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81–292 PDF 2014

S. Hrg. 113–322 

OVERSIGHT AND BUSINESS PRACTICES OF 

DURABLE MEDICAL EQUIPMENT COMPANIES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL AND CONTRACTING 

OVERSIGHT 

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

APRIL 24, 2013 and MAY 22, 2013 

Available via http://www.fdsys.gov 

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

THOMAS R. CARPER, Delaware Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

RICHARD J. KESSLER, Staff Director 

KEITH B. ASHDOWN, Minority Staff Director 

TRINA D. SHIFFMAN, Chief Clerk 

LAURA W. KILBRIDE, Hearing Clerk 

SUBCOMMITTEE ON FINANCIAL AND CONTRACTING OVERSIGHT 

CLAIRE MCCASKILL, Missouri Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

RON JOHNSON, Wisconsin 

JOHN MCCAIN, Arizona 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

MARGARET DAUM, Staff Director 

RACHEL WEAVER, Minority Staff Director 

LAUREN CORCORAN, Chief Clerk 
(III) 

C O N T E N T S 

Opening statement: Page 

Senator McCaskill............................................................................................... 1, 39 

Senator Johnson ............................................................................................... 4 

Senator Baldwin ............................................................................................... 19 

WITNESSES 

WEDNESDAY, APRIL 24, 2013 

Peter Budetti, M.D., Deputy Administrator and Director, Center for Program 

Integrity, Centers for Medicare and Medicaid Services .................................... 7 

Laurence D. Wilson, Director, Chronic Care Policy Group, Center for Medicare, Centers for Medicare and Medicaid Services ............................................ 8 

Charlene Stanley, Zone Program Integrity Contractor Operations Director, 

AdvanceMed Corporation .................................................................................... 10 

WEDNESDAY, APRIL 24, 2013 

Jon Letko, U.S. Healthcare Supply, LLC .............................................................. 40 

Steve Silverman, M.D., Med-Care Diabetic and Medical Supplies ...................... 41 

ALPHABETICAL LIST OF WITNESSES

Budetti, Peter, M.D.: 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 57 

Letko, Jon: 

Testimony .......................................................................................................... 40 

Silverman, Steve, M.D.: 

Testimony .......................................................................................................... 41 

Stanley, Charlene: 

Testimony .......................................................................................................... 10 

Prepared statement .......................................................................................... 73 

Wilson, Laurence D.: 

Testimony .......................................................................................................... 8 

Prepared statement .......................................................................................... 57 

APPENDIX 

Charts referenced by Senator McCaskill ............................................................... 79 

Letters from Med-Care to Sandra Pariseau .......................................................... 85 

Memorandum submitted by Dr. Kennedy ............................................................. 87 

Chart submitted by CMS ........................................................................................ 89 

Statement submitted for the Record by American Association for Homecare .... 90 

Statement submitted by the Med-Care Diabetic and Medical Supplies, Inc. ..... 95 

Responses to post-hearing questions for the Record from: 

Mr. Budetti ........................................................................................................ 116 

(1) 

OVERSIGHT AND BUSINESS PRACTICES 

OF DURABLE MEDICAL EQUIPMENT 

COMPANIES 

WEDNESDAY, APRIL 24, 2013 

U.S. SENATE,

SUBCOMMITTEE ON FINANCIAL AND CONTRACTING OVERSIGHT,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:04 a.m., in 

room 342, Dirksen Senate Office Building, Hon. Claire McCaskill, 

Chairman of the Subcommittee, presiding. 

Present: Senators McCaskill, Baldwin, and Johnson. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. The hearing will come to order. 

This is the first hearing of the Subcommittee on Financial and 

Contracting Oversight (FCO). I know that both Senator Johnson 

and I are glad to have the opportunity to serve in this regard and 

I know I can speak for him in this way, that we both want to figure 

out ways that the government behaves better with taxpayer dollars, and that is what this Subcommittee is all about. We will work 

very hard to be responsible and fair, but at the same time be very 

aggressive about finding ways that the government can save money 

in the way they spend hard-earned taxpayers’ dollars. 

This charter of this Subcommittee is to ensure that money is 

spent wisely and effectively, and we will continue to conduct investigations and hold hearings that will help fight and end some of the 

waste and some of the fraud in both government and the private 

sector that contracts with the Federal Government. 

We are not interested in making life difficult for companies that 

do not enjoy profit as a result of their work on behalf of the Federal 

Government. But if you work for the Federal Government, the Federal Government has the right to demand standards and to demand accountability, because, ultimately, you are, in fact, enjoying 

taxpayer funding. 

Today’s hearing will focus on how the Centers for Medicare and 

Medicaid (CMS) pay businesses who supply durable medical equipment (DME), such as diabetic testing materials, machines that assist with sleep apnea, back braces, and power wheelchairs to Medicare beneficiaries under Medicare Part B. The hearing will also examine how these medical equipment suppliers market and promote 

these products to patients and their doctors. 
2 

Medicare is a vital safety net for the elderly and the medical 

equipment provided to beneficiaries at a low cost to them can improve their quality of life and prevent costly visits to clinics and 

hospitals. Unfortunately, loopholes in the law and inadequate oversight may be allowing some companies to exploit Medicare for their 

personal gain. 

Most Americans have seen ads on TV or received calls or letters 

promising medical equipment at little or no cost to you. What is 

never made fully clear in these materials is that there is always 

a cost to you because it is taxpayer dollars. The products provided 

will be billed to Medicare and ultimately will be paid for by the 

American people. Last year, the Federal Government spent nearly $9 billion on 

payments for medical equipment under Medicare Part B, and we 

are not even sure about that figure. CMS estimates that as much 

as 66 percent of this, almost $6 billion, may have been improperly 

paid to companies who submitted claims for equipment that was 

not medically necessary, was not properly justified, or was never 

even delivered. 

One significant concern is that the prevalent practice among 

some medical equipment companies is that they aggressively call, 

e-mail, and write Medicare beneficiaries to directly market their 

products. I first learned of this practice from Dr. Charlotte Kennedy of Chesterfield, Missouri, who wrote to me about companies 

who were calling her patients to badger them into asking for medical supplies. Dr. Kennedy has been besieged by faxes from companies asking her to sign prescriptions for these patients so that the 

companies can bill Medicare. 

After I heard from Dr. Kennedy, I reached out to my constituents 

to find out if they had experienced similar problems. In less than 

2 weeks, I had more than 150 replies. Among them is Victoria Anderson, who lives with her 87-year-old mother, Carol Hughes, in 

Southwest Missouri. Ms. Anderson and her mother get as many as 

three to four calls from medical marketing companies every single 

day. They are on the Federal Trade Commission’s (FTC) ‘‘Do Not 

Call List’’ and have repeatedly told companies they are not interested in their products and have asked to have their names removed from all company call lists. But the calls have not stopped. 

Ms. Anderson told us that she and her mother would report these 

companies, but they cannot figure out their names. When they ask 

the telemarketers to identify the companies they are working for, 

the people on the other end of the line refuse to give them a 

straight answer. 

Medicare prohibits these type of phone calls unless the patient 

has given their prior written consent or the company has provided 

medical equipment to the patient previously. In fact, some of these 

companies may be using tactics which are unfair, deceptive, or illegal. 

What is clear to me is that the law, as written, does not appear 

to be working as intended to address the problems that I am hearing about from my constituents. Today, I intend to ask questions 

of CMS officials and one of the contractors responsible for program 

integrity about what tools the government has to crack down on 

these sorts of schemes and abuses. I also intend to ask how the 
3 

1 Information provided by Dr. Kennedy appears in the Appendix on page 87. 

government, taxpayers, or Medicare beneficiaries are served by 

permitting durable medical equipment companies to aggressively 

market their products to patients who do not need or want them 

until they are told they can have them for free or almost free, and 

I put that ‘‘free’’ in quotes. 

I will also ask CMS why it is failing to identify and recover improper payments to these suppliers. In 2011, the most recent year 

for which this information has been provided, CMS recovered less 

than 1 percent of the over $5 billion, with a ‘‘B’’, in improper payments that the CMS has identified as having gone out to durable 

medical equipment suppliers. That is unacceptable. 

We have invited representatives of two durable medical equipment companies mentioned by Dr. Kennedy, Med-Care Medical and 

Diabetes Supply and U.S. Healthcare Supply, to provide testimony 

today about their companies’ business practices. Sample reviews by 

CMS of these companies, which together have received almost $140 

million from Medicare in the last 4 years, show a very high error 

rate and denial rates for durable medical equipment. The Subcommittee staff has prepared a memorandum outlining the information received by the Subcommittee, and at this time, I ask unanimous consent that this memorandum be included in the hearing 

record. 

I also ask for unanimous consent that the information provided 

by Dr. Kennedy1 about these two companies be included in the 

hearing record. 

The Subcommittee invited Jon Letko, the head of U.S. 

Healthcare Supply, and Dr. Steve Silverman of Med-Care Diabetic 

and Medical Supplies, to testify at today’s hearing. After receiving 

the Subcommittee’s invitation to testify, both individuals, through 

their attorney, have declined to appear voluntarily before the Subcommittee today. I continue to believe that these companies can 

provide us useful information that would assist the Subcommittee 

in its oversight, and we will continue to discuss the possibility of 

these witnesses appearing in front of us at a future date. 

Keep in mind, these companies are profitable for one reason, and 

that is the American taxpayer. I look forward to the opportunity to 

talk with our witnesses today about what is needed to ensure that 

we do not continue to throw billions of dollars a year down the 

drain. 

I would like to take the opportunity to welcome Senator Johnson, 

the Ranking Member for the new Subcommittee on Financial and 

Contracting Oversight. I want to take this opportunity to publicly 

thank Senator Johnson and his staff for their cooperation and support during this hearing. I know that both of us share a desire to 

work in a bipartisan way, effectively and fairly, to try to recover 

money on behalf of the American taxpayer. This has been a genuinely bipartisan process and I am very grateful for their efforts and 

I continue to look forward to working with them as we get at these 

problems in every area of the Federal Government. 

I am also very grateful to Dr. Kennedy. There are many Americans who write letters to their Senators. There are many Americans that do not believe that their Senators pay much attention. 
4 

I want to thank Dr. Kennedy for believing in her government and 

believing that if she brought this to our attention, something would 

happen. 

All the people who have helped the Subcommittee in this investigation have been very supportive, but I especially want to thank 

Dr. Kennedy and Ms. Anderson, my constituent who also pointed 

out the problems that she had dealing with this issue and her 

mother. 

I thank the witnesses for being here and I look forward to their 

testimony. Senator Johnson 

OPENING STATEMENT OF SENATOR JOHNSON 

Senator JOHNSON. Thank you, Madam Chairman, and really, 

thank you for delving into this issue here and holding this hearing. 

I agree with you that fraud and abuse of the system is costly to 

taxpayers and I am looking forward to working with you on an ongoing basis to continue to hold hearings like this to try and get 

some control over these systems, over some of these government 

programs. And as we were talking earlier, that is a real challenge. 

I think we all share the same goal. We want an effective and efficient government, and the trick is—I come from the private sector, 

and we were talking about earlier that in the private sector, you 

have the fiscal discipline of going bankrupt, of making sure that 

you not only just balance your budget, but have a surplus. You 

have to make a profit. And in government, as these programs grow, 

it is how do you institute the controls so that you have bad actors 

that take advantage of it. How do you prevent that going forward? 

It is a very difficult issue. 

But I think it might be interesting to just give a little history lesson on the expansion of the Medicare program and how we have 

such a difficult time controlling its cost. Both Medicare and Medicaid were basically set up in the mid-1960s. When they initially 

estimated how much Medicare would cost the American taxpayer, 

they projected about 25 years and they said that Medicare would 

cost $12 billion in the year 1990. In fact, it ended up costing $110 

billion, nine times the original estimate. 

So the first thing you have to understand is government is not 

particularly good at estimating the future cost of some of these programs. Today, when you combine Medicare and Medicaid in terms 

of outlays from CMS, it is a little over $765 billion, which represents about 21 percent of our entire Federal budget and about 27 

percent of the $2.8 trillion that we spend on health care every year. 

The program, in terms of number of Americans it serves, when 

you combine both of them, when they first started, they served 

about 29 million Americans. Today, they serve 107 million Americans, about 35 percent of our population. So these are huge programs. Thirty-five percent of our population take advantage or are 

beneficiaries of the programs, so these are important programs and 

we need to make sure that they run efficiently, effectively, and 

they do not waste taxpayer dollars and that they are not abused 

by the suppliers of the system. 

In getting prepared for this hearing, you quoted some of these 

statistics, but I want to just kind of go back over the dollars spent 

on durable medical equipment—about $10 billion a year. I am 
5 

rounding these figures. And the improper payment of that in 2011 

was 61 percent, which is $5.9 billion. Now, you have to think about 

that. I come from the private sector. If 61 percent of our expenditures were made improperly or paid to fraudulent suppliers, We 

would not be in business, and yet that has been going on in Medicare probably for years. 

And then as you mentioned, Madam Chairman, the amount that we recovered out of that year was $34 million, about 0.6 percent 

of the improper payments. So I have some real questions in terms 

of how could that be. I mean, what is really the improper payment? 

Is it a technical violation in terms of paperwork or what? I mean, 

we really have to get our arms around that. 

I will conclude here quickly, but I just want to talk about the bureaucracy involved in Medicare, and I think that might be part of 

the problem, is Medicare contracts with a number of outside suppliers and it is a real alphabet soup of agencies. You have your 

Community Emergency Response Teams (CERTs). You have your 

National Supplier Clearinghouse (NSC), your Medicare Administrative Contractors (MACs), your Zone Program Integrity Contractors 

(ZPICs), your Receovery Audit Contractors (RACs), all these independent contractors are making payments and auditing, and it is 

obviously not working very well. 

And when you take a look—and one of the people testifying in 

the second panel lists the different types of frauds, and right now, 

she lists six of them. I just want to quickly list them. Telemarketing fraud scheme. You have your services not provided 

fraud scheme. You have items not medically necessary fraud 

scheme. No relationship with ordering physician fraud scheme. 

False-front suppliers. And this is one of my favorite, provision of 

DME while patient is under hospice care, residing in a skilled 

nursing facility fraud scheme. 

Now, again, we are dealing with an important government program that is just set up that can be preyed upon this way. And certainly as we were researching this, so many of these fraud schemes 

are perpetrated by individuals that set up shop, commit the fraud, 

and by the time the government is aware of them, they have already got their millions. They have left town. 

So, again, I really appreciate the fact that you are holding this 

hearing. I think it is extremely important for us to get to the bottom of these things and I am really looking forward to questioning 

particularly the witnesses from Medicare and CMS so I can try and 

get my arms around what is the problem here. 

Thank you, Madam Chairman. 

Senator MCCASKILL. Thank you, Senator Johnson. 

We also welcome Senator Baldwin. We are pleased that you have 

come to the hearing this morning. I hope you come often. We will 

always try to make these lively and interesting. And I can say with 

authority after 6 years, not every hearing is in the Senate. So I 

hope that you will make this a regular stop for your schedule, because we will try very hard to make sure every hearing is cutting 

edge. 

If I could, at this time, we will proceed. Since our witnesses have 

not appeared that we have invited that are medical equipment suppliers, we will proceed with testimony from our second panel of wit-
6 

nesses, if you would come to the table and we will introduce you. 

While you are sitting, if you do not mind, I will go ahead with the 

introductions so that we can proceed. 

Peter Budetti is Deputy Administrator for Program Integrity of 

the Centers for Medicare and Medicaid Services and Director of the 

CMS Center for Program Integrity. He has principal responsibility 

for program integrity policies and operations in the Medicare and 

Medicaid programs. Before joining CMS, Dr. Budetti worked in 

health care positions in government and the private sector. He 

holds a medical degree from Columbia University and a law degree 

from Boalt Hall at the University of California in Berkeley. 

Laurence D. Wilson is the Director of the Chronic Care Policy 

Group in the Centers for Medicare and Medicaid Services, the CMS 

Center for Medicare, where he has responsibility for policy on a 

broad range of fee-for-service (FFS) health care benefits, including 

post-acute care, home health, hospice, durable medical equipment, 

dialysis, and various hospital services. Mr. Wilson has worked for 

CMS since 1988, where he directed the design and implementation 

of a number of key Medicare reforms, including the establishment 

of prospective payment systems for inpatient rehabilitation facilities, skilled nursing facilities, and other health care services, and 

the competitive bidding program for Durable Medical Equipment, 

Prosthetics, Orthotics, and Supplies (DMEPOS). Mr. Wilson holds 

a Master’s degree in public administration from Pennsylvania State 

University. 

Charlene Stanley is the ZPIC Operations Director for 

AdvanceMed. She has oversight for ZPIC Zones 2 and 3, and tell 

me what the acronym is for ZPIC. 

Ms. STANLEY. Zone Program Integrity Contractor. It is actually 

Zones 2 and 5. 

Senator MCCASKILL. OK, it is 2 and 5. I did not say it? It is written 2 and 5. I misspoke. Say it again, because I do not want to say 

ZPIC anymore. 

Ms. STANLEY. That is OK. Zone Program Integrity Contractor. 

