 

to go out there to see an elderly patient with chronic lung disease 

that has a lot of anxiety. 

Chairman SHULER. So do you get paid more every time you service? 

Mr. SUTTON. No, those are free visits. 

Chairman SHULER. Those are free visits to you. 

Mr. SUTTON. Gas is now $4 a gallon in rural Waynesville, North 

Carolina. So besides my cost of my driver, my technician and the 

time away that he could be doing other things, we are there. And 

that is not included in the costs. 

Chairman SHULER. What is the distance between your 

Waynesville location and the largest, the longest distance you have 

to travel to service a patient? 

Mr. SUTTON. We serve Haywood County west all the way to the 

line, which is the Robbinsville, Murphy area, Graham County. 

Chairman SHULER. So 2 hours? 

44

Mr. SUTTON. Two, two and a half hours. And it is not like interstate, a major interstate highway, Congressman Shuler, you know 

that, as we drive through Swain County. It is—

Chairman SHULER. We are working on that. 

Mr. SUTTON. —winding roads. So it is a lot of cost. And those are 

things that, again, I implore CMS to consider that. 

And you know, I am in Waynesville, North Carolina, and Asheville is, you know, 25 miles from my area. So I am going to assume 

that my ZIP codes will be included. And that has not been, you 

know, released yet. 

Chairman SHULER. Mr. Hite, how far is your furthest area? Or 

would you like to comment based upon the question? 

Mr. HITE. Very similar to Heath’s situation. We have patients 

that far away. Now, obviously it is discretionary. We could, you 

know, choose not to accept a patient that lives long distances. But 

we often do, because it is a physician’s choice. Physicians are referring the patient to us for a reason. You know, it ultimately comes 

down to the patient, but the physician is saying, hey, this is who 

you need to deal with because they provide this specific product, 

and it is going to improve your life. So, in those cases, we accept 

patients from long distances and travel those long distances. 

And to Heath’s point, you know, you are not just paying $4 a gallon in gas, you are also paying overtime to an employee to go out 

in the middle of the night. We will continue doing that. You know, 

it is just the ethical thing to do. I don’t know whether it will drive 

us out of business. It might under the new reimbursement schedule, but it is what is right. 

Mr. EINFALT. Following up on your original question, why do we 

do that, in rural America, that customer is not only your patient; 

you live with him. You live with his family. You have to face him 

every day. So every decision you make, you have to deal with the 

consequences of that decision on a daily basis, good or bad. 

Chairman SHULER. Absolutely. I commend all of you for that. 

At this time, Mr. Gonzalez, do you have any questions? 

Mr. GONZALEZ. Thank you very much, Mr. Chairman. 

I am going to try to go quickly. I think we are going to have a 

series of votes. And you may want to try to get the testimony of 

the next panel. 

So just real quick, Dr. Haralson, it is ironic, because you pointed 

something out, it is very important, physicians are legitimately unhappy with the way CMS establishes reimbursement rates. We call 

it the Sustainable Growth Rate; it is unrealistic. So what they are 

proposing is what you basically were saying, and that is pay for 

performance. The amazing thing, we want you to use your independent judgment and choose that treatment and protocol, and of 

course, we are talking about medical devices, too, that will get you 

that result that we are seeking. Right? However, what we have in 

place today and what we are hearing, we are going to restrict your 

ability to pick that device, or even maybe the treatment that you 

in your professional opinion believe will result in the quickest recovery and such. Pay for performance. I know it is odd, and you 

go back and I am sure you have great discussions about who we 

are over here in Washington, and rightfully so. 

45

Now, you heard the witness, Mr. Wilson, from CMS, and it appears his answers are really good. And he knows a lot more about 

this subject than all of us in here because that is his full-time job. 

But in your specific issue about exempting physicians for what you 

do, and it seems very reasonable, what was their response? Because surely they heard your objection and your request, and surely they responded. What was that? 

