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SUBCOMMITTEE HEARING ON THE

IMPACT OF CMS REGULATIONS AND

PROGRAMS ON SMALL HEALTH CARE

PROVIDERS

SUBCOMMITTEE ON REGULATIONS, 

HEALTH CARE AND TRADE 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MAY 14, 2008

Serial Number 110-93

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 GONZA ́ LEZ, 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 Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Gonza ́lez, Hon. Charles ........................................................................................... 1

Westmoreland, Hon. Lynn ...................................................................................... 7

Fallin, Hon. Mary .................................................................................................... 3

Altmire, Hon. Jason ................................................................................................. 4

WITNESSES

PANEL I: 

Hill, Mr. Timothy B., Director of the Office of Financial Management, Centers 

for Medicare & Medicaid Services - Accompanied by: Farris, Dr. James 

Randolph, Administrator, Consortium for Quality Improvement and Survey 

& Certification Operations, Centers for Medicare & Medicaid Services ......... 5

PANEL II: 

Dolan, Dr. William A., American Medical Association ......................................... 15

Wiesner, Mr. Dennis, R.Ph., H.E.B. Grocery Company ........................................ 17

Schweitz, Dr. Michael, The Coalition of State Rheumatology Organizations .... 19

Smith, Dr. Karen L., American Academy of Family Physicians .......................... 21

PANEL III: 

Allen, Ms. Terry, South Texas Oncology and Hematology, P.A. .......................... 29

Schraad, Mr. Joseph A., Oklahoma Allergy and Asthma Clinic .......................... 31

Wolf, Ms. Rina, RedPath Integrated Pathology, Inc. ............................................ 32

Tieken, Ms. Mary Helen, Texas Association of Home Care ................................. 34

APPENDIX 

Prepared Statements: 

Gonza ́lez, Hon. Charles ........................................................................................... 43

Westmoreland, Hon. Lynn ...................................................................................... 45

Hill, Mr. Timothy B. ................................................................................................ 46

Centers for Medicare & Medicaid Services: Information for the Record ............ 54

Dolan, Dr. William A. .............................................................................................. 56

Wiesner, Mr. Dennis ................................................................................................ 65

Schweitz, Dr. Michael .............................................................................................. 80

Smith, Dr. Karen L. ................................................................................................. 92

Allen, Ms. Terry ....................................................................................................... 98

Schraad, Mr. Joseph A. ........................................................................................... 114

Wolf, Ms. Rina ......................................................................................................... 116

Tieken, Ms. Mary Helen .......................................................................................... 124

(III) 

(1)

SUBCOMMITTEE HEARING ON THE IMPACT 

OF CMS REGULATIONS AND PROGRAMS 

ON SMALL HEALTH CARE PROVIDERS 

Wednesday, May 14, 2008

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Subcommittee met, pursuant to call, , at 2:10 p.m., in Room 

1539, Longworth House Office Building, Hon. Charlie Gonza ́lez 

[chairman of the Subcommittee] presiding. 

Present: Representatives Gonza ́lez, Altmire, Westmoreland, and 

Fallin. 

OPENING STATEMENT OF CHAIRMAN GONZA ́ LEZ 

Chairman GONZA ́LEZ. I will call this hearing to order. Today we 

are going to be conducting a hearing to consider a rather important 

issue under the heading of ′′The Impact of CMS Regulations and 

Programs on Small Health Care Providers.′′

I want to start off by indicating that we have been awaiting the 

arrival of the ranking member, Mr. Westmoreland. He has been detained, but he will be here shortly. I thought I would get my opening statement out of the way and we would proceed. 

Another observation is that we have a number of votes today and 

that means we will be interrupted. I am going to ask for everyone’s 

patience. Everyone is going to get to testify. We will have Members 

up here. I am not sure if Mr. Westmoreland will be able to remain 

throughout the hearing, because I know he has other matters that 

are of real pressing importance regarding his district. I will proceed 

then with my opening statement. 

Medicare and Medicaid are essential components of our nation’s 

health care system. Many small health care providers are dependent on reimbursements from these programs. Changes to the programs can have profound economic effects on their businesses. 

With many small providers struggling to stay afloat, it seems a 

number of medical practices and pharmacies are merely one reimbursement cut away from being forced to close their doors. 

As program costs have risen, Congress has taken steps to cut 

them. All too often, CMS implementation of these efforts to reduce 

costs has placed small health care providers on an unlevel playing 

field and threatened their continued viability. In some instances, 

CMS has adopted rules to implement cost cutting measures, which 

is understood. When agencies, though, make rules, the law requires 

2

them to consider their impacts on small businesses and examine 

less burdensome alternatives. 

The Small Business Committee has jurisdiction over this important law known as the Regulatory Flexibility Act. The committee 

has held several oversight hearings on CMS in the 110th Congress, 

and we have seen that the agency can do a better job of meeting 

its obligations to small firms. 

When CMS implements regulations and programs unfairly, it 

hurts not just small providers, but also patients, and damages the 

entire health care system for all Americans. Several CMS programs 

are creating particular concern among small health care providers. 

For instance, the Recovery Audit Contractor program will be one 

of those. Because of the enormous scale of Medicare, it is inevitable 

that some errors in the payment process will occur. In some instances, providers may be underpaid by Medicare. In others, they 

may be overpaid. 

With the aim of reducing the amount of Medicare’s improper payments, Congress created the Recovery Audit Contractor program, 

known as RAC. A pilot program for RAC concluded in March of 

this year and now the program has become permanent. 

While the law requires RACs to identify underpayments to providers, it is clear that contractors are almost exclusively focusing 

on correcting overpayments. For example, of the $371 million of improper payments identified by RACs in fiscal year 2007, over 96 

percent were overpayments collected from providers. Less than 4 

percent of those dollars were underpayments repaid to providers. 

It is hard to believe that this number represents the true proportion of underpayments. 

The manner in which RACs are compensated is also troubling. 

RACs get a part of every dollar they bring in. This is the first time 

ever that Medicare has paid a contractor on a contingency fee 

basis. According to small providers, these contingency fees, coupled 

with a lack of proper oversight at CMS, have led to aggressive, 

and, in some cases, improper pursuit of recoveries and a disregard 

for the accuracy of the auditing process. 

Another significant issue is one that impacts pharmacies nationwide. They are facing major hardships from CMS’s implementation 

of the Deficit Reduction Act. The DRA directed CMS to recalculate 

the way it reimburses pharmacies for providing generic prescription drugs to Medicaid beneficiaries. 

Last July, CMS released a final rule which could devastate pharmacies and Medicaid recipients. The new formula dramatically reduces reimbursements to pharmacies. GAO has determined that 

they will be paid back for only 64 percent of their costs of acquiring 

generic prescription drugs. 

This rule will have a disparate impact on small retail pharmacies, an impact that CMS overlooked when it wrote the rule. 

Small retail pharmacies serve a higher proportion of Medicaid 

beneficiaries and get more of the revenue from prescription drugs. 

Implementation of this rule may force many of them out of business, reducing access to care for millions of Americans. It is clear 

that CMS needs to do a better job of considering the needs of small 

health care providers when it implements programs and regulations. 

3

I look forward to today’s testimony, and I thank the witnesses for 

coming here to share their stories. 

Chairman GONZA ́LEZ. At this time, I would be recognizing Mr. 

Westmorelandfor an opening statement, but since he has been detained, my preference will be that we then proceed. 

I am happy, in the absence of Mr. Westmoreland, the ranking 

member, to defer to a fellow Member and colleague from Oklahoma, Ms. Fallin, for an opening statement. 

OPENING STATEMENT OF MS. FALLIN 

Ms. FALLIN. Thank you, Mr. Chairman. Hopefully Mr. Westmoreland will be here soon, but I also have an opening statement and 

will try to assist him as he is busy with his other committees too, 

but he should be here shortly. 

I want to, first of all, thank all of our witnesses for joining us 

here today and taking time out of your busy schedules. Many of 

you have traveled from different areas of the United States to be 

here to join us. I thank you for doing that. I know I have a gentleman here from Oklahoma with the allergy clinic, Mr. Schraad, 

who is here to help us give some testimony from Edmond, Oklahoma. So thank you for joining us here today and giving us some 

knowledge, all of you witnesses giving us knowledge about CMS 

and working with this agency and how we can better improve our 

relationship between the Federal Government and the private sector as it relates to health care. 

We are all here today to better understand how CMS regulations 

impact small businesses and health care, and there is no better 

way of learning about that than hearing from those on the ground 

directly affected and interacting with these regulations on a daily 

basis. Medicaid place a large role in this area, and even small 

changes within the system can reverberate rate throughout small 

businesses and health care providers and pharmacies, as we just 

heard the chairman talk about. 

I do believe, as the chairman does, that we must seriously evaluate the health care system as it stands today and how the slight 

changes that we talk about can alter the landscape for the providers as well as the beneficiaries in the future. 

I often hear providers in my district say that they are in a very 

precarious situation. They want to provide access to health care 

and the best type health care, pharmaceuticals, but yet at times, 

it is hard to have a viable business and sustain that business 

under the rules and regulations that are imposed upon them and 

that they have to operate in within the system. 

Due to decreases in the Medicare fee payments, many providers 

in my district reduce the number of Medicare patients they see in 

order to effectively recoup the costs of the services they provide. In 

many instances, the providers are actually losing money on transactions because Medicare does not reimburse the full costs of the 

services rendered. 

I have also heard from many of my doctors in my district that 

over the years, because of the amount of Federal regulations and 

rules that are put upon them, that they actually have to hire specific people just to work through all the rules and the insurance 

policies and try to figure out how to match those things up and 

4

what they can do and can’t do and what they will be reimbursed 

for and at what rate. 

Under these circumstances, it is very difficult to see how anyone 

is expected to sustain a healthy business practice. Health care providers and beneficiaries in this country are suffering, and it is time 

that we get to the bottom of this. 

So I am looking forward to the testimony, both from CMS, and 

I know that CMS has a very tough job and I appreciate their Federal work and even having to work with Congress too. So we appreciate both of you gentleman being here and we look forward to the 

other testimony. 

Thank you.

Chairman GONZA ́LEZ. Thank you very much. At this time, I know 

Mr. Altmire is present and he may not be here when we get to 

panel three and he would be introducing Ms. Rina Wolf. If Mr. 

Altmire has some opening remarks, I would be happy to defer to 

him at this time for that purpose. 

OPENING STATEMENT OF MR. ALTMIRE 

Mr. ALTMIRE. Thank you, Mr. Chairman. I would just say to be 

very brief that our witness from Pittsburgh is going to be Rina 

Wolf, and we look forward to hearing her. She is the vice president 

of Reimbursement and Regulatory Affairs for RedPath Integrated 

Pathology in Pittsburgh. They have a very good story to tell regarding the purpose of this hearing. 

So I appreciate the opportunity to say a few words, and I will listen with interest to the testimony. Thank you.

Chairman GONZA ́LEZ. Thank you very much, Mr. Altmire. To the 

witnesses that are present, let me explain the system. You will be 

given 5 minutes obviously to make your remarks. I know that is 

going to be a summary of your written statement, of course, which 

will be entered into the record in its entirety. So we would ask that 

it be summarized within those 5 minutes. 

When the green light comes on, obviously, the time will start. 

When the yellow light comes on, I believe you will have 1 minute 

at that time. And then, of course, red, that means you have consumed all of the time. If you feel that you haven’t had enough time 

to cover everything, believe me, during the question and answer period, at that time you can supplement any of your comments. 

The first witness will be Mr. Timothy B. Hill. Mr. Hill is the 

Chief Financial Officer and Director of the Office of Financial Management for the Centers for Medicare and Medicaid Services. As 

CMS’s senior financial management executive, he is accountable 

and responsible for planning, directing, analyzing and coordinating 

the agency’s comprehensive financial management functions. 

Mr. Hill, it is my understanding you will be assisted by Mr. 

James Farris, but that Mr. Farris will not be giving testimony, but 

is present here to answer any of those questions that fall within 

the purview of his expertise. 

Mr. Farris, I apologize, it is Dr. James Farris, he is the Administrator to the Consortium For Quality Improvement and Survey and 

Certification Operations for CMS. In this capacity, he works with 

5

all of the CMS regional office components that oversee quality improvement organizations and survey and certification operations 

throughout the country. 

STATEMENT OF TIMOTHY HILL, CFO AND DIRECTOR, OFFICE 

OF FINANCIAL MANAGEMENT, CENTERS FOR MEDICARE & 

MEDICAID SERVICES, ACCOMPANIED BY JAMES RANDOLPH 

FARRIS, ADMINISTRATOR, CONSORTIUM FOR QUALITY IMPROVEMENT AND SURVEY & CERTIFICATION OPERATIONS, 

CENTERS FOR MEDICARE & MEDICAID SERVICES 

Chairman GONZA ́LEZ. At this time you may proceed, Mr. Hill. 

Mr. HILL. Thank you, Chairman Gonza ́lez, distinguished members of the Subcommittee, thank you for inviting us here today to 

discuss the recovery audit contractor program and its effects on 

Medicare providers that are small businesses. 

In January 2008, the Office of Management and Budget reported 

that Medicare is one of the top three Federal programs making improper payments, with an estimated $10.8 billion in improper payments made during fiscal year 2007. It is in this context that Congress directed HHS to conduct a 3-year demonstration program 

using recovery audit contractors (RACs) to detect and correct improper payments in the Medicare program. 

Pursuant to the law, HHS began the demonstration in March of 

2005. During the demonstration, the recovery audit contractors 

were tasked with the detecting of both overpayments and underpayments in the Medicare program and correcting those improper 

payments. I am pleased to report that as of its conclusion in March 

of 2008, the demonstration had corrected a total of more than $1 

billion worth of improper payments in the Medicare program. Even 

before the demonstration had been completed, Congress recognized 

its potential by making the program permanent and mandating 

that HHS expand it nationwide by no later than January 1st, 2010. 