Senator MCCASKILL. Zone Program Integrity Contractor. She has 

oversight of both Zone Program Integrity Contractor Zones 2 and 

5. She is a registered nurse and has worked in various clinical 

areas, including the emergency response and hospice settings earlier in her career. She also holds a Master of Business Administration (MBA) from Franklin University. 

Thank you all for being here. It is the custom of this Subcommittee to swear all witnesses that appear before us, so if you 

do not mind, I would ask you to stand. 

Do you swear that the testimony that you will give before the 

Subcommittee will be the truth, the whole truth, and nothing but 

the truth, so help you, God? 

Dr. BUDETTI. I do. 

Mr. WILSON. I do. 

Ms. STANLEY. I do. 

Senator MCCASKILL. Let the record reflect the witnesses have answered in the affirmative. 

We will be using a timing system today. We would ask that you 

try to hold your testimony to no more than 5 minutes. If you go 

slightly over, we will be understanding. Obviously, your entire 
7 

1The prepared statement of Mr. Budetti appears in the Appendix on page 57. 

written testimony will be part of our record, and we will begin with 

you, Dr. Budetti. 

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

Dr. BUDETTI. Thank you, and good morning, Chairman 

McCaskill, Ranking Member Johnson and Senator Baldwin. Thank 

you for this invitation to discuss the initiatives that we are taking 

at the Centers for Medicare Medicaid Services to deal with what 

we agree is a plague that has been with the DME program for 

some time now that involved a serious amount of fraud, waste, and 

abuse, as well as other forms of improper payments. So I am happy 

to be here to discuss our various initiatives to overcome those problems. 

With me is my colleague from CMS, Laurence Wilson, who will 

speak about one of the major initiatives that is being implemented 

to address this from a different perspective than simply fighting 

fraud, and that is our competitive bidding program, and so you will 

hear about that, as well. And you will also hear about the way that 

our private sector contractors, our investigative contractors, the 

Zone Program Integrity Contractors work with us as partners in 

fighting fraud, as well. 

I would like to focus on our initiatives to root out the bad actors 

who manage to get into the program and to keep them from getting 

into the program, and I would like to point out that we have had 

a series of initiatives in recent years that have had a degree of success in reducing the overall threat to the program from suppliers 

who should not be in the program, should not be billing us. This 

is an important aspect. 

One of the many tools that we are using along these lines is the 

structure that was set up by the Affordable Care Act under which 

we are implementing risk-based screening of new applicants and 

re-validation of existing suppliers. According to the requirements of 

the Affordable Care Act, we put all providers and suppliers into 

three categories of limited, moderate, or high-risk of fraud and 

abuse. 

New DME suppliers, we put into the high-risk category, and existing DME suppliers into the moderate risk category. All applicants and all current providers and suppliers are subject to background checks and licensure and other kinds of certification. The 

ones in the moderate category also get site visits, and we have, in 

fact, conducted some 86,000 site visits over the last couple of years, 

and the newly enrolling DME suppliers will also be subject to 

criminal background checks through the Federal Bureau of Investigation (FBI) and fingerprinting after we work out the terms of 

the arrangements for doing that. 

To date, due to our site visits and other controls on the new applicants, we have denied 430 DME applications because the entity 

was simply not operational. It just did not exist. And as part of our 

re-validation efforts, as well, we have since March 2011 deactivated 
8 

1The prepared statement of Mr. Wilson appears in the Appendix on page 57. 

nearly 25,000 DME enrollments and revoked over 1,700 DME supplier enrollments. 

That work, the enrollment and screening of DME suppliers, is 

the work of one dedicated contractor, and that is the National Supplier Clearinghouse that you referenced earlier, Senator Johnson, 

and that I will be delighted to talk about. But they do the background checks. They conduct the unannounced site visits. They 

make sure that the suppliers meet all of the Federal requirements. 

I also want to mention a major new initiative that we have underway, the Fraud Prevention System (FPS). We have been using 

highly sophisticated new tools to screen the pattern of claims that 

we are getting, as opposed to simply looking at one claim at a time, 

under the Fraud Prevention System, and we have been working 

very closely with our private sector colleagues, as well, on this. We 

have implemented a very sophisticated system that uses advanced 

analytics to identify problems and patterns, and I will be happy to 

answer more questions about that as we go on. 

And I would also like to emphasize that we continue to have and 

we continue to expand our collaboration with our law enforcement 

colleagues. We are working even closer than ever with our law enforcement colleagues. In fact, we have FBI agents and Office of Inspector General (OIG) staff now embedded with us in our headquarters at the Center for Program Integrity (CPI) on a regular 

basis. And that, of course, has been a very successful collaboration 

under the Health Care Fraud Prevention and Enforcement Action 

Team (HEAT) initiative that has operated in the context of the 

strike forces around the country. 

So I am pleased to highlight the activities that we have done so 

far. I look forward to working with the Subcommittee and the Congress to continue our progress in modernizing the way that we pay 

for and oversee the very important durable medical equipment benefit for Medicare beneficiaries, and I thank you for this opportunity. 

Senator MCCASKILL. Thank you very much, Dr. Budetti. Mr. Wilson. 

TESTIMONY OF LAURENCE D. WILSON,1 DIRECTOR, CHRONIC 

CARE POLICY GROUP, CENTER FOR MEDICARE, CENTERS 

FOR MEDICARE AND MEDICAID SERVICES 

Mr. WILSON. Good morning, Chairman McCaskill, Ranking Member Johnson, and Senator Baldwin. I am very pleased to be here 

today to discuss an important payment reform CMS is implementing in the area of durable medical equipment, prosthetics, 

orthotics, and supplies. 

The competitive bidding program required under the Medicare 

Modernization Act (MMA) of 2003 has already been effective in reducing beneficiary out-of-pocket costs, improving the accuracy of 

Medicare’s payments, reducing overutilization, and ensuring beneficiary access to high-quality items and services. Lower, more accurate prices and other safeguards included in the program support 

CMS’s overall efforts to address fraud, waste, and abuse in this important area. 
9 

CMS successfully implemented the program on January 1, 2011, 

in nine large metropolitan areas after making a number of important improvements based on new requirements from Congress and 

after working closely with stakeholders. The program has already 

saved in excess of $200 million in each of its first 2 years of operation with no disruption in access or negative health consequences 

for our beneficiaries. We are now poised to expand the program to 

91 additional areas of the country, including some of the largest, 

like New York, Los Angeles, Chicago, on July 1, as the law requires. 

Competitive bidding brings value to Medicare beneficiaries and 

taxpayers compared to the current fee schedule required by law. 

The average price discount across the initial nine areas was 35 percent. For the additional 91 areas, this discount climbs to 45 percent. The CMS Actuary projects that the program will save $25.7 

billion for Medicare over the next 10 years and save an additional 

$17.1 billion for beneficiaries through lower co-insurance and premiums. 

A few examples I would share with you. In St. Louis, Missouri, 

the payment amount for a standard power wheelchair drops 

$2,034. That is a savings for Medicare of $1,627 and for the beneficiary of $407. 

Likewise, in Milwaukee, the payment amount for a powered mattress dropped $4,147. That is a savings for Medicare and the taxpayers of $3,318 and for the beneficiary of $829. 

The program also applies important safeguards, including quality 

standards, accreditation, financial standards, an active monitoring 

program, and enhanced oversight to protect beneficiaries and Medicare while supporting good quality. CMS has worked to implement 

the competitive bidding program in a way that is fair for suppliers 

and sensitive to the care needs of beneficiaries. 

For example, the program includes provisions to promote small 

supplier participation and numerous protections for beneficiaries to 

ensure they get the services they need. The program results in a 

large number of winners so that beneficiaries are ensured access 

and choice and that there will continue to be competition among 

contract suppliers on the basis of customer service and quality. 

We have continued to make improvements to the program to ensure a fair process that is less complex for suppliers to navigate 

and results in more effective scrutiny of suppliers’ qualifications 

and the integrity of their bids. 

In addition, to help fulfill our commitment to ensure effective 

oversight and quality and access for our beneficiaries, we have put 

in place a comprehensive monitoring system which examines 100 

percent of Medicare claims and other data, complaint data. We 

have observed no trends in health status indicators or access to 

care that cause concern. We have seen problem areas associated 

with overutilization, such as diabetes testing supplies, drop dramatically. 

We are very pleased with the success of round one of the program. We will continue to be diligent and thoughtful in our implementation of this important program as it expands to additional 

areas of the country. We will continue to monitor the implementa-
10 

1The prepared statement of Ms. Stanley appears in the Appendix on page 73. 

tion closely and be open to further improvements suggested by our 

stakeholders, Members of Congress, and others. 

In summary, by ensuring that Medicare pays accurately through 

competitively determined prices, we can provide better value to 

Medicare, to taxpayers, and beneficiaries. By eliminating excessive 

payments under the current fee schedule and paying the right 

price, we can also reduce incentives for fraud, waste, and abuse in 

the program. 

Again, I very much appreciate the invitation to testify before you 

today and we would be happy to take any questions at the close 

of testimony. 

Senator MCCASKILL. Thank you, Mr. Wilson. Ms. Stanley. 

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

CORPORATION 

Ms. STANLEY. Chairman McCaskill, Ranking Member Johnson, 

Senator Baldwin, thank you for the request to attend this hearing 

today to share with you our efforts to prevent, identify, and address 

fraud and abuse in the Medicare program, especially as it relates 

to durable medical equipment. 

As a Zone Program Integrity Contractor to CMS, we have a responsibility to note only protect the Medicare Trust Fund, but also 

to protect beneficiaries, providers, suppliers, and taxpayers from 

fraud, waste, and abuse. CMS awarded the umbrella to the Indefinite Delivery Indefinite Quantity (IDIQ) contract to ZPIC Zone 5 

to AdvanceMed in February 2009 and the IDIQ contract for Zone 

2 in September 2009. 

As a Zone Program Integrity Contractor, AdvanceMed conducts 

fraud, waste, and abuse detection and investigation in 10 States as 

ZPIC Zone 5 and 14 States as ZPIC Zone 2. We also have seven 

fully operational Medicare-Medicaid data matching projects in the 

two zones. 

The fundamental activities of ZPICs are those that help ensure 

payments are appropriate and consistent with Medicare and Medicaid coverage, coding, and audit policy, and are aimed at identifying, preventing, and/or correcting potential fraud, waste, and 

abuse. 

I would like to give the Subcommittee a few examples of the kind 

of program integrity issues that we have identified within the durable medical equipment, prosthetics, orthotics, and supplies Medicare benefit. 

The first issue that I know the Subcommittee has an interest in 

is telemarketing to Medicare beneficiaries. As Chairman McCaskill 

mentioned in her opening remarks, DME suppliers are prohibited 

from soliciting the beneficiaries unless the beneficiary has given 

written permission to the supplier to make contact by telephone, 

the contact is regarding a covered item that the supplier has already furnished to the beneficiary, or the supplier has furnished at 

least one covered item to the beneficiary during the preceding 15 

months. 
11 

In our investigations of beneficiary complaints about telemarketing, we have discovered that suspect DME suppliers may 

question Medicare beneficiaries about whether or not they have 

common medical complaints or symptoms, such as an example 

would be back or neck pain, and then attempt to have a back or 

neck brace or other equipment shipped to the beneficiary without 

proper medical evaluation or order. Subsequently, of course, the 

item is billed to Medicare and paid. 

Telemarketing scams by suppliers have also become more sophisticated, with the sharing of beneficiary identifying information, 

such as beneficiary Health Insurance Claim (HIC) numbers, between suppliers and clearinghouses, and these are used to make 

mass calls. Companies many times will offer free items, such as 

cookbooks, glucometers, other items, in an attempt to get beneficiaries to provide their identifying information. 

As a part of CMS’s efforts to identify and resolve complaints 

more efficiently, effectively, and timely, AdvanceMed has been contracted to conduct a pilot project that involves receiving, reviewing, 

and resolving complaints that are received by the 1–800–MEDICARE program. The Zone 5 Beneficiary Complaint Pilot Project receives information regarding telemarketing and other issues from 

beneficiaries alleging that they have been contacted by DME companies or their subcontractors promising medical equipment at little or no charge to them, as Chairman McCaskill mentioned earlier, as well. 

When AdvanceMed receives these complaints, beneficiaries are 

interviewed by staff and subsequently asked to sign an attestation 

affirming that the contact was made without their consent and that 

the beneficiary does not want nor need the offered item. 

AdvanceMed then places an auto-deny edit in the claims processing 

system to prevent the suspect supplier from billing unnecessary 

equipment to the beneficiary. The beneficiary’s Health Insurance 

Claim number is also added to the National Compromised Data 

base for further tracking and analysis. Additionally, they are sent 

an education letter, warning letter, about the telemarketing practice and the matter is referred to the National Supplier Clearinghouse that Dr. Budetti mentioned earlier for review and consideration of revocation and practices. 

Another issue that we have noted in both zones is that patients 

are receiving excessive amounts of glucose strips, which are used 

by diabetics to test their blood sugars. In October 2011, Zone 2 conducted proactive data analysis to review beneficiaries receiving excessive amounts of glucose strips. Although it is not uncommon for 

patients to require blood sugar testing multiple times per day, the 

amounts were well beyond policy limits. Subsequent analysis and 

beneficiary interviews showed that multiple DME suppliers were 

selling glucose test strips and other diabetic supplies to the same 

beneficiaries at the same time. It was also discovered that some 

DME suppliers were making unwanted and unsolicited marketing 

phone calls to beneficiaries for glucose strips and DME supplies. 

As Senator Johnson mentioned in his opening statement, and I 

will briefly go through these, the other trends that we are seeing 

in our investigations in suspect DME suppliers and supplies are for 

services not provided or services not medically necessary. In some 
12 

cases, the supplier has an arrangement with a physician to approve 

orders for equipment, prosthetics, orthotics, or supplies, even 

though the physician has no prior relationship with that patient 

and never having assessed them for the need for such supplies. 

Typically, the physicians are paid on a fee-for-service basis based 

on the volume of orders they sign. 

Another issue that runs across the supplier types is the falsefront providers, again, that Senator Johnson mentioned. In this 

scheme, a supplier number is established for a DME supplier that 

does not exist. There is no physical location for the supplier nor do 

they possess the appropriate equipment to deliver to Medicare 

beneficiaries. The supplier subsequently obtains Medicare beneficiary numbers, and through identity theft or purchasing them directly from the beneficiaries, bills for the supplies that are never 

delivered. These providers may work alone or with others to steal 

the identity of valid Medicare providers and then submit false 

claims directing. 

A final program issue is—that we have noted in a number of investigations—supplies being billed to Medicare when another entity has already paid for the service that includes DMS supplies, for 

instance, the Medicare beneficiary being under hospice care or 

skilled nursing facility and the equipment or supplies necessary for 

the treatment of the diagnosis relating to that admission often covered under the hospice benefit or within the payment to the skilled 

nursing facility. In this situation, that supplier, who may be affiliated with the hospice, unbundles the equipment and bills them 

separately to Medicare. 

This concludes my remarks on the efforts of the Zone Program 

Integrity Contractor for Zones 2 and 5 to identify, prevent, and address fraud, waste, and abuse in the Medicare program. I appreciate this Subcommittee’s interest in protecting Medicare beneficiaries and taxpayers and thank you again for inviting me to 

present to this Subcommittee. 

As a nurse by trade, this is a topic that is near and dear to my 

heart. More detailed information is within my written testimony, 

and I look forward to answering any questions you may have. 

Senator MCCASKILL. Thank you all for your testimony. 

I am going to begin with some of the misleading and abusive tactics. I am going to ask to be included in the record letters that we 

received from someone who responded to our tweet asking people 

to let us know when they had been slammed or pressured by these 

marketers, and we got these letters from a woman, and we have 

redacted her personal information, but the letter says, ‘‘Welcome to 

our sleep apnea supply program. Congratulations and welcome. 

Based on your conversation with one of our intake professionals, 

your sleep apnea supply prescriptions have been sent to the following physician,’’ and it has her doctor’s name on the letter. When 

we receive your prescription, we will contact you, and then so forth. 

And then, basically, the interesting part of the second page of the 

letter is that it gives her the option of only opting out by calling. 

The only way that she can opt for a purchase or a rental, is by calling these people. 
13 

And then she got a followup letter saying, ‘‘We have been unable 

to reach you,’’ and with her doctor’s name in bold. ‘‘We need a call 

today so we can get you your requested supplies.’’ 

Now, the interesting thing about this is this woman said, when 

she got the phone call, guess who she thought it was? The name 

is Med-Care. So she assumed Medicare was calling her. 

So my first question to all of you is, why would you let a company name itself Med-Care? I mean, that is asking for trouble, 

right? 

Dr. BUDETTI. I do not believe that we have the authority to control the choice of names by individual suppliers in the country. 

There may be some things that do violate Federal rules, but I am 

not aware that we have that authority, Senator. 

Senator MCCASKILL. Well, I think that is something we need to 

look into. So if a company came and said, we want to be a provider 

of medical equipment and we want to call ourselves Medicare—— 

Dr. BUDETTI. I think there are limits. I think that there are some 

limits, but I am not aware of what those are. 

Senator MCCASKILL. Well, if verbally it sounds the same, because, obviously, Med-underscore-Care on paper does not look like 

Medicare, but if the rules are such—and as you all know, the rule 

is you have to have permission in order to start doing this. So in 

order to get permission, this company decided they would obviously 

use a name that would heighten the likelihood that a senior getting 

the call saying, ‘‘This is Med-Care and we have something for you,’’ 

I guarantee you, my mom, if somebody called and said they were 

Med-Care, she would assume that it was Medicare. 