Dr. HARALSON. Well, we did have some discussions with them. 

And frankly, at first they seemed to agree with us. And we thought 

actually they were going to exempt physicians from the competitive 

bidding, and especially from the—from the competitive bidding for 

the things that we supply, which are really just braces and splints. 

We don’t do the other DME, the wheelchairs. We do like to have 

crutches so the patients can ambulate out of the office. But we assumed that they were going to exempt us. And we are frankly a 

little dismayed that we were not included, because they did exempt 

physical therapists and occupational therapists. And it is a little bit 

odd that, in many cases, orthopedic surgeons employ physical 

therapists, and so we have a situation where my employee can provide the DME, but I cannot. 

Mr. GONZALEZ. And now, Mr. Staub, you heard Mr. Wilson, who 

indicated, sure, when we call the V.A.C. wound therapy, yours is 

not the only device out there. Now, people are going to say, you are 

not that objective, Charlie, KCI is in San Antonio. And there is an 

element of truth to that. But I also have been the beneficiary of a 

lot of information, and I know the studies that have taken place. 

I know the physicians and the clinicians. I know what they are saying out there about the superiority of a particular product or device. Not necessarily just yours. 

Well, how do you respond? They have done their homework. They 

have done their research and FDA approval. It looks like you have 

all these other devices, and it doesn’t matter if yours may be the 

device of choice by the physicians, the attending physicians. 

Mr. STAUB. You know, Representative Gonzalez, it is very disappointing actually. That is our response. And the reason being is 

two points. Number one is that, you know, the way these products 

are approved, as he had said, there is a PMA or a 510(k). A 510(k) 

is a more basic approval which basically proves that the product 

is safe and says that it acts as though—acts the way you want it 

to act. Basically, it does what you say it will do. But clinical studies, really usage on a patient doesn’t happen unless you have a 

PMA. So they come on to the market as predicate devices saying 

this is just like that one. But they are actually very, very different. 

Not only the way the products are made up and the way they act 

with the patient, but I think the second point that is most important is around this accrediting. 

I mean, the accrediting that we saw was really just around financial capabilities of these companies, not around their ability to 

service or care for the patients by any means that these guys have 

mentioned I think a couple of times. You know, we have over 450 

clinical nurses that are out in the field. We have over 1,200 service 

people that are out there that answer these calls late at night. And 

I don’t think these companies that come in—and, you know, I use 

the term carpetbagger loosely—but you know, basically want to get 

46

the bid to either sell the bid to someone else or to try to then find 

a supply and support that market. I think that is extremely disappointing for us, because we feel like we seriously help patients 

that are compromised and at home and have no one else to help 

them. And it is a less expensive alternative, quite frankly, than 

having their surgeons keep them in the hospital for another 2 

weeks or 3 weeks until their wound heals. 

So my response would be that it is disappointing that they 

haven’t gone deep enough in understanding and accrediting potential suppliers. 

Mr. GONZALEZ. Yeah. 

And to Mr. Hite and Mr. Sutton and Mr. Einfalt, this committee 

is obviously the Small Business Committee, and we are very sensitive to what is going on out there, and our chief concern is really 

the impact of all of this on small businesses. 

Dr. Einfalt, we are familiar with the average manufacturer’s 

price, what it is going to do to you, because we have had other 

hearings. We have had our community independent pharmacists. 

Mr. Hite, Mr. Sutton, we have had other hearings by different 

Subcommittees, and we are very familiar with some of the issues 

and the challenges in providing a service. I know we had a home 

care provider from Texas that was saying, just with the cost of gasoline, now we are talking about certain areas of Texas you drive 

forever, and that is not part of the calculation in arriving at what 

it takes for you to provide a service or a device. Now that is not 

realistic. That is not reality-based. So it is so important when you 

come and testify here. 

