about today is inequality and instability a study of the world economy just before the crisis. the other books include, "the predatory state" "balancing acts" and creating on equal the crisis in american pay. he's coed tit a number of books. we're please bed to have him today. we're going to ask him to speak for twenty minute the and move to discussion and question and answer. thanks. [inaudible] professor, soon to be professor -- soon to be my colleague at

the university of texas. a good pleasure to be here. on the day when election results in france and greece call attention to a changing popular mood, at least in some parts of the world after four years of unresolved economic crisis. i'm pleased to be here. at m.i.t. to talk about a bock -- book that studies some of the issues that are real vabt to the onset of the events with which we have been facing in recent years. it's a pleasure to be back at cam ridge which is my hometown. the study of economic inequality, has been a coming thing in economics only for the last decade and a half or so. it was a back water for many

years following the end of world war ii for the first half of the post war period and only began to catch interest of the economics profession in the 1980s when it became clear that things were changing, that they were developments of interest in respect inequality especially in the united states was getting worse. over the years since and particularly in the 1990's, there developed a dominant narrative on the subject, in which the classic economic motions of supply tended to predominate. that is to say, developed in the literature in the explanation of

inequality based upon technology and the demand of for skill, education, supply of the skill. immigration and trade and the supply of unskilled labor contended forces operating in the labor market, but operating in ways that economists understand to be substantially microeconomic driven in character. this suggested that the environment in which the forces were cooperating was substantially self-contained labor market which is might be looped to each other but only by the kinds of channels i just described by the i did i did fiewshes of technology, by the migration of workers by trades in good with difference ever differing composition in the labor that puts them together. if you went to the journal of

economic litedture, in fact if you go there today and ask how you would be able to classify an article on mark macroeconomics and you would find that's no classification. it's not oriented to thinking about the problem of inequality in those terms. this is something i have been engaged in trying to change for quite a long time. i did a book called, "created unequal; crisis of american pay" in 1998 which reviewed the literature particularly focus on the united states and came to the conclusion that the narrative framework was noted a dwoit describe what was actually happening and that one needed to have a much clearer picture of how inequality movement of inequality fit into the ongoing

evolution of economic conditions. this book, inequality and instability" extends that work to the world at large. and does so in the first instance as the earlier work also intended to do by building on a very substantial project of the collection of information of data. of measurement of inequality and the movement of inequality around the world. i begin the book with a quotation from a cambridge, massachusetts law firm about the proper role of information gathering at the root of this kind of -- inquiring. i was not first obviously to

realize that in order to understand something about the movement of inequality in the world of economy, you are had to good information on it. very capable people had done a great deal of interesting and important 0 work in this area particularly in the 1990's when at the world bank and later at the wider [inaudible] the world institute for development research scholars had assembled the mas of measurements survey measurement was inequality had been done in the world up to that point. the problem with the work was not in the collection of the data but in the fact that the origin nam source data simply wasn't rich enough to give a reliability picture of what it going on. that was for two reasons. one is that surveys are expensive, and they were in many plays quite rare so that long periods might pass years upon

years in which a survey adequately high quality was not taken in many countries around the world. and secondly, where surveys did exist, the object being surveyed by was often quite head are genius. sometimes to say the surveys were income, extendture, where you were looking at the income concept and the concepts were not consistent from place to place. not the fault of anybody working in the area but a problem for scholars attempting to work with the resulting data collections. and one of the consequences of that, was that the literature built upon this work was quite indefinite knit what seemed to show. in particular, one of the great original insights of development economic research, that of simon relating inequality to income

level as the development process progressed, [inaudible] and i actually have a wonderful shorten exchange of response with paul sandalson. he wrote that he was write until he wasn't right anymore. it was paul's view it was a per perfectly reasonable view based on the evidence as he had seen it. there was a great deal of literature which i think was inspired in part by the -- let's say war shack test quality of the block quality of the information, relating inequality to economic growth. it was a low-degree of inequality conducive to a more rapid rate of growth or was a higher degree. the better wellspring of stronger economic performance.

this kind of thing became a staple of the economic research. what we did was to find sources of information which had not been tapped to provide measurements of inequality. and those sources of information turned out to be extensive and easily drawn on as a body of let's say source data from which measures of inequality can be calculated. i won't go into the technical details here, they're ready available and i can explain them if anyone needs me to. i will talk briefly about what we found at the world level and then a little bit at the national level. at the world level, it turns out

that this work by work strongly validates simon's core insights which is that the driving force behind economic inequality is intersect yule transitions in the process of economic development and change. in particular, changing patterns of industrial development, chaining pot earns of the roll of finance. here is a style disaition of that argument which holds as he did, but if you are in the initial fazes of economic development moving from agricultural to -- income you have the differential between the country side and the factory and the farnl. the dirchltdial tends to moderate and decline in the process of centralluation as it

deeps -- the and the economy because you have ongoing processes of growth of democratic and the union decision and social democracy in the process of urban decision. that story seems to be substantially true. we found for the richest countries in which the united states is a prominent example, countries which are supplying advanced technology local goods, financial services to the world economy, a period of strong economic growth raises the income level at the top. and so you have a relationship in which as income continues to grow rapidly inequality actually gets more extreme in countries like the united states. and to put in a nutshell, in a stylized fashion, the argument i make in the opening part of the book, in the 1980s and 1990's

one had broad ltd. following phenomena. at the low end of the scale in china, income was growing rapidly and equality was growing rapidly. at the high end of the scale we had high growth income in the late 1990's as a result of the credit and equity driven boom in finance in equality. but for many of the world because of the debt crisis because the stress of high resource costs and well commodity prices for those who were exporters, things went backwards. if the model is correct, you would expect inequal toy rise there as well. that's what the evidence shows. show you have -- so you have a -- too simple but still an explanation for rising inequality under the conditions in the entire world. the second point that the curb is not necessarily stable, it does in fact shift at the shift

and is a -- has a common pattern in the world economy. and we extract that pattern from the data set from the information we have in a very simple way. that is, if you look, this is from something called a two many of way fix effect model panel data set using the time effects as a time series to show the common pattern of the movement of ino'quality in the world economy over the period from the early '60s to early '00. what you can see there is initially a fairly stable period comes to an end 1971. a short period of declining inequality between 1971 and 9170 which the coensyndsed with commodity boom and the debt. driven expay in some bards of the -- that peeks in 2000.

this is the period that george refers to as the super bubble. i would also call it a super crisis. for much of the poorer population of the world. it's interesting that this measure of inequality almost exactly with an entirely separate set of measures which are so-called son accept one inequality measured between countries on weighted basis and the same pattern that you find if you take the profit share in the oecd countries. they have all the same turn point and the same pattern of increase from 1980 to 2000. this suggests that the movement of inequality is not something which is id owe sin karattic, depend upon the policy of individual countries except in some cases where countries truly did isolate themselveses from the world. but rather part of a common global process which was, i

suggest, driven by mainly by changes in the financial regime. that is to say from 1960s to 1971, you're under brett woods you're in a credit broom and then in a massive credit bust which rolls around the world latin america then to central europe, soviet union and final asia in the 1990, and that is a massive period of rising inequality which again, peeks so for a as we can tell in 1990. i have data on whats over the period from 2000 to nearly the present in the united states what we find is that there is a kind of saw-toothed pattern in the u.s. after that. i'm come to that momentarily. the ability to measure inequality a lot of different

countries in a fairly they are row going way, inequality comes pay of wage structures, depending upon what your data source may be. [inaudible] enables me at my mostly student associates did a great deal of this work, to do a study of a number of important economic relationships, and to call into question in some certain ways some others a aspects of the economic orthodox. one of which, as i think everybody knows particularly, europeans has been the claim that the united states hold an advantage in employment over europe because we have more flexible labor markets and the claim that europe suffers from chronically high unemployment because of the commitment to e

egalitarian wage structures. that is a prop ticks that depends entirely upon the frame within which you making the the comparison. it turns out, however, that the data do not support it at all. we looked at inequality with relation to unemployment inside europe we friend is a stable comatic relationship which countries have in fact lower unemployment rates, better employment performancen that the countries with more unequality wage structures. it's very good, i think even in convention until economics why someone might expect that to be true. people who are in unequality situations tend to leave the bad jobs to look at the good. they are unemployed in the meantime. it's true the insight behind the sand knave began models which -- wage structures tend it attract better industries and their

productivity and income levels rise over time. it's [inaudible] not true as has been often claimed that the wage structure in the united states is radically more unequal than it is in europe. the reason that finding comes into question, is that those measurements have always overlooked for europe to differences that exist between countrieses which are very large. if you treat europe as a single unified content, you find that the inequalities that exist between poland and germany or between let's say norway and spain are very, very substantial. when you calculate those into the mix they're larger than those who exist in the united states. so again, the ability to look at the problem with fresh eyes, and with fresh information sets of various kinds gives us the capacity to say ethics are very

interesting things about the world. coming back to the united states, i know my colleagues are political ?irses, wanted to say very briefly some things about the relationship between inequality and political outcomes. the conscious that we're moving into a territory which has a [inaudible] which a great deal has been written there seems to be us to be interesting to look at in particular inequality in american states and whether there was any somatic relationship with political owblgs. and we found the following things, which i think are certainly worthy of reflection. one is it does appear to be sismatic which american states which have higher degrees of inequality have lower voter trends. not a surprising finding. you might expect, but in that situation, the rich would be more anxious to suppress the

votes of the poor. and as you live in the american south, as i do it's not out of line with the historical experience. we also find that more interesting perhaps more subtle and maybe debatable proposition that we're able to at least maybe cast some light on a very interesting paradox in the political science literature namely the finding that rich people tend to republicans and the gillman paradox. at one of the things that we are able to do is to ask whether we could explain the relationship that he has associate. and it does turn out if you measure inequality in a spatial sense, looking at where people live, not just the differences of income how they are located across state, states where the rich and the poor more spatially separated tend to have less of a

relationship between income and voting path earns than others. that's an interesting phenomena where the inequality measurements appear to cast some light on the interesting phenomenon in social science. here is, by the way, i'm summing up a little indication of how to understand income inequality measured in tax data in the united states. the inequality measure in this case, which tracks very closely all the standard measures is taken by measuring inequality across counties, the other line is the log of the nasdaq stock market rielsing to a peek and the acorrupt fall in 2000. you see the inequality measure and the stock market measure follow each other precisely. not only do they peek statement they rise and fall by the same proportion. for very obvious reason,

inequality in the united states measured by tax data is strongly reflective of the incomes of those at the highest part of the income spectrum and those incomes tend to be heavily dominated by stocks. out of the proceeds of ipo in this period. i'm sorry you're looking at in the actually two measures of exactly the same fee nom non. can verify this. i can't show it on this computer, up fortunately. if you take out the just a handful of counties grow i take out new york county and new york state, the measure of inequality rises considerably less. if you take out five counties, new york, new york, plus three in northern california,

washington and seattle. about half of the increase in inquality in the 1990s goes away. you're looking at something which in the united states represents incomes that were extraordinarily spatially concentrated for the obvious reason that the companies that were achieverring the highest income gains for the executives were either the banks doing the financing or the silicon valley tech terms that were receiving the money. and the one update the same analysis. skip over that. to the late 2000s this is a map that has been produced that shows the movement of inequality across with the contribution of individual counties to inequality in the united states. you can see the once again, the financial center in the late

