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MEDICARE’S DURABLE MEDICAL EQUIPMENT COM- PETITIVE BIDDING PROGRAM: HOW ARE SMALL SUPPLIERS FARING? HEARING BEFORE THE SUBCOMMITTEE ON HEALTHCARE AND TECHNOLOGY OF THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS SECOND SESSION HEARING HELD SEPTEMBER 11, 2012 Small Business Committee Document Number 112–084 Available via the GPO Website: www.fdsys.gov U.S. GOVERNMENT PRINTING OFFICE 77–561 WASHINGTON : 2012 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Mar 15 2010 01:48 Jan 12, 2013 Jkt 077561 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 E:\HR\OC\A561.XXX A561 smartinez on DSK5TPTVN1PROD with E:\Seals\Congress.#13 HOUSE COMMITTEE ON SMALL BUSINESS SAM GRAVES, Missouri, Chairman ROSCOE BARTLETT, Maryland STEVE CHABOT, Ohio STEVE KING, Iowa MIKE COFFMAN, Colorado MICK MULVANEY, South Carolina SCOTT TIPTON, Colorado JEFF LANDRY, Louisiana JAIME HERRERA BEUTLER, Washington ALLEN WEST, Florida RENEE ELLMERS, North Carolina JOE WALSH, Illinois LOU BARLETTA, Pennsylvania RICHARD HANNA, New York ROBERT T. SCHILLING, Illinois NYDIA VELA´ ZQUEZ, New York, Ranking Member KURT SCHRADER, Oregon MARK CRITZ, Pennsylvania YVETTE CLARKE, New York JUDY CHU, California DAVID CICILLINE, Rhode Island CEDRIC RICHMOND, Louisiana JANICE HAHN, California GARY PETERS, Michigan BILL OWENS, New York BILL KEATING, Massachusetts LORI SALLEY, Staff Director PAUL SASS, Deputy Staff Director BARRY PINELES, Chief Counsel MICHAEL DAY, Minority Staff Director (II) VerDate Mar 15 2010 01:48 Jan 12, 2013 Jkt 077561 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 E:\HR\OC\A561.XXX A561 smartinez on DSK5TPTVN1PROD with C O N T E N T S OPENING STATEMENTS Page Hon. Renee Ellmers ................................................................................................. 1 Hon. Cedric Richmond ............................................................................................. 2 WITNESSES Laurence D. Wilson, Director, Chronic Care Policy Group, Centers for Medi- care and Medicaid Services, Baltimore, MD ...................................................... 3 Peter Cramton, Ph.D., Professor of Economics, University of Maryland, Col- lege Park, MD ....................................................................................................... 15 Tammy Zelenko, President/CEO, Advacare Home Services, Bridgeville, PA ..... 17 Randy Mire, Owner, Gem Drugs, Reserve, LA ..................................................... 19 APPENDIX Prepared Statements: Laurence D. Wilson, Director, Chronic Care Policy Group, Centers for Medicare and Medicaid Services, Baltimore, MD ...................................... 31 Peter Cramton, Ph.D., Professor of Economics, University of Maryland, College Park, MD .......................................................................................... 43 Tammy Zelenko, President/CEO, Advacare Home Services, Bridgeville, PA ................................................................................................................... 62 Randy Mire, Owner, Gem Drugs, Reserve, LA .............................................. 76 Questions for the Record: Chairman Graves Questions for Laurence Wilson ........................................ 83 Chairwoman Ellmers Questions for Laurence Wilson .................................. 85 Answers for the Record: Wilson Answers for the Record ....................................................................... 86 Additional Materials for the Record: Statement of the Health Industry Distributors Association ......................... 91 ‘‘Competitive Bidding for Durable Medical Equipment: An Estimate of the Economic Impact on Iowa,’’ by Ken Brown, Ph.D ................................ 95 National Association for the Support of Long Term Care Statement for the Record ...................................................................................................... 101 The VGM Group Statement for the Record .................................................... 106 Statement of Charles R. Plott for the Record ................................................ 114 Hogan Hansen Statement for the Record ....................................................... 120 A Market Pricing Program to Fix Medicare’s Bidding System for Home Medical Equipment and Services Statement for the Record ..................... 131 Response to the Congressional Hearing on Medicare’s Durable Medical Equipment Competitive Bidding Program by Peter Cramton .................. 