My fear is that Mr. Hite and Mr. Sutton are probably going to 

be relegated at best to some sort of a subcontractor status. And 

that means a whole lot I think to small businesses today when you 

are the owner of a business and such and what will be dictated to 

you. So, again, I just want to say thank you for your testimony. 

And I yield back, Mr. Chairman. 

Chairman SHULER. Mr. Gonzalez, I want to thank you. 

I want to really commend the hard work and dedication of your 

businesses, and their associations have been able to put forth the 

work in being here and for your testimony. I thank you so much. 

And thanks for your testimony. 

We are going to—very quickly, because we are going to call votes 

here, and it could be any minute now—to the third panel if we can. 

So if we can just quickly change out, thank you so much. 

If we can get on the third panel, please. It is very important that 

we hear the third panel. We have got votes coming up very quickly. 

Our next witness is Dr. Rebecca Wartman, owner of Doctors Vision Center in Asheville, North Carolina. She is testifying on behalf 

of the American Optometric Association. 

Thank you for your commitment to being here. Thank you for 

your testimony. And I look forward to hearing it. 

47

STATEMENT OF DR. REBECCA H. WARTMAN, OD, OWNER, DOCTORS VISION CENTER OF ASHEVILLE, ASHEVILLE, NORTH 

CAROLINA, ON BEHALF OF THE AMERICAN OPTOMETRIC ASSOCIATION 

Dr. WARTMAN. Thank you. Mr. Chairman, and members of the 

committee, the American Optometric Association, representing over 

34,000 doctors of optometry, would like to thank the committee for 

holding this important hearing. 

My name is Dr. Rebecca Wartman, and I am the owner of Doctors Vision Center in Asheville, North Carolina. While I have been 

an optometrist for 21 years, I have been in Asheville for 11 of those 

years. As an optometrist and a small business owner, I am pleased 

to have the opportunity to provide testimony regarding the burdensome requirements established by the Medicare Modernization Act 

and the chilling effect on providing patient care. 

Even though CMS has exempted physicians and treating practitioners from the competitive bidding program, under many circumstances, optometrists are still concerned with two requirements 

of the program which, if implemented, could have an adverse impact on Medicare patients. 

First, we believe that requiring physicians and health care professionals to be accredited in order to continue supplying DME 

when treating patients is both financially and administratively 

burdensome. 

Second, in the MMA, it appears that there is no recognition that 

health care professionals who supply and educate patients on the 

appropriate use of DME that is integral to patient care are very 

different from suppliers who furnish DME products to the public as 

a primary part of their business. Roughly 14,000 optometrists with 

DME supplier numbers prescribe lenses, frames and sometimes 

contact lenses to patients following cataract surgery. And these 

items are clearly an integral part of the practice of optometry. 

These benefits are typically provided only one time after cataract 

surgery. 

Further, the 2004 CMS data indicates that health care providers 

supply slightly more than 3 percent of the total DME. It is unclear, 

therefore, what, if any, program improvement and cost savings 

would be realized by imposing these requirements on health professionals who only dispense DME when providing patient treatment. 

Since March 1st of this year, Medicare began requiring health care 

professionals to become accredited prior to obtaining a national 

supplier clearinghouse number. The accreditation process, as we 

have already heard, is time-consuming, expensive, and heavy on 

paperwork, costing up to $3,000 for a 3-year period. 

Many optometrists, as well as other small business health professionals, do not want to or cannot afford this additional cost and 

regulatory burden. Apparently, only 4 of the 10 accrediting organizations will accredit optometrists. 

As well, this accreditation can take months to complete. For optometry, it would essentially be impossible to recoup these costs 

given the amount of Medicare payments for the small number of 

DME products furnished to our patients. Therefore, it is difficult to 

understand why optometrists and other health care professionals—

48

it is not difficult to understand why optometrists and other health 

care professionals find it impractical to receive accreditation. 

