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MEDICARE’S COMPETITIVE BIDDING PROGRAM 

FOR DURABLE MEDICAL EQUIPMENT: IMPLICATIONS FOR QUALITY, COST AND ACCESS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 15, 2010 

Serial No. 111–155 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 


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COMMITTEE ON ENERGY AND COMMERCE 

HENRY A. WAXMAN, California, Chairman 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

Vice Chairman 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANE HARMAN, California 

TOM ALLEN, Maine 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

CHARLIE MELANCON, Louisiana 

JOHN BARROW, Georgia 

BARON P. HILL, Indiana 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER S. MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

JERRY MCNERNEY, California 

BETTY SUTTON, Ohio 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

JOE BARTON, Texas 

Ranking Member 

RALPH M. HALL, Texas 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

ROY BLUNT, Missouri 

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 


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SUBCOMMITTEE ON HEALTH

FRANK PALLONE, JR., New Jersey, Chairman 

JOHN D. DINGELL, Michigan 

BART GORDON, Tennessee 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

JANE HARMAN, California 

CHARLES A. GONZALEZ, Texas 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

CHRISTOPHER S. MURPHY, Connecticut 

ZACHARY T. SPACE, Ohio 

BETTY SUTTON, Ohio 

BRUCE L. BRALEY, Iowa 

NATHAN DEAL, Georgia, 

Ranking Member 

RALPH M. HALL, Texas 

BARBARA CUBIN, Wyoming 

JOHN B. SHADEGG, Arizona 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 


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C O N T E N T S 

Page 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 1 

Hon. Ed Whitfield, a Representative in Congress from the Commonwealth 

of Kentucky, opening statement ......................................................................... 3 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 4 

Prepared statement .......................................................................................... 6 

Hon. Phil Gingrey, a Representative in Congress from the State of Georgia, 

opening statement ................................................................................................ 11 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 12 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 13 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 13 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 14 

Hon. Diana DeGette, a Representative in Congress from the State of Colorado, opening statement ...................................................................................... 16 

Hon. Marsha Blackburn, a Representative in Congress from the State of 

Tennessee, opening statement ............................................................................ 16 

Hon. John Barrow, a Representative in Congress from the State of Georgia, 

prepared statement .............................................................................................. 18 

Hon. Ralph M. Hall, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 19 

Hon. Bruce L. Braley, a Representative in Congress from the State of Iowa, 

opening statement ................................................................................................ 20 

Hon. Betty Sutton, a Representative in Congress from the State of Ohio, 

opening statement ................................................................................................ 21 

Hon. Anna G. Eshoo, a Representative in Congress from the State of California, opening statement .................................................................................... 22 

Hon. Kathy Castor, a Representative in Congress from the State of Florida, 

opening statement ................................................................................................ 23 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 158 

WITNESSES

Laurence Wilson, Director, Chronic Care Policy Group, Center for Medicare 

and Medicaid Services, U.S. Department of Health and Human Services ..... 24 

Prepared statement .......................................................................................... 27 

Answers to submitted questions ...................................................................... 193 

Daniel Levinson, Inspector General, Office of the Inspector General, U.S. 

Department of Health and Human Services ...................................................... 47 

Prepared statement .......................................................................................... 49 

Kathleen King, Director, Health Care, U.S. Government Accountability Office 60 

Prepared statement .......................................................................................... 62 

Answers to submitted questions ...................................................................... 210 

Karen Lerner, Registered Nurse, Wound Care, Support Surface and Rehab 

Specialist, Allcare Medical .................................................................................. 106 

Prepared statement .......................................................................................... 109 

Alfred Chiplin, Jr., Managing Attorney, Center for Medical Advocacy .............. 123 

Prepared statement .......................................................................................... 124 

Nancy Schlichting, President and CEO, Henry Food Health System ................. 131 

Prepared statement .......................................................................................... 133 


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VI 

William Scanlon, Health Policy Consultant .......................................................... 141 

Prepared statement .......................................................................................... 143 

SUBMITTED MATERIAL

Statement of AARP, submitted by Mr. Waxman .................................................. 163 

Statement of the American Hospital Association, submitted by Mr. Dingell ..... 168 

Statement of Premier, submitted by Mr. Dingell .................................................. 169 

Statement of ConvaTec, submitted by Mr. Burgess ............................................. 171 

Press release by Lincare Holdings, Inc., submitted by Mr. Hall ......................... 174 

Letter of August 11, 2010, from 135 Members of Congress to the Centers 

for Medicare and Medicaid Services ................................................................... 175 

Response from Administrator Berwick ........................................................... 182 

Statement of Ron Klein, a Representatitve in Congress from the State of 

Florida ................................................................................................................... 185 

Letter of Septemember 13, 2010, from Hon. Jim Langevin to U.S. Department 

of Health and Human Services, submitted by Mr. Shimkus ............................ 187 

Statement of the Diabetes Access to Care Coalition ............................................ 188 


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MEDICARE’S COMPETITIVE BIDDING PROGRAM FOR DURABLE MEDICAL EQUIPMENT: 

IMPLICATIONS FOR QUALITY, COST AND 

ACCESS 

WEDNESDAY, SEPTEMBER 15, 2010 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

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

2123 of the Rayburn House Office Building, Hon. Frank Pallone, 

Jr. [Chairman of the Subcommittee] presiding. 

Members present: Representatives Pallone, Dingell, Eshoo, 

Green, DeGette, Barrow, Castor, Sarbanes, Sutton, Braley, Doyle, 

Waxman (ex officio), Shimkus, Hall, Whitfield, Pitts, Burgess, 

Blackburn and Gingrey. 

Staff present: Tim Gronniger, Professional Staff Member; Virgil 

Miler, Professional Staff Member; Alvin Banks, Special Assistant; 

and Sean Hayes, Minority Counsel, O&I. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. I call the meeting of the Health Subcommittee to 

order. 

Today the Health Subcommittee will examine Medicare’s competitive bidding program for durable medical equipment and its implications for quality, cost and access, and I would yield myself 5 

minutes initially for an opening statement. 

As I think many of you know, durable medical equipment, prosthetics, orthotics and supplies—DME is the acronym—that coverage has been a longstanding issue of this subcommittee and I 

know it is an issue of great interest to many Members of the House 

of Representatives. I want to thank our witnesses for being here 

today, and I am told by my staff that this is one of the most popular hearings she has staffed with a witness list that was hotly 

sought after. Interestingly, though, I will say, Tiffany, the reason 

I was late is because I had a political science class from Rutgers, 

as you know, in my district that was in the office, and they wanted 

to know why with the—I don’t know how they put it—with all the 

major issues of the day, we were having a hearing on durable medical equipment, and I explained to them that it had a lot of job implications and that we were concerned about jobs and employment, 


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and so then I quieted them down because when I told them that 

this was a very hotly contested hearing, there would be a lot of witnesses, and people were a little surprised. 

In any case, I want to especially recognize Karen Lerner and 

Rich Lerner of Allcare Medical located in my district in New Jersey. Karen will be testifying before us today about the concerns of 

Medicare’s program within the medical equipment community. 

As you know, the Medicare program covers DME under Part B, 

the Supplementary Medical Insurance program, and pays suppliers 

according to a fee schedule. Commonly furnished items under this 

benefit include standard and power wheelchairs, oxygen concentrators and tanks, hospital beds, diabetic testing supplies and walkers. These and other DME items are essential treatment to allow 

the approximately 9.85 million Medicare beneficiaries with disabilities and other conditions to improve or maintain their health and 

to live independently at home. 

Over the past several decades, numerous reports have documented overpayments in the DME fee schedule under Medicare. As 

such, Congress acted to limit these costs by creating a demonstration of the competitive bidding program in 1997. Its evaluation resulted in reduced costs to Medicare by 19 percent with no significant changes in access to supplies or changes in utilization were 

observed. 

Subsequently, the Medicare Prescription Drug, Improvement, 

and Modernization and Act of 2003, which many of my colleagues 

on this side voted against, mandated that CMS adopt competitive 

bidding-based pricing for DME on a phased-in basis beginning in 

2007. The Act mandated two rounds of bidding in MSAs, followed 

by optional additional MSAs after those rounds. As I, along with 

my colleagues witnessed, there were many problems with the initial implementation, coupled with broad industry concerns. This resulted in a bill that I led through Congress to both delay implementation and established some of the reforms that are supposed 

to be part of the program today. 

Let me just briefly say that I have been skeptical of this program 

in the past, and I am anxious to hear from CMS about how this 

program is being run and, of course, how the round one re-bid is 

developing. 

That being said I am also aware of the fact that CMS is carrying 

out the law as instructed by Congress. I know very well the concerns of the DME suppliers and it is my hope that CMS has done 

their best to address some of them. I think today will allow us to 

hear more about what CMS has done and continues to do to ensure 

that this program successfully reduces costs to Medicare but maintains access and quality care for Medicare beneficiaries. 

It is obvious we cannot ignore what will become clear here today, 

and that is, there remains a large constituency that is simply opposed to this program, but meanwhile, the fear of tremendous consequences persists from both industry and from Members off Congress. So, regardless of where this committee falls, it is our job to 

keep a watchful eye of its development and be on guard to make 

changes if necessary. 

My Rutgers class that caused me to be a little late today was 

very concerned about Congress exercising its oversight authority, 


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that somehow over the last generation or so we have not done 

enough for oversight, so I think we do need to do a lot of oversight 

and this is obviously part of that effort. 

With that, I yield to the gentleman from Kentucky. 

OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH OF KENTUCKY 

Mr. WHITFIELD. Mr. Chairman, thank you very much, and we 

look forward to this hearing, the opportunity to examine the impact 

of Medicare’s competitive bidding program for durable medical 

equipment, and before I make a few comments about that, I would 

like to in a very respectful way touch on some of the questions that 

your Rutgers political science class were asking you. 

All of us just came back from a 3-week district work period, and 

practically everywhere we went, people were asking questions 

about the recently passed health care bill, and almost all of them 

were unanimous in the fact that they did not understand the bill. 

They did not know when regulations were to be expected, when the 

bill would be completely into effect, and asking all sorts of questions that we really could not answer, and I genuinely believe it 

would be to the benefit of the American people if this committee 

did start having some oversight hearings on that legislation because it impacts every single person in this country, and I don’t 

know of any legislation that has passed the Congress since I have 

been here in which people have been more confused than on this 

piece of legislation. And I know that the gentleman has the same 

concerns that I do but I do hope that we would have an opportunity 

to start having some hearings about that legislation. 

Today we are very much interested in learning how this new 

competitive bidding program, this pilot project, is it really going to 

save Medicare money, and if it does, are we going to be able to 

maintain the quality of care for the beneficiaries, and I don’t think 

there is any question but that we recognize in the long term we do 

have to do something about Medicare cost, not just for the fact of 

saving money, but if we are going to continue to have a viable 

health care system for our senior citizens, we have to be concerned 

about the quality of care as well as the price. And many experts 

that I have talked to, and I am certainly not an expert myself and 

I really don’t have any opinion about this pilot project yet, but 

many of the experts have said that they believe that this pilot program is poorly designed. They say they have concerns that the entire program could collapse under its own weight, resulting in drastically reducing the number of health care providers in rural areas 

particularly as well as instead of decreasing cost increasing cost. 

By having a 3-year contract combined with the fact that relatively 

few providers are deemed winners results in fewer competitors the 

next time that bidding occurs because there is going to be a lot of 

people who will probably get out of this business. 

But less competition also in the future may very well result in 

higher prices in the future and mitigate the projected savings by 

CBO. And as I said, we all are very much interested in solving 

some of these problems of cost and improving quality of care. And 

I don’t intend to be negative about this today but I am delighted 


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that we are having the hearing to have a better understanding of 

really is this going to work and is it going to be effective. 

And then I might also say recently some of us sent a letter to 

CMS asking that they provide a list of the winning bidders that 

won the first round of bids so that Congress might have the opportunity to examine those bids to see if those winners are in fact capable of participating in the program, and we only sent that letter 

a couple weeks ago so we have not had a response yet. 

But I want to thank you again, Mr. Chairman, for the hearing 

and I look forward to the testimony of our witnesses who I know 

will provide us with information that we need to get an objective 

view of this program. 

Mr. PALLONE. Thank you, Mr. Whitfield. 

The chairman of the committee, Mr. Waxman. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Chairman Pallone for holding today’s 

hearing on this important topic. 

The health reform legislation contains many essential innovations to improve the quality and efficiency of care in Medicare and 

in fact the whole entire health care system. Today we are discussing an innovation that predates health reform: competitive bidding for durable medical equipment. 

The DME benefit in Medicare is an essential benefit for the nearly 10 million seniors who use it ever year. It pays for wheelchairs 

to help seniors and persons with disabilities move around their 

homes and communities. It covers diabetic testing equipment so 

that beneficiaries can manage their condition and avoid kidney failure or heart disease. 

DME is an indispensable part of an indispensable program. And 

yet, for many years, payments for DME in Medicare have been the 

source of seemingly endless problems. DME has received some 

truly remarkable overpayments. Take, for example, Medicare paying 10 times the purchase cost for oxygen equipment, and DME 

suppliers billing the program without even staffing their offices or 

documenting their claims gave us last year’s famous ‘‘60 Minutes’’ 

program on Medicare fraud. 

These chronic problems are an embarrassment to a program that 

has been, and must continue to be, a model for efficient health care 

purchasing. Many suppliers are legitimate, honest businesspeople 

trying to deliver the best care they can to Medicare beneficiaries. 

Their reputations are unfairly tarnished by the behavior of some 

of the other suppliers. 

Congress has acted many times to try to address these problems. 

Some of these reforms have been successful, and some of them are 

just getting started. 

Competitive bidding for DME is a market-based, bipartisan idea. 

It has been tested successfully in Medicare in demonstration programs under Presidents Clinton and Bush. And it was enacted for 

program-wide adoption in the Medicare prescription drug bill 

passed by a Republican Congress and signed by President Bush. 


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This current round of competitive bidding is a re-bid of round 

one, which was delayed in 2008. I supported that delay because of 

implementation problems identified at that time. 

Acting under Congress’s direction, the Centers for Medicare and 

Medicaid Services made many improvements to the re-bid of round 

one. Those changes appear to have reduced confusion among suppliers, though not opposition. 

I take seriously the concerns raised by the supplier community 

regarding potential threats to beneficiary access to high-quality 

DME. Competitive bidding has been tested successfully in Medicare, but not on a scale as large as what the law requires CMS to 

implement over the next few years. 

It is essential that we on this committee continue to monitor developments in this competitive bidding program as it unfolds. That 

is why I appreciate Chairman Pallone’s initiative in calling this 

morning’s hearing. 

It is also essential that CMS aggressively pursue supplier and 

beneficiary education efforts in the time before January 1, so as to 

minimize disruption to care with the start of the New Year. 

But I question those who say that we need to repeal the program 

now because of speculative threats to beneficiary access in the future. Where is the evidence for such a threat? It is certainly not 

found in previous experience with competitive bidding in the Medicare program. 

Tellingly, those most concerned about beneficiary access—the 

beneficiaries themselves, including AARP and the Center for Medicare Advocacy—support going forward with the program and vigorously monitoring its execution. 

Based on what we’ve heard so far, it appears that the current 

round of competitive bidding will save beneficiaries significant 

amounts of money in cost-sharing and premiums. Beneficiaries 

using oxygen concentrators over a 3-year rental period would save 

$400. And the improvements made by Congress and CMS offer important guarantees that winning suppliers will be able to deliver 

items and services beneficiaries need. For these reasons, I am cautiously optimistic that competitive bidding for DME may soon begin 

to finally achieve its promise of reducing Medicare spending while 

maintaining or improving the quality of care received by beneficiaries. 

I would also like, Mr. Chairman, to ask unanimous consent to 

add to the record this statement from AARP that supports competitive bidding so long as it does not compromise quality and access 

for Medicare beneficiaries. 

Mr. PALLONE. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. WAXMAN. And look forward to this morning’s hearing. 

[The prepared statement of Mr. Waxman follows:] 


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Mr. PALLONE. Thank you, Mr. Chairman. 

Next is the gentleman from Georgia, Mr. Gingrey. 

OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA 

Mr. GINGREY. Mr. Chairman, thank you. 

As far back as the Balanced Budget Act of 1997, Congress has 

attempted to address the cost of durable medical equipment on 

American taxpayers. In large part, Congressional action was 

prompted by investigations that highlighted a Medicare program 

paying way above market prices for certain durable medical equipment items. Such overpayments may be due to a Medicare fee 

schedule that is outdated, lacking what MEDPAC calls ‘‘the invisible hand of market forces’’ that can keep costs down. This antiquated system hurts our taxpayers. It makes it hard for seniors to 

find a provider or a service when sick and it undercuts financial 

solvency of the Medicare program. 

The mechanism passed to correct this payment issue, the DME 

competitive bidding program, was passed with bipartisan support 

in Congress. However, some concerns arose with the manner in 

which CMS was conducting the program and some businesses were 

disadvantaged. I am sensitive to those concerns as I believe that 

DME companies should be competitive with market prices and not 

be protected by government rates at the expense of we, the taxpayer. 

However, I also believe that government programs should allow 

DME companies to compete and not completely block the market 

to so many, particularly the small entrepreneurs. These are the 

principles of a free market economy that MEDPAC suggests Medicare lacks and principles I believe we should all support. 

Therefore, I want to thank Chairman Pallone for calling this 

hearing today and I certainly look forward to hearing from our witnesses. 

That being said, Mr. Chairman, I would like to ask again that 

this committee call a hearing on Obamacare as soon as possible because the news of its impact on Americans is getting worse. Just 

this week, Secretary Sebelius sent a letter to various health insurers condemning them for almost double-digit premium increases for 

the coming year. In that letter, the Secretary called reports of 

planned premium increases to reflect the new mandated benefits in 

the law, and I quote ‘‘misinformation and unjustified rate increases.’’ Mr. Chairman, I think it is important that we figure out 

what is going on here. Why are health insurers raising costs by 10 

percent if Obamacare is supposed to reduce cost? An op-ed in the 

Wall Street Journal on Monday states that, and I quote, ‘‘The tone 

of Ms. Sebelius’s letter suggests that she doesn’t understand that 

if Congress mandates new benefits, premiums will rise.’’ 

Mr. Chairman, my question is this: Is Secretary Sebelius looking 

out for the American patients or is she covering up the fact that 

Obamacare is making their health care unaffordable? I believe the 

American people and this Congress deserve to know whether these 

huge rate increases are the work of bad insurance companies or the 

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fying insurance companies in the past. I see no reason why it 

should shy away from holding a hearing on this issue now. 

With that, Mr. Chairman, I yield back my time. 

Mr. PALLONE. Thank you. 

Next is the gentleman from Texas, Mr. Green. 

OPENING STATEMENT OF HON. GENE GREEN, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. GREEN. Thank you, Mr. Chairman, for holding the hearing 

today on Medicare’s competitive bidding program for durable medical equipment. 

Medicare Part B covers a wide variety of durable medical equipment that is prescribed by physicians for beneficiaries including 

prosthetics, orthotics, oxygen, wheelchairs, diabetes testing strips, 

medical dressings and other various medical supplies. According to 

the Congressional Research Office, in April 2009 there were 

107,000 durable medical equipment suppliers in the United States 

with Medicare billing privileges. Medical expenditures for durable 

medical equipment were $10.6 billion in fiscal year 2008. In 2009, 

approximately 9.85 Medicare beneficiaries used Medicare-covered 

durable medical equipment. 

In general, Medicare pays for durable medical equipment on a 

fee schedule updated each year by inflation. However, several reports including investigations by the GAO, MEDPAC and the Office of Inspector General have shown Medicare pays above market 

prices for certain items of durable medical equipment. These overpayments have been linked in part to a fee schedule payment system which does not take into account market changes. 

