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Hearing on the Medicare Durable Medical Equipment Competitive Bidding Program

May 09, 2012

Hearing on the Medicare Durable Medical Equipment
Competitive Bidding Program










May 9, 2012


Printed for the use of the Committee on Ways and Means


DAVE CAMP, Michigan, Chairman

WALLY HERGER, California
PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER M. SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel

WALLY HERGER, California, Chairman

PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia

RON KIND, Wisconsin





Panel 1:

Laurence Wilson
Director of the Chronic Care Policy Group, Center for Medicare, Centers for Medicare and Medicaid Services

Kathleen King
Director, Health Care, Government Accountability Office

Panel 2:

Joel D. Marx
Chair, Board of Directors, American Association for Homecare

H. Wayne Sale
Chair, Board of Directors, National Association of Independent Medical Equipment Suppliers

Dino Martis
President, Ablecare Medical, Inc.

Alfred J. Chiplin, Jr.
Senior Policy Attorney, Center for Medicare Advocacy, Inc.


Hearing on the Medicare Durable Medical Equipment
Competitive Bidding Program

Wednesday, May 9, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.


The subcommittee met, pursuant to call, at 9:03 a.m., in Room 1100, Longworth House Office Building, Honorable Wally Herger [chairman of the subcommittee] presiding.

[The  advisory of the hearing follows:]


Chairman Herger.  The subcommittee will come to order.  We are here today to assess the impact of the Medicare Durable Medical Equipment Competitive Bidding Program.  Our intent is to understand the program’s impact on beneficiaries, suppliers, and Medicare expenditures, and the implications or program expansion.  Congress mandated the use of competitive bidding to establish payment rates for high cost and high volume DME and Medicare Modernization Act of 2003.  Congress took this action in response to evidence that Medicare fee schedule payment rates often far exceed retail prices. 

In fact, in some cases, Medicare beneficiary copays exceeded the cost of the device on the open market.  These generous payment rates also made the DME benefit especially vulnerable to waste, fraud, and abuse.  A successful small‑scale test required through the Balanced Budget Act of 1997 showed that competitive bidding for DME was feasible.  Consistent with the statutes the Centers for Medicare and Medicaid Services implemented a competitive bidding process for nine DME product categories in nine geographic areas on January 1st, 2011. 

This first phase of implementation is known as Round 1.  Medicare is in the process of expanding the competitive bidding program to an additional 91 areas with competition‑based payment amounts to take effect in mid 2013.  This expansion is referred to as Round 2.  The DME supplier industry has long had concerns about the use of competitive bidding.  It is important to understand these concerns, not only because numerous beneficiaries rely on medical equipment to keep them in their homes and out of the hospital, but also because many suppliers are the kinds of small businesses that form the background of our economy. 

Congress, with input from members of this committee, responded to supplier concerns that the initial CMS effort to implement competitive bidding was flawed.  As a result, we passed the Medicare Improvements for Patients and Providers Act in 2008, which terminated the initial Round 1 and required that it be a bid once improvements were made.  That said, it is important that Medicare pay a reasonable and responsible price for DME so that beneficiary and taxpayer dollars are used wisely. 

CMS has reported that the competitive bidding program resulted in $200 million in savings in 2011.  These first‑year program savings are derived largely from competition‑based payment amounts that are on average, 32 percent lower than DME fee schedule prices.  And these lower prices mean that beneficiaries are paying less in the form of their 20 percent coinsurance. 

A comparison of the Medicare payment for an oxygen concentrator, a common DME item, shows how the Medicare program and its beneficiaries benefit from lower prices derived from the competitive bidding.  In the nine Round 1 MSAs, Medicare would have paid $2,080 under the DME fee schedule with a beneficiary paying 20 percent, or $416 on average.  By contrast, with competitive bidding, Medicare paid $1,395 and the beneficiary paid $279 on average. 

While I strongly believe in the competitive forces of the private market, the process by which the competition is conducted must be fair.  To help the subcommittee understand the successes and challenges associated with Round 1, before the program scheduled expansion next year, we will hear from witnesses who collectively provide a balanced range of perspectives on the competitive bidding program. 

Before I recognize Ranking Member Stark, but I understand we will have Congressman Thompson speaking for him, I ask unanimous consent that all members’ written statements be included in the record.  Without objection, so ordered. 

Chairman Herger.  I now recognize the gentleman from California, for 5 minutes. 

Mr. Thompson.  Chairman Herger, thank you for holding this hearing on Medicare’s Durable Medical Equipment Competitive Bidding Program.  Last year, we held a hearing on this topic in May 2008, and what a different several years can make.  That hearing revealed serious problems with the implementation of competitive bidding for DME.  The health subcommittee worked together on bipartisan legislation to delay implementation of Round 1.  Importantly, we didn’t just give the industry a pass.  We reduced DME payments nationwide by 9.5 percent for all product categories that would have been in the DME demonstration, and we required CMS to revise the program to avoid missteps from the initial implementation effort. 

Historically, this subcommittee has raised concerns with competitive bidding.  We want higher quality and lower prices.  We can simply implement those changes through the fee schedule and other administrative tools. 

I have serious concerns about using competitive bidding for other services, but purchasing equipment is a fairly straightforward transaction, and I have been pleasantly surprised by the outcome of the Round 1 rebid.  Unlike the first try, we haven’t heard an outcry from suppliers around the country facing difficulties in filling applications. 

CMS really seems to have worked diligently to address the operational programs ‑‑ problems that plagued the inept attempt ‑‑ initial attempt.  Not only does the demonstration appear to have been implemented smoothly, it also appears that many of our concerns about negative beneficiary effects haven’t occurred.  We typically hear directly from patients or their advocates when there are problems with such a substantial change to Medicare. 

I can report that we have not received any beneficiary complaints with regard to this demonstration.  However, we need to be cautious as we proceed toward further expansion and remain ever diligent in looking out for negative effects for beneficiaries.  I look forward to hearing from both CMS and the GAO today. 

In particular, I would like to thank the GAO for working with us to expedite release of their statutorily mandated report on the Round 1 rebid program.  GAO’s work is the first outside audit of this demonstration and I am especially interested in their expert evaluation. 

Our second panel will also be important.  We will hear from several DME suppliers and a patient advocate, all of whom will present their opinions on the DME competitive bidding program to date. 

We need to be circumspect about drawing significant conclusions from this hearing.  We will hear an overview of the program in only nine metropolitan statistical areas across our country.  The program will expand next year to an additional 91 areas.  While Round 1 impacts 6 percent of Medicare’s beneficiaries, Round 2 will increase that to more than half of all Medicare beneficiaries.  That is a substantial increase.  While the evidence appears to indicate that CMS can expand this program, while protecting beneficiary access to care, saving money for beneficiaries through lowered cost sharing, and recouping savings for taxpayers through lower overall Medicare spending, continued close scrutiny is necessary.  DME is an important benefit.  It enables people to remain in the community, and out of institutions. 

We have a duty, a duty to Medicare beneficiaries and to America’s taxpayers to ensure that we maintain access to quality care at the best price available.  With that, I yield back the balance of Mr. Stark’s time. 

Chairman Herger.  Thank you.  On our first panel the subcommittee will hear from two Government agencies.  Laurence Wilson, who is the director of the Chronic Care Policy Group and the Center for Medicare at CMS will discuss the agency’s efforts to implement the competitive bidding program.  Our second Government witness is Kathleen King, who is the Director of Health Care at the Government Accounting Office.  Congress mandated that GAO study the competitive bidding program.  We look forward to hearing from Ms. King on what her agency has found. 

Mr. King, you are now recognized for 5 minutes ‑‑ excuse me.  Mr. Wilson, you are recognized for 5 minutes. 


Mr. Wilson.  Good morning, Chairman Herger, Mr. Thompson, and ranking members ‑‑ and distinguished members of the subcommittee.  I am pleased to be here today to discuss the Durable Medical Equipment Prosthetic Orthotics and Supplies Competitive Bidding Program.  This important initiative, required under the Medicare Modernization Act of 2003, and recently expanded under the Affordable Care Act, has been effective in reducing beneficiary out‑of‑pocket costs, improving the accuracy of Medicare’s payments, reducing overutilization and ensuring beneficiary access to high‑quality items and services. 

CMS successfully implemented the program on January 1, 2011, in nine metropolitan areas after making a number of important improvements based on new requirements from Congress and after listening to feedback from our stakeholders.  We are pleased to report that the program has saved $202 million in its first year of operation a reduction of over 42 percent compared to 2010, with no disruption in access, or negative health consequences for beneficiaries.  We are now continuing with the expansion of the program to 91 additional areas of the country as the law requires. 

CMS worked closely with stakeholders to design and implement the 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.  The program results in a large number of winners so that beneficiaries are assured access and 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 provide safeguards to support good quality and customer service, while acting to weed out bad actors and ensure a level playing field for legitimate suppliers.  The many improvements made by Congress and CMS have been carried forward to successive rounds of the program.  These changes provide for a fair process that is less complex for suppliers to navigate, and result in more effective scrutiny of suppliers’ qualifications and the integrity of their bids.  We continue to make further improvements as the program expands.  For example, to help fulfill our commitment to beneficiaries to ensure quality and good service, our comprehensive monitoring system will be expanded to cover the 91 additional areas and the various new items. 

This state‑of‑the‑art system examines 100 percent of Medicare claims and other data in close to real‑time and provides important indications on whether access or quality is threatened.  It tracks over 3,400 data points including mortality, utilization, hospitalizations, ER visits, and many others to provide us with information about the Medicare beneficiaries and the services they receive. 

As I noted before, we have observed no trends in these health status indicators that cause us concern.  Where we have seen more significant reductions in utilization, we have followed through with further investigation.  For example, for mail‑order diabetic testing supplies, we surveyed beneficiaries and found that they were still testing, but not ordering new strips because they had stockpiles at home, up to a 10‑month supply or more, which is an indication of the overutilization occurring prior to when the program took effect. 

Our experience with Round 1 has shown that the competitive bidding brings value to Medicare beneficiaries and taxpayers compared to the current fee schedule system.  In fact, the average price discount across the nine metropolitan areas, is 35 percent.  The CMS actuary projects that the program will save $25.7 billion for Medicare over the next 10 years and another $17.1 billion for beneficiaries through lower coinsurance and premiums.  In Orlando, the purchase amount of a standard wheelchair dropped by $1,362.  That is a savings of $1,089 for Medicare, and the taxpayers, and an additional $272 in savings for beneficiaries. 

We are very pleased with the success of Round 1 of the program.  Nevertheless, we recognize that the scope of the program is expanding and that it is a significant change for suppliers and patients.  We will continue to monitor implementation closely, and be 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 ombudsman, local ombudsman, regional offices, CMS caseworkers, contractors, and Medicare call centers to address and track questions and concerns. 

In summary, we will be diligent and thoughtful in our implementation of this important program as it expands to more areas of the country, and we will continue to be open to further improvements suggested by our stakeholders, Members of Congress, and others. 

Again, I very much appreciate the invitation to testify before you today, and would be happy to take any questions. 

Chairman Herger.  Thank you.

[The statement of Mr. Wilson follows:]

Chairman Herger.  Ms. King, you are now recognized for 5 minutes. 


Ms. King.  Chairman Herger, and Members of the subcommittee, I am pleased to be here today. 

Chairman Herger.  Let’s have you push the button. 

There is a button in front, I believe. 

Mr. Ryan.  You have to turn it on. 

Ms. King.  It says talk. 

Mr. Ryan.  Is there a green light that is on in front of you there? 

Ms. King.  Is that better? 

Chairman Herger.  That is much better. 

Ms. King.  I pressed the wrong talk.  Chairman Herger, and members of the subcommittee, I am pleased to be here today to discuss a report that we are releasing on the Round 1 rebid of the Medicare Competitive Bidding Program for Durable Medical Equipment.  Congress directed us to examine several issues regarding the Round 1 rebid, and those are the subject of our report today.  We found that the number of bidding suppliers and the number of contracts awarded in the Round 1 rebid were very similar to Round 1.  About a third of the 1,011 suppliers, or 356 suppliers that bid in the Round 1 bidding, were awarded at least one contract.  CMS made improvements to the bidding process for the Round 1 rebid, and many fewer bids were disqualified in the Round 1 rebid than in Round 1. 

However, many suppliers still had difficulty meeting the bid requirements.  And, as in Round 1, CMS determined that some suppliers bids had been disqualified incorrectly.  Subsequently, CMS extended contracts to seven of those suppliers. 

During the first year, few contract suppliers, about 6 percent of those awarded contracts, had their contracts terminated by CMS, voluntarily canceled their contracts, or were involved in ownership changes.  Under the program, many noncontract suppliers exercised the option to grandfather rental DME items for beneficiaries they were furnishing those services to prior to the program. 

We found that the number of these grandfathered suppliers generally decreased steadily throughout the year as the rental periods expired, or as beneficiaries chose a contract supplier. 