In fact, the American Optometric Association has already received numerous complaints from optometrists who have made the 

decision not to supply lenses, frames, and contact lenses after cataract surgery. If optometrists and other health care providers are 

faced with being unable to provide Medicare-covered DME products 

to their patients at the point of care due to these regulations, the 

only other alternative would be to refer the patient to a DME retailer supplier. 

This delay in access to appropriate treatment or even worse 

could prevent the beneficiary from receiving the proper item because there is no DME retailer in close proximity. The costs of 

transportation, the need for more than one trip in many cases, and 

the burden of finding a provider will all be serious hurdles for 

many Medicare beneficiaries. These burdens are even greater for 

patients in nursing facilities and assisted-living situations, whom 

I personally serve many of those. As well, aphakic patients, those 

who did not have a lens implant after cataract surgery, are often 

fitted with contact lenses. And that presents a whole other array 

of health risks. And the contact lenses do fall under the DME. 

In conclusion, the one-size-fits-all approach by CMS fails to recognize that DME suppliers comprise a very diverse set of individuals and organizations, including licensed health professionals and 

physicians, such as optometrists. The AOA believes that the accreditation and quality standards developed by CMS should recognize 

this diversity and be structured accordingly. And we believe that 

the MMA gives the agency sufficient flexibility to do so. We look 

forward to working with the Small Business—House Small Business Committee and CMS to find a way to address these accreditation concerns and to avoid access issues for patients who rely on 

health care professionals to provide DME as a part of their care. 

Thank you. 

[The prepared statement of Dr. Wartman may be found in the 

Appendix on page 131.]

Chairman SHULER. Thank you. 

At this time I yield time to Mr. Braley to introduce our next witness.

Mr. BRALEY. Thank you, Mr. Chairman. I am pleased to have 

two of my constituents here today in the room, John Gallagher 

with VGM, and our next witness, Ms. Julie Weidemann, who is the 

director of Palmer Home Medical Supply in West Union, Iowa, 

which is a lovely county seat town of over 2,500 people. 

And it is great to have you here. 

Ms. Weidemann will share some of her 20 years of experience in 

the home medical equipment industry. And she will also be testifying on behalf of the VGM Group, which is the largest network of 

independent home medical equipment dealers in the United States, 

with more than 2,000 medical equipment provider members in 

more than 3,500 locations. 

Welcome. 

49

STATEMENT OF MS. JULIE WEIDEMANN, DIRECTOR OF PALMER HOME MEDICAL SUPPLY, WEST UNION, IOWA, ON BEHALF OF THE VGM GROUP 

Ms. WEIDEMANN. Thank you. 

Chairman Shuler and members of the Committee, I am Julie 

Weidemann, director of Palmer Home Medical in West Union, 

Iowa. I am pleased to come before this Subcommittee to discuss 

with you the profound risk of the DMEPOS competitive bidding 

program being implemented by the U.S. Department of Health and 

Human Services. 

I have worked in the HME industry since 1988. I started my 

home care career as a respiratory therapist and, in 1994, created 

and instituted Palmer Home Medical Supply, a department of 

Palmer Lutheran Health Center, which is a 25-bed hospital in 

West Union. We have three locations. I employ 10 people. We serve 

10 counties in rural northeast Iowa, covering 2,500 square miles. 

And close to 50 percent of my client base are Medicare clients. 

I have the largest concern over the competitive bidding program 

due to the MMA 2003 provision that allows CMS to take the purported savings that is achieved in desperation bids from round one 

and apply pricing nationwide with the new fee schedule. 

Earlier, Representative Braley asked the question how competitive bidding is going to affect rural providers. And what was stated 

was that it was only going to affect metropolitan areas, and really 

rural providers were exempt. That is not true. What CMS can do 

is they can take the data from these round one and two biddings, 

and they can impose an inherent reasonableness standard on the 

entire industry, which will mean that rural providers will have a 

26 percent cut in reimbursement. So, no, I am not in a competitive 

bidding area, but I am still going to see the 26 percent cut that 

they are seeing in the metropolitan areas. If I have to take that 

26 percent reduction, I will have no choice but to decrease the level 

of service I am currently providing. And with the price of fuel, I 

may need to decrease the territory I provide service to. 