During the demonstration and our planning for expansion, CMS 

has worked very closely with physician and other provider groups 

to make sure that they understood the demonstration program as 

well as to solicit input about how to make the program better. So, 

for example, we have standing monthly meetings with the American Medical Association and members of the affected State medical associations to discuss ongoing operational issues. We created 

programs for specific e-mail accounts for the demonstration that 

will continue during the program expansion as a method for addressing individual physician questions. After the companies, the 

permanent RACs, are selected later this spring, CMS and the new 

RACs will conduct extensive provider outreach, including visits, onsite visits with local medical organizations and representatives in 

each State. State medical associations are also currently partnering 

with CMS to prepare a bulletin that will inform the physicians 

about the expansion of the RAC program which will be sent to the 

entire membership of each state’s association. 

CMS has also utilized its standard methods of provider education 

and outreach, including e-mail list serve messages that are distributed widely among national and regional provider trade associations, open door forums, Medicare learning network articles, press 

6

releases and various CMS and contractor Web sites with links to 

frequently asked questions and contact information for each RAC. 

We believe that our ongoing outreach to physicians and other 

Medicare providers has had a significant impact on our ability to 

maximize the effectiveness of the program while minimizing its 

burden on providers and physicians. 

Some of the specific changes we have made to the program were 

a direct result of the feedback we solicited from providers. So, for 

example, both a medical director and certified coding experts will 

be required to be employed by all the permanent RACs. Under the 

demonstration project, no medical director was required nor were 

coding experts required of the RAC contractors. 

Additionally, during the demonstration, RACs were only required 

to pay back their contingency fees if they lost the first level of appeal, but not at subsequent levels of appeal. Permanent RACs must 

pay back their fees if they lose at any level of appeal. 

In the demonstration, there was no maximum look-back date, 

meaning that RACs could review claims as old as four years. In the 

permanent program, RACs will not be able to look back for improper payments on claims paid before October 1, 2007. 

CMS will require the permanent RACs to operate Web-based systems so that providers involved in an audit will have secure on-line 

access to information that explains the status of their claims and 

the RAC audit process. None of the RACs in the demonstration had 

this capability. 

In the demonstration, CMS did not limit the number of medical 

records that could be requested by a RAC. In the national RAC program, CMS will establish a record limit that will vary by a biller’s 

size to protect small providers from undue administrative burden. 

Most importantly, I think, under the permanent RAC program, 

CMS will place a much greater emphasis on provider education and 

training. For example, RACs will be required to gain CMS approval 

before beginning medical necessity reviews of provider claims. CMS 

oversight will ensure that providers are not unduly burdened by 

RACs. Additionally, CMS will require the permanent RACs to identify and publish vulnerability analyses so that the provider community can better understand where mistakes are being made so they 

can correct these mistakes before an audit begins. 

To sum up, let me emphasize CMS’s commitment to our continued partnership with Medicare providers, particularly physicians 

who are small businesses, as we move forward on this new important program. Ultimately, we believe that the implementation of 

this program will support ongoing beneficiary access to care by ensuring the appropriate expenditure of taxpayer resources and supporting the financial integrity of the Medicare program. 

Thank you for your time. Dr. Farris and I remain to answer any 

of your questions and would be happy to take them now. 

Chairman GONZA ́LEZ. Thank you very much, Mr. Hill. 

[The prepared statement of Mr. Hill may be found in the Appendix on page 46.]

Chairman GONZA ́LEZ. At this time the Chair is going to recognize 

the ranking member, Mr. Westmoreland, for some comments. 

7

OPENING STATEMENT OF MR. WESTMORELAND 

Mr. WESTMORELAND. Thank you, Mr. Chairman. I do want to 

thank Chairman Gonza ́lez and his willingness as chairman of this 

Subcommittee to have these hearings, where we look at how small 

business is affected by government regulations. As a former small 

business owner, I am very aware of the regulations and the hurdles 

that government puts in front of industries and small business in 

particular. 

Our health care system is the envy of the world due to the excellent patient care that we receive in this country. However, the 

same cannot be said about the treatment of our health care system 

and the treatment it receives from our government. 

So I hope, Mr. Chairman, in this hearing, that we will hear some 

testimony from not only CMS, but from small business on how 

these burdensome regulations slow down not only maybe their production, but also their ability to provide health care for their employees. 

I have a written statement here I would like to have unanimous 

consent to submit to the record.

Chairman GONZA ́LEZ. Without objection.

Mr. WESTMORELAND. With that, I yield back the balance of my 

time.

Chairman GONZA ́LEZ. Thank you very much. I have already explained, Mr. Westmoreland, to everyone that is here, that you may 

have to absent yourself due to a very pressing issue there in your 

district, and you better be there or you may not be joining us next 

Congress. So I think it is kind of important. 

Mr. WESTMORELAND. I appreciate that. I am going to leave, if it 

is okay and go make another opening statement. 

Chairman GONZA ́LEZ. My pleasure. It is my understanding that 

substituting in place of the ranking member will be Ms. Fallin from 

Oklahoma. 

It is the prerogative of the Chair, of course, to lead off with the 

questions. It is a good place to be, in many ways. But I have some 

preliminary questions, Mr. Hill. I understand that we had what 

would be a demonstration or the project in different States, and 

now it is going to be permanent and there are going to be some 

structural changes which may address some of the concerns that 

some of the physicians and health care providers have regarding 

professional staff that will be with the permanent RAC, and I know 

that is the term we use now. 

But I do have a question, and that is how many physicians will 

each RAC be required to have on staff? I think you pointed out that 

there is going to be a medical director, and I understand that, as 

well as a coding expert. But we are talking with physicians. Because I have been told we have non-physicians, in essence, passing 

on a physician’s judgment on what was medical necessity. 

So how many doctors, how many MDs are we going to have required or mandated? 

Mr. HILL. Right. The requirement for the permanent RAC program is that each recovery audit contractor have a medical director 

8

who is a physician. The concept here isn’t to enumerate the absolute number that has to be there, do they have to have one or do 

they have to have five, but the concept here is there is one medical 

director who is overseeing the judgment of the other clinicians, 

whether they are nurses or therapists or coding professionals, who 

are sort of making the judgments on claims whether or not they 

are going to get paid or on review or not, and it is that physician 

making the ultimate determination. If, in the example you used, 

the RAC is going to make a judgment to overturn a claim, the physician would be the one overseeing that process and making that 

judgment. 

Chairman GONZA ́LEZ. What do you think would be, and I guess 

it is a claim or a caseload of a medical director. When we say the 

permanent RAC will have a medical director who is a physician 

who is going to be overseeing the non-physicians and such, but realistically, the demands on someone’s time, how many claims are 

we talking about? Is there a process that will require the review 

by the medical director, or is that going to be something that will 

be established within each independent and permanent RAC? 

Mr. HILL. Right. I think it will be established within each permanent and independent RAC, but again, I think what we are talking 

about here are processes as much as workloads, which is to say it 

is not the notion here that the physician would look at each and 

every claim. 

So, for example, you may have a series of claims dealing with one 

benefit category, one particular issue, and I think that the job of 

the medical director would be to ensure there are processes in place 

as the nurse reviewers or the therapists or whoever making judgments on the claims are making those judgments, they are making 

them consistently and in a way that the physician could sign off 

on that ultimate disposition. Not that they would look at each and 

every claim. 

Chairman GONZA ́LEZ. What evaluation did you have before we 

went into the permanent phase of how it operated, how the RAC 

system operated in those other States? I have some information 

that obviously has been provided to me, and it says that an independent contractor reviewed a sample of medical necessity decisions made by the California RAC and found an error rate of at 

least 40 percent, or up to 40 percent. 

I am just wondering, did you ever conduct, did you ever have any 

kind of independent analysis of the work that was actually being 

done by these RACs in these selected States? 

Mr. HILL. Absolutely. And that independent evaluation that you 

discussed there was something that I directed in California in particular, which was our sort of poster child for bad decision making 

on the part of the RACs. A lot of that, I would say most of that, 

had to do with a particular benefit area in patient rehab services 

in hospitals in California where the RAC’s judgment on medical necessity ultimately didn’t end up conforming with what CMS 

thought the right judgment would be. 

And after we had heard from a series of folks, hospitals in California, some Members of the California delegation, about what was 

going on there, we sort of suspended that review, sent in an independent evaluation to make sure that the RACs were making—that 

9

particular RAC was making correct decisions on those particular 

claims in California. 

Now, that was specific to those sets of issues. It is also the case 

that because of that we have built into the process an independent 

evaluation of every RAC’s reviews. So, say the RAC does 100 

claims. We are going to take a sample of those claims and independently are going to review those and say did they make the 

right decisions on that review that they did on a sample. That will 

help us detect whether or not we need to do corrective action with 

the RAC or whether they are going in the right direction. But it 

is giving us a little more comfort that they are making the right 

decisions on an ongoing basis. 

Chairman GONZA ́LEZ. So that is going to be built in in the permanent RAC arrangement where you actually will have some oversight, again, taking a sample of those, let’s say, medical necessity 

challenges and claims and such. 

Mr. HILL. Correct. And actually on the medical necessity issue, 

even more important, because what I have just described is what 

happens after the RAC has made a decision. So it has already had 

the impact on a physician or a hospital. More important than that, 

I think, is we have put in place a process what we sort of 

euphemistically call in CMS a new issue review process. 

You can think about it this way: If an RAC wants to open up a 

new set of reviews on a particular issue having to do with medical 

necessity in a particular state, before they can begin that review 

in earnest, in other words, before they can start asking for a lot 

of medical records from a lot of different providers, they need to 

come into CMS and they need to talk to me as the CFO and they 

need to talk to the physicians who do our coverage policy and the 

people who do our payment policies who really write all the policies 

and explain how they are going to do that review, the rules that 

they are using to do that review, and we need to sign off and agree 

that what they are doing comports with the policies that we have 

got in place, precisely so we don’t get in the situation like we did 

in California where the RAC was reviewing rehab claims in a way 

that ultimately we didn’t agree with. 

I think that, on the front end, puts a level of oversight and discipline in the process that we don’t have now, and, quite frankly, 

we don’t have for any of the other sorts of review activities we have 

in Medicare. That would be unique to the RACs. I think it will provide for me, anyway, a much greater level of comfort and oversight 

for the RAC processes. 

Chairman GONZA ́LEZ. I don’t mean to misinterpret what you are 

doing, and I think it is done in good faith, but I also believe that 

you see some real potential for things going haywire or not as we 

would prefer that it perform. 

One thing that concerns me is this contingency fee arrangement, 

which I understand that concept, but I have never seen something 

like this, to be honest with you. Let me get this straight. 

If the RAC finds that a claim should be denied, a medical necessity claim, a denial, it is that first step, are they reimbursed at that 

point? In other words, are they entitled to their contingency fee at 

what stage? At the initial finding? 

10

Mr. HILL. They are only entitled to the fee when the overpayment amount has been recouped by Medicare. So to the extent that 

they have identified a claim, a medical necessity claim that should 

be overturned and recouped by Medicare, to the extent that Medicare recoups that amount, the RAC is repaid. 

If, for example, a provider, say it is a significant amount and a 

hospital, this is typically the case in hospitals or a home health 

agency, as I said, they would like to pay that amount over time, 

they would like to have an extended repayment plan, the RAC only 

gets a portion of each payment. They don’t get the full amount 

right away. They get the percentage as Medicare gets its amount. 

On the back end, to the extent a provider appeals that determination, the way the Medicare process works now is typically the 

amount is collected when the appeal happens. To the extent the 

provider appeals and wins, in other words, that appeal is overturned, the RAC has to pay that money back. They don’t get to 

keep that money. That is how it works. 

Chairman GONZA ́LEZ. And I have another question. I am going 

to reserve that and give myself a little additional time after I allow 

my colleagues to have a question here. 

At this time, the Chair will recognize Ms. Fallin. 

Ms. FALLIN. Thank you, Mr. Chairman. I thank you once again 

for your testimony. I have a couple of questions. 

If a physician appeals a claim and it goes to an appeals judge, 

what percentage of those claims are overturned by the appeals 

judge? Do you have an estimate on that? 

Mr. HILL. I do. I actually have the numbers. If you think about 

it in three buckets, you have got the total amount that has been 

denied by the RAC. Of that total amount, roughly 4.5 percent ultimately get overturned on appeal. Of that total amount, the number 

that are appealed is roughly 13 to 15 percent. So you get 100 

claims, 13 to 15 of those get appealed, and of those, roughly 30 percent get overturned. So it is ultimately an overturn rate of about 

4.5 percent. And that compares—it actually compares favorably, or 

not favorably, however we want to think about it, with the appeals 

rates that we see with our normal FI and carrier operations who 

also do this sort of work. 

Ms. FALLIN. We are talking about some issue. What is the appeal 

rate for the FI and the appeals carriers? 

Mr. HILL. Those rates are about the same. 

Ms. FALLIN. They are about the same. 

Mr. HILL. Right. The initial—so the 13 percent is probably a little lower, right? So fewer of the denials are appealed. But of those 

denials appealed, more are overturned for the FIs and the carriers. 

It is closer to a 50 percent overturn rate. 

Ms. FALLIN. Do you have any classifications of claims that are 

automatically denied on the first time they are sent? 

Mr. HILL. I do, but for the FIs and the carriers, the way we do 

that is normally through the systems process, that is Noble. I don’t 

know that here. I can get back to you on that for the record. 

Ms. FALLIN. My physicians frequently tell me that, that they will 

submit a claim and it is just automatically denied. I just wonder 

why we do that sometimes in Federal Government. 

11

Mr. HILL. Well, there are certain circumstances where we have 

what we characterize as correct coding on it, so they look at the 

claim and make a judgment as to—the system makes a judgment 

as to whether or not that procedure matches up with the particular 

diagnosis code. You know, sort of the procedure for fixing a broken 

arm wouldn’t match unnecessarily with a diagnosis of pneumonia. 

So those might get denied. 

Others are what we call medically unbelievable edits. Certain 

amounts of procedures that are done on a particular day, the system would look at that and say that is medically sort of unrealistic 

that that would happen, and those would get denied on their face. 