To remedy these systematic overpayments, two demonstrations 

were conducted and a new system of competitive bidding for durable medical equipment. However, this new system implemented in 

2007 by MMA was unsuccessful in monitoring, causing confusion 

among suppliers including CMS delaying the bid window, providing 

unclear instructions to bidders and electronic document systems 

that failed and failed to notify suppliers when bidding was complete. This caused Congress in 2008 to halt the program until 2009 

so CMS could resolve the issues within the competitive bidding program. 

CMS allowed suppliers to submit new bids for the first round rebid in late October 2009 until December 2010, and in July 2010 announced initial payment amounts and contract winners. Final contracts and lists of suppliers of the first round of re-bidding will be 

announced this fall and contract will go into effect in January. 

I think this hearing is especially important because Congress has 

so many concerns with the initial bidding process, and we want to 

ensure that the next go-around will be successful. We want to ensure Medicare Part B beneficiaries continue to have access to durable medical equipment. We also want to ensure we are not raising 

their premiums because of the waste or fraud in the system or because of overpricing. All new programs and systems have some 

problems that need to be addressed. Hearings like this are important because we have the duty to ensure Congressionally implemented programs are working and benefiting many Americans. 


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I look forward to the testimony today and I want to thank the 

witnesses for taking the time to appear, and Mr. Chairman, I yield 

back my time. 

Mr. PALLONE. Thank you, Mr. Green. 

The gentleman from Pennsylvania, Mr. Pitts. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. PITTS. Thank you, Mr. Chairman. 

Medicare generally pays for most durable medical equipment— 

prosthetics, orthotics and supplies—on the basis of fee schedules. 

Unless otherwise specified by Congress, fee schedule amounts are 

updated each year by a measure of price inflation. However, investigations have shown that Medicare pays above market prices for 

certain DME items. 

The Medicare Modernization Act of 2003 established a competitive bidding program for certain DME items which began in 2008 

only to be halted days later due to implementation concerns. All 

contracts with suppliers were terminated and round one of the 

competitive bidding program had to be re-bid. The second round of 

bidding is schedule to begin early next year. 

CMS now estimates that Medicare will pay on average 32 percent less for items in the competitive bidding program than it 

would pay for those same items under the current fee schedule. 

However, patients and suppliers have concerns that the competitive bidding process will reduce access to quality items and squeeze 

smaller suppliers out of the market. 

I would like to hear from our Administration witnesses and 

stakeholder witnesses on how they view the program and how Congress can make improvements to ensure that patients have access 

to DME items they need while Medicare isn’t overcharged. 

This is a very important hearing. I look forward to hearing the 

testimony. Thank you, and I yield back. 

Mr. PALLONE. Thank you, Mr. Pitts. 

Our chairman, Chairman Emeritus, Mr. Dingell. 

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, thank you, and I commend you for 

this hearing and I thank you for holding it. A number of us on the 

committee requested it because of our concern about whether or 

not the competitive bidding program is going to in fact work. 

First of all, it has, as you know, proven to be a very controversial 

topic, not just among the members of the committee but amongst 

suppliers, beneficiaries and providers across the country. In the 

midst of all of this back and forth, I am hopeful that the two sides 

can agree on two important points: one, the pricing and integrity 

issues in the Medicare DME are a cause for concern and need to 

be addressed for the sake of the fiscal future of Medicare and to 

hold down the costs for beneficiaries, and second, when legitimate 

problems with implementation of the competitive bidding program 

are identified, that Congress has acted to address these problems. 


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Today’s hearing is going to give us a good opportunity to assess 

the current state of the Medicare DME competitive bidding program, its cost and the impact on the impact on cost and quality 

and access and lessons learned and opportunities for improvement. 

We should have a clearer understanding of what, if any, changes 

should be made in the program as it is expected to expand. 

Though this morning’s hearing is not specific on any particular 

piece of legislation, I must mention the legislation that I introduced 

last month to address a very legitimate concern raised by hospitals 

in Michigan and others throughout the country. Many hospitals 

have developed their own DME companies in an effort to better integrate hospital care and support the efficient management of the 

discharge process. I am concerned that the competitive bidding program threatens the ability of hospitals to continue to operate. H.R. 

6095 would allow the hospital-based DME providers to continue 

serving their entity’s patients while being at the same time compensated at the competitively bid rate. 

Let me make two things very clear. First, H.R. 6095 would require those hospital-based DME providers to pay these prices negotiated through the competitive bidding process, and two, the providers would be only allowed to supply patients of their hospital or 

affiliated physicians. H.R. 6095 enjoys the support of the American 

Hospital Association and the Premier Health Care Alliance. 

Mr. Chairman, I ask unanimous consent to have the letter from 

AHA and Premier in support of H.R. 6095 inserted into the hearing 

record. 

Mr. PALLONE. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. DINGELL. I have the particular pleasure to welcome Nancy 

M. Schlichting to the committee this morning. Nancy is an extraordinarily capable woman. She is the President and Chief Executive 

Officer of Henry Ford Health System, one of our Nation’s premier 

health care providers. For many years Henry Ford has been committed to improving the health and well-being of the diverse Michigan community. Nancy Schlichting and the Henry Ford Health 

System has been an enormously valuable resource to us in Michigan and to me on many important health issues, and I am sure she 

will prove herself to be every bit as valuable to the members of this 

committee on this important issue. 

I want to thank you again, Mr. Chairman, for obliging my request to have Ms. Schlichting with us today and I know she will 

be bringing much value to this very important hearing. 

I thank you, and I yield back the balance of my time. 

Mr. PALLONE. Thank you, Chairman Dingell. 

The gentleman from Texas, Mr. Burgess. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. Thank you, Mr. Chairman. 

This provision created in the Medicare Modernization Act to create the competitive bidding program, it is hard to say you don’t 

support the goals of fair and equitable pricing for medical devices 

for patients and at the same time reducing inappropriate transfers. 

Certainly the idea holds promise and takes the fundamental free 


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market principle and puts it into practice, allowing businesses to 

compete to general cost savings. 

We all know something needed to be done prior to the Medicare 

Modernization Act. The work of this committee demonstrated that 

Medicare beneficiaries were paying prices that were frankly too 

high. However, the execution of this attempt to address a very real 

problem has created problems of its own. To say that the program 

was poorly executed would be being unnecessarily kind. Fault lies 

with CMS. The Government Accountability Office has found widespread challenges to suppliers, and I am quoting here, ‘‘including 

poor timing and lack of clarity in bid submission information, a 

failure to inform all suppliers that losing bids could be reviewed, 

and an inadequate electronic bid submission system.’’ Reports of 

winners who were unlicensed and unaccredited and realistically 

unable to serve a geographical region and showed a widespread reduction in the majority of providers in each of the competitive bidding areas. A fee schedule based on these bids thus really cannot 

be considered to be a valid fee schedule at all. 

The first attempt at round one ran for 2 weeks. It was stopped 

by Congress famously on July 15, 2008, because of some of these 

concerns. The Government Accountability Office called these results unclear and inconsistent. However, when round one was restarted, for many it was more like getting to replay the same hand 

of cards when everyone knew what everyone else’s cards were. So 

it really was a process that was deeply flawed. 

I do not believe it is Congress’s jobs to guarantee a business’s income. At the same time, a winner unable to complete the job drives 

out competitors and leaves the beneficiary with nothing. What the 

program was supposed to accomplish was equal access for lower 

cost, and it really looks as if the Center for Medicare and Medicaid 

Services didn’t take the first part of that equation seriously at all. 

CMS should look at a company’s previous year’s market share and 

geographic reach when considering awarding contracts while allowing for desired company growth. However, it is my guess that a 

company that is accustomed only to serving, say, a very small town 

in my district may not be able to service the entire DFW metroplex 

overnight. It is a simple condition we call common sense. 

Now, Congress will have to explore what is the best policy to contain cost while not threatening access. That may mean a new policy or it may just mean that Congress needs to stay out of the way 

and see if the market can adapt to the CMS rules, knowing that 

we will not interfere. I am not sure which direction is best at this 

point but I certainly look forward to our witnesses for guidance. 

Mr. Chairman, I would also ask unanimous consent for testimony 

for the record from ConvaTec, a medical device company specializing in osteotomy care and wound therapeutics, be entered into 

the record. 

Mr. PALLONE. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. BURGESS. Thank you. 

Mr. PALLONE. Thank you, Mr. Burgess. 

Next is our colleague, the gentlewoman from Colorado, Ms. 

DeGette. 


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OPENING STATEMENT OF HON. DIANA DEGETTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Ms. DEGETTE. Thank you, Mr. Chairman. We are all a little 

rusty coming back after 6 weeks. 

I am really happy also that you have had this hearing today, and 

truly I am looking forward to hearing the testimony because like 

all of the members of this committee, we are concerned about saving money for our seniors and we are also concerned about the investigations that show that Medicare pays above market prices for 

certain durable medical equipment. And the competitive bidding 

demonstration did result in a savings but on the other hand, there 

are a lot of anxieties about implementation and the expansion from 

nine to an additional 80 areas including my district of Denver most 

likely, and the round one bidding process had a lot of complications, as we have heard from our colleagues. So we need to make 

sure that the guidelines for suppliers and information disseminated 

to beneficiaries is clear and consistent before we expand the bidding process, and we also have to ensure that Medicare beneficiaries can receive the same quality of medical equipment that 

they are accustomed to and also we need to make sure that we 

have enough suppliers. 

So there are a lot of issues here and I am glad you are having 

this hearing so we can begin sorting them out, and I yield back the 

balance of my time. 

Mr. PALLONE. Thank you. 

The gentlewoman from Tennessee, Mrs. Blackburn. 

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TENNESSEE 

Mrs. BLACKBURN. Thank you, Mr. Chairman. Thank you for the 

hearing today. 

You know, Medicare’s competitive bidding program for durable 

medical equipment has been contentious, to say the least, and 

many issues in this competitive bidding program are worthy of discussion and should be discussed. We need to talk about access, 

transparency, accountability and the impact on small businesses, 

and many of my constituents have very grave, solid and valid concerns on the implementation of the program. 

While the DME issues are worthy of discussion, we continue to 

hear disturbing news about the implementation of Obamacare. 

News broke last week that I believe deserves urgent attention from 

this committee. Public opinion is heavily against the program. The 

Obama Administration is dealing with fuzzy math regarding soaring health care costs, and Health and Human Services Secretary 

Sebelius is trying to bully insurance companies into submission. 

Now, since that bill passed, we have had 15 Health hearings, 

seven O&I hearings, and not one of those, Mr. Chairman, has been 

on the implementation of Obamacare. We need to remedy that. 

Last week, Secretary Sebelius sent what I think is a fairly 

threatening letter regarding rate increases resulting from new regulations and mandates in Obamacare. Apparently insurers aren’t 

supposed to explain the cause and effect of that program to their 


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consumers including rate increases with 1 percent upwards to 16 

percent in some areas. The Administration’s attempt to muzzle private companies from explaining to their customers such rate increases as a result of Obamacare I find to be the height of hypocrisy and irresponsibility. That anyone is surprised that costs are 

rising rapidly under Obamacare is beyond me. We are talking basic 

economics, the laws of supply and demand. There is no such thing 

as free care. It has to come from somewhere and it has to be paid 

by someone. 

As I have detailed in countless hearings, we tried this in Tennessee. I have tried to explain this to the President, to the Secretary and my colleagues on the other side of the aisle. TennCare 

was supposed to expand coverage and save money. In 10 years, it 

nearly bankrupted the State of Tennessee. TennCare didn’t save 

money. It didn’t expand coverage as promised and ultimately more 

than 100,000 people had to be removed from that program. 

As Tennessee learned, comprehensive health care packages for 

all will not also be affordable. Government’s resources to provide 

care are fixed. As we learned, intervention can exacerbate rather 

than control the growing costs of health care. I would love to see 

us reviewing this issue. 

I yield back. 

Mr. PALLONE. Thank you, Ms. Blackburn. 

Next is the gentleman from Georgia, Mr. Barrow. 

Mr. BARROW. I thank the Chair. In the interest of time, I would 

like to ask unanimous consent to have 5 legislative days to submit 

my statement for the record. 

Mr. PALLONE. Without objection, so ordered. 

Mr. BARROW. Thank you. 

[The prepared statement of Mr. Barrow follows:] 


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Mr. PALLONE. And next is the gentleman from Texas, Mr. Hall. 

OPENING STATEMENT OF HON. RALPH M. HALL, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. HALL. Mr. Chairman, thank you, and thanks for having the 

hearing. 

The issue of most concern to me is the lack of accountability. 

When an out-of-area and inexperienced provider can be in any area 

they choose, undercut the market and withdraw from the program 

without any repercussion is very, very disturbing. 

But what is stunning is that CMS, I am told, then used the 

abandoned low bids as a new rate and required other so-called winners to adhere to a bid that they did not make. CMS claims that 

it is a market-based program but contrary to their claims, providers are forced lest their close their business to accept prices 20 

to 50 percent of what they bid. 

Many are closing their doors and some are accepting contracts 

for the sole purpose of staying in business with no profit or at a 

loss until the program fails and the proper health care can be restored. These are not proper business practices and the program 

was never intended for this scenario. 

It must be noted how flawed the program is when the Nation’s 

largest provider, Lincare, put out a press release stating that they 

were offered contracts over 20 percent less than their bids if they 

would accept the contracts even though they would lose money on 

each Medicare patient and would have to supplement these patients from the income they received from other non-Medicare patients. I would like to submit this press release in the record with 

your permission, Mr. Chairman. 

Mr. PALLONE. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. HALL. Transparency of the bidding program has a major 

problem throughout this process. CMS has refused to release the 

names of the companies that set the bid rate. This information is 

necessary so it can be determined if those companies are local or 

out of the area, experienced, or if those companies are financially 

viable. Without transparency, the program cannot be fairly evaluated and the bids must be circumspect. CMS seems to be hiding 

the many known flaws and problems until after the program is implemented. 

Here is a letter that I along with 135 of my colleagues sent to 

CMS requesting their names of the winning bidders, and here is 

CMS’s response denying our request. With your permission, Mr. 

Chairman, I would like to submit these into the record. 

Mr. PALLONE. So ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. HALL. CMS has claimed that they have performed the diligence on providers and have assured that bidders are financially 

qualified yet companies such as Rotech were able to win bids that 

averaged 30 percent below their current rates, even though at a 

current rate they are technically bankrupt. Other companies that 

are in financial trouble have won bids as well. In fact, when asked 

about the questionable financial viability of companies who were 

awarded bid contracts, Laurence Wilson of CMS stated on the 


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record that 30 percent of the bidding companies had questionable 

financials but CMS allowed them to proceed through the process. 

This disregard for their own directives reveals much about the 

flaws in the bidding program. CMS has allowed bid rates to be created that are functionally unviable. The average single payment 

amount for portable oxygen, oxygen tanks that allow patients to 

leave their homes and lead a normal life, is averaging $21 a month 

while the actual cost to provide a liquid portable system is over 

$100 a month. An additional oxygen delivery service cost brings the 

actual monthly cost to over $150 a month. Providers will have no 

choice but to stop providing liquid oxygen, which will result in the 

suffering of patients. 

In a similar vein, diabetic supply price reductions are averaging 

over 54 percent of their current reimbursement. No industry in 

America can survive such a cut. 

In closing, I will just stay at best that CMS required cut will 

mean that only foreign-made supplies with less reliability will be 

used by Medicare patients. American-made products will no longer 

exist. An immediate service which is often required by patients will 

be replaced by ground freight delivery. This is disgraceful. 

Thank you again for having this hearing today and I yield back 

the balance of my time. 

Mr. PALLONE. Thank you, Mr. Hall. 

Next is the gentleman from Iowa, Mr. Braley. 

OPENING STATEMENT OF HON. BRUCE L. BRALEY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF IOWA 

Mr. BRALEY. Competitive bidding. It sounds like it would be unAmerican to oppose something that sounds so important and yet 

competitive bidding will lead to the now-disproven model of too big 

to fail in the durable medical equipment industry because companies that can lower margins and try to make it up on volume are 

going to drive providers out of the market in places like my State 

of Iowa. We know that is going to happen. You don’t need a Ph.D. 

to figure that out. 

The competitive bidding program has been plagued with problems from the beginning. Even proponents of the program readily 

admit that the implementation process was problematic. CMS delayed the bid window deadline several times, provided bidding instructions while the bidding window was open, sometimes provided 

unclear guidance to bidders, operated an electronic document system that failed frequently, and didn’t notify suppliers that their bid 

information was incomplete. Put frankly, this program has a poor 

track record. 

Now we have evidence of the devastating impact on beneficiaries 

like my constituents who depend on medical supplies, especially in 

rural areas. A recent study by Dr. Kenneth Brown, a professor of 

economics at the University of Northern Iowa, concluded that the 

competitive bidding program for DME will have a significant negative impact on rural areas, which are specifically excluded from the 

bidding process. Dr. Brown reached this conclusion based on a 

study of the current state of the industry, the financial results 

across the industry and the 32 percent average reduction in reimbursements that is resulting from round one bids. Specifically, Dr. 


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Brown believes that my home State of Iowa will lose 40 to 50 percent of its DME suppliers in the aftermath of competitive bidding. 

That is unacceptable to me and the people I represent. 

Now, despite the data and track record, CMS has moved forward 

again on its round one re-bid and the problems are surfacing again. 

In addition to questions about the impact in rural areas, other 

questions have arisen about the level of transparency in the process so far, and this is a bipartisan issue that almost 150 of my colleagues have raised concerns about. I would hope that CMS would 

go above and beyond to provide full and open transparency into the 

bidding process, which has been a high priority of the President. 

Unfortunately, the vital information is unavailable for both Congress and the program advisory and oversight committee about 

how those rates have been determined, access to care for beneficiaries and the impact on small providers. 

For all of those reasons, Mr. Chairman, I am glad you decided 

to hold the hearing and I look forward to having many of these 

questions finally getting the answer they deserve. 

And last, I would like to request unanimous consent to submit 

the following items to the record: Dr. Kenneth Brown’s study on 

the impact of competitive bidding in rural areas, testimony by Jim 

Tozzi, a member of the board of directors of the Center for Regulatory Effectiveness, and on behalf of Representative Jay Inslee, a 

letter from Care Medical and Rehabilitation in Seattle, Washington. 

Mr. PALLONE. Without objection, so ordered. 

[The information was unavailable at the time of printing.] 

Mr. BRALEY. Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Mr. Braley. 

Next is the gentlewoman from Ohio, Ms. Sutton. 

OPENING STATEMENT OF HON. BETTY SUTTON, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF OHIO 

Ms. SUTTON. Thank you, Mr. Chairman, for holding this very important hearing today. 

This hearing is not only about access to the health care for the 

American people but it is also about jobs and it is about our economy. It is about our seniors, veterans and other patients and their 

ability to access wheelchairs and oxygen tanks and other durable 

medical equipment. This equipment is often essential for their survival. Many of these patients in need are covered by Medicare, 

Medicaid and TRICARE, and this process will make a difference in 

whether they will continue to have access to the equipment they 

need and the help that they need. 

Today we are here to review the current durable medical equipment bidding process and determine whether it works for and with 

our patients and for our small businesses. While restructuring the 

durable medical equipment bid program is necessary to prevent the 

waste, fraud and abuse in the system, it must not be done at the 

expense of losing thousands of jobs and preventing patients from 

accessing what they need. 

For manufacturers and suppliers, the transition to the so-called 

competitive bidding program has been complex and time consuming, and the irony of it all is it is not competitive. Knowing as 


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much information as possible is crucial to submitting bids. CMS’s 

plan to overhaul the system is well intended but must be done 

carefully and sensibly. Initial attempts by CMS to implement the 

first round of competitive bidding were seriously flawed, and as a 

result the requirement to resubmit all round one bids has delayed 

the entire program by 2 years but CMS is already preparing for 

round two. If this is truly being done in the spirit of transparency 

and before we move to round two, we need to know who are the 

recipients of round one bids. CMS has failed to identify them, even 

after 136 Members of Congress formally asked for the information. 