So I would appreciate followup on that, if you all have the authority to—when a name is so similar that it is verbally going to 

be identical for purposes of marketing to Medicare, whether you 

have the authority to do that. 

Why should we not stop companies from doing this entirely? Why 

should not this be the doctor that is providing these prescriptions 

rather than having this middleman that is trying to work both 

ends of the stick, trying to entice the patients to think that their 

doctor wants it and trying to entice the doctors to think that their 

patient wants it, and meanwhile, nobody wants it but the one who 

is making the buck in the middle? 

Dr. BUDETTI. The order and the certification that the patient 

needs the durable medical equipment does have to come from an 

appropriate certified health care professional, most often, of course, 

physicians, in a lot of cases. And that is the order for it. And then 

the supply has to come from the supplier. There are some physicians who also serve as durable medical equipment suppliers in 

certain subspecialties, but generally, that is not the case. Generally, there is a separate process for the provision of the durable 

medical equipment to the beneficiary on the physician’s order and 

on the certification that there has been a face-to-face, as required 

by the physician. 

So we have a process, of course, for assuring that the correct 

physicians are enrolled properly to be able to order the supplies 

and then we have a process for overseeing the suppliers of the 

medical equipment themselves and to make sure that they meet 

standards. So it is a continuum, much as it is going to the drug 
14 

store and having a prescription filled by a pharmacy for a pharmaceutical. 

Mr. WILSON. Chairman McCaskill, if I may just add to that—— 

Senator MCCASKILL. Sure. 

Mr. WILSON. Thank you. One of the reasons these kinds of companies engage in these type of schemes is because the items that 

they are supplying are so profitable under the Medicare fee schedule. So the fee schedule is set in law. It is based on charges from 

the early 1980s that have been updated over time. It does not represent the true market cost of the items. That is what we are paying. 

So to the extent that they are hugely profitable, that attracts 

them to generate revenues. If we can bring the price down, like we 

can in competitive bidding, we can get a 47 percent discount. I 

think the discount for round two for the Continuous Positive Airway Pressure (CPAP) devices, which I think this mentions, is about 

47 percent. That takes away that windfall profit and makes companies less likely to engage in providing stuff that people do not need. 

Senator MCCASKILL. I agree with you, and I do think the competitive bidding program is going to save our country a lot of 

money. 

By the way, if you do the math on our debt and deficit, you come 

to the inescapable conclusion that the debt and deficit is health 

care. So all the talk we have around this building, if you actually 

get into the numbers, you realize that it is health care costs that 

are driving the debt and deficit. And if we can reduce health care 

costs by 10 percent meaningfully, by 10 percent, we do amazing 

things to both our deficit and our long-term debt curve. 

Let me ask you this. Are you worried with the competitive bidding, if we take the mass profit out, then these suppliers—it is 

going to have to be volume, because they are not going to be able 

to make big money on each individual—they are going to have to 

sell a lot more of it. Are we prepared for a transition from a business model to see if you can worm your way into the doctor’s office 

or the patient’s home to how can we do mass marketing in a way 

that we can catch more fish because we are not going to make as 

much off each whale, the same kind of money as we have been 

making off the big whales? 

Mr. WILSON. Right. That is a very good question, Chairman 

McCaskill. When we implemented round one of the program in 

nine large areas of the country, including Miami, Riverside, Pittsburgh, a number of others, we did not see that. We saw actually 

utilization come down. We saw access maintained and health outcomes maintained. And we got over $200 million in savings in two 

successive years. 

So we did not see that type of attempt to increase utilization. In 

fact, by having a smaller number of contract suppliers that are accredited, that meet financial standards, including looking at credit 

scores, looking at their tax records, having more effective oversight, 

we were able to ensure that services were provided, that program 

integrity was a key focus, and, again, that was not a result that 

we saw. 
15 

Senator MCCASKILL. And this is my last question and I want to 

move on to my colleagues, but why do we not require this prescription to be on the doctor’s letterhead? 

Mr. WILSON. I will defer to my colleague on that. 

Dr. BUDETTI. So, the physician has to do the ordering of the supply, and that is one of the links in the chain that we are very conscious of. And, in fact, we published two years ago—an updated 

regulation that establishes the requirements for being able to order 

and refer in the Medicare program. It is one thing if the physician 

is seeing the patient and submitting a bill. Then we have a bill to 

track back to that physician. But if the physician is writing an 

order, then we have to have a process for making sure that the 

supplier knows that the physician who is ordering that supply is, 

in fact, credentialed, if you will, by the Medicare program to be 

able to order supplies—— 

Senator MCCASKILL. But, Dr. Budetti, my point is that they 

are—some doctors are signing 400, 500 of these at once and they 

are getting these forms that are all done for them by the company 

that is moving the equipment. This is not being generated by the 

doctor. This is being checked off by the doctor. Why are we not requiring that the document be generated by the doctor with the appropriate information about the supplier and let the doctor decide 

what supplier to use and figure out what supplier to use? But it 

is clear from the documents we got that these documents are being 

prepared by the supplier, not by the doctor. 

Dr. BUDETTI. So, as I said, the control should be—and the ordering should all be in the hands of the physician. And so when we 

see patterns that look like the ones that you have described, that 

is exactly the kind of pattern that our new much more sophisticated system for looking at the kinds of bills that we are getting 

and the patterns of the billing that we are getting allows us now 

to spot and to take action on. And I think that is exactly one of 

the concerns that we have, is that this should not be generated— 

it should be generated by the patient’s need and the patient’s need 

should be reflected by the physician. And then the supplier should 

supply the durable medical equipment that the patient actually 

needs and that the physician has certified, and that is the—— 

Senator MCCASKILL. I do not know that—and I do not want to 

cut you off, but I am over my time. 

Dr. BUDETTI. Sure. 

Senator MCCASKILL. I do not know that I have a great answer 

about why we cannot require the doctor to generate the form, but 

we will move on. Senator Johnson. 

Senator JOHNSON. Thank you, Madam Chairman. 

I have 30 years in manufacturing, so it is just in my DNA to try 

and get to the root cause, which may be difficult here. 

Mr. Wilson, I appreciate the competitive, whatever you call it, 

your competitive model, bidding model, but you mentioned something about the fee schedule, that Congress sets the fee schedule. 

I guess maybe the first lesson learned here is Congress is not particularly good or efficient at price fixing. 

So let us talk about why we would encumber ourselves with a 

fee schedule that, I think, Dr. Budetti, according to your testimony, 

saddles Medicare with paying three to four times the market price. 
16 

Now, that should not be a very difficult thing to fix when you take 

a look at—especially with the Internet now, you can really get a 

competitive price very quickly. Why are we not changing the fee 

schedule, and maybe is that not the first thing we ought to do here, 

is go to Congress to get them to give you flexibility in the fee schedule? 

Mr. WILSON. Well, I think there are a few things I would say 

about that, sir. The fee schedule was set at a point in time when 

the Medicare program was just paying charges submitted by suppliers. Whatever you wanted to put on your claim in terms of 

charges, we would pay it. 

Senator JOHNSON. It is totally outdated now. 

Mr. WILSON. Yes, and so—— 

Senator JOHNSON. And so why do we not change it? 

Mr. WILSON. We fixed that based on changes in the law to put 

a fee schedule in place. That became distorted over time, and there 

are a number of different OIG and the Government Accountability 

Office (GAO) reports pointing to excessive prices paid under the fee 

schedule for wheelchairs and negative pressure wound therapy devices and other things, diabetic testing supplies. 

But then Congress, in its wisdom, put in place the competitive 

bidding program, and that is what we have been using to try to 

drive down prices to a more reasonable, appropriate level. Congress 

also, in its wisdom, allows us, once we have put these initial set 

of prices in place under competitive bidding, to use that information and establish a new fee schedule. 

Senator JOHNSON. But would it not just be easier to just do away 

with the fee schedule and do something more competitive, I mean, 

on a case-by-case basis? 

Mr. WILSON. Well, I think one of the problems in this area, Senator Johnson, is that there is a lack of data on what a true market 

price is. So in order to—— 

Senator JOHNSON. No, there is a plethora of data out there. You 

have the Internet now. This is easy to do, to actually figure out 

what is a fair price to pay for any product nowadays. It has never 

been easier. It is incredibly simple. 

Mr. WILSON. You can certainly find data on the Internet, and we 

certainly have looked at that in the past. I would say that the type 

of discounts we are getting by going to suppliers and asking them 

to bid actually provide better value to Medicare than some of the 

prices we find on the Internet. 

Senator JOHNSON. OK. I appreciate the numbers that you were 

throwing out, $27.5 billion saved estimated over the next 10 years, 

but that is $2.7 billion divided by more than $700 billion. That is 

0.35 percent. It is better than nothing, but it is not much better 

than nothing. 

I want to go through the whole payment process here, because 

I do not understand it. CMS, Medicare, contracts out to Medicare 

Administrative Contractors, four of them, to actually make the payments, and then also, apparently, determine whether the payment 

they have made is improper. I mean, describe that to me. 

Dr. BUDETTI. So, there is a long history of interaction with the 

private sector in the Medicare program, and, in general, it is helpful to think about our contractors in certain functions. There are 
17 

contractors who do, in fact, handle the money, pay the claims, and 

have initial responsibility for overseeing whether those claims are 

valid under the Medicare rules and whether they should be paid, 

and there is opportunity to stop the payment in that circumstance. 

Senator JOHNSON. Those are the MACs, right? 

Dr. BUDETTI. Those are the Medicare Administrative Contractors. 

Senator JOHNSON. How quickly are they required to make payment when a claim is submitted? 

Dr. BUDETTI. So, under the Medicare law, they are required to 

pay not sooner than 2 weeks and not more than 30 days. So there 

is a window after they get the bill. So it is a relatively quick payment requirement, but there is a window of a couple of weeks before the bill—— 

Senator JOHNSON. That is the MAC that does that? 

Dr. BUDETTI. It is the Medicare Administrative Contractor that 

does that—— 

Senator JOHNSON. Is that 100 percent of CMS claims paid 

through the MAC? 

Dr. BUDETTI. Of fee-for-service. On the Medicare fee-for-service 

program, the MACs do handle the claims, yes, sir. 

Senator JOHNSON. OK. And then that would be different than 

for—Medicare Advantage is through private insurance. 

Dr. BUDETTI. So Medicare Advantage is through private insurance, and other parts of Medicare are administered by the Medicare Administrative Contractors other than the DME for the—— 

Senator JOHNSON. Then who determines that, in 2011, for example, that 61 percent of the $9.7 billion that was paid by the MACs, 

who determines that 61 percent of that were improper payments? 

Dr. BUDETTI. So, that is the CERT that you referred to, which 

is a completely different process that is not related directly to payment or directly to oversight, but to statistical measurement of 

what the improper payment error rate is, which we are required 

by law to measure and to report, and we do. And so that consists 

of a statistically valid national sample of claims so that we know 

how many of them are not being paid properly. 

Now, improper payments span a very wide spectrum. At one end 

of the spectrum, of course, are fraudulent claims, and those are of 

great concern. But a lot of the improper payments are, I think as 

you referred to—I would not call them technicalities necessarily, 

but are for failure to follow the billing procedures, to document 

that the patient, for example, in a durable medical equipment situation actually had a physician contact and—— 

Senator JOHNSON. So why is that not caught in the original 17, 

or 14 to 30 days? 

Dr. BUDETTI. So, just to be clear, Senator, the MAC—the initial 

payment screening does look at whether or not all the information 

that is required to be on the claim is there and whether it is appropriate, and then there are thousands and thousands of cross-checks 

on whether or not this is a medically unlikely claim, given the type 

of person and the type of claim, or whether it is within what is covered for a beneficiary. And many claims get screened out at that 

point. 
18 

But notwithstanding that, the claim may look good on its face, 

but behind the claim, there may not be the adequate documentation that—— 

Senator JOHNSON. OK. So what is the sample size on the CERT? 

In coming up with 61 percent, are we actually testing 100 percent 

and we are determining—— 

Dr. BUDETTI. No. 

Senator JOHNSON [continuing]. Sixty-one percent, or are we—— 

Dr. BUDETTI. No. I think for all of—— 

Senator JOHNSON [continuing]. Testing 1 percent and—— 

Dr. BUDETTI. The last time I had the number in front of me, Senator, it was for all of the Medicare fee-for-service, and I believe it 

was on the order of 70,000 or 80,000 in the national sample. It—— 

Senator JOHNSON. Versus how many claims? 

Dr. BUDETTI. Versus our billions of claims every year. But it is 

valid enough to project what the error rate is in fee-for-service 

claims across all of Medicare fee-for-service. And the specific question that you raised before about whether we are, in fact, going 

after that 66 percent improper payments—first of all, we certainly 

agree that any level of improper payment is not acceptable, and 

certainly a two-thirds rate of improper payments is not acceptable. 

And so we use the information that we get when we find the improper payments. We use that in a wide variety of ways. We use 

it to work with the persons, the entities that submit the claims to 

make sure that they are, in fact, meeting the Medicare requirements in the first place. We—— 

Senator JOHNSON. OK. Well, again, I—— 

Dr. BUDETTI. OK. 

Senator JOHNSON. I am already over, but let me—— 

Dr. BUDETTI. All right, but—— 

Senator JOHNSON [continuing]. Because I want to drill down on 

this—— 

Dr. BUDETTI. We would be happy to—— 

Senator JOHNSON. So then what percent of the improper payments are actually followed up on? 

Dr. BUDETTI. So—— 

Senator JOHNSON. I mean, so that the auditing firms, what percentage of claims that are viewed as improper do we actually take 

a look at and try and do something about? 

Dr. BUDETTI. So, in the national sample, all of the claims that 

are identified out of the 70,000 or 80,000 claims, all the ones that 

are identified as improper, which may be 7,000, 8,000, 10,000 

claims that are identified as improper, all of those are followed up 

on. But that is a very small sample, because then from that sample, we extrapolate to the national total of improper payments. 

Now, that is a very different issue, as I am sure you appreciate, 

that if you do a random national sample, you have identified what 

the number is, but you have not identified what the individuals are 

or entities are that you would need to go after—— 

Senator JOHNSON. Right. So I realize that directs your efforts—— 

Dr. BUDETTI. So, again—— 

Senator JOHNSON. Next question. What percent—— 

Dr. BUDETTI. So we have a separate set of contractors, yet another set of contractors called the recovery auditors, and one of the 
19 

things that drives where the recovery auditors look to recover overpayments is the findings from the analysis of where the improper 

payments are. So if there are improper payments that are being 

made in a certain type of service, then the recovery auditors can 

target that and go after it, and that is very in-depth. 

Senator JOHNSON. OK. I think I understand that. 

Dr. BUDETTI. OK. 

Senator JOHNSON. Again, I am asking a question. What percent 

of the improper payments does Medicare do something with, I 

mean, to actually take a look at, audit, try and get recovery from? 

What percent is that? 

Dr. BUDETTI. I—— 

Senator JOHNSON. Do you know or do not know? 

Dr. BUDETTI. Well, we do something with all of the—— 

Senator JOHNSON. With 61 percent of all the claims that have 

been paid, you do something with it? 

Dr. BUDETTI. We do something with it, but there is no way to 

seek to recover all of those because—first of all, if there is inadequate documentation or if there is a failure to submit the bills in 

a way that meets full Medicare requirements, that is something 

that the recovery auditors can target, but they cannot target every 

type of improper payment. They can only do whatever they can do. 

But we use that information for restructuring our approach to 

dealing with the providers and suppliers, for dealing with beneficiaries, and, of course, we do look at the ones that look the most 

suspicious, and that is where we spend a lot of our time, looking 

at the ones that are suspicious for fraud or abuse. 

Senator JOHNSON. OK. Thank you, Madam Chairman, for indulging me. I still do not understand. I mean, this is incredibly frustrating, preparing for this hearing, trying to understand the system—— 

Senator MCCASKILL. Welcome. 

Senator JOHNSON [continuing]. And simply not—OK—— 

Senator MCCASKILL. We have a lot more to go. 

Senator JOHNSON. Welcome to big government. 

Senator MCCASKILL. We have a lot more to go. Senator Baldwin. 

OPENING STATEMENT OF SENATOR BALDWIN 

Senator BALDWIN. Thank you, Madam Chairman and Ranking 

Member Johnson, for holding this hearing. We do have a lot more 

work to do and I look forward to my service on this Subcommittee 

and the efforts we will take to protect taxpayer dollars by rooting 

out fraud, abuse in our government programs. 

At a time when so many lawmakers are looking at cuts to Medicare benefits for seniors, I believe it is critically important that we 

do everything in our power to eliminate Medicare waste. According 

to the GAO, Medicare reported more than $44 billion in improper 

payments in 2012, and a recent RAND Corporation study found 

that fraud and abuse cost Medicare and Medicaid as much as $98 

billion in 2011. Every Medicare dollar saved through fraud prevention and detection protects Medicare benefits for current and future 

generations, and we know that every dollar invested to fight Medicare fraud results in approximately $1.75 in savings, according to 

the Congressional Budget Office (CBO). 
20 

I really deeply appreciate the work that all of you do to maintain 

the integrity of the Medicare program, and I also appreciate the 

work of the Subcommittee to call attention to particular bad actors 

in the durable medical equipment industry. We must crack down 

on those companies whose business practices involve preying on 

our most vulnerable citizens and seniors. 