So I am not going to say there aren’t certain circumstances that 

they would be believable. In those cases, they get appealed and get 

overturned. 

Ms. FALLIN. Do you know of any particular illnesses that are denied on the first claim? 

Mr. HILL. Illnesses? No. Other than things that would not have 

been normally covered for Medicare. But I can’t think of any illnesses that would be denied on the first blush. 

Ms. FALLIN. What do you think is the root cause for the improper 

payments by the CMS contractors? 

Mr. HILL. I think there are roughly four categories of improper 

payments that we see. We see improper payments that are the result of medical necessity. Those are the hardest ones. Those are the 

ones where we are going in there and we are saying the physician 

made a judgment, admitted somebody into a hospital or facility and 

does a particular thing to a particular person that perhaps could 

have been in a different setting or should not have been done. 

Roughly a third are what we characterize as coding. You know, 

they just coded it incorrectly. The person needed a service. They 

got the service. Somebody just put down the wrong code for that 

service. 

And roughly a third are what we would characterize as no documentation or insufficient documentation. So something was provided, but the information that we got back from the facility, there 

is not enough information in the record that we got back from the 

facility to support whether or not it should have been provided. So 

it is those three. 

I think sort of why do they occur, some of it is Medicare, and 

medicine is very complicated, and sometimes the rules are tough to 

follow, and so that is an obligation for CMS to do a better job on 

provider education and outreach. 

Sometimes it is people trying to game the system. As much as 

we don’t like to admit it, there are people who try to game the system. And sometimes they are just straight out mistakes. 

Ms. FALLIN. In light of that, do you think that proliferation of the 

contractors helps or hinders the medical service provider’s ability 

to deliver care to their patients? 

Mr. HILL. Ultimately, it is CMS’ position that it is going to help. 

I understand the issues around RACs and sort of what the provider 

community in particular believes or sort of perceives as some of the 

issues. 

My judgment has always been as CFO that, you know, a physician or a supplier or a home health agency should have competence 

12

in the process they are in. They may not like the outcome, right? 

They may not like it that a claim was denied or perhaps something 

was covered or shouldn’t have been covered or was. They may not 

like the outcome. But they should walk away from the process saying CMS was fair, they were predictable, we knew what was going 

to happen in the process. 

That is what we are striving to do with all our integrity efforts 

and, with the RACs in particular, we learned a lot in the demo. I 

am not going to say that I achieved that vision in the demo all the 

time, but we strove to, and I think as we roll this out nationally 

that is what we are seeking to achieve. 

Ms. FALLIN. Thank you, Mr. Chairman. 

Chairman GONZA ́LEZ. Thank you very much, Ms. Fallin. I am 

going to follow up with a couple of questions, one that is going to 

be on prescription drugs, generics. I referred to it in my opening 

statement. GAO conducted a study and my information is that it 

appears that they would say that a pharmacy may well be only reimbursed at somewhere around 64 percent. 

In my district, I have Caremark, and I think both Dr. Farris and 

yourself know what Caremark represents. But I also have the Ortiz 

Pharmacy there in the west side of San Antonio, which is a poorer 

side. I have visited both and they are totally different operations, 

I assure you. 

But I do know that the Medicaid population in San Antonio is 

going to depend on Ortiz before it depends on other. And I guess 

I am somewhat concerned. I don’t understand the average manufacturer price. But the GAO report is very disturbing. How do you 

reconcile that? Do you agree with the findings? Is there anything 

that you are going to be doing? We are going to have testimony 

later from the private sector, but what is your understanding of 

that situation today? 

Mr. HILL. Well, a couple of things. First, I know that as we promulgated the rules and as we talked about AWP, we are carrying 

out what we believe is the intent and sort of what needed to happen as a result of the DRA. 

I think with respect to the details and sort of whether or not 

CMS believes that the GAO report was correct or incorrect or the 

impact, I would sort of defer that for the record. Some of that gets 

sort of complicated. There are people who work in the Center for 

Medicaid and State Operations who are the real experts, who are 

not here. I want to get you a fair answer, and the right answer, 

and not sort of just sort of dance around with it. With your indulgence, I would like to defer that for the record. 

Chairman GONZA ́LEZ. We will follow up probably with a written 

question. Of course, members of the Subcommittee will be given 

time to submit written questions and we would appreciate a 

prompt reply. 

The last question I have for you, of course, we come back to RAC, 

which I understand that you are simply saying we are following exactly what you and other Members of Congress told us to do. Well, 

we understand that, but what we expect is that you are going to 

have some sort of a fair process that is not just going to be efficient 

and effective, but obviously fair to the health care providers in this 

country. 

13

There has to be an incentive, obviously, and if it is a contingency 

fee, then it is those overpayments. Maybe I don’t understand, but 

they are also supposed to be looking for underpayments. Common 

sense and human nature tell me that you may not have the same 

motivation or inspiration, and I could be wrong on that, to put as 

much effort in finding the underpayments. 

How do you address that particular side of the equation? And, 

secondly, what is the incentive to identify under payments? 

Mr. HILL. The incentive to identify underpayments is exactly the 

same as the incentive to identify overpayments. The contingency 

fee, the proprietary fee that has been negotiated with the RACs, is 

the same as a percentage of the overpayment as it is on the underpayment. So if they find a $100 overpayment and they got a 10 

percent fee, they are getting 10 bucks. If they find a $100 underpayment and they get a 10 percent fee, it is 10 bucks. The incentives are the same. 

I take this next step lightly sort of dealing with the chairman of 

the Small Business Subcommittee, but what we have done on a 

random basis for 10 years now, 11 years now, having nothing at 

all to do with the RACs, is a random assessment under the Improper Payments Act of where Medicare makes improper payments. A completely random sample. It is not focused on overpayments, it is not focused on underpayments. We just take a strict 

sample. Over 10 years, we have been doing that. 

For the 10 years we have been doing that, we do find that there 

are not a lot of underpayments. The vast majority of the improper 

payments, in the percentages you identified, 5 to 10 percent, being 

only the underpayments. We don’t see a lot of underpayments as 

we look at those records and we go back and make a redetermination. 

Now, whether that is—I don’t know how to explain that, whether 

or not the overpayments are the result of people trying to game or 

the underpayments—not having underpayments is the result of 

physicians or other just feeling like they don’t want to bill for more, 

for whatever reason. But we haven’t seen over time a remarkable 

amount of underpayments as we looked at our improper payments 

across the program. 

Chairman GONZA ́LEZ. The last question is probably the toughest 

one for anyone that represents an agency or department here, but 

under the leadership of Chairwoman Vela ́zquez, who takes this responsibility very, very seriously, under the jurisdiction of this Committee comes the Regulatory Flexibility Act. And what we always 

ask heads of departments, organizations, cabinet members, it 

doesn’t matter, we always say, what do you do as you promulgate 

these regulations and such to take into consideration the mandate 

and the responsibility with which you are charged under the Regulatory Flexibility Act. 

One, it is applicable, I believe, and if you disagree, you would 

say, Charlie, we are an exception to the rule or something. But 

what do you do? Because it seems that has always been the hardest question for everyone to answer when we pose it. 

Mr. HILL. Right. Well, I don’t know what this is going to say, but 

I am not quite sure it is that hard to answer, so maybe it will be 

14

the wrong answer. But I am going to try. There are two aspects 

of this for us. 

On the demo side, there is the basic analytic due diligence function for us, right? So we knew we were doing a demo. We knew it 

was going to have a impact on a number of providers. There was 

not going to be any regulations associated with it. So the piece of 

the Regulatory Flexibility Act that talks about the assessments 

that you need to do as you do regulations wasn’t going to apply. 

But we did reach out quite aggressively with the Small Business 

Administration to help them understand what we are doing, sort 

of lay out our plans so they understood what we are doing. Not 

that they were going to sign off or sort of say it was the greatest 

thing since sliced bread one way or another, but we did at least 

want to do that due diligence. 

So for us, that is the two-pronged piece. There is the Ombudsman Office at SBA that we work with as they get comments in 

from providers and we proactively work with them to tell them 

what we are doing. And as we roll the demo out nationally, that 

is a group that we will work with quite closely so that they understand the impact of what we are doing on the RACs. 

Not just on the RACs. Whether it is regulations having to do 

with home health agencies or DME or whatever, we work very 

closely with that group to be sure we are in compliance where we 

need to be with the Regulatory Flexibility Act. 

Chairman GONZA ́LEZ. Thank you very much. The Chair is going 

to recognize Ms. Fallin. 

Ms. FALLIN. Thank you, Mr. Chairman. I have one last question 

I am just trying to get a feel of. Under the statute for Recovery 

Audit Contractor, that they can review a payment in a particular 

fiscal year or up to the four preceding fiscal years as I understand 

it, is that right? 

Mr. HILL. Under the Demonstration Act, that is correct. 

Ms. FALLIN. Under the Demonstration Act. Okay. Is it then conceivable that the Recovery Audit Contractor could reexamine a payment to a hospital or a physician that was ordered by a Federal 

Court, including the possibility of even the United States Supreme 

Court, that they could reexamine that, and does CMS have any 

guidelines for your Recovery Audit Contractor from reviewing the 

decisions of the Federal Court or Supreme Court? 

Mr. HILL. That is a very interesting question. I think the short 

answer is I never say never, right? I mean, it is absolutely entirely 

plausible that a claim could get reviewed and that claim could be 

the result of some sort of judicial action, either a stipulation or a 

mandate that something occur. 

I mean, off the top of my head, you know, under the Medicare 

statute, a judge stipulating that something or demanding that 

something is medically necessary, that is not something I have 

seen come up before. I mean, I have seen where a particular, 

whether it is a provider or a jurisdiction, be it a State or local jurisdiction, is required to provide a set of services to a set of individuals, but not that every service has to provided and covered by 

Medicare. We still have to reach those coverage decisions. 

So, I mean, if there is more information there or if there is something else I can do to sort of delve into that, I would be happy to. 

15

It is a very interesting question, and I suspect it will lead to all 

sorts of odd answers. 

Ms. FALLIN. Okay. All right. Thank you very much. 

Chairman GONZA ́LEZ. Thank you very much, Ms. Fallin. And Mr. 

Hill, Dr. Farris, thank you very much for your testimony. We are 

going to go to the next panel. You may receive written questions 

from members of the Subcommittee. Also I anticipate that you may 

have to leave, but we will have representatives from CMS that will 

remain throughout the hearing. It is always very important to the 

witnesses to know that someone from the government is there and 

listening to their specific testimony. 

Mr. HILL. We will be here. Thank you very much. 

Chairman GONZA ́LEZ. Thank you. You may be excused. 

The Chair is going to call panel 2. We will have staff set up the 

particular order. 

I welcome the second panel of witnesses and thank you for your 

patience. I know it took a little longer with CMS, but it is always 

important when we have somebody here that can answer some of 

the questions that I know you have had and hopefully were reflected in some of the questions posed by the members. 

I will indicate now that Ms. Fallin may also have to excuse herself. We try to do everything in about 2-1/2 days when we are here, 

and you are finding yourself in one of the busiest. At this time 

what I will be doing is I will be recognizing the witnesses individually, and I will introduce them as they are about to testify. 

Chairman GONZA ́LEZ. The first witness is Dr. William A. Dolan. 

Dr. William A. Dolan was elected to the American Medical Association Board of Trustees in June 2007. He is an orthopedic surgeon 

from Rochester, New York, and has served on the AMA Council on 

Medical Service since 2002 before becoming Chair this year. The 

American Medical Association helps doctors help patients by uniting physicians nationwide to work on the most important professional and public health issues facing our country. 

Again, I will remind everybody, you have 5 minutes, and, believe 

me, you will have plenty of time to expand on anything during the 

question and answer. 

Dr. Dolan, you may proceed. 

STATEMENT OF DR. WILLIAM DOLAN, MEMBER, BOARD OF 

TRUSTEES AMERICAN MEDICAL ASSOCIATION 

Dr. DOLAN. Thank you, Mr. Chair, and acting ranking member, 

Ms. Fallin, and members of the Subcommittee. My name is Bill 

Dolan. I am a member of the Board of Trustees of the AMA and 

a practicing orthopedic surgeon in Rochester, New York. I want to 

thank you for inviting us to testify here today on the impact of the 

CMS regulations and programs of the small health practitioners. 

Chairman GONZA ́LEZ. Excuse me, Doctor. I don’t think the mike 

is on. If you can hit that button. I can hear you fine, but they can’t 

in the back. 

Dr. DOLAN. Approximately 75 percent of physician practices are 

composed of fewer than eight physicians. For the majority of these 

small physician practices, including mine, burdensome regulations 

can take valuable time away from patient care. We believe that 

16

this is particularly true with regard to the Recovery Audit Contractor, or the RAC program, and the ICD-10 implementation. 

Now, as you pointed out, the RAC program employs contractors 

to analyze and audit physicians’ reimbursement claims for billing 

errors. The pilot program, which began in 2005 and will begin nationwide this year, has been extremely burdensome on the affected 

physicians and does nothing to educate them about common billing 

mistakes. Instead, the program embraces the ′′bounty hunter′′ technique that provides the RACs with incentives to deny claims. 

While we strongly oppose the RAC program, we believe there are 

things that CMS can do prior to the national rollout that would improve it. Specifically, CMS should consult with the AMA on RAC 

physician communications. In addition, they should make RAC 

monthly financial reports public and maintain an accessible list of 

commonly audited procedures. 

CMS, in addition, should preclude RACs from reviewing claims 

for the past 12 months. The failure to do so will result in RACs 

reviewing claims still under review by carriers and other fiscal 

intermediaries. 

RACs should not be permitted to review billing issues arising 

from evaluation and management services or medical necessity determinations, as they are extremely individualized and extensive 

clinical review is necessary. 

CMS should limit the number of records requested from individual physicians. I know of one neurologist from California who 

had a request for 50 of his patients’ charts. CMS should also raise the minimum claim level from $10 to at 

least $25. 