2000 exthe record i theirly important. there are hot spots and important centers and high porns of florida, california, and other cases which are clearly reflective of the housing boom and of the loan lending against housing, which was, of course, the source of the debacle that lead to the melt down in 2007, 2008. what i would say by way of conclusion, is that the work that i've done in this book, i think, tells us that inequality and economic instability are essentially two sides of the same phenomena. when you see one, you're seeing a representation of the other. and that this is perhaps the

single most important reason that i at least as economist can bring to a policy discussion of the issue to suggest it's something we should be much more concerned about and we have been. we're living in a period in which we find that the instant of the consequences of tolerating that sort of instability for very large parts of the population here and around the world are very, vor serious indeed and likely to lead to political, economic, and social upheaval if we don't deal with them adequately going forward. thanks very much. [applause] thank you we're go to discuss to

comments by rachael soon to be doctor she's finishing the ph.d. she's a specialist in the international political economy in all of the facets a special expertise in the relationship between governments and multinational corporations in particular in eastern europe and other emerging markets. so i'm going to pass it over to rachael for comments. we'll invite your questions. let me say copies of the book will be straibl for purchase outside after the forum. >> thank you so much and thank you for the very interesting presentation. and the book just had some in it. it's very rich and grappling with different questions, i would highly recommend it. i thought maybe i'd start by phrasing you and saying thank you for the data collection efforts that you put together. not only collecting the data but applying the relatively straightforward metric to find entirely new sources of

inequality measures. that are useful in all kinds of research agendas. what's particularly important about using geographics variables to calculate inequality allows to identify the important role that geography in place can have in identifying what we even mean by the consent of inequality in addition to understanding what inequal tight might mean. all of the data allows for very good retellings of economic history in the book, you find a summary of cuba's economic argentina and brazil with very interesting ways to relate the not only economic growth but the relative movement of different groups of society measures of relative -- and with this d.a.

data, again, it's a new way to approach what might a topic that you think you already had some thoughts about. so the thing that kind of main application in the book is to use these data to trace inequality since the 1980s in country around the world. there's a consistent and strong correlation between measures of economic inequality and measures of financial decision, and by financial asian, mean the relative growth of the financial sector, relative growth of sectors that you state that the capital sectors that are directly benefited by the financial sector like high-tech and the stock market measures. and so with this evidence, with this correlation in hand, the book takes on three huge topics as one. the the financial idea of financial and the idea of equality and instability. the way i took it, at least, the

argument is that financial is making up the largest share of inequality and it is through this in the they inquestion -- inequality is leading to crisis. financial is pointing to inequality which is pointing to crisis. although, in the text times you factor kind of melt into each other. so make this argument that the existence chain, we need to do two things, i think. first you knee to know that financial does indeed make up the very important part behalf we know as inequality. i've give awe few concerns i have on the point. secondly, we need to know that inequality in of itself has some kind of direct effect on crisis and instability. that is why add inequal toit chain? why not focus on financial sector issues and then that

directly lead into crisis. so i'll give a few comments on the point, but then, kind of highlight all the other research questions to which to state are applicable. so is financial decision article key to inequality in is that the key to the movement of inequality over time? especially in recent deads. academic literature provide a set of determine nans that are linked to inequality and are linked to inequality. and i don't see the considered in the book necessarily, for example, the size of the public sector in the country, or unemployment inherented wealth, the partisan balance of power, imdecision, redistricting of welfare policy, these all of these kind of factors that can be operated on a state or local level, a individual level, or even regional level.

all kinds of different levels. there are all kinds of factors throughout that go help explain the existence in inequality. in the book, the assertions made that common and financial factors explain a large share of everything that can be explained about inequality. my concern is that without addressing the determine nans in the analysis, we can't convincingly cut out the role of local or state level policies in determining these changes that have happen over time. the possibility that macroeconomic might be operating through local and state level policies. without going into too much detail, the idea of a role relationship between financial decision and inequality is a little tricky because of the

statistical methods used in the book. the high hypothesis seems plausible without considering the other factors i'm not convinced that all the other explanations for inequality are worthy playing a role as well. so by mentioning inequality, in the context of financial on crisis, providing a very important service, i think, to the economic discipline and to the kind of public fear to emphasis inequality as a light post on that want to pay attention to and is a potential indicator to pay attention if we're talking about financial crisis what might be happening in the future. i'd like to see how well inequality is -- excuse me, how useful inequality is an a predictor or land post in other

historical periods or in other locations in the world. i would kind of challenge that maybe we need not insert inequality into the change of financial to crisis. if we leave out inequality, i think we can tell a narrative about how the recent -- we and many commentators have told about the recent financial crisis came to be and other cry cease throughout history. adding inequality to the story does do is provide a kind of beacon that allows us to pay attention to a distributional measure in society that would be linked to what might be otherwise difficult to see economic outcome. the book, as i menaced, take many different research questions web and the work on

the particular -- [inaudible] indeed, there are many research agendas for which the measure will be useful. the general issue with the book imper call chapters, however, that the modelses used to estimate the effect of inequality of outcomes of interest are somewhat simple fied and it leads the reader unsure to wonder whether it was inequality doing the work in the arguments presented or whether it's something else. and therefore, while our provocative preliminary finding in the book and provocative high pot these were not -- d.a. to to be supported or not. in the chapters on american politickings, the model of voter choice and voter turnout could use some more variable say from the latest research in the field, and as very interesting chapter looks as whether

democracies are more or less equal than other types of government regimes. while this is an important and much studied question, the statistical approach doesn't deal with the problem that could be that inquestion tallty outcomes are resulters of the government regime or the government regime is causing inequality outcome. so, without this kind of sorting out which way the arrows are going, if you will, that were unable to kind of find convincing story from the analysis. pointing out the different wage differentials between the european countries is very important and indeed is one of the reasons that kind of common traitors on the eurozone kind of point out there are some differences among the countries that are hypothetically supposed to be part of the same unit. again the argument that labor market flexibility is not related to unemployment, again, is a bit unconvincing because of

these underspecification of the model. some unconventional messages and kind of an unclear role what other forces in the international economy play like international trade, for example, interacting with currency appreciation, and depressuruation. just to conclude then, the data that put together that formed the book, and the research team has very wonderfulfully made available online are very important and and will make a major contribution and consider the role of inequality in the questions and actually measure it. this means fewer problems of too few variables for the rest of us trying to do analysis in political economic. while the book itself and some of the analysis faces these problems doing not quite enough

to really put the meat on the bones of the answer, if you will, it's providing a service to the rest of the field that's just fantastic. for seeing the link between inequality instability over longer time periods and model specifications in regards may indeed shed important light on what exactly it is that inequality to add to the using of financial. >> thank you very much, rachael. professor, would you like to respond? >> there a couple of points which i can say a few words. one of the concerns, i think simplification, the second one is the -- local national policy factors in determining what happens to the inequality measures and the third is question of causialty.

the no contest, the the work of this kind is intrinsic based primarily on the -- new information source it is would be extraordinarily ambitious to the application on the material that's not something they set out to do and i'm sure having tossed out some hypothesis about political owblgs that others can take that up and make of it anything they can. the defense of the question of state and local. the relationship between international and global and the state and the local. i think that the fact there are strong regional and common global movements in the data

tells you something very definite that one is not going to learn by running country-specific models. it tells you that forces are at work that affect neighbors countries in similar ways and similar times. forces at work that affect countries that are in a certain relationship in world economy in one way. debtors or the consumers and the other one force affect on countries in the opposite producers and creditors in a different way. this is very useful information, which emerges from the exam make for global data set. the fact there are common forces that are pushing up inequality around the world does not necessarily exclude the presence of local forceses. in fact, when you look at the data and measure the tacts over time. you find there are significant

exceptions to the pattern of global pressure, china and india do not experience rapidly rising inequality with the onset of the debt crisis. they do experience it later on in the 1990's. but the clearly aside what we're talking about is the global pressure of those events on countries that were exposed to a commercial bank credit to the collapse of lending. adjust add to that, countries with strong institutions that were, at least in some cases, able to wrand the pressures, so that local influences do matter. influences which are strongly impacted by what's happening to

them from the outside. the other observation about that, you quoted about comment how much of the pressure on inequality can be attribute to the the global factors, and the passage you were quoting was referring to a calculation which show if you take out the time effects basically the whole of the inequality goes away. to give you a sense of how much of the trend of one observes is common. it is common. it is a statistical truism but it is showing that things are moving in the very demon way around the world. final point which has to do with the qef casualty. i try, and i don't claim to have been completely successful in the drafting to be cautious about making casual claims.

inequality is a statistic call concept. it's a measurement concept. it's something that you calculate from a body of data. and then to turn around -- attribute to it a casual role in human society are strikes me as risky thing to do. what i'm trying to do in the book is show the relationship of the measured outcome to the larger forces that are visible observable at the time. in that sense, it's seems to be more clear that the financial, the rise of the financial sector around the world, the rise of the dependents of the world economy on private extension of credit on the swings of of the global financial sector, the evidence for that is very clear and very strong. so again, i try to be cautious

about attributing inequality, per se, and casual force, because then you need a mold of understanding how it works people have tried to come up with the -- it's not the exercise that i'm engaged in here. >> thank you. we welcome your questions. if you have a question please come to the front to one of the two microphones. you can ask the question. 05 remind you that the goal is to ask a question. >> i'm from the security studies program in the center for international studies. ic i have a question, about the events in france. so i'd love to hear your comment on that? but the context in which i'm interested in your response is reflect my interest have to do with the issue of the local response. and it's a big question, but i would love maybe in another form to work where you situate your work relative for example to a

-- inequality and his descriptions what people do with inequality and whether france in some way, gives you an example of how people deal with that particular question. so i'm particularly interested in france. you can do, i think, greece as well on this. i do think that it would be so wonderful if you could go to the future with this, and that would be my question. >> okay. so the outcome of the elections in the last 24 hours. [inaudible] >> '03. let's talk about greece first. because i think what we're observing in greece is the decent gracious of the political society. greece is a country which is being steadiedly destroyed. it did not have strong social institutions before and it was patched together bay number of expeed expedience.