You all have a really tough job to do and I want to look at this 

in a slightly different way, because we have to be careful about attributing the practices of certain bad actors within the durable 

medical equipment industry to the industry as a whole because 

there are certainly good actors out there. And in my home State, 

we have a number of excellent durable medical equipment suppliers, including a vibrant community of small businesses, momand-pop shops that have been serving Medicare patients and 

health systems for more than 40 years. 

Along those lines, I want to perhaps ask you, Mr. Wilson, because you focus so much on the competitive bidding program as a 

tool for reducing Medicare spending, I support the overall goal of 

creating a fair marketplace for durable medical equipment suppliers and reducing costs, without question. However, I fear that 

the current competitive bidding program is designed in a way that 

will exclude many of Wisconsin’s small businesses that have provided valuable medical products for many years. 

So round two of the competitive bidding program has reached 

Wisconsin and the prices go into effect, as you referenced, in July. 

And I have heard from a number of respected companies—that are 

now completely shut out of providing services to Medicare beneficiaries for the next 3 years. It includes one company that has 

been serving Southeast Wisconsin for 39 years. Another, an independent business owner in Baraboo Wisconsin, serving principally 

a rural area who shares with me, she says, ‘‘I currently employ 13 

full-time people and one part-time and I do not think our company 

is going to survive.’’ 

As the competitive bidding process expands over the coming 

months, I think we really have to monitor carefully the impact that 

this expansion has on small businesses in my State and throughout 

the country. And if the program hurts small business and patient 

access, particularly rural patient access, I think we have to continually evaluate and reevaluate. I also support consideration of other 

market-based bidding programs that will drive down Medicare 

spending without the adverse effects that I fear that the current 

program might have, or will have, on small businesses. 

Before turning to you, Mr. Wilson, to talk about how you are 

monitoring the effects on small businesses, I also want to just note 

that we have to really be mindful about how our current audit 

practices impact patient access to needed medical products. One of 

our small prosthetic makers in the city of Madison, for example, 

who creates prosthetic legs, he reports that his Medicare claims 

have been all tied up in audits, and these claims have ultimately 

been approved, but in some instances, he has waited for over a 

year for payment. And as a result, many of his clients have had 

to wait significant times to receive their prostheses. For someone 

who crafts legs for some of our most vulnerable Americans, includ-
21 

ing veterans, I think we have to make sure that our audit practices 

contemplate these challenges. 

So, again, you have a really difficult task and I am very excited 

that we are focusing on ways to really get at the fraud. Chairman 

McCaskill, I have to say, when you were talking about the example 

of Med-Care, you may know that I was raised by my grandparents 

and I remember not so much in this area but in perhaps the charitable realm, that my grandmother would get solicitations—she was 

a very generous woman—would get all these solicitations for charities that sounded like legitimate charities, but they were really 

just a word different and that is very troubling to me. I am so glad 

for what you do, but I would like to hear what your safeguards are 

for making sure that the good actors still have a fair shake. 

Mr. WILSON. Thank you, Senator Baldwin, for your comments 

and your questions. A few things I would say at the outset. I think 

that a lot of the problems related to fraud and abuse, related to audits, are symptomatic of a system where we pay too much and that 

generates sort of a dynamic of—and an incentive for—suppliers to 

bill for things that patients do not need. And I think, again, if we 

can bring the price down and deal with that underlying problem, 

I think that will go a long way toward some of these other things 

that we talked about. 

With respect to small suppliers and competitive bidding, that is 

something that Congress in statute asked us to look at very closely 

and be mindful of in our programs, and we did some very specific 

policies to address small supplier issues, worked with the Small 

Business Administration (SBA) to establish a definition of a small 

supplier, built policies around that definition, such as a small supplier target where 30 percent of the contracts would go to small 

suppliers. In fact, in round two, it is 63 percent of the contract suppliers meet that CMS Small Business Administration standard. So 

we are very delighted to see that. 

I think that it is true that the statute requires there be winners 

and losers under the competitive bidding program, so you do have 

other small suppliers that did not get a contract. One of the things 

that we are seeing now is many small suppliers working with contract suppliers as either a subcontractor or helping with distribution, patient set-up, patient education, so still being able to participate in the program and to earn a living. 

Other small suppliers can continue to participate with Medicare 

by being a grandfathered supplier. They can continue to treat their 

existing patients for oxygen, other types of rental equipment. So, 

again, another opportunity to participate. 

And they can also continue to provide other services that do not 

fall under competitive bidding. So there are opportunities to continue to operate and we hope that suppliers will take those. And, 

again, we are seeing it. 

Rural suppliers—the program does not affect areas other than 

metropolitan areas and surrounding suburban areas at this point. 

So true rural areas are not affected by competitive bidding. Those 

suppliers can continue to operate. So I think that is a very important point to make. 

And with respect to the supplier that is having difficulty with an 

audit for the prosthetics that they provide, if your office would like 
22 

to provide us with information, that is something we would be 

happy to look into. I could not say what the particular issue is, and 

I may be speaking for Dr. Budetti, but I am happy to look into 

that. 

Senator BALDWIN. We will take you up on that. Thanks. 

Senator MCCASKILL. So let me see if I can correctly state this. 

Although I have different numbers about what the total is that you 

spend on medical equipment, I think it is fair, if everyone would 

agree, that we can use a ballpark figure of $10 billion. Any problem 

with that from any of the witnesses? OK. Is that fair, ballpark, $9, 

$10 billion? 

Mr. WILSON. Ballpark. 

Senator MCCASKILL. OK. $9, $10 billion. OK. So your statistically valid sample says your improper payments in that universe 

is 66 percent in 2011, correct? 

Dr. BUDETTI. Yes. 

Senator MCCASKILL. OK. 

Dr. BUDETTI. It is around 66—— 

Senator MCCASKILL. So, now, for fee-for-service, the same statistically valid sample showed improper payments of 8.5 percent, correct? 

Dr. BUDETTI. For things other than DME, yes. 

Senator MCCASKILL. OK. So DME is 66 percent and the rest of 

it is 8.5 percent. 

Dr. BUDETTI. Right. 

Senator MCCASKILL. OK. You are in trouble. 

Dr. BUDETTI. We are. 

Senator MCCASKILL. This is a big problem. 

Dr. BUDETTI. We acknowledge that—— 

Senator MCCASKILL. OK. 

Dr. BUDETTI [continuing]. And that is why we have—— 

Senator MCCASKILL. Now, let us take it one step further. 

Dr. BUDETTI [continuing]. Seriously. 

Senator MCCASKILL. In 2011, our investigation shows, based on 

facts and figures you gave us, that you recovered $34 million in improper payments on DME in 2011. 

Dr. BUDETTI. I believe that is the right number, yes. 

Senator MCCASKILL. OK. So we have a ballpark $10 billion. Let us say $9 billion to be fair. We know 66 percent of it is improper 

in some regard. It may be technical. It may be fraud. It may be all 

kinds of problems there. And we are getting $34 million back. 

Now, these auditors, these recovery auditors, that is terrible. So 

I have to assume they are not working on a contingency. 

Dr. BUDETTI. The recovery auditors do work on a contingency—— 

Senator MCCASKILL. OK. Well, I cannot imagine how bad they 

must be. 

Dr. BUDETTI. Well, I think it has to do with which areas they 

are, in fact, looking at—— 

Senator MCCASKILL. Doctor we have 66 percent improper pay- ments on $10 billion and they find $34 million? That is like—— 

Dr. BUDETTI. Senator, let me—— 

Senator MCCASKILL. That is like me seeing a penny over there 

and saying, boy, I picked it up. Pay me for it. How much of their 
23 

contract is based on how well they do and how much of it do they 

get regardless of whether or not they are complete failures at it? 

Dr. BUDETTI. So the recovery auditors look at all the possible 

sources of overpayment recoveries as well as, of course, making up 

for underpayments where we underpaid somebody across the Medicare fee-for-service program. So DME at $10 billion does have a 

very high overpayment rate, improper payment rate. There is no 

doubt about that. 

But when I said, Senator, to Senator Johnson earlier that we 

were looking at three areas within DME that account for about half 

of that improper payment rate and that is oxygen supplies, glucose 

monitoring supplies, and nebulizers with related drugs. So these 

are generally legitimate services that went to legitimate beneficiaries, to a large part, and what we need to do is make sure that 

the documentation and the billing practices and all of the other approaches are correct. And then we have individual targets. We have 

individual initiatives to deal with each one of those. You pointed 

out—— 

Senator MCCASKILL. OK, then let us break this down this way. 

Dr. BUDETTI. OK. 

Senator MCCASKILL. I get the point you are making. You are saying some of this is technical and it is not really somebody ripping 

off the system. It might be technical violations—— 

Dr. BUDETTI. Right. 

Senator MCCASKILL [continuing]. Because of the areas where so 

many of them are. Let us do it this way. When you did the national 

sample and statistically valid, did you ask them to break out a statistically valid sample of how much of that was, in fact, fraud and 

waste? 

Dr. BUDETTI. So, that has been one of the areas that we have 

been working on, because the way that the statistical sample is 

structured and the way that it measures improper payments is not 

a very sensitive tool in terms of actually looking at fraud. 

Senator MCCASKILL. Well, then why do we have it? What is the 

point if we are not going to get the money back? Why are we auditing anything if we are not trying to get the money back? This is 

like a bureaucratic dance if it does not mean anything. This is a 

giant waste of money, that we are doing a statistically valid sample, we are figuring out a 66 percent figure, but we are collecting 

$34 million. Either you are sampling wrong—and I am a former 

auditor—either you are sampling wrong and you are not focusing 

your statistic sample on trying to find the fraud and waste, or your 

auditors are complete failures in going after the money. 

Now, the next question is for you, Ms. Stanley. We now know 

that we have 66 percent that is wrong some way. Now, you are 

supposed to be figuring this out. Why, when you know that somebody has more than 50 percent of the documentation they have 

sent in is wrong, why do you not quit paying them until you figure 

it out? 

Ms. STANLEY. And that is really, what we do in—— 

Senator MCCASKILL. No—— 

Ms. STANLEY [continuing]. From the ZPIC perspective. Well, I am 

just talking about from the ZPIC—— 

Senator MCCASKILL. OK. When can you quit paying them? 
24 

Ms. STANLEY. Once we have a credible allegation of fraud, we 

can—or we have an overpayment that we know exists. We may not 

know exactly—— 

Senator MCCASKILL. OK. Let me ask you this. Let me give you 

a hypothetical. 

Ms. STANLEY. OK. 

Senator MCCASKILL. It comes to your attention that someone has 

billed Medicare for a sleep apnea machine for someone who is dead. 

Does everything stop in terms of paying that provider at that moment? 

Ms. STANLEY. We would, of course, verify, in light of Senator 

Baldwin’s comment about that whole balancing act of making sure 

that this is, as you say, a bad actor—— 

Senator MCCASKILL. Really dead? 

Ms. STANLEY. Well, we would want to verify that this is not just 

an error on their part. What normally we would see is—you are 

going to see that happen more than once. You are not going to just 

see that on one claim. You are going to know that this is a repeated thing—— 

Senator MCCASKILL. When do you pull the plug? 

Ms. STANLEY. As soon as we have a credible allegation—— 

Senator MCCASKILL. So, what percentage of the cases that your 

Zone has worked, what percentage do you pull the plug on? 

Ms. STANLEY. I do not know if I can give you a credible number 

of that—— 

Senator MCCASKILL. Dr. Budetti, when are they allowed to pull 

the plug? When can they say, we are not paying you any more. 

There are too many problems—and especially with this analytics 

you are going to get. Do you all have the procedures in place? You 

say you are going to have advance analytics. 

Dr. BUDETTI. Yes—— 

Senator MCCASKILL. At what point in time do you have the authority, and do we need to give you more authority to say, you are 

done. We are not paying you until we figure this out. 

Dr. BUDETTI. So, we do have very strong authority that was 

under the Affordable Care Act, which Ms. Stanley referred to, 

which is to suspend payments, ending the investigation of a credible allegation of fraud. And when we have a credible allegation of 

fraud, then we consult with the Office of Inspector General and if 

there is, after that consultation, we are in a position then to suspend payments. Suspending payments is an intermediate measure. 

It stops the payments at that point in time, but we still have to 

do all of our additional work to see whether or not that particular 

supplier or provider should be kicked out of the program, whether 

their billing privileges should be revoked—— 

Senator MCCASKILL. Right. 

Dr. BUDETTI [continuing]. Whether we should refer them to law 

enforcement—— 

Senator MCCASKILL. And maybe—— 

Dr. BUDETTI [continuing]. For additional investigation—— 

Senator MCCASKILL. Right, or maybe we go back and try to get 

some of the money. 

Dr. BUDETTI. And, in fact—well, when we suspend payments, 

then, depending upon the kind of claim that is coming in and 
25 

whether it would otherwise have been approved for payment, that 

money can go into an escrow account that we then have if later on 

we can declare an overpayment exists and we can collect that overpayment. So that is a very useful tool. It is one of the tools that 

we use. 

Another way of stopping payments involves looking at the claims 

and not paying them until they have been reviewed, so pre-pay review also can stop the payments until the claim is being reviewed. 

And then, of course, there is also, as I mentioned before with the 

payment contractors, the MACs, there are many ways that we can 

introduce ways to block payment based upon the experience 

that—— 

Senator MCCASKILL. Well, that all sounds good in theory, except 

we are going to followup on this subject over the next 2 years. It 

does not do any good for us to have all this in place if you have 

these kind of numbers in terms of money going out the door. 

And I need to finally ask this question and then I will turn it 

over to Senator Johnson, and I will probably have some more after 

he finishes, but how are the auditors paid? Can you legally put out 

a proposal that you will hire people to go after improper payments 

in the durable medical equipment area and you will not pay them 

anything, except they get 10 percent of everything that they recover? 

Dr. BUDETTI. So that is the Recovery Auditor Program that is in 

statute, and that is how the recovery auditor contractors, what are 

called the RACs—— 

Senator MCCASKILL. So they get nothing if they do not recover 

anything. 

Dr. BUDETTI. That is correct. Their payments are based upon 

their recoveries, and they work with the Centers for Medicare and 

Medicaid Services in terms of their priorities—— 

Senator MCCASKILL. Well, how many contractors do you have, if 

you are only getting $34 million? 

Dr. BUDETTI. So, Senator, one of the aspects of this that maybe 

I have not communicated adequately is that improper payments 

are payments that were improper when they were made, but many 

of those improper payments could be proper payments if the billing 

was correct or if the documentation was correct—— 

Senator MCCASKILL. But you do not know what percentage? 

Dr. BUDETTI. Well, actually, we do—— 

Senator MCCASKILL. What is it? 

Dr. BUDETTI [continuing]. A very high percentage of them—and 

that is why, when we review them, we learn from the experience—— 

Senator MCCASKILL. OK. What percentage of the payments you 

are making should not have been made, based on a fraud, waste, 

or abuse? What percentage of the 66 percent? Half? A third? Twenty percent? Do you have any idea? 

Dr. BUDETTI. I can tell you that the two numbers are very different. We believe there is waste and fraud—— 

Senator MCCASKILL. You do not know the number, Dr. Budetti, 

do you? 

Dr. BUDETTI. Senator, fraudsters are very good at making their 

claims look real—— 
26 

Senator MCCASKILL. I agree. 

Dr. BUDETTI [continuing]. So our system for measuring improper 

payments is not designed to—and is not really appropriate for 

measuring fraud. We are separately designing an approach to 

measure—— 

Senator MCCASKILL. Where is the system that measures the 

fraud, then? That is what I am interested in. 

Dr. BUDETTI. So—— 

Senator MCCASKILL. I want to get the money back. 

Dr. BUDETTI. I totally agree with you, Senator. Actually—— 

Senator MCCASKILL. It does not appear that you are that focused 

on that, because it looks like you have this bureaucratic system 

where you are figuring out improper payments, and now you are 

trying to tell me, well, never mind that big number. It does not 

really matter because, really, that is just paperwork and it is not 

really fraud. 

That is what we are here about today. We are here to figure out 

how to get the money back from people who have ripped people off 

and how we keep our money being spent on that in the future. And 

if your systems now cannot tell you those numbers, if you cannot 

sit there as the Head of Integrity for CMS and tell me, we think 

about 20 percent of the money going out the door every year should 

not be going out the door, if you have no idea what that number 

is, then there is no integrity in your program. You are in charge 

of knowing whether there is integrity and you are telling me you 

do not know what percentage of the 66 percent is even money that 

should not have been paid. 

Dr. BUDETTI. Senator, I could not agree more with the direction 

you are going in terms of our job is to protect the Trust Funds and 

protect the taxpayers and to make sure that money is not paid improperly, and certainly to go after the people who are, in fact, stealing from the programs. 

We have been, and we are working on a separate approach that 

is designed to measure probable fraud. We cannot just go out and 

ask people, did you commit fraud? We cannot do an estimate that 

works that way—— 

Senator MCCASKILL. I can show you how to do this. Prosecutors 

can. 