Finally, CMS should encourage the pursuit of underpayments, as 

you spoke about, as well as the overpayments, by requiring RACs 

to accept case files from providers for underpayment reviews and 

including as an underpayment those situations where a physician 

mistakenly neglects to report a delivered service. 

The AMA also concerns itself with the rollout of the ICD-10, the 

10th version of the international classification of disease is used in 

outpatient and inpatient settings. While the AMA recognizes the 

important action of updating the current coding system, ICD-9, we 

believe that due to the complexity and the cost of this extensive 

transition, a plan and timeline must be developed prior to a national rollout. Any transition must take into account the fact that 

physicians are already struggling to implement the HIPAA electronic transaction standard and also the transition to the national 

provider identifier number. 

Given the costs and complexities involved with the move to ICD10, the AMA suggests that the HIPAA electronic standards be upgraded to version 50-10 prior to the national rollout as the current 

standard, 40-10 is totally incompatible with the ICD-10. In addition, the ICD-10 coding system should be pilot studied and tested 

so that problems with it can be identified and resolved in advance 

of a national rollout. Physicians, their staffs, their coders and other 

national stakeholders will need adequate education and training 

very early in the transition process. 

Due to the significant resources, administrative complexities and 

advanced planning required to retool and replace our systems and 

17

processes which currently depend upon ICD-9 logic, HHS should 

work collaboratively with the health care industry stakeholders to 

develop a realistic transition process and timeline. 

The AMA looks forward to working closely with the Small Business Committee to ensure that physician practices, especially the 

smaller practices like my own, are able to manage the RAC audit 

process and prepare for the ICD-9 rollout and transition without 

compromising health care to our patients. 

Thank you. 

[The prepared statement of Dr. Dolan may be found in the Appendix on page 56.] 

Chairman GONZA ́LEZ. Thank you very much, Doctor. 

Chairman GONZA ́LEZ. The next witness is Dennis Wiesner. Mr. 

Wiesner is the Senior Director for Privacy, Regulatory, Government, and Industry Affairs for H.E.B., a grocery company in San 

Antonio. Beginning in 1905, H.E.B. Grocery Company is now one 

of the largest independently owned food retailers, with stores 

throughout Texas and Mexico. 

When I make a comment that I have got Caremark in San Antonio as well as the Ortiz, somewhere in the middle I have grocery 

stores like H.E.B. 

Welcome, Mr. Wiesner. You may proceed. 

STATEMENT OF MR. DENNIS WIESNER, SENIOR DIRECTOR 

FOR PRIVACY, REGULATORY, GOVERNMENT, AND INDUSTRY 

AFFAIRS, THE H.E.B. GROCERY COMPANY, SAN ANTONIO, 

TEXAS 

Mr. WIESNER. Thank you, Chairman Gonza ́lez. 

Chairman Gonza ́lez and members of the Small Business Committee, I am Dennis Wiesner, a registered pharmacist, and I am 

senior director for Privacy, Regulatory, Government, and Industry 

Affairs for H.E.B. Grocery Company, headquartered in San Antonio, Texas. I am testifying today on behalf of the National Association of Chain Drug Stores. Over half of the NACDS membership 

operates 20 or fewer stores. 

We appreciate this Committee’s support for pharmacies, particularly the leadership of Chairman Gonza ́lez, Chairwoman 

Vela ́zquez, Ranking Member Chabot, and others on the Medicaid 

AMP issue. 

As you may be aware, 20 percent of the Medicaid population is 

located in rural areas of the country, and in Texas, many of our 

stores are located in rural towns. For Medicaid beneficiaries, we 

are often the most accessible supplier of prescription medications, 

health information and critical health care services. In particular, 

my company offers immunizations in all of our locations. Pharmacies are the face of neighborhood health care. 

It is with this in mind that I express my concern regarding the 

devastating cuts to Medicaid pharmacy reimbursement called for 

by the Deficit Reduction Act of 2005 and the CMS implementing 

regulations commonly referred to as the AMP rule. 

For many pharmacies, the AMP cuts to Medicare reimbursement 

place our businesses at risk and threatens patients access to medication. Many pharmacists will not survive the AMP cuts because 

they will be paid less for generic drugs than it costs to purchase 

18

them. Many pharmacies may have to cut back services or shorten 

their operating hours, and it has been estimated that as many as 

12,000 pharmacies across the country could close their doors. 

If patients lose access to vital medications it could also lead to 

more emergency room visits and expensive catastrophic care. Failure to take medications as prescribed is estimated to cost $177 billion annually. 

The AMP rule is fundamentally flawed in many ways, but in particular, it fails to provide a thorough analysis of the economic impact that this rule would have on small pharmacy businesses as required under the Regulatory Flexibility Act. 

In light of numerous statutory violations, a Federal judge has 

blocked implementation over the AMP cuts. However, only Congress can prevent these cuts with a permanent legislative fix. That 

is why it is essential that Congress pass the Fair Medicaid Drug 

Payment Act, H.R. 3700 and Senate bill 1951. I urge all Members 

of the Committee to cosponsor this important bill. 

I would like to focus the rest of my statement on the Medicare 

program and the impact of related CMS regulations on beneficiary 

access to drugs, medical supplies and services. 

When enacting the Medicare Modernization Act, Congress recognized the value and trust patients place in their local pharmacist 

and the need to preserve those relationships, many of which go beyond the simple filling of a prescription. Thus Congress included 

playing field provision to ensure that patients can obtain their Part 

D benefits from any retail pharmacy of their choice. 

However, CMS’ implementation and its guidance on how plans 

should follow this provision are inconsistent with congressional intent. 

As a result, Medicare plans are steering patients to mail order 

houses and discouraging 90 day supplies at retail by offering lower 

reimbursement rates or by charging higher copays for the patients. 

These practices deny patients a choice in their health care provider. 

Another area of concern involves new program requirements and 

competitive bidding under the Medicare Part B for durable medical 

equipment and supplies which will also harm patients’ access to 

their local community pharmacist, the most readily accessible 

health care provider in the community. On this issue, NACDS proposes the following recommendations, on which I elaborate in my 

written statement. 

First, State licensed retail pharmacies should be exempt from the 

accreditation requirement. State licensed pharmacies are licensed 

by their respective state board of pharmacy and abide by strict 

State and Federal laws, including those related to health care, 

fraud and abuse. 

Next, diabetes testing supplies sold at retail pharmacies should 

not be subject to competitive bidding. Expansion of the program to 

include diabetic supplies sold at retail pharmacies could harm patients’ access to those products and create a fragmented care in the 

management of diabetes. 

Last, CMS should not create national or regional competitive bidding areas for mail order items. The mail order program is likely 

to compromise on the quality of products and services, pose treVerDate 0ct 09 2002 15:15 Jun 17, 2008 Jkt 033615 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\42135.TXT LEANN
19

mendous navigational obstacles to the low income and minority 

beneficiaries, and could force patients to either forego diabetes testing or do it in an improper and limited manner. And this, of course, 

could have devastating effects. 

On behalf of my company, H.E.B., and NACDS, Mr. Chairman, 

thank you again for the opportunity to testify today before the 

Committee. I welcome any questions you may have. 

Chairman GONZA ́LEZ. Thank you very much, Mr. Wiesner. We 

will get back no doubt. 

[The prepared statement of Mr. Wiesner may be found in the Appendix on page 65.]

Chairman GONZA ́LEZ. The next witness is Dr. Michael Schweitz. 

The doctor is a practicing rheumatologist and vice president of the 

Coalition of State Rheumatology Organizations. The doctor is here 

to testify on behalf of the Alliance of Specialty Medicine, a coalition 

of 13 national medical specialty societies representing more than 

200,000 physicians. 

You may proceed with your testimony. 

STATEMENT OF DR. MICHAEL SCHWEITZ, VICE PRESIDENT, 

COALITION OF STATE RHEUMATOLOGY ORGANIZATIONS, 

WEST PALM BEACH, FLORIDA 

Dr. SCHWEITZ. Good afternoon Mr. Chairman and members of 

the Subcommittee. I am Dr. Michael Schweitz, a practicing 

rheumatologist from West Palm Beach Florida. I would like to discuss the experience of physicians and my own personal experience 

impacted by one aspect of CMS regulations on small health care 

providers, namely the CMS demonstration project referred to as 

the Recovery Audit Contractor program, or RAC. 

The implementation of the demonstration has created unfair and 

expensive administrative burdens for physician practices, which 

are, after all, small businesses with limited capacity for dealing 

with arbitrary, ill-informed and often very confusing policies of 

those contractors. Some of these problems are detailed in our written documents and I will summarize some of them for you. 

Number one: Recovery and review of old and previously adjudicated claims. In Florida, the RAC contractor, HGI, demanded 

multiple physician refund payments throughout the State for 

claims that had previously been reviewed and adjudicated by the 

Florida Medicare carrier. 

Two: Errors by RAC’s misstating or misapplication of codes. 

Records were requested or refunds demanded involving hundreds of 

thousands of dollars from oncologists in Florida after the RAC erroneously misstated the codes for IV hydration, which is necessary 

during chemotherapy. 

Three: Refund requests exceeding time limits. California urologists were asked by the RAC to refund payments on the basis of 

least costly alternative policy for drugs used to treat prostate cancer. The RAC was discovered to be misapplying CMS written policy 

by exceeding time limits for reviewing claims. 

Four: RACs have also taken on the role of interpreting clinical 

guidelines governing utilization for procedures, such as inpatient 

20

versus outpatient procedures for hysterectomies and the implantation of cardiac devices. 

Five: RACs have also applied new regulations retroactively to 

previously performed procedures. In Florida, hundreds of physicians were asked for refunds or records pertaining to spinal joint 

injections to relieve pain based on a 2003 commentary in The Federal Register, when the actual CMS policy had not been developed, 

distributed or published until September of 2007. 

Hundreds of practices were forced to hire consultants or counsel 

and divert clinical and administrative staff in order to retrieve, review and submit records to comply, and even some had payments 

withheld, creating significant cash flow problems for that practice. 

One practice, in fact, had the funds withheld before the demand 

letter was received. 

The RAC’s decisions, if successfully reversed on appeal, do not resolve secondary carrier withholds or demands that are triggered by 

CMS notifications. This creates an exceptional additional burden 

on these practices to interact with dozens of carriers in order to 

reconcile hundreds of claims. 

Our recommendations are outlined in our written testimony, but 

I will summarize some. These include, number one: As stated, 

changing the bounty hunter payment mechanism that seems to embolden RAC behavior. 

Two, precluding the RAC from reviewing work from the current 

year. It is redundant. There are already contractors who are doing 

that at the same time. 

Three, shortening the look-back period to 12 months from 

months 12 to 24. This should be a sufficient time. 

Four, and most importantly, CMS should remove medical necessity reviews from the RAC statement of work. We do not think that 

these reviews are appropriate for the RAC program and believe 

that they exceed the authority imparted to the RAC by Congress. 

These reviews should be conducted by clinicians with the relevant 

experience and expertise to make rationale judgments. RACs do 

not appear to have used appropriately qualified staff for their reviews. If CMS intends to significantly reduce error rates in its 

transactions, physicians should expect no less from the RAC. 

For these reasons, we support H.R. 4105, the Medicare Recovery 

Audit Contractor Act of 2007, or any other similar legislation that 

proposes a much-needed moratorium on RAC activities and expansion until the serious flaws are adequately evaluated and addressed and demonstrably corrected. 

Thank you, Chairman Gonza ́lez. 

[The prepared statement of Dr. Schweitz may be found in the Appendix on page 80.]

Chairman GONZA ́LEZ. Thank you very much. 

The next witness is Dr. Karen Smith. Dr. Smith is the Board 

Chair to the American Academy of Family Physicians. She also 

practices family medicine in her own clinic in Raeford, North Carolina. The American Academy of Family Physicians is the National 

Association of Family Doctors. It is one of the largest national medical associations, with more than its 93,000 members in all 50 

States, and also Puerto Rico, the Virgin Islands and Guam. 

21

You may proceed with your testimony, Dr. Smith. 

STATEMENT OF DR. KAREN SMITH, BOARD CHAIR, AMERICAN 

ACADEMY OF FAMILY PHYSICIANS 

Dr. SMITH. Good afternoon, Chairman Gonza ́lez and members of 

the Committee. I am Dr. Karen Smith, a family physician and 

owner of a solo private practice in Raeford, North Carolina. 

On Monday morning, October 24, 2005, two representatives from 

AdvanceMed presented to my office with badges identifying themselves as authorized subcontractors for CIGNA Medicare and requested 72 charts for review of clinical documentation of services 

rendered from July 1, 2004, through July 30, 2005. My staff extracted the requested information from the electronic record system, and I personally provided the walking tour of the building, including inspection of State and Federal licenses for medical business operations. The care of my patients was disrupted in our open 

access rural family practice, as patients, pharmaceutical vendors 

and other visitors of the practice observed the unannounced review. 

Five months later, on March 16, 2006, I received notification that 

72 claims with 154 services submitted were reviewed and 91 of the 

154 disallowed for payment. The actual amount paid to the practice 

for the services questioned was $1,551.11. This overpayment 

amount, when extrapolated to a sampling frame size of 2,935 patients, resulted in an overpayment calculation of $48,245. However, 

my practice management system noted I only had 1,287 CIGNA 

Medicare patients in the practice at that time. This discrepancy 

was never acknowledged nor was it corrected in the final calculations. 

The reasons given for denial included incomplete or no documentation, services incorrectly coded, services not covered by Medicare, lack of documentation for drugs administered, services not 

medically necessary in the judgment of the reviewer, who was not 

a physician. 

When my staff and I reviewed this summary, we noticed that 

several items of documentation the reviewer cited as being nonexistent were indeed present in our electronic medical record system. I notified AdvanceMed of this discrepancy and requested instructions for sending this information. They responded that this 

information could be submitted only in an appeal. 