Some contracting suppliers entered into subcontracting agreements with noncontract suppliers to furnish services to beneficiaries.  In July of last year, about 31 percent of contracting suppliers had subcontracting agreements.  As the CBP allowed, 43 distinct or unique suppliers had contracts for product categories in which they did not have prior experience, and 44 distinct suppliers were awarded contracts in areas where they did not have a prior business location. 

CMS’s beneficiary access monitoring efforts reported declining inquiries and complaints over the first year of the program, high levels of beneficiary satisfaction, and no changes in health outcomes.  Although some of CMS’s monitoring efforts have limitations, in the aggregate, they provide useful information to CMS regarding beneficiary access and satisfaction.  Medicare claims data from the first 6 months of the Round 1, show that fewer distinct beneficiaries in the areas received DME items in 2011 than 2010 for the six product categories we analyzed.  However, we do not assume that utilization in 2010 was the appropriate level of Medicare utilization. 

Further, the decline in the number of beneficiaries receiving services in 2011 does not necessarily indicate that beneficiaries did not have access to needed DME.  It is too soon to determine the full effects on Medicare beneficiaries and suppliers.  Although we found that in general, the Round 1 rebid was successfully implemented, our findings are based on the limited data available at the time we did our work.  While the prevalence of grandfathered suppliers for some rental items may have ameliorated beneficiary access concerns during the first year, the number of grandfathered suppliers will continue to decline as rental agreements expire. 

Likewise, we don’t know yet whether any change in the number of subcontracting suppliers will affect beneficiary access.  Therefore, more experience with the program is needed, particularly to see if beneficiary access problems emerge.  For that reason, it is important to continue to monitor changes in the number of suppliers covering beneficiaries, and trends in utilization. 

Mr. Chairman, that concludes my prepared remarks.  I would be happy to answer questions. 

[The statement of Ms. King follows:]

Chairman Herger.  Ms. King, thank you for your testimony, and I am grateful for the work that GAO has put into examining the performance of this program.  As you know, Congress responded to initial concerns about the implementation of Round 1 by stopping it and requiring CMS to rebid it using an improved process.  Did Round 1 rebid go more smoothly than the initial Round 1, and were Congress’ concerns addressed? 

Ms. King.  Yes, they were.  The Round 1 rebid was definitely much more smooth than the Round 1, and we evaluated the Round 1, and found a number of significant issues with that, and many of them were resolved.  In particular, CMS gave more information about the kinds of financial documentation that were required and gave notice to a supplier when their financial documentation was incomplete.  So most of the procedural aspects in Round 1 were definitely ameliorated. 

Chairman Herger.  Thank you, Mr. Wilson, I would like to get your reaction to some of the concerns we will be hearing from representatives of the supplier industry later today.  One concern is that some suppliers may submit excessively low bids in order to be offered a contract.  Some believe there is an additional incentive to submit low bids because bidders are not necessarily required to accept a contract when offered.  Can you describe the process that CMS uses to determine which bids are not legitimate, and therefore, disqualified from competing on bid price, and whether the agency plans to expand this bona fide bid review process in Round 2? 

Mr. Wilson.  I would be happy to address that, Mr. Chairman.  That was an issue that we gave serious consideration to in the design and development of the system, and is in fact, the subject of a number of discussions with stakeholders.  So for example, we looked at the program and wanted to ensure that bids were bona fide and ensure that we didn’t have essentially low‑ball bids accepted in the system that would be factored in the price.  So we set up a system to essentially screen the bids statistically, and if they were aberrantly low, we would request information from the bidders that would support the price that they bid.  We would ask for price sheets, manufacturer invoices, or other information that detailed service requirements in order to support the amount that they bid.  And if they could not support that bid price, we actually threw out those bids.  We feel that that process worked very, very well. 

And so we are carrying that forward to the next two, Round 2 in the 91 areas and actually expanding it.  We don’t feel as though the lock‑in aspect, or issue is necessarily practical and we do have a concern that the statute may not allow us to carry that type of aspect or approach forward within the system.  But we don’t have concerns because what we found in Round 2, was that essentially 92 percent of suppliers accepted their contract offers.  The ones that did not accept their contract offers, essentially their prices were about half above the price or the median, and half below.  So we didn’t see that as a concern impacting price.  That said, I think it is something that we should look at as the program moves forward, and consider. 

Chairman Herger.  Another concern we often hear is that because participation in Medicare will be limited to suppliers whose bids are accepted, other suppliers might be unable to stay in business, and there would be less competition when contracts are rebid in future years.  What is your reaction to this concern, and could you also comment on why CMS believes it makes sense to limit participation to winning bidders rather than allowing any willing supplier to receive the competitively bid rate? 

Mr. Wilson.  When we read the statute, it certainly tells us that we can only contract with the winners in the competition to provide services.  But I think there is an important reason for that.  If you allowed non‑winners to subsequently participate, there would be no incentive to offer value to Medicare and the taxpayers, no incentive to bid a price that truly represented a true market price for the product.  And so I think it is important, from an economic sense and from a program savings perspective, and value to beneficiaries, to keep the program the way it is in that regard. 

Chairman Herger.  Thank you.  Mr. Thompson is recognized for 5 minutes. 

Mr. Thompson.  Thank you, Mr. Chairman.  Mr. Wilson, in your testimony, you state that the Round 1 rebid saved about $200 million so far.

Mr. Wilson.  Yes, sir. 

Mr. Thompson.  Do those savings accrue to both the Federal Government, and to the beneficiaries? 

Mr. Wilson.  They do. 

Mr. Thompson.  If so, well, they do, so how much about the Government save, and how much did beneficiaries save? 

Mr. Wilson.  I think we need to do further analysis of that.  What I can tell you today, sir, is that at least $41 million of the $202 million, is direct beneficiary savings in terms of coinsurance.  I think there are additional savings that are related to premium offsets, and I would be very happy to get back to you on that particular issue. 

Mr. Thompson.  Okay, thank you.  And how much does the average DME user in these areas save?  Do you have that number? 

Mr. Wilson.  Sure, the average price savings, is 35 percent, as I mentioned in my testimony, and so I think that on average, given that coinsurance is 20 percent for beneficiaries, that they would save that 35 percent on their coinsurance. 

Mr. Thompson.  Well, and thanks for the good work of everyone on this committee on both sides of the aisle.  The MIPPA strengthen accreditation requirements for all Medicare DME suppliers.  Has this requirement helped prevent fraud, waste and abuse within the Medicare program? 

Mr. Wilson.  I absolutely think it has.  It does several important things.  It elevates the standards by which suppliers, that suppliers need to meet in order to participate in the program.  It also provides for some very, very important clinical requirements that relate to how beneficiaries are ‑‑ how the items and services are delivered to beneficiaries, how they are educated, and what standard suppliers need to meet for the delivery of very, very important, and critical care items like oxygen and wheelchairs. 

Mr. Thompson.  And how about the so‑called illegitimate suppliers?  Were you able to weed out some of those as well? 

Mr. Wilson.  Well, we think that the accreditation program absolutely does that, because again, it sets standards.  Accreditation agency goes out and survey suppliers.  They need a physical location in order to be surveyed.  Information is collected.  And so I think that those kinds of standards erect barriers which filter out or stop at the front door some of those illegitimate suppliers. 

Mr. Thompson.  The information that we have suggests that CMS has received about 130,000 beneficiary inquiries, and about 150 beneficiary complaints about the competitive bidding program in 2011.  And as you know, it is important that we figure this one out, and make sure that beneficiary access to necessary suppliers is appropriate.  But we also need to make sure that suppliers are complying with the terms of their contracts.  So can you give us an example, or any examples of beneficiary inquiry or complaints that indicated supplier access, or quality problems and the actions that your agency took to correct those? 

Mr. Wilson.  Sure.  I would be happy to do that.  And the first thing I would say is we are very pleased with the 1‑800 response because we heavily marketed 1‑800 to our information intermediaries like beneficiary groups and State health insurance programs and many, many others so that we could answer questions about the program and help our beneficiaries get the items and services they need. 

I think a good example of how we were able to address some concerns that came up through the call center process may go to wheelchair repairs.  We had several instances of beneficiaries not being able to obtain repairs.  The supplier was having difficulty getting parts from the manufacturer.  We intervened in that process, facilitated a discussion between the manufacturer, the supplier, and the beneficiary in order to make sure the parts could be acquired to fix the wheelchair.  And then beyond that, CMS went back and looked at its repair policy and expanded it to allow essentially any supplier to do any repair so that we could stem any future problems like that.  So we had a policy response that worked.  We had a response for the individual that worked, and I think that that was a very good result. 

Mr. Thompson.  And then in the areas with competitive bidding, there has been some concerns that it has brought about an increased use in hospital care and ER visits.  I know you are monitoring this.  Can you speak about this complaint and about that increased hospital visit issue? 

Mr. Wilson.  I would be happy to.  We are not seeing increased hospitalizations.  We have a very sophisticated monitoring system.  We look at the entire competitive bidding area.  We look at those beneficiaries that may be in a specific disease group, COPD, emphysema, that may use oxygen for example, that are likely to access the product, and then we look at the specific utilizers of the product.  We look at all three cohorts to see if there are any types of concerns which would go to maybe their ability to get to a supplier, or even the quality of the product with looking at the ones that actually utilize it.  We are not seeing increases in hospital utilization, hospital admissions compared to the comparator regions. 

Mr. Thompson.  And the ER visits part? 

Mr. Wilson.  And the ER visits, mortality, any of those important indicators.  So we are very pleased with the health outcomes information that we are able to review.  And I would just note as well, that we are looking at 100 percent of the Medicare database.  We are not looking at a sample.  We recreate this every 2 weeks.  Policy staff, clinicians, physicians sit down and review this data, and so we are very, very attuned to what is going on and we take the monitoring program very seriously. 

Chairman Herger.  The gentleman’s time is expired. 

Mr. Thompson.  Yield back. 

Chairman Herger.  Thank you, the gentleman from Texas is recognized. 

Mr. Johnson.  Thank you, Mr. Chairman.  Mr. Wilson, you said in your testimony CMS has a goal of 30 percent of the contracts go to small businesses, or small suppliers as you call them.  Is this an internal goal or requirement by Congress and do you feel 30 percent is an adequate target? 

Mr. Wilson.  Well, I would just start by saying, Congressman, that we are very pleased with small supplier participation in the program.  The statute tells us we need to have at least two suppliers in every competitive bidding area, and it says we need to essentially help or provide opportunities for small suppliers to participate.  We have gone way beyond that by setting up networks, or setting up a policy to allow small suppliers to join into networks.  A new definition that we worked through with the Small Business Administration about the definition of a small supplier, and then we tied an important policy to that that essentially set a 30 percent target for small supplier participation, whereby, if 30 percent of the winners in a particular competition, in a particular area, by product category, are not small suppliers, we would add small suppliers until we met that target. 

That was very successful.  We ultimately had about 51 percent of participating suppliers in the first nine areas meeting that definition of the small supplier.  So we think that is a very good result. 

Mr. Johnson.  Thank you.  Is there any difference between metropolitan and rural? 

Mr. Wilson.  I am sorry, Congressman, I couldn’t quite hear that. 

Mr. Johnson.  Is there any difference between metropolitan areas an rural areas? 

Mr. Wilson.  There is quite a bit of difference between metropolitan and rural areas. 

Mr. Johnson.  I know that.  How do you address it? 

Mr. Wilson.  Well, we address it in a few important ways.  One, we follow the terms of the statute which essentially say we cannot bid in a rural area, so we do not.  We also have authority under the statute to essentially carve out of metropolitan areas any low‑population density areas.  So we have done that in a number of cases so that we are truly looking at integrated urbanized areas where there is a competitive number of suppliers and beneficiaries that will make the program work, generate savings for the program, and patients. 

Mr. Johnson.  Well, I think small businesses are important job creators in this country, and I am pleased to hear that 51 percent of the contracts awarded went to small business.  What are you doing to make sure that number holds steady and small businesses will always be part of the competitive program? 

Mr. Wilson.  Well, we have offered the same opportunities in the current Round 2 of the program that we successfully brought forward in the initial round of the program.  And we believe that that 30 percent target will allow us to have a lot of small suppliers participate. 

Mr. Johnson.  You worked with the Small Business Administration several years ago to create the definition of small supplier for this program, and under this definition of small supplier is a supplier that generates gross revenues of $3.5 million of more ‑‑ or less in annual receipts, including Medicare and non‑Medicare.  Do you feel this definition is still an accurate representation of the DME community? 

Mr. Wilson.  It is the definition that we currently are using.  I believe it is still accurate.  I think that is a very good question that I would be happy to look into further to see if, you know, potentially it should be revisited, and I will say that we have not revisited it since 2009 so it may be time to do that. 

Mr. Johnson.  Well, why was the definition lowered from your previous standard of $6.5 million? 

Mr. Wilson.  Well, $6.5 million was the standard for a small business, which is a more general standard.  What we wanted to do was specifically target DME suppliers, because that is a narrower definition, or a narrower term of business, and to see what was reflective of that cohort. 