Dr. BUDETTI. Prosecutors could, yes. 

Senator MCCASKILL. We catch fraudsters all the time. And, by 

the way, you have—— 

Dr. BUDETTI. Absolutely right. 

Senator MCCASKILL [continuing]. So much documentation here. I 

look at some of these letters that just were sent in to us, frankly, 

some of this is like taking candy from a baby. And if the Federal 

system is not interested in doing this, you have State and local 

prosecutors I think you could get interested. 

I will turn it over to Senator Johnson. 

Senator JOHNSON. Thank you, Madam Chairman. By the way, 

good questions. I have the exact same questions. 

I think what we really need to do is work together and work with 

CMS to get the answer to your question in terms of what percentage really is fraud related? How much of the improper payments 

really are paperwork violations, technicalities that are actually ad-
27 

1Letter submitted by American Association for Home Care appears in the Appendix on page 

90. 

dressed by the suppliers and then get paid? I mean, we are missing 

some basic information. Again, welcome to big government. 

Also, I appreciate Senator Baldwin’s comments about not painting with a broad brush in terms of the bad actors. We want to definitely discipline and go after bad actors versus the quality suppliers throughout the industry. 

In that vein, we were working with the American Association for 

Home Care to try and get answers to some of these questions, get 

their perspective, and they sent me a letter1 I would like to enter 

into the record, with unanimous consent. 

Senator MCCASKILL. Absolutely. 

Senator JOHNSON. Thank you. An interesting statistic that I 

came up with, also, that we found out, is that when the payments 

are being adjudicated, 53 percent that were termed ‘‘improper’’ or 

where there was—I am not exactly sure what this represents, but 

53 percent by Administrative Law Judge (ALJ) are actually overturned. So, in other words, if they were basically judged by CMS 

to be improper, now 53 percent when adjudicated are actually proper. So I am not quite sure what that tells us, but we have a problem here. 

What I would like to do is—again, this is welcome to big government—so, Ms. Stanley, you have some private sector experience, so 

I would like to talk a little bit about the difference between the 

problems we are seeing here in terms of how do we get our arms 

around, how do we control waste, fraud, and abuse in a public payment system, a big government system, versus how does the private sector do it, because we are talking about Medicare fee schedules paying three to four times the rate, I guess, of private insurers. And I know a lot of people like beating up on private insurers, 

but they do something to control that. 

Can you just speak, in general, to the difference in the type of 

fraud that private insurers are dealing with versus the Medicare 

system? 

Ms. STANLEY. I will try. I think that a lot of the issues are similar that you see on both sides. One of the big differences that I 

noted when I came to Medicare was that, we had so much control, 

I guess, for lack of a better word, over our panel of physicians on 

the private side. If you are an Health Maintenance Organization 

(HMO), you are controlling kind of that market and who you are 

letting into that program. 

I think that CMS has made extreme progress in heading in that 

direction with more control over provider enrollment, especially 

around DME. The National Supplier Clearinghouse that Dr. 

Budetti mentioned really has taken, I think, just leaps and bounds 

of better controls around how they are looking at providers and 

treating it much more like the private side. 

Senator JOHNSON. OK, but in the private sector, a private insurance company does not make payments on claims and then auditors come in there and say, well, boy, 66 percent of those were improper—— 

Ms. STANLEY. Well, you are right. 
28 

Senator JOHNSON. I mean, what percentage would it be? 

Ms. STANLEY. One of the advantages—I would not want to answer that, but one of the—because I have been out of it for some 

time—— 

Senator JOHNSON. OK. 

Ms. STANLEY [continuing]. But one of the big differences, I think, 

as well, is things like precertification. Private insurers will set up 

and they will say, look, in order to get this supply or this surgery, 

we are going to have you precertify. Medicare is a fee-for-service 

program and so we have not went in that direction. Of course, on 

the managed care side, you have HMOs manage care for Medicare, 

but under the fee-for-service side—— 

Senator JOHNSON. But, also, you just have private insurance. 

Again, I know that some people just really hate the thought of profit, but it is a pretty strong discipline in terms of controlling costs, 

is it not? 

Ms. STANLEY. Well, absolutely—— 

Senator JOHNSON. And the private sector—— 

Ms. STANLEY [continuing]. Is looking at—— 

Senator JOHNSON [continuing]. Does just a far better job controlling costs, preventing fraud within the private reimbursement system. Again, if you want to really know the root cause of the problem with the out-of-control health care spending in general, it is because we have separated the consumer of the product from the payment of the product. We did that back in the 1940s and we started 

the third-party payer system. Whether it is government paying for 

it or insurance companies paying for it, the consumer of the product, by and large, does not care what something costs because they 

really do not have that much skin in the game. Yes, there are 

deductibles. There is co-insurance. But, in general, just give me the 

best and we end up with that basic result. 

In terms of how the private sector operates, in terms of how they 

control those costs, talk about their auditing system versus what 

you are doing. 

Ms. STANLEY. Wow. I do not know that it is that different. I 

mean, many times, they are responding to complaints. They are 

doing some data analysis. In some cases, to be honest, it is at least, 

and again, I have not been on that side of the house—— 

Senator JOHNSON. OK. So let me change gears, then. 

Ms. STANLEY [continuing]. For 13 years. 

Senator JOHNSON. Let us talk about—— 

Senator MCCASKILL. She was about to say something nice 

about—— 

Senator JOHNSON. Oh, I am sorry. It is—— 

Senator MCCASKILL. Let her say something—— 

Senator JOHNSON. Oh, OK. Sure. Well, I am running out of time. 

Senator MCCASKILL. You can take more time—— 

Senator JOHNSON. No, go ahead. 

Ms. STANLEY. Go ahead. That is fine. 

Senator JOHNSON. No, go ahead if you were going to say something really nice. 

Ms. STANLEY. I was going to say that I think that, in some ways, 

Medicare is so much more sophisticated. I mean, when I came from 

the private side, we based everything on how Medicare designed 
29 

their payment structures, and that is really what we based a lot 

of our policy and procedure on because Medicare was really so sophisticated in terms of the specific policies and in looking at medical necessity and those kinds of things, not necessarily talking 

about the payment specifically, but just the way that you are administering that. 

And I think that looking at the data analytics side, the fact that 

we are trying to go, CMS is looking more at risk-based, which sort 

of gets to your point, of trying to look at where is the highest risk 

to this program? Where are we going to get the biggest bang for 

our buck, and let us focus those resources on those areas. That also 

keeps us from sort of hounding those physicians or suppliers that 

are trying to do the right things. 

Senator JOHNSON. Let me just move into the private sector side 

of the public system here and Medicare Advantage. Talk about the 

fraud that we are seeing in Medicare Advantage in terms of reimbursements there versus what we see in Medicare and Medicaid, 

because, I mean, my understanding of that is that is a, I guess, a 

voucher program, something like that, where seniors are actually 

buying private health care plans and they have a little more skin 

in the game that way. Do we see the same problem in that, which 

is about a $232 billion a year program, is that about accurate, with 

Medicare Advantage? Dr. Budetti. 

Dr. BUDETTI. So, the improper payment error rate, which is what 

we do measure across Medicare, is—I am trying to come up with 

the number—I think it was on the order of 11 percent this year. 

But, again, that is not a measure of fraud. 

Senator, because you are so interested in the private sector, and 

I would be delighted to provide you with more information on this, 

we have launched over the past year and recently really moved into 

an advanced phase of an active ongoing partnership with the private sector, with health plans, with the Health Care Anti-Fraud 

Association, with the States. We are all now working together 

under a Health Care Fraud Prevention Partnership, and this will 

involve everybody sharing information on who is perpetrating exactly which kind of scams. We are very encouraged. The private 

sector plans and associations that are working with us are extremely enthusiastic about this. 

We are building this as a long-term interaction that will mean 

that fraudsters will not be able to, for example, bill one health plan 

for 8 hours a day, bill another health plan for 8 hours a day, bill 

Medicare for 8 hours a day, and bill Medicaid for 8 hours a day 

and get away with it because nobody is seeing 32 hours of billing 

because we will be sharing the information among all of the payers 

and building the sophisticated analytics around the shared information. 

And so this is a very important step forward, that if you would 

be interested, we would be delighted to provide you with more information on. 

Senator JOHNSON. OK. Again, that sounds like a positive cooperation and coordination. But, again, it is not speaking to the 

benefit of utilizing more of a private sector model, where individuals have more skin in the game or more control over what they 

are spending, making wise consumer choices, versus the govern-
30 

ment just coming up with a fee schedule that is paying three or 

four times the cost of different types of products. 

My concern is you will never made that system work, and I think 

that is really what we are seeing here in this hearing. Medicare is 

how many years old, and it is just coming to grips with some of 

these, really, overpayment issues. 

But, anyway, that is enough for my time right now. Thank you. 

Senator MCCASKILL. Let me talk about the specifics of some of 

the complaints that I got from constituents. It is my understanding 

that the rule does not allow telephone solicitation, correct, without 

some kind of previous permission from the Medicare member that 

is being solicited? 

Dr. BUDETTI. That is correct. 

Senator MCCASKILL. OK. 

Dr. BUDETTI. Cold calls are not allowed. 

Senator MCCASKILL. Cold calls are not allowed. Clearly, we have 

received a lot of complaints about cold calls. I think we got almost 

as many as you did, according to your information you gave us. You 

all briefed us that you had 70 complaints that were investigated 

last year. We got more than that—I am sure you got many that 

were not investigated, but you had 70 that were investigated. 

Has a DME supplier ever been excluded from the program based 

on being caught doing this? 

Dr. BUDETTI. I believe you are aware from the information we 

provided, Senator, that growing out of the 75, I believe it was, that 

were investigated, most of those led to various kinds of corrective 

actions. There were problems, but most of them led to various 

kinds of corrective actions. One of the suppliers did, in fact, have 

their billing privileges revoked, but then was able to demonstrate 

that they were stopping and that they were engaging in proper conduct and so they were readmitted into the program. 

But I point out that there are lots of other consequences or people who are engaging in unlawful telemarketing to Medicare beneficiaries. In particular, any claims that they subsequently submit 

that were generated by that unlawful telemarketing are false 

claims against the government, and both the telemarketers and the 

suppliers can be liable criminally, civilly, for submitting false 

claims. And recently, there was a case that was reported where, I 

believe it was close to $18 million was paid in precisely that circumstance. 

So in addition to the work that we do to impose administrative 

controls and corrective actions, there are lots of other consequences 

for telemarketers if that leads to false claims against the government. 

Senator MCCASKILL. I would really like a breakdown of how 

many immediate consequences resulted from a violation of the telemarketing laws, because this is one of these areas where I really 

believe a zero tolerance would have a wonderful deterrent effect. 

You all have an awful lot on your plate. 

And I do want to compliment you. I know I am tough on you, 

Dr. Budetti, but I do want to compliment you in that, overall, the 

administrative costs of Medicare are very reasonable. In fact, I believe—and this is where my friend and I, we agree on going after 

fraud and waste, we probably have some other differences of opin-
31 

ion—I am aware that the administrative costs for Medicare Advantage are higher than Medicare, that, in fact, we spend more on 

overhead on Medicare Advantage than we do on the basic Medicare 

program, and that was—Medicare Advantage came about because 

the private sector came and said, give us Medicare. We can do it 

cheaper. 

Well, as it turned out—in fact, the $500 billion that is thrown 

around in political campaigns is all about pulling back some of that 

money that has enhanced the bottom line of those private Medicare 

Advantage companies that said they could do it cheaper, and it 

turned out they could not. They did not do it cheaper. It was more 

expensive, not less expensive. And that is the $500 billion that I 

think the Republicans and Democrats agree on, because it is in 

everybody’s budget. It just becomes the whipping post at election 

time. 

I really am worried about whether or not we are sending the 

right signal about the tolerance of this and whether or not cases 

are being criminally prosecuted. Do you know, Dr. Budetti, what 

percentage of the cases that are referred to law enforcement end 

up in a civil settlement versus a criminal conviction versus time behind bars? 

Dr. BUDETTI. With respect to telemarketing per se or with respect to wider—— 

Senator MCCASKILL. The whole caboodle, fraud and DME. 

Dr. BUDETTI. I do not have that breakout, Senator, but I would 

be delighted to work with our law enforcement colleagues and get 

you a response. 

Senator MCCASKILL. I found out the hard way in this Committee 

that when I first talked to the U.S. Immigration and Customs Enforcement (ICE) about how many employers had gone to jail for 

knowingly hiring undocumented immigrants, they had no idea. And 

the reason they had no idea is because, frankly, they were not 

doing it. They did not want to keep track of it because it was not 

very good. 

So I know if you keep track of it, we can hold you accountable. 

And I would certainly urge you to get that information to us and 

then have it in a way, just like you tracked how many overall suppliers you have, track how successful you are at putting people in 

prison that do this, not saying, we are going to slap you on the 

hand and we paid you $140 million and you gave us five, so we are 

going to call it a day. You have probably got money stashed no telling where, and we are going to take $5 million from you and you 

are going to walk away, and before you know it, you will be in a 

fancy place somewhere else with all the money you have made off 

this program and you are never going to spend a day behind bars. 

Dr. BUDETTI. Senator, I can tell you that the Health Care Fraud 

Prevention Enforcement Action Team and the associated strike 

forces have been extremely successful in both increasing the likelihood of convictions and also the speed with which convictions are 

occurring—— 

Senator MCCASKILL. That is terrific. 

Dr. BUDETTI [continuing]. And I will be delighted to get you the 

detailed data on that. But I must say, I think that what you just 
32 

expressed, I can identify with many of the comments you just 

made, Senator. 

Senator MCCASKILL. Thank you. And why was the rule scaled 

back just to include phone calls? Why can we not include e-mails 

and text messages and all of those? Is this over-hyper legal counsel? Is that what this is? 

Dr. BUDETTI. It is—I would never use that phrase, Senator. 

Senator MCCASKILL. I can. I am a lawyer. [Laughter.] 

Dr. BUDETTI. We do not have the statutory authority to regulate 

beyond telephone marketing, and we would be delighted to discuss 

that with you further if you would like to. 

Senator MCCASKILL. And I should know—and I will check—the 

lawyer said the underlying statute specifically says telephone only? 

Dr. BUDETTI. Yes. We are limited to telephone only. That is the 

way—— 

Senator MCCASKILL. And when was this all written? 

Dr. BUDETTI. I do not know the date of that, but I will be happy 

to get you all the details. 

Senator MCCASKILL. Shame on you. 

Dr. BUDETTI. We would be delighted to discuss this with you in 

more detail, Senator—— 

Senator MCCASKILL. Yes, because as you know, our challenge on 

Medicare is the demographics, and I can assure everyone that in 

the not-too-distant future, you are going to have a whole lot of 

Medicare participants that are relying more on e-mail and text 

message than they are phone calls, if my life is any example. I am 

not there yet. I do not even want to say how close I am because 

it is, frankly, frightening to me that I am going to be there before 

too long. I really think we have to do whatever is necessary. 

So I would look for some guidance from you on specific statutory 

language you need to prohibit this cold calling in any form. 

Dr. BUDETTI. So, we would be delighted to work with you and 

your staff and the Subcommittee and any interested members, Senator. 

Senator MCCASKILL. How about the bonding? I know we have 

bonding now. How successful have we been at going after these 

bonds? 

Dr. BUDETTI. The durable medical equipment suppliers are required, as part of their enrollment process—and we have verified 

that this is the case—to have security bonds in place. The security 

bonds have been in place, I believe it is now since 2009, and when 

we get to the point where there is a debt that has not been collected, then we are able to move against the security bonds. 

We have, in the past a little over a year been implementing the 

collection procedures against the surety bonds. We have our work 

cut out for us to improve that process and to make sure that we 

are going against it. Fortunately, although the bond may have been 

held by somebody who has disappeared and who has no assets, the 

security—the surety is still there that holds the surety bond, and 

so we can go after the surety bonds. And so this is an area that 

is very active in terms of improving our process and improving our 

collections against the surety bonds and we are pursuing this with 

a great deal of energy. 
33 

Senator MCCASKILL. I would like the accountability metrics on 

that, too. I would like to know how many bonds we have gone after, 

what percentage of the bonds have been recovered, because I want 

to make sure that we are building the data, because I believe that 

the Secretary has the authority to increase the size of those 

bonds—— 

Dr. BUDETTI. That is correct. 

Senator MCCASKILL [continuing]. And if we do not have that data 

at the tips of our fingertips, then there is really never going to be 

a time she is going to increase those bonds because she is not going 

to have the data to support the decision. 

Dr. BUDETTI. Senator, I share that entirely, and we are in the 

process now of building the reporting and data systems so that we 

can do exactly what you just said. 

Senator MCCASKILL. OK. That is great. I believe you covered the 

competition very well, and I know we are going to take a lot of the 

excess out with that. 

I am happy now to turn it over to Senator Johnson, if you have 

any other final questions. 

Senator JOHNSON. Yes. Thank you, Madam Chairman. 

As long as we are talking about different types of certification, 

do you have the statistics on how many suppliers there are? I have 

seen 100,000. I have seen 15,000. How many suppliers are 

there—— 

Dr. BUDETTI. We are down to about 96,000 now, Senator. 

Senator JOHNSON. Ninety-six thousand. How many of those—do 

you have the statistics on terms of how many are certified, how 

many have been certified with a site visit? 