This answer was communicated in such an intimidating and aggressive manner, prompting me to call a well-known independent 

auditor. I participated in several of her coding workshops and 

quickly recognized additional professional assistance was going to 

be needed. At my request, the auditor immediately contacted an attorney who also called AdvanceMed, only to receive the same answer. 

The appeal process was initiated and then delayed due to 

AdvanceMed sending letters to the wrong medical office which neither I nor my counsel ever received. Documentation was finally accepted by CMS and forwarded to Q-2 administrators hired by CMS 

to review the file and make an independent decision. 

The outcome from the CMS review was partially favorable in 

that it decreased the overpayment amount from more than $48,000 

22

to $18,158, a $30,000 error. But it was still based upon an incorrect 

and inflated number of Medicare patients in my small practice. 

Our attorney reviewed additional options, including an administrative law hearing for services performed, but required additional 

appeal presentation. The practice, my family and myself were at a 

point of stress never imagined. We were exhausted and emotionally 

distressed after countless hours and days of preparation and review 

during our third year in business. Thus, we decided to halt further 

appeals and review. We were financially drained and feeling the 

pressure to make payroll, pay mortgage, as well as other expenses. 

A loan was acquired from my personal home equity and a check 

sent to CMS to satisfy the obligation. Ninety days later I received 

notification from the U.S. Attorney’s Office for a possible levy of assets due to nonpayment of the CMS recoupment. After providing 

documentation two times, it was clarified that the payment had not 

been applied to our debt. 

I established a technologically advanced primary care practice in 

one the poorest counties in North Carolina. This is a practice that 

adheres to the highest standards of care and participates in quality-based projects and a goal of decreasing medical errors, eliminating redundancy and State-of-art communications with the hospitals located in the region. 

The guilty until proven innocent audit we endured used sampling 

and extrapolation calculations which are not properly verified for 

validity. In addition to the disruption to patient care and possible 

reputation damage by the surprise and abrupt visit of badge-bearing authorities, the process quickly exhausted our financial reserves. 

It defies common business sense to run a highly qualified medical practice using records in a financial environment where Medicare does not recognize the true total costs for caring for individual 

patients with many medical problems. The escalating costs of 

health care cannot be subsidies for moneys taken out of the businesses of small physician practices. We have the compassion and 

the desire to remain in operation, but will not be able to endure 

in a world of uncontrolled costs and diminished payment. 

Thank you for allowing me to testify. 

[The prepared statement of Dr. Smith may be found in the Appendix on page 92.]

Chairman GONZA ́LEZ. Dr. Smith, thank you very much. Quite a 

compelling experience I would say. It wasn’t a story, it was reality. 

We are going to have votes in a few minutes, but I think, since 

I don’t have any other members that are present, and please do not 

interpret that as not having an interest. Believe me, we are just 

pulled in every which way. If I wasn’t chairman, I probably would 

have been here and then I would have been at another hearing. 

All of your testimony, of course, is being recorded. Your statements are part of the record. The questions that we have here, 

probably the most important people will be our staff members. 

Chairwoman Vela ́zquez is not one to conduct a hearing or allow us 

to conduct Subcommittee hearings without looking at taking some 

sort of affirmative action on these things. She is very proactive. So, 

believe me, this is incredibly important and informative. 

23

My first question, Dr. Dolan, you have recommended that the minimum should be increased from, let’s say a $10 overpayment to 

$25. I guess it is a two-part question. What is the basis for that? 

And simply, if the threshold is really low, obviously you have multiple claims being challenged and overpayments and such. I understand that. Is it worth it, even at $25, for the physician to go 

through all the trouble to basically contest it? That is the first 

question. 

The other thing is if you don’t contest and you just simply pay, 

are you establishing some sort of record in that big computer in the 

sky or whatever, that Dr. Dolan, because you just didn’t want to 

contest all these low ones or even cumulatively, it was just not 

worth the expense? Is there some fear on the part of a physician 

that somehow they are having some sort of a record out there for 

someone to look at, and it obviously would not be a good reflection 

that you had 1,000 claims, maybe they are all $10 or whatever, but 

nevertheless there is no distinction. Is that a fear? 

Let’s just go back to you want to increase it from $10 to $25, and 

what would be the basis for that? 

Dr. DOLAN. I personally would want to increase it to $100. At 

$10, the physician will lose money, just listen to the story next door 

here, will lose money in even trying to replicate the records. Remember, we do not get paid like the hospitals get paid for replicating the records, nor the postage nor anything else. So you will 

lose quite a bit of money. Even if you have to do one record, it is 

not worth it. 

It is like us seeing Medicaid patients. It is not worth us to 

charge. We do it for free. The same with $25. With all the work 

you have to do, it is probably not worth paying a full time equivalent to go back, find the record, $15-an-hour payment, to file and 

then copy all those things and then get the postage and send it off, 

filling out all the forms. It is not worth it. 

We know of no such dragon in the sky who is watching over this. 

There may be. But if you are just dealing with several items, unlike the multiple requests by the doctor, I would just blow it away. 

It is not worth my time. It is not worth my secretary’s time. It is 

not worth the patient’s inconvenience. So I would do that. 

Now, PPAC, which is the Physicians Advisory Counsel to CMS, has recommended $25. That is where the $25 came in. But, personally, I would go higher than that, because that is when you are 

really going to fight, when it gets to be $100. That is where that 

number comes in. It is an arbitrary number, and I will have to say 

that. 

Chairman GONZA ́LEZ. The fear, of course, is if you are on a contingency basis and you go for all this low hanging fruit, but the 

real reason is you simply know it is not going to be contested and 

cumulatively you can make a lot of money, to be honest with you, 

because obviously the other side, it is just not a financially viable 

proposition for them. 

I will instruct Committee staff if they will remind me to follow 

up as to how CMS keeps these statistics and whether there is any 

adverse effect on someone. In other words, if there is a future let’s 

say investigation or whatever it is, they go back and they go, my 

gosh, look at all these claims, not looking at the numbers or anyVerDate 0ct 09 2002 15:15 Jun 17, 2008 Jkt 033615 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\42135.TXT LEANN
24

thing like that. So is a physician or health care provider placed in 

jeopardy by simply making that determination of not to oppose or 

to appeal or so on. 

I think that is a real concern. At the end of the day, you are still 

a business. Your life span and profession always say that, but, nevertheless, they are business considerations. 

Then, Mr. Wiesner, let me ask, I am trying to figure this thing 

out on the average manufacturer’s price and how it plays out and 

the different type of pharmacists that we have out there. I think 

I have already described, I think I have all three there obviously 

in my own district. 

But you heard Mr. Hill from CMS, and he seemed to say, not in 

reference to RAC, but what we are talking with here, that it seems 

to be more of a work in progress still. Do you sense that? Do you 

feel that you still have some input, that something can still be 

done? Or is this a bygone conclusion and you are going to be facing 

this. And then the potential impact on someone like H.E.B. And 

what I refer to as my supermarket pharmacies? 

Mr. WIESNER. Correct. I don’t believe at this particular point we 

have that much more input that is going to change the direction 

that we are going. Obviously, I did refer to the fact that we have 

a temporary injunction so it is not in effect at this point in time. 

But at some point, there will need to be a benchmark to help determine the adequate cost basis for generic products, and at this moment, AMP is a flawed definition of how that is achieved. 

It is intended to be really the average price paid by a community 

retail pharmacy. But included in the information that is gathered 

is prices from a large number of other facilities. They could include 

clinics, they could include the mail order operations, for example, 

and in each of those instances we are not on a level playing field 

with those. I could elaborate, but that would take a little while to 

do that. 

So what we actually have is kind of a misnomer. It says average 

manufacturer price. The real reality, it is the lowest price that is 

reported. It is not an averaged weighted price across all these various classes of trade. So it would be the lowest price that would 

come in. And in many cases, as you reported earlier, the GAO report, it has already been determined and confirmed that 60 to 65 

percent of the time, the average community retail pharmacy would 

not be able to purchase the product at the price that it is going to 

be set at. 

Chairman GONZA ́LEZ. It is a fair statement though, if you are 

looking, in essence it is going to be the lowest price. And it is not 

a level playing field, for many reasons. A mail order house obviously don’t have the facility, the physical structure, the employees 

and such, which creates jobs and everything else in my district, by 

the way, and everybody else’s district, and the traditional pharmacist there. But, nevertheless, you all would all come under this 

general umbrella at arriving at that price. Everybody is basically 

under it or in the same situation. 

Mr. WIESNER. That is correct. We would all be underneath that 

same umbrella. What that is going to really create is for individual 

pharmacies to make some very tough decisions if nothing is 

changed. They will each have to look at their own financial situaVerDate 0ct 09 2002 15:15 Jun 17, 2008 Jkt 033615 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\42135.TXT LEANN
25

tion, and the ones that would be most at risk, more than any, 

would be pharmacies located in rural settings that have a high percentage of Medicaid recipients. 

It is important that the Medicaid recipients have providers 

across-the-board for access, and if they have to make decisions such 

as not participating in the program, there still needs to be avenues 

for the Medicaid recipient to receive their prescriptions. So that 

will then push that out into the community and further overburden 

the rest of the pharmacy community. 

Chairman GONZA ́LEZ. I appreciate it. It is so important for us as 

Members of the Congress to understand how the real world works 

out there and the different competitors in the same enterprise. So 

it is, when you are explaining to me the difference between, let’s 

say mail order, and you pointed that out, I think it is an important 

distinction. 

Dr. Schweitz, your testimony obviously was very interesting and 

also very compelling. I do want to obviously be fair to CMS and 

some of the concerns you had. 

I just want to know if you believe they are going to be adequately 

addressed? We know it is a pilot project. We know it is in certain 

States. Mr. Hill indicated in his testimony lessons were learned. 

They are going to improve on that particular system. 

Chairman GONZA ́LEZ. I just want to know if it provides you and 

addresses your concerns. From his testimony, he says, for example, 

they will now have both a medical director and certified coding experts will be required to be employed at all permanent RACs. That 

is an improvement. Does it go far enough? 

Dr. SCHWEITZ. That addresses the issue of medical necessity reviews to some degree, but I think your question to the CMS representative was right on the mark. What kind of volume are we 

talking about and how is one medical director going to address all 

of those necessity reviews from all of those different specialties? 

I would like my necessity reviews to be done by someone who has 

expertise in my field to make a judgment on what I am doing. I 

really don’t know how a general medical practitioner or general 

medical director can have the expertise to make those determinations in all the different fields there are in those kinds of volumes. 

So I have reservations about that part of it. 

Chairman GONZA ́LEZ. I think Mr. Hill was, again, very candid 

and I think those decisions on how that process will operate within 

that particular RAC is really going to be up to that medical director, what he or she will actually be seeing. I don’t think that it is 

going to be every doggone claim. That is the most obvious observation that we could be making. 

In Florida, I forget the name of the outfit that you dealt with. 

I don’t know if—

Dr. SCHWEITZ. Health Data Insights. HDI. 

Chairman GONZA ́LEZ. HDI. Do you have an idea how much of an 

area they were provided? I should have asked Mr. Hill this. I am 

still not sure how many RACs we had out there during this process. Let’s say in the State of Florida, which is—

Dr. SCHWEITZ. There were only three States that were part of the 

demonstration project initially, Florida, California and New York, 

26

and I believe there is one contractor in each State. We only dealt 

with one. 

Chairman GONZA ́LEZ. And now I see everybody shaking their 

heads in the audience. I think they are all in agreement with you. 

I am just wondering if when we expand this to all 50 States—and 

anybody else, I am really—again if that is what we are going to 

do, it is going to be an overwhelming challenge I would suspect. I 

am not saying that CMS is not attempting to do the best they can. 

I am just saying now that we are going to have 50 States, how 

many RACs are we going to—permanent RACs, that is what we 

refer to them now. Nothing is really permanent permanent, as you 

know, and that is why we have legislation. You could also have 

lawsuits and so on. But I am hoping we have a collaborative and 

come up some answers that address your main concerns because 

obviously CMS is acting at the direction of Congress. It is just the 

manner in which they are executing the policy and that is what we 

are trying to arrive at. 

Dr. Smith, I guess—I wanted to ask you when they paid this 

visit and it was unannounced, you talked about people just coming 

in. Your employees, your patients, and you have somebody who 

comes obviously in an authoritative manner. I don’t think they 

flash badges or whatever it is, but in essence and that actually occurred. You did not have any warning. There wasn’t any discussion—′′we need to meet with you, this is what we are going to do 

and we are coming by tomorrow.′′

I am not saying they give you 30 days notice. I understand how 

the real world works. If they think someone is doing something 

they don’t want to give you any time to do anything if they believe 

that you are a wrongdoer. Not that that is what was happening in 

your case. But I understand that is the way the government works. 

But nevertheless they came in; right? And at some point it just 

isn’t profitable to continue to resist; is that correct? 

Dr. SMITH. Yes, that would be correct. And exactly as you described, they appeared at the front window and they did flash 

badges which placed us on notice immediately, which is why we responded immediately and prepared this information. 

Chairman GONZA ́LEZ. The other thing that was disturbing in 

your particular circumstance, which is different circumstances than 

what we have been talking about prospectively, what we have already had in place and what goes on, is this sampling when you 

extrapolate. I understand that concept, too. I just don’t think it is 

applicable in many instances. 

And that is what they basically do. They find one or two cases 

and say, well, you have 50 recipients, therefore we are just going 

to go and figure that each and every one of those then should reflect this overcharge of whatever it is; is that correct? 

Dr. SMITH. Yes, that is the sampling frame size. And in our situation, the sampling frame size was grossly incorrect. We ran our 

numbers before taking the flight yesterday and as of yesterday we 

had 1,487 Medicare patients. At the time of this audit it was still 

noted that we had 2,935 patients. As of this date we have never 

acquired that many patients and it was extrapolated against that 

number. 

27

Chairman GONZA ́LEZ. So the base number was wrong. The other 

thing, too, I think you indicated some payment was tendered or 

whatever. Obviously it wasn’t applied. I think we all run into that 

in some respects. 