what it is being taken apart systemically. i was in at thens in october if you got public hospitals you leave in a box. it's a situation in which a weak institution is stressed by budget cuts to an extreme degree and they're practically -- as far as the people there are no locker functioning. it is a very serious situation because it's a travesty for the promise of europe. it is saying that essentially the european system does not care enough, is more intent upon preserving the political coalition in germany than it is in the consequence ever what's going in greece and some other of the countries as well. i think the outcome of the election shows that. the established parties, the

coalition parties were reduced to the point where new democracy said today he can't form the government pass the baton to one of the head new rising left parties and probably won't be able to form a government either. we'll see what happens. in fact, obviously, the society which is still much more coherent and has a also, as the greeks do a strong tradition of political discourse and resistance, i think you have a reputuation of a government that was too complacent in the willingness to go along with the -- and to be part of the let's say a european leadership whose focus was very heavily on substantial landing the banking system on the hands of everything else. i don't think that -- [inaudible]

las exthe record running room or the necessarily he would take it even if he does. but he is now in the position where he is, i think, basically expected to start raising questions about the strategy and his -- he will now become the principle partner in deciding what the european policy is going to be. it's going to be an interesting problem for mrs. merkel. she's not had the same kind of challenge he'd be able to give her. it's clear, at least part of the european are expecting it. you think about what's happened in holland where the government fell over the issue recently. thing are moving and changes. it's interesting it's potentially exciting, still has not to be too carried away because of the possibilities aren't that great. >> thanks. i guess my question builds on that question and 0 a couple of

comments that each of you made it has to do with the ebbs tent can to which there are countries and nation states that have not been as heavily -- have not experienced the same degree of impact of inequality. and the obvious people think of sweden or denmark, or one of the denmark appears as being relatively equal. so again, what are the opportunities for countries may have some growth and may prosper to a degree but are still able to mitigate the -- the impacts of financial where a variety of policy which is is being contested now in the politically in greece and france. is there, you know, there is no alternative. tina, or is there an alternative, and well, basically

is there a link between -- is there a way to have political equality in the face of the preciouses for income inequality. it seems like in the united states we have both. we have tremendous inequality and very little access to the political system for people who don't have money. but are there countries where politically equality is maintained and people make choices about how much inequality to allow? >> so it's a correlation between political inequality. the correlation on the relationship is very direct, less expressed. my favorite sentence in the wealth of nices is the shortest sentence. wealth is power as mr. hobbies

says, she had the casual reference. but is it possible to have a public politickings that isn't run out of financial sector? i think the answer is yes, it's possible. you have to institutions. there's an old term called counter israeliing power that provides counter vailing power trade unites historically of the public sector. the scientific engineering community or all need to play a stronger and stabilizing role. you can have at least up until now it has been possible for twenty years or so to have episodes of strong economic growth driven by banks and the financial markets generally. they always end badly. the last one ended specially badly. it was fundmently run a deeply corporate basis. it was fundamentally run on the

mornls that issuers knew would have to be repaid. they have been defaulting rapidly. people are being foreclosed upon massively. you see a long period before we work our way out of that if inkey we ever do. the small countries in europe, i think the plausible examples. sweden has experienced rising inequality. they are also small. one has to be careful about using them too extensively as model for the united states. i true to be restained about that. a country which is much larger which has been moving toward that has been deeping the democracy over time, and reducing poverty and inequality is brazil. we can see that clearly over the last twelve years now for the three president issue

administrations. i think it's that's a promising sign that if one is persistent and gradual and develop stronger education, health care, housing that you can have both social progress and political progress. argentina has not done too badly since the crisis. i think that the answer of your question is yes, there are ways to do it but one has to be prepared to implement them, i think, persistently over time. institution building takes long time. institution descrebs destruction can be done quickly. >> hi. i'm not an economist. i'm a engineer and my question [inaudible] the economy -- i should tell you . >> don't rub it in. >> i came heavily because i enjoy your interviews on npr. what are the measures of inequality that you're using and the measure of instability?

>> hi. the measure of inequality is calculated from grouped d.a. and the advantage is that grouped data are very readily wide available. so with the higher data set that is chopped up into consistent groups, you can make a very easy calculation of the dispenser between groups and that measure, if the data are taken into a consistent way over time or in across countries they are comparable. different times can be comparabled in a reasonable way. that's at strength of the approach it enabled us to mine large amounts of data that were readily available in historical

records in governmental records and international agency records and to make call clayses of inequality from it. >> [inaudible] as the qualitity? >> that depends upon what the data source is and what problem you're attempting to answer. you have to be careful about that in a large number of cases we're looking at basically payroll by economic sector or industry, or you're looking the income by geographic profits or in the united states, you could do did by county. depending upon what the data collection agencies and the -- [inaudible] accumulate. >> measure for instability? >> instant is just -- instability is the variability of motion through time. that's a straightforward. whatever the data series shows. you can calculate instability. but i don't have a -- i'm not

distributely computing a a measure that inequality and a different measure of instability in order to compare them. you're looking at the single series and asking how unstable it is. >> my name is [inaudible] i'm from the [inaudible] industry and i -- it would be interesting to look into the, you know, [inaudible] that the different prizing of medications. i went to your mold model can serve as a help to, you know, estimate or kale collate the differential pricing of different countries. maybe selling medication, you know, to africa or canada or homeland here. the price would be different, you know, first we may sell $1 a

dose in a drugs to africa compared to, you know, [inaudible] couple of times more here in homeland. so along the same direction, and i'd be interested in you calculated, you know, inequality the fundamentals that using a ratio for instance [inaudible] and some of the models prefer in the inequality matrix. i wonder for a country like dubai, in the middle east, that i the independent visit, you know, within the country the citizens only account for 17% and 83% employ workers in the country. but when you measure the inequality in the concern is

that are you measuring within the country, you know, between the national what is nonnational. or -- within the national or within the -- subject . >> it's an important question. the measure we use for international comparisons is based upon establishments and jobs and therefore does not distinguish between nationals and immigrant labor. a country where you have data for persian gulf countries you're going to see a lot of inequality employing people who are not nationals. and i guess that's appropriate for looking at the economic structure of the country. if you're looking what is the relationship the condition of people who are citizens, then you would want to take a different issue measure and need

a different source. >> find usually, you know, occupy in a very high position. >> yes, of course. >> even though we american, we have some people working there, even your pressures economists or meta physicians, the income never come close to the national [inaudible] and working there and you talking about else the income distribution. >> of course. i want to be cautious too about not claiming too much for what you can learn about with some cups where let's say, the data are maybe quite partial, where you have large economies, of course it's true in lots of many places, you want to take the sewers -- sources that we use and approach them with at least some degree of cautious. i think that are reliability for

what they show. but all measures have to be evaluated carefully. >> the different prying within the -- [inaudible] >> thank you. ..

i think that is the primary issue, so while i am an observer i would like you to comment on that. it just kept hitting me over and over again on ever 80 different ways. is this a sign of social unrest or do we look at it from the standpoint of the people huard actually end i keep eye who are trying to be the next generation of rulers, and we can call it and do need to take back the system. >> the book is not written as a comment on the occupy movement. however, if you look at the back cover you will notice that the author -- in zucotti part.

i do think that we have to take the fact that we have suffered a fundamental failure of the institution, and we are going to be dealing with that for much longer then the economist and the business forecasters are predicting. we look back on 2009. the standard projection was that we would be near full employment by now, that we would be dealing with an entirely different set of problems, and that was based upon a, the habit of individual thinking, individual behavior of the economy and the notion that nothing fundamental had happened. when it was clear that if you

look at -- if you stepped outside of the forecasting frame and look at the world, something really dreadful it happened, that we had allowed the financial sector to fly completely out of control and to discredit its, itself in the world while at the same time it bankrupted, rendered insolvent a very large part of the american middle class. these things are not things which are going to be repaired quickly. i went to -- and it took seven years for that regional swamp to clear and we are we are talking about something much larger now without the rest of the world to pull us out.

>> you something you just said prompted me to be wondering about the impact of war. the second world war seems to bring with it, for whatever reasons, a diminution of inequality and the result after the war in in the united states was opportunity, the much touted building of the middle-class and you may have respected some this as well. more recently, after the clinton years when there seemed to be a slight decline in income inequality finally after how many years, it and the budget surplus that we now hear a fair amount about, then there was the launching of the invasion of iraq by the bush administration and the huge amounts of money spent on this illegal in my mind, iraq war and the question then arises, is it just coincidence whether war is good

or bad for inequality or what is the most recent war part of the story of the recent intensification of inequality or is a sort of incidental? >> the second world war was as you say fundamental to restructuring american social, political and financial life. it created a world in which the american middle class had one and show reserves which they did not have in the 1930s. from the 1940s onward they did and that was in part because they had earned twice as much as they spent during the war and so they have the foundation for developing the middle-class society that came afterwards. this was really quite remarkable

time which will never be repeated because we will never have another conflict of that kind of scale. all future wars will either be, and i expect in fact do we will not see another one anytime real soon, but -- because the iraq experience with such a debacle, but they will either be of that kind or they will have an element of -- which will save us all a lot of trouble. the actual consequences of the iraq war for the economy were so far as i can tell, in 2003 in 2004 you do see some income differential developed and you do see some effects on growth. the income differentials in a fit one region of the country over all of the others and that, guess what?

is immediately surrounding washington d.c. so you are looking at the effect of government spending and this is quite ironic for those of the republican administration. they were certainly improving the real estate values in the country. and then that faced out basically. the phenomenon in the later part of the decade is much more financial year and the various parts of the country that were being influenced by the housing bubble. again i think that probably fully answers your question. i don't expect we will see another example of this anytime soon. it didn't work very well. >> i am an m.i.t. station -- student and i'm actually from norway and i question his due you believe that scandinavian countries can remain in the

years to come and can they keep their position in the world regarding an equal society? >> while there is nothing like having both the scandinavian social system and a large pool of offshore oil. i fully congratulate you on that. when governor perry was momentarily attracting national attention -- i'm afraid i got a number of unsolicited calls from the press asking about texas economic miracle and likewise the recommended to all states holding presidential primaries that they develop large pools of oil and natural gas. can the scandinavian countries hold onto their institution if they are determined to? i think that is the choice they will make or not and it's not entirely clear to me given

particularly some recent developments, notably whether the political systems of the countries will in fact choose to hold onto the gains and the interesting institutions of the social democratic system. >> is it possible for a country like ours for income inequality to encompass the supreme court political elections super pac so that rolling back any quality is no longer possible? >> oh, i'm not going to go that far.

i think the situation becomes very confiscated when both parties are dominated by a single set of major constituencies in this area and a single resulting result and i think we saw too much continuity in -- on the financial sector from bush to obama. i think that is very clear, and we failed as a country to come to grips with the need to reform and to downsize the financial sector, which is a massive fixed cost on every other form of economic activity. the institutions didn't know they were private when in fact they were fully supported by the stadium became the dumping grounds for a place into which all other financial institutions

gradually would work. it's a mistake to treat them as a sense the private sector. this is part of a governing coalition that is causing the damage. i'm not going to say that we will never arrive at the point where the country can demand change. it to do so in 1933 and got a lot of benefit out of that and so i am hopeful that we will again. but being hopeful and being optimistic are distinct. >> hopefully this is a quick question. you were saying any quality might lead to instability but i think what in fact we are seeing, while there is some social instability aren't we seeing really a rise in state fascism? i mean actually seeing an

overreaction from the government taking away our constitutional liberties? i mean that is what i see. everybody is so worried about this inequality thing when in fact what is happening is we are getting to be more like the ndaa would totally negates our right to have a fair trial or even charges brought up against us. and where the director of the fbi when i asked him whether he is allowed to assassinate american citizens, he said he doesn't know. i mean, these things just upset me, that is going to lead to social -- what about the government overreacting to kind of clamp down, actually the government to lock down the country?

>> it is not a term i use lightly, but i share the anxiety and the belief that we have -- that we are not protecting our civil liberties and our basic rights and our procedures of justice, as we should. i think that it's it is very clear. i would add to your charges d.be, i would say, forgiveness of torture is inexcusable. people need to be held to account for these matters and we will find that the failure to do so will cost us in terms of our international standing. it will cost us and terms of our respect throughout the world

which has in many cases stronger standards than we do. part of a stable self-governing site side is one in which certain rules are enforced on the government itself. >> we want to thank our speaker today. [applause] books are available outside for purchase and professor golf breaks will probably sign one for you. thank >> with the senate on break this week, we are featuring some of the tvs weekend programs in primetime on c-span2.