Mr. Johnson.  Thank you.  Thank you, Mr. Chairman, I yield back. 

Chairman Herger.  Thank you, Mr. Nunes is recognized. 

Mr. Nunes.  Thank you, Mr. Chairman.  Mr. Wilson, I am told that 80 to 90 percent of American businesses are being excluded from supplying Medicare beneficiaries under the competitive bidding model that CMS has implemented in the nine competitive bid areas, and I have three examples here of this.  The first one is there were 1,409 suppliers of CPAP respiratory devices and supplies.  Now there is 105.  That is a 93 percent reduction.  The second example is, there were 1,433 suppliers for life‑support oxygen, and now, there are 211.  That is 85 percent fewer. 

If a senior needs a walker, there used to be 1,501 locations to choose from.  Now there are just 133.  That is about a 94 percent reduction.  So I am not an expert here, but given the size of the senior population and the growth and what seems to be a limited number and dwindling number of people being able to win these competitive bids, and then by your own numbers, people who even won the bids backed out, do you know why people that win the bids are backing out? 

Mr. Wilson.  Congressman, are you referring to the 8 percent that I cited; 8 percent of bidders that did not accept their contracts? 

Mr. Nunes.  Yeah, why is that happening? 

Mr. Wilson.  We do not know why they didn’t accept their contracts. 

Mr. Nunes.  Okay, so how it is possible that if you are going to reduce the number of suppliers that seniors won’t be impacted?  And if the program is working well, why would bidders be pulling out? 

Mr. Wilson.  We don’t know why that very small number of bidders decided not to accept our contract.  It could have been for any number of reasons.  We have suppliers that come into the program and out of the program all the time.  That has always been the case, competitive bidding aside. 

I think the thing that I say about looking at the numbers you cited, and looking at this industry, there are a lot of supplier numbers, a lot of suppliers providing a small amount of DME.  It is not a big part of their business and so the numbers you cited don’t really go to full‑service DME suppliers that are providing a lot of items, and I will give you an example.  I will use Pittsburgh, a place that I am familiar with.  In Pittsburgh, there were about, in 2010, about 815 DME supplier numbers.  Only 169 were providing more than $10,000 in DME billing, so very small part of their business; maybe a cane, maybe a walker; maybe, you know, a few boxes of test strips, but not a big part of their business.  I think seniors will not be impacted because we always award enough contracts to guarantee access. 

So when we looked, when we looked back at the 2008 round, what we saw was, we set a demand target that was generous in order to guarantee that beneficiaries would have access and choice, and the actual number of supplies and items delivered, fell far short of that.  That way we were absolutely sure that we could guarantee access.  We never want to worry about that. 

Mr. Nunes.  But are you concerned with the three examples that I gave, like 85, to 95 percent reductions in suppliers.  That seems like a just a huge change, or are you disagreeing with those numbers, or you agree that has happened? 

Mr. Wilson.  I can’t ‑‑ I can’t tell you if I agree that is happening.  I would really have to look at the data.  I think what I am saying is that when I looked at the data, I am seeing a much different picture about the composition of the industry, and who is providing a level of service that is important in the marketplace for ensuring access for our beneficiaries.  And what I understand is that the great majority ‑‑

Mr. Nunes.  I will tell you what I will do.  I will get you the data that I have, and the examples that I have, and I will get those to you in writing and where I got the data from, and we will see if that matches up with your data, and see if, in fact, the suppliers are reducing dramatically in the marketplace.  And so at least then we can clarify here whether there has been an 85, 95 percent reduction in some areas of suppliers.  Will that be okay? 

Mr. Wilson.  I would be very pleased to look at it, sir. 

Mr. Nunes.  Okay, thank you, Mr. Wilson.  Thank you, Mr. Chairman. 

Chairman Herger.  Mr. Kind is recognized. 

Mr. Kind.  Thank you, Mr. Chairman.  I want to thank the witnesses for your testimony here today, and Mr. Wilson, start with you.  It sounds, based on your testimony, that so far so good.  We are seeing some promising significant cost savings without jeopardizing access of care, quality of care, utilization or choices of patients, and you also cited ‑‑ I wasn’t clear what this was referencing ‑‑ $272 of savings per beneficiary.  Is that an estimate of what the beneficiaries were receiving in the last year based on the savings? 

Mr. Wilson.  That was an example that I used to show what a beneficiary would save in Orlando on a standard power wheelchair. 

Mr. Kind.  Oh. 

Mr. Wilson.  Based on coinsurance. 

Mr. Kind.  Just on a standard power wheelchair in the Orlando market.

Mr. Wilson.  Yes.

Mr. Kind.  Okay.  And the $202 million in savings was a 42 percent reduction from 2010 from the previous year? 

Mr. Wilson.  That is correct, a straight‑line comparison. 

Mr. Kind.  All right.  Well, let me ask you and Ms. King, in regards to, and I think Mr. Nunes was kind of alluding to this in his questioning, is there concerns as we move forward and clearly, we are going to have to be attentive and continue to monitor this program and see how it plays out, but through the competitive bidding process, it is going to lead to greater consolidation and more suppliers dropping out, and getting back to Mr. Johnson’s line of inquiry, and the impact on small businesses, is that something we are going to have to keep an eye on; greater consolidation and ultimately losing the power of competitive bidding in certain areas?  Why don’t you go first, Mr. Wilson. 

Mr. Wilson.  Thank you.  You know, I think we always have to monitor what is going on in the marketplace to ensure that there are no threats or concerns, particularly with respect to beneficiary access.  I think we want a viable market.  I think what we have tried to do is ensure participation of suppliers even beyond winning a contract, so there is a process for allowing subcontractors.  There is a process where grandfathered suppliers, essentially, you can maintain the beneficiaries that you had prior to competitive bidding, and keep those and bill Medicare.  There are opportunities to bill other payers.  There are opportunities to bill Medicare for things and items that aren’t included under the competitive bidding program. 

Mr. Kind.  A 30 percent figure for small businesses, is that a goal or is that a requirement? 

Mr. Wilson.  That is a target for us, and the reason why we call it a target, sir, is that it may be that in certain competitions, although this was fairly rare, that there may not be enough small suppliers that won a contract, or bid. 

Mr. Kind.  Let me ask you something more specific to my area.  I represent Western Wisconsin, and Round 2 of the Minneapolis/St. Paul will be part of the competitive bidding MSA area.  That leaks into some rural western counties in my congressional district.  My concern is, my guess is, that most of the businesses winning the competitive bids are going to come from the Twin Cities area.  And my guess again, I could be completely wrong, and getting back to Mr. Johnson, this is going to put the squeeze on a lot of my small suppliers in Western Wisconsin where they won’t be awarded the contracts, and might go out of business. 

We know that those that win the competitive bids have to service the Medicare beneficiaries, but there is no requirement that they have to service private insurance beneficiaries, including in the surrounding areas of the MSA area.  Is that a concern, something that we should keep an eye on as we move forward in Round 2? 

Mr. Wilson.  Well, on the first part, sir, I think the ‑‑ we are hopeful that a lot of small suppliers will participate.  Based on our experience, we think they will.  But we are going to look at that pretty closely.  In terms of participating, participation with private insurance, I mean, we are seeing that with a lot of the suppliers currently in the Round 2 ‑‑ in the Round 1 areas.  I think if that is a concern, that is something that we can look into and investigate for you. 

Mr. Kind.  Yeah, because the counties that I describe in my district are heavily Medicare beneficiaries and so there is a smaller private presence in that.  But even in the surrounding MSA area, and not within the MSA itself, the surrounding area, I am going to be, you know, concerned about the impact it is going to have on supplying private insurance beneficiaries through this next round.  So that is something that you are sensitive to, or not aware of any potential problems? 

Mr. Wilson.  Well, we are not aware of any potential problems; did not see any in the Round 1 areas.  I think it is a very good point, and something that we can look into, because we do understand it is a broader marketplace and we don’t want to have a deleterious effect on those beneficiaries. 

Mr. Kind.  Right, right.  Thank you. 

Mr. Wilson.  Thank you. 

Chairman Herger.  Dr. Price is recognized for 5 minutes. 

Mr. Price.  Thank you, Mr. Chairman.  I want to thank the witnesses on a very important topic.  Competitive bidding is extremely vital for ‑‑ the supply of these things for our communities is extremely important.  Many of us are concerned about the competitive bidding process.  Many of us don’t believe that it is actually competitive, and when we talk about canes and wheelchairs, as an orthopedic surgeon, that is one thing, but when you talk about oxygen supply, and CPAP machines, these are life‑saving and life‑threatening devices if they are not available.  So I think it is absolutely vital that we remember the importance of what this means to patients, to patients in the community. 

Mr. Wilson, I have got a number of questions and I will follow‑up with written questions afterward.  But are you aware of how many Round 1 contract winners have gone out of business? 

Mr. Wilson.  They won a contract and then subsequently went out of business? 

Mr. Price.  Yes. 

Mr. Wilson.  My understanding, I don’t have an exact number for you.  We would be happy to provide that, but I understand it is only a handful. 

Mr. Price.  But you have that information? 

Mr. Wilson.  We do. 

Mr. Price.  Okay, if you could get that to us, that would be great.  Does CMS screen the providers to determine whether or not they actually have the capacity to serve the Medicare population in an area? 

Mr. Wilson.  We do very carefully. 

Mr. Price.  How do you do that? 

Mr. Wilson.  Well, there are a number of different tools that Medicare uses to screen a provider, both within the competitive bidding program and outside of the competitive bidding program.  But we absolutely want to assure the qualifications of a provider.  So there are many Medicare requirements, supplier standards that have to be met.  We also look at the state licensing, the accreditation program, which relies on quality standards.  There is a specific set of qualities. 

Mr. Price.  Many States don’t have licensing requirements, mine being one of them.  Ms. King, you mentioned, I believe, I didn’t see it in your written testimony, but in your oral testimony, you said 44 percent of the contracts were awarded to companies that had previously not served that geographic area.  Is that accurate? 

Ms. King.  Not quite; 44 suppliers, not 44 percent. 

Mr. Price.  So Mr. Wilson, how, with those 44 suppliers, how do you determine their capacity to serve a population if they are never served before? 

Mr. Wilson.  Well, they all need to be accredited and meet a set of quality standards.  The quality standards include product‑specific standards for oxygen, and all other requirements under the Medicare program. 

Mr. Price.  But they have never served that area before. 

Mr. Wilson.  Well, I don’t think that we see a lot of oxygen suppliers that have never provided oxygen before.  I think what I would tell you is that 76 percent of all suppliers awarded a contract were experienced in an area providing the ‑‑ providing the services for which they were awarded a contract. 

Mr. Price.  Are you aware of the number that Mr. Nunes referred to in the nine CBAs, 1,409 suppliers of CPAP and respiratory devices before Round 1.  Now there are 105, a 93 percent reduction.  This isn’t a cane or a hospital bed.  These are CPAP machines, respiratory devices, respiratory‑assist devices, life and death issues.  Are you aware of that number? 

Mr. Wilson.  I am not aware of that specific number.  I can tell you that there were over 950 oxygen suppliers in Miami prior to the competitive bidding program going into effect.  We don’t think that all of those providers and provider numbers were appropriate. 

Mr. Price.  What if the patients think that one of those that is actually the most responsive in their experience ought to be the one providing their care?  Does that come into play? 

Mr. Wilson.  Well, we want to have patient choice under the program, and so we award more than enough contracts. 

Mr. Price.  Tell me how patient choice is arrived at when you have 1,409 suppliers before CMS intervenes, and 105 afterward.  Tell me how that satisfies patient choice. 

Mr. Wilson.  Well, for the items you mentioned, I would say that those are grandfathered items.  They can elect to stay with their current supplier. 

Mr. Price.  And as you know, the problem with that, is that as your program continues, the grandfathering ability to participate and the number of patients that they have dwindles; and therefore, they have much greater difficulty being able to continue their provision to the community. 

Mr. Wilson.  That is true, but the individual patient can still elect to maintain their relationship with that supplier. 

Mr. Price.  Are you aware of the number that was also quoted by Mr. Nunes, 1,433 suppliers of life‑support oxygen; now there are 211, an 85 percent decrease? 

Mr. Wilson.  I am not aware of that.  I am aware of some of the very, very high number of suppliers in certain areas of the ‑‑

Mr. Price.  Understanding that it is patients who are affected by this most directly, not CMS? 

Mr. Wilson.  We hope ‑‑ we hope to provide choice for patients, and we hope to judge the qualifications of suppliers so that they meet the standards that allow them to provide.

Mr. Price.  I would encourage you to reread Ms. King’s testimony which says that there is not the information available yet that allows us to draw that conclusion.  Thank you, Mr. Chairman. 

Chairman Herger.  Thank you, Mr. Buchanan is recognized. 

Mr. Buchanan.  Yeah, thank you, Mr. Chairman.  And I want to also thank our witnesses for being here today.  Mr. Wilson, back to your term, integrity of bidding.  Is it true, that CMS has no mechanism to ensure that suppliers actually have the capacity to meet their claims in terms of their bid?  For example, suppliers are not required to provide a letter of credit with a deposit or a surety bond. 