But for you, I mean, you are getting a letter, obviously—and I 

don’t remember if it was an Assistant U.S. Attorney or someone in 

a legal capacity—which technically they could just shut you down; 

is that correct? How were you able to remedy that situation? 

Dr. SMITH. Fortunately, by that time we had maintained copies 

of each piece of correspondence sent out from the office. And so he 

immediately asked me to fax those to him. We faxed it over. He 

called back to verify the information. We also had a copy of the 

check that was written and also showed on the back where it had 

been cashed, and we sent that to them. And we thought the matter 

was resolved. 

And literally 3 to 4 weeks later the same letter comes again and 

we sent back the same information, this time with the certified 

mail receipt showing where we sent it and we sent a copy to CMS 

so they were aware of what the problem was. 

Chairman GONZA ́LEZ. I want to thank you for your testimony. 

One last question on the ICD-10. Dr. Dolan, I think you made some 

reference to it. Based on your testimony, this is being rolled out but 

we really have not had a pilot project. We haven’t had any kind 

of a test out there, any rollout. I know what we did with RAC, but 

we don’t have anything similar regarding what we are going to be 

doing with coding and such. 

And I was reading the staff’s memorandum on this—and I want 

to commend staff for doing such a good job because this is quite 

complicated in many ways unless you are a physician or you work 

in CMS—but it is an incredible expansion of the code. The numbers 

that you have out there actually to apply and to use—and I forget 

the exact number and I could find the memorandum, but what you 

are saying is they are just going to roll this thing out. You are 

going to have to adopt it, whether you can reconcile it with what 

you have in an existing framework or procedure. Is that correct? 

Dr. DOLAN. That is correct. The current plan of CMS is to roll 

this out. The current terminology base, ICD-9, is not compatible 

with ICD-10. All right? That is the 4010 software. 

Chairman GONZA ́LEZ. Okay. 

Dr. DOLAN. Now, ICD-10 has 10 times the number of diagnoses, 

procedures, et cetera. Since ICD-9 was started in 1970 and they 

never got the bugs out of it for 20 years, ICD-10 has 10 times the 

diagnoses numbers and procedures. And on top of that, one, ICD9 is a numeric base. ICD-10 will be an alpha numeric base with 

at least three, sometimes four digits following the main number. 

So this is going to be very complex. And to get a software that 

will be compatible with this is possible, but first you have to apply 

the software to the new ICD-10, and then have at least a 2-year 

pilot project to make sure it works. And once we know it works, 

then teach everybody about it before you put it into effect. This 

should take 4 to 6 weeks—4 to 6 years at least before you can get 

a good enough shot. 

Now, we don’t deny that ICD-10 will be good. But you have to 

think of the thousands, hundreds of thousands of nurses, coders, 

28

doctors, who don’t know a thing about this and they are going to 

thrust this big complex system on top of them and it is going to 

be Y2K all over again. So I just really would want you to understand the complexity of this matter and the problems that we are 

going to run into. 

Chairman GONZA ́LEZ. And I know it was pointed out in simple 

terms, ICD-10 has 200,000 codes. 

Dr. DOLAN. Correct. 

Chairman GONZA ́LEZ. And that alone—then you are telling me 

about the incompatibility of software and of course the conversion 

and what that is going to take and so on. It seems like a prudent 

thing—and I will educate myself on this as well as in talking with 

other members of other committees that have jurisdiction over this 

particular issue to address exactly what you are describing here. 

Because it seems like if it is just rolled out and dumped in 

everybody’s laps, I am not even sure it is a practical matter. And 

I am sure we have software vendors and everybody out there that 

can tell you that they can get their hands around it and can handle 

it, but I am not sure of that. 

Again, I just want to thank the witnesses for your testimony. 

And, again hopefully we can come to some sort of consensus in a 

collaborative effort. As I have always said, short of lawsuits and 

short of major legislation which is always hard to pass, in a regulatory scheme we are going to be more nimble and we can react 

more quickly, and that is what the Regulatory Flexibility Act was 

all about. 

Let’s do that but make sure we are getting the input. And I am 

not real sure on some of this if CMS has met its duty under the 

Regulatory Flexibility Act. And again we want to work with them, 

of course, and see if we can find something that meets the needs 

of CMS, the mandates of Congress, but at the end of this, doesn’t 

in any way imperil the care that our citizens under the programs 

receive. 

Again thank you very much. And I am going to ask the next 

panel to come and have a seat. We are going to get as much done 

as we can before the next votes, which should have already happened, but I can get introductions. 

Thank you very much. Again, you have been the most patient because you are the last panel. And we will be interrupted, but I am 

going to again ask for your patience. And I hope you are not missing any flights or anything. Your testimony is very, very important 

as I heard from the previous witnesses. 

What I am going to attempt to do, because I have got about 10 

minutes but that will allow me to go through the testimony of one 

or two witnesses, and I don’t want you to hurry. You have your full 

5 minutes. Your testimony is as important as all the others, if not 

more important on some of the practical aspects. 

The first witness on Panel 3 will be Ms. Terry Allen. Terry Allen 

is the Director of Reimbursement for the South Texas Oncology 

and Hematology in San Antonio, Texas. South Texas Oncology and 

Hematology offers a full range of treatment options for patients facing cancer treatment. And you may proceed at this time, Ms. Allen. 

29

STATEMENT OF MS. TERRY ALLEN, DIRECTOR OF REIMBURSEMENT, SOUTH TEXAS ONCOLOGY AND HEMATOLOGY, 

P.A., SAN ANTONIO, TEXAS 

Ms. ALLEN. When I was asked to speak to the committee today 

regarding the Medicare regulations, Lynn Kuhn asked me to speak 

from a business office perspective because I get to deal with them 

from across the board, from admissions talking to patients, from 

the compliance standpoint for billing, auditing, and looking at business applications going forward. 

One of our largest challenges in cancer care is the emerging technologies and the amazing advancements that have come along. 

With that are some capital investment ventures that come out. One 

of our hardest things with looking at capital ventures and expanding our services is tied to emerging technologies. 

We offer radiation therapy services. An emerging technology over 

the last several years has been stereotactic radiosurgery. 

Stereotactic radiosurgery is for lesions, tumors, and other radiation 

therapy needed services. It has been FDA cleared for the entire 

body. This service to start out is 4 to $5 million. As a small business we are looking at a patient population, radiation therapy and 

that the service can cover the entire body. So you are fixing to 

make a business decision based on that information. 

Next comes the G-codes. How are we going to bill for it and pay 

for it? CMS has outlined some G-codes for stereotactic 

radiosurgery. Unfortunately, only for the hospital, not for outpatient. In working through the coalition and various organizations, those codes were opened up for the outpatient setting local 

carrier price. So we said that is great. So we called and said we 

would like to purchase the system. We are looking at the G-codes, 

it is carrier priced. Can we have the price that you are setting for 

this payment? 

No. Buy the equipment. Submit your claims individually and we 

will determine the payment on a case-by-case basis. We escalated 

the calls, we sent letters, we still are not at that platform. The inconsistency of the regulations being applied is difficult for us to 

manage. 

Six other States have published what the States are going to pay 

for the G-codes, so it is a daunting task for a small business to look 

at making a substantial investment to better the patients to keep 

at an outpatient setting without having to duplicate the services in 

a hospital setting, but we are stuck here. 

The emerging technologies is really an interesting gambit for us 

to look at and it is part of our ongoing viability as reimbursement 

is cut for drugs and ongoing services throughout the system. 

And that leads me to probably one of the other Federal regulations that seems to be going through a significant change for cancer 

patients, and I would briefly like to touch on erythropoietin stimulating agents. Unlike an emerging technology, that is a technology 

that has been around for a long time. It is a drug that is a support 

drug and helps us continue to give chemotherapy treatments. 

CMS has recently limited, outside the FDA guidelines, how we 

can administer that drug to our patients. We are abiding by that. 

Patients are having to delay chemotherapy treatments. We can define a direct correlation to reduced prescriptions for chemotherapy. 

30

And one of the hallmarks of good cancer care is maintaining onschedule correct dosing for your patients. 

So ESAs are very troubling. The patients don’t understand it. 

They feel better with the product. They know that they are able to 

tolerate the treatment and advance more quickly. 

The negative impact to the patients is many of our patients are 

saying we would like to pay for it out of pocket. So we are filling 

out the appropriate paperwork and talking with them. And many 

of our patients are going there. The other thing they are asking us, 

are the other payers requesting the same guidelines? No, they are 

not. CMS has taken a bold step and it is the only payer that is limiting the guidelines for the use of ESAs for chemotherapy-induced 

anemia. 

Unfortunately, a lot of our patients are now looking to the Medicare Advantage Plan. From an administrative burdensome standpoint the Medicare Advantage Plan has been a major stumbling 

block for our practice. Patients are signing up. They are having 

salesmen come to their offices and homes and telling them that it 

is just like Medicare and it is going to pay all of your same benefits. 

What they don’t understand, they are no longer part of Medicare 

Part B program. They are now part of Medicare Part C, and they 

have just forfeited their dual eligibility rights. If they don’t purchase a product that again covers them for the Medigap information, they are not going to be covered and 20 percent of chemotherapy is a substantial dollar amount. They cannot afford it. 

Even more troubling, if they are dual eligible to Medicaid, Medicaid will not make the 20 percent coinsurance payment because it 

is no longer Medicare Part B. We worked with a nationally recognized carrier, Humana, for 6 months trying to resolve these issues. 

Texas Medicaid sent us a letter back saying it is not Part B, it is 

Part C and we don’t cover it. We were stunned. Out patients were 

stunned. So they are disenrolling as quickly as they were enrolling. 

Thank you for your time. 

[The prepared statement of Ms. Allen may be found in the Appendix on page 98.]

Chairman GONZA ́LEZ. Thank you, Ms. Allen. And obviously I am 

fairly familiar with the situation there in San Antonio and thanks 

for your effort, for the education that you have provided me for the 

past few years, along with your colleagues. 

The next witness is Mr. Joseph A Schraad. Joseph A. Schraad is 

the Chief Operating Office of Oklahoma Allergy and Asthma Clinic. 

And we need you in San Antonio and D.C. The Oklahoma Health 

Center is the epicenter of research, health care education, and 

technology for the community. It consists of 30 member organizations ranging from cutting agent biotechnology companies to government education, patient care, and community-supported institutions. And you may proceed with your testimony. 

31

STATEMENT OF MR. JOSEPH A. SCHRAAD, MHA, CHIEF EXECUTIVE OFFICER, OKLAHOMA ALLERGY AND ASTHMA CLINIC, 

OKLAHOMA CITY, OKLAHOMA 

Mr. SCHRAAD. Mr. Chairman and members of the subcommittee, 

thank you very much for your time to allow me to come out here. 

One of the challenges that we are faced with, I am sure across 

the Nation but specifically in Oklahoma, is the number of providers 

that will take Medicare. In Oklahoma, the Oklahoma Allergy and 

Asthma Clinic as well as the Allergy Clinic in Tulsa are the only 

two allergy clinics in Oklahoma that takes Medicare. That is staggering whenever you look at the rural areas. We get patients from 

Kansas, western side of Oklahoma, as well as New Mexico coming 

to visit us because there is no one else to take Medicare. 

With the challenge of reimbursements and overhead, we have to 

find unique challenges that will allow us to see these patients and 

at the same time cover our overhead. With the onset or the potential of Medicare reducing their fee schedule, coupled with the fact 

that we are looking at implementing electronic health records as 

mandated by Medicare, we are having several challenges. 

When I met with the board about 2 months ago over the impact 

of these two situations, the first question was what would happen 

if we just did not see Medicare? And that was a situation that I 

did not want to address. Because I think we need to see Medicare, 

we need to continue seeing Medicare, and we just need to work a 

little smarter and making sure that our patient population is taken 

care of it. 

With the Medicare reimbursements fluctuating, a lot of the commercial insurance carriers also fluctuate their payments based on 

what Medicare does. If Medicare drops their payments by 3 percent, 5 percent, 10 percent, they decrease theirs as well. If Medicare increases it, the commercial carriers increases theirs as well. 

I am in the process now to determine if Medicare drops their reimbursement by 5 percent, what kind of ripple effect will that have 

across the board with other commercial insurance, and it is staggering of how much we are going to be losing as far as revenue. 

One of the other issues with the Medicare is encouraging people, 

all the practitioners, to take Medicare. And as we have the challenge of having less reimbursement and more mandates, there is 

less and less providers signing on for Medicare. 

I have talked with some of my constituents in Oklahoma, some 

of the CEOs and administrators, and asked them what they were 

going to do. And they said they were going to basically—if Medicare drops their reimbursements they are just going to drop Medicare. They said they cannot survive, because we—a few years ago 

I had two sole practitioners seeing Medicare and Medicaid trying 

to build a practice. They had one staff member, and they gave up. 

They went on back to teaching at a university, because it failed because of the reimbursements that they were trying to do, plus the 

dollars that they were expending trying to deal with Medicare. 

And at Oklahoma Allergy and Asthma Clinic I have two members solely devoted to Medicare. All the other insurance carriers, I 

only have four. That is a big impact on how we see patients and 

some of the challenges that we are faced with. 

32

[The prepared statement of Mr. Schraad may be found in the Appendix on page 114.]

Chairman GONZA ́LEZ. I appreciate your testimony. We are going 

to stand in recess until this series of votes. It could be 30 minutes. 

I appreciate—I do have some questions. Now we are getting into 

the real practical application of what is going on out there, even 

outside of what we have had with RAC and of course the codes and 

such. 

So again we will stand in recess until after this last series of 

votes, and I will be back. 

[Recess.] 

Chairman GONZA ́LEZ. The Chair calls back into order the hearing. And at this time we are going to have Rina Wolf. And Mr. 

Altmire more or less already introduced you, but I am going to the 

formal introduction. 

Rina Wolf is Vice President of RedPath Integrated Pathology, Incorporated in Pittsburgh, Pennsylvania. RedPath provides advanced molecular support for difficult oncology cases. They serve 

pathologists, clinicians and patients by resolving diagnostic dilemmas. And you may proceed with your testimony, Ms. Wolf. 