136 (III) VerDate Mar 15 2010 01:48 Jan 12, 2013 Jkt 077561 PO 00000 Frm 00003 Fmt 5904 Sfmt 0483 E:\HR\OC\A561.XXX A561 smartinez on DSK5TPTVN1PROD with VerDate Mar 15 2010 01:48 Jan 12, 2013 Jkt 077561 PO 00000 Frm 00004 Fmt 5904 Sfmt 0483 E:\HR\OC\A561.XXX A561 smartinez on DSK5TPTVN1PROD with MEDICARE’S DURABLE MEDICAL EQUIPMENT COMPETITIVE BIDDING PROGRAM: HOW ARE SMALL SUPPLIERS FARING? TUESDAY, SEPTEMBER 11, 2012 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTHCARE AND TECHNOLOGY, COMMITTEE ON SMALL BUSINESS, Washington, DC. The Subcommittee met, pursuant to call, at 10:10 a.m., in room 2360, Rayburn House Office Building, Hon. Renee Ellmers (chair- woman of the Subcommittee) presiding. Present: Representatives Ellmers, King, and Richmond. Also Present: Representatives Shilling and Thompson. Chairwoman ELLMERS. Good morning, this hearing will come to order. I want to thank the witnesses on both panels for testifying. We appreciate your participation. I would like to at this time welcome Representative Thompson. Mr. Thompson is from Pennsylvania, a former committee member who has requested and received permission to sit on the panel for today’s hearing. We welcome Mr. Thompson today. We also have with us Mr. King from Iowa, who also will have some questions to submit or some statements from constituents, is that? Yes. Thank you again for being part of this. We are here today to assess the Medicare durable medical equip- ment competitive bidding program and its impact on patients, small business suppliers, and the implications for program expan- sion. Congress mandated the use of competitive bidding to estab- lish payment rates for high cost and high volume DME in the 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 bene- ficiary copays exceeded the cost of the device on the open market. These generous payment rates also made the DME benefit espe- cially vulnerable to waste, fraud and abuse. A successful small scale test required through the Balance Budget Act of 1997 showed that the competitive bidding for DME was feasible. The Centers for Medicare and Medicaid Services implemented a competitive bidding process for nine DME product categories in nine geographic areas on January 1, 2011. This first phase of im- plementation is known as Round One. The competitive bidding pro- gram will soon undergo significant expansion beyond the initial nine metropolitan statistical areas, or MSAs. The Affordable Care Act, which we will be referring to as ACA, expanded the program (1) VerDate Mar 15 2010 01:48 Jan 12, 2013 Jkt 077561 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\A561.XXX A561 smartinez on DSK5TPTVN1PROD with 2 so that Round Two includes an additional 91 MSAs. CMS is now assessing supplier bids for Round Two with the intent that com- petitively bid prices in these 91 MSAs take effect in mid-2013. The ASA directed the Secretary of the Department of Health and Human Services to use competitively bid prices nationwide begin- ning in 2016. The DME supplier industry as well as the many small businesses that operate in this industry have long had concerns about the use of competitive bidding. Before we expand the program more than tenfold it is important to understand these concerns, not only be- cause numerous patients rely on medical equipment to keep them in their homes and out of the hospital, but also because many of the suppliers are small businesses that make up the fabric of our economy. Most of us can agree that it is important for Medicare to pay a responsible price for durable medical equipment so that bene- ficiaries and taxpayer dollars are used wisely. CMS has reported that the competitive bidding program resulted in $202 million in savings in 2011. These first year program savings are derived largely from competitive based payment amounts that are on aver- age 32 percent lower than DME fee scheduled prices, and these lower prices mean the beneficiaries are paying less in the form of their 20 percent coinsurance. Lower prices for patients as well as for taxpayers are something all of us can celebrate, but how those prices are obtained and the methods by which the small business suppliers are allowed to par- ticipate and compete fairly are crucial to this program. We must seek to ensure that this program protects patient access to vital products needed while giving small business suppliers the environ- ment to grow and thrive. While I strongly believe in the competi- tive forces of the private market, the process by which the competi- tion is conducted must be fair and truly competitive. To help the Subcommittee understand the success and challenges associated with Round One before the program’s scheduled expan- sion next year we will hear from witnesses, industry experts,
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