I guess I am talking about how do you determine whether a supplier is credible, or viable? 

Mr. Wilson.  Well, we do have a process put in place by the Congress to ensure that they are viable providers that can meet the terms of their contract. 

Mr. Buchanan.  What is that process?  Do you have a letter of credit, or is there a surety bond?  Some of the larger suppliers, what, you know, what how do you look at that, just so I know. 

Mr. Wilson.  There are financial standards required under law, so we do look at a number of different data points, the same types of data elements, financial ratios that banks use to judge viability of either a borrower, or a business.  And so we collect tax documents, balance sheets, cash flow.  We get credit reports, credit scores, and other information that we can then use to evaluate whether or not the business, that the supplier is viable and able to meet the terms of their contract over a 3‑year period.

Mr. Buchanan.  Also, Mr. Wilson, if a contractor doesn’t meet his commitments as a supplier, are there any penalties? 

Mr. Wilson.  We do have an oversight process that we have used.  We want to make sure that suppliers are following the terms of their contract and the regulations, and where they do not, we have intervened with the supplier, we have called in accreditation organizations to do surveys, and we have actually pulled contracts. 

Mr. Buchanan.  Also, just at a conference last year, Mr. Blum stated he was concerned with overutilization.  If overutilization is a problem, wouldn’t it be more effective to redefine eligibility criteria?  In terms of overutilization, that is what we are talking about here.  That was his quote. 

Mr. Wilson.  I think that the accreditation program is a way that Congress put in place as a way of redefining the eligibility criteria for suppliers.  I think also the competitive bidding program is another way where we only offer contracts to those that meet financial standards accreditation and offer the best value for Medicare and its beneficiaries. 

So I think that has had an effect on overutilization.  And in reading the GAO report and looking at our own extensive monitoring, we have seen overutilization come down in the competitive bidding areas; but also, for those requirements that apply more broadly, we have seen utilization come down in other areas of the country as well. 

Mr. Buchanan.  Mr. Wilson, one other question here.  It is my understanding that the CMS has added electrical stimulation devices, TENS, to a list of products included in the recompete.  TENS is a noninvasive therapy used by physicians for treating chronic lower back pain.  However, effective last month, CMS plans to roll back coverage for TENS devices while they study TENS, which has been approved by the FDA.  In fact, it has been approved over the last 30 years.  Why not continue coverage of TENS until you guys finalize your studies? 

Mr. Wilson.  Well, I know that that is a proposed decision upon which we are accepting comments right now, and so it could be that that is given consideration by the folks in our Office of Clinical Standards and Quality.  I am not personally working on that issue. 

What I would say about adding those devices to competitive bidding is that we are required by law to essentially phase in all items of DME over time, the particular order of which is that those at the highest cost, highest volume.  So we are trying to meet the terms of the statute in that regard.  However, I would say that we have been talking with our stakeholders about some of the items that we have brought in, received some feedback from some, and I expect to receive more ‑‑ 

Mr. Buchanan.  Let me just say that there are people that have hundreds of employees, a lot of different firms, that are in the same situation.  You create a lot of uncertainty when it has been approved by the FDA for 30 years, and then all of a sudden you cut it back without even completing the study.  So I would just suggest that, you know, these are a lot of companies that create jobs, have been in business for some time, and just to create this uncertainty for them, they don’t know what exactly to do going forward, because these studies in terms of government could run on for years.  So they are very concerned, a lot of them, about this.  So I hope that you will take some of their thoughts and ideas into consideration. 

Mr. Wilson.  I will carry that message back to the folks working on those coverage issues. 

Mr. Buchanan.  Thank you, Mr. Chairman.  I yield back. 

Chairman Herger.  Mr. Roskam is recognized. 

Mr. Roskam.  Thank you, Mr. Chairman.  Mr. Wilson and Ms. King, thank you for your testimony today. 

Mr. Wilson, I just wanted to focus in on a couple of the themes you have heard from other members and reflect on some of the concerns that I am hearing from providers in suburban Chicago that I represent. 

Could you walk me through the process by which you evaluate a meritorious bid?  So, in other words, what happens if you miss it?  What happens if you get it wrong?  What happens if a bid gets through the process and basically poisons the well and creates something that in fact isn’t sustainable?  What is the remedy? 

Mr. Wilson.  Well, let me walk you through the process initially, and I can tell you how we address some of the concerns that have been raised, for example low‑ball bids and maybe other issues. 

Mr. Roskam.  Go to low‑ball bids, because that is really what I am hearing about. 

Mr. Wilson.  The first thing we want to do is we want to qualify the supplier.  We want to make sure they meet all of Medicare’s requirements, State requirements, everything else.  We have an extensive process for doing that.  So we evaluate the provider and then we scrutinize the bid, and the bid scrutiny starts with our low‑ball bid process, something that we worked on with our advisory committee, industry and stakeholder advisory committee going back to the inception of the program. 

Essentially we screen out the lowest bids in a product category.  We use a statistical measure to screen out the bottom ones.  And then we ask the supplier to support that bid by providing information that shows us that they can obtain the product for less than what they bid and allow for the cost of the services to deliver to a beneficiary. 

Mr. Roskam.  Let me just jump in.  Have you had any experience where bidders have not been able to fulfill the commitment of their bid? 

Mr. Wilson.  Well, within the bona fide bid process, we have thrown out bids where they could not document a price. 

Mr. Roskam.  After you have approved it. 

Mr. Wilson.  Yes. 

Mr. Roskam.  So take the screened ones.  I accept at face value that you have that original screening done.  Somebody comes in, they meet that screen, and then they come through and as it turns out, they can’t do it.  Have you had that experience? 

Mr. Wilson.  We have had that experience where a supplier maybe did not meet the terms of their contract, where they were maybe unwilling to go deliver an item to a beneficiary that was a little bit far from their location or maybe not offering certain services that they should be offering, and we have put them on corrective action plans.  This is a handful of cases.  If they have not met the terms of that corrective action plan, we have sent in accreditation organizations to resurvey them, and if they have not come back into compliance, then we have pulled their contracts in a handful of cases. 

Mr. Roskam.  Ms. King, you have done the evaluation.  My memory is you have done the evaluation of those nine areas, is that correct? 

Ms. King.  We have. 

Mr. Roskam.  Did GAO come across any examples of folks that had made a bid and not been able to follow through on the bid based on pricing, in other words, the so‑called suicide bids where they come in too low? 

Ms. King.  That was not part of our analysis. 

Mr. Roskam.  So you did not even look at that? 

Ms. King.  We did not. 

Mr. Roskam.  Okay.  Mr. Wilson, going back to you for just a minute, could you speak about ‑‑ there is some controversy around this bidding process, obviously, and there is a public group of economists and others with some renown that have criticized the bidding process itself. 

What is it that animates the hope in you that they are wrong, that all these people that have criticized, it is just like they don’t get it?  Because it seems to me like there may be something “there” there, and you seem to have an extraordinary amount of confidence.  From what does your confidence come? 

Mr. Wilson.  I think there are two important goals for this program, and a bunch of others, but two important ones.  One is to provide a savings for the taxpayers and beneficiaries of Medicare.  The other is to ensure that our beneficiaries don’t have any negative effects on their health. 

Mr. Roskam.  Agreed completely. 

Mr. Wilson.  And we have seen ‑‑ and that access is maintained.  We have monitored that very, very closely and have seen that those goals are met.  So that makes us pleased with the result that we have. 

Beyond that, I think that when a group of economists of the type that we saw writes us a letter, we take it very, very seriously.  And we looked at the particular issues that we raised, we talked about them internally with our lawyers and on the policy staff with our leadership to see if those are things that we could do. 

I think at the end of the day, at least where we are in the program now, we had some concerns about moving forward with those.  One was this lock‑in issue, about being able to, if you bid, and you are locked into your contract, you can’t turn it down.  I think from a practical matter, we don’t feel we have the authority to do that, but, more importantly, do we want to lock in a supplier that doesn’t want to participate and make them go into a beneficiary’s home and give them critical health care services. 

Mr. Roskam.  My time has expired.  Thank you. 

Chairman Herger.  Mr. Pascrell is recognized. 

Mr. Pascrell.  Thank you, Mr. Chairman. 

Mr. Chairman, I think that our committee’s hearing back in 2008 showed that competitive bidding for durable medical equipment is a place where we can find some agreement, believe it or not.  In 2008, when we saw the real problems with the initial incarnation of DME bidding, both sides came together to bring the program back to Earth. 

As this program is about to expand to 91 additional metropolitan areas, including northern New Jersey, I would say that we must ensure that beneficiaries continue to have access to lifesaving equipment at affordable prices.  But it all comes back to our seniors.  This needs to be about delivering the best care to beneficiaries for a lower price. 

Prior to implementation, Mr. Wilson, did CMS evaluate how the competitive bidding program would specifically impact patients residing in skilled nursing facilities, nursing facilities and intermediate care facilities?  Secondly, what is CMS doing to ensure that these provider settings are not unduly impacted by the competitive bidding program prior to expanding the program to 91 additional MSAs nationwide.  Could you answer those two questions, please? 

Mr. Wilson.  Yes, sir.  I think we did focus on the skilled nursing facility setting to see whether there were particular issues that we would need to address to make the program work.  Really the only item that is a central concern for skilled nursing facilities under the DME competitive bidding program are the enteral nutrition services.  So we did look at that issue.  We did provide for a special category of bidding where a skilled nursing facility could bid to just provide services to their own patients.  They wouldn’t have to meet the other terms of the contract that other suppliers would. 

So we did allow this essentially exceptional process to exist for them, and we have been monitoring that area of the program closely to look and see whether there are concerns with respect to health outcomes for the patients receiving those services in skilled nursing facilities.  We are not seeing any concerns right now and we haven’t heard any either through the complaint or inquiry process.  But if anyone, or you, sir, are hearing those, we would be happy to look into them. 

Mr. Pascrell.  So you don’t see any impacts that we should be concerned about at this point? 

Mr. Wilson.  I don’t at this time.  However, we will continue to monitor that closely as part of the system that we have put in place. 

Mr. Pascrell.  Mr. Chairman, I think that we need to follow up, particularly in terms of the impacts of each of these procedures in different specialties within these nursing homes, nursing facilities, and not just the nutritional area.  But the other areas you said do not have any concerns of yours? 

Mr. Wilson.  DME, durable medical equipment as a benefit category under Medicare is not covered in skilled nursing facilities.  The skilled nursing facilities under Medicare law are expected to provide those items to their in‑patients.  So oxygen, wheelchairs, all of the rest are really outside of the program we are talking about today. 

Mr. Pascrell.  Okay.  Thank you, Mr. Chairman. 

Chairman Herger.  Thank you.  Mr. Tiberi is recognized. 

Mr. Tiberi.  Thank you, Mr. Chairman. 

Mr. Wilson, I realize that based on your testimony, you see few problems with the current competitive bidding process.  In your opinion, why are so many suppliers dissatisfied with this current program? 

Mr. Wilson.  You know, we do understand that this represents a change for suppliers.  We do understand that the program represents reduced prices and less access to the Medicare market.  I think what we have tried to do is to work with our stakeholders, suppliers, beneficiaries to understand how we can provide greater access, are there changes we can make to make the program work better but still achieve our goals.  But we do understand that there are some fundamental goals in the system that don’t always maybe meet their goals. 

Mr. Tiberi.  There are many that believe that the current program will lead to fewer suppliers sooner, maybe for sure later, meaning less competition and ultimately fewer to supply a growing number of beneficiaries which will lead to higher costs because of the less competition.  What do you think about that? 

Mr. Wilson.  You know, I think we have seen some consolidation in Medicare when you look at different benefit categories and different items.  I think there is certainly the potential for some of that here.  I think whether that results in a threat to access, I really don’t see that coming.  I think there is lots of access in the market now.  I expect there will be access to meet the growing beneficiary population. 

Mr. Tiberi.  Are either of you aware of auction expert and economist Dr. Peter Crampton’s recent criticism of the competitive bid process.  Has that caused CMS at all to reevaluate? 

Mr. Wilson.  Yes, and I think I addressed that a little bit earlier.  I think we heard the issues coming from the economists that I think wrote this committee and wrote us.  Dr. Crampton was the principal economist behind that letter and behind the effort to sort of look at these issues. 

We met with him several times to hear his concerns and his ideas.  I think at the end of the day, we were moved away from the two issues that he was really concerned about.  One is this lock‑in issue that I discussed, and the other is median price.  We think the program worked well the way we set it up and that there were problems making the changes that he described. 

I think one of the fundamental differences here is that we very much view the program as a way to ‑‑ as more of a Medicare payment system that employs competition, and I think the perspective of Dr. Crampton and the economists’ letter is more this should be looked at as a commodities type auction.  This is about providing services to patients in the home, and we have held that first. 