Dr. BUDETTI. So, all of those suppliers went through the initial 

enrollment process and screening, and then when they were subject 

to surety bonds a few years ago and now are subject to advanced 

scrutiny, enhanced scrutiny under the Affordable Care Act and revalidation. We are in the process of revalidating all 1.5 million—— 

Senator JOHNSON. Is that like a desk revalidation, though, or is 

it site visits or—— 

Dr. BUDETTI. No, Senator. They are all subject to unannounced 

site visits, and when the National Supplier Clearinghouse notices 

any kind of elevated fraud risk for a given supplier, they raise the 

likelihood of scrutiny of going back and doing—— 

Senator JOHNSON. OK. Again—— 

Dr. BUDETTI [continuing]. Subsequent site visits and so forth. 

Senator JOHNSON. Subject to is different from actual site visits. 

So I—— 

Dr. BUDETTI. No—— 

Senator JOHNSON. Let me just ask—— 

Dr. BUDETTI. That is the 86,000 site visits that I referred to, Senator, so far. 

Senator JOHNSON. Eighty-six thousand site visits. OK. Good. So 

we may just ask for more detail on that a little later on. 

Dr. BUDETTI. Sure. 

Senator JOHNSON. We talked about some of these telemarketing 

scams and the requirements that you have to have been a customer. I know one of the companies we invited has been in the acquisition mode. What is the law? What are the rules governing a 
34 

business that acquires a bunch of other businesses that have a 

bunch of customers? Does that become part of their customer base 

so that they can take those Medicare numbers and apply them to 

their entire product line against all their companies? 

Senator MCCASKILL. That is a good question. 

Senator JOHNSON. Do you know if that is? 

Dr. BUDETTI. So, I think it would depend on whether they are 

going to be essentially a new supplier or because they are all subject to the enrollment and oversight responsibilities. I think that 

our ability to track that will be greatly enhanced with some enhanced proposed rules that actually we are announcing today, Senator. And so—but the companies—it is a marketplace. The companies can engage in the transactions that you mention. But then 

they are going to be subject to the exact same kind of scrutiny. 

They cannot just simply—— 

Senator JOHNSON. I understand, but that is a way to dramatically increase your reach in terms of being able to telemarket to 

customers, because now you can legally do it because you bought 

a company who has a lot of customers and now you can spread that 

over your entire product line, correct? OK. 

Ms. Stanley, let us talk a little bit about the private sector. You 

had mentioned those six frauds. Do those same six types of 

frauds—are those commonplace in private sector insurance companies, I mean, doing the exact same thing, and how prevalent? 

Ms. STANLEY. Well, it kind of depends on the individual insurance plan. If you are talking about an HMO, where they are doing 

precertification, you are not going to see things like services not 

medically necessary because you have already screened that up 

front. But most of the same thing with, say, the example that I 

gave of hospice—— 

Senator JOHNSON. I mean, telemarketing fraud? Is that common 

in private insurance? 

Ms. STANLEY. Again, I have not done that—— 

Senator JOHNSON. Probably not. What about services not provided? I mean, generally, are not private sector—again, I bought 

health care. We were paying these claims. I—— 

Ms. STANLEY. I know that we would have—again, this has been 

13, 14 years ago—we would certainly have instances of services not 

provided, but I think moreover it was more focused on either the 

coordination of benefits issues around who was supposed to be paying and also—some of these things, however, are definitely—— 

Senator JOHNSON. But it is—— 

Ms. STANLEY. You see them on both sides. 

Senator JOHNSON. It is safe to say, though, that the instance of 

fraud is far less in the private insurance market, correct? 

Ms. STANLEY. I do not know the answer to that. 

Senator JOHNSON. OK. Let me just conclude with just a couple 

more facts. You raised the $500 billion figure, so let me talk a little 

bit more about that, because that was an old figure. What we are 

looking at right now in terms of the health care law is when it was 

originally passed, it was going to cost a trillion dollars over 10 

years. The current budget window is about $1.7 trillion. And when 

it really kicks in 2016, it will cost about $2.4 trillion over 10 years. 

Again, that is going to be, I am afraid, another government pro-
35 

gram that may not be particularly efficient in terms of how the 

money is spent. 

It was going to be financed by about a half-a-billion dollars’ 

worth of taxes, fees, and penalties, which gives you in the first 10 

years about a half-a-trillion dollars’ reductions in payments from 

Medicare in some way, shape, or form, Medicare Advantage. In the 

second 10 years, I believe it was going to be about a trillion dollars 

in taxes, which means—that is the $716 billion of reduction from 

Medicare, Medicare Advantage, in some way, shape, or form. In the 

full implementation, 2016 through 2025, now you are talking about 

$1.5 trillion of taxes, and that is leaving about a trillion dollars 

coming from somewhere, I guess, Medicare, Medicare Advantage. 

That concerns me. 

When I was at dinner with President Obama—listen, I appreciate the fact that he reached out and we start that process of 

building relationships and start solving these problems—it was interesting during that dinner when he laid out the extent of the 

problem. Pretty accurate, I thought. In terms of the budget, he said 

it is health care spending, which it is. And in particular, he said, 

the problem we have reforming Medicare is that for every dollar 

that Americans pay into the system, they are going to be getting 

about three dollars out in benefits. He also went on to say that 

most Americans do not understand that, which I agree. I do town 

halls all the time. People do not understand the extent of the problem. 

Now, the only way you are going to fix a problem is you have 

to first admit you have one and you have to properly define it, and 

that is what we are trying to do here today, just on the fraud. We 

are trying to get to the definition of the problem. But if you go back 

on a macro basis and you look at the enormous problem, the enormous challenge facing Medicare, I am highly concerned. 

Madam Chairman, again, I appreciate the bipartisan effort here. 

I think as the first act of bipartisanship, we need to come together, 

figure out what we agree on, agree on the facts and figures, whether it is in this micro problem in terms of—overall, it is a big problem, but it is small compared to what we are talking about here, 

a dollar going in and three dollars going out. Now, I really wish 

the President would publicly tell the American public what he told 

us in private, because all I have heard him say publicly is that we 

just need modest reforms to Medicare. I think the result of this 

hearing is that we need far more than modest reforms to Medicare. 

So with that, again, Madam Chairman, I really appreciate this 

hearing. I want to keep working with you on this. I want to get 

to the bottom of what is happening with waste, fraud, and abuse 

in the Medicare system. Thank you. 

Senator MCCASKILL. Well, I think we can, and I think we can 

agree for a lot of reasons—I have heard the President say that publicly. I have heard him say that we have the average recipient of 

Medicare services is getting three times as much in benefits as 

they have paid into the system. I think he said it a number of 

times in public. 

Senator JOHNSON. OK. I stand corrected. 

Senator MCCASKILL. Yes. And I think we all know that is the 

problem, and part of that is, in fact, incentivizing the system ap-
36 

propriately, and I agree with you about making sure that we have 

skin in the game, making sure that we have means testing, making 

sure that we have a system that does not allow bad actors to take 

advantage of the fee-for-service scenario. And some of it is just the 

business models that we have allowed to buildup around Medicare, 

where the more you do, the more you make—not how healthy you 

are, but the more you do. 

I have told this story before, and I will close the hearing with 

this. You would not believe how hard it was for me to get my mother to say to her doctor, ‘‘I had blood work 3 days ago at another 

doctor. I am not going to do it again.’’ She said, ‘‘Well, I cannot say 

that to the doctor.’’ I said, ‘‘Yes, you can. You have had enough 

blood work for this 10-day period. You do not need five sets of blood 

work in a month. We are paying for that. You do not need it.’’ 

But the doctors know that every time they do that, that is something Medicare is going to pay for. And until we get this primary 

care system where we have a lot more oversight from beginning to 

end and more of a continuum of care with the emphasis on healthy, 

the emphasis on skin in the game, I think we are going to continue 

to struggle in trying to bring these health costs under control. 

But this is a big deal, because not only does it cost us a lot of 

money, it is rewarding exactly the kind of behavior that we need 

to be putting in prison in terms of this fraud, and particularly the 

fraud. 

So I look forward to working with you, Dr. Budetti and Mr. Wilson and all of the—I will use the acronym now—ZPICs—and the 

MACs. I would love to meet the MACs. I want to know if they are 

getting only paid for what they recover. They need to hire—there 

are some really good auditors out there that could make a lot more 

money if they went to work for them, because I guarantee you, 

there is a lot of money to be made on going after this money. 

Maybe they do not have the tools. Maybe I need to learn what tools 

they need they do not have in terms of getting after these improper 

payments that are recoverable, because you are doing a miserable 

job at getting the money back in the door. 

So I will look forward to working with you and I will look forward to you having clear and crisp answers to what is the extent 

of money that is being paid that should not be paid in DME, in 

medical equipment. How much is going out the door that should 

not be going out the door? I would love that number. Surely we can 

come up with a number that you are comfortable with, and then 

we can start measuring it and see if we cannot bring it down. I 

would love to see us save a billion dollars in the next 2 years. That 

is a goal that I would like us to set and I think it is achievable 

if we all work together on this, and I look forward to working with 

Senator Johnson. 

We will consider compelling the witnesses’ appearance that did 

not appear today. I think that we want to be very careful about 

this because we do not want to have government being onerous or 

overreaching when it comes to asking people to appear in front of 

the Senate for Committee and oversight work. I will look forward 

to visiting and getting the counsel and advice of the Ranking Member on that, as to how we proceed. I do know that there is a lot 

of private sector that is making a lot of money off the government, 
37 

and part of our job in terms of accountability is making sure that 

we are getting the answers from those companies. 

I have found in the contracting world that when I did listen to 

the companies, not only did I figure out how we could save money, 

I figured out how to make it easier for the majority of the contractors that do business with the government that are doing the right 

things for good value and are saving us money. The privatization 

in many instances does save us money and I want to make sure 

that I always mention that. But getting insight from the private 

sector is very important to this oversight work when those companies do depend on the government for their cash-flow and for their 

profit and loss (P&L). 

So I will look forward to working with you all. I want to thank 

the staff for their hard work on this. I certainly want to thank Senator Johnson, and this hearing is adjourned. 

[Whereupon, at 11:59 a.m., the Subcommittee was adjourned.] 

(39) 

OVERSIGHT AND BUSINESS PRACTICES 

OF DURABLE MEDICAL EQUIPMENT 

COMPANIES, PART 2 

WEDNESDAY, MAY 22, 2013 

U.S. SENATE,

SUBCOMMITTEE ON FINANCIAL AND CONTRACTING OVERSIGHT,

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:02 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Claire McCaskill, 

Chairman of the Subcommittee, presiding. 

Present: Senator McCaskill. 

OPENING STATEMENT OF SENATOR MCCASKILL 

Senator MCCASKILL. Welcome. This hearing is a continuation of 

the hearing that the Subcommittee began on April 24, 2013. Today, 

we will continue the Subcommittee’s oversight of how the Centers 

for Medicare and Medicaid Services pays businesses who supply 

durable medical equipment such as diabetic testing materials, 

CPAP machines, back braces, and power wheelchairs to Medicare 

beneficiaries under Medicare Part B. 

During the hearing on April 24, we heard testimony from CMS 

officials and one of the contractors responsible for conducting oversight of payments for medical equipment. 

We invited representatives of two durable medical equipment 

companies, Med-care Diabetic and Medical Supplies and U.S. 

Healthcare Supply to provide testimony about their companies’ 

business practices, including how their companies market and promote medical equipment supplies to patients and their doctors. 

We also wanted the company representatives to address sample 

reviews by CMS which show very high error rates and denial rates 

for durable medical equipment payments made to the companies by 

the government. 

After receiving the Subcommittee’s invitation to testify, both individuals, through their attorneys, declined to appear voluntarily 

before the Subcommittee. Because Ranking Member Johnson and 

I continue to believe that these companies could provide useful information that would assist the Subcommittee in its oversight of 

this very important government program, we issued subpoenas to 

compel their attendance at today’s hearing. 

I regret that we were forced to use subpoenas to have the opportunity to ask these questions. I believe these witnesses today can 
40 

provide important insights about both the operations of their industry and the oversight and performance of the government. 

I also welcome the opportunity to have a constructive dialogue 

about how to make the system more efficient and effective. I look 

forward to discussing those issues with the witnesses today. 

It is the custom of this Subcommittee to swear in all witnesses 

that appear before us. So, if you do not mind, I would ask you to 

stand. 

Do you swear that the testimony that you will give before this 

Subcommittee will be the truth, the whole truth, and nothing but 

the truth so help you, God? 

Mr. LETKO. Yes. 

Dr. SILVERMAN. Yes. 

Senator MCCASKILL. Thank you very much. 

Let the record reflect the witnesses have answered in the affirmative. 

We will be using a timing system today. We ask that your oral 

testimony be no more than 5 minutes and your written testimony 

can be put in the record at whatever length that you would so desire. 

The first witness to come before us today is John Letko of U.S. 

Healthcare Supply LLC. 

Mr. Letko, it is my understanding that—let me start with this. 

What is your company’s primary business purpose? 

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

Mr. LETKO. Chairman McCaskill, I would like to answer your 

question, but based upon the advice of my counsel, I respectfully 

decline at this time to answer your question based on my Fifth 

Amendment rights in the Constitution. 

Senator MCCASKILL. OK. We respect that right under the Constitution, and we thank you for being here today. We know that 

your company has been speaking to the press about this issue and 

we are hopeful that at some point in time your company will be in 

a position that you could speak to the Committee under oath in the 

same manner that you are willing to speak to the press about this 

issue and we thank you for being here today and you are dismissed. 

Mr. LETKO. Thank you. 

Senator MCCASKILL. The record should reflect that Mr. Letko has 

availed himself of the privileges afforded under the Fifth Amendment of the Constitution to not give testimony that might incriminate him. The Subcommittee hereby respects that right to decline 

to answer the questions and the witness has been excused. 

[Witness excused.] 

We will now go to you, to Mr. Silverman. Mr. Silverman, we appreciate you being here and I am hopeful that we will be able to 

get a lot of good information out of you today. 

Let me start by asking what your role at the company is. 

Dr. SILVERMAN. Good afternoon, Madam Chairman. I would like 

to make an opening statement. 

Senator MCCASKILL. I am sorry. Go ahead. 

Dr. SILVERMAN. Thank you, ma’am. 
41 

Senator MCCASKILL. We are not used to what just happened so 

I got a little off my script here. So, go ahead and make your statement. I appreciate it. 

Dr. SILVERMAN. Thank you, Madam Chairman. 

TESTIMONY OF STEVE SILVERMAN, MD, MED-CARE DIABETIC 

AND MEDICAL SUPPLIES 

Dr. SILVERMAN. I welcome the opportunity to be here at this 

meeting today. My name is Dr. Steve Silverman. I received an AS 

degree in biology in 1975 from Nassau College in New York. I attended the University of Missouri in Columbia, Missouri from 1975 

to 1976. I then graduated from Logan College of Chiropractic in 

Chesterfield, Missouri in 1979 with a dual degree, a BS in human 

biology and a Doctor of Chiropractic. 

I am licensed in the States of Florida and New York. I started 

a multi-specialty center in Florida from 1979 to 1998. The name of 

my practice was American Med-Care Centers, comprised of chiropractors, medical doctors, and exercise physiologists. 

We served private insurance as well as Medicare patients. In 

1999 I left the practice group to form a medical supply company 

named Med-Care Diabetic and Medical Supplies Incorporated. 

Today, my company has in excess of 435 employees all located in 

the United States. Medicare represents less than one half of our 

revenues. We are accredited by the Joint Commission. We are duly 

licensed in all 50 States and territories and I appreciate the opportunity to be here and look forward to your questions. 

Senator MCCASKILL. Thank you very much. You indicated in 

your opening statement that half of your company’s revenues are 

Medicare? 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. What percentage of the revenues—are any 

of the revenues attributed to Medicaid? 

Dr. SILVERMAN. No. A very small percentage, ma’am. 

Senator MCCASKILL. OK. So basically, you are half Medicare and 

half private pay? 

Dr. SILVERMAN. We are also, we have a licensed pharmacy in all 

50 States. We have licensed pharmacists and pharmacy techs. So, 

the other aspect of our income comes through our pharmacies. 

Senator MCCASKILL. I see. OK. Do you know what percentage of 

that might be Medicare D? 

Dr. SILVERMAN. No, ma’am. 

Senator MCCASKILL. Was that information that you could possibly obtain for the committee? 

Dr. SILVERMAN. I am sure I can obtain the information. 

Senator MCCASKILL. That would be helpful. Thank you. 

And, you may have said this in your opening statement and I 

missed it. Did you indicate, is this a privately owned company or 

publicly owned? 

Dr. SILVERMAN. It is privately owned, Madam Chairman. 

Senator MCCASKILL. What did your company receive in 2012? 

What was the total amount of money you received from medical 

equipment supply payments from Medicare in 2012? 

Dr. SILVERMAN. To the best of my knowledge, it was approximately $35 million. 
42 

Senator MCCASKILL. And, is that average for the last 4 or 5 

years? Is that approximately what you received on a consistent 

basis or is that significantly more than you received in prior years? 

Dr. SILVERMAN. It is not significantly more. We have been in 

business since 1999; and subsequently as years have gone on, our 

revenues have increased. 