Thirteen of those members are from Ohio. 

The process must be immediately reviewed and changed. In my 

district alone, thousands of jobs are at stake, and in the State of 

Ohio thousands more are at stake. So let us be clear. Our country 

needs to continue making things here. We must not create a new 

bidding process that is less transparent and encourages American 

businesses to move overseas. We want to encourage businesses to 

keep making their products right here and right in Ohio where I 

am so proud to represent. And at the end of the day, if we don’t 

fix this process, our manufacturers will suffer, our employees will 

suffer and our patients will suffer. It doesn’t have to be that way 

but it is critically important that we get it right. 

I thank you for having the hearing, and I yield back the balance 

of my time. 

Mr. PALLONE. Thank you. 

Next is the gentlewoman from California, Ms. Eshoo. 

OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Ms. ESHOO. Thank you, Mr. Chairman. I along with all the members of the subcommittee thank you for holding this important 

hearing on Medicare’s competitive bidding program for durable 

medical equipment. It is important for the committee to examine 

the status of this program which for years has seen the mismanagement and the fraud that has been a part of it. This is all 

carried by Medicare. Anyone that cares about Medicare and its solvency as well as seniors owe something to the examination and 

that is what we are doing today. 

We all know that durable medical equipment covers products 

that range from wheelchairs, oxygen concentrators, hospital beds, 

walkers and diabetic testing supplies. These are all essential 

health care products and beneficiaries are responsible for paying 

the other 20 percent in addition to any unpaid deductible. I am familiar with every single one of these products with the exception 

of the diabetic testing supplies. I had to get them for either my 

mother or my father or for both, so I am very familiar with who 

I went to, who delivered, what they cost, what the rental costs 

were, all of that, because I was in charge of their care. 

There is inflated costs that hurt seniors directly and not just the 

Medicare system as a whole. We place value on the importance of 

comprehensive quality care for the elderly in our country and the 

rates of fraud and abuse that the GAO has uncovered, in my view, 

are sickening. 


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I just want to give some examples. In 2006, the HHS Office of the IG reported that Medicare would allow $7,215 in payments 

over 36 months to oxygen suppliers for oxygen concentrators that 

cost $587 on average to purchase. In 2009, the OIG reported that 

in 2007 Medicare allowed $4,018 for standard power wheelchairs 

that cost suppliers $1,048 to acquire. Anyone that stays up late at 

night sees these advertisements for wheelchairs and that they will 

guarantee that Medicare picks up the entire tab for it. So I am not 

against Medicare making payments for these things, but you know 

what? I think we all need to recognize that something is not right 

in this. 

So this examination today is a very important one. I think the 

early indicators are positive that the new competitive bidding process is working. I understand that suppliers don’t like it, but this 

is a new day. We have the responsibility to extend the life of the 

trust fund of Medicare. I have heard an unending chorus relative 

to the new health law and saying all kinds of things about Medicare. This is an area where like it or not, we have to find ways to 

save money, find new ways to do the old things in a better way and 

save money and still take good care of people. We have had a system where people are used to it, made a lot of money on it. I think 

that there has been documented abuse of that system. 

So I hope what we learn today is, what is working, what isn’t 

and what we can improve upon as we move forward. But I think 

central to this really must be the cost to Medicare and the cost to 

seniors. Medicare doesn’t pick up the whole tab for this, but as one 

member I am convinced that we can do this in a much better way 

and save money. I think that is already documented by the IG. 

So thank you for having this hearing, Mr. Chairman, and I look 

forward to the discussion and the debate. 

Mr. PALLONE. Thank you, Ms. Eshoo. 

And last, I believe, is the gentlewoman from Florida, Ms. Castor. 

OPENING STATEMENT OF HON. KATHY CASTOR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA 

Ms. CASTOR. Good morning, Mr. Chairman, and thank you very 

much for convening this hearing today. 

The durable medical equipment competitive bidding program is 

of great concern to both patients and suppliers in my home State 

of Florida, so I am pleased today that we are going to take a closer 

look at what is happening. 

Florida is among the areas most affected by the DME bidding 

program. In my Tampa Bay area community, the greatest concerns 

about the bidding program deal with fairness. Longstanding local 

suppliers now find themselves in trouble because they are losing 

bids to larger companies outside of the community and often out 

of state. According to the Florida Alliance of Home Care Services, 

out-of-area companies without experience bid at prices that are far 

below the cost of local services and then later walk away from their 

bids, causing great turmoil. 

Other concerns surround the program’s efficacy in actually targeting fraud in the right way. There are claims that some of the 

companies that have been awarded bids are under fraud investigation or have settled fraudulent claims with a large payout, and in 


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Florida where the MEDPAC has identified, and we all know it, 

huge geographic disparities in Medicare spending, especially in 

DME in certain parts of Florida, we have got to make sure that if 

we are targeting fraud we are doing it in the right way. 

Competitive bidding can be great, as my colleague said from 

Iowa. It sounds great. But we have got to make it work. It can’t 

just be totally arbitrary. If we are going to have competitive bids, 

is it right that companies that have been involved in fraud before 

Medicare are taking some of these bids away from our local suppliers that have a proven history. 

Today’s hearing is critical to really getting to the bottom of these 

issues and let us get a better understanding. 

So at this time, Mr. Chairman, I would like to ask unanimous 

consent that the committee receive for the record a statement of 

my colleague, Ron Klein from Florida, regarding the topic of concern today. 

Mr. PALLONE. Thank you, Ms. Castor. 

Ms. CASTOR. I ask unanimous consent. 

Mr. PALLONE. Absolutely. Without objection, so ordered. 

[The information appears at the conclusion of the hearing:] 

Ms. CASTOR. I yield back. 

Mr. PALLONE. And if any other member wants to submit a statement for the record, we will obviously have no problem with that, 

if any other member wishes to do so. 

Now, that ends our opening statements by members of the subcommittee so I would ask our first panel to come forward at this 

time, if you would. Let me welcome all of you and introduce each 

of you. On the first panel, beginning on my left, we have Mr. Laurence Wilson, who is Director, Chronic Care Policy Group of the 

Center for Medicare and Medicaid Services with U.S. Department 

of Health and Human Services. Next we have the Hon. Daniel 

Levinson, who is Inspector General from the Office of the Inspector 

General again with the Department of Health and Human Services. And lastly is Ms. Kathleen King, who is Director of Health 

Care for the U.S. Government Accountability Office. 

I think you, we try to keep the opening statements to 5 minutes 

and then those statements become part of the record, and of course, 

if you want to submit additional brief or pertinent statements in 

writing for inclusion in the record, you may do so. And so I will 

start with Mr. Wilson. 

STATEMENTS OF LAURENCE WILSON, DIRECTOR, CHRONIC 

CARE POLICY GROUP, CENTER FOR MEDICARE AND MEDICAID SERVICES, U.S. DEPARTMENT OF HEALTH AND 

HUMAN SERVICES; HON. DANIEL LEVINSON, INSPECTOR 

GENERAL, OFFICE OF THE INSPECTOR GENERAL, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES; AND KATHLEEN KING, DIRECTOR, HEALTH CARE, U.S. GOVERNMENT 

ACCOUNTABILITY OFFICE 

STATEMENT OF LAURENCE WILSON 

Mr. WILSON. Good afternoon, Chairman Pallone, Ranking Member Whitfield and distinguished members of the subcommittee. I 

am pleased to be here today to discuss the durable medical equipVerDate Mar 15 2010 11:02 Apr 03, 2013 Jkt 078132 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 E:\HR\OC\A132.XXX A132

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ment, prosthetics, orthotic supplies competitive bidding program. 

This important initiative required under the Medicare Modernization Act of 2003 and recently expanded under the Affordable Care 

Act will reduce beneficiary out-of-pocket costs, improve the accuracy of Medicare’s payments, help combat fraud and ensure beneficiary access to high-quality items and services. 

CMS initially implemented the program on July 1, 2008, in 10 

metropolitan areas. After 2 weeks of operation, the program was 

delayed by the Medicare Improvements for Patients and Providers 

Act. CMS has examined the program closely including lessons 

learned from the initial round of bidding in 2008. We have made 

the changes required by law and many other significant improvements and are prepared to implement the re-bid of the program on 

January 1, 2011. We will do so in a way that ensures a smooth 

transition for beneficiaries and suppliers while providing effective 

oversight and monitoring. 

CMS had worked closely with stakeholders including its external 

advisory committee to design and 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. As designed, the program results in a 

large number of winners so that beneficiaries have a choice and 

there will continue to be competition among contract suppliers on 

the basis of customer service and quality. 

In addition, quality standards and accreditation combined with 

financial standards provides safeguards to support good quality 

and customer service while acting to weed out illegitimate suppliers and ensure a level playing field for suppliers competing 

under the program. 

CMS made a number of important improvements to the program 

in preparation for the re-bid in nine areas of the country. These 

changes provide for a fair process and more effective scrutiny of 

suppliers’ qualifications and the integrity of their bids. For example, CMS initiated a comprehensive bidder education campaign 

much earlier in the process. CMS developed a more user-friendly 

online bidding system, which did not experience the glitches that 

troubled bidders in 2007. MIPPA mandated a process to alert bidding suppliers if they were missing certain financial bid documents. 

This was very effective with three-quarters of suppliers taking advantage of the process. CMS verified bidders’ compliance with all 

state licensure requirements early in the bid evaluation process 

and CMS improved its process for evaluating bids to ensure they 

reflect a bona fide amount that a provider can provide an item for. 

CMS also carefully reviewed the capacity of each supplier to provide services. New suppliers and those that told us they could 

greatly expand their businesses received higher scrutiny. These 

and other changes helped ensure that payment amounts are based 

on realistic bids and that there would be more than enough qualified suppliers to serve patients. These process improvements also 

tend to favor local experienced suppliers. For example, 73 percent 

of contract offers made on July 1 went to suppliers with a history 

of providing the specific product in the local area. A full 95 percent 

of offers went to experienced suppliers. 


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Our experience with the round one re-bid has also shown that 

competitive bidding has the potential to bring value to Medicare 

beneficiaries and taxpayers compared to the current fee schedule. 

In fact, average savings across the nine metropolitan areas is 32 

percent. This translates into $17 billion in savings to Medicare over 

10 years and another $11 billion in savings for beneficiaries 

through lower coinsurance and premium reductions. As a specific 

example in my Miami, the price of a standard power wheelchair 

will drop $1,274. 

In the coming weeks, we will complete the contracting process 

and publish the names of the new contract suppliers. At the same 

time, we will ramp up our outreach and education efforts focusing 

on beneficiaries, referral agents, suppliers and others. As with any 

new program, we recognize this is a change for suppliers and patients. We will monitor implementation closely and are prepared to 

act swiftly to address any concerns that may arise on behalf of 

beneficiaries and suppliers. We have a network in place built 

around our national competitive acquisition ombudsman, local ombudsmen, regional office CMS caseworkers, contractors and Medicare call centers to address and track questions and concerns. We 

will also survey beneficiaries and perform active claims surveillance aimed at ensuring Medicare beneficiaries are receiving quality care. 

In summary, we will be diligent and thoughtful in our implementation of the program and continue to work closely with our stakeholders. Again, I appreciate the invitation this morning to testify 

before you and would be happy to take any questions. Thank you. 

[The prepared statement of Mr. Wilson follows:] 


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Mr. PALLONE. Thank you, Mr. Wilson. 

Mr. Levinson. 

STATEMENT OF DANIEL LEVINSON 

Mr. LEVINSON. Good afternoon, Chairman Pallone, Mr. Whitfield 

and members of the subcommittee. Thank you for the opportunity 

to discuss the integrity of Medicare’s coverage of durable medical 

equipment and supplies, or DME. 

Medicare pays for DME on behalf of more than 11 million bene- ficiaries at a cost of more than $10 billion a year. In 2009, CMS 

estimated that more than half of DME claims were paid in error. 

The vast majority of Medicare suppliers are honest and well intentioned. However, even a small minority of unscrupulous suppliers drains Medicare funds and puts beneficiaries at risk. OIG’s 

work has demonstrated that this benefit is particularly vulnerable 

to fraud, waste and abuse. My testimony focuses on two key 

vulnerabilities described more fully in my written statement. These 

are the ease with which fraudulent suppliers obtain billing privileges and DME payment rates that exceed market prices. 

Although DME accounts for just 2 percent of Medicare spending, 

approximately 14 percent of OIG’s health care fraud investigations 

involve DME. These investigations have found that criminals set 

up sham DME storefronts and fraudulently bill Medicare for millions of dollars. Then they close up shop and reopen in a new location under a new name and repeat the fraud. Entry into the DME 

business has been too easy, and oversight and enforcement of Medicare enrollment standards has been weak. For example, almost 

one-third of the 1,600 DME suppliers billing Medicare in south 

Florida did not have an open and staffed physical location when 

OIG conducted site visits. 

In addition, Medicaid frequently reimburses for DME federal 

rate above acquisition costs resulting in waste and increased beneficiary copayments and making fraudulent billing more lucrative. 

For example, in 2007, OIG found that Medicare reimbursed suppliers for wound therapy pumps based on a purchase price of more 

than $17,000. However, suppliers paid approximately $3,600 for 

new models of these pumps. Likewise, in 2007 Medicare paid about 

$4,000 for standards power wheelchairs that cost suppliers about 

$1,000 to acquire. Our investigations have demonstrated that pricing disparities make DME a lucrative target for criminals. In numerous cases, criminals have supplied unneeded power wheelchairs 

and scooters to beneficiaries because the Medicare payment is excessive enough to make this scam profitable. 

The profitability of DME fraud has given rise to increasingly sophisticated schemes and more violent perpetrators. For example, in 

southern California, an individual established numerous sham 

DME companies using street gang members to pose as owners. 

These sham suppliers enrolled in Medicare and submitted millions 

of dollars in fraudulent claims for power wheelchairs and orthotic 

devices. The gang members involved had previously been convicted 

of charges ranging from assault to narcotics violations. 

In response, we are taking strong action to protect the integrity 

of the Medicare DME benefit. Innovative uses of information technology and data analysis have dramatically enhanced the governVerDate Mar 15 2010 11:02 Apr 03, 2013 Jkt 078132 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 E:\HR\OC\A132.XXX A132

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ment’s ability to detect, prevent and respond to fraud. OIG analyses data to identify fraud hotspots and to alert CMS to potential 

fraud so that it can implement appropriate program safeguards. 

OIG and the Department of Justice are accelerating the government’s response to fraud schemes. Medicare fraud Strike Force can 

quickly detect, investigate and prosecute fraud before the criminals 

and stolen funds disappear. The Strike Force teams combine data 

analysis with field intelligence to crack down on sham DME suppliers and other fraud perpetrators. Our teams are working to stay 

ahead of the criminals as their fraud schemes replicate and migrate. 

CMS has taken some important steps such as requiring accreditation and surety bonds to strengthen provider enrollment standards. The Affordable Care Act requires CMS to conduct more stringent risk-based provider enrollment screening. 

The Medicare competitive bidding program holds promise to address payment vulnerabilities by better aligning DME reimbursement with market prices. It also provides a mechanism for ensuring that CMS has better information about suppliers when granting billing privileges. If policymakers consider a different course, it 

remains imperative to take prompt, appropriate action to ensure 

the integrity of the benefit. My office remains committed to monitoring program integrity and beneficiary access to reasonably 

priced, medically necessary, quality medical equipment and supplies. 

In conclusion, I appreciate and share your commitment to fighting DME fraud, waste and abuse and I welcome your questions. 

[The prepared statement of Mr. Levinson follows:] 


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Mr. PALLONE. Thank you, Mr. Levinson. 

Ms. King. 

STATEMENT OF KATHLEEN KING 

Ms. KING. Mr. Chairman and members of the subcommittee, I 

am pleased to be here today to discuss Medicare’s competitive bidding program for DME. 

Medicare’s DME program for competitive bidding was implemented in part to save Medicare money. Both we and the Office of 

the HHS Inspector General have reported that Medicare and its 

beneficiaries have paid higher than market prices for various medical equipment and supplies. These overpayments increase cost to 

both Medicare and its beneficiaries. 

Today I am going to focus on three problem areas we identified 

in our November 2009 report and how CMS is addressing those 

problems. These three areas are: providing suppliers with bid submission information, the electronic bidding submission system and 

the bid disqualification notification process. 

First, in the bidding process for round one, we found several 

problems regarding the timeliness of information provided by CMS 

and lack of clarity in bid submission information provided to bidders. We also found that CMS was not able to inform suppliers 

what required financial documentation was missing or incomplete. 

In contract, for the round one re-bid, CMS provided information 

earlier to suppliers, took several steps to make its financial documentation instructions clear and notified suppliers when their financial documentation was incomplete. 

In response to concerns expressed during round one that winning 

suppliers did not have the necessary capacity to fulfill their contracts, for the re-bid CMS developed a systematic method for reviewing suppliers’ capacity and expansion plans. To address concerns that some suppliers were awarded contracts in round one in 

States for which they were not licensed, CMS clarified the requirement that suppliers be licensed in all States for which they submitted bids and provided directories to assist suppliers in identifying state licensing requirements. 

Secondly, with regard to the electronic bid submissions, we found 

that the bid submission system had several operational problems 

that affected suppliers’ ability to submit their bids. For the re-bid, 

CMS developed a new electronic bid submission system, DBidS, 

which was designed to be user friendly, easier for suppliers to navigate and capable of providing detailed bidding instructions in userfriendly language. DBidS also has status indicators to show whether the bidding forms are complete and links to direct bidders to incomplete data. 

For the third issue, the bid disqualification process, in the first 

round almost half of the bids were disqualified. CMS conducted a 

post-bidding review process through which the agency reversed 

some of these decisions. However, CMS did not effectively notify 

suppliers about the opportunity for this post-bidding review process. To improve future rounds, we recommended that if CMS decides to conduct a review of disqualification decisions made during 

round one, they should notify all suppliers of that process, give 


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suppliers and equal opportunity for review and clearly indicate how 

they can request a review. CMS agreed with our recommendations. 

Beginning in July 2010, CMS sent notification letters to winning 

suppliers offering them contracts but did not notify the losing suppliers. CMS informed us after the round one re-bid contracting 

process is complete, they will send letters to disqualified suppliers 

explaining why they were disqualified. CMS said the letters will 

also explain the process through which suppliers may ask questions and express concerns, and they said if they find that in the 

course of responding to these concerns they determine that an error 

has been made, it is possible that a contract would be offered to 

a supplier. 

We plan to do further work regarding the round one re-bid. As 

required by MIPPA, we will examine the program’s impact on 

Medicare beneficiary access to items and services and on small suppliers, among other topics. Our study is to be completed a year 

after payments on the first round are made. 

Mr. Chairman, this concludes my prepared statement. I would be 

happy to answer any questions. Thank you. 

[The prepared statement of Ms. King follows:] 


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Mr. PALLONE. Thank you, Ms. King, and now we will start and 

ask questions from the members. It is generally 5 minutes for each 

of us, and I will start with myself. 

My questions are to you, Mr. Wilson. You probably heard before, 

many suppliers have expressed the belief that winning suppliers 

will be unable to meet their contract performance requirements, in 

effect, you know, it happens a lot now with the economy that they 

offer up a suicide bid just to stay in the program without any actual ability to deliver on their promises or maybe they think they 

can deliver but they can’t ultimately. Have you seen examines of 

what I call suicide bidding and do you have any protections in 

place to guard against inappropriate bids? 