Mr. Tiberi.  So have either of you read the industry’s market pricing proposal, and, if so, what do you think? 

Ms. King.  It is not something that we have evaluated. 

Mr. Tiberi.  Okay.  Mr. Wilson? 

Mr. Wilson.  I have been provided a copy of the legislative language and I read that several months ago. 

Mr. Tiberi.  What do you think? 

Mr. Wilson.  We have some fairly fundamental concerns with the program as we read that legislative language.  I think the first thing that I have mentioned is that when you look at some of the mechanics of the system that they have set up, we believe that it will result in almost universal failures of the auctions that they set up. 

Mr. Tiberi.  All right.  The last question is how much has it cost to implement the competitive bidding program, and did CMS have to hire additional staff? 

Mr. Wilson.  Yes, sir, CMS hired a few additional staff.  I can get you a number in terms of what we have spent so far.  I am sorry I don’t have that today.  When I did an analysis about a year ago, I can tell you that the administrative cost was about .04 percent of the savings that resulted from the program. 

Mr. Tiberi.  Ms. King? 

Ms. King.  That is something that we were asked to look at as part of our work, and we collected some of the operational costs for operating the program and it was partly implemented through contractors, and costs that we were able to identify were about $19.6 million. 

Mr. Tiberi.  To implement? 

Ms. King.  Yes. 

Mr. Tiberi.  $19.6 million? 

Ms. King.  Yes. 

Mr. Tiberi.  That is a number that will continue to grow, right, as it continues to be implemented, thus far? 

Mr. Wilson.  It will grow as we expand the program to additional areas, yes, sir. 

Mr. Tiberi.  And you will get back to me on the number of employees? 

Mr. Wilson.  I can get you that. 

Mr. Tiberi.  Thank you. 

Chairman Herger.  Ms. Black is recognized. 

Mrs. Black.  Thank you, Mr. Chairman.  Let me begin by thanking the chairman for allowing me to sit on the committee and hear the testimony and ask questions.  I appreciate that. 

I want to just go down the future and look at what is going to happen in the future.  So I wasn’t able to find in the documentation, I wasn’t here earlier for your oral testimony, you may have said this, but how long are these contracts for? 

Mr. Wilson.  By law, the term is 3 years or fewer.  So generally we have used a 3‑year term. 

Mrs. Black.  Okay.  So we have 3 years worth of contracts.  And then after that, we are going to put out bids again and we have already narrowed the pool of bidders.  So how do we, going forward, I think you can show up to this point in time, by at least what I see here in this documentation, that there has been some savings.  But when you narrow the pool of competitive bidders for the next round, how does that make sense?  Now you have less people bidding. 

Mr. Wilson.  Well, you may have less people bidding.  You may have more.  I don’t any think we know that.  I think we still see many, many suppliers in the marketplace continuing to provide services.  So I think we are already recompeting Round 1 of the program.  We just began that process. 

Mrs. Black.  How do you have more suppliers coming into a program where they can’t be reimbursed?  Are you talking about subcontractors?  Are they then going to be able to bid? 

Mr. Wilson.  Sure.  Subcontractors can bid, suppliers that are providing services maybe through Medicaid programs, those patients, private patients, those providing services that are not yet included in the Medicare program for competitive bidding. 

Mrs. Black.  Ms. King, do you have any feeling on how this will affect future bidding when you narrow the pool? 

Ms. King.  I think that it is not something that we have examined, but we think that the program bears watching in the future to see what happens to the number of contract suppliers.  But I think also, as Mr. Wilson said, it is not only the people who won in the first round who can bid in the second round.  Other suppliers and subcontracting suppliers, new entrants into the market, people serving private beneficiaries will be able to bid in the second round. 

Mrs. Black.  Well, I am concerned about access, and I have heard that.  About 50 percent of my district is rural, so there are many of those suppliers that have gone out of business because they said they just, you know, are not able to compete, and I have heard from some of my constituents that they are not getting access the way they were previously.  So I do have a concern about that. 

But, Ms. King, let me go to you because your report looks at utilization for product categories by comparing the first 6 months of 2010 with the first 6 months of 2011.  Does GAO believe that reduced utilization in these MSAs is a sign of access of care being restricted?

Ms. King.  No, we don’t necessarily draw that conclusion, because we don’t start with the premise that the level of utilization in 2010 was the appropriate level of utilization.  And given the fact that there aren’t any demonstrated access problems in the first year, you know, we don’t think that it necessarily means that beneficiaries did not have access to needed equipment. 

Mrs. Black.  Also then back to you again, Ms. King, the GAO documents the numbers of contract suppliers that have not had previous experience with a product category or geographic area.  Are there contract suppliers more likely to subcontract? 

Ms. King.  I don’t actually know the answer about whether they are more likely to subcontract or not, but 31 percent of contracting suppliers had subcontracts as of the middle of the year last year, so it is a pretty common experience for contractors to have subs. 

Mrs. Black.  I am sorry, what was the percentage? 

Ms. King.  Thirty‑one percent. 

Mrs. Black.  Okay, 31 percent.  So there is no evidence right now that these suppliers are unable to fulfill their contractual agreements from what you have seen? 

Ms. King.  No. 

Mrs. Black.  Thank you, Mr. Chairman.  I yield back my time. 

Chairman Herger.  Thank you.  Mr. Gerlach is recognized. 

Mr. Gerlach.  Thank you, Mr. Chairman.  I am sorry, I was out for a constituent meeting there.  I am sorry if I ask a question that might have already been posed. 

But I was curious about, Mr. Wilson, the mail order diabetic supplies issue.  Is that category of product, is that just as it says, mail order diabetic supplies versus a local pharmacist that might have a practice of doing home delivery of diabetic supplies, either to an individual senior’s home or to a long‑term care facility?  Is the mail order diabetic supply that you are part of Round 1 that you were bidding and then providing reimbursement for just mail order? 

Mr. Wilson.  In the Round 1 program, that is correct, sir.  It was just mail order basically through a commercial or government mail carrier, and home delivery and walk‑in retail could be treated separately.  For the national mail order program that we are rolling out now, our definition of what constitutes mail order will change and essentially we will have deliveries to home through the mail or home delivery through a van, all of that will be subsumed in the national mail order program, although walk‑in retail, if someone wants to go in, talk to their pharmacist, get their drugs from the same place they get their diabetic test strips, they will still be able to do that. 

Mr. Gerlach.  But how will the independent community pharmacist be able to continue to provide that home delivery to a senior that has a very great difficulty getting out of her home to get to the local pharmacy, how will you properly reimburse the local pharmacist for that delivery to make sure that kind of patient access and patient care is maintained? 

Mr. Wilson.  Well, I think we will be able ‑‑ 

Mr. Gerlach.  Will you provide a separate home delivery reimbursement to the pharmacist for doing the home delivery? 

Mr. Wilson.  Essentially if it is a home delivery, it would have to be accomplished through the national mail order program. 

Mr. Gerlach.  Okay.  But that is not answering my question.  My question is, how will you reimburse the pharmacist so the pharmacist can still get out into the home of that patient, see that patient, talk to that patient, answer questions for that patient, without making that patient, who has a very difficult time physically from leaving his or her home and driving X number of miles to the pharmacist, who is not necessarily going to get reimbursed anymore for that home delivery under this new model? 

Mr. Wilson.  I don’t know that our model accommodates that particular situation. 

Mr. Gerlach.  So is that not then the patient access issue that might have been raised in Ms. King’s statement saying that the accessibility issue is not fully vetted here in your review of this situation, and you are not sure of what the impacts might be on patient accessibility and patient care? 

Mr. Wilson.  What we are talking about in the national mail order is just replacement test strips.  So they have their monitor.  They can ‑‑ if they need replacement test strips, that is something that can be sent through the mail.  It is a very commodity type of product.  That supplier, mail order, that provides it, is required to still be able to educate the patient, answer their questions and provide the services that they would normally get. 

Mr. Gerlach.  It is my understanding, I have a local pharmacist who supplies supplies to a local long‑term care facility, and he delivers a certain kind of supply product that they have requested, a certain kind of testing equipment, testing product.  Under this new mail order diabetic supply program that you are going to have, and if it goes to a lower bidder that may use a different kind of testing product than the one that the people at this particular facility want to use, how is that going to be accommodated under that new program?  Will they have to accept a testing product that they think is inferior compared to the one that this pharmacist now delivers to that long‑term care facility?  Will they have to just basically bite the bullet, I guess, and take the more inferior product, because that is the one that was awarded through this program? 

Mr. Wilson.  I would have to look into exactly how that model would work at a nursing home, but I believe a caregiver at the nursing home could pick up the test strips and bring them back.  I will look into that question. 

Mr. Gerlach.  Can I write to you maybe and give a little more facts and circumstances around that question so you have an opportunity to look at it a little more fully and then can get back to me on that? 

Mr. Wilson.  I would absolutely appreciate it because I want to make sure there are no concerns here, and if there are some, then I would like an opportunity to address them. 

Mr. Gerlach.  Thank you.  I appreciate it very much.  Thanks. 

Chairman Herger.  Thank you.  I want to thank Mr. Wilson and Ms. King for testifying today.  Your insights and perspectives are extremely helpful. 

I would now like to invite our second panel of witnesses to step forward so we may hear the supplier and beneficiary perspective on this important issue. 

On our second panel of the subcommittee, we will hear from representatives of the stakeholders directly affected by the competitive bidding program.  Two of the witnesses are here on behalf of supplier organizations. 

Joel Marx is the chair of the Board of the American Association of Homecare, an organization that represents a large number of DME suppliers from around the country. 

Wayne Sale is the chair of the Board of the National Association of Independent Medical Equipment Suppliers, which is a national organization that focuses on small mom‑and‑pop suppliers.  We look forward to hearing not only the concerns that these organizations have with the current program, but also what they see as an alternative. 

We will also hear from a small business owner, Dino Martis, who is President of Ablecare Medical, Incorporated.  Mr. Martis is a Round 1 participant who believes that the current competitive bidding program functions relatively well. 

Our final witness is Alfred Chiplin, who is the senior policy attorney at the Center for Medicare Advocacy.  We look forward to hearing Mr. Chiplin share the beneficiary perspective.  Mr. Marx, you are now recognized for 5 minutes. 


Mr. Marx.  Good morning, Chairman Herger and members of the subcommittee.  My name is Joel Marx.  I have submitted written testimony which I hope will be accepted. 

I operate a medical service company which is based in Cleveland, Ohio.  We provide virtually all types of home medical equipment and services, including oxygen therapy, wheelchairs and hospital beds.  My company was founded by my parents in 1950, and we have grown over the years and are now somewhat larger than the typical provider in our sector.  We serve more than 25,000 patients annually through 14 locations in Ohio, Pennsylvania, upstate New York and West Virginia.  My company was awarded several contracts under the bidding program. 

I am also testifying today as the proud chairman of the board of the American Association for Homecare, which is the primary trade association for providers of home medical equipment.  The vast majority of the Association’s members are small family operations that, like my company, have served seniors and people with disabilities in their communities for many years. 

Let me cut straight to the heart of the issue.  We do not oppose a properly designed competitive bidding program for home medical equipment in Medicare.  Let me repeat that.  We do not oppose a properly designed competitive bid program for home medical equipment.  In fact, we favor and strongly endorse a state‑of‑the‑art auction system that would provide true market‑based pricing, save exactly the same amount of Medicare and beneficiary dollars that the current bidding system is projected to save, and corrects the fundamental flaws in the current system. 

The current system limits Medicare beneficiaries’ access to care, it limits choices for consumers, and it will eliminate the Nation’s existing network of home care providers, which will ultimately result in hardship and added costs for patients.  That would be extremely shortsighted since home care is cost‑effective and preferred by patients. 

The existing Medicare bidding program designed by CMS distorts the marketplace and the intent of Congress.  It radically reduces the number of providers, that is, competitors, allowed to serve Medicare patients, thereby creating oligopolies in the marketplace.  It is forcing home care providers to reduce supporting services in order to accept manipulated reimbursement rates obtained through a flawed process.  These sufficiencies have been highlighted numerous times before Congress. 

More than 240 economists and auction experts, including several Nobel Laureates, have told CMS that significant modifications are needed to fix the current bidding program.  More than 30 patient advocacy groups believe that the bidding program as structured today is flawed and needs to be changed.  I describe the flaws in the current bidding program in detail in my written testimony, but let me mention a few of them briefly. 

The bids are not binding.  This is unheard of in any auction system.  The pricing calculation uses a median bid rather than a clearing price, and, as CMS has testified, half the bidders bid their best price and ended up with a price lower than that.  And there has been a troubling lack of transparency at CMS. 

To fix the fundamental flaws in the bidding program, an alternative market‑based pricing program for home medical equipment has been proposed by market auction experts and providers.  That proposal, known as the Market Pricing Program, or MPP, would require changes to ensure a sustainable program.  These changes are consistent with the original intent of Congress and save the same dollars originally expected. 