What then will happen to the patients out there in those outlying 

areas? What provider will be able to afford to help them? And if 

I am decreasing my territory, that means I most likely will need 

to cut staff. 

My other major concern is competitive bidding will simply limit 

choice for beneficiaries and will dramatically reduce the service 

they have always received and need to receive. Can a company 3 

hours away that gets the bid provide quality service compared to 

what I can provide when I am right down the street? My patients 

are going to suffer greatly from this program. Small business is 

going to suffer greatly as well and will not be able to survive a 26 

percent cut. 

And what happens to medical innovation? It will cease to exist 

in a low-bid environment. Better technologies are expensive. And 

with the huge national bureaucracy that is being created at CMS, 

an increase of approximately 1,600 employees, what kind of savings 

will really be achieved at the expense of patients and small business? 

Also there has been a lot of talk this morning about discussion 

on quality standards and accreditation. To this date, the HME proVerDate 0ct 09 2002 15:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40860.TXT LEANN
50

vider quality standards are still in draft form. There has been no 

final release yet. So we don’t know exactly what our standards are 

going to be. 

The new rent-to-purchase payment policy for home oxygen program enacted in the DRA requires that, after a 36-month rental period, title and responsibility for maintenance and service for all 

home oxygen stationary and portable technologies would be transferred to the Medicare beneficiary. Just last week, one of my respiratory therapists was in a Salvation Army store in Cedar Rapids, 

Iowa, and sitting there was an oxygen concentrator and three oxygen tanks for sale for 50 bucks; no doctor order required. Oxygen 

is a drug that must be prescribed by a physician. And when beneficiaries start owning this equipment, where will it go when they 

no longer need it? Obviously, a Salvation Army, maybe a local garage sale, on eBay, the Internet. As a respiratory therapist, this 

worries me to no end. 

Oxygen, when used inappropriately and without proper training, 

has very dangerous consequences that could result in death from 

underdosing or overdosing, or deadly fire due to lack of training in 

the safe use and storage of the oxygen. Providers currently educate 

each patient and their caregivers on these very critical issues. The 

costs for providers is not in the equipment being provided. It is in 

the service. Patients don’t call us for equipment. They call us for 

advice. We currently provide 24-hour emergency on-call service. We 

assist our patients with troubleshooting and proper use, equipment 

failures. We provide clinical assessments by respiratory therapists 

and nurses. Who is going to do all this when the patients own their 

own equipment? 

I cannot provide these services for free, and not many of my 

fixed-income Medicare patients can afford to pay me extra out of 

their Social Security check for these services. So it will simply not 

get done, and patients will be hospitalized more often. In 2002, 

there were 673,000 hospitalizations for people with chronic lung 

disease. Their average length of stay was 5.2 days, making the average cost of that hospital stay $18,000. 

In contrast, the current average annual cost for home oxygen 

therapy is $2,784, less than the average cost for one day in the hospital. I can provide this service for a whole year. Home care is the 

solution. It is not the problem with our medical industry and the 

Medicare expenditures that go out. 

What does this mean to me, rural hometown HME providers, and 

all the providers in a competitive bid area throughout America? I 

live in an area of the country with a large elderly population. And 

with almost 50 percent of my clients on Medicare, I truly fear what 

will happen to my customers and my small business when the competitive bidding storm thunders its way into rural America. I cannot survive if I cannot serve Medicare beneficiaries, nor can I survive providing our current quality of product and level of service 

with a 26 percent cut in payment. Due to this competitive bidding 

storm, small business will be destroyed and beneficiaries will be 

left to fend for themselves, threatening their current access to care 

and their quality of life. 