Mr. WILSON. Mr. Chairman, I don’t know that I have seen an example of a suicide bid. We have a process in place to determine 

whether or not suppliers are qualified, licensed, accredited, meet 

all the standards required by Medicare. The second part of the 

process deals with whether or not their bids are bona fide, and yes, 

we have found bids that aren’t bona fide. We do have a process 

where we analyze, request information such as invoices from suppliers to show, to prove and document that they can meet a certain 

price and we requested that information and verified whether or 

not there were what we would term a low-ball bid, unsustainable 

bid. 

Mr. PALLONE. I know you said you have a plan, but as another 

follow-up, will referral agents, and I guess, you know, would there 

be any kind of follow-up where people will be able to report problems and, you know, you find out about those problems as opposed 

to just looking at the plans? 

Mr. WILSON. Well, I think that is a very important part of the 

program. I think the key here for us is ensuring that we have 

enough qualified, able suppliers in place to provide quality services 

to our beneficiaries. That is the key to the entire program. Our 

ability to educate, communicate with folks that are involved in that 

process like referral agents including physicians, hospitals—— 

Mr. PALLONE. Social workers? 

Mr. WILSON. Social workers, State health insurance programs. 

That is all part of our communications plan that we will ramp up. 

We have already started but we will ramp up towards the end of 

this month when we release the list of contract suppliers. It is a 

very key part of the program. To the extent that either a supplier 

or a beneficiary has a concern, we will be educating all of these entities on where they go through direct mail, through documents, 

Web sites, again talking with partner organizations that deal with 

beneficiaries so that a beneficiary will know to call 1–800. A complaint would get routed. We would track that complaint. We have 

an ombudsman program that can deal with that complaint. We 

have local ombudsman that can—— 

Mr. PALLONE. And what if there is a shortage, I mean, if there 

a problem? Do you have the ability to add capacity if shortages 

arise, you know, like if a contractor fails? 

Mr. WILSON. We believe we have offered contracts to more than 

enough suppliers to provide access to beneficiaries in these nine 

areas. A core principle in the program with respect to offering contracts is to set a demand target that is very, very high so that we 


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can guarantee we have enough suppliers. So if a supplier has a 

problem, maybe we lose one, maybe their number gets revoked, we 

will still have enough suppliers. If we need to add a supplier, we 

can certainly go out and offer a contract. 

Mr. PALLONE. OK. My second question is more local, you know, 

referring to my State. In the Medicare Improvement for Patients 

and Providers Act of 2008, it gave CMS the authority to split metropolitan statistical areas more than 8 million people into separate 

bidding areas. Now, New Jersey is in one of these very large metropolitan areas that includes New York City, northern New Jersey, 

Long Island, Pennsylvania, you know, like maybe 20 million people 

altogether. I think because the geographic area and the number of 

people is so large, it is essential that the MSA be divided into market areas that better reflect prevailing medical practice, and it is 

my understanding that CMS has proposed to subdivide this market 

into five smaller competitive bidding areas. Is that correct, and 

isn’t it true that these smaller areas—well, I want to know is it 

true, and secondly, if these smaller areas are going to better reflect 

the differences between southern New Jersey, northern New Jersey, New York. Do you want to respond to that? 

Mr. WILSON. Sure. It is absolutely true, Mr. Chairman. We did 

discuss that issue with our advisory committee. We received advice. 

We put our proposal in a proposed rule this spring and have received comments and are looking at the issue right now. 

Mr. PALLONE. So you have made a decision to subdivide the market? 

Mr. WILSON. We have proposed a methodology in a rule to subdivide the market, and we do believe that is the correct thing to 

do here. 

Mr. PALLONE. And how is that being done to reflect the differences, you know, as I said, New Jersey versus New York, north, 

south Jersey, whatever? 

Mr. WILSON. Right. Well, the issue that we are dealing with is 

really the New York metropolitan area so we are looking at New 

Jersey counties that are west of the city as one area and New Jersey counties that are immediately south of the city as another area. 

We also added in Pike County, Pennsylvania, to the western New 

Jersey counties. I don’t think people like that so we will be looking 

at that aspect of our proposal very closely but we certainly did look 

at these market areas trying to develop more homogeneous market 

areas that would better serve suppliers’ ability to deal with patients across a smaller area. 

Mr. PALLONE. I don’t want to take up any more time but I may 

follow up with some written questions to you about that. 

Mr. WILSON. Absolutely. 

Mr. PALLONE. Thank you. 

Mr. Whitfield. 

Mr. WHITFIELD. Thank you. Mr. Chairman, I would like to ask 

unanimous consent that we enter into the record this testimony 

from a representative of ConvaTec, a company on this issue. 

Mr. PALLONE. Without objection, so ordered. 

Mr. WHITFIELD. Mr. Burgess is so fast, I didn’t know he had already done it. 

Mr. PALLONE. You have got to watch him. 


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Mr. WHITFIELD. Thank you for your testimony. We appreciate it 

very much. 

Mr. Wilson, let me just ask you, critics of this program have 

noted that the first effort needed to be terminated, the first bid effort needed to be terminated in 2008. Would you please explain 

specifically why that was necessary and why CMS believes that the 

second round will be different? 

Mr. WILSON. Well, I can certainly talk to some of the issues and 

concerns from the 2008 round of bidding that I think we have tried 

to address and I believe that we have addressed consistently with 

the GAO’s testimony today, but there were a number of concerns, 

particularly with regard to how the agency communicated information about bidding, the timing of communication that perhaps contributed to confusion about what the rules were. That is something 

that we have acted to fix in this round. We didn’t revise instructions midway through the bidding process this time, as we did last 

time. I think that was very important to provide a level playing 

field for all suppliers involved in the bidding. The online bidding 

system last time, as I mentioned in my testimony, did not work. 

It was frustrating. Suppliers would enter information, think they 

saved it, and when they went back it was gone. There is a lot of 

information associated with the bids and we recognize that was a 

frustrating process. We fixed that. We did not have those problems 

this time. Those were legitimate concerns that needed to be addressed. We did not validate licensing up front in the process in 

2008 so we looked to verify licenses afterwards, after the bids were 

submitted. What that may have led to is speculative bids being 

submitted by certain suppliers that maybe came in from out of 

state. This time we said you need to have your licenses up front. 

They have to be in order and all of your other qualifications in line 

such as accreditation so that that tended to favor local suppliers 

since they really just needed to have—local suppliers tended to be 

the ones that had local licenses and so those were the ones that 

I think benefited from that policy. 

I think the scrutiny that we placed on bids this time was more, 

that we heard a lot of concerns about, one, whether they would be 

too many low-ball bids coming into the process. Again, we looked 

at that very closely, revised our process this time. We requested 

more information in terms of an explanation of suppliers’ bids 

where we found them to be aberrantly low. We looked very closely 

at some of the invoices that were provided, and when a supplier 

could not justify the level of their bid if it was low, we would discard that bid. 

Mr. WHITFIELD. Let me—I appreciate your responding. You did 

a very good job of covering some areas but let me ask you another 

question here. I was reading an article recently about a provider 

in Tennessee that on this most recent round submitted a bid for 

all areas in the wheelchair category, and only about 10 percent of 

his business was really related to these wheelchairs, and he evidently was offered—he won the bid in basically half of those 10 

areas, and he deliberately submitted a low bid according to the article I read, and when you all offered him the contract he refused 

the contract. Are you aware of that particular situation? 


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Mr. WILSON. Yes, Congressman, I am aware of that situation. I 

have looked into it. At the outset I would say I can’t talk about specific information in that supplier’s bid. We consider bid information 

proprietary. I will say that everything in that article is not accurate. 

The other thing that I would say is, looking at the article the 

supplier was very clear that he felt his bid was a fair price compared to the quote, unquote, cost of goods. In fact, that leaves a 

higher gross margin and a lot less labor than your average complex 

rehab chair. So he thought he had a profit in there and that that 

was a good bid. 

Mr. WHITFIELD. Even though he—— 

Mr. WILSON. Even though he refused it. The other thing that he 

said is that the primary reason he didn’t accept it was because that 

particularly after round two utilization will drop substantially. 

Marketing and advertising drives utilization, it drives demand in 

reimbursement. It isn’t going to allow for $800 to $1,000 per chair 

for marketing and advertising anymore. 

Mr. WHITFIELD. But I think the concern is that you have someone like this that is really not in that business and he does a lowbad bid and then in the matrix as they look at final bid prices, it 

does put at a disadvantage a lot of the local suppliers. At least 

there is the concern for that, which may be valid or may not be 

valid. But my time is expired, so thank you. 

Mr. PALLONE. Thank you. 

Chairman Dingell. 

Mr. DINGELL. Mr. Chairman, thank you for your courtesy. 

Ms. King, you allude to a situation in your testimony where I am 

concerned. Would you say the DME program as currently constituted is unusually conducive to fraud as compared to the rest of 

Medicare? Yes or no. 

Ms. KING. Yes. 

Mr. DINGELL. Why do you feel that way? 

Ms. KING. Congressman Dingell, I think there are several reasons for that. There are some parts of Medicare including DME 

where the barriers to entry have been historically low so that it 

doesn’t take a lot to get into the market and it has made it easier 

for unscrupulous providers to enter into the market, to start billing 

Medicare, and then when people start to catch up to them to close 

up shove and move on to somewhere else. 

Mr. DINGELL. Thank you. Please submit for the record what additional steps must be taken to see to it that we have completed 

the addressing of the problem of fraud with regard to durable medical equipment. 

Now, Ms. King, I want to compliment you and GAO. You know 

the respect I have for your agency. 

Ms. KING. Thank you. 

Mr. DINGELL. CMS has instituted many new requirements outside of the DME competitive bidding program with more help combating waste, fraud and abuse will come as a result of health reform. But even apart from that, CMS argues that competitive bidding will reduce fraud. In your testimony, you note that competitive bidding has the potential to reduce Medicare expenditures by 


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using market forces. Question: Do you think that it might also reduce fraud amongst DME suppliers as CMS claims, yes or no? 

Ms. KING. Yes. 

Mr. DINGELL. Now, OIG draws a connection between overpayments and fraud. Essentially they say honey draws flies. Do you 

agree that there is a link between overpayments and fraud? 

Ms. KING. I don’t think that we have done work directly on that 

point. 

Mr. DINGELL. Now, these questions are for Mr. Wilson or Ms. 

King. Changes have been made since round one. You have indicated in your testimony there are many problems reported during 

the initial round of competitive bidding. GAO documented unclear 

bidding instructions, poorly performing bidding software and inadequate supplier education before commencement of the bidding. 

MIPPA mandated many changes in the program that have been 

adopted in round one re-bid including the requirement that CMS 

allow suppliers a chance to complete their financial documentation 

at a date certain for quality accreditation. Question: Has CMS 

made other changes to facilitate fair competition in the round one 

bid? Yes or no. 

Mr. WILSON. I will answer, Congressman Dingell. Yes, I believe 

we have. 

Mr. DINGELL. Ms. King? 

Ms. KING. We haven’t seen the final results yet so I think that 

we will reserve judgment until we see that. 

Mr. DINGELL. Would you review these questions and see whether 

they are being fair to the bidders, and please report to the committee for inclusion in the record? 

Ms. KING. Yes, we will. 

Mr. DINGELL. Now, one of the problems GAO documented was 

that many suppliers were disqualified due to incomplete financial 

documentation, a fact that they were often not aware of. Based on 

your experience with regard to the round one re-bid, do you believe 

that this problem of suppliers being disqualified in large numbers 

due to incomplete documentation has been fully addressed? 

Ms. KING. We haven’t seen the results yet but I do think that 

the new bidding system has the potential to really help with that 

because it signals supplies when documentation is not provided or 

is incomplete. 

Mr. DINGELL. Mr. Wilson? 

Mr. WILSON. I believe in answer to your question, Congressman, 

that the answer is affirmative. I can provide—— 

Mr. DINGELL. Would you please each review that and tell me 

what of the questions of basic fairness have not been properly and 

fully addressed by CMS for submission in the record? 

Now, another issue raised during MIPPA was again one of fairness. It seemed unfair that because bid instructions were changing, 

early bidders had to spend extra time to make sure their bids were 

still appropriate, and it seemed unfair in the GAO report that some 

suppliers were given a chance to review all their disqualifications 

while others were not. First of all, one, Mr. Wilson, is that true? 

Mr. WILSON. It is true that bid instructions and additional information were released during the bid window in 2007, and so yes, 

it would be true. 


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Mr. DINGELL. OK. Has that been corrected? 

Mr. WILSON. It has been corrected. 

Mr. DINGELL. Are you satisfied with that? 

Mr. WILSON. I am satisfied. 

Mr. DINGELL. Ms. King, what are your responses to those questions? 

Ms. KING. Yes, we do think it has been corrected. With regard 

to the disqualification process and the review process, that has not 

occurred yet with the round one re-bid so we don’t know what the 

outcome will be yet. 

Mr. DINGELL. Is there anything that has to be done to assure 

that the unfairnesses that we are discussing here have been properly addressed? 

Ms. KING. CMS has told us that they intend to provide notice to 

all suppliers about the reasons why they were disqualified and give 

them an opportunity to express an opinion. 

Mr. DINGELL. I think we are agreed that these matters must be 

conducted fairly. Would you submit to us for the record any matters which need to be addressed by CMS to assure fair bidding? 

Ms. KING. Yes, sir. 

Mr. DINGELL. Now, again—— 

Mr. PALLONE. Mr. Chairman, just to note, you are a minute and 

a half over. 

Mr. DINGELL. I am sorry, sir? 

Mr. PALLONE. Just to note, you are a minute and a half over. If 

you want, you can continue a little bit but—— 

Mr. DINGELL. I ask that I be permitted to submit those questions. Mr. Chairman, may I just ask this one important question 

to each of the witnesses? 

You have all seen H.R. 6095, the bill I have introduced. Would 

you please tell me whether or not you have any concerns about how 

that will adversely impact the cost to the government of the program we are discussing? You may submit that for the record. 

Mr. Chairman, I yield back the balance of my time, and I thank 

you for your courtesy to me. 

Mr. PALLONE. Thank you, Chairman Dingell. 

Next is the gentleman from Pennsylvania, Mr. Pitts. 

Mr. PITTS. Thank you, Mr. Chairman. 

Mr. Wilson, you claim that the overall savings to Medicare and 

beneficiaries will total $28 billion over the first 10 years without 

compromising quality or access. Can you explain why you are so 

confident quality and access will be maintained at current levels? 

Mr. WILSON. Well, we will have a program in place to ensure 

quality, provide oversight, communicate with beneficiaries, communicate with beneficiaries, communicate with others involved in 

their care. We will have complaint process if we have of concerns. 

We will have a process in place to act swiftly to address those concerns. There are certain underlying features of the program which 

address quality, requirements on suppliers in terms of accreditation and quality standards, other parts of supplier standards which 

apply and with the competitive bidding program comes a more focused oversight effort on the suppliers that are involved in the program and have contracts. So we believe we have the mechanisms 


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in place, the infrastructure in place to deal with individual beneficiary issues and more systemic beneficiary issues. 

One thing that is different in the program from 2008 is, we will 

be doing active claims surveillance on the claims as they come in 

to be able to see who is providing the care, who is getting the care 

and whether or not there are any issues or concerns. We can look 

and see things like are there more emergency visits, are there 

longer hospitalizations, are there some of the kinds of quality problems that we might be concerned about. So we will be looking very 

closely and we will have a plan in place and the resources in place 

to deal with problems as they arise. 

Mr. PITTS. What beneficiary protections are contained in the program? 

Mr. WILSON. There are a number of important beneficiary protections. I think one of the key ones is something that was provided 

in the law. It is called grandfathering. So for many suppliers and 

many beneficiaries, the existing supplier, even if they don’t win a 

contract, they can stay in the program. The last time in 2008 we 

saw that over 90 percent of oxygen suppliers—and of course oxygen 

patients are the ones that we would be most concerned about in 

terms of any quality adverse outcomes. So we expect that there will 

be a lot of grandfathering. We have selected a number of suppliers 

to be contract suppliers so that beneficiaries will have choice. If 

they don’t like care somewhere, they can go somewhere else. We 

have a safety net provision provided by Congress called the physician authorization provision. If the physician for the patient feels 

a specific brand or mode of treatment is required, that has to be 

provided under the program by a contract supplier. Anti-discrimination provisions—we require suppliers under the program to provide the same treatments, the same items and services, brands, 

models to their Medicare patients as they do for their private patients. We have other provisions which require transparency, so we 

will be publishing and updating quarterly all the brands and all 

the models that each contract supplier provides so that beneficiaries, caregivers, referral agents can look and see what types of 

products and brands they want and sort of vote with their feet and 

go to suppliers that provide what they need, and that also creates 

competition around the quality of the items and services provided. 

And then as I mentioned—— 

Mr. PITTS. Go ahead. 

Mr. WILSON. And then as I mentioned, the oversight and monitoring efforts that we will have in place. 

Mr. PITTS. Now, your testimony speaks of protections for small 

suppliers. What are these protections and how were they created? 

Mr. WILSON. The law asks us to put in place a program that allows suppliers the opportunity to participate in the program. We 

feel like we have done a lot more than that. We worked with the 

Small Business Administration to put a place a definition of a 

small supplier, which is something less than the definition or a 

lower threshold than a small business because many suppliers are 

very small mom-and-pop entities. We built some policies around 

that definition. We actually have what we call a 30 percent target, 

really a set-aside where we make sure that in every auction, in 

every bid in an area for a product category we insert 30 percent 


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of the suppliers meet that definition, and if they don’t, we add 

small suppliers. 

We found that with respect to the current contract offers that we 

have made, we have exceeded that target. It is almost half, 48 or 

49 percent are small suppliers that meet that definition. We allow 

small suppliers to band together as a network to meet all the requirements under the bidding program. Those are just a few of I 

think the most important provisions. 

Another key one I will mention is that we have the way the policy works, the way the bidding program is structured results in 

multiple suppliers so we try to select lots and lots of suppliers. 

Ninety-two oxygen supply contracts are offered in Miami. I think 

42 wheelchair contracts offered in Riverside. We try to make sure 

there are lots of suppliers so that beneficiaries have choice, more 

suppliers can participate. That also has an upward effect on price. 

Mr. PITTS. My time is expired. Thank you, Mr. Chairman. 

Mr. PALLONE. Thank you, Mr. Pitts. 

Next is the gentlewoman from Ohio, Ms. Sutton. 

Ms. SUTTON. Thank you, Mr. Chairman. 

Mr. Wilson, would you agree with me that it is absolutely important to cut out waste, fraud and abuse and that we must do so 

through a fair process? 

Mr. WILSON. Absolutely. 

Ms. SUTTON. One that will permit patients to continue to access 

appropriate and quality care and services? 

Mr. WILSON. I do. 

Ms. SUTTON. OK. Is CMS monitoring whether beneficiaries in the 

bid areas will be able to continue to access the same brand products and the level of services, particularly for beneficiaries with 

chronic conditions and needs? 

Mr. WILSON. We certainly will be collecting that information, 

asking suppliers to update it quarterly and publishing it. 

Ms. SUTTON. OK. Mr. Wilson, as you are going forward with the 

next bidding process—actually let me just direct this to anybody 

who has information. We have heard a lot, and we have heard 

some questions that reflect it. There are many reasons why bids 

are low but industry is saying that out of the area and inexperienced companies were allowed to bid and set area rates, then withdraw from the bid process with no repercussions, leaving the area 

and local providers to deal with unrealistic bids, and I guess the 

question would be, why would you allow out-of-area companies 

with no accountability to bid in the first round areas, and after 

they withdraw then keep those illegitimate bids in the matrix for 

crafting new bid rates, if that is indeed what happened? 