Let me just mention a few key features of the program.  It is designed to be budget neutral, and it is now before CBO for scoring.  The bids are binding.  You stand behind your bid.  There are bid bonds, performance guarantees.  And only serious bidders will participate and no one will game the system. 

The bid price is based on the clearing price, not the median price, which conforms with standard auction design.  Reimbursement rates in areas would be adjusted based on the auctions conducted in comparable geographic areas.  Rural areas that are currently exempted would remain exempt. 

And finally, bid areas would be smaller than metropolitan statistical areas and more homogeneous.  Current bidding areas can encompass up to three States with differing laws, regulations and costs.  This ensures fairness to smaller community providers. 

We strongly urge Congress to pass legislation that would change the current bidding system to a sustainable market pricing program at the earliest legislative opportunity.  This will not result in higher costs to Medicare beneficiaries and will fix a flawed program. 

We hope that Congress will take the advice of auction experts, listen to patient advocacy groups and work with the affected stakeholders to create a sustainable bidding system that will serve as a model for other parts of Medicare and not serve as a cautionary tale. 

I thank you and would be pleased to answer any questions the committee may have. 

Chairman Herger.  Thank you.

[The statement of Mr. Marx follows:]

Chairman Herger.  Mr. Sale, you are recognized for 5 minutes. 


Mr. Sale.  Good morning and members of the committee. 

Chairman Herger.  If you could hit the button for your mic, please. 

Mr. Sale.  I am sorry.  Thank you, sir. 

Good morning Chairman Herger and members of committee.  Thank you for calling this hearing.  I appreciate the invitation and the opportunity. 

My name is Wayne Sale.  I am the chairman of the National Association of Independent Medical Equipment Suppliers, NAIMES.  I have been asked to present my observations of the CMS version of Congress’ 2003 mandated competitive bidding program and forecast its effect when expanded into 91 additional CBAs. 

For many years, I have enjoyed going to auctions and bidding on everything from antiques to cars to artwork.  At every one, I registered and was required to stand behind my bid.  If I bid on it and I was the last guy to raise my hand, I bought it.  If I scratched my head or waved my hand to a friend, I may buy it.  So that is how auctions work.  The high bidder wins when the buyer is bidding and the low bidder wins when the seller is bidding.  Your bid is your word and your word is your bond.  How else can it work? 

Well, CMS has developed a bidding process that is different.  The bid that the sellers of medical equipment submit don’t count.  They go into a pile and are sorted from the lowest to the highest and CMS picks the one in the middle and assigns it to the product that they are bidding on.  If you bid low, below the median price, they may ask you if you want to sell to Medicare, and if you decline, then they go to the next bidder and they ask them.  Does that sound like an auction you have ever heard of? 

Well, that is the competitive bidding process that CMS has created in response to your 2003 directive.  And a taxpayer may ask, did you get what you asked for?  I am not an auction expert, but this is not an auction at all.  There are no market forces at play here.  There is no competition in the pricing mechanism when prices are chosen behind closed doors and then released in a memo that says these are the prices, take them or leave them.  CMS has taken years of time and $20 million to develop a competitive bidding system that contains everything but competition. 

Oh, those auctions I enjoy going to?  I can see who I am bidding against and I know what the bid is and I know what I must do to win.  In the CMS bidding process, I have no idea who is bidding or what they are bidding or how to win a product category.  All of the bids are submitted through a closed‑door process.  It takes months and months to hear from them, and, if you win, you don’t know how, and if you lose, you don’t know why.  And it is legal.  This federally‑funded and congressionally‑mandated bidding process is contrived entirely in secrecy and then announced and implemented as if it were the result of a fair competitive price process. 

That is the truth, and that is the problem.  You are one year into a competitive bidding process that has resulted in administratively assigned prices with zero transparency.  There is more to their design that is built to fail, but I only have a minute and a half left, so let me get to the remedy that we believe will satisfy Congress’ mandate. 

Today my colleagues and I bring a fix for your consideration.  It is called real competition.  A real competitive bidding program will work better than an old administrative pricing program.  The process we are suggesting is that you replace CMS’s bidding scheme with one we call a market pricing plan.  It is more like a real auction, where bidders are committed to their bids and the veil of secrecy is eliminated and transparency enters the process to keep it honest.  The result will be good prices that will bring more beneficiary access, better beneficiary service, and progressive products and ideas.  And a good healthy competition will bring Medicare good prices. 

An added benefit to the MPP is its sustainability.  It is a program that will last through the challenging times that we have ahead as 78 million baby‑boomers march into the Medicare system over the next 30 years.  The effects of the implementation of Round 1 competitive bid have not been pretty, nor have they been fully recognized at this point.  The reduction of the number of suppliers in each CBA has made equipment and supplies difficult for Medicare beneficiaries to acquire. 

My written testimony will tell in greater detail the specifics, but for now, I ask the chairman that I be allowed to submit a CD for the record that contains the testimony of patients who have summoned the will to speak to you whenever you have a chance to listen.  Their experiences with this pseudo‑competitive bidding will say more than I ever could, and the complaints will grow if this version of competitive bidding is expanded into 91 additional CBAs. 

Chairman Herger.  Without objection. 

Mr. Sale.  Thank you very much, sir.  This small industry is only 1.4 percent of the Medicare spending, and it has a lot of potential as a community‑based supplier to meet patients’ needs.  Avoiding expensive hospitalizations is our specialty.  Keeping people at home keeps costs low.  Don’t overlook our value by focusing just on our cost.  We can help bring savings to this table and this country.  I guarantee it. 

Thank you. 

Chairman Herger.  Thank you.

[The statement of Mr. Sale follows:]

Chairman Herger.  Mr. Martis is recognized for 5 minutes. 


Mr. Martis.  Thank you.  Chairman Herger and Congressmen, thank you for inviting me to testify today on the Medicare Durable Medical Equipment Competitive Bidding Program. 

I am president of Ablecare Medical.  We are a small business based in Cincinnati, Ohio, and we began operations in 1991.  We are a full service respiratory and DME company.  Currently we take care of about 3,000 Medicare patients who depend on us to provide their care. 

Numerous studies have documented the problems in Medicare’s DME benefit; inappropriate reimbursement, fraud, lack of clearly defined services and outcomes.  Competitive bidding has brought some pressure to bear on those problems, but concern remains.  Fortunately, the debate is no longer centered on whether reimbursement should be reformed, but whether competitive bidding is the right approach. 

Based on my experience in Round 1, competitive bidding is working and we are excited about our involvement in this program.  In the past, taxpayers and beneficiaries have paid for product that in some instances are tens of times greater than market rates.  GAO and the Health and Human Services Inspector General found problems in documenting actual services provided to beneficiaries and the quality of those services.  Our industry as a whole was unable to show a positive correlation between prices and clinical outcomes.  There are many reasons for this and they have been outlined in my written statement. 

It is important to note that reimbursement prior to competitive bidding was not sustainable given continually rising overall health care costs and expected growth in the Medicare and Medicaid population over the next decade.  This committee has heard testimony about beneficiaries paying more in cost sharing for certain DME than the typical cost of purchasing that equipment outright. 

We have seen that economic hardship has depressed patient utilization of health care services.  It has been our experience over the last few years that consumers are reducing demand due to a combination of falling incomes and rising cost sharing requirements.  With the introduction of competitive bidding, CMS has reduced the out‑of‑pocket burden for beneficiaries, many of whom, if not all, are on fixed incomes by lowering the cost of DME and by extension the required beneficiary cost sharing. 

From my perspective, the benefit to DME companies is that a greater probability exists that with lower out‑of‑pocket costs there will be more beneficiaries who are better engaged in their care over the long term as recommended by their physician.  This will also increase patient volume, which will, in turn, compensate for loss reimbursement. 

In Round 1, we bid on oxygen, hospital beds, PAP, enteral and diabetic supplies.  We did not win diabetic supplies.  When we bid, our oxygen bid was exactly, in fact to the penny, the same as the current allowable by Medicare.  For the other bids, we were 0.05 percent from the current allowables.  Competitive bid has forced changes in our business, but it has not reduced patient access or the quality of care. 

DME providers take pride in providing quality service services and access and the quality of service provided is market‑based.  We cannot afford to provide a lesser quality product if we intend to continue in business.  We do have to become more efficient.  We have recognized that, and we have to use technology.  We have recognized that as well. 

We commend CMS for the way they have structured the competitive bid process.  The agency appropriately provided an opportunity to small‑ and medium‑size businesses to be a part of this program, and they provided these same businesses the flexibility and opportunity to engage with the program as they saw fit. 

Our experience suggests that while no single solution will address all the issues generated by the transitioning to competitive bidding or delivery model, I think it would be a mistake to abandon competitive bidding.  The alternative system proposed would encourage higher bids and it would mean higher cost sharing for patients.  Various studies have shown that as out‑of‑pocket costs increase, beneficiary engagement and adherence to physician prescription decreases.  This is detrimental to the beneficiary, to the DME industry, CMS and the taxpayer. 

In the interest of taxpayers, program beneficiaries and the DME industry, we respectfully urge Congress to let this program continue, making adjustments as needed.  We stand ready and willing to assist in any effort. 

Thank you. 

Chairman Herger.  Thank you. 

[The statement of Mr. Martis follows:]

Chairman Herger.  Mr. Chiplin, you are recognized for 5 minutes. 


Mr. Chiplin.  Thank you, Mr. Chairman and members of the subcommittee.  We have also submitted written testimony for the record. 

The subcommittee’s continued focus on Medicare’s durable medical equipment, prosthetics, orthotics and supplies competitive bidding program is important.  We remain cautious about beneficiary access to the scope and quality of DMEPOS items and services as suppliers continue to jockey to do business in this new environment.  We think, nonetheless, that if properly implemented, including the development and expansion of appropriate beneficiary education and safeguards, the program could be a positive vehicle for ensuring that beneficiaries get the supplies that they need while holding down cost to the taxpayers. 

We are pleased to see that the Medicare agency in its April 2012 assessment of the DMEPOS program is projecting savings to the Medicare Part B trust fund of $25.7 billion between 2013 and 2022 and a reduction in beneficiary and coinsurance amount of $17.1 billion during that same period. 

Out‑of‑pocket savings in the area of the CMS report is the most exciting.  We hope over time that the cost savings will increase and that access is not impacted by decreasing costs.  As has been cited, out‑of‑pocket savings have an important impact on access. 

We remain concerned that providers carry a range of products within product categories and that beneficiaries are not inappropriately required to change brands or types of items and services in order to stay within cost parameters dictated by the competitive bidding process in local markets.  On the whole, we feel that the Medicare agency should be required to step up its efforts to educate beneficiaries about the program, including a special Web site specifically for Medicare beneficiaries. 

As to the standards for DME that have been developed, we are pleased to see that they are extensive and comprehensive.  We do have a few areas that we would like to see looked at.  One is that there continues to be broad monitoring.  We would also like to see that the data that is gathered include information about the level of beneficiary appeals through the appeals process in addition to complaints.  Complaints and appeals are different matters.  So we would like to see that tightened. 

We also would like to see Congress address how it might deal with the suppliers who are not awarded contracts and do continue to provide services in some areas.  This, we think, may well be a problem.  We would like to have some attention devoted to that. 

We also think it is important to give more attention and clarity for beneficiaries on the question of how grandfathering works.  It is a complicated area and beneficiaries are often confused.  In our work, we hear from beneficiaries more about the confusion about things than anything else at this point, just about how the program will work. 

We would also like to see that further analysis from the Medicare agency look at the broader comparison of the number of beneficiary complaints filed.  Simply looking at what has come in on the 800 number is not really enough.  Over the years, our experience has been that even when serious problems occur, few beneficiaries file complaints and even fewer enter Medicare’s administrative process, and we think data analysis should have some mechanism for recognizing this reality. 

In conclusion, we remain cautious about the DMEPOS program.  We think, nonetheless, that if properly implemented, including expanded beneficiary education efforts and safeguards, the program could be a positive force toward reducing cost to beneficiaries and saving costs to the Nation as a whole. 

Thank you very much. 

Chairman Herger.  Thank you.

[The statement of Mr. Chiplin follows:]

Chairman Herger.  Mr. Marx, CMS has stated that the Medicare actuaries’ estimate that the current competitive bidding program will save more than $25 billion over the next 10 years with the Congressional Budget Office offering a figure in the same ballpark over the same period, realizing that it is challenging the past legislation that increases expenditures.  What impact do you expect that the market pricing program that you support as a replacement would have on Medicare expenditures? 

Mr. Marx.  Thank you for that question, Chairman Herger.  The MPP, Market Pricing Program, is designed to be budget neutral.  The Association and the industry supports a program that will keep the same savings for Medicare and beneficiaries through that 10‑year program, and we are prepared once we get the scoring to make sure that it does reach that goal. 

Chairman Herger.  If CBO were to come back with an estimate showing that MPP would increase spending, would the industry be willing to accept additional reductions to ensure that replacing competitive bidding with MPP is budget neutral? 

Mr. Marx.  I would not expect that, but we are certainly open to looking at any alternative to fix a flawed program that is going to harm beneficiaries in the long run. 