STATEMENT OF MS. RINA WOLF, VICE PRESIDENT, REDPATH 

INTEGRATED PATHOLOGY, INC., PITTSBURGH, PENNSYLVANIA 

Ms. WOLF. Thank you, Chairman Gonza ́lez and other distinguished members of the committee. Good afternoon and thank you 

for inviting me here today to share with you my experience and 

challenges with Medicare regulations that are not keeping pace 

with and hampering the evolution of medical technology and personalized medicine in the United States. 

RedPath Integrated Pathology is a genomics-based cancer 

diagnostics company located in Pittsburgh, Pennsylvania. RedPath 

operates as a fully accredited laboratory, providing complex testing 

services that help oncologists and pathologists to resolve indeterminate cancer diagnoses and shape cancer treatment plans. 

Our test, PathFinderTG, is based upon a powerful proprietary 

technology platform that was under development for 15 years prior 

to commercialization. It is clinically validated with strong peer review and support and is used by clinicians in major cancer centers, 

including many of the major national comprehensive cancer network cancer centers (NCCN) in the United States. 

PathFinderTG allows earlier and more informed diagnosis of cancers, such as pancreatic cancer, a cancer that has historically been 

very difficult to diagnose and is very aggressive. When suspected 

but not definitively diagnosed, physicians typically have two options: Watch and wait to see whether or not cancer actually develops over time, or remove major portions of the patient’s pancreas 

to definitively limit the spread of cancer. 

Neither option is without serious consequence. Because of the aggressive nature of this cancer, waiting and therefore delaying treatment can have fatal results. However, removing major portions of 

the patient’s pancreas out of an abundance of caution also has 

grave implications, including significant surgical morbidity, as well 

33

as long-term consequences such as leaving the patient with insulin 

dependent diabetes. 

By providing a definitive diagnosis, PathFinderTG provides information that can help to preserve the patient’s quality of life, while 

assisting physicians in selecting an appropriate, timely and cost-effective treatment plan. 

RedPath is part of a small, but growing, industry that is translating knowledge gained from the Human Genome Project into clinical practice by providing treatments that are tailored to individual 

patients based on their DNA and the specific molecular character 

of their disease. By understanding the molecular nature of disease, 

new technologies increasingly allow clinicians and patients to pick 

individually appropriate treatment options, rather than basing 

treatment choices on broad assessments of what works best for a 

population. 

RedPath also is one of several new technologically-based companies providing job growth for southwestern Pennsylvania as its 

economy shifts from manufacturing and service to a life science and 

robotics industry. In just 4 years we have grown to 51 employees, 

and as is the case with most life sciences companies, our workforce 

is highly educated and well compensated. We are not just providing 

jobs, but better quality jobs to our region. 

As you can imagine, ours is a highly regulated industry, and 

rightly so. Poor quality is not an option. Lives hang in the balance. 

It is important, in fact necessary, that Federal and State authorities and nongovernmental accreditation organizations provide rigorous oversight of our research, methodologies, processes and outcomes. However, it is likewise necessary that all regulatory regimes keep pace with this rapidly evolving world. 

Medicare date of service regulations generally provide that any 

test furnished within 14 days after the patient’s discharge from a 

hospital is deemed to have been performed on the day the specimen 

was collected; for example, when the blood was drawn or tissue 

biopsied. This makes no sense, given that the PathFinderTG and 

other specialized laboratory tests are typically performed and reported to the treating physician after the patient has left the hospital. 

Hospitals are encouraging physicians to delay ordering these 

tests until after the 14 days. Imagine, if you will, that you or someone you love is faced with a suspicion of pancreatic cancer. After 

the biopsy it can take 2 to 3 days to get the initial pathology. Then, 

if PathFinder is indicated, the hospital would decide to hold the 

test for 14 days. RedPath’s PathFinder takes 5 days. It can conceivably be 3 to 4 weeks before you have an answer, with tremendous 

anxiety and potentially negative impact on the outcome. 

CMS almost certainly did not intend for Medicare’s date of service rule to restrict access to specialized in vitro diagnostic tests, as 

it does. Nonetheless, the rule remains in place. 

We appreciate the agency’s willingness to meet with us, which 

they have, and review these serious issues, and we remain hopeful 

that CMS will propose a new remedy for this problem. I applaud 

this subcommittee for studying and focusing attention on this important area and implore CMS to remove this impediment to the 

promise of personalized medicine. 

34

Again, thank you for inviting me here today and for listening to 

my statement. I would be delighted it take questions. 

[The prepared statement of Ms. Wolf may be found in the Appendix on page 116.]

Chairman GONZA ́LEZ. The next witness is Mary Helen Tieken. 

Mary Helen Tieken is the President-Elect of the Texas Association 

for Home Care in Floresville, Texas. With over 1,100 members, the 

Texas Association for Home Care is a nonprofit organization aimed 

at improving acute, sub-acute, rehabilitative and long-term care. 

You may proceed with your testimony. 

STATEMENT OF MS. MARY HELEN TIEKEN, RN, BSN, PRESIDENT-ELECT, TEXAS ASSOCIATION OF HOME CARE, 

FLORESVILLE, TEXAS 

Ms. TIEKEN. Thank you very much, Chairman Gonza ́lez, distinguished members of the committee. Thank you very much for allowing us to be here today to discuss our issues that have to do 

with CMS regulations and programs on small health care providers, particularly those of us in home health and hospice. 

I am a registered nurse and the owner and administrator of 

Nurses in Touch, Inc., a Medicare-certified home health and hospice company. Currently we serve about 280 patients. I have a 16-

county service area that we cover, and we have employed 185 people. 

I am also here today as the President-Elect of the Texas Association for Home Care. It is a nonprofit trade association, and we have 

1,200 agencies in that group that provide home health, hospice and 

personal assistance services in Texas. 

Because of the time constraints, you have my written testimony, 

but I want to go over the five burning issues that we have. 

The first issue deals with employee staffing. We need flexibility 

to use contracted staff to meet the unique needs of our patients and 

to accommodate a fluctuating caseload. This is especially true for 

small home health agencies who serve primarily rural areas, like 

mine. This is an issue because current CMS rules limit our ability 

to use contracted staff. 

As an example of this, if a majority of my nursing staff became 

ill with the flu and could not conduct their patient visits, I would 

not have the flexibility to use a staffing agency. Yet hospitals are 

allowed to use this contracted staff. We believe CMS should allow 

the same flexibility. 

Second, in regards to telehealth and telemonitoring, CMS does 

not recognize the technology and visit costs as reimbursable under 

the current Medicare home health benefit, even though CMS encourages the use. Telehealth and telemonitoring methods are used 

by agencies to monitor patient care without the nurse being 

present in the home. These monitors can assist vital signs, weight 

and other valuable parameters that alert the home health nurse to 

potential health problems and possibly averting a visit to the emergency room or even hospitalization. And if CMS moves to a payfor-performance model, those of us unable to invest in these technologies to the degree that larger agencies can will certainly will 

be at a disadvantage. 

35

Third, gas prices. They have had an immediate impact on home 

health and hospice care. Ladies and gentlemen, we drive to see our 

patients. We don’t walk down hallways to see them. Last year, my 

staff drove 700,000 miles to see our patients, and it is not unusual 

to have one of our nurses drive as many as 100 miles in a single 

day. 

We are concerned that the rising prices have deterred nurses and 

therapists from even working for home health and hospice agencies. Larger agencies can purchase fleets of cars for their employees, something that is not possible for small agencies like mine to 

do. With no end in sight to rising gas prices, we would like CMS 

to take into account increases in gasoline prices when determining 

our reimbursement amounts. 

Our fourth issue has to do with who is allowed to sign orders for 

care. Currently, CMS rules require physician certification on home 

health plans of care, and that means that for home health, nurse 

practitioners and physician assistants are not allowed to sign plans 

of care, even though they are allowed to do so in other health care 

settings, and, ironically, CMS did allow them to sign these orders 

on hospice patients. So the question would be, why not home 

health? Not only would allowing them to do so expedite patient 

care, it would also reduce our administrative costs and allow us to 

bill more timely for the services we have provided. 

Congress should enact legislation to instruct CMS to allow nurse 

practitioners and physician assistants to certify and make changes 

to home health plans of care. 

Fifth, regarding contingency plans for claim payment delays, 

CMS should be required to have a contingency plan in place and 

these plans should be accessible for all Medicare providers, especially when there are changes in reimbursement systems that impact claims payment. 

In conclusion, Chairman Gonza ́lez and distinguished members of 

the committee, I want to thank you for allowing me to be here to 

testify today. I would be happy to answer any questions. 

[The prepared statement of Ms. Tieken may be found in the Appendix on page 124.]

Chairman GONZA ́LEZ. Thank you very much, and we will have 

questions. I will go ahead and proceed and ask a couple myself. 

Ms. Allen, you all, you can tell I am from Texas with the ′′you 

all,′′ but you have educated me as well as other specialists in oncology on the present setting in which cancer patients receive their 

treatment. In what I refer to as the old days or previous days it 

was a hospital setting. That is no longer true. 

There is one area of concern the past couple of years, more than 

2 years, and I just want to know what is the status, and that basically was where the oncologist or the cancer treatment facility was 

actually being reimbursed for the drugs that were being utilized at 

something less than the actual cost to you. Can you elaborate on 

that? 

Ms. ALLEN. That continues to be an ongoing problem. The Medicare Advantage Plan has certainly not helped that. The 20 percent, 

if we don’t collect 100 percent of the allowed charge, the 80 plus 

the 20, we are not covering the cost of the drug. It certainly doesn’t 

36

begin to address the pharmacist and registered nurse and everything along with it. So that 20 percent for us to chase has become 

more vital just to our survival at this point. 

With Medicare Advantage coming on board and with the reimbursement for drugs continuing to decrease, I have had to add 

three additional staff members to access foundation programs for 

coinsurance, which helps with some drug-specific conditions, but 

certainly doesn’t cover the entire 20 percent. I think that is a total 

of about $115,000 that we have expended, and that is just to try 

to maintain the revenue. We are not gaining anything there but an 

additional cost. 

We are putting in additional systems to try and streamline our 

practices and to be more cost-effective, but at some point you have 

to hire more people to chase dollars that are harder to find. It is 

still a huge issue for a practice. 

Chairman GONZA ́LEZ. So it continues. I know we have been trying to get their attention and I know we have some meetings set 

up for CMS not to basically recognize what have been the past 

practices that actually were encouraged by them by regulation and 

switching over a regulation. And I think that is one of the reasons 

we are here today. So, again, thank you for your testimony. 

I would like to go to Mr. Schraad. This is interesting, I guess. 

What happens? I mean, first of all you are telling me because of 

the regulation, because of the unnecessary and maybe burdensome 

regulatory scheme that we have, we have fewer and fewer health 

care providers that are available to you to utilize. I think that is 

the gist of your testimony. That is the greatest impact. We have 

many other side issues. But first, how about just availability and 

accessibility, which is going to be major, and we are always reminded of that by the different physicians. 

I also want to ask, what is the practical aspect, if something is 

challenged and we keep talking about denial and so on, what happens to the payments that are pending or prospectively while something is being examined for potential denial, which already there 

has been a preliminary finding that they are going to deny it or 

there is a problem. We have had examples cited by different witnesses. 

But what is the practical implication let’s say to you as far as 

billing and such? 

Mr. SCHRAAD. The impact is quite large. We have to—basically 

on our company we are on a cash basis. So if we don’t have the 

revenue coming in, the actual payment coming in, we just sit on 

it, and that is less revenue coming in per month. But we look at 

all revenue by the month. Sometimes we don’t get payment for 10 

or 11 months, depending on what the denial was. So if we don’t 

have it, we don’t have it to spend either. 

So that is just one of the challenges that the staff are working 

on every day, and it is an everyday occurrence. This is nothing 

new, it has been going on for years and years and years. But at 

the Oklahoma Allergy and Asthma Clinic, we have two devoted individuals who work very well and very close with CMS to streamline this, and some things are rectified very quickly and some 

things take several months. 

37

Chairman GONZA ́LEZ. I appreciate it. I apologize for the hoopla 

over there. Those are not Members of Congress, I assure you. We 

are never that happy. 

Ms. FALLIN. They were cheering on their answers. 

Chairman GONZA ́LEZ. It could be the answers. Let me go on to 

Ms. Wolf. There was something that was very interesting, and you 

lay it out. The end effect of this 14-day rule of when a test is ordered, it relates back to the time that it is actually ordered, which 

may be in the hospital setting, then who is the responsible person, 

even though it may be even at that point it is referred to someone 

else who makes that determination. It still kind of goes back in 

time, and there is a lot of liability issues there people that are assuming. 

But this is the paragraph, and I know you touched on it. But I 

just have to really get this in the record. ′′In light of these and 

other administrative and financial disincentives, hospitals are encouraging physicians to delay ordering the test until after the 14 

days.′′

Ms. WOLF. That is correct. 

Chairman GONZA ́LEZ. If you can get a little closer to the mike. 

Ms. WOLF. That is correct. Because otherwise the hospital will 

have to assume financial responsibility either by billing Part B, if 

the specimen was collected during an outpatient encounter, and 

that is very difficult because many of these tests are billed using 

what they call miscellaneous codes, which don’t have coverage and 

coverage amounts with MACs other than their home MAC, which 

would create a policy. Or if the specimen was collected during an 

in-patient encounter, it has to be absorbed by the hospital as part 

of their DRG payment, which certainly are not developed to take 

into consideration these expensive new technologies. 

Chairman GONZA ́LEZ. But it is amazing that it impacts a decision 

of a physician in a certain setting because of the relating back aspect of it. I mean, I can’t imagine—I am not saying that a physician would delay anything that would be of greatest importance 

where time is of the essence, but sometimes we are not real sure. 

You know, we catch things, we don’t believe they are a problem at 

that point in time, but sometimes a delay, no doubt—I know I 

would not want my test delayed because of the 14-day relating 

back, that is the way I am going to refer to it, the relating back. 