Mr. WILSON. Sure, I can provide some information I think to address this issue, Congresswoman. I think during the first round in 

2008, 95 percent of contract offers were accepted. I think while we 

are not done the contracting process, we expect to see something 

similar so most contracts are being accepted. I think the other 

thing that I would say is that 72 percent of contract offers went 

to providers, local suppliers that provide the product category for 

which they bid. A further 11 percent were local suppliers that 

maybe provided a different product category but local suppliers and 

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area suppliers but were experienced in that product category. So I 

think that we see is overall 95 percent of the suppliers being experienced meeting all of our requirements. We have certainly never 

had requirements in Medicare that say a particular provider can’t 

expand from one State to another State or one city to another city, 

and we didn’t see an ability to place such restrictions on this program here. 

Ms. SUTTON. Well, there are a lot of concerns and of course you 

have heard many of them expressed here today, and whether it is 

the small suppliers, I will say that it is my understanding that the 

Cleveland Clinic, for example, bid below the allowable price and 

didn’t win one contract. In January they will no longer be able to 

provide services and patients will have to wait until the DME provider that won the bid will be able to provide it. So you can understand that there is a lot of concern out there about how this is actually going to play out in the lives of the people that we are so 

honored to serve. 

I guess one of the things, going back to—we know that CMS is 

prepared to survey consumers regarding the level of service and 

quality of care changes and the round two of the bid process of 

course is scheduled to begin in the spring of 2011, but how can the 

surveys provide a quantitative analysis in order to determine the 

success of the program and to identify any shortcomings and how 

quickly will the surveys be completed and on what frequency? 

Mr. WILSON. I would have to get back to you with respect to 

some of the details of the survey. We will be conducting a consumer 

satisfaction survey. We have already done a pre-implementation 

survey to provide a baseline. So I think we will be moving forward 

quickly. I will provide to you specific information on when that follow-up survey will occur. But I think there are, you know, many 

other things that we will be doing in terms of monitoring. We will 

be collecting information from Medicare 1–800, from our ombudsman program so that we can review complaints, analyze complaints 

to see if there are systematic problems. I already mentioned the active claims surveillance that we will be doing. So we are really trying to look on a broad basis using a number of different tools to 

penetrate some of the issues and concerns. 

Ms. SUTTON. Let me just follow up on that line real quickly here. 

What will happen if CMS identifies a reduction in quality and service? Is there a particular change that will trigger CMS’s intervention? I mean, it is a very uncertain future. 

Mr. WILSON. I guess that could take many, many forms, and to 

the extent that it was a concern with respect to a particular supplier not meeting the quality standards or doing something in conflict with the quality standards, that may call for a certain typed 

of targeted intervention. If we found that there was a broader base 

concern, we would have to consider what that is, what the circumstances are and move swiftly to take appropriate action. So 

without sort of knowing what that is, it is hard for me to say. 

Ms. SUTTON. I thank you, and Mr. Chairman, I have additional 

questions I will submit for the record. 

Mr. PALLONE. Any member can submit additional written questions and we will ask you to get back to us fairly quickly if you can. 

Next is the gentleman from Texas, Mr. Burgess. 


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Mr. BURGESS. Thank you, Mr. Chairman. 

You know, as I sit here and we have this hearing and if I take 

myself back to July of 2008 when we passed MIPPA, you know, as 

I recall, we passed that under suspension. I don’t think we had a 

markup here in the subcommittee. I don’t think we had a markup 

in full committee on the delay of the competitive bidding program 

and it just underscores how when we circumvent the normal process, how harmful it is. It is harmful to businesses, it is harmful to 

patients and even the federal agencies are left trying to make sense 

out of what Congressional intent was. So while this committee 

probably didn’t play a role in allowing MIPPA to come to the floor 

without any discussion under suspension, it was wrong, it was a 

mistake, and I think going forward this committee needs to assert 

its authority at the subcommittee and full committee level. 

I am very grateful to our witnesses for being here today. Mr. Wilson, I know that you have heard from several members that here 

we are, now we have the 6-month anniversary of the Health Care 

Act coming upon us next week. The Secretary is going out with 

some re-education that she talked about in the newspapers last 

week. We haven’t heard from her. I know she can’t just show up 

to this committee. She has to be invited. I have here a copy of a 

letter. It is actually the second letter that Mr. Barton and I have 

submitted to Mr. Waxman asking him to invite the Secretary to 

come to the committee. I would ask you today, sir, would you be 

kind enough to carry a copy of my letter to Mr. Waxman asking 

him to invite the Secretary so that she may be prepared for that 

invitation when I hope it eventually comes? Can I ask you to carry 

this to the Secretary, sir? 

Mr. WILSON. Absolutely. 

Mr. BURGESS. Thank you. A couple of questions then for you. You 

know, it appears as we go through this and hearing your testimony, some of these competitive bidding contracts, I mean, they 

are going to be—the amount of money coming in may be substantially reduced, and that may be entirely appropriate, but have you 

at HHS done any studies as to the market feasibility of removing 

this amount, these amounts of dollars from the business models of 

these companies that are the suppliers? 

Mr. WILSON. We have certainly examined the pricing structure 

and some of the business models closely. 

Mr. BURGESS. So have you done studies as to the market feasibility? 

Mr. WILSON. I don’t think we have done what I would call or describe as a market feasibility study the way a corporation might 

conduct such a study who wants to launch a product. 

Mr. BURGESS. But the only reason a corporation would do it is 

because they want to be able to be competitive and provide the 

good or service to the person, the customer, the end user that needs 

it so it would make sense to do that. Well, let me just ask you, 

have you done any studies on how this would impact patient access 

to any of these supplies? We have heard several people mention 

that today, Cleveland clinic, I think Mr. Hall brought it up. Have 

you looked into that? 

Mr. WILSON. Yes, I think that we know is that many of the products through a number of different studies by GAO, OIG and our 


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own analysis of some of the information that we have now from 

suppliers that many of the items under the current fee schedule 

are very overpriced. 

Mr. BURGESS. And I don’t disagree with that at all, and shame 

on us as a committee, shame on the federal agencies for not having 

addressed this problem sooner. 

Now, Mr. Levinson, since you are here, and I am so glad you are 

here, I don’t really understand why you are here but I am glad you 

are here because we need to have this discussion, and in fact, I 

hope, Chairman Pallone, that you will convey to Mr. Waxman that 

it would be good to get Mr. Levinson and perhaps some of his counterparts at Department of Justice to come to our oversight committee and talk to us about this in some detail because in your 

written testimony you detail the importance of oversight, and honestly, it has been lacking over the last 3–1/2 years and I just hope 

going forward we can get that—we can have that happen. I see, 

you know, the television stories repetitively back in my home, basically the Dallas-Fort Worth television market, a gentleman comes 

home and finds a wheelchair in his living room they have never 

asked for. He is fully ambulatory and he can’t understand why he 

has a wheelchair, and the reporter unraveling this Gordian knot 

comes back to the fact that he went someplace for some blood test 

some 6 or 12 months before. They got his billing information and 

through a convoluted series of different providers, now he ends up 

with a wheelchair in his house and he doesn’t know what to do 

with it because his house is not able to accommodate a wheelchair 

and he doesn’t need one. So these types of stories just drive people 

crazy, and in my discussion with your counterparts in our area and 

the Department of Justice, one of the problems that they have is 

the lack of federal prosecutors. When you guys develop a case and 

bring a case, the lack of federal prosecutors to then pursue that has 

been very, very difficult, and in fact, there was one foreign national 

who had multiple provider numbers. One provider number was 

shut down—and this was a home home, not a DME provider—but 

one provider was shut down but they kept cutting checks to the 

same person with different provider numbers and they all went to 

the same post office box. Have you got no mechanism within HHS 

to control for that seeming oversight, that we just keep sending 

checks to a post office that we know the lady’s going to jail and 

we’re sending checks to that same post office box? Are you working 

on that? 

Mr. LEVINSON. We certainly are working on it and we know that 

CMS is also working on it because it is extremely important to get 

the information technology right in order to be able to be, if not the 

head of that criminal element, at least able to quickly try to remedy that kind of problem, which has plagued the system for many, 

many years. 

Mr. BURGESS. With all due respect, sir, sometimes it seems like 

we are not even fielding a team to oppose them. We invite them. 

We beg them, come take this money from us, we have too much, 

please take it. And we have heard it over and over again and it 

comes up in stories in our districts, and this is what is driving people crazy. We have got to be smarter. I mean, you referenced that 

perhaps there is an element of organized crime. We need to be 


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smarter in dealing with that and the punishment needs to be swift 

and sure. We spend all this money going after mom and pops that 

are doing the right thing and taking care of our patients and we 

let the criminals escape. 

I realize I have gone over. Thank you, Mr. Chairman, for your 

indulgence. I will yield back. 

Mr. PALLONE. Thank you. 

Mr. BURGESS. Unless Mr. Levinson wants to respond to that. 

Mr. LEVINSON. Well, I think one of the most promising efforts 

just in the last couple of years has been the Strike Force effort that 

has developed between our Office and the degenerative joint disease with the help of CMS to close down fraudulent DME operators, especially in south Florida. The program is effective in southern California. We have important operations around the Gulf 

area. So I think there is an increasingly positive record of being 

able to really enforce the law when it comes to DME fraud that is 

returning millions and potentially billions to the trust fund. So this 

is actually a very important turnaround for the program and I 

would be happy to provide more detailed data. 

Mr. BURGESS. I would be grateful for that. 

And Mr. Chairman, I would just reiterate my call that you ask 

Chairman Waxman to convene a subcommittee, an oversight—— 

Mr. PALLONE. I am not going to suggest anything to Chairman 

Waxman but I would say—— 

Mr. BURGESS. It is your duty. 

Mr. PALLONE [continuing]. I would appreciate if you would get 

back to us further on that question that Mr. Burgess asked. 

The next is the gentlewoman from California, Ms. Eshoo. 

Ms. ESHOO. Thank you, Mr. Chairman. I think that this has been 

quite instructive, both the questions of the members and the answers and the testimony of the panelists, so thank you to Ms. King, 

to Mr. Wilson and to Mr. Levinson. 

Mr. Levinson, I was struck by many of the things you stated in 

your oral testimony, particularly the idea that overpayments, 

which we try to eliminate because they represent waste on their 

own terms, actually contribute to and exacerbate fraud. If we pay 

too much for something, we not only waste money on that purchase, I think we are at the same time creating a magnet to attract 

bad actors. I mean, we can’t forget as we are concentrating on the 

dollars that are abused and the fraud that we know is in the system and how important it is to fight it that there are very honest, 

good people that own small businesses and do a very good job. I 

don’t think that is what this hearing is about. That is certainly not 

my intent, but I am struck by the amount of money that you said 

in your first few sentences that. Was it $20 billion or $10 billion 

a year? I wanted you to restate that because I think everyone 

needs to hear that number again. 

And here are many questions to you. Can you give us any examples of the nexus between overpayments and fraud? And I think 

that you can probably do that off the top of your head. And in your 

testimony, your testimony mentions wheelchairs and negative-pressure wound therapy pumps. You say in your testimony that competitive bidding by connecting prices paid in the program to market 

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rate on that, and I think that there is something that the subcommittee needs to re-appreciate all over again, that this new process that is being set up estimates that there would be $20 billion 

in savings over 10 years, $20 billion. I don’t know the last time 

anyone ever saw that in their checking account. But those dollars, 

those precious dollars would be plowed right back into Medicare to 

offer direct services to seniors in this country. So we are talking 

big numbers and things that are really significant. So would you 

like to answer my questions? 

Mr. LEVINSON. Well, if I can please return to the numbers that 

I started off my testimony with, we are talking about approximately 11 million beneficiaries who have occasion to use DME good 

over the course of the year at a cost to the program of about $10 

billion. What I said thereafter was that CMS estimates that about 

half of the DME claims were paid in error. Now, errors—— 

Ms. ESHOO. That is really stunning. 

Mr. LEVINSON [continuing]. Have multiple causes. There isn’t 

one—this isn’t necessarily overt fraud, and it is important to understand that we are talking about a failure very often of documentation, and the problem with not getting accurate documentation of course is that you really can’t account for exactly what was 

provided and for what reason and what appropriate cost. So documentation is really the lifeblood of the program, and when we are 

talking about an error rate that high, that does suggest a serious 

systemic problem just being able to—— 

Ms. ESHOO. I would certainly say so if it represents 50 percent. 

There is something really wrong with whatever system is there. 

Mr. LEVINSON. Yes. The nexus of fraud with overpayments is 

that if you have too much of a disparity between acquisition costs 

and the price, that actually does provide an incentive for those 

masquerading as legitimate, genuine DME suppliers as they come 

into the marketplace, and indeed, we do have a lot of pricing reports that indicate that there is a significant disparity between 

what CMS allows and what the actual acquisition costs or products 

like power wheelchairs, pressure wound therapy pumps, home oxygen equipment, we do have a body of work indicating that there 

are serious disparities that CMS needs to remedy and in many case 

hopes to remedy I think as a result of this program. 

Ms. ESHOO. Thank you very much. 

I think, Mr. Chairman, in this competitive bidding process that 

for the businesses that provide these services and equipment, they 

need consistency, they need clarity and they need to be able to participate in a fair way. They need to know where they stand and the 

process needs to be a very clear one, but make no mistake about 

this, I think the overriding issue here is, we do the right thing and 

in the right way, that this represents billions of dollars. This isn’t 

any small thing. 

So I especially want to thank the OIG for the exceptional work. 

I think every Member of Congress should really read your report. 

It is outstanding. Thank you very much. 

Mr. PALLONE. I thank the gentlewoman. I agree wholeheartedly 

with your last comments there. Thank you. 

Mr. Hall is next. 

Mr. HALL. Mr. Chairman, thank you. 


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I join the parade as the gentlelady from Florida who asked you 

to take another look, Mrs. Eshoo that I have served with for many 

years here and I have very rarely ever found on the wrong side of 

anything, talks about a fair process and the bad actors. I would 

like to ask the GAO and OIG—I think that is Ms. King and Mr. 

Levinson—what are you doing and what is your opinion on the fact 

that Medicare plans to reimburse portable oxygen systems at an 

average of $21 a month for as many fills or refills that the patient 

requires and wholesale cost with the highest volume discounts to 

just a liquid oxygen refill, not including equipment is $30 more 

than what Medicare proposes in their single payment amount for 

portable oxygen? What is your opinion on that? 

Ms. KING. Can we get back to you on that, sir? 

Mr. HALL. You have no opinion? 

Ms. KING. I would have a more considered opinion if I had time 

to look at it more carefully. 

Mr. HALL. Will you do that? 

Ms. KING. Yes, sir, I will. 

Mr. HALL. To Mr. Wilson, I would like to ask you, how can you 

justify a $21 reimbursement for the portable liquid oxygen system 

when the cost to fill the liquid system is at least $30 more than 

what you reimburse? Do you want to look at it some more too? 

Mr. WILSON. Well, I think what I would say, Congressman, is 

that we have looked pretty closely at oxygen equipment. We looked 

at the OIG reports and we looked at what we have been paying, 

and you can find this equipment for a lot less than we pay. If you 

look at our overall payments in oxygen in terms of the monthly 

amounts, we are paying excessively for oxygen, and I think the bids 

demonstrate that. And I would be happy to provide more-specific 

information about the prices that you are quoting. I just don’t have 

those prices in front of me. 

Mr. HALL. That is fair enough. We can always ask you for them 

by letter and you would respond, wouldn’t you? 

Mr. WILSON. We would be happy to submit them to you after the 

hearing. 

Mr. HALL. You have always claimed, I think, that you perform 

due diligence on providers and have assured that bidders are financially qualified. That is necessary, isn’t it, in your opinion? 

Mr. WILSON. Yes, certainly. 

Mr. HALL. And you have problems with contracts, the out-of-area 

companies are companies that have no experience? 

Mr. WILSON. I don’t think we saw a lot of those companies bidding in this process. 

Mr. HALL. You spoke in your opening remarks of smooth transactions and transitions and realistic bidding. You did state on the 

record that 30 percent of the bidding companies had questionable 

financials. You said that, haven’t you? 

Mr. WILSON. I did not. 

Mr. HALL. You did not say that? 

Mr. WILSON. That quotation I have seen several times over the 

last few days. It is different in every version, and I would like to 

submit a statement for the record. I could tell you what I was referring to if you like, sir. 


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Mr. HALL. I would like to hear anything. I am under the impression that you said that, but if you didn’t say it, what did you mean 

to say—— 

Mr. WILSON. What I was talking about—— 

Mr. HALL [continuing]. On the record about bidding companies 

with questionable financials, because I am also told that you allowed them to proceed through the process, and that seems to me 

to be a disregard for your own directives, and if that is what you 

call a smooth transition, why, we have a different opinion on what 

a smooth transition is. 

Mr. WILSON. Well, that is right. 

Mr. HALL. And a lot of other people must, because my mail has 

been flooded with information on those things. 

Mr. WILSON. I think you would find, sir, that I probably agree 

with your position. That is certainly not what I said, so it is inconsistent with my view and my statements. 

Mr. HALL. OK. You have offered contracts to out-of-area companies and you have offered contracts to those with little or no experience, have you not, providing competitively bid items and services? 

Mr. WILSON. Well, the information I was able to provide today, 

sir, is that about 72, 73 percent of all contract offers went to experienced local suppliers, those with experience in the product categories. Another 11 percent went to experienced local suppliers 

that may have provided a different product category. Another 12 

percent went to suppliers that were experienced in the product category but came in from the outside area. That leaves about 5 percent that I don’t have information on. I expect a lot of those are 

mail order diabetic supply outfits that are set up out of state somewhere and because they operate through the mail. 

Mr. HALL. I ask also of the GAO, it is my understanding that you 

have done studies on wholesale purchase costs for oxygen concentrators but the question is, have the agencies done cost analysis 

on the other oxygen systems or any other oxygen system that patients are required to use for their daily living? Have the agencies 

done analysis on the cost to provide portable liquid oxygen systems 

that are necessary for patients that want to leave hospitals or visit 

their doctors or travel outside their bedrooms or maintain employment? Have they done studies on that? 

Ms. KING. We have some work on oxygen payments that is currently underway and hasn’t been released yet. We would be happy 

to provide you with that when it comes out. And if that doesn’t answer your questions, you know, we could have further conversations. 

Mr. HALL. You are good on the word ‘‘some’’ there. How many is 

‘‘some’’? 

Mr. PALLONE. Mr. Hall, we will take that question but we are 

about a minute and a half over. So if you will answer his question—— 

Mr. HALL. Then I will yield back the balance of my time. 

Mr. PALLONE. No, we will let Ms. King answer that one. 

Ms. KING. I didn’t understand his question, sir. If you can repeat 

it, that would be helpful. 

Mr. HALL. No, that is all right. I will write you a letter and ask 

for that information, and I don’t want an answer of ‘‘some’’ someVerDate Mar 15 2010 11:02 Apr 03, 2013 Jkt 078132 PO 00000 Frm 00102 Fmt 6633 Sfmt 6633 E:\HR\OC\A132.XXX A132

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thing. I would like an answer on the numbers if you have them because you know how many letters you have, you know how many 

inquiries you have made of Mr. Wilson, and his answer I think was 

some letters were written. I will clarify that in letters to you, and 

I thank you for your time. 

Ms. KING. I will get back to you. 

Mr. PALLONE. Thank you. 

Next is the gentlewoman from Florida, Ms. Castor. 

Ms. CASTOR. Thank you, Mr. Chairman, and thank you to the 

witnesses very much for your helpful testimony. 