I call on Congress to immediately delay the implementation of 

this competitive bidding program. And as with any action that is 

51

taken to avert the train wreck that is competitive bidding, I ask 

that Congress include a repeal of the imposition of the 36-month 

cap on oxygen. As a provider, I support the implementation of a rational alternative process to determine Medicare pricing for DME 

items and services. 

I thank you for this opportunity. It has been quite an honor. 

[The prepared statement of Ms. Weidemann may be found in the 

Appendix on page 137.]

Chairman SHULER. Thank you for your testimony. 

Our final witness is Mr. Gary Gilberti, president and CEO of 

Chesapeake Rehab Equipment, from Baltimore, Maryland. He is 

testifying on behalf of the National Coalition For Assistive and 

Rehab Technology. 

You will be recognized for 5 minutes. 

STATEMENT OF MR. GARY GILBERTI, PRESIDENT AND CEO, 

CHESAPEAKE REHAB EQUIPMENT, BALTIMORE, MARYLAND, 

ON BEHALF OF THE NATIONAL COALITION FOR ASSISTIVE 

AND REHAB TECHNOLOGY 

Mr. GILBERTI. Thank you, Mr. Chairman and members of the 

Committee. 

On behalf of NCART and my company, Chesapeake Rehab 

Equipment, I appreciate the opportunity to be here today. 

As Chesapeake Rehab, we participated in competitive bidding in 

two of the CBAs. And I can say I lived to tell about it, but I am 

not sure I am happy about it. 

Just to understand a little bit about complex rehab technology, 

you have to understand a little bit about these businesses. Complex 

rehab technology companies, more than 50 percent of the providers 

in this sector are small businesses, with revenues of between $3 

and $5 million annually. Most are privately owned, which are generally well entrenched in their communities and have established 

relationships with their customers and allied health professionals. 

Complex rehab and assistive technologies are adaptive seating, 

positioning, and mobility devices that are evaluated, fitted, configured, adapted, and modified based on the unique clinical and functional needs of people with severe disabilities. These disabilities 

could include things as ALS, spina bifida, cerebral palsy, muscular 

dystrophy. 

In fact, there is a young woman in the room today, Selen Dalton 

Cummings, who is a customer of mine. She is in a piece of complex 

rehab technology. And it helps her get to work every day and be 

a very productive individual in the community. 

And just a little bit more what differentiates complex rehab technology companies from other home medical equipment providers is 

the level of products we supply and the level of staff required to 

provide them, and the amount of time and labor that is involved 

in that process. Companies that adhere to the long-standing service/delivery model that provides the best clinical outcome for consumers for complex rehab are required to employ certified staff and 

to run their operations in a certain way. All this comes with a very 

high cost. 

52

In a study performed by a D.C.-based economics firm for NCART, 

companies operating in this field experienced a net operating income of 1.6 percent. That is a very thin line. This is based on nonproduct costs in the 50.5 percent range and product costs of 47.9 

percent for these companies. With such high nonproduct expenses 

and such minimal net operating income, complex rehab technology 

companies are already unstable. Coupled with cash flow challenges 

in dealing with third-party payers and then add the increase of 

things like fuel and payroll costs increasing the way they are, these 

companies are even more challenged to remain viable. 

It is important to note that suppliers and manufacturers of complex rehab technologies have already absorbed significant cuts in 

reimbursement resulting from coding changes and congressionally 

mandated reimbursement cuts. Moreover, the CPI increase for 

Medicare fee schedule for existing HCPCS codes has been frozen 

for almost a decade, while costs associated with the provision of 

this technology have increased. The DME industry generally has 

only received one permanent Medicare fee schedule increase since 

1998. 

Round one of competitive bidding continues to move forward in 

spite of many inequities and controversies. The areas of concern 

range from both the resulting prices and their calculations to the 

actual winning bidders and how they were selected. CMS continues 

to claim that it has addressed many of the concerns appropriately, 

but the fact still remains that many small businesses have already 

been injured by this program. 