>> the veterans affairs department says the cost of prosthetics has jumped 80% in the past four years. a veterans affairs committee hearing is next on c-span2. than the "national journal" hosted an event on the 2012 elections looking at how barack obama and mitt romney differ on the issues. live coverage begins at 8:30 a.m. eastern. >> well, i believe in every book i write, that's the first law that i have, go to green bay to find out what it's like in the winter with vince lombardi is coaching there. go live in hot springs.

i have never been to vietnam before. how could i write about it without going to the battlefield. i had to give. >> in his book, he wrote about two major turning points in the vietnam war. one in vietnam, the other here in the u.s. watch his interview online at the c-span video library. over the past four years he's been traveling and researching his newest book, barack obama, the story. sunday june 17, live on tv. >> a recent review shows the veterans affairs department has been overpaying for prosthetics. next, a house veterans affairs subcommittee question department officials about the overpayments and discuss ways to reduce costs. witnesses included the chief of amputee services at walter reed medical center. congressman bill johnson of ohio chairs this hour 40 minute

hearing. >> [inaudible conversations] good afternoon. i would like to welcome everyone to today's hearing titled "purchasing perspective: va's prosthetics paradox". section 8123 of title 38, procurement of prosthetic appliances, states the following: the secretary may procure prosthetic appliances and necessary services required in the fitting, supplying, and training and use of prosthetic

appliances by purchase, manufacture, contract, or in such other manner as the secretary may determine to be proper, without regard to any other provision of law. section 8123 originated in 1958, over fifteen years before federal acquisition regulations were codified in law, and has been slightly amended a handful of times since then. in march of this year, i sent a letter to the secretary regarding the va's procurement of biologics over the open market instead of from veteran-owned small businesses already on the federal supply schedule. one specific example i brought to the secretary's attention involved a company that supplied biologics. in the timely response i received from deputy secretary gould, i was informed that the va considered biologics to fall under its lengthy and broad definition of prosthetics, and therefore it could acquire biologics through section 8123,

as it clearly had been doing. those last words, without regard to any other provision of law, mean, at least to the va, that it does not have to follow federal acquisition regulations, va acquisition regulations, or the competition in contracting act. this interpretation was made clear in the deputy secretary's letter. in addition to informing the oversight and investigations subcommittee that the va considered biologics as prosthetics, other answers throughout the deputy secretary's letter prompted several important follow-up questions, which were relayed to the va on march 28th. one part of the letter, immediately following the interpretation that purchases made under section 8123 were not subject to acquisition regulations, stated that the va would work on guidance to ensure that prosthetics purchasing agents and logisticians conform

with vaa, to the maximum extent practicable. i have to wonder why the va explicitly and publicly ignores acquisition regulations when making these section 8123 purchases, but now will attempt to comply with them. among my follow-up questions was a request for a copy of the va's guidance in how it would ensure purchasing agents followed the vaar. just yesterday, a response to that and the other questions was provided. it is interesting that only now is the va working to ensure that purchasers using section 8123 are documented and in line with the far and vaar. after all, the va has had nearly three decades to work on this. failing to document purchases under 8123, as acknowledged in the answers i received yesterday, is a reckless use of taxpayer dollars.

to us on this committee, it appears as though the va operates as it sees fit until attention is called to its operation. what the deputy secretary's letter did not address is the va's use of a vha directive, prosthetics simplified acquisition procedures training, that was issued july 16, 2003, and expired july 31, 2008. an updated directive would probably have been useful over the last four years as the va increased its prosthetics spending by 80%. however, we have seen no such update, and have even learned from those in the field that the va's central office has instructed visn{l1}s{l0} to continue following it. that expired directive contains important language stating that section 8123 was only to be used as a last resort, reinforcing the importance of compliance with federal acquisition regulations.

however, this subcommittee has found substantial evidence of va purchasing agents using section 8123 as a first resort. given the broad language it contains, one can see why this easier approach could be so tempting, and it's certainly not the first time we have seen va purchasers opting for the easy route. while there are over 100 definitions for prosthetic >> a throughout the federal government, the definition used by the va is a full paragraph in length. as we will hear today, some of the items falling under this broad definition do not sound like a prosthetic to anyone except the va. the vha handbook's definition of prosthetic appliance is as follows: all aids, devices, parts or accessories which patients require to replace, support, or substitute for impaired or missing anatomical parts of the body. the items include artificial limbs, terminal devices, stump

socks, braces, hearing aids and batteries, cosmetic facial or body restorations, optical devices, manual or motorized wheelchairs, orthopedic shoes, and similar items. perhaps this overly broad definition is a contributing factor to the va's inability to effectively manage its prosthetics inventories. as one of the members of the first panel will note, the definition is confusing, and i am concerned that confusion is widespread inside the va as well as outside of it. recent audits from the va's office of inspector general have substantiated that the department does not effectively manage its prosthetic supply, nor does it have adequate control over its payments when procuring prosthetics. given what we already know, and what we will hear today, these findings are not surprising. a tailored definition of prosthetics is just one way the va can better track and manage

its prosthetics acquisition. for instance, the broad inclusion of durable medical equipment under its prosthetics definition could encourage the misuse of the section 8123 authority. in addition, as the ig noted about the va's overpayments, excess inventories, and failure to receive the best value: strengthening controls over these actions should not compromise the quality of the prosthetic limbs provided to veterans. in short, the va can be a better steward of taxpayer dollars while still providing veterans timely access to care, including in the area of prosthetics. another way the va can better manage the billions spent in prosthetics every year is to actually enforce the acquisition regulations that apply to section 8123. in the response i received yesterday, the va still fails to acknowledge the abuse of section 8123 and the blatant circumvention of the far and the

vaar by va employees. we know the problem exists; now is the time to fix it. if employees in the past have failed to follow internal guidance, then perhaps a legislative clarification is necessary to ensure best value for taxpayer dollars. lastly, before simply reorganizing employee structures and moving chess pieces around on the board, i am requesting here today that the va present to this committee, in detail, its plan to improve its acquisition of prosthetics and the specific reasons for the changes before putting the plan in place. this effort at transparency will help both veterans and congress see that meaningful reform is taking place. with that, i now recognize the ranking member for his opening statement. >> thank you, mr. chairman. in response to the first and second world wars, physical,

occupational and rehabilitation therapy was introduced to respond to the needs of the injured servicemembers. with a high number of service members whose lives were altered due to limbaugh's from combat trauma, the department of veterans affairs needed to provide assisted devices to help service members and veterans lead a meaningful and independent lifestyle. va now contracts with as many countries across the country to provide prosthetics, including companies in my home state of indiana, which is an important medical device of. for example, zimmer and warsaw has a contract covring primary hip and knee implants the kind of the company is proud of its good working relationship with both the va and dod. today where the opportunity to discuss the his prosthetic acquisition and procurement policies. following the subcommittee on health hearing on may 16, further discussion is needed on the his prosthetic and orthotic purchasing. over half a century ago, congress gave the the authority

under title 38, section 8123, to passover federal acquisition regulations and purchase state-of-the-art prosthetic limbs, efficiently and quickly. this exemption is written into the acquisition regulations. by enacting section 8123, exempting procurement of prosthetic limbs from other laws, va would have the ability to provide veterans with the services and prosthetic devices needed to obtaining a lifestyle similar to the one they lived preinjury. while section 8123 may provide the flexibility to veterans health administration's need to respond to veterans, was also assured this flexibility is used properly and not as a means of bypassing federal acquisition regulations. finally i hope by reviewing the department of defense of prosthetic process, we may gain further insight on how to

improve va's prosthetic procurement policies. i look forward to hearing from the va, dod and other witnesses on how we can find this balance. thank you, and i yield back. [inaudible] -- association, and mr. daniel shaw, managing partner of academy medical llc. both of your complete written statements will be made part of the hearing record. you can come to the table, please. mr. oros, you are now recognized or five minutes.

>> good afternoon, and thanks for the invitation to testify on procurement of prosthetic and orthotic care for veterans. my name is michael or as an amendment of the american orthotic prosthetic association board of directors board of directors. and also a licensed clinical process, my experience with a subset of the das quote unquote prosthetic services, if you as someone on the street with a prosthesis is, the response would probably be an artificial limb or possibly an arm. if you talk about and orthoses, a few individuals and family members have had a traumatic brain injury or stroke might be able to describe a custom-made and fit device to help damaged limbs function properly. i'm fairly certain that nobody would suggest seeing eye dog, wheelchair or the other i items in the budget. why does this matter?

an overly broad definition of prosthetics leads to policies that are inappropriate when it comes to time to deliver replacement limbs and orthopedic devices. the result is barriers to care for veterans with limb loss. been a prosthetics to provide for the family and to live everyday lives. only two weeks ago health subcommittee chairman held a chairman on prosthetics as traditionally understood and defined. during that hearing, the chief procurement officer testified that because changes in procurement policies apply only to items that cost $3000 or more, those changes would not apply to 97% of prosthetics budget. while i'm sure that statement is accurate, it's also unhelpful. nearly all the components of a basic prosthetic limb costs more than $3000. so policies that do not apply to 97% of the his prosthetic

purchasing program and still delay vitally needed care for our veterans with limb loss. congress authorized the to go to great lengths to ensure veterans access to prosthetic services in his or her community. if you're a veteran in need of prosthetic care, the va has been given legal authority to do what it takes to secure prosthetic and orthotics from the provider of the veterans choice. aopa urges the subcommittee to do everything in its power to ensure that the necessary procurement legislation, authority and policies remain in place to guarantee the veterans right to choose their own provider. it seems like we shouldn't have to urge the committee to remain vigilant on this point, but we do because aopa shares the concerns of several veteran service organizations that the veterans choice of providers is being eroded. they are real and increasing barriers being erected to non-va provided care.

for one example, one veteran was recently told how he could receive the only a high-tech me from the va services department that was more than two hours away, and not from the community-based processes for whom he had been caring for for more than 11 years. after much pushback from the veteran and his local processes, they be offered to conditions but he could receive the aopa from the va that was more than two hours away, or his local process could resubmit all the paperwork and would take up to three months time for the approval to come through. that veteran finally switched to the va care because he was tired of arguing for his own rights. aopa doesn't believe this is an isolated incident, and i could go on with similar stories. the question really is why is the va establishing policies to underline the veterans choice? it's been suggested by some that cost may be a factor.

a recent audit claims the average cost of a prosthetic limb fabricated by the va in house is about 25% of what an outside contractor charges. that announces almost certainly fails to take into consideration the extent dollars, and it's come facilities and administrative costs. community-based providers working under contract with the va provide high quality care to veterans at rates below the industry's standards that have been approved by medicare. the goal of the current system of prosthetics and orthotics should be to deliver the highest quality, timely prosthetic and orthotic impossible to all veterans, regardless of age, geographic location, ability or willingness to become quote unquote the squeaky wheel and demand appropriate care. procurement policy should ensure for basic elements. veterans have access to the

provider of their choice without having to overcome artificial and necessary their years. veterans must be able to receive timely care from the provider, whether the provider is va or an independent practice. the process serving those veterans should not have the minimal certification and qualifications in but have the training and experience to meet the specialized needs of veterans. this will become more and more of a challenge for the va and for independent oh np practices as the requirement for master's degree as an entry-level is implement. contracting and other policy should require the measurement and continuous improvement of veterans outcomes. until each veteran achieved their highest level of restored function. mr. chairman, members of the committee, thank you very much for the invitation to testify, and for your commitment to running highest-quality prosthetic and orthotic care to our nation's veterans. i look forward to answering any questions that you might have.