Senator MCCASKILL. I want to make sure that you know I would 

never ask you to provide any information about specific actions 

that you may or may not be addressing in various inquiries that 

are being made by other parts of the government, but I am only 

interested in what actions you have taken in response to the finding by CMS that you had such a high percentage of claims that 

should have been denied. 

In the sample of more than 1,200 claims, they said that 99 percent of them should have been declined and they found, the authors found that over 400 of the more than 590 Medicare claims 

reviewed were improper and demanded repayment in overpayments. I assume you are aware of these findings. 

Dr. SILVERMAN. The first time I became aware of any of the information that you are stating was from your last Subcommittee 

meeting. I do not know if you are specifically addressing my company. 

Senator MCCASKILL. I am. 

Dr. SILVERMAN. OK. We have requested information regarding 

those statements and we have yet to receive it. But may I just 

state that as a result of what I read from the last meeting, we went 

back, we are part of the large provider outreach program for CMS. 

We have in excess of 200,000 patients and CMS has asked us and 

we voluntarily agreed to work with them. So, we get report cards 

every quarter from—I was able to go back and review our CERT 

error rates. From 2010 through most recently of 2012, our error 

rates were anywhere between 3 and 7.8 percent. 

Senator MCCASKILL. So—— 

Dr. SILVERMAN. Excuse me. 

Senator MCCASKILL. Go ahead. I am sorry. 

Dr. SILVERMAN. Some of the error rates were based upon equipment that is not paid for by Medicare. In other words, if a patient 

requested insulin or syringes to treat their diabetes, it is not a covered item from Medicare. 

So, we have to submit those claims to Medicare, and those claims 

then get rejected so that we can bill their other insurance. That is 

just an example of how some of these claims are attributed to an 

error rates. 

Senator MCCASKILL. OK. So, I am confused. CMS is telling us 

that your error rate, that when they look closely at reviews, 400 

of 590 claims reviewed were improper. And, you are saying that 

you did not know until the hearing that they had demanded repayment for overpayment on some of those? 

Dr. SILVERMAN. To my knowledge, we have not been demanded 

repayment for overpayment on anything, on any of those items 

brought up. 

Senator MCCASKILL. So, this is really important that you came 

today because what you are telling me is CMS is telling you to pay 
43 

them back and you are saying they never told you to pay them 

back. 

Dr. SILVERMAN. I am not saying that. I do not know—to my 

knowledge, I have no understanding of CMS asking us to pay back 

money associated with the review you have mentioned above, and 

I am not really clear of where the report and what period that report is from. I requested the information. Our attorneys requested 

to review the information, and I have not been able to review it 

yet. 

Senator MCCASKILL. We certainly can give you all the information that has been part of the public record as part of this hearing, 

and I can assure you that no one will beat down the door faster 

at CMS to resolve what appears to be a huge discrepancy in the 

information that they have provided and the information that you 

are representing today. They cannot say that you have a gross 

problem with improper payments and then you not know anything 

about it. 

So, clearly there is a break down here. 

Dr. SILVERMAN. I appreciate that and that is one of the reasons 

I am here today basically just to clear up these issues and not to 

muddy our name but we work closely with CMS and we would be 

very happy to go over those results. 

And, since 1999 I can tell you that we have had a small minority 

of audits, never any substantial prepayment audits, and we had actually voluntarily in 2012 given back $750,000 back to CMS. 

So, I look forward to working with CMS closely and I would like 

to clear it up just as quickly as—— 

Senator MCCASKILL. Well, I can facilitate you getting with CMS 

I cannot assure you. 

Dr. SILVERMAN. Thank you. 

Senator MCCASKILL. And we will get to the bottom of it—— 

Dr. SILVERMAN. OK. 

Senator MCCASKILL [continuing]. Because I want to be confident 

that the problem that is out there which it is a problem in that we 

have had—and that is why I want to talk about the specifics. I 

mean, you understand how your company came to light to this 

Committee? 

Dr. SILVERMAN. From the last meeting, yes, Senator. 

Senator MCCASKILL. That it was a doctor that contacted us that 

she was having a great deal of difficulty getting you to stand down 

in your marketing of these devices to one of her patients. 

Dr. SILVERMAN. I would like to comment on that issue if you let 

me. 

Senator MCCASKILL. Absolutely. I am going to ask you some 

questions about it but go ahead. 

Dr. SILVERMAN. Do you want to ask those? 

Senator MCCASKILL. No. Go ahead. 

Dr. SILVERMAN. Thank you, Senator. 

I was able to review the testimony from the physician regarding 

the claims that her patient were, was cold called basically by our 

company, and I have empathy toward her in regards to getting 

many faxes and many paperworks. Many of my friends are physicians and the they would much rather practice medicine than be 

boggled down with faxes and paperwork. 
44 

In this instance, the doctors stated that she was representing her 

patient and the patient was cold called and the evidence shown 

was a fax request from our company, Med-Care Diabetic and Medical Supplies, for authorization to give this patient CPAP equipment. 

Our policies and procedures regarding advertising, basically we 

advertise on a website and web health sites. Every one of our advertising basically has a box that a patient must check that essentially gives express written permission for our company, Med-Care 

Diabetic and Medical Supplies, to call them. 

In this particular instance with this physician’s patient, we have 

documentation showing express written permission from this patient to allow our staff to call them. 

So, No. 1—— 

Senator MCCASKILL. Do you know where—this is Mrs. Pariseau? 

Dr. SILVERMAN. Ah. Can I mention names? 

Senator MCCASKILL. Sure. Her letters and faxes and her information. 

Dr. SILVERMAN. Dr. Kennedy’s patient, and I just want to be respectful of any Health Insurance Portability and Accountability Act 

(HIPAA) guidelines so. Dr. Kennedy’s patient was not Mrs. 

Pariseau, and also I would like to add that Dr. Kennedy’s patient—— [Pause.] 

Senator MCCASKILL. OK. I want to make sure you see these. Did 

you get copies of the letters that I am referring to? 

Dr. SILVERMAN. I have a copy of Dr. Kennedy’s letter to you. 

Senator MCCASKILL. Right. 

Dr. SILVERMAN. I just want to also state regarding this patient, 

this patient did not have Medicare benefits. Her benefits were actually United Healthcare, which is a private insurance. 

Senator MCCASKILL. OK. 

Dr. SILVERMAN. So in this instance, Dr. Kennedy is basically 

stating the patient did not request any of these devices or products, 

but we have expressed written permission from this patient for our 

office to contact her. 

They were not cold calls, and the only other evidence that was 

presented was a prescription faxed to Dr. Kennedy where she had 

said that the patient did not require a CPAP machine because they 

already had one. 

At this point, we did not further contact the patient. And, the patient was not contacted again. We did not contact Dr. Kennedy 

after this. The patient was never billed, shipped supplies. 

Senator MCCASKILL. OK. So, let me back up about the written 

consent. So, you are saying you are not calling patients until you 

have expressed written consent? 

Dr. SILVERMAN. Yes, ma’am. Our program has been reviewed and 

approved by CMS. 

Senator MCCASKILL. And, is the written consent in the form most 

times of somebody checking a box on an Internet ad? 

Dr. SILVERMAN. The written consent on our website shows that 

the patient, we explain our privacy policy to the patient and we 

also explain the fact that the patient is agreeing to be called MedCare. 
45 

Senator MCCASKILL. Tell me exactly how they get there. Say it 

is my elderly aunt, and she is looking up something about her diabetes, and she sees an ad on that page, and she clicks on that ad. 

It says you can get free testing equipment. 

Dr. SILVERMAN. We do not ever state anything free. 

Senator MCCASKILL. OK. You can get testing equipment at little 

or no cost to you. 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. I think that is the phrase that is most frequently used. 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. Little or no cost to you, and you click on 

that box. And, then where does she go? 

Dr. SILVERMAN. She immediately gets an e-mail from our company, and the e-mail basically—— 

Senator MCCASKILL. Without her entering in her e-mail address 

she gets an e-mail from you? 

Dr. SILVERMAN. No, I am sorry, Ma’am. On our website, we 

have—— 

Senator MCCASKILL. So, she clicks through and she gets to your 

website. 

Dr. SILVERMAN. Yes. There is a place on the website. 

Senator MCCASKILL. And, she has to fill in her e-mail address. 

Dr. SILVERMAN. Her name, her e-mail address, and her telephone 

number—— 

Senator MCCASKILL. So, the woman who—— 

Dr. SILVERMAN [continuing]. Then there is a box that she needs 

to check that she is giving us express written permission to contact, and those are the CMS guidelines. 

Senator MCCASKILL. OK. And, are there any that you are calling 

that you are giving some way other than that visit to your website? 

Dr. SILVERMAN. No, ma’am. 

Senator MCCASKILL. So, you do not have any other methods. So, 

if someone does not have a computer and they are saying that they 

got a call from you and you had a doctor’s name, you had their 

named, and you said that you were Med-Care and they thought you 

meant Medicare because your name sounds just like Medicare, you 

do not think that is really happening? 

Dr. SILVERMAN. No, ma’am. First of all, we do not present ourselves as Medicare. 

Senator MCCASKILL. Why did you name yourself that then? 

Dr. SILVERMAN. My medical office was named American MedCare Centers; and when I left that office, that name was still in 

use. So, I just abbreviated it to Med-Care Diabetic and Medical 

Supplies. 

Senator MCCASKILL. And, it is just a convenience or a coincidence that when someone calls and says this is blah blah blah from 

Med-Care that elderly people just might accidentally think they are 

talking to Medicare. 

Dr. SILVERMAN. We do not present ourselves that way. 

Senator MCCASKILL. So, do they say we are not Medicare? 

Dr. SILVERMAN. We say we are Med-Care Diabetic and Medical 

Supplies; and if a patient were to ask, are you Medicare, of course, 

we say no, we are not Medicare. 
46 

Senator MCCASKILL. OK. Do you have any contracts with third 

parties to get phone numbers, call lists, or information about Medicare beneficiaries? 

Dr. SILVERMAN. No, ma’am. 

Senator MCCASKILL. And, you are not buying lists from anyone? 

Dr. SILVERMAN. No, ma’am. 

Senator MCCASKILL. OK. 

Dr. SILVERMAN. Our advertising is purely web-based; and like I 

said, the Joint Commission and CMS has reviewed it and has approved it. 

Senator MCCASKILL. OK. Have you been investigated for violating this prohibition on direct marketing? 

Dr. SILVERMAN. In terms of investigated by whom? 

Senator MCCASKILL. By CMS. 

Dr. SILVERMAN. We had a corrective action procedure this past 

fall. Our advertising, CMS had done their yearly inspections last 

summer and we had given them copies of our advertising. 

In a couple of our advertisements, the patient request to be contacted was in our privacy policy. So, CMS reviewed this and they 

essentially wanted us to be more clear about where it was. 

So, there were a few ads that, like I said, were in the privacy 

policy and we corrected that. CMS, it was called a corrective action 

procedure. CMS approved it. They reviewed all of our advertising 

and—— 

Senator MCCASKILL. So, now do you have to check two boxes? 

One that you understand the privacy policy and one you are willing 

to be contacted? 

Dr. SILVERMAN. No, just the willing to be contacted. Our privacy 

policy is in regards to HIPAA, and we want our patients to understand that their patient information is protected. 

Senator MCCASKILL. OK. So, the only action they can take is 

clearly delineated now ‘‘I am willing to be contacted by your company? ’’ 

Dr. SILVERMAN. Yes. And, CMS, just getting back to CMS, we 

were retroactively approved. We never lost any billing. We never 

lost any licensure. They just wanted clarification; and unfortunately, it was over Christmas. So, it took a little bit of a period of 

time but, it was fine. 

That is the only actions that my company has had, and I have 

been billing Medicare since I started out in practice since 1979 

without major incident. 

Senator MCCASKILL. So, I am back to Mrs. Pariseau. She claims 

that you called her and that she had no idea what was going on 

and that she did not understand that she was talking to a company 

and that she thought it was Medicare because you had all of her 

information. 

She indicated she never asked for a prescription and yet she is 

getting a letter that says our sleep apnea prescriptions have been 

approved. 

Dr. SILVERMAN. In this particular instance, Senator McCaskill, I 

was also able to go back to our records and we have a form, a document that basically has shown that Mrs. Pariseau has given us express written permission to contact. 

Senator MCCASKILL. And, how did you get that. 
47 

Dr. SILVERMAN. She apparently went on a website and filled out 

that document. 

Senator MCCASKILL. Will you share those documents with us? 

Dr. SILVERMAN. Absolutely. 

Senator MCCASKILL. OK. So, I would like to see where Mrs. 

Pariseau gave you permission, and where did you get her phone 

number? 

Dr. SILVERMAN. On the website, the patient fills out her name, 

her e-mail address, her phone number. 

Senator MCCASKILL. So, she gave you her phone number on a 

website. 

Dr. SILVERMAN. Yes, ma’am, and that is why when we contact 

them, again just to talk about our current marketing, the patient 

gets an e-mail right away; and if they do not want to be contacted, 

they had the right to be put on a do not call list and we do not 

contact. 

Senator MCCASKILL. What if she does not respond to your email? Do you send her a letter? 

Dr. SILVERMAN. No. We contact her by phone; and then at that 

point in time, if the patient has any confusion, the patient says I 

did not fill this out, I do not want the supplies, then we apologize. 

We tell them we are sorry we bothered them, and no further actions are taken. 

Senator MCCASKILL. OK. So, in this instance, you are saying 

Mrs. Pariseau went on your website, she filled in her e-mail address, she filled in her phone number, and then you send her an 

e-mail. 

Did she respond to your e-mail or not respond to your e-mail? 

Dr. SILVERMAN. No. We contacted the patient and then we sent 

out prescriptions requests. 

Senator MCCASKILL. Wait. I want to know how you contacted 

her. You are saying the first thing she did is she went on your 

website and she gave you all this personal information. 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. Then, you are saying that you contacted 

her. Did you contact her by e-mail first? 

Dr. SILVERMAN. No, ma’am, by phone. 

Senator MCCASKILL. OK. So, you did not e-mail her. I thought 

you just said you always e-mailed them. 

Dr. SILVERMAN. It is the policy of our office to e-mail. In this particular instance, I would think that, according to our office policy, 

we would have e-mailed her. I have no e-mail back from her so I 

do not have any documentation to show you. 

But our next procedure, once we receive the documentation that 

allows us to call, we then call the patient and speak with the patient and we get their insurance information from the phone call. 

We ask them about the type of supplies they are desiring and we 

get the physician information so we can contact the physician for 

a prescription for that item. 

Senator MCCASKILL. OK. So, in this instance, you did not, you 

do not know whether you e-mailed her or not but you know that 

you called her. 

Do you know for sure whether you e-mailed Mrs. Pariseau or 

not? 
48 

Dr. SILVERMAN. I do not know for sure. 

Senator MCCASKILL. So, you are saying the policy would be that 

you would e-mail her; and that if she does not respond to your email, then you call her? 

Dr. SILVERMAN. No, ma’am. The express policy of our office is if 

the patient gives us permission to contact them, we call them on 

the phone. 

Senator MCCASKILL. Oh, OK. So, the e-mail is superfluous to the 

policy. The policy is—— 

Dr. SILVERMAN. The e-mail is another fail-safe method that we 

actually put in place to protect citizens and to protect their rights 

so as not to bother them. 

But if a patient gives us express permission to call them, then 

we call them; and if there are any issues at that time, we resolve 

the issues; and if the patient does not want us to followup with a 

physician’s request for supplies, we do not send out a physician’s 

request. 

Senator MCCASKILL. And, I want to apologize to you because I 

should have spent sometime on your website and I should have already seen all of this and I wish I had of because I would be much 

better at questioning you now had I. 

But does it expressly say on the website, you can call me? 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. OK. 

Dr. SILVERMAN. It says—— 

Senator MCCASKILL. So, they know when they are filling in their 

phone number that they are asking for you to call them? 

Dr. SILVERMAN. Yes. Yes, ma’am. 

Senator MCCASKILL. OK. 

Dr. SILVERMAN. Yes, Senator. 

Senator MCCASKILL. So, Mrs. Pariseau, according to you, filled in 

this website, gave her phone number, but she did not give her doctor’s name or her prescription, did she? 

Dr. SILVERMAN. Yes, Senator, she gave—— 

Senator MCCASKILL. On the website? 

Dr. SILVERMAN. Not on the website. Once the patient—— 

Senator MCCASKILL. Well, I am still at the website. 

Dr. SILVERMAN. The patient basically grants us expressed permission to call them. 

Senator MCCASKILL. OK. Now, she says when you called her, you 

already knew our name, her prescriptions, and her doctor. Is she 

mistaken? 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. So, that is not true. 

Dr. SILVERMAN. To my knowledge, I can—— 

Senator MCCASKILL. Would there be any way your company 

would have her name, her prescriptions, and her doctor before you 

talk to her? 

Dr. SILVERMAN. No, ma’am. 

Senator MCCASKILL. OK. 

Dr. SILVERMAN. We have all this—— 

Senator MCCASKILL. So, you understand from her perspective 

you called her, you said you were Med-Care, you knew her doctor, 

you knew her prescription, this is what she is telling us. 
49 

You knew her doctor, you knew her prescriptions, and then she 

started getting letters that she needed to sign off on her getting 

her new sleep apnea machine. 