You say CMS is listening. There is dialogue, there is discussion? 

Ms. WOLF. There is dialogue, but this dialogue has been going on 

for quite a while and we cannot seem to get resolution on this 

issue. And as you so rightly point out, it is typically not the hospital itself that is making the decision that this test needs to be 

ordered. It is a clinician as a follow-up to the hospital encounter, 

and the results of this test and the others that are impacted by this 

rule are used strictly for patient management decisions that are 

made that are unrelated to the encounter where that specimen was 

collected. 

Chairman GONZA ́LEZ. Thank you very much for your testimony. 

I would like to follow up on that discussion of the 14-day rule. I 

understand there may be some logic to it, but, again, the practical 

application, the theory is good and then the practice is never. 

38

Ms. Tieken, let me ask you a question. Obviously with additional 

operating costs, gasoline is one of them, and we have many Members that are here today and especially on the floor that are always 

championing the rural aspects of health care. Your operation, you 

have 700,000 miles to see home health and hospice patients. 

Ms. TIEKEN. Yes, sir. 

Chairman GONZA ́LEZ. There is no way you can build in that additional cost. Is Medicare, CMS, is anyone willing to say, gee, because of the nature of your practice, of the health care that you 

provide, which entails going to and obviously transportation, that 

is not factored in? 

Ms. TIEKEN. No, sir, it isn’t. Under our current reimbursement 

system, we are reimbursed on an episodic payment, which means 

that there is a configuration of information that goes in to Medicare. The conglomerate is a number that comes up, and that is how 

we are paid, based on the diagnosis code and some other numbers 

that go in, and that for that patient is all we get. It is a one number deal for us. None of our costs like that, none of our costs are 

separately considered in terms of reimbursement. In the old days 

when we had cost reimbursement, yes, those figures were looked 

at, but not today. 

Chairman GONZA ́LEZ. All right. 

Ms. TIEKEN. So those are absorbed into any amounts that we get 

back for reimbursement purposes. 

Chairman GONZA ́LEZ. But it is such a relevant factor depending 

on the setting of the health care provider, and it has to be addressed one way or another. 

Thank you very much. At this time the Chair is going to recognize Ms. Fallin for her questions. 

Ms. FALLIN. Thank you, Mr. Chairman. I apologize. I had to step 

out for a couple other scheduled meetings and things. But I appreciate all of your coming up, and I appreciate my gentleman from 

my district coming to testify with the allergy clinic. I am sorry I 

missed your comments, but I do have them in my book and looked 

them over before you came. Thank you very much for being here. 

We appreciate your coming. 

I had a couple of questions, and maybe all of you deal with Medicare payments, if you can address this for me. I asked CMS earlier 

today if there were any particular classifications of procedures that 

they automatically denied, because I hear that from my physicians 

at times, that they can file for reimbursement for procedures, it is 

denied the first time, and then they have to go through this long 

process of waiting for them to be looked at again and going through 

the appeals process. 

But he said that CMS doesn’t really just deny specific procedures, at least that is what I thought he said, but if they are coded 

wrong or if they think there is an excess of procedures done in one 

day that may not make sense, then they may deny them automatically. 

So I guess my question is what percentage of your Medicare submissions for payment are denied? Is there a particular percentage 

that you see in your businesses? If you could answer that one first 

of all? 

39

Ms. ALLEN. We see probably about 5 percent of our claims are 

denied. Being in oncology, we deal with a lot of not classified codes, 

which historically require additional information because they are 

just kind of generic codes at this point. 

The biggest part for oncology, especially with the advent of the 

genome project and more specific diagnostic testing, is that we actually get a cocktail back from that testing that says this patient’s 

DNA appears like it is going to work best with this combination of 

drugs. Fabulous. We are going to cut to the chase and get there. 

The problem is that the combination of drugs that come back may 

not be FDA cleared for the cancer type that has been identified. 

We have Federal regulation on our side to a certain extent that 

we can go ahead and create the necessary medical documentation, 

document it, work through that, but then we wait typically at least 

a year for payment. We go through the denial process. Because we 

have to tell CMS I am billing you off label and I know that I am 

billing it off label so we are not creating a fraudulent incident. 

So we inform them of that in this information. We go through a 

first level of appeal. It is routinely denied straight up. Nobody even 

looks at it. We get to a second level of appeal. Even if there is overwhelming documentation that we have met the Federal criteria for 

the use of anticancer drugs off label, it is historically denied again. 

You take it to an ALJ. At that point you are probably at a year 

out. I pulled my last ALJ, the service was for June 7, 2006. I won 

at July 7, 2007. We are not talking about a $10 payment. These cancer payments are, depending on the drug, can be $20,000 for each visit. That is 

a lot of money for a practice to loan out for 12 to 18 months. But 

it is the right thing to do medically. 

So I think that is the precipice that physicians are at. The medical decision has been made, but can they financially afford to give 

the care. They do have access. We look towards foundations to help 

ensure that we don’t have to write a check for the drugs and we 

look to the drug companies for that information. But the patients 

have to financially qualify. 

So I think the technology has certainly outpaced the reimbursement, but that is the routine denial that our practice sees, is truly 

the technology pacing and looking for additional guidance. 

I believe that Medicare is on the right track. They have expanded the credible journals that will be accepted. It used to be a 

very narrow list. The list is now longer. But still it is an extraordinary investment in time. I think what is difficult and a learning 

curve that we learned at our practice is what you submit at your 

first level of appeal is what you have to submit at the administrative law judge panel. You can’t add anything. So you know the first 

one is going to be kicked out so you may not put as much effort 

because you are trying to get through the process. But once you forfeit payment on the first one, the administrative law judge says so 

sorry, why didn’t you give it to the first two? You lose it. So you 

figure out you have to do the up front investment at the very beginning. 

Ms. FALLIN. Mr. Schraad, do you have a comment? 

Mr. SCHRAAD. I have a couple. What is interesting is one of our 

patients is on therapy which was given skin testing or shots to help 

40

them out with their allergies. But when a patient comes in and 

sees a physician and gets a shot the same day, they reject the shot. 

So what we do is do a modifier 25 and they pay it. So my first 

question is, why? What is the difference between a modifier 25 or 

not? Just submitting it with this other patient and the patient got 

the shot, so why are they rejecting it? 

Going back to your question, how many of ours are rejected initially, I would be afraid to look. Because I mean we have two people full-time doing Medicare, dealing with Medicare patients—I am 

sorry, with the issues with the Medicare patients we see. 

Another one that is interesting, if a Medicare patient comes in 

and they get skin testing and there is a couple of sets, I am trying 

to recall the name of them, I want to say sublingual and interdermal, one of them Medicare only pays for 20 skin tests. The other 

one they pay for 70. But what I got notified just recently, which 

you have to laugh about it, if we submit or do 21 skin tests, Medicare rejects the entire thing. It doesn’t pay for anything. But if we 

do 18, they will pay for 18. If we do 20, they will pay for 20, which 

I thought that was kind of interesting, and that is where some of 

our challenges are in play. 

Ms. FALLIN. If I can ask you one more question too about the 

length of time for processing these claims. I thought I heard some 

of you say it that takes up to 10 months at times or a year for some 

of the processing of claims, especially once they have been denied. 

Mr. SCHRAAD. Right now, we are in May, and we are still working on the claims that were rejected in January. Some of them we 

cleaned out were done in November and December. 

Ms. FALLIN. If they are not rejected, what is the length of time 

to get reimbursed on Medicare? 

Ms. ALLEN. Nineteen days probably. It is a quick turnaround for 

clean claims. 

Mr. SCHRAAD. It is quick. Clean claims, yes. 

Ms. FALLIN. If everything was electronic, what do you think your 

time payment would be? If everyone used electronics? 

Ms. ALLEN. CMS, they are going to hold the claim for 14 days, 

because we time how we bill. They hold it for 14 days, it goes to 

the banking floor for 2 days. You allow 1 day for transmission. So 

the best you are going to have is probably 17 days. And we typically see 19. 

Ms. FALLIN. If I could ask Nurse Tieken a couple of quick questions, I think our bell is ringing for voting, in your testimony you 

mentioned something about the State operations manual. How 

many pages are in that State operations manual? 

Ms. TIEKEN. My goodness. I don’t really know the count, but I 

can tell you it is that thick. 

Ms. FALLIN. How do you keep up with all the changes made? 

Ms. TIEKEN. That is an ongoing—if you do not pay attention to 

that manual and don’t keep up with the updates, you are behind. 

It is a daily chore for me. I am a small administrator in terms of 

numbers, so it is me. I am the one responsible for keeping up with 

that. Some larger agencies have more staff that they can devote 

that time to. So it is a burdensome task for us, but it is absolutely 

imperative that we keep up with it. So I do it by e-mail and just 

41

staying on line with them and watching any of the information that 

comes out. 

Ms. FALLIN. Do you ever find that there are any of the rules or 

regulations that might be more burdensome than they are helpful, 

and if there are, could you identify them and send them to us? 

Ms. TIEKEN. Oh, yes, ma’am. Yes, ma’am. Yes. It is unfortunate, 

and, you know, I would say that we want to work with CMS. We 

don’t want to fight with anybody. We want to take care of patients 

and we want to do that the most efficient, effective way that we 

can. Because the bottom line is who is out there may be your mother or your father or your sister at some point, and we want the best 

people out there taking care of patients, not being burdened with 

a lot of bureaucracy and paperwork that bogs us down frequently. 

Ms. FALLIN. I missed part of your testimony, but you do telemedicine? 

Ms. TIEKEN. Personally we make phone calls to patients, but we 

do not have the monitors that I spoke about. Those monitors cost 

anywhere from $1,200 to maybe $2,500, depending on the elaborateness of that particular unit. It is a little bit out of range for 

my size agency. 

Ms. FALLIN. Maybe one of you can answer this, but is telemedicine reimbursable for Medicare? 

Ms. TIEKEN. It is not for home health. 

Ms. FALLIN. I know in rural Oklahoma that telemedicine is a 

very good asset to be able to deliver access to care and especially 

specialty practitioners who might not get out into the rural areas, 

and I am just curious if that is reimbursable? 

Ms. TIEKEN. At this point it is not. CMS encourages it, and even 

the quality improvement organizations that CMS designated to 

help agencies and other facilities become more efficient and work 

towards quality care, they have all encouraged the use of it. It is 

the cost factor that is prohibitive right now. 

Ms. FALLIN. Thank you, Mr. Chairman. 

Chairman GONZA ́LEZ. Thank you very much. The Chair is going 

to recognize Mr. Altmire. 

Mr. ALTMIRE. I want to thank all of you for being here. This is 

not easy to do, to prepare your testimony and travel here and wait 

out these votes and wait to be on the second or third panel. This 

is something that this committee realizes that you have gone to extraordinary effort to be here today and provide us with this testimony, and I want you to know that we really appreciate your time 

here today. 

In the interest of time, because we do have a vote coming up, I 

just wanted to ask a question of Ms. Wolf. We have heard a lot 

about the promise of personalized medicine. For those who might 

not be as familiar, and especially for the record, for the committee, 

can you tell us more about personalized medicine and what it 

means for the future of health care? 

Ms. WOLF. Certainly. Traditionally, the efficacy of medical 

diagnostics and therapeutics has been proven suitable for broad patient groups. Norms were developed based on groups rather than 

specific patients. The reality we are finding out, however, is that 

diagnostics and treatments that work for some patients don’t work 

for all and may even be harmful to some. 

42

The mapping of the human genome now provides us the potential 

to look at an individual patient or even that patient’s specific 

tumor, the molecular information, to personalize diagnosis and 

treatment. In the past we would look at cancer and make treatment decisions based on the organ. Now we can look at gene expression profiling for breast cancer or liver cancer, for example, and 

identify the most appropriate and specific treatments. 

So just to review, personalized medicine gives us the ability to 

detect diseases at an earlier stage where effective treatment may 

be possible and enable the selection, as my panel member referenced, of optimal therapy, reduce trial and error prescribing, 

which can be dangerous and highly expensive, reduce adverse drug 

reactions and increase patient compliance with their therapy because they believe they are getting the right therapy. 

Mr. ALTMIRE. Very quickly, to conclude, how many companies 

and services are similarly affected? 

Ms. WOLF. Now there are probably less than a dozen. These are 

not the routine tests that you would see done every day on blood 

and tissue. These tests are developed by small independent laboratories. They are proprietary tests that are only done at these laboratories. They are typically the only ones in the whole country 

that do them. And we do anticipate more tests being developed that 

are like this if CMS clears the way and allows us to be successful. 

Mr. ALTMIRE. Thank you. Thank you all very much. 

Chairman GONZA ́LEZ. Thank you, Mr. Altmire. 

First, I want to thank all the witnesses. I think Mr. Altmire described our appreciation adequately, but I just want to express my 

own personal thanks. I want to thank staff for putting all this together. I don’t think we ever say thanks. But they prepare the 

memorandum, they provide us with your testimony and they coordinate getting you here. I know that is a tough job. 

What we are trying to avoid is that we don’t want a health care 

professional to go out there having to sue the Federal Government 

to stop them implementing regulations. We want a streamlined 

system that promotes good practices and pays you fairly and compensates you as you should be. 

We really aren’t that interested in having to go through the legislative process if we can work it through our regulatory scheme of 

things, and that is if CMS listens carefully and makes sure it takes 

into consideration the impact, the consequences of their regulations. That is hopefully what we are doing here today. Hopefully 

we have those lines of communication. 

We understand that sometimes that lawsuit that people file is 

necessary and surely that legislative intervention at times is the 

only way. But please understand we are trying to do this collaboratively. We appreciate your input. 

I will ask unanimous consent that members will have 5 days to 

submit statements and supporting documents for the record. I 

thank my colleagues for their participation, and without objection, 

that will be ordered. 

This hearing is now adjourned. 

[Whereupon, at 4:55 p.m., the subcommittee was adjourned.]

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