The benefit of having durable medical equipment suppliers in 

local communities is that the companies and their staff are familiar 

with patients in their neighborhoods and are accessible for patients 

and their families in the event that they need assistance or service 

for their equipment. So a lot of the frustration you hear comes from 

all across the country in these small businesses that aren’t the 

fraudulent companies but have been working very hard and providing good service, and it is just frustrating in this transition to 

competitive bidding to see contracts offered to out-of-area companies that may have little or no experience with durable medical 

equipment and services and have no familiarity with the area of 

service or direct access to patients that rely on their equipment, 

and will this be cost-effectiveness in the long run, and what I am 

hearing you all say is that we are going to monitor it, you are going 

to wait and see. 

Another concern is that there have been many complaints that 

the financial vetting process used in the competitive bidding process allows bankrupt companies or companies facing bankruptcy to 

win bids at rates 30 to 40 percent less than current reimbursement. Please explain this to me. What kind of financial vetting 

process do you have that allows bankrupt companies to win bids 

at 30 to 40 percent less than current reimbursement while you are 

also awarding bids to viable companies but they are saying that 

they are going to be subsidizing the patients but it makes sense for 

them to try to win these contracts because this competitive bidding 

process is so unpredictable? 

Mr. WILSON. At the outset, I would just say, Congresswoman, 

that I am not aware of any bankrupt companies winning contracts. 

I know there was some discussion in the trade press about a particular company that had a high debt talking about the potential 

for reorganization several years ago. They may have been considering reorganization. They may have been trying to pressure their 

creditors to give them a better deal. I don’t know. We do know that 

we looked carefully at their financials. We used the same type of 

financial ratios that banks and other financial institutions to use 

the viability of an entity. This falls under our financial standards. 

It is the reason why we collect the documents such as tax records, 

credit history and things like that. So we did look at all those 

things for every—— 

Ms. CASTOR. OK. I am going to submit this information that was 

provided to me about the company in bankruptcy, and if you would 

take a look at it and respond back, I would appreciate it. 

Mr. WILSON. Absolutely. Thank you. 


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Ms. CASTOR. And then one of my colleagues said when we are 

going to get smarter about health fraud, and I thought it was interesting because right now we are in the implementation phase of 

the new health care law that contains numerous anti-fraud provisions that will assist CMS and the Office of Inspector General and 

the Justice Department in identifying abusive suppliers and fraudulent billing practices including the new authorities to screen providers before they enter the program, the new requirements that 

physicians ordering DME be enrolled in the Medicare program, 

new data-sharing and data collection provisions, enhanced penalties for fraudulent providers and new funding to identify preventive and punish fraudulent providers. Where are you now in the 

implementation phase? What is your timetable for these provisions? 

Mr. WILSON. Those provisions fall within our Center of Program 

Integrity. I work within our Medicare fee-for-service policy component. I would be very happy to reply or respond for the record to 

you on those issues. 

Ms. CASTOR. Because certainly a lot of these new requirements 

to root out the fraudulent practices in Medicare must be taken into 

account in this DME transition to competitive bidding. 

Mr. WILSON. Well, I think they are absolutely important, I agree. 

There is a number of things that are required by the new law 

which will act to root out fraud here dealing with some of the 

issues that the Inspector General mentioned already in terms of 

documentation for claims. There is a new requirement for face-toface visits with physicians to document physician orders for DME. 

I think that is going to be important. 

Ms. CASTOR. We have to do this because the bad actors in DME 

are painting a picture all across the country that anyone that is in 

this business is involved in fraud. That is why I think it is absolutely—and coming from Florida, I am particularly sensitive of especially the Tampa Bay area that is very different from Miami and 

south Florida and oftentimes a lot of small businesses in my area 

have to bear the burden that someone says I am a Medicare provider in Florida and people wonder, and that is not fair. Thank 

you. 

Mr. PALLONE. Thank you, Ms. Castor. 

Mr. Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman, and I apologize for not 

being here for the opening testimony and statements. It is a busy 

time for many of us. I appreciate Ed Whitfield sitting in for me. 

First, Mr. Chairman, for the record I have two submissions that 

I would ask. One is from our colleague, Mr. Langevin, which you 

have seen, and also from the Diabetes Access to Care Coalition. 

Mr. PALLONE. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. SHIMKUS. Also, I don’t know if it is appropriate but I see our 

colleague, Nancy Johnson, in the hearing room, and she has 

worked diligently in her time on Ways and Means in this field, and 

Nancy, it is good to see you. You are not hiding from me. I see you 

there. 

I am going to talk macro and then I am going to talk micro. The 

macro debate is this—and I am glad some comments were made 


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about the health care law because everybody knows, I am a competitive market-based conservative. Now, we are the policy people. 

You all have to implement. In the private practice, auditing of payments happens for the most part before the checks get sent because 

the private sector doesn’t want to lose the money and fraudulently 

spend money, and sometimes our constituents have terrible times 

because they are fighting with the auditors of the insurance companies or the HMOs begging for the check to be sent. In our system, 

we send the check. We are fee-for-service folks. We send the check, 

and we can send the check for multiple years to one single mailbox 

for millions of dollars and every candidate who runs for federal office when they talk about the funding problems of Medicare, what 

do we say? We are going to clean up waste, fraud and abuse, and 

what do we point to? We point to this. And that is the frustration, 

and I think it is a bigger problem than just getting our t’s crossed 

and our i’s dotted. It is a fundamentally different system of a onepayer system of fee-for-service that only worries about the expense 

after the fact versus someone who is watching the check and making sure the check is going to the right place before. It is a government model versus a private-sector competitive market model. That 

is the macro debate and that is kind of why we are here. But that 

is our discussion. You guys implement, and so we appreciate the 

challenges that you have. 

And also, you know, just adding to Dr. Burgess, we do have a 

new health care law that is kind of going down in that direction 

and it would be good for the Secretary to come talk to us, and now 

I am on record at every hearing asking for that so I will do that 

now and then I will do that this afternoon and I will continue that 

record of saying, you know, it is about time we at least had someone who wants to talk about this law because no one wants to, and 

I would pretty much argue that during the whole 6 weeks of break 

no one was talking about it. Well, we were talking about it but no 

one else was really defending the law out in America. 

Now to a micro issue which I know is important. It is important 

to the disabled community, it is important to some producers, so 

I am going to go to Mr. Wilson. Mr. Wilson, do you believe that a 

code that does not represent a distinct, homogenous group of products should be included in competitive bidding? 

Mr. WILSON. As a general matter, yes, it should be included. 

Mr. SHIMKUS. The final rule for competitive bidding stressed 

product categories would include items intended for similar medical 

condition. Do you believe that the intended uses of mobility and 

wound prevention and treatment are similar medical conditions? 

Mr. WILSON. If they are related products, yes. 

Mr. SHIMKUS. Well, you should know the direction by which I am 

heading, a litany of groups from the disabled veterans to the Christopher Reeves Foundation have raised concerns over seat cushions 

and mobility equipment being lumped in the same category and 

then you exacerbate skin type injuries and abrasions and really 

huge problems because they are in a unit versus separate. Given— 

and I don’t think that is really debated. I would think that you 

could ask the physician community and I think you can ask the 

disabled community, I don’t think this is a—I have seen them. 


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If that is the case, shouldn’t we reconsider the inclusion of these 

type of products in the future? 

Mr. WILSON. I don’t personally see a reason for reconsidering 

their inclusion. That said, we have not posted, made a decision on 

what items will be included in round two. But for this round, I 

think it is important that they be included. We think that the 

prices are excessive—— 

Mr. SHIMKUS. Let me end up. The letter from Mr. Langevin, one 

of our colleagues, one of the really well-respected members who has 

led us in a new era of understanding the disabled community I 

think has a very strong position, and I would hope that the Administration would listen to him and other people who feel that this 

policy is harmful and I would suggest we take a look at it again, 

and with that, Mr. Chairman, I yield back. 

Mr. PALLONE. Thank you. 

Mr. Braley. 

Mr. BRALEY. Thank you, Mr. Chairman. 

Mr. Wilson, I am going to start with you. I wasn’t here when 

competitive bidding was made law, but isn’t it true that there is 

a lot of ways that you can address the issues of waste, fraud and 

abuse that wouldn’t involve competitive bidding? 

Mr. WILSON. There are certainly many ways for addressing this 

problem. 

Mr. BRALEY. And in fact, in Mr. Levinson’s written testimony 

that he has provided to the committee, he documents a lot of the 

work that the OIG has done to try to address the enormous problem we have in health care delivery with waste, fraud and abuse, 

and at the conclusion of his recommendations, he notes, ‘‘It is critical that these and other program vulnerabilities be addressed be 

it through competitive bidding or otherwise,’’ and that ‘‘otherwise’’ 

is a huge sector of health care delivery that involves diligent oversight and management. You would agree with that? 

Mr. WILSON. That is certainly one of the areas that we would 

need to pursue in order to solve this problem. 

Mr. BRALEY. Has CMS to your knowledge done an analysis of the 

impact of the competitive bidding process, not just the initial phase 

but as it is intended to be implemented throughout its entirety on 

rural health care delivery? 

Mr. WILSON. We have not done that type of analysis to this point 

because rural areas are excluded from the program. We have not 

yet done rulemaking on how to expand the use of those prices by 

2016 where we would do such an impact analysis. 

Mr. BRALEY. Do you understand why patients in rural America 

have serious concerns about a shrinking market to meet their 

health care demands if the impact of the long-term competitive bidding process results in the shrinking or available suppliers and an 

unwillingness on the part of some of the remaining people who are 

eligible to participate to go into areas where volume will not allow 

them to achieve the type of margins they could have factored in 

when they presented their initial bid application? 

Mr. WILSON. I think that what beneficiaries need is choice and 

quality and I think that can be sustained under this program. 


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Mr. BRALEY. Are you aware that in a host of other purchasing 

opportunities that people in rural America have substantially fewer 

choices in the marketplace than people in more populated areas? 

Mr. WILSON. I think it is certainly true that there are challenges 

in rural health care. 

Mr. BRALEY. Have you ever lived in rural America, Mr. Wilson? 

Mr. WILSON. I have not. 

Mr. BRALEY. Well, I have. I grew up in a town of 1,500, and most 

of my district is considered rural America, and we see lots of policymakers who come to committee hearings like this and try to tell 

us how they are going to fix the problems in rural America but I 

can tell you that for those of who deal with these problems on a 

daily basis, this is more than just paranoia. This is what we have 

seen happen on the storefronts and shops in our cities and towns. 

It is a problem where every time a drugstore goes out of business 

in a rural community it denies access to people who need durable 

medical equipment. Every time a provider who is furnishing DME 

services to those small town hospitals and health care providers, 

once they go out of business, we aren’t as confident maybe as CMS 

is that the big players are going to be willing to come to our part 

of the country and continue to compete for our health care dollars. 

Do you believe that a decrease in the number of supplies in rural 

areas could impact accessibility and timeliness of receiving durable 

medical equipment? 

Mr. WILSON. I am not sure that we are going to see a decrease 

in suppliers in rural areas. I think we have not moved forward 

with the authority that we have to apply the prices in rural areas, 

and of course, competitive bidding does not apply there. 

Mr. BRALEY. Well, as Johnny Cash sang, ‘‘I hear the train a 

comin,’’ and I think everybody in rural America knows that this is 

inevitable. 

Mr. Levinson, I really was interested in a number of the comments that you made in your report. I want to focus on a few of 

those. You appropriately noted the challenges that we are facing in 

health care. We talk about this on this subcommittee. And dealing 

with what some people have identified as a $500 billion to $700 billion problem in this country, not just in Medicare and Medicaid but 

across the health care reimbursement system in waste, fraud and 

abuse, and you have identified enrollment, payment, compliance, 

oversight and response issues that need to be addressed. One of the 

things you talked about was that DME is one of those areas where 

we see problems with people getting in at the entry level and then 

it becomes hard to monitor them once they are set up and doing 

business, but I guess I am a little confused because if the purpose 

of having a certification requirement that a good or service is medically necessary before it can be prescribed and paid for by public 

or private reimbursement systems, why is it a challenge for anybody receiving Medicare payments, whether they are DME providers, pharmaceutical providers or other health care providers to 

be identified at the point of entry and be held to a level of accountability that protects consumers of health care in this country? 

Mr. LEVINSON. Well, over time it has certainly become apparent 

that it has been too easy to get a provider number. Enrollment has 

been a fundamental flaw for many years in terms of just gaining 


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entry to the program. When our auditors and evaluators, for example, went to south Florida a couple of years ago and just banged 

on doors or tried to bang on doors because actually there were no 

doors to bang on, we found that about one-third of the 1,500 or 

1,600 DME providers in south Florida, those who had registered 

and gotten a number, didn’t make even the most basic standards 

for being able to gain entry to the program like having a physical 

location, like having regular hours, staffed by somebody who could 

actually help. So it is quite clear that it has simply been too easy 

to gain access, and to the extent that we can fix the enrollment 

issue among those five issues that you and we have identified, you 

really solve a lot of the consequential issues that we have to deal 

with when it comes to compliance, oversight and response. It 

doesn’t necessarily deal with pricing methodologies with being able 

to align prices so that they better reflect market realities, and some 

of our pricing reports indicate that Medicare indeed pays too much 

and, you know, we have done some comparative work, much as 

with VA, which one might argue is a different kind of structure but 

with a federal employee health benefits program as well and with 

Internet pricing. 

So the pricing issues are perhaps somewhat related to enrollment but I think that the enrollment issue to the extent that we 

can get on top as a department of the enrollment issues, that will 

solve a lot of the blatant fraud issues, and again, you know, fraud 

is a segment of a larger issues but one of the most promising aspects actually of the Affordable Care Act is the mandating of a 

compliance program for health care providers, and I think by having compliance built in to Medicare going forward across a wide 

range of industries, we will be able to do a much better job of protecting taxpayer dollars and actually giving value to beneficiaries. 

Mr. BRALEY. Thank you for your time. I yield back. 

Mr. PALLONE. Next is the gentleman from Maryland, Mr. Sarbanes. 

Mr. SARBANES. Thank you, Mr. Chairman. 

Mr. Wilson, I just want to make sure I understand the problem. 

I got here a little bit late but I did watch some of it on the monitor. 

The fee schedule that was put in place back in the late 1980s, that 

has continued to inflate over time and therefore bears much less 

connection, any kind of rational connection or reasonable connection to the actual pricing structures out there, at least with respect 

to some of these durable medical equipment items, correct? 

Mr. WILSON. That’s correct. 

Mr. SARBANES. And the unreasonable relation is that it is paying 

a lot more in many instances and one could justify just looking at 

the market so the competitive bidding process is a response to that, 

and we talked about what some of the issues are with that process. 

I had a couple questions. One was, where else has CMS done this 

kind of competitive bidding as a response to similar kinds of issues 

and what has the experience been with that? And what are the 

reasons you go the competitive bidding route as opposed to just 

working harder to come up with a fee schedule that bears a more 

reasonable relationship year in and year out to the underlying market and price structures that are out there? 


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Mr. WILSON. I think this program is pretty unique for Medicare. 

There has been a lab demonstration on competitive bidding. There 

are, I think, really not many other examples that would be even 

close to this type of program, and I think going to your second 

question, this program has a unique set of challenges in terms of 

setting prices and calculating or computing a new fee schedule. 

There is a lack of data on what items actually cost, so I think one 

of the reasons for competitive bidding was going to the only place 

to get to a true market price, which was the suppliers and bidding. 

Mr. SARBANES. I guess drug pricing is another place where the 

data sets are pretty opaque in terms of understanding why things 

cost what they do. 

Mr. WILSON. I am less familiar with that program. It doesn’t fall 

within my purview. But, you know, I think it is an area where 

manufacturer information is one of the only areas to get pricing information. 

Mr. SARBANES. When the original fee schedule was established, 

would you say it was easier to get hold of the kind of data that 

could construct a fee schedule at that time than it is now or that 

was just the method to be used at that point with all the flaws that 

it bore? 

Mr. WILSON. Historically, there was a quote, unquote, reasonable 

charge-based payment system, essentially some discount off 

charges provided by suppliers. That was the only information available. Those charges were in many cases inflated or distorted but 

they were locked into the fee schedule for 20 years. 

Mr. SARBANES. And just in terms of the details of the competitive 

bidding process, I don’t know enough about how it is set up but are 

there baskets or ranges or parameters or corridors in which the 

competitive bids can be submitted or is this sort of anything goes 

in terms of being able to enter the bid process? 

Mr. WILSON. We—— 

Mr. SARBANES. In other words, is it kind of a managed competitive bid process in that sense or—— 

Mr. WILSON. Well, I think it is a managed process in that we 

have a number of different criteria for qualifying suppliers to bid 

that relates to quality standards, financial standards, licensing, 

other things, and then we have processes to verify that bids are 

what we call bona fide. We try to ensure that they are not submitting a low-ball speculative bid. 

Mr. SARBANES. But there is no, like, floor, for example, on what 

the bid can be? 

Mr. WILSON. No, there is not a floor other than the ability to document that a price is rational and feasible to provide the service. 

There is a ceiling which is the current fee schedule. 

Mr. SARBANES. OK. Thanks. 

Mr. PALLONE. Thank you. 

Mr. Doyle. 

Mr. DOYLE. Thank you, Mr. Chairman, and I want to thank the 

subcommittee’s courtesy for allowing someone who is not a member 

of the subcommittee to ask some questions. 

I have the privilege of representing Pittsburgh in the Congress, 

and Pittsburgh was one of the nine round one test sites, and obviously I have been hearing from many of my constituents in the 


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Pittsburgh area that I think have very valid concerns. Mr. Chairman, I have more questions than I have time for so I would like 

to submit additional questions for the record to maybe get them answered. One parallels Ms. Castor’s concern about a company that 

announced it was awarded 17 contracts, and this is a company that 

had publicly said back in May that if they couldn’t get their debt 

down they were filing for bankruptcy in the spring. So we do have 

concerns that we are not giving contracts to companies that aren’t 

going to be able to sustain themselves, and it is one of the real concerns we have in Pittsburgh too with these bids coming in at seemingly artificially low prices just for companies that want to sustain 

themselves and stay in business whether these companies are 

going to be able to be viable 3 years down the road at some of these 

prices that they are competing with. 

Before I get into that, I have a specific question on glucose testing strips I want to ask you. Diabetes is a big problem in my district, and I have concerns about the availability of glucose testing 

strips. My understanding that mail order suppliers are required 

only to carry one brand and not necessarily the brand that patients 

use, and as you know, these strips are unique to the machines that 

they use just like razor blades are to certain razor handles. And I 

understand that DME providers are permitted to provide a monetary incentive to patients to switch monitors if they can’t get the 

test strips to go with their monitors, but a lot of my patients in 

Pittsburgh, we have an elderly population. They are seniors. It is 

very problematic for them having to switch monitors, and what I 

want to know is, how does CMS know that the suppliers are going 

to be able to furnish the volume of specific products that will be 

demanded through the competitive bidding program? For example, 

does CMS know, for instance, that suppliers who contract for Pittsburgh will be stocking and selling strips that work with Lifescan’s 

One Touch Ultra meters. Thirty-five percent of my district uses 

that monitor. And if a supplier chooses not to offer strips that work 

with Life Scan’s One Touch Ultra or any other brand strips that 

a beneficiary uses, what options are available to that beneficiary to 

obtain replacement stripes? 

Mr. WILSON. If I could just go back and reference a few of the 

statements that you made, sir. We don’t specifically say you are 

only required to provide one brand of test strips. In fact, when I 

look at the bid information that came in, and we collect information on all the models, products and services that will be provided 

under the program and will update it quarterly, I see a full range 

of products in the particular ones that I have looked at. 

Mr. DOYLE. Are you saying you don’t require them only to carry 

one brand, you require them to carry multiple brands? 

Mr. WILSON. We require them to submit a bid on brands, on the 

brands that they intend to provide. 

Mr. DOYLE. Are they required to carry more than one brand? 

Mr. WILSON. We don’t say that, no, sir. 