Dr. SILVERMAN. I would like to explain to you, because if that is 

this woman’s perception, that is her perception. But I would like 

to explain to you our policies and procedures. 

In this instance, her perception is incorrect. Based upon her requesting information for us to contact her, we then will phone her; 

and at that point, we would get her physician information. We 

would get her insurance information; and at that point if she did 

not want any further contact from our company or if she had misconceptions of who we were, we would have straightened it out 

right then and there. 

But in this particular instance, we were given the name of her 

physician and then we contacted her physician. We then sent the 

patient a new patient letter which, again from our perspective, introduces our company, introduces our procedures, and again tells 

the patient that no further action is taken in the future unless we 

speak to them again. 

So, we sent out the new patient letter; and from the last hearing, 

you basically attributed that to aggressive sales advertising. But 

from my perspective, it is good patient management and care because it is another way of explaining the program to the patient. 

It is another way of the patient not going forward with the program if they want to opt out. 

Senator MCCASKILL. I appreciate that, Dr. Silverman. I do. 

Dr. SILVERMAN. Thank you. 

Senator MCCASKILL. I am coming at this from the perspective of 

the Medicare patient who is complaining to Congress that she was 

aggressively marketed in a way that made her uncomfortable, that 

she did not understand how this happened or why it happened and 

that this is a problem. I guess—— 

Dr. SILVERMAN. Thank you for allowing me to explain that. 

Senator MCCASKILL. From your perspective, I get that that is 

what you think occurred. I—— 

Dr. SILVERMAN. And again, Senator, we have—— 

Senator MCCASKILL. Is it possible that any of your people working for your company, are they compensated based on how much 

they sell? 

Dr. SILVERMAN. No, ma’am. 

Senator MCCASKILL. There is no commissions? 

Dr. SILVERMAN. They are a salaried employee. 

Senator MCCASKILL. No commissions? 

Dr. SILVERMAN. They—— 

Senator MCCASKILL. I want to make sure. You are saying that 

everybody at your company makes the same amount no matter how 

many machines—— 

Dr. SILVERMAN. No, ma’am. 

Senator MCCASKILL [continuing]. They sell. 

Dr. SILVERMAN. They have incentives, yes. 

Senator MCCASKILL. OK. And, the incentives are based on how 

many machines they sell. 
50 

Dr. SILVERMAN. Not necessarily machines. There is no monetary 

basis but it is based upon who they speak to and how many orders 

they get. 

Senator MCCASKILL. OK. So, it is based on how many orders 

they get? 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. And, the orders are for machines. They are 

for braces or they are for apnea or for diabetic testing. I mean, let 

us not mince words here. You get compensated more money if you 

sell more. 

Dr. SILVERMAN. We are an equal opportunity employer. 

Senator MCCASKILL. Of course. I get that and I am not—— 

Dr. SILVERMAN. But it is—— 

Senator MCCASKILL. Listen. The government set up a system 

here that allowed what I think at one point people believed it 

would be a free market of competition that would drive costs down. 

It turns out without competitive bidding and a free-for-all among 

seniors in terms of marketing that it did not work out that way. 

So now, we are trying to put the cow back in the barn in a way 

that protects legitimate businesses that have this equipment that 

they want to sell and have a right to make a profit. 

Dr. SILVERMAN. Yes. 

Senator MCCASKILL. But I guess when we revised, when the regulations were revised on direct marketing that prohibited in-person 

contacts, when they tried to revise them to include e-mails and instant messaging, do you understand that perhaps those changes 

might be necessary? 

Dr. SILVERMAN. I follow all the standards and rules. I do not 

make the rules. But believe me, based upon my past and I am very 

aware of consumer, protecting the consumer but regarding the 

rules and regulations, we are regulated, we are inspected, and 

whatever the rules and regulations are there I give our best effort 

for myself and all my employees to follow them. 

Senator MCCASKILL. And I appreciate that. I guess I am asking 

you about changing the rules. Do you see a benefit other than, I 

mean, this is kind of mean because I am asking you, are you OK 

with the rule that is going to allow you to sell less because if you 

are worried about selling more this is not going to help you. 

Dr. SILVERMAN. I am not worried about selling more. I want to 

play by the rules. 

Senator MCCASKILL. OK. Well, if you are not worried about selling more, do you understand that it seems, I think, a little weird 

that you would try to, even if someone clicked, believe me, my 

mother who I miss very much click a lot of things on the Internet 

she should not have clicked. 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. She gave out a lot of information that she 

should not have given. I kept saying, mom, bridge, play bridge. Email your grandchildren. 

With a senior population, do not you think if they need medical 

equipment, it should come from their doctor and not from a go-between between the patient and the doctor that is contacting the patient directly even if you are actually following the rules that allows you, for purposes of this hypothetical, assuming every single 
51 

person you call is somebody who has given you their phone number 

and their name and their e-mail on your website—— 

Dr. SILVERMAN. Yes. 

Senator MCCASKILL [continuing]. Every single phone call that 

you make is attributable to that, assuming that that is correct, and 

I got to tell you that is a hard assumption for me to make but I 

am going to make it out of deference to your testimony. 

Dr. SILVERMAN. I have documentation. 

Senator MCCASKILL. Do you understand that it seems from this 

side of the table that it would make a lot more sense for that marketing to go on to the doctor as to the efficacy of your equipment, 

the reliability and efficiency of your company, your customer service, and that the doctor should be the only one making the decision 

or requesting that the patient gets the equipment? 

Dr. SILVERMAN. I have been a physician for many years so I can 

talk to the you from both sides from an office standpoint, and I still 

think that patients do have rights to choose who they want to get 

services from. 

Sometimes patients are intimidated by their physician. They do 

not agree with their physician. They do other things. So, I think 

primarily a patient has the right to choose. 

As far as—— 

Senator MCCASKILL. Do you think that these seniors, though, are 

making knowing choices? You know the ones—— 

Dr. SILVERMAN. I—— 

Senator MCCASKILL. Do you think when my mom ended up with 

five diabetic testing machines, you think that is because she needed five. 

Dr. SILVERMAN. We have—— 

Senator MCCASKILL. Or do you think it was because she kept 

getting contacted because the company had her as a patient before 

and they had the right to contact her again and say, hey, we have 

a new and improved model we can send you out at little or no cost 

to you—— 

Dr. SILVERMAN. I do not—— 

Senator MCCASKILL [continuing]. Which read underneath that 

means the Federal Government is going to pay for it? 

Dr. SILVERMAN. I do know that everything we do is based upon 

signed prescriptions from physicians. So, the physicians are basically telling their patients that they can go and utilize our services. 

So that is that from that perspective. 

Going back to your original question regarding physicians, I do 

not know if a physician can efficiently offer all these medical devices to their patients. It is an industry that is very regulated. It 

is an industry that requires a lot of work, and physicians are busy 

treating their patients. So—— 

Senator MCCASKILL. No, I do not mean them provide it. I mean 

that they are the ones that contact you and Pariseau’s doctor would 

call, A member of my family got a sleep apnea machine. It did not 

happen because somebody, he did not click a website. 

The member of my family that got it, you know, what happened? 

He went to the doctor. He had a sleep test, and the doctor said, 

I am going to prescribe you this machine and here is three choices 

you have of the equipment. Here is the relative pros and cons of 
52 

each kind of the equipment, and you can call all three of these companies and they will talk to you about their equipment or you can 

pick one. That is completely up to you but you need this machine. 

It was not that he had gone on a website and clicked and put 

in his phone number and then gotten a call and said at little or 

no cost to you, we are going to run this fax to your doctor’s office 

and see if we can get them to sign off and you are good to go. 

Dr. SILVERMAN. I understand; but again if the doctor did not 

want that patient to utilize our services and supplies, they just 

would not sign that prescription. 

Senator MCCASKILL. So maybe, do you think if we are going to 

try to tighten it up that we need to begin at the doctor’s office and 

give them some kind of disincentive to sign off on these prescriptions without actually looking at the files and discussing it with the 

patient? 

Dr. SILVERMAN. I am not a policymaker. 

Senator MCCASKILL. Well, maybe that is the answer. Maybe we 

stop it there. Does your company have a surety bond? 

Dr. SILVERMAN. Yes, ma’am. 

Senator MCCASKILL. Tell me what you think about—— 

Dr. SILVERMAN. I am sorry. Regarding this patient, we actually 

have prescriptions signed from the physician saying the patient can 

get services from our company. 

Senator MCCASKILL. Was that before or after you sent her the 

letters? 

Dr. SILVERMAN. At the same time. We sent out a new patient letter and we request a prescription from the physician. So, we have 

physician authorization to treat this patient. 

What happened in this particular instance, to be perfectly honest 

and blunt with you, the physician’s prescription was not filled out 

correctly. The physician did not date the prescription. 

So, we were not able to supply this patient with their supplies, 

and we had contacted the physician’s office telling—— 

Senator MCCASKILL. It was a good thing because they did not 

want it. 

Dr. SILVERMAN. Well, in that case, what happened was, based 

upon the fact that the physician did not fill out the prescription, 

there was somewhat of a time lag and then we contacted the patient. At that point, the patient said that she decided to stay with 

her original provider, and that is essentially what happened in this 

case. 

Senator MCCASKILL. OK. Well, we will go back and obviously I 

want to see the documentation from your end on this and we will 

go back and analyze this case. Obviously, this is one case out of, 

we have a lot of people that contacted our office. 

Dr. SILVERMAN. Yes, ma’am, and that being said, I would like 

you to speak to counsel regarding releasing the information that 

you are requesting. 

Senator MCCASKILL. Well, how about, I think that is fine if I get 

the permission of the patient. 

Dr. SILVERMAN. Yes. 

Senator MCCASKILL. Obviously, I do not think you have any 

HIPAA concerns if I have the permission of the patient. 

Dr. SILVERMAN. I have no—— 
53 

Senator MCCASKILL. She contacted us. We did not—— 

Dr. SILVERMAN. As long as we are compliant, Senator, I have no 

concerns. 

Senator MCCASKILL. OK. Tell me what you think about the competitive bidding program. 

Dr. SILVERMAN. Excuse me, Senator. [Pause.] 

I would very much like to answer your question regarding competitive bidding but just for your information also when you request documents, we have a patient comment report that is dated 

that has all the comments from the patient. 

Senator MCCASKILL. Great. We will look forward to seeing that. 

Dr. SILVERMAN. OK. My opinion on competitive bidding is I am 

in favor of competitive bidding. I have some concerns based upon 

the pricing. I have some concerns based upon the capacity. 

I think that for diabetic patients, there are 25 million diabetic 

patients in the country and competitive bid contracts were awarded 

to only 10 to 15 providers. 

Senator MCCASKILL. As compared to how many providers are out 

there now? 

Dr. SILVERMAN. I do not know the exact number of providers but 

there are thousands and thousands. At one point there were 50,000 

providers, and the CMS has done its job, and its policies have gotten rid of a lot of the providers in that who were not doing the job 

properly. 

But there is an estimate that maybe there will be a thousand 

providers to participate in competitive bidding; and out of the thousand, 10 to 15 providers will be able to help people requiring diabetic testing supplies. 

So, in this instance, that chosen provider is going to need a large 

capacity office to really provide these seniors with product, and I 

fear that there will be confusion. I fear that seniors will not know 

where to turn. I fear that they will not be able to test, and it is 

well documented that if patients do not test themselves, their disease can get worse. The medical bills skyrocket. That is my concern. 

Senator MCCASKILL. And, I appreciate; and one of the reasons 

that I am trying to work in this area is because I think it is ripe 

for confusion, and I think the current system allows a lot of that 

also. 

I think that is one of the reasons why we had so many people 

contact our office on this subject. When asked if they have been solicited for medical equipment directly, we got a lot of people that 

stepped up and those are the ones that are paying attention to 

what is being said in the news or on TV about Congress. 

And frankly, most people right now in America just hope we go 

away. So, the fact that we had a lot, that is from a pretty small 

universe because there is a lot of people out there for a lot of good 

reasons who are not paying much attention to us. 

Dr. SILVERMAN. I appreciate you protecting the consumer and it 

is my job too to do the right thing. 

Senator MCCASKILL. And the Treasury both, I mean, because 

both of them are having lots of people trying to sell them equipment, while it is disruptive and confusing to seniors, what it really 

is is expensive for the Medicare program. 
54 

Dr. SILVERMAN. I think that is the answer with competitive bidding. I just hope that it will be efficient and not cause more confusion to seniors. 

Senator MCCASKILL. Does Mr. Porush have any relationship with 

Med-Care at the current time? 

Dr. SILVERMAN. Yes. Mr. Porush is an employee, not an owner, 

a Med-Care Diabetic and Medical Supplies. 

Senator MCCASKILL. OK. Is he a consultant or an employee? 

Dr. SILVERMAN. He is an employee. 

Senator MCCASKILL. And, how long has he been an employee? 

Dr. SILVERMAN. He has been an employee since 2004. 

Senator MCCASKILL. OK. Is the information that was contained 

in the Forbes article about Mr. Porush and Florida residents complaining about your company’s sales tactics including cold calling 

Medicare recipients to persuade them to order diabetic supplies, 

did that pre-date the regulations that do not allow cold calling, the 

cold calling complaints that were written about in the Forbes article? 

Dr. SILVERMAN. I do not know. But the Forbes article in my opinion, is not true. 

Senator MCCASKILL. OK. So, was there a time that your company did do cold calling? 

Dr. SILVERMAN. To my knowledge, no. 

Senator MCCASKILL. OK. We deeply appreciate you being here, 

and I will make sure that we get you information that you want 

from us that is part of the public record. There may be some information CMS has given us that we have used to prepare for this 

hearing that we are not at liberty to give you and vice versa. 

We would appreciate any documentation you can give us. In fact, 

we would provide to you some of the names of the people that complained about being contacted by your company when they do not 

believe they had ever given you permission to contact them and we 

would appreciate you providing us the documentation that they 

had given you the express authorization to contact them. 

Dr. SILVERMAN. Yes, Senator. 

Senator MCCASKILL. How would it change your business model 

if you could no longer get people to give you their phone numbers 

on a website? 

Dr. SILVERMAN. We would no longer do that. So, I am sure—— 

Senator MCCASKILL. What percentage of your business comes 

from the calls you make to seniors from the numbers on your 

website? 

Dr. SILVERMAN. Well, I do not have those numbers. 

Senator MCCASKILL. But you could get them. 

Dr. SILVERMAN. Yes, ma’am. But also I would like to state again 

that less than half of our revenues are from seniors. 

Senator MCCASKILL. No, I am not talking about within the Medicare space. 

Dr. SILVERMAN. Yes. 

Senator MCCASKILL. I mean frankly the prescription stuff, that 

is another hearing for another day. You can look forward to that, 

Dr. Silverman. We will get there. 

Dr. SILVERMAN. I would be happy. 
55 

Senator MCCASKILL. I am on a mission. We are going to bring 

down these health care costs in a way that is not harmful to seniors. If we can do it at all, we are going to try to do it because 

Medicare is going to bust this country if we are not careful. We 

cannot afford to be running the Medicare program the way it has 

been run. 

Dr. SILVERMAN. I appreciate the opportunity for you to allow me 

to explain some of the misconceptions from the last meeting and 

clear up our name. 

Senator MCCASKILL. Well, what I would like is to find out of the 

Federal Government stream of money, the 35 million last year, 

what percentage of that came from you being contacted by a doctor 

versus you contacting a patient. 

Dr. SILVERMAN. OK. If I can provide that information to you, I 

will be happy to. 

Senator MCCASKILL. I bet you have it because it is going to be 

very hard for you to give incentives if people cannot prove that they 

were the ones that actually moved the product, and so I am betting 

you have it internally, and it would be very helpful for us to see 

what percentage of your business is coming from the contact to seniors. 

And, do you believe if we took that away, if we change the rule 

and said, you cannot call patients directly, you can only, they can 

only receive their prescriptions through recommendation of their 

doctors—— 

Dr. SILVERMAN. Well, I think competitive bidding is the answer 

to that right now. 

Senator MCCASKILL. Because you are not going to advertise anymore because it is not going to be—— 

Dr. SILVERMAN. Well, it is a capacity issue. With competitive bidding, we are going to be busy enough just trying to deal with capacity so. 

Senator MCCASKILL. Are you going to be one of the participants? 

Dr. SILVERMAN. We look forward to participating. 

Senator MCCASKILL. And so, have you been awarded? 

Dr. SILVERMAN. At this present time, we are waiting approval 

and our bid is being reviewed. So, we look forward to participating. 

Senator MCCASKILL. Then, you would be part of the 93 cities 

that are going to be rolled out this summer? 

Dr. SILVERMAN. Yes, and I think we have the capacity. Because 

of our large facility and the amount of employees, I think we are 

a perfect candidate to make this program successful. 

Senator MCCASKILL. Well, then, we probably will not see the last 

of you then. You can look forward to more appearances in front of 

this Committee. I know you cannot wait. 

Dr. SILVERMAN. I am becoming comfortable. 

Senator MCCASKILL. Thank you, Dr. Silverman. 

Dr. SILVERMAN. Thank you, Senator. 

Senator MCCASKILL. The hearing is adjourned. 

[Whereupon, at 2:50 p.m., the Subcommittee was adjourned.] 

(57) 

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Æ