>> thank you, mr. oros. mr. shaw, you are now recognized for five minutes. >> mr. chairman, ranking member donnelly, members of the subcommittee, thank you for the opportunity to be before you today to discuss the department of veterans affairs prosthetic purchasing practices and impact on academy medical, a va verified veteran owned small business. my name is daniel shaw and i'm the managing partner of academy medical located in lincoln, for the academy is a reliable source of supply of biologics and hold the mandatory federal supply contract, fss contract issued by the is national acquisition center. my fellow managing partner and i graduate from the u.s. naval academy in 1991, academy medical is so named to pay homage to our alma mater. accompany me here today is mr. steven kent, our director of government sales, and mr. stephen schurr, a subject matter expert in the field of biologics. my original test later today is pleasantly overtaken by events.

by memorandum dated may 23, 2012, the veterans health administration notified vha procurement and prosthetic personnel engaging or a biological implants of its policy on organ biological implants using the fss program. we are very pleased with this change in vha's position, one which levels the playing field and respect the mandatory source nature of the '80s fss program. we worked long and hard to get vha to adopt this policy. i have a copy of the policy ought like to offer for inclusion in the record of today's hearing. we hope the subcommittee will encourage be to formalize this policy memorandum by having it codified to amend the va acquisition regulations. policy of this magnitude should be formalized for perpetuity as policies are easily forgotten as time goes on or through leadership changes. this is true given there's likely to be a short and long-term resistance to this policy, especially by purchase cardholders. one concern we have is whether

the va policy applies to all biological implants arguments, to include those acquired as micro-purchases by government purchase cardholders. we estimate nearly 95% of biological implants are acquired by purchase cardholders who are neither trained nor nuanced and use of fss contracts. this one of a major impact on the success or failure in vha's policy from a supplier perspective and could potentially result in no improvement for fss contract holders. how vha will monitor this policy is still unclear. the policy memorandum is silent on this. we hope this new vha policy will make a difference. we estimate the purchases approximately $175 million annually in biologics. this will be a nice cost savings for the taxpayer. in addition if vha ashton is the make better use of programs, it will avoid competition in contracting act violations. it will be assured of receiving high quality products, used to fund its supply chain management

operations. what is hurting again is the issues of authority granted granted under section 8123 title 38, united states code. although the adjacent policy for the prick in a biological implants is welcome news to us and other fss contract holders, section 8123 still looms large as long as this authorities is and is likely to be applied to open market procurement for biologics not protrude to the fss program. we recently learned the a determined and subsequent notify the subcommittee authority of section 8123, even the veterans contract program authority contained in sections 8127 and 8128. the president and extraordinary contract authorities granted to the 800th veterans contracting programs were effective june 2007. it would seem and passing public law 19461, the veterans health care and information technology act of 2006 congress where specifically exempted section

8123 procurement from sections 502, 503 public law, 109461, but it did not. in light of day just biological implants secure national procurement policy, non-fs as biological givens we conducted on the open market. in closing the news of vha's new biological implant procurement policy gives us hope and levels the playing field and for that we are truly grateful. we seek only to be a reliable source of supply a biological implants to be treated respectfully and to beat the a's industry partner. we have no ax to grind. we simply have a business to run and work to create an environment that engenders trust, mutual respect and cooperation as the provide services to america's heroes. tank you, sir, for your leadership and for that on the subcommittee. we hope to match our private successful -- we never saw an adversarial relationship with va. we seek only to be trusted business partner with the a and b. given respect and opportunity

we earn. we'll be happy to respond to any questions of you or your subcommittee's members may have. >> thank you, mr. shaw. will now begin with questions, and i would yield myself five minutes. mr. shaw, who is a national regular agency for biologics throughout the country to? if i may, there's the fda is not a formal regulation body. it's the american association of tissue banks, a volunteer but that's what body. >> okay. could you briefly explain some of the criteria that the association of tissue banks, a atp has to ensure patient safety? >> yes, sir. the aatb monitors that are safety regulations such as passing for each donor to write a test, the kansas, hiv, appetites, various screens to

make sure that each donor is safe to move onto processing. >> and i'm sorry, let's go back. mr. schurr and mr. king, for the record would you tell us where you are from and who you represent? >> yes, sir. mining stephen schurr. i'm a consultant with academy medical but i'm a subject matter expert with a long history in biologics. >> i'm from wellington, florida and i'm the director of sales for academy medical. >> thank you. spent how can a surgeon or the facility sure the biologics they purchase are indeed safe for the patient? >> all biologic companies that are in hospital systems are to serve patients and are implanted in patients, follow the aatb guidelines, therefore all are being safe. >> how can go to biologics vary

from manufacturer to manufacturer? >> all biologic companies share -- there's just a handful of donor facilities that supply the processing plants. so pretty much they all come from the same sources. >> okay. would you biologics manufactures procure their donors? >> again, there's a handful of donor facilities that dispense and supply the donors processing facilities, and they move onto the biologic companies. >> where exactly do these donors or cadavers, where are they procured from? do they come from foreign countries or from the u.s.? >> as for the aatb, they all come from the united states. >> how do the various biologics manufacturers work cohesively together? do they co-mingled? >> they certainly do.

they all share in the donor po pool. >> okay. do they share and swap products and brands? >> absolutely. >> with regard to traditional biologics, what special training, experience, totaling or technique is required on the half of the surgeon to use the various biological brands? >> to my knowledge, all biologics pretty much follow the same technique guides with very little variance. >> regardless of the supplier? >> correct. >> so to clarify, you're stating that the surgeon's ability and take me to use brand a over brand to be as identical, not altering the surgeon skilled in any way at all that would jeopardize patient safety? >> it's pretty much just how it is prepared in the o.r., whether it is winced or soaked to rehydrate, even a bone product for example, might be a very is and how many methods that is.

it is a small difference. >> okay. mr. oros come you talked about for elements in your experience comprised quality. how does the va oversee supervising otherwise local community based providers accountable for providing quality care to veterans? how does that compare to the way nsba prosthesis are evaluated? >> close enough. frankly, the system goes back to a clinic-based system. there aren't really it measured outcomes, if you will, from the time most veterans begin the cure, at least, my experience is holy with the va system. they will be seen in amputee clinic, for example, prosthesis is described, patient were see their service on the outside, and they will go back for a

quote unquote clinic check out but is not in check if measure if you will asking the patient to walk around a little bit, demonstrate that they can, in fact, moved with her prosthesis. but there aren't really any functional outcomes tied to the care that is provided to either in house or outside the system. >> i have some additional questions. we may have a second round for the spam, but at this time would yield to my colleague, representative donnelly for his question. >> thank you, mr. chairman. and to all of you, thank you for your service to our country, and the sure shot, my neck is a 2005 at academy graduate, and flew helicopters in iraq. as a notre dame graduate, you have been unkind to us in football these past few years. thank you very much -- [inaudible] >> i'm sorry? [inaudible] >> yes, it was.

spit i will point out that ohio state is trying to be unkind. >> and it was well deserved, mr. shaw. your players were extraordinary to watch every year i had a chance to i wanted to ask you, has section 8123 prevented the va from providing veterans with assistive devices they may need? >> i'm not sure i understand the question, sir. >> has that, that would enable to get the best products at the designated to section 8123, or do you think there are some better ways to? >> i think as we discussed there really is very little changed, difference in the prospect what we've tried to express to the va is that there is no difference in biologics, and in particular -- there's no difference. our story is that we feel like

as fss contract out of we can provide the same if not better products at a much better affordable price to taxpayer. >> mr. oros, you indicated that you disagree with the inspector general's audit which indicated the average cost of a prosthetic limb made by contractors is more expensive than if va made it in house. what do you consider the average cost of a prosthetic limb made by contractors compared to the va? >> it's hard to answer that question, only because when you describe a prosthetic limb you could be talking about a simple preload in the prosthesis which my by a neighbor hood -- run in the neighborhood of -- >> i guess on average. >> if it was a true apples to apples comparison, because the reality is, the component costs should be relatively similar from the manufacturer to either the v or the outside clinician,

and then it's a matter of, there are industry standards for what the practitioners make that should be relatively similar, pentecost, et cetera should all be relatively similar. >> where do you think the comparison like the audit, and what do you think they are missing? >> well, the hearing two weeks ago, the i.t. sector he said it was that noted in the report but it really wasn't meant to be an apples to apples comparison because, and of going to paraphrase you, is that the va didn't have really a good assessment of their own internal costs. as someone who looks at, you know, our business dsl's pretty closely, my sense is that without knowing those costs for human resources, et cetera, that's a big component. >> let me ask you this. if they're still handled, if there's no real essence of the cost as you said, does any comparison even stand up if the

numbers are not the same? >> in my mind, no. >> okay. well, i yield back. and again, thank you all for your service to the country, and as you well know, the most important thing we can do is to make sure that every veteran is served properly. so thanks again for what you do. >> i thank the gentleman. will go to or call it now from michigan. >> thank you, gentlemen for coming and testifying today. i just had a couple of questions. mr. oros, are the people that work at the va, are they members of the association, to? did have the same access to the same prosthetics as the people on the outside? >> yes, they should. >> because one of the questions i have, i have done agitations and had people take care of it, and of my patient, and one of the things you brought up in your testimony was sometimes

it's into the fact going to the va, sometimes is a travel issue. for a comfort issue with orthodox, even though -- to all these people already have contracts with the va? i would have me do with this special section a lot with dealing with the outside or do they have a contract to? the majority of va care is provided outside the va system. through contracted, independent contracted providers. >> all right. i'm just trying to verify that the va and they're providing probable care, that access to the highest quality of orthotics and all that. spent the care should be comparable. it's more a matter of what is, in fact, the veterans choice is received care locally or to go to the va. and i think that should be the veterans choice.

and it's fine if it's within the va system, but it's all also should be fine if it's outside the va system. >> it seems your test might sometimes the va seems to discourage -- >> that's absolutely the case. >> all right. isn't the issue that we think that it is just charging, the va thinks it is charging too much, or they already have their overhead involved? is there a reason for that? >> i guess i can't speak for what th the dac the stated intention is or, you know, unintended steering of patient care is. >> my district and i've a very rural district, and people have to travel hours to get to the va facility. and especially to contract with or the tests come mib even further to go to some -- way outside every i think it would be real excellent to let me ask mr. shaw a question. when we talk about biologic, you

talk about bone implants for the most for? >> yes or. on, any type of canada. device. milled bone, aco tendons, skin grafts, things of that nature. >> this is for now we have contracted billy, people for the most part going out of the section 8123, is that the issue your? >> yes or. we haven't fss contract and where one of the few vendors who took the time to get an fss contract, and our situation is, as we're going out and marketing our contract, we are coming up against the leadership that is invoking 8123 and saying that because with 8123 they don't have to abide by any contract, that our fss contract is irrelevant to purchase biologics. >> i tend to agree with each other, i don't believe that biologics are the same thing as prosthetics, to tell you the

truth. and i would prefer to save most people have a contract because, is there a wide variety of price been basically? tell me the variety. >> we found were probably 20-30% more affordable than some of our competitors. >> but what percentage of the business of the va's with a contractor like yourself? isn't mostly non-contracted, country and? >> yes or. may be 97% all contract versus our small, maybe 3%. we estimate that the va spends about $175 million annually in biologics, and to be honest, that there hasn't ever been a vendor put in these products on contract. and so we've kind of gone to the arduous task of getting it on contract and we let the va know that hey, we are out of, and as a veteran-owned small business we want to be your partner. and is relatively fell on deaf ears. >> is there a different cost

structure between your company and the other companies that make a difference in the price, that you are aware of? >> i think, i can't really speak for my competitors and whether situations are, but i think that if you don't have come if you're not ask for a discount, when someone is why the purchase card, then they are not going to get what. >> only different providers on their of these biologics? >> six or eight. >> throughout -- >> i would say six or eight that are comparable that are certified, to provide good quality products. >> my question to the committee then would become to see if we can investigate this a little further. for me, not only does not seem to be an orthotics, just a process itself doesn't seem to be quite right. so appreciate your testimony. i see my time is up. thanks. >> thank you for your link back will go to mr. barrow from georgia. >> thank you, mr. chairman. government, thank y'all for your

test but today. if i understand the whole purpose of 8123, it's basically with respect to something as important as prosthetics devices, money is no object, cut through all the red tape to there is a red tape to we'll spend whatever. there's a noble impulse in the. i understand what you're saying. spent a lot more and not getting enough taxpayer benefit and the veterans at the same thing but is that the upshot of this? >> yes or. >> help me understand how you would rewrite 8123 to make sure we preserve that prime directive, money is to object when it comes to trying to replace a vital function for folks, we will not get close, we'll also not waste money in the process. how would you suggest we change 8123 so we can continue to take attitude of we'll get whatever you need to folks who need it when they need it, but not waste money and get value for the taxpayers and benefit for the veterans. how should we change 8123? >> i don't think you need to