Chairman Herger.  Thank you. 

Mr. Sale, your organization has focused on small suppliers and as someone who comes from a small business background myself, I certainly want to make sure that small businesses are able to compete on a level playing field.  Considering that CMS set a target for small supplier participation to equal 30 percent, and both CMS and GAO state that actual participation exceeds 50 percent, do you believe that small suppliers are adequately represented in the competitive bidding program? 

Mr. Sale.  Thank you for that question, sir.  I have heard the numbers 30 and 50, 51 percent thrown around today several times.  In looking at the Round 1 bidders, there are looked to be around 7,000 bidders.  There were 350 or so winners.  My membership is comprised of about ‑‑ well, of those 7,000 bidders, about 96 percent of them are small businesses.  So when you eliminate 90 percent of 7,000, you eliminate 6,300 small businesses.  The 30 percent of the 350 that they were supposed to hit, they hit 50 percent.  So you got 175 of that 350 are small businesses.  The rest of larger.  Just applying the percentages.  It may not be totally accurate. 

So the answer is the competitive bidding process leaves a vast majority of small businesses outside of the Medicare program and subsequently, reduces the competition in the marketplace to frightening levels where service, access and innovation we believe will suffer.  How could it not? 

Chairman Herger.  Thank you, Mr. Martis.  I would expect a supplier to be firmly in the camp that higher Medicare fee schedule payment rates are strongly preferable.  And I understand you have experienced no significant problems with lower reimbursements that resulted from the competitive bidding program.  How was your company able to continue operating while seeing significant reductions in Medicare payments? 

Mr. Martis.  Thank you, Chairman Herger.  There are a number of reasons for that.  One of the reasons is with the method that competitive bidding was structured, the very same issues that have been brought up here have actually benefited us in higher volumes, so higher volumes have, in fact, replaced the per‑service reimbursement reduction. 

The second thing that we had to do at our company is, we had to learn how to use technology, and how to become more efficient in our service provision.  That does not mean that we, in any way, decreased service provision to the beneficiary, or the quality of services.  It just meant using technology for greater efficiencies. 

In fact, in some cases, Chairman Herger, we have increased the provision of equipment to the patient, which has increased the quality of care and has decreased our cost.  For example, Dr. Price was mentioning oxygen and PAP as life‑saving care.  And we have now started to use portable concentrators.  We have started to use APAPs instead of just plain CPAPs, which is increasing the quality to the patient, but decreasing our service costs. 

Chairman Herger.  Thank you, Mr. Thompson is recognized. 

Mr. Thompson.  Thank you, Mr. Chairman, and thank you to the witnesses for being here.  Mr. Chiplin, the savings achieved through competitive bidding, is certainly a preferable proposal than one that would increase cost to beneficiaries, or erode the guaranteed benefits in my view.  And I am pleased that this rebid seems to be running much better than the original program, and I am glad that beneficiaries are saving money. 

My question to you is, if we went back to the ‑‑ if we didn’t do it this way, would we, in fact, raise cost to beneficiaries or erode the Medicare guarantee, such as premiums support, increased cost‑sharing, and income‑related premiums?  And would you agree that that would be the case, and would have a negative impact on the beneficiaries? 

Mr. Chiplin.  Thank you, Mr. Thompson.  In general, yes, I think those are very serious areas of concern. 

Mr. Thompson.  Now, in your testimony before the Energy and Commerce Subcommittee on Health in 2010, you noted that it was difficult to find beneficiary‑specific information on CMS’s Web site.  Is that correct? 

Mr. Chiplin.  Yes, sir. 

Mr. Thompson.  Has CMS addressed these problems? 

Mr. Chiplin.  Well, I did a little homework before coming over, and it is still difficult to find, get to the information.  Once you get to the information, it is actually pretty good.  It is a big scavenger hunt.  That is the term that I use for it.  That is why I propose that we have a special Web site that is dedicated to seniors, to beneficiaries that really starts with their concerns and not just an add‑on to what we are dealing with with the suppliers.  Because their issues and concerns are different, although there are overlaps, but they are basically different. 

Mr. Thompson.  So that would be your recommendation? 

Mr. Chiplin.  Yes, sir. 

Mr. Thompson.  How about, a lot of beneficiaries, Medicare beneficiaries don’t have access to the Internet.  How do you deal with that universe? 

Mr. Chiplin.  Well, actually, the Medicare population is increasing its access to the ‑‑

Mr. Thompson.  It is increasing, but it is not all there yet. 

Mr. Chiplin.  Is the not all there, but it is certainly on the uptick.  I think that you have to educate beneficiaries in a variety of ways.  You have to use all kinds of media, written, word of mouth, television, all kinds of things, and also an intergenerational education approach, because seniors rely on their family members and children for basic information about all kinds of services. 

Mr. Thompson.  Mr. Marx, I would like to look at the estimated costs of the market pricing proposal, and one of the key elements of your proposal would be higher payments using a clearing price as opposed to the median price, and have you had this scored?  Has this been scored?  Push the button. 

Mr. Marx.  The industry has had it scored, but not through CBO yet.  It is at CBO awaiting scoring. 

Mr. Thompson.  How is it that you assert that it would be revenue neutral if you haven’t yet had it scored? 

Mr. Marx.  Well, there is an estimated increase in payments going from the market price to the clearing price, but we are expanding the universe of patients, which in Round 2, is going to affect right now in somewhere in the 50 to 60 percent range, and our program expands it to about 70 percent of the Nation, still maintaining that rural exemption.  So we are picking up a greater population base at a slightly increased cost, which keeps businesses afloat, and that 3, 4, 5 percent difference will make a difference long‑term. 

Mr. Thompson.  But the price would still be higher than under the current program? 

Mr. Marx.  It will be higher for those in that 50 percent range.  It will be substantially lower for the 20 percent of the patients that are added additionally. 

Mr. Thompson.  You had mentioned in your initial remarks that ‑‑ I think you said bids are not binding. 

Mr. Marx.  Currently, yes. 

Mr. Thompson.  Currently.  I find that difficult to deal with, and I, along with Mr. Sale, believe that once the bid is made and it is accepted, the deal is the deal.  And if it is a moving target, it is extremely difficult to do business, and I would think that the beneficiaries are on a little shaky ground as well as far as knowing that they are ‑‑ that their needs are going to be addressed.  Is there anything that you want to add to that nonbinding binding bid? 

Mr. Marx.  Not only are the bids not binding, March 30th, we placed our bids for the Round 2 locations, and that period is from July 1st, 2013, until June 30, 2016.  So not only are the bids not binding, the bids that we are submitting don’t even go into effect for 15 months, and then they are in effect for 36 months after that.  And how do I estimate my costs for gasoline 4‑1/2 years from now?  You can’t make a valid bid when you have that long a period between the time you placed the bid and the response you get back from the seller. 

Mr. Thompson.  Thank you. 

Chairman Herger.  Mr. Nunes is recognized. 

Mr. Nunes.  Thank you, Mr. Chairman.  Mr. Wilson testified in the last panel that essentially everything was going forward, working well, there were no problems and he disputed the letter from the 200 economists who said that this program was not working well and needed to be fixed, changed, in some way. 

So who is right?  The economists, or Mr. Wilson?  We will start with Mr. Marx and I will let you all answer. 

Mr. Marx.  The economists did not say that the program is affecting beneficiaries today.  What they are saying is, the long‑term success of the program will ultimately decimate the industry, and you will have an access issue down the road.  The pricing that is being used today is less than the best price submitted by half of the providers.  So how can they ‑‑ if they are putting in their best price, and the bid comes back lower than that, how can they maintain that long‑term?  That is the real issue.  And when you only have 6 percent of the population affected by it right now, there is a lot of cost shifting and support from outside of the markets. 

Mr. Nunes.  What about the examples that we were, that some of us gave to Mr. Wilson, and he disputed the data or seemed not to be aware of the data, how we have reduced 90 percent in terms of the numbers of suppliers.  The data that we presented in the questioning that the members of this panel presented to ‑‑ of the committee presented to the panel, are those, are you aware of these numbers that 90 percent of the suppliers in many areas are basically not able to compete? 

Mr. Marx.  I am fully aware.  That has been ameliorated a little bit by the grandfathering position, which gradually, which allowed existing patients to continue with their existing suppliers up till January 1st of this year.  So that is just starting to kick in.  Last year existing patients were not disrupted, which was an appropriate decision from the beneficiary’s perspective, not forcing them to change providers. 

Mr. Nunes.  Mr. Sale?  Would you like to comment? 

Mr. Sale.  Yes, sir, thank you for the question.  I have heard both sides, and I think the economists are looking at the future growth of the Medicare population, along with the trillions of dollars in unfunded debt that our country is looking at.  I think the economists are looking forward and up.  I think CMS is looking backward and down at the performance of a program that has lots of numbers that we don’t know about, and lots of data that we can’t see.

Mr. Nunes.  So I want to just to drill down this a little bit.  So the CBO number of $25 billion, you don’t believe that that savings is going to be realized? 

Mr. Sale.  I believe that it is forced savings, if it is correct.  I tend to think they are inflated. 

Mr. Nunes.  Maybe meaning that there will be lack of coverage at some point? 

Mr. Sale.  Well, I don’t see how, when you eliminate 90, or 95 percent in your example, of the competitors in the marketplace you can’t ‑‑ you eliminate competition subsequently in every economic example I have seen.  Prices go up in such an environment.  So yes, I think it is unsustainable.  Since the program seems to be unsustainable, certainly the savings would be, I think, overstated, yes. 

Mr. Nunes.  Okay, Mr. Martis. 

Mr. Martis.  Thank you, Congressman.  While I cannot speak to the numbers of the economists, I can speak to what CMS has done with this program.  So I would say I think CMS, or since you asked, Mr. Wilson, I think is correct.  It has been said that we are depleting competition.  We are not depleting competition.  While there are reduced number of providers, the providers that remain are adequately able to take care of the demand and we are also aware of the numbers of participants or beneficiaries that are expected into this system. 

I think CMS has done a very good job at deciding what a company’s capacity in actuality can be.  They had conflicting mandates.  I mean, on one hand, we are saying we will give them choice, or we have to give a patient a beneficiary choice; on the other, we are saying, well, we have to also do a bid.  In normal bids, the lowest price wins as long as they have a certain accepted quality, and they have a certain accepted capacity.  But here we have a number of different providers.  I don’t believe if we allow every single provider back in, and we reduce costs, I don’t believe it is sustainable.  I believe it sustainable as it stands today.  I think CMS has designed the best program they could within the mandates that they have been given. 

Mr. Nunes.  Okay, thank you, Mr. Martis.  My time is expired.  Thank you, Mr. Chairman. 

Chairman Herger.  Dr. Price is recognized. 

Mr. Price.  Thank you, Mr. Chairman.  Mr. Sale, I just want to commend you for what I think was probably the most eloquent description of the lack of competition in competitive bidding. I think we will probably replay that over and over and over.  Mr. Martis, I am struck by your last comment.  Do you believe it is the role of the Federal Government to determine how many providers are out there? 

Mr. Martis.  No, sir, I ‑‑

Mr. Price.  You just said that the number of providers that CMS has determined are an adequate number, so I ‑‑ is my conclusion correct that you believe it is CMS’s role to determine how many providers are out there? 

Mr. Martis.  No, sir, I think it is CMS’s role to reduce expenses to beneficiaries, to keep the program viable for the beneficiary, and for the DME dealer, and to ensure a certain amount of quality and access to care.  I believe they have done that. 

Mr. Price.  And I guess that is my concern, that CMS, a certain amount of quality, which is what I heard you and what I hear CMS talking about all the time.  But it may not be the level of quality that the patients desire or want. 

Mr. Marx, I was struck by CMS’s comment that there were, and kind of offhand comment, that there were some suppliers who “didn’t meet the terms of the contract.”  What does that mean to patients when somebody doesn’t meet the terms of a contract? 

Mr. Marx.  My guess would be that ‑‑

Mr. Price.  Want to turn your mic on please. 

Mr. Marx.  My assumption would mean that they are not providing the service to the patients that they contracted to provide. 

Mr. Price.  What does that mean? 

Mr. Marx.  I don’t know what Mr. Wilson meant, whether a patient called and asked for a service, and it was too late in the day to provide it, or it was in an outlying area.  Those could be areas where the provider let the patient down. 

Mr. Price.  And the service might be a hospital bed, or a walker, or a cane, but it might be an oxygen supply.

Mr. Marx.  Oh, it could be oxygen.  It would be CPAP.  It could be life‑sustaining items. 

Mr. Price.  Life‑sustaining items? 

Mr. Marx.  Yes.

Mr. Price.  So when CMS selects suppliers who don’t necessarily meet “the terms of the contract,” that could be life‑threatening to patient? 

Mr. Marx.  Yes, it would be life‑threatening. 

Mr. Price.  I am impressed by this MPP, the Market Pricing Program that has been proposed that you all have proposed, because I think that it gets to the same level of savings in a way that provides much more efficient and higher quality, and more responsive care to patients as well as continuing to allow for innovation.  Would you take a little time and just describe the Market Pricing Program for us? 