When you look at competitive bidding in the complex rehab area, 

CMS has claimed to realize a 15 percent savings in that area. If 

you use the math that I have given you already, as far as where 

rehab companies are, with a 1.6 net operating margin, you take 15 

percent out of what tends to be about 30 percent of their business, 

they are below water. 

There is also the issue that there are companies that are doing 

business in competitive bidding areas who are not historically operating in those areas. In Pittsburgh, for example, where I was not 

able to win a bid, two of the four companies that were offered the 

bid either have not operated in that business—or in that CBA or 

in that business as far as complex rehab. 

Additionally, CMS claims there are accreditation standards in 

place. One of the winning bidders in many of the CBAs was able 

to get in under a loophole that they were accredited under standards that were not in place by the time the competitive bidding was 

put in place. For instance, now in order to be a complex rehab provider, you have to have certain certified individuals; you have to 

operate a certain way; and the accrediting bodies have rehab standards. Those weren’t in place. And these companies were able to get 

through based on a loophole. 

In conclusion, I just would hope that Congress would embrace 

H.R. 2231, which would allow for the exemption of complex rehab 

technology from competitive bidding and would allow that Medicare 

beneficiaries with disabilities would be protected from this problem. 

Thank you. 

53

[The prepared statement of Mr. Gilberti may be found in the Appendix on page 146.]

Chairman SHULER. Thank you for your testimony. 

Obviously, they have called votes. What we are going to do is, 

each of the members will ask one question. And hopefully, we can 

give everybody the opportunity to kind of expand more on their testimony. 

I first would like to ask Dr. Wartman, if there is no change in 

the current regulations, what effect will the accreditation requirements have on patient care and access to DME? 

Dr. WARTMAN. Well, as I said, some optometrists have already 

decided to drop out of DME suppliers because they needed to recredential with the national clearinghouse and been told that they 

couldn’t if they were accredited. 

So if I am not a supplier of glasses after cataract surgery, those 

patients that I have had a really long-standing relationship with, 

been my patient for a number of years, I helped them through the 

process of deciding to have cataract surgery, care after cataract 

surgery; I will have to look at them and say, now you have to go 

somewhere else to find your glasses. It is one time after cataract 

surgery. 

If I have a patient that doesn’t have a lens implant, that is 

aphakic, and has the really thick Coke bottle glasses or contact 

lenses and glasses, then I have to look at them and say, I can’t supply your contacts. In many cases, I can’t even fit those, because fitting it is really an integral part of supplying it. I can’t actually fit 

it unless I have it. And then I can’t make adjustments to it. 

So while those patients are becoming fewer, there are still a lot 

of those patients out there. So it will really have a big impact on 

the patients. 

Financially, I don’t make a lot of income off of the durable medical equipment because it is not very much for us. But to have to 

jump through those hoops and pay a huge credentialing fee and all 

the burden of trying to figure out how to get through that process, 

as well as be credentialed by the national clearinghouse supplier 

in addition to all my State licensure requirements, I think a lot of 

us would choose just not to provide those. 

But that’s not fair to the patients. 

Chairman SHULER. Thank you. 

I will now yield to Mr. Gonzalez. 

Mr. GONZALEZ. Thank you very much, Mr. Chairman. 

Just quickly, Dr. Wartman, I think we are hearing you. I think 

you are aligned with Dr. Haralson, saying, look, if we are the physicians, the professionals, there has to be an exception. This is common sense, by the way. And I think we get that. And let’s see what 

we can do about it. I don’t think it is going to impact in any measurable amount CMS’s efforts in reducing costs. 

Ms. Weidemann, Mr. Gilberti, I am trying to rush this because 

we are going to have to go and vote, and I don’t want to keep you 

here, and I know that Bruce might have something he wants to 

ask. 

Some people will say, and CMS may say, who cares if you guys 

are relegated to subcontractor status? You still have a business. 