8120. i think most purchases could be gone, the federal acquisition regulation does a pretty nice job for i think, for acquisitions of even prosthetic limbs. >> do you have any concerns the red tape associate, trying to make sure you stuff off the shelf at the lowest price, discounts, that type of stuff, is it going to interfere with folks getting exactly what the need with respect to something that is much more out of the ordinary than something, you know, off bishop? >> there's a va waiver form for clinician were to have a specific appliance that he felt, that would specifically need for that particular patient, there's a waiver form that is quite easy for them to fill out. i think that many clinicians are familiar with the waiver reform and would most likely fill it out for that patient. >> in the context how would things work differently than they do right now? >> i think what would happen is

there will be several contract vendors, most likely your more reputable manufacturers, that would be what most guys would most likely use. on a straightforward case, but again if every patient that is something in particular, the clinician could fill out a waiver form and the patient would get the care that he nee needs. >> mr. oros, give anything to add? >> i think there might be a slight difference when it comes to what i will call traditional orthotic and prosthetic care. i'll highlight the first comment, was to provide whatever was best for those individual patients, and they are really not commodity-based service. so to that end i think you want to limit whatever type of barriers, and they don't think that you necessarily want to lump it in with something, for example, like biologics. so i would absurdly tightened the definition of 8123 to beat replacement of artificial limbs and orthopedic devices. >> how about you, mr. shaw, do

you feel that we? >> i would agree with that. i think that they felt like the need to be in 8123 and the leadership at va felt 8123 was necessary, i definitely would limited to a very, very limited access, and i would certainly ensure that it could not be delegated down. >> thank you, general. i'll have a minute and have. i'm happy to you so much of the time as either the ranking member of the channel like to have. >> will actually go into a second ground. i do have a few more questions and then we'll see if our colleagues have been. mr. oros can you pointed out in your testimony at 80-90% of veterans prosthetic and orthotic care is provided by community-based providers are kind sure this is a significant and and we'll be system of contracts for the to manage. what, in your view, is definitive evidence of sustaining this contract-based system? >> is simply that access to their individual provider.

and the reality of the va network, you're right, it is unwieldy, effect of the of the matter is that injured veterans, they might be originally care for in a dod facility but then they want to go back to their own community and let the own life, and have to go to a va hospital that is two hours away is more than an inconvenience. >> and maybe forward answered this question in some of your comments, but if you're going to design a system, mr. oros, for the va to evaluate the quality of care provided to veterans, what would you do? what provisions would you put in that system to improve the quality of care for veterans, or that veterans receive? >> i would start to look at this implementation of some partial outcome measurement at the time of the original prescription, and follow it throughout the veterans care so that you see there has been restoration of functions. that could be done without it

insurance and also technology available that could support that kind of measurement. >> as one of the elements of quality, you describe the need to educate veterans about their right to choose a provider of prosthetic care. the committee is starting to hear more and more stories about veterans who say that the va is creating barriers to their selection of non-va care. what has been your experience? have you heard from veterans that this is a growing problem? >> i have seen it locally. that's probably what i can speak most directly to is locally, we no longer have access. it's been at least two years that our company, while we had a va contract, has not been invited to the amputee clinic that i referred to previously. really those referrals and the veterans ability to communicate with their processes as was the referring the physician are all kind of present in the same

building. >> there's that word again. from your point of view, what barriers are preventing veterans from selecting a processes of their own choice? is it just that veterans don't know the right? >> i think their unfamiliarity with their rights. >> you talked in your written testimony specifically about older veterans at your practice complaining that there appears to be new administrative hurdles to prevent the continuing to receive care at non-va facilities. ..

>> no additional questions. >> dr. ben check. >> doctor, would you have any additional questions? >> i have a couple questions. >> okay, thank you. >> mr. oros, you talked about the quality of the orthotics providers, and in your testimony mentioned a master's degree program. >> uh-huh. >> is it, is it easy to find people that can do this work? i mean, is there a lot of people

out there who do this? i'm just kind of curious as to the experience that you have in finding qualified people to do this job. >> frankly, there's probably not enough. for, between the certainly the growing problem we have in this country with diabetes, we've got increasing veteran population, the baby boomers in general, so the need and the demand for these services are growing, and the reality of it is we have a limited number of schools graduating students for, that have their train anything -- training in orthotics and prosthetics, so it's an issue and concern. >> do you think the qualifications for the typical v.a. are pretty much the same as the private practice person in. >> i would think they are.

i believe that both inside and outside the virginia that they should be -- >> those folks are members of -- >> yeah, i believe o so. >> is there ongoing certification required for that? >> ongoing education, yes. >> okay. i think that's all i want to ask. thank you very much, sir. >> i thank the gentleman for yielding back. >> i have no further questions. >> well, our thanks to the panel. you are now excuse bed. thank you for your testimony today and for responding to our questions. i now invite the second panel to the witness table. on our second panel we will hear from dr. charles scoville, chief of amputee patient care service at walter reed national military medical center and ms. linda halliday, assistant inspector general at the u.s. department of veterans affairs office of

inspector general. mr. halliday is accompanied by mr. nick dahl, director of the bedford office of audits and valuations and mr. kent wrathall. both of your complete written statements will be made part of the hearing record. dr. scoville, you are now recognized for five minutes. >> thank you, chairman john soften,, ranking -- johnson, ranking member donnelly. thank you for the opportunity to provide a perspective how the department of defense cares for individuals with limb loss, in particular with prosthetic care and our collaboration between dod and the department of veterans affairs. it's always important for us to look back before we look forward, take from lessons learned. the washington post, times herald reported in a few days the army will print -- [inaudible] officers and enlisted men who have lost arms or legs or both

in the line of duty the opportunity to return to active duty. this was written in 1951. fast forward to 2003, we repeated this within the military returning individuals to active duty. to date, we have had over 305 individuals with limb loss who have remained on active duty, and over 53 of these have redeployed int iraq or afghanistan. the goal of our program is to return patients to a tactical athletism or to their pre-injury level of activity. the philosophy we use is to have the patient tell us how far they want to go, and then we work with them to achieve those goals. dod has a significant lower patient population than the v.a.. our patients are significantly different than the vast majority of the v.a. patients. they are young, active service members frequently with severe trauma and multiple limb loss,

that deserve to return to the highest levels of function including active duty. these service members are strong-willed, impressed warriors who challenge us daily to improve how we care for them. we start with a very small, decentralized program and have built it into an efficient, progress bive program recognized as a world leader in amputee care and meeting our patients' needs. v.a. and dod have long worked together. in 1945 the army prosthetic research lab was established, and in 1948 the v.a. established the prosthetic research department head quartered in new york city v.a.. many of the devices that they developed together were continuing to be used at the time the current conflict started. in 2004 congress provided $2.5 million for prosthetic device technology enhancement and clins call evaluation at walter reed

added an additional ten million in 2005, and the darpa project was $30 million. much of the research has been completed in partnership with the v.a., and we would not have been able to complete the research without this partnership. for example, the advanced arms that have been developed have first been tested in v.a. facilities and then migrate today dod facilities. and the newest research is a study projected to begin east later this year or -- either later this year or early next year. if successful, it will allow patients who are unable to wear prosthetic sockets to return to high-end activity. several factors help us explain why dod has led in the efforts to provide prosthetic care for our wounded warriors. one of the keys is the interdisciplinary program. pulling together providers from a wide range to address the patient's daily needs.

while standard of care required in the wounded warrior is to be seen within seven days, we at walter reed have set the standard they are seen within 72 hours. another factor is the integration of contracting within prosthetic services. walter reed embedded a, um, warranted contract officer in the orthopedic and prosthetic service which enables same-day ordering of new prosthetic devices with next day delivery. the development of blanket purchase agreements have insured best value through fixed component costs. a logistics technician embedded within the service provides the ability to warehouse nonpatient specific items, further reducing delay in delivery of care. a third factor in the success of the dod, um, has been the research efforts with partnership with industry ask the v.a. and providing new devices such as the 2x3

microprocessor knee, the robotic and power knee. so the department uses both civilian and contract prosthetists within our facility enabling the dod with the contracts to rapidly expand or contract to meet the basic requirements we have. guaranteed within the contracts through pricing proposals by the vendor in a bid phase of the procurement. the civilian model has wide costs based on the use of not otherwise classified codes within the health care common coding system. the dod requires offererrers to list components they propose to bill for and the amount of reimbursement they will seek. the dod representative may reject any bid with a not otherwise-specified code determined to be excessive.

patients receive care at v.a., this is crucial to the success of both dod and v.a. patient care. the dod does not have the capacity to provide lifelong prosthetic care for our wounded warriors. we continue to work closely with the v.a., and we have their providers working on clinics at walter reed in san antonio, creates a great relationship where we share knowledge and assist the patients as they tradition to long-term care within the v.a. system. through our long history of collaborative research and patient care efforts, we continue to meet the needs of our wounded warriors and veterans. thank you. >> thank you, dr. scoville. ms. halliday, you are now recognized for five minutes. >> chairman johnson, ranking member connolly and members of the subcommittee, thank you for the opportunity to discuss the results of the oig report dealing with how v.a. acquires prosthetic limbs and manages its

prosthetics inventories nationwide. we conducted these audited at the request of the house veterans affairs committee. i'm accompanied by mr. nick dahl and mr. kent wrathall, our director in our atlanta office. before i discuss the results of our work, let me make one thing clear: the oig supports that vet vans -- veterans should generally be able to receive the limbs that they and their clinicians determine are best for them, either v.a. or commercial vendors. our audit focused on the effectiveness of v.a.'s acquisitions and contracted administrative practicesment we did not examine the definition of the prosthetics or whether the v.a. labs are the preferred source for prosthetic limbs rather than contract vendors based on cost comparisons or other factors. in our first report, we

evaluated vha's management and acquisition practices used to buy prosthetic limbs, and we examined the procurement practices and costs paid for limbs. we identified opportunities for vha to improve payment controls to avoid overpaying for prosthetic limbs and improve contract negotiations to obtain the best value for prosthetic limbs purchased from contract vendors. overpayments for prosthetic limbs were a systemic issue at all 21 veteran-integrated service networks. we identified overpayments in 23% of the transactions paid in fy-2010. we found be vha overpaid contract vendors about 2.2 million of the total 49.3 million spent on prosthetic limbs in that year. the overpayments generally occurred because vha paid vendor invoices that included charges