Mr. DOYLE. So theoretically, they could carry one brand and be 

in compliance with the bid? 

Mr. WILSON. Theoretically, but that is in fact not what happens 

because suppliers come in, they want business. They know they 


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need to provide the items that beneficiaries want if they are going 

to be viable. 

The other thing that I would say is, I am not aware of any ability 

to offer a monetary incentive. I am not the OIG. That would possibly implicate anti-kickback, although I won’t make that judgment. That is for others. 

Mr. DOYLE. So tell me, what happens to—let us just say for instance if I have seniors in my district that have a monitor that 

needs a specific test strip and it’s not available, what are their options? 

Mr. WILSON. Their options are several. If it is not available, and 

we certainly hope and expect that it will be, they could talk to their 

doctor about physician authorization requirement, the law which 

allows them to certainly pursue something that is medically necessary from a supplier. We have not bid test strips in retail stores. 

A beneficiary could obviously go to any retail store in Pittsburgh 

and—— 

Mr. DOYLE. Yes, but doesn’t that sort of defeat the purpose of the 

competitive bidding program if they end up going to the pharmacies? I am going to submit more questions. Boy, 5 minutes goes 

fast. Because I want to ask you another question before my time 

is up. 

You know, a lot of people on the surface don’t have a problem 

with this idea of competitive bidding so long as it doesn’t affect 

quality and access, and I think that is really the concern that we 

have about this quality and access, and I know CMS is surveying 

customers regarding the level of service and quality of care 

changes. My question is, what happens if there is an identification 

of a change in quality or service? Is there some percentage or formula that would trigger some event or reaction by CMS and 

doesn’t it concern you that your analysis of round one won’t be 

complete before you expand this program to an additional 91 areas 

in round two? How do we measure quality of care and access and 

at what point is that is not happening? Is there a definitive formula? Is this subjective? You know, tell me how that is going to 

work. 

Mr. WILSON. Well, first of all, we are concerned about any concern, whether it a systemic concern or individual beneficiary concern and we will be collecting information and have the infrastructure in place to evaluate those and deal with them. 

The other thing I would say is that we are evaluating the program phase by phase as we move forward. I mentioned that we are 

going to be collecting claims data, active claims surveillance as the 

program moves forward so, you know, beginning very soon after 

January when the claims start coming in, we will be able to see 

what is going on. We will see who the beneficiaries are, whether 

they are going to the doctor’s office, the emergency room, other 

types of problems. 

Mr. DOYLE. And if you are seeing these problems in quality of 

service and access, how will you respond to that? How do you 

change what you are doing? 

Mr. WILSON. Well, we will have to examine the particular situation and see what the problem is. We will have to identify whether 

it is a particular problem with suppliers not meeting quality standVerDate Mar 15 2010 11:02 Apr 03, 2013 Jkt 078132 PO 00000 Frm 00111 Fmt 6633 Sfmt 6633 E:\HR\OC\A132.XXX A132

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ards, whether it is particular suppliers having other types of difficulty. But we will certainly collect that information and examine 

it. 

Mr. DOYLE. Mr. Chairman, you have been very generous with 

your time and I appreciate it, and I will submit the rest of my 

questions for the record. 

Mr. PALLONE. Absolutely. And let me—— 

Mr. DOYLE. And so has the ranking member. 

Mr. PALLONE. Oh, yes, and the ranking member. 

Let me mention, we had an unusual number of members actually 

who said they are going to submit written questions, which is fine. 

We try to get them to you within 10 days. The clerk will try to get 

them to you within 10 days and then of course we would like you 

to get back to us as quickly as possible. I don’t think I have ever 

had a hearing where there were more members who said they were 

going to submit written questions. So thank you very much and I 

appreciate your input on such an important subject. Thank you. 

And I will ask the second panel to come forward. 

Let me welcome the second panel and introduce each of you 

again. From my left is Ms. Karen Lerner, who is a Registered 

Nurse with Wound Care, Support Surface, and she is also a Rehab 

Specialist at Allcare Medical. Where is Allcare Medical located? 

Ms. LERNER. Sayreville, New Jersey. 

Mr. PALLONE. Sayreville, New Jersey. You are my witness. I 

mentioned it earlier, and I was hoping that I was going to mention 

that again. Thank you. 

And then Mr. Alfred Chiplin, Jr., who is Managing Attorney for 

the Center for Medicare Advocacy. And Ms. Nancy Schlichting, who 

is President and CEO of Henry Ford Health System. I am going 

to ask where that is also. 

Ms. SCHLICHTING. In Detroit. 

Mr. PALLONE. In Detroit. And Dr. William Scanlon, who is a 

Health Policy Consultant. Where are you from, Dr. Scanlon? 

Mr. SCANLON. Washington. 

Mr. PALLONE. From Washington. All right. 

As I think I mentioned before, we try to keep everything to 5- 

minute opening statements. I think the panelists have been pretty 

good about sticking to the 5 minutes. It is the members that have 

not, so I am not going to say anything further, but if you want to 

submit additional written comments as a follow-up, you may well. 

And I will start with Ms. Lerner. 

STATEMENTS OF KAREN LERNER, REGISTERED NURSE, 

WOUND CARE, SUPPORT SURFACE AND REHAB SPECIALIST, 

ALLCARE MEDICAL; ALFRED CHIPLIN, JR., MANAGING ATTORNEY, CENTER FOR MEDICAL ADVOCACY; NANCY 

SCHLICHTING, PRESIDENT AND CEO, HENRY FOOD HEALTH 

SYSTEM; AND WILLIAM SCANLON, HEALTH POLICY CONSULTANT 

STATEMENT OF KAREN LERNER 

Ms. LERNER. Mr. Chairman and members of the subcommittee, 

my name is Karen Lerner and I am a Registered Nurse and Wound 

Care Support Surface and Rehab Specialist for Allcare Medical in 


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Sayreville, New Jersey. Allcare has been in business since 1963. 

We have 200 employees and serve about 25,000 patients per year. 

Allcare Medical is a member of the Jersey Association of Medical 

Equipment Services and the American Association for Home Care. 

I am here today representing the home care community. My goal 

is to explain why this competitive bidding program as designed by 

CMS will not achieve its desired outcomes and will in fact reduce 

access to care for Medicare beneficiaries, lower the quality of that 

care, increase cost and kill jobs. 

We agree with the 255 members of the House of Representatives 

who believe this program should be scrapped. Numerous consumer 

and patient advocacy organizations also believe the bidding program should be eliminated. The fundamental flaw in the design of 

this bidding program for durable medical equipment is that it 

treats home medical equipment and services like a simple commodity. We are not equipment deliverers; we are service provider. 

In fact, effective home-based care for our Nation’s seniors and 

people with disabilities is an integral part of the continuing care 

that helps move patients from hospital to the home. It helps to 

keep people out of nursing homes and the emergency room and it 

reduces hospital admissions. Many frail, elderly and disabled Medicare beneficiaries require multiple items of medical equipment. 

Consider the chaos that will occur when a caregiver must call five 

or six different companies to coordinate the medical equipment 

needs of a patient who requires a hospital bed, support surface, oxygen, enteral feedings and a walker. I have seen many, many patients like this. As a Nurse and an Assistive Technology Professional who helps patients get fitted for the right type of wheelchair, 

I am in contact with patients every day, and it scares me to think 

of what will happen to these patients if this bidding program becomes reality. 

The current marketplace without competitive bidding requires 

home care providers to compete for patients on the basis of service 

and choice to furnish the home medical equipment that makes the 

most clinical sense for the beneficiary. We are currently reimbursed 

under fee schedule in Medicare CMS and Congress have cut repeatedly and disproportionately over the past decade so the contention that the DMEPOS fee schedule is outdated and is based on 

pricing from 25 years ago is incorrect. The home medical equipment sector has already seen reimbursements cut nearly 50 percent to the Medicare fee schedule over the past decade. Despite all 

the quality assuring and measuring tools that CMS has previously 

touted, patients and even most physicians will not know if they are 

getting clinically appropriate equipment and services until negative 

outcomes appear. 

With respect to all of the promised savings and advantages of the 

competitive bidding program, I maintain that what sounds too good 

to be true is too good to be true. This ill-conceived program will single-handedly destroy the home medical service sector, harm the patients we serve and ultimately increase Medicare costs. 

Now let me describe the problems we have seen in the re-bid 

process. A provider in Ohio was offered a contract for a respiratory 

device but they didn’t have a respiratory therapist on staff contrary 

to the bidding rules and contrary to Ohio law. One of the largest 


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home care companies announced in July 2010 that it was offered 

17 contracts in the first bid despite the fact that in June 2010 it 

had $513 million in long-term debt, was considering restructuring 

or filing for bankruptcy and expects to lose up to $900,000 in the 

bidding areas in the first quarter of 2011. 

Let me speak to the issue of transparency. One hundred and 

thirty-six members of Congress who sent a letter to CMS recently 

believe that CMS has not shared enough information about the 

program. Transparency is intended to protect the public. The lack 

of transparency makes deficiencies in the program and makes it 

impossible to evaluate fully the way CMS reached it various decisions at every stage of the process. From an Administration that 

touts its openness and transparency, we have seen none with this 

program. 

On the question of fraud prevention, first let me say that home 

medical equipment providers have no tolerance for fraud but arbitrarily limiting the number of legitimate providers in the marketplace will do nothing to stop those whose only intent is to defraud 

the Medicare program. The HME community should not be penalized when CMS grants Medicare billing credentials to an empty 

closet. The government is simply not doing an adequate job of site 

inspections before awarding suppliers. As a Nurse and with direct 

experience in the home care medical field, I believe this program 

will increase costs rather than save money. Patients I see will suffer through limited access to clinically appropriate equipment and 

services. It will reduce the quality of equipment beneficiaries receive and many will end up in the hospital. This program will not 

be fixed as it is designed. Therefore, JAMES, AAHomecare and a 

large number of patient organizations believe that Congress must 

immediately stop the implementation of this bidding program and 

work with the HME community to ensure accurate pricing while at 

the same time ensuring access to quality care for Medicare beneficiaries. 

Thank you again for the opportunity to provide testimony. 

[The prepared statement of Ms. Lerner follows:] 


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Mr. PALLONE. Thank you, Ms. Lerner. 

Mr. Chiplin. 

STATEMENT OF ALFRED CHIPLIN, JR. 

Mr. CHIPLIN. Good afternoon, Mr. Chairman. 

The Center for Medicare Advocacy takes a wait-and-see approach 

to the competitive bidding process. We acknowledge that it is a program that is extremely complex and confusing. Our beneficiary clients have been the victims of many efforts of misinformation. They 

have been frightened and confused about what this program 

means. 

We continue to worry about the complexity of the program overall and the impact of that complexity on provider and supplier participation and thus access to specific services and items of DME 

that people might want. 

We also are concerned that CMS’s efforts at beneficiary education need to be more vigorous and visible. We think we need 

more to assure beneficiaries that where there might be fewer suppliers in this competitive bidding area that that will not jeopardize 

access. 

Some major concerns that we have is that we do see that there 

is put forth a strong beneficiary education and access program and 

that the time of that education effort be very clear and specific as 

different phases of the competitive bidding process are rolled out. 

This is such a critical thing because over time this approach will 

redefine how all of DME is going to be meted out and I think that 

raises a very significant set of points. 

We also need to have better information on the Web site for the 

Medicare beneficiaries, Medicare.gov. It is difficult to find information about the competitive bidding process. We also need better information points to access written materials. And additionally, we 

need more clarity about the specific items that fall within the initial rollouts of the program in 2011 so the beneficiaries have more 

clarity about that. 

We also need additional information about the importance and 

significance of beneficiaries obtaining their DME within the competitive bidding area in which they live. There are real consequences for beneficiaries, particularly if they are traveling on vacation and something happens and they need to get an item fixed. 

So those are the kinds of concerns. As the rollout goes on with mail 

orders, we think some of the same kind of issues are raised in 

terms of the degree to which beneficiaries are informed. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Chiplin follows:] 


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Mr. PALLONE. Thank you, Mr. Chiplin. 

Ms. Schlichting. 

STATEMENT OF NANCY SCHLICHTING 

Ms. SCHLICHTING. Good afternoon, Chairman Pallone, Ranking 

Member Shimkus, Congressman Dingell and members of the subcommittee. My name is Nancy Schlichting. I am the President and 

CEO of the Henry Ford Health System in Detroit, Michigan, and 

thank you so much for the opportunity to testify. 

I appear today on behalf of hospitals and health systems that 

own and operate their own durable medical equipment services. We 

are deeply concerned about the impact of competitive bidding on 

our patients and costs unless the program can be revised to protect 

our health care delivery model. The key value of our organizations 

is the ability to integrate and coordinate post-acute care with hospital care. Over the past 3 years we have worked as an informal 

coalition of hospitals and health systems in 22 States that have 

their own DME and other post-acute services as a tool for improving quality and safety and service for our patients while controlling 

costs. Durable medical equipment is one of many services housed 

within our health system that allow us to better manage and deliver patient care. All business units including DME are aligned to 

coordinate and integrate care at the best price in a very competitive marketplace with growing burdens of uncompensated care. 

One of our primary goals is to provide a smooth transition between hospital and home so that patients can leave as soon as they 

are clinically ready and make beds available for new patients. In 

addition to reducing the length of stay, we also work to prevent unnecessary readmissions and to lower the use of the emergency department. 

The ability to own and control virtually every aspect of patient 

care including DME is essential to our success. Members of our coalition are large and small and most are organized similar to 

Henry Ford Health System. Our coalition includes the Michigan 

Health and Hospital Association and many of the Nation’s premier 

health systems such as the University of Michigan, University of 

Iowa, the University of Pittsburgh Medical Center, Advocate 

Health in Illinois, Aurora Health Care in Wisconsin, BayCare in 

Florida, the Cleveland Clinic and SUMMA Health System in Ohio, 

Banner Health in Arizona and Colorado, Providence in Oregon and 

Washington, and Meridian Health in New Jersey. 

Two of our members, BayCare and the University of Michigan, 

have done studies showing that patient care and cost would be adversely affected by the competitive bidding as it is now structured. 

The Michigan study showed that the aggregate median length of 

stay for referrals managed by hospital-based services was 5.3 days 

compared to 6.8 days for referrals managed by non-hospital based 

services. 

I want to note that we have not opposed competitive bidding. 

From the beginning our goal has been to advocate for the flexibility 

we need to manage patient care in a structure where pricing is the 

same for all DME providers in the area. In today’s hospitals, patient discharges take place throughout the day. In many cases, the 

ability to send a patient home or into nursing care depends on the 


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availability of numerous items of DME: a hospital bed, surgical or 

diabetic supplies, wheelchair, a commode or oxygen. Coordinating 

the supply and delivery of DME is critical to avoiding extra days 

in the hospital, extra days that Medicare, Medicaid and private insurers will not pay for immediately, but these costs do get folded 

into the overall cost of health care. 

When DME and other post-acute care is aligned with the hospital, we can respond to the demands of Medicare and private insurers for better care at a lower cost and less complexity for the 

patient and family. Having to use an outside DME supplier, or several suppliers in the case of complex patients, destroys this crucial 

alignment and perpetrates an inefficient and costly delivery system. Even though extra days in the hospital may not immediately 

and directly cost Medicare Part A more, the cost for unnecessary 

days remains in the health system and eventually everyone pays 

for it. Savings estimates for competitive bidding focus primarily on 

price reductions for durable medical equipment under Part B. What 

is left out of the picture are the increased costs that the hospital 

and within our health systems. 

A number of health systems in our coalition are affected by 

phase one, which begins January of 2011, and very few have been 

awarded contracts for Medicare patients. Cleveland Clinic in Ohio 

and UPMC in Pennsylvania receive no contracts and are now shut 

of Medicare for DME services. Some other systems receive contracts for only one or two items. These results go in the wrong direction. For these health systems and hospitals, costs will be higher 

than necessary and support for families caring for elderly patients 

in the home will be lost. Instead of support and convenience, there 

will be 1–800 telephone numbers and multiple suppliers who often 

tell families calling to report malfunctioning equipment that they 

should go to their nearest ER. 

Finally, we have been advised by CMS that the Secretary has no 

discretion in this matter and that there can be no administrative 

solution without additional legislation. While we have had good 

and constructive discussions with CMS, especially on the importance of integrated care as a tool for helping with issues of cost, 

CMS says that Congress must act. To address this problem, we 

have worked with Congressman Dingell and he has introduced 

H.R. 6095, giving qualified health systems that own and operate a 

DME entity the ability to continue to serve its patients at a reimbursement rate determined by the competitive bidding process for 

its region. We believe this is a limited, reasonable and commonsense remedy and we thank Mr. Dingell for his support and understanding as well as his remarks this morning. The bill will preserve savings associated with lower prices for DME services and 

allow us to preserve a critical patient management tool that allows 

us to save money and better serve the patients that come to us 

every day for quality medical care. 

On behalf of our coalition, I ask for your support for Mr. Dingell’s 

bill and will be pleased to answer any questions. Thank you very 

much. 

[The prepared statement of Ms. Schlichting follows:] 


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Mr. PALLONE. Thank you. 

Dr. Scanlon. 

STATEMENT OF WILLIAM SCANLON 

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

Pallone, Ranking Member Shimkus and members of the subcommittee, I am pleased to be here as you review the implementation of Medicare’s durable medical equipment competitive bidding 

program. 

I am an economist who has been involved in health policy research for 35 years. Until 2004, I was the managing director of 

health care issues at the U.S. General Accounting Office. I have 

also been a member of the Medicare Payment Advisory Commission, completing my second term this past May. My views today 

are my own and do not reflect those of any organization with which 

I have been affiliated. 

Competitive bidding for durable medical equipment is one step in 

attempting to make the Medicare program a more efficient purchaser of services. There have been longstanding concerns about 

the level and growth of Medicare spending that growth while mirroring other sectors of health care has consistently exceeded the 

growth of GDP, inflation and the beneficiary population and imposes an increasing burden on taxpayers as well as on beneficiaries 

in the form of higher Part B premiums and cost sharing. It is essential to ask whether the program is being as efficient as possible 

in maintaining access to medically necessary services for its beneficiaries. 

Efforts to make Medicare a more efficient purchaser have been 

underway for many years. Beginning in the early 1980s, Medicare 

payment methods for most services have been reformed in fundamental ways. DME payments stand out as an exception. This is despite a large body of evidence produced by the Department of 

Health and Human Services’ Office of Inspector General and the 

GAO on how much Medicare payments exceed the prices charged 

to retail customers or a supplier acquisition costs. You have heard 

examples in today’s testimonies. Efforts to refine Medicare DME 

payment levels administratively have proven very cumbersome. 

The burden of collecting sufficient retail price or acquisition cost 

data to change prices is formidable and only a limited number of 

prices have been changed over the years. Even when those data are 

available, setting an efficient price for the Medicare program is 

problematic. Medicare as a major purchaser should not have to pay 

retail prices to obtain beneficiary access. The advantages to suppliers of being able to sell to Medicare are likely sufficient to make 

them willing to offer Medicare a discount. 

Competitive bidding offers an alternative to setting prices administratively which is less burdensome and more likely to result in 

better prices for the program. Suppliers have the incentive to offer 

better prices to be able to win a contract. The potential of competitive bidding has been demonstrated by the price reductions in the 

Texas and Florida demonstrations authorized by the Balanced 

Budget Act and in the two rounds of bidding under the Medicare 

Modernization Act authorized program. 


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Suppliers’ willingness to offer prices is predicated on their expectation that winning a contract will result in a bigger market share. 

For this to be true, Medicare has to move away from its traditional 

any-willing-provider approach and limit the number of winning 

contracts. This is a significant change and there are legitimate concerns about potential disruptions and negative impacts on beneficiaries and providers. Taking steps to minimize such impacts and 

ameliorate them promptly is essential because the importance of 

making Medicare a more efficient purchaser cannot be ignored. 