54

You are still a small business. The way I see it, and I want you 

to tell me, is the problem is that the big contractor that got the bid, 

that had the best bid, can be as unrealistic as they want to be because they are just going to be passing it onto the subcontractor. 

They are going to find somebody out there, hopefully, or it is not 

going to be really viable or it is going to work. What is the big disadvantage of you just being part of subcontracting system with the 

winning bid? 

Mr. GILBERTI. Congressman Gonzalez, I have won in one CBA 

and I didn’t win in another CBA, so I have seen both sides of this. 

Mr. GONZALEZ. Yes, sir. 

Mr. GILBERTI. And as winner, I don’t feel like a winner because 

of the pricing, because a lot of people bid out of fear and intimidation to just try and maintain their customer base. 

But as a subcontractor, I am going to have to give up another 

portion of margin in order to participate. That means, as subcontractor, one of the existing winners is going to want a percentage 

out of me. So the price then goes down probably another 10 percent 

on me. And I can’t operate on that. But in order to serve my clients, I am going to have to accept some of that. 

Mr. GONZALEZ. I thank you very much for your testimony. 

I yield back, Mr. Chairman. 

Chairman SHULER. Mr. Braley. 

Mr. BRALEY. Thank you. 

Ms. Weidemann, I want to follow up on the point I made in the 

first panel about my perception that the entire purpose of this competitive bidding process is to adopt a bigger-is-better mentality. 

And you were here when the CMS representative testified that 

that was not his perception of the bidding process. But in your 

written statement, you included some interesting figures that came 

out of the round one bidding process, and I think it is very relevant 

to the discussion we are having today. 

You wrote only 5 percent of the eligible small business providers 

were offered a contract and about 16 percent of the large providers. 

And that is from an earlier perception that 85 percent of the businesses engaged in this industry were small businesses. So one of 

the things that I am troubled by as a person who represents a 

heavily rural district is if this was truly a free-market environment, then the large companies would have the same incentive to 

compete in rural America as they would in urban America. But if 

that were true, then we would see Comcast providing cable TV 

services in West Union, Iowa, and we know that is not true. So 

from your perspective as a small business owner living in a small 

community, would you care to respond to the CMS representative 

about your perception of what is going on here? 

Ms. WEIDEMANN. Well, we already basically see it in the VA system. Patients on VA that are on oxygen in my town of West Union, 

the contracts that the VA has at Iowa City, they come to that patient’s home every month, they bring them six oxygen tanks. And 

if they run out, it is their problem. They can go back to Iowa City 

themselves to get more tanks or they just go without. And that is 

what is going to happen if—if the big company gets the bid, the little guy down the street for—I think right now I have a patient last 

week that called me on a Sunday morning. I forgot to call you and 

55

tell you I was out of tanks on Wednesday, and I really would really 

like to go to church this morning. I met them at the office and gave 

them their tank. That is not going to be a viable option anymore 

when these big companies get the bid and they are too far away. 

Mr. BRALEY. So, in some cases, it could be a life-and-death matter? 

Ms. WEIDEMANN. Definitely. They are going to go without. 

Mr. BRALEY. I yield back, Mr. Chairman. 

Chairman SHULER. I would like to thank the gentlemen for their 

questions. I thank all of you for your time, your commitment, and 

for all of the witnesses here today. 

I thank Mr. Fortenberry for his continued support in a bipartisan 

way so that we can get to this. And I also want to thank CMS, the 

staff that has remained here to hear this testimony. I think it is 

so important that we all understand how we can work with our colleagues. But not only with this committee, with some of our other 

committees who have jurisdiction as well. So I look very forward 

to working with all of you. And, again, thank you for your testimony. 

I ask unanimous consent that the record be open for 5 days for 

members to submit their statements. Hearing no objection, so ordered. This hearing is adjourned. 

[Whereupon, at 1:08 p.m., the subcommittee was adjourned.]

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