in excess of the prices agreed to in the vendor's contracts with v.a.. we also found that contracting officers were not always negotiating to obtain the best discount rates with vendors. without cos negotiating the best discount rate, vha cannot be assured it receives the best value for prosthetic limbs. we noted that taking action to insure cos consistently negotiate better discount rates should in no way compromise the quality of prosthetic limbs purchased for veterans. in addition, prosthetic staff should periodically conduct evaluations to insure prosthetic labs are operating as effectively and economically as possible. we found officials suspended the vision-based review of labs in january, 2011. after reviewing only nine of 21

nationwide. as a result, the prosthetic labs were unsure of its in-house fabrication capabilities and generally lacked the information needed to know if the labs were operating effectively and efficiently. our second report provided a comprehensive perspective of the suitability of vha's prosthetic inventory management policies and procedures. we reported that strengthening v.a. medical centers' management of prosthetic inventories will reduce costs and minimize risks of supply expiration and disruptions to patient care due to supply shortages. for almost 60 percent of the inventoried prosthetic items, vamcs did not maintain optimal inventory levels. for approximately 93,000 items, we estimated vamc inventories exceeded current needs for about 43,000 of these items, and

inventories on hand were too low for be another 10,000 items. this situation occurred because v.a. medical centers did not consistently apply basic inventory practices and techniques. for example, we found that vamcs did not set normal reorder or emergency stock levels in automated inventory systems for over 90% of the prosthetic items. in conclusion, until vha improves the acquisition and contract administration practices used the buy prosthetic limbs, v.a. will not have sufficient assurance that its practices are effective or economical. improvements in inventory practices and accountability for these inventories needs strengthening, and vha needs to remain committed to replacing its existing inventory systems with a more modern inventory system by be 2015. we are pleased to see that v.a.

is responding to the issues we identified in our reports and that they agreed with our recommendations. v.a. is adopting practices to insure the financial stewardship of the funding needed for prosthetic care. chairman johnson, my colleagues and i would be happy to answer any questions. >> thank you, ms. halliday. we will now begin with questions, and i recognize myself for five minutes. ms. halliday, did the inspector general use the v.a.'s definition for prosthetic in its recent audits? >> we looked at the definition, and i believe in the inventories we really didn't find any real problems with it because it was defined, and we could then apply it against the purchases we reviewed. >> okay. your testimony mentions that overpayments generally occurred because vha paid vendor invoices that included charges in excess of prices agreed to in the vendor's contracts with v.a..

did you find any reason as to why or how the v.a. purchasers failed to obtain best value even with the contract in place? >> um, well, the question on the best value led to the contracting officers not trying to negotiate discount rates. the problem with the overpayments was because the invoices that were being received were not receiving adequate review by the cotars prior to certification for payment. so they just were not looking at the invoices in relationship to the terms of the contract. >> okay. you also discussed how v.a. purchasing agents following the terms of contracts would not compromise, i quote, the quality of the prosthetic limbs provided to veterans. would the quality of prosthetic limbs decline if purchasing agents followed their training?

>> no. >> okay. >> i don't see any reason for it. >> do you know why prosthetic and sensory aid service suspended its review of labs last year after reviewing only nine visins? >> do you have that one? >> my understanding is that at the time they made that decision they weren't, they weren't sure what the need was for conducting those reviews. there was a change in leadership, and i think that they probably just decided that they weren't getting enough information from those reviews to continue them. >> okay. why is there such widespread failure to use ecms? >> ecms is not considered user-friendly. it does take some training. we've actually had some of our staff get the training. it is difficult to put

information in. what we have found through many of our reviews is that contracting staff use it as a shell. they'll put the basic information in, but they won't put all the information in to give you a good understanding of the contract actions that lead to a ward and then -- award and then through contract closeout. >> okay. will the v.a. be able to effectively recover money that it overpaid to vendors? >> yes, they will. because these overpayments were in excess of the contract terms. and we do believe the 2.2 million is a conservative estimate, so i think that v.a., um, the vha staff and dr. beck took action immediately to start looking to recover those overpayments. those monies can then be refund -- be reprogrammed for more prosthetics care in v.a.. >> okay. and do you think overpayments will cease in the near future?

>> we would like to see a more rigorous review of invoices against contract terms throughout all of v.a.. i think that there is the knowledge now that there's a systemic problem, and i think more attention will be brought to that based on the discussions we've had with the v.a. officials. >> okay. turning to the dod, does the department of defense use any mechanism similar to section 8123 of title 39 for its act are by decision of prosthetics? >> no, it does not. >> do you know whether dod has any kind of procurement statute that allows it to procure items and disregard any other provision of law? >> no, it does not. there is no similar provision in the dod. >> okay. are there any instances where dod doesn't document procurements whether they're on

or off contract? >> none that i'm aware of, sir. >> okay. um, i think that's all of my questions. i'll yield to the ranking member for his questions. >> thank you, mr. chairman. dr. scoville, when you look at the v.a. processes, what do you think are some of the best steps that they can take to provide even better care in this area? when you rook at how thing -- when you look at how things are done on dod's side and on the v.a.'s side, what are some of the tips you can give us to operate better? >> again, the dod and v.a. has a significantly different population as far as the number, the location. we have the advantage that we're treating the newly wounded that have not been -- >> right. >> -- for a long period of time and can provide the unified care at our facilities. so we don't need to rely on a large, nationwide network. the approach that we found very

successful was embedding the warranted contract officers within our facility which is something the v.a. is now proposing or looking to do. what that did was it allowed our providers to have more time to work with the patients, and it gave us the, all the appropriate authorities to do the contracting side and making sure we were hitting all the requirements, meeting all regulations. >> is dod's definition of prosthetics as broad as the v.a.'s? >> no. the dod definition of prosthetics is an artificial substitute for a missing body part determined to be necessary by the secretary of defense because of significant conditions resulting from trauma, congenital abnormalities or disease. and it is limited to artificial limbs, eyes, voice process three cease, ears, nose and fingers.

>> so by that definition, biologics would not be included then. >> no, sir. >> okay. can you explain why the use of blanket purchase agreements and indefinite delivery, indefinite quantity insure the best be value when acquiring prosthetics? >> these are, are small business set aside competitive contracts that provide the dod to look at the cost and make assessment, select the sole source that we'll provide at the best value to dod. >> this will be for ms. halliday. do you have any opinions as a result of what you've looked into as to items that v.a. may be including in it definition of

prosthetics that would be better suited for purchase outside of section 8123? >> there was a large inventory of prosthetics when we looked at the medical centers. i think v.a. really has to take a look at which items are not unique, but just standardized that you would use on a regular basis, and that would be, it would take a review to do that. and i understand that the vha is moving in that direction. there's just so many. i think when it's unique, like a limb, an arm or extension, there are very specific requirements, and it has to be tailored to the veteran's needs, and the clinicians will work with the veterans. but when we get into the prosthetics inventory within the medical center, there are many items that can be standardized. >> okay. thank you. thank you, mr. chairman. >> dr. benishek. >> thank you, mr. chairman.

ms. halliday, i have a couple questions concerning the overpayment. you said on average there's, like, a $23 o 00 overpayment. was this systemic through all the hospitals you checked, or were there some hospitals that were paying the right amount and then others that weren't? i mean, i'm just trying to figure out if it's just across the board. >> okay. i believe what we said was there was a 23%, um, error rate in overpayments. we looked at the contracts within the visins and all of the actions to buy the limbs, and it was systemic across all 21 of the network offices in v.a.. >> so it was apart that the purchasing agents found it routine didn't look at the contracts at all, is that the impression you get from looking at how it was done? >> the impression that we got was that the contracting officer's technical representatives were not doing a

good job of reviewing the invoices once they're submitted by vendors before they're certified for payment. clearly, the vha it's called, i think, a cotar handbook, required them to do some review of those invoices against the contract terms, and that wasn't happening. >> was there some difficulty, you mentioned that the software difficulty used or to call up these contracts, is it -- should these people have this at their finger tips as they're doing this? i mean, it seems to me that they would be having these contracts right available to them, and they should know all this as they were doing these reviews, right? i mean -- >> you could get transparency for all the contract actions if you had a good dedication to using the ecms system, and you'd be able to find out much more about the progress and what the contract was and the terms and be able to do these reviews much

quicker and better. >> is there a defined training level with the competency requirement for the people that do these reviews that include something like that? are you aware of that? >> [inaudible] yes, there are. the cotars, which is a contacting officer's technical rep, there is training for that. they're delegated the responsibilities, and the contracting officers will clearly lay out the responsibilities to review such things as the invoices. because normally the cotrs come into play much more after the award of a contract. so they're looking at that contract administration piece. >> so since your investigation, has anyone changed the way they are doing business now, or is this just going on the way it is, or is there any review of the process, or has anyone been

be reprimanded for not following the rules? anything like that have occurred? >> at this point it's too early for us to assess that. the department has accepted our recommendations in the report, and they're moving forward on some 18 different recommendations to tighten up the controls associated with what we saw as weaknesses in the contract administration. we would have to give them time to get all of those controls this place, and then we would come back in at a later date and assess the effectiveness of their actions. >> is there a timeline for that >> normally, we give the department a year after we issued an audit, and i believe our audits were issued in march of this year. so we'll be looking to do some testing and follow-up work within the next year. >> well, i'd be happy to see that report. >> okay. >> thank you. i yield back the remainder of my time. >> i thank the gentleman for yielding back. we'll go to mr. berle from

georgia. >> thank you, mr. chairman. just to follow up a little more, ms. halliday, just how is the government going to go about getting back some of the money that's been overpaid? >> could you ask that question again, sir? i'm sorry, i don't believe i heard you. >> sure. we acknowledge money's been overpaid because the offices weren't scrutinizing before they were certifying. i think at one point the subject was touched on are we going to walk away from it, and i think i got the impression that somehow we're going to be pursuing -- >> yes. >> recoupment, reimbursement, something. >> it is the responsibility of the contracting officer to make the final determination on funds that have been overpaid and set up bills of collection and work with the vendors to recoup those monies. >> and what if -- is there any possibility or likely hood that it might be difficult to recoup the money because someone don't want to pay it back? or is this too small potatoes with an ongoing book of

business -- >> i think the pressure to maintain ongoing business is really what brings about a cooperative relationship between the vendor and v.a.. >> glad to hear it. thank you, ma'am. >> i, i thank the gentleman for yield back. our thanks to the panel. you are now excused, and be i invite the third panel to the witness table. >> and we're live this morning for a discussion comparing 2012 presidential candidates. former massachusetts governor mitt romney and president obama. this is hosted by the national journal and the newseum here in washington. it's just getting started. >> we'll also have live events like this one looking at each candidate's positions, how they've evolved, shifted and changed at both the republican national convention and democratic conventions in august

and september respectively, and we invite you to join us if you are down in each city. we're able to gather this morning due to the generous underwriting support of the society of human resource in fact also known as shrm. the leadership immediately saw the value in it. so thank you to bob carr, mike akin and to the entire team for their partnering with us on this important project. helping welcome you this morning is rob carr, chief marketing officer. bob formerly served there as strategic planning officer and is a former executive directer of the national bar association. welcome bob. [applause] >> so good morning. morning. as most of you know, washington is a city of many intersections, both literally and figuratively. and so what we've learned is

without victoria, we wouldn't be able to navigate many of those intersections so, again, give her a big hand for me, please. [applause] so, again, i'm bob carr, i'm with shrm, and shrm's the world's largest organization of human resource professionals. we're in over 140 countries, over 260,000 members around the globe, and we're pleased to have the opportunity to be part of today's program. so we partnered with the national journal before and, obviously, this is a great opportunity for us to partner again, especially on this series of public policy panel discussions. today's program is first in a series of important discussions being titled, "compare the candidates." this year's presidential contest will no doubt be another nail biter.