Mr. Marx.  The Market Pricing Program is an auction program run by auction experts.  It is proposed to be run electronically through an iterative process that reduces the pricing down to a true cost to do business.  It is competitive.  It allows multiple contracted providers, and it requires that if you want to bid, you have to be viable, you have to have a bid bond, a performance guarantee.  If you bid it, and the pricing is above your bid, you will contract or forfeit your bid bond. 

It makes a fair pricing program, but it also preserves the choice of consumers.  It keeps a larger population of local providers.  It reduces the size of the bid area, whereas in an area of Cincinnati, there are three States the provider must serve to serve patients in that contract:  Ohio, Kentucky and Indiana.  They are all part of that competitive bid area, and for a small provider to be licensed in three States and meet three States’ regulations and a territory that could amount to 80 or 100 miles across, it is very difficult. 

The MPP reduces the size of the markets so that local providers can serve their local community as they have done for years. 

Mr. Price.  So by exclusion of the small local providers CMS, by design of their program, CMS is, in essence, decreasing the responsiveness and the ability for patients to receive the care that they received in the past.  Would you agree with that statement? 

Mr. Marx.  I do. 

Mr. Price.  Thank you, Mr. Chairman. 

Chairman Herger.  Thank you, Mr. Tiberi, is recognized. 

Mr. Tiberi.  Thank you, and thank you for allowing me to be here today, Mr. Chairman, to participate in this hearing.  Mr. Marx, do you believe that allowing bids to be nonbinding encourages low‑balling? 

Mr. Martis.  Congressman, if a provider would like to low‑ball, yes, the answer is yes, it could.  I don’t know whether it encourages low‑balling, but a submission of a low‑ball bid is possible.  However, my understanding of what CMS did in this bid process, is they took out the outlier bids, the highest and the lowest, and tried to come to a median bid on the remainder. 

My own personal experience, what we did with our company, is, as I stated before, for the majority of the bids, or actually all of the bids, except for oxygen, where we were dead‑on.  For all of the other bids, we are .05 percent away from the current allowed amount.  So I don’t see why providers would low‑ball the bid to a level where they know they can’t provide service. 

Mr. Tiberi.  Did you enter into all contracts that you were awarded? 

Mr. Martis.  Did we enter all contracts that we were awarded, sir?  Yes, we did. 

Mr. Tiberi.  Were the payment amounts adequate to cover the project categories that you talked about that you were involved in? 

Mr. Martis.  We believed so, because as I said, Congressman, we were .05 percent away from the allowed amount, so yes. 

Mr. Tiberi.  Do you plan on participating into Round 2, and if so, like areas like Columbus, Ohio? 

Mr. Martis.  We do, yes, sir. 

Mr. Tiberi.  So you plan on participating? 

Mr. Martis.  Yes, sir. 

Mr. Tiberi.  Mr. Sale, you talked about this process of Market Pricing Program, or this new proposal.  Would it have similar effects on reducing expenditures and beneficiary costs in your opinion? 

Mr. Sale.  Would it have effects on reducing what, sir? 

Mr. Tiberi.  Beneficiary cost, and cost to Medicare’s over all expenditures that CMS argues their current process does? 

Mr. Sale.  I certainly think it would reduce the expenditures from where they are now, and I think 20 percent of that is going to reduce and save beneficiaries.  I would like to say, though, that the 20 percent coinsurance that is left after Medicare has paid its 80 percent, generally is paid by insurance companies.  We talk about beneficiary savings, but 89 percent of my patient population that is Medicare, has a coinsurance; some through, you know, any other the Anthems, the AARPs.  So they pay a monthly premium to someone to cover that $17 billion. 

So I would like to nullify the fact that these are really beneficiary savings.  In many cases, these are insurance savings, and if you put that into context, the answer is both numbers will go down, yes. 

Mr. Tiberi.  Thank you, you mentioned something that I don’t know if you were in the room when I was questioning Mr. Wilson, but I asked him with respect to the current process, did he believe that you would have ‑‑ the current process would force fewer suppliers ultimately, sooner but certainly later, fewer suppliers in the business and then ultimately, we would have more beneficiaries?  Everyone knows that we are going to have more beneficiaries, fewer suppliers.  Would that lead to increased costs ultimately?  He said no.  Can you comment further on that based upon what you already said? 

Mr. Sale.  Well, I am not.

Mr. Tiberi.  Why you believe that there will be fewer suppliers under the current system? 

Mr. Sale.  Several reasons.  First of all, this program as it is designed, has been in play a year.  And already, 40 percent of those who submitted bids that are in bid areas that didn’t get them, 40 percent of those businesses are going out of business. 

I have brought letters with me from people in CBAs.  One company in particular that was almost 30 years old, they were left out of the Medicare system.  And when their patients were moved over, they went out of business.  And it is not unusual to see those businesses fall in the process that is happening now. 

As the prices go down and the incentives to improve service and access are decreased, I believe service and access will decrease.  And as businesses go out of business, and the 3‑year contracts run on, when the rebid comes, there will be fewer and fewer people to bid, and subsequently, bids will go up.  It is a supply/demand axiom that is pure, is true in every area. 

Mr. Tiberi.  Thank you, Mr. Chairman, for indulging me and allowing me to go over.  If I can just ask the chairman if we could ask both the ‑‑ Mr. Sale’s association, and Mr. Marx’s association to provide some additional information regarding the number of folks who have gone out of business, because that is in direct conflict to what Mr. Wilson said. 

Chairman Herger.  Without objection, if you would supply the committee with that information, we would appreciate it.  Certainly. 

Mr. Sale.  Yes, sir. 

Chairman Herger.  Thank you.  Mr. Stark is recognized. 

Mr. Stark.  Thank you, Mr. Chairman, and I thank the panel for their informative testimony.  My concern is that outside of the fact that I get more emails from the Scooter Store than I do from Viagra telling me that I can have the scooter free, and Medicare will pay for it, the small supplier who doesn’t bid is pretty much put out of business by the person who wins the bid.  I don’t see that that is particularly fair. 

I guess, to cut to the chase, I would suggest, and I would ask Mr. Chiplin if there would be any real problem?  We do it in most other things that we just set through negotiation or comparative shopping, set a price.  This is what we will pay for oxygen.  I don’t know that I would want to pay any more than a welding shop does, but the same guy delivers the oxygen to the welding shop as to grandma.  I see absolutely no difference there. 

It has to be there at a certain time.  They don’t want to let them run out.  A tank is a tank.  They are all standard.  There are only a couple of suppliers of oxygen tanks.  They are all alike.  And I presume they are all priced the same.  Perhaps they are made in different parts of the country for shipping reasons, so why wouldn’t it be possible for the government to set a price?  And then anybody who chooses to provide the equipment or the service can do it? 

Mr. Chiplin.  Well, thank you, Mr. Stark.  In general, there are many ways that you could have designed the program, and achieved the similar kind of goal.  I think what you have recommended should be explored.  The bottom line for the beneficiary community is that they are able to get the services that they need, timely, and in the sufficient amount and quality. 

Mr. Stark.  All of these products, it seems to me, are something I could go to the medical supply store and buy.

Mr. Chiplin.  Yes, sir. 

Mr. Stark.  And so why should a Medicare beneficiary, or myself, or anybody else have anything different?  If we go out and the government goes out to buy a pickup truck, we set a price.  And then if you want to deal, if you are a local agency with a local Ford dealer, Chevy dealer go ahead, wherever you happen to like the service.  Same thing is true of Star Wars or nuclear weapons.  We don’t have to put those out to bid.  We don’t have a lot of suppliers for them, but ‑‑

Mr. Chiplin.  It I think what you are ‑‑

Mr. Stark.  ‑‑ but what we have in particularly small suppliers, who are apt to, you know, the Scooter Store guys go around and get the bid in the community, and then they subcontract through the local person and skim off the top.  I don’t know why we should have to continue that.  Is there any good reason? 

Mr. Chiplin.  Not to my knowledge, sir. 

Mr. Stark.  Anybody else think of any reason why we shouldn’t just set a price, and if you want to sell at the price, fine. 

Mr. Sale.  My I respond? 

Mr. Stark.  Sure. 

Mr. Sale.  Thank you for the question, Congressman Stark. I hear intermittently as we are talking about the services that Medicare offers under the DME benefit, and I would like to clear up, there are no services paid for under the DME benefit.  It is only equipment, one.  Two, when we are paid, we are only paid for the equipment, but the list of things that we must do in order to get paid continues to grow through the years as CMS has added requirement after requirement after requirement. 

Mr. Stark.  You buy a jet fighter, you are paying for the jet and not all of the fussing, so ‑‑

Mr. Sale.  That is true.  You pay for the jet and the building and the labor that goes into it.  You don’t pay anything for ‑‑ you have an oxygen machine delivered, they don’t pay anything for the on‑call, the 24/7 on‑call.  They don’t pay anything for the billing requirements.

Mr. Stark.  Why should they?  That is part of the service, for heaven’s sakes.  I mean, come on. 

Mr. Sale.  They don’t pay for service. 

Mr. Stark.  McDonald’s is there 24/7.  I don’t pay any more for the hamburger at midnight than I do at noon. 

Mr. Sale.  We are an emergency service, and the calculations that they have put in place for reimbursing oxygen, and CPAPs, are based only on the cost of the equipment. 

Mr. Stark.  Fine. 

Mr. Sale.  They don’t include the service.  We have to put that in, that is the small business’ investment in its community and in the patient care. 

Mr. Stark.  Right.  And why should anybody be excluded? 

Mr. Sale.  Well, we have to supply that, otherwise you could go to an Internet and get what you wanted. 

Mr. Stark.  That is even better. 

Mr. Sale.  But they can’t bill Medicare.  They don’t meet the requirements that are ‑‑

Mr. Stark.  If it is at a price, I mean, all of this mumbo jumbo about bidding is nonsense.  Government could set a price, and anybody that could provide it would.  That is how it should work. 

Mr. Sale.  And I think that is the way it was.  They were administratively set for years, and then Congress came up with the idea to see if we could drive the cost down a little bit through competition.  And competition is fine.  We don’t mind competition.  We just want fair competition, and if you are going to have a bidding process, we would like to have competition as one of the factors of it.

Mr. Stark.  I say, let’s do away with the bidding process.  Set a price. 

Mr. Sale.  Really, we should do away with the CMS process that is cumbersome and time‑consuming and takes years and years and years; put an MPP plan in place that could be done in 6 months, and rebid it every 2 years so that we can be sustainable for decades to come. 

Mr. Stark.  Well, we are not here in the business to sustain your business for decades to come.  That is hardly competitive. 

Mr. Sale.  No, I have 78 million baby‑boomers coming and aging is a disabling process. 

Mr. Stark.  I don’t care. 

Mr. Sale.  We are planning for that. 

Mr. Stark.  Okay.  Thank you, Mr. Chairman. 

Chairman Herger.  Thank you, and it would be nice if we could set a price.  Maybe set it a little bit above free, but how do we know what that price is?  I think that is what the question is.  How do we know what the price is, and I think the success of this great Nation of ours is the free enterprise system where the marketplace has set what that price is.  And I think that is what really the purpose of our hearing is today, to how do we get the lowest price that we can have and still sustain the quality that we need. 

With that, I want to thank each of our witnesses for your testimony today.  Hearing such a range of perspectives has been helpful to the subcommittee.  It is important for members to understand the impact that competitive bidding has on beneficiaries, suppliers, and Medicare expenditures.  Since it would not be prudent, or viable to simply return to the often, excessive payment rates of the old DME fee schedule, I want to commend the supplier industry for offering an alternative that is based on competition and aims to set prices using market forces. 

The subcommittee will carefully consider all of this information.  It is my hope that the Congressional Budget Office will soon inform us as to the spending implications of moving to such a proposal.  As a reminder, any member wishing to submit a question for the record will have 14 days to do so.  If any questions are submitted, I ask that the witnesses respond in a timely manner.  With that, the subcommittee is adjourned.

[Whereupon, at 11:32 a.m., the subcommittee was adjourned.]

Questions For The Record

Member Questions

Question Attachments

Attachment for Mr. Tiberi and Mr. Price Q3 Complex WC Suppliers Year

Attachment for Mr. Tiberi and Mr. Price Q3 CPAP Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 Diabetic Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 Enteral Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 Hospital Bed Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 Oxygen Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 Standard WC Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 Surfaces Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 Walker Suppliers Year
Attachment for Mr. Tiberi and Mr. Price Q3 WC Parts Suppliers Year

Public Submissions For The Record

Center for Regulatory Effectiveness
Council For Quality Respiratory Care
Dr. Lawrence I Brant
Health Industry Distributors Association
Independent Medical Supply Inc 
Jersey Association of Medical Equipment Services
National Association for the Support of Long Term Care
National Association of Chain Drug Stores
Reliable Medical Inc
Smith and Nephew Inc
United Spinal Association