Two important steps to reduce some of these disruptions that 

have been taken are to award multiple contracts in each area and 

to award small businesses a very significant share of contracts. 

This preserves a range of supplier choices for beneficiaries. These 

provisions strike a balance between reducing potential disruptions 

and getting a better price for the program. Having more winners 

lowers bidders’ incentives to offer lower prices. While having more 

winning contracts may result in somewhat higher prices in the 

short term, it also is likely to keep the program competitive over 

the longer term and guarantee savings in the future. 

How the program is implemented on the ground as well as its 

design are incredibly important to minimizing disruption. As you 

have heard from Ms. King, there were legitimate concerns about 

the aspects of implementation in the first round of bidding in 2007. 

Some of the shortcomings identified in that first round may be the 

unfortunate but very common outcome of introducing such fundamental change. Substantial change requires a learning process on 

the part of providers and beneficiaries as well as CMS. This learning should not, however, be allowed to be a gradual process. It is 

important that CMS invest heavily in provider and beneficiary education and in monitoring the process of bidding and contract 

awards. 

Requesting bids and securing better prices is only the first phase 

of making Medicare a more efficient, prudent purchaser of DME. 

Continued oversight to assure that access to and quality of products purchased meet expectations is also essential. Congress has 

required GAO to provide a report on the experience with the program including beneficiary access and satisfaction, quality issues, 

impacts on suppliers, especially small businesses, and opportunities 

for greater efficiencies. CMS needs to be able to answer those same 

questions on an ongoing basis. Simply identifying problems, however, is not sufficient. CMS also must be in a position to be able 

to resolve them as quickly as they are identified. 

Let me end by underscoring, making the Medicare program a 

more efficient purchaser is critical to preserving access for beneficiaries and keeping the program more affordable for both taxpayers and beneficiaries. Competitive bidding for DME provides an 

opportunity to improve program efficiency. Competitive bidding 

itself, though, is only about setting the price. How one administers 

the purchasing of the products after contracts have been awarded 

is critical to assuring that the goals of access and quality are preserved. These things cannot be understated. 

Thank you very much, Mr. Chairman. I would be happy to answer any questions you or members of the subcommittee have. 

[The prepared statement of Mr. Scanlon follows:] 


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Mr. PALLONE. Thank you, Dr. Scanlon, and we will have questions now from the members. 

I guess I have to start with Ms. Lerner’s doomsday scenario because she really did paint a picture. I mean, I am looking at the 

written testimony where she says we are going to drive thousands 

of qualified HME providers out of the Medicare marketplace and 

the result is a loss of ability to serve patients, layoffs, business failures, etc. I mean, obviously that is the concern, and of course, Mr. 

Chiplin was talking about how beneficiaries need to understand 

that their provider might change, and a lot of people are going to 

actually end up having a change in providers, so to speak. 

But I wanted to go back to what Ms. Lerner said and I wanted 

to ask her and maybe Dr. Scanlon along those lines, I mean, basically the argument is that Medicare will contract with a reduced 

number of DME suppliers relative to the number of suppliers enrolled today, that competition will actually decrease under competitive bidding and over time this will actually lead to an increase in 

prices because there will be fewer bidders. Is that part of what you 

are saying, Ms. Lerner? I will start with you and then I will ask 

Dr. Scanlon the same thing, if you think that that is a convincing 

argument, and even if prices were to rise somewhat above the 32 

percent savings projected by CMS for the round one re-bid, it would 

seem to me that prices would have a long way to go upwards to 

get back to current levels. So my question is, is this just a question 

of the competition? I mean, I know you mentioned all the problems 

with layoffs. Are you also arguing, Ms. Lerner, that competition is 

going to disappear and that ultimately we are going to end up— 

is that ultimately going to cost us more in the future or is it just 

the fact that we are going to have fewer suppliers and you are worried about the layoffs, so to speak? 

Ms. LERNER. No, I think the competitive bidding bill is inherently anti-competitive. Studies show that 75 percent to 90 percent 

of the suppliers will not be able to compete in the marketplace and 

will be forced out of business or be acquired by existing DME. We 

are reimbursed by Medicare by product code. It doesn’t matter the 

cost of the product, has no relevance to how we are reimbursed. So 

it is a competitive marketplace. We offer a better product. There 

are other clinicians that are—— 

Mr. PALLONE. The problem is—I know I am interrupting you. 

You know, we have heard all the testimony earlier about how there 

are so many of these providers out there. It is very easy to get in 

the business. They are charging too much. Medicare is losing 

money. There is fraud. I mean, obviously the competitive bidding 

was a response to that. I mean, you have to kind of tell me where 

you think we are on the spectrum. In other words, you don’t see 

the competitive bidding as actually helping us in dealing with all 

this excessive cost; you think the opposite is going to happen? 

Ms. LERNER. I absolutely think the opposite will happen. I think 

because of increased ER visits, readmissions to hospitals and not 

being able to discharge a patient, those are all costs that need to 

be factored in. I think Ms. Schlichting said length of stay is going 

to increase in a hospital because by the time you call five or six 

providers, one for the bed, one for the support surface, one for oxygen, you can’t get them out of the hospital so they are going to stay 


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in the hospital longer. Hospital stay is much more expensive than 

home care. 

Mr. PALLONE. Let me ask Dr. Scanlon to respond to this. She 

makes a good argument. What do you say? 

Mr. SCANLON. I think it is important sort of to go back to one 

of the things that I mentioned, which is that there has been a balance struck in the way this program is being designed. Rather than 

being more aggressive in terms of trying to get the best price and 

awarding, say, only a single contract for a product in an area, there 

is going to be an award for multiple contracts and including sort 

of a proportion of those contracts going to small businesses. This 

is a part of maintaining sort of robust—— 

Mr. PALLONE. So you don’t see this argument that competition is 

actually going to decrease and the costs will start to go up again? 

Mr. SCANLON. I think there will be adequate competition over 

time. There will be a decrease in the number of suppliers but I 

think one of the questions we should be asking ourselves is, how 

many suppliers of DME should we have. There is a strong contrast 

between DME suppliers, the supply of DME sort of providers and 

suppliers, with the other types of providers in the Medicare program. 

Mr. PALLONE. But you don’t see the competition—— 

Mr. SCANLON. No. We have 100,000 DME suppliers compared to 

the—the next biggest number is 16,000 nursing homes. 

Mr. PALLONE. All right. Let me ask Mr. Chiplin just because I 

am trying to keep to the time, although I am failing here, what 

about the whole education process? In other words, you know, obviously a lot of people are going to have a different provider. They 

may not know it. And I guess CMS has some kind of program to 

provide for this transition but what is your opinion of that? Is that 

good enough or do you want to comment on it a little bit? 

Mr. CHIPLIN. Well, I applaud them for what they are doing. I 

know they have a very complex program to implement and to explain to beneficiaries. Our concern is that the beneficiary education 

effort to this point has been rather invisible. It is hard to find 

things, as I said, on their Web site. I think there needs to be more 

attention to those kinds of details about where you put beneficiary 

information and how it is made available to people. I think those 

are some of the fundamental things that can happen that will allow 

advocates such as our organization to have better access at trying 

to find the bits and pieces of information that can be translated 

into pamphlets and other things that would be of help to beneficiaries in understanding the program going forward. So I think 

one of the fundamental things with respect to beneficiary education, that it shouldn’t be viewed as just an add-on the process but 

it should be an integral part of the rollout all the way across the 

board. 

Mr. PALLONE. All right. Thank you. My time has run out. 

Mr. Shimkus. 

Mr. SHIMKUS. Thank you, Mr. Chairman. I have not a lot of time 

and a lot of questions so I am going to try to go quickly. 

Ms. Lerner, as an RN and as a provider of DME equipment, are 

all seat cushions equal? 

Ms. LERNER. Not by a long shot. 


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Mr. SHIMKUS. And let me follow up. Do patients have different 

needs for different seat cushion arrangements? 

Ms. LERNER. Of course. 

Mr. SHIMKUS. And that kind of segues into the previous panel 

and this whole issue about lumping then in in the process, and I 

think many of us would argue that they should be separate. Let 

them compete but let them be separate based upon patient need. 

Dr. Schlichting, I have been following Chairman Emeritus Dingell’s bill. There are some compelling arguments in support of that 

legislation because in the bidding process—I don’t know, I am not 

the person doing the bidding process but you would think—again, 

this is the difference between government and the competitive marketplace. If I was doing a bid contract and I needed stuff 24/7, I 

think I would write that into my bid process, but obviously CMS 

does not do that, and the concern is, no matter how the system— 

you just can’t get the equipment on hand or the patient can’t get 

it to leave in a timely manner through the hospital. Is that a simple synopsis of the concern? So you want to control that so you can 

move on? 

Ms. SCHLICHTING. Well, you know, I think for any of us who have 

had to navigate through health care in this country, ways that we 

can make it simpler for patient and families and improve the efficiency by having that control of the continuum, we find that it has 

a real added value and that is what we are trying to preserve in 

this legislation. 

Mr. SHIMKUS. Well, we definitely haven’t moved in simplicity in 

the last 18 months. 

Off the DME thing for a second. You are aware that the Administration’s own Chief Actuary of Medicare estimated that 15 percent of hospitals will become unprofitable based upon the health 

care law. You are probably big enough that you are not one of 

them. Is that, am I safe to assume? 

Ms. SCHLICHTING. Well, actually, one of the reasons we are profitable is the integration that we created Henry Ford. We have a 

salaried medical group. We have ambulatory and full continuum of 

care services, and we have a very high uncompensated care burden 

in Detroit as our flagship provider is one of the safety net providers 

in the State. 

Mr. SHIMKUS. But you wouldn’t dispute the 15 percent from the 

actuary talking about hospitals throughout the country who will 

probably have to close because of the provision? 

Ms. SCHLICHTING. I can’t speak to that, but I do think there will 

probably be more consolidation to create more efficiency of care. 

Mr. SHIMKUS. Which is language for closures. Thank you. 

Let me go to Dr. Scanlon real quick. Can’t we put on quality 

measures for the bidding process to meet Ms. Schlichting’s need for 

24/7 delivery of equipment? 

Mr. SCANLON. Certainly we can make that a requirement. I think 

on of the things that we need to think about are the contract specifications. What does it take to be a qualified provider. If that turns 

out to be one of the essential attributes, then we should make that 

a requirement. One of the instructive things about looking at the 

Veterans Administration is that they have used competitive bidding for a long time and they have actually have had stronger specVerDate Mar 15 2010 11:02 Apr 03, 2013 Jkt 078132 PO 00000 Frm 00159 Fmt 6633 Sfmt 6633 E:\HR\OC\A132.XXX A132

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ifications in terms of the products they receive and services they 

receive than does the Medicare program. 

Mr. SHIMKUS. And let me go, because of your expertise in government health care and also your experience in being an accountable. 

The health care law, do you believe it will lower costs or the deficit? 

Mr. SCANLON. The deficit is a macroeconomic issue which is well 

beyond a health economist’s purview so let me—— 

Mr. SHIMKUS. No, that is not true because there is a Medicaid 

expansion in the bill and it is projected by obviously the executive 

branch to be $10 million and we think more likely it will be $30 

million, which is a burden to us, which is a burden to the States, 

especially who is a 50 percent payer. 

Mr. SCANLON. I know, and I think I want to leave that to CBO 

in terms of—— 

Mr. SHIMKUS. I deal with the Army War College and we prepare 

them for Congressional testimony. One thing when I do talk to 

these soon-to-be senior leaders is that you better be prepared to answer any questions. You are an accountant, so I would expect—that 

is the advantage and disadvantage of coming before us. 

Quickly, Mr. Chiplin, the final question for you is, if there are 

$575 billion cuts in Medicare reported by the Chief Actuary, is that 

harmful to senior citizens on Medicare? 

Mr. CHIPLIN. Well, that is a very big number you just recited. It 

depends. I think the question really would be, where would those 

cuts come? 

Mr. SHIMKUS. Well, they are coming from Medicare. 

Mr. CHIPLIN. But I mean, even having said that, what particular 

services are cut, what access there might be that has been traded 

off in some—— 

Mr. SHIMKUS. Would it be safe to say that there is some concern? 

Mr. CHIPLIN. Absolutely. That has been my testimony all along. 

I am not saying—— 

Mr. SHIMKUS. Right, and I got it. Thank you very much. 

Yield back, Mr. Chairman. 

Mr. PALLONE. Thank you, Mr. Shimkus. 

Chairman Dingell. 

Mr. DINGELL. Thank you, Mr. Chairman. 

These questions to Ms. Schlichting. Are you for or against competitive bidding? 

Ms. SCHLICHTING. Well, as part of this process, we have been 

very clear about the fact that we are not taking a position on competitive bidding. We accept competitive bidding as part of the process and we are trying to make sure that we have clarity around 

those organizations that are hospitals and health systems that 

have DME, that they will be able to continue to provide that integrated care. 

Mr. DINGELL. Thank you. 

Now, Congress has delayed competitive bidding for 18 months 

with a 10 percent price cut. In addition, Congress provided for an 

exemption for hospitals for certain products. Now, why is it that we 

need the legislation, H.R. 6095, that you have been discussing? 

Ms. SCHLICHTING. There were two issues there. One is that it 

really only identified hospitals as opposed to health systems, and 


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we need broader inclusion of health systems in the legislation, and 

secondly, it didn’t include all products frankly that hospitals and 

DME providers supply. 

Mr. DINGELL. Would you submit to the committee the products 

that were not included that really should have been in there? 

Ms. SCHLICHTING. We will be happy to do that. 

Mr. DINGELL. Now, when I go into the hospital, I walk out, if I 

have had a broken leg or something, they give me a boot or they 

give me crutches or they hand me a cane and then they give me 

pills and such as that, or if I have had surgery on my eye they give 

me shields for the eye and things of that kind. If this is to be done 

by then some third party, how is that the hospital without the language of H.R. 6095 is going to properly be able to assign what it 

is I need and see to it that I have at expeditiously when I depart 

the hospital to go home? 

Ms. SCHLICHTING. Hospitals may continue to provide certain elements that are absolutely essential for that patient to walk out the 

door but what they won’t be able to do is provide those needed 

services in the home so that they get home safely, they have what 

they need. It is more complicated certainly for patients and families who often end up being the one that have to secure some of 

those needed supplies and equipment. So we believe that there is 

a much greater opportunity if our health systems have the chance 

to really fulfill all those needs. 

Mr. DINGELL. Thank you. Now, the exemption that we have referred to earlier does not mean that hospital-based companies do 

not have to be accredited like everybody else. Isn’t that so? 

Ms. SCHLICHTING. That is correct. 

Mr. DINGELL. Thank you. Now, CMS rules allow for smaller 

DME suppliers to form networks and to participate in Medicare as 

network suppliers. Why is this not a solution for hospital-based 

companies? 

Ms. SCHLICHTING. Well, it basically still won’t allow for the hospital-based companies to compete in terms of the size and scope of 

most of the hospital-based organizations so we believe again that 

the opportunity to create the integration at the hospital and health 

system level is very important. 

Mr. DINGELL. Now, Ms. Schlichting, you have attached a study 

by the University of Michigan Health System. They looked at a 

longer length of stay for patients when they were outside the home, 

or rather when outside the home care providers were used. Can 

you elaborate on this and do you think that this is representative 

of the experiences of the other members of your coalition? 

Ms. SCHLICHTING. We believe it is. In fact, the University of 

Michigan is much like Henry Ford. It is a very large health system. 

And they looked at considerable detail around this over a threemonth period, and another of our members, BayCare, also studied 

the impact, and in cases where the hospital did not use its own 

DME but was required by insurance contracts to use outside suppliers, there were extra days in the hospital, higher readmissions 

and more use of the ER as compared to outside providers. 

Mr. DINGELL. Thank you. 

Now, Dr. Scanlon, how many major suppliers of durable medical 

equipment will there be in this country because of the concentraVerDate Mar 15 2010 11:02 Apr 03, 2013 Jkt 078132 PO 00000 Frm 00161 Fmt 6633 Sfmt 6633 E:\HR\OC\A132.XXX A132

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tion of power and market in the hands of a few dominant distributors of these commodities under the form that we are discussing 

today? Just give me the number, if you please. 

Mr. SCANLON. I am afraid I don’t have the number. I can say 

that it is totally a function of how CMS awards the contracts, what 

kinds of targets they set in terms of how many—— 

Mr. DINGELL. Then answer this question. First of all, the number 

will be reduced, yes or no? 

Mr. SCANLON. Yes, it will. It is 100,000 now. 

Mr. DINGELL. And what will that do with regard to competition 

elsewhere in the industry with regard to other people? There will 

be less competition for their business because there are going to be 

a few very dominant larger suppliers, right? 

Mr. SCANLON. I think there will be fewer suppliers and some reduction in competition but there may still be ample competition to 

keep prices at reasonable levels. Medicare is about a quarter of the 

durable medical equipment market, so three-quarters of the revenues are coming from other purchasers. 

Mr. DINGELL. My time is running out, and this question is very 

important. But then we are going to confront a situation where 

there will be just a few dominant suppliers in any of the regional 

markets that are being created by this matter by concentrating the 

power in the hands of just a few suppliers. For example, in our Detroit area there will probably only be one. Maybe in New York 

there will be five or six. But that will be instead of a much larger 

number of people we have doing business there. Isn’t that going to 

be a consequence of this? 

Mr. SCANLON. I think that again it is going to depend upon how 

CMS chooses to award contracts, what kinds of requirements they 

have for local presence because a large company may be able to 

supply a very large share of the market to mail order but may not 

be able to supply sort of things locally when it requires a physical 

presence in each area. 

Mr. DINGELL. There is nothing to say that one of these near monopolists is not going to all of a sudden decide well, by golly, I 

think this would be very nice if we all of a sudden went into the 

mail order business, and using that the power that they have of the 

economy for large sales stimulated by their recognition under Medicare they can all of a sudden then dominant not only the market 

for Medicare supplies but also the mail order supplies because of 

the market power they have and do like the Japanese do, subsidized because of the monopoly in their own market. 

Mr. SCANLON. Again, I think that that scenario depends upon 

sort of how CMS chooses to award contracts—— 

Mr. DINGELL. Are either—— 

Mr. SCANLON [continuing]. What kinds of specifications they 

have that would allow the transfer of—— 

Mr. DINGELL. Are either of these scenarios that I am discussing 

illogical or improbable? 

Mr. SCANLON. They are not impossible. I would say that I do not 

expect them in the intermediate term. 

Mr. DINGELL. So we can figure that perhaps the millennium has 

descended upon us. The good Lord will assure us that these untoVerDate Mar 15 2010 11:02 Apr 03, 2013 Jkt 078132 PO 00000 Frm 00162 Fmt 6633 Sfmt 6633 E:\HR\OC\A132.XXX A132

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ward events will not be visited us by the monopoly that we are creating. Am I right or wrong? 

Mr. SCANLON. I think you are right. 

Mr. DINGELL. Thank you. 

Thank you, Mr. Chairman, for your courtesy. 

Mr. PALLONE. Thank you. 

Thank you again, I mean, obviously this is very spirited because 

there are areas where you agree and there are other areas where 

you disagree, but I think the bottom line is that this was very helpful to us today in terms of oversight of what is going on with this 

issue. Again, you may get additional questions from us, usually 

within 10 days, from the clerk in writing and get back to us as 

soon as possible. I think that this hearing today was extremely 

helpful in terms of knowing some of the problems but also we are 

going to have to dig a little deeper as well. So thank you very 

much. 

Unless anyone else has any questions, without objection, this 

hearing of the subcommittee is adjourned. Thank you. 

[Whereupon, at 1:30 p.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 


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