if the polls are correct and the electorate remains divided on how to address the many challenges facing our country. and while divided, most agree that the economy is the most important issue to the american people. and decide the outcome -- and will decide the outcome of this year's elections. jobs, health care, retirement, work flex and the skill gap are just a few of the many issues that we wrestle with at shrm. but these are not new for human resource professionals, and they're the key challenges that most of our members face on a day-to-day basis. from shrm's vantage point, all of these issues, of all of these issues the most immediate concerns is the skills gap. we believe that it's the barrier that keeps america from full deployment. i think "the washington post" did a story yesterday and reflected that fewer than, that

more people between the ages of 25 and 54 are not working. and we believe in large part it has to do with the skills gap. in fact, most of our members are telling us they're really having difficulty recruiting the kinds of people with the right skills, the right talents that they need in order to remain competitive. so in doing that as a country in terms of dealing with the skills gap issue, we believe that it's really a critical part of the economic aspirations of this country. so in concluding, we hope that you enjoy today's discussion, and i encourage you to join us later this summer for the two other sessions of this three-part session. series. and we look forward to seeing many of you in the upcoming national conferences. thank you very much. [applause]

>> thank you, bob be. as our first panel is taking the stage, i just want to give you a little information about how the event will flow this morning. we have three panel discussions, and i welcome you to stay for all of them. we are grateful to all our participants for joining us this morning and for their willingness to take questions from you all as well as from our reporters and journalists. so think about what you would like to ask. we will have staff going through the audience with a microphone. please, stand up, state your name and organization and then ask your question. and finally, for those of you that might still have them on, please, silence your cell phone. we'd like to have an uninterrupted discussion. our three panels are moderated by national journal editorial talent. moderating our first discussion is jim tankersley, an award-winning journalist. he's covered business, economic and related issues for the l.a. times, "the chicago tribune" and was part of the team at the toledo blade who were finalists

for the pulitzer prize. adam curber in is the deputy editor at national journal and was previously writing for the new republic and helped oversee the relaunch of their web site back in the day. our final panel will be moderated by ron brownstein, a two-time finalist for the pulitzer prize for his coverage of presidential campaigns. ron writes regularly for the national journal and for our web site and also contributes to our sister publication, "the atlantic monthly." thanks to all of them for be helping lead the discussion this morning and, jim, it's over to you. >> thanks so much. i have a great panel this morning and thanks, everyone, for joining us. just quick introductions, bob bixby with the concord coalition, rob shapiro is a former adviser to president clinton and vice president gore and doug holtz-eakin and is a former adviser to john mccain

among others and former director of the cbo. so thank you all for coming. let's dive right in with the most important question on everyone's minds. jobs. let's start with you, doug. if governor romney wins this election, what could we realistically expect from him right away in terms of an immediate job creation plan? >> i think the pressing need are deep structural reforms. we need fundamental tax reforms, entitlement reform bees, education reforms. the governor has placed tax reform at the top of his agenda, and he's taken strong positions on the entitlement reforms as well. so it becomes not a question of do we understand the policy needs, but can you get as a matter of the political progress the job done in washington. and there i think his history of being a governor, of having to work with a legislature will be a real asset for him. >> and what's the sort of underlying economic theory that he is bringing to his plans here in terms of how to create jobs?

>> i mean, it's a reliance on private sector incentives to produce not just jobs, you know, it isn't simply a matter of creating more jobs. one of the striking facts is that we haven't seen any growth in real disposable income in this so-called recovery, so it is more than a jobs issue. it is having quality of life improvements for those who actually have jobs. and i think that's going to be the top issue. >> rob, so much of what the president has talked about over the last few months has been about the middle class, about the idea of economic fairness. still have way too high unemployment rates, what do you think that his -- how would his policies be different in a second term to try to bring that rate down faster? >> well, i think there's a real contrast between the president and former governor romney. the proposals or at least the areas of reform without going into the details of the actual details of the reform that doug mentions are all good for the economy. they're all pretty distant from actual job creation as i doug

actually suggested. and the president believes that we can target job creation much more specifically. he's done that with reductions in the payroll tax on the theory, the sound economic theory that if you want business to create more jobs in a period of slow job creation -- which we have been in for a decade, incidentally, it's not just this expansion. the job creation in the 2002-2007 expansion was the slowest of any expansion up to that point in the post-war era. you need to reduce the cost to business of creating those jobs sp. one of the ways -- and not just reduce costs to business, but reduce job-creating costs. and that goes to the employer side of the payroll tax. it also goes to particular incentives that the president

has, tax credits the president has proposed for small businesses that make incremental increases in jobs. ultimately, job creation depends on strong growth, strong demand. but in a period in which there appear to be structural issues that are slowing job creation, he chooses a much more targeted approach than former governor romney. >> bob, i want to talk a little bit about the commission that you served on, the domenici-rivlin commission. you all talked about the sort of two-part problem that's facing our economy, the long-term problem of a deaf sis that is -- deficit that is mounting and a national debt that's getting bigger and bigger every day. but the short-term problem of needing more growth, and you proposed a sort of stimulate now coupled with, um, credible, big deficit reduction later plan.

do you think either candidate has embraced that kind of vision? >> not fully, no. and i think that that's the real transition that has to take place here because we do have two problems. we have a short-term cyclical deficit which is quite substantial because of the depth and length of the recession, and we have -- and the slow recovery -- and we have this longer-term structural deficits which, you know, pre-existed before that. and the two issues often get conflated. so, you know, i think you have to be able to walk and chew gum at the same time on this one, and it's a very difficult thing to do politically. you know, to talk about -- and particularly from the point of view of a deficit hawk. be if you start hinting that, well, you know, it's okay in a slow economy to do certain things that are targeted that might increase the deficit, but if they're going to help get you over the hump short term, it's okay.

so as long as you have a credible back-up plan which is, actually, i think more important of the two. if i were to choose between the two and say, you know, let things go for one and not the other, i think it's much more important to do something on the long-term structural deficit because that's unsustainable whereas the economy will probably take care of itself at some point. i'm not suggesting the government should do nothing and sit back, i'm not suggesting that as a policy. but i think it's really important, and i think the candidates have focused more on tactical issues in the short term than on addressing this long-term structural deficit, and if we don't get that under control, you can't stimulate your way out of that. you know, you can't tax cut your way out of it, you can't grow your way out of it. so i really think that some more anticipation from the candidates on that structural deficit. what we did on rivlin-domenici, it wasn't just a payroll tax cut, we had a payroll tax holiday for a full year. it was a very substantial

stimulus. and, you know, maybe that's not the right approach. maybe there are other approaches. but we wanted to emphasize that you could and should be accommodating in the short term, but so long as you were having a longer-term sustainability plan. >> doug, please, go ahead and then -- >> i just want to say i think this is a big point of contrast which is, you know, there's temporary, targeted policy-making approach is not one that governor romney support bees. we have had an economy that's been growing since 2009, june 2009, and it's just going too slowly so that the fundamental problems are not ones that will, in fact, be treated by that set of policy tools. you need to enhance the trend rate of growth in the economy that requires tools of permanent reforms for structural problems, and that will actually help in the near term. they go hand in hand. >> rob? >> well, what this ignores is

the miserable job creation record of the last administration. in fact, if we look at the period from the end of the recession, the 2001 recession to the current period, to the current period and compare that with the comparable period after the 2001 recession, we've created 4.2 million private sector jobs in this period, and in the comparable period 540,000 jobs were created in 2002 to 2004. >> but so let's keep focused on the election, though, because i'm looking forward. >> well, the point is, the point is this suggests there are new structural issues with job creation, that this is not about simply the overall efficiency of the economy, that the economy's -- our capacity to create jobs, the private sector's capacity to create jobs

in response to growth has changed. in fact, we know that the rate of job creation relative to growth fell by half in the last decade compared to the 1980s and 1990s. that's not a matter of -- that's not because we made policy mistakes, it's because of the way the economy's evolved. but the question is, how do we address that? is it simply enough to increase the efficiency of the corporate tax code or to reduce regulations in various areas, or do we have to try to figure out why is that happening and address that directly? the president has said this is a separate problem from the overall efficiency of the economy. that's why we need targeted measures. that's why we need -- and i know this is an area that doug has been very involved in -- measures to slow the rate of increase in health care costs. because those are inhibiting job

creation by business as well and was a major focus of the affordable care act. >> well, let's talk about health care for a second. thanks for providing our first transition there, rob, well done. [laughter] >> always happy to talk about it. >> yeah. we, we clearly have to two different visions on health care. governor romney has promised to start working to repeal the affordable care act on day one. the president wants to, obviously, keep it in place depending on what the supreme court does here. let's talk about the supreme court. what -- how will this decision change how either candidate is going to have to govern on health care depending on what happens? doug? >> well, i think, i think it turns out to be pretty simple. if you get the court sustaining the law, right? no changes, um, you will see the president stop talking about it. it's an exceedingly unpopular part of his first term, and you'll see governor romney

continue to argue for a better be approach to dealing with our health care problems. if the court overturns the individual mandate or the whole thing, you'll see president obama running on the need for better supreme court justices, not health care. and you'll see governor romney in the position of having to advocate for an alternative to the affordable care act if he's elected. >> yeah. i want to ask bob about that. how, how important is it that we hear from the candidates how they would constrain health care costs with or without the affordable care act in terms of our long-term deficit problems? >> well, there's no question when you look at spending, you get the big health care programs, particularly medicare but also medicaid and other government health care programs, that's really the long-term cost driver. you know, social security is a modest increase, you know, over the next 20 years or so. but it really is controlling health care costs. and so it's important. it's difficult for the candidates to respond until they

know what the supreme court has to say because, you know, setting out a lot of hypotheticals and alternatives would be rather confusing to people. but i think that as soon as -- i mean, presumably, they've been thinking about this behind the scenes, and their advisers, and should be ready to go with different alternatives. but it's really, really important there are different visions. although there are certain similarities. i mean, there is a, i think on both sides, an agreement that part of the solution should be competition. you know, the private sector competition is, you know, favored in both approaches in a way, but with the obama health care plan there's also a way of controlling costs that come from this independent, you know, health care board that would make recommendations. so there's more government

involvement in, you know, cost control that way, more direct rather than the indirect. and i think that's a very fundamental debate, it's a good debate to have. as far as the cost growth, however you do it -- and can we haven't done it yet. even if the cost control mechanisms of the affordable care act work, we're still on an uncontrollable, an unsustainable path. so it's really important that both candidates still talk about their preferred ways of controlling health care costs. >> yeah. rob, i want to -- can we broaden just for a second to talk about the deficit in general. i mean, this is -- right now our borrowing costs are extraordinarily low. we're not facing the sort of crisis that europe is, but there is concern that that could shift at some point if we don't get more serious about more credible deficit reduction. at what point does the president during this campaign have to put forward a more detailed plan for deficit reduction in the second term in. >> well, um, i think the president has actually been

pretty detailed about his $4 trillion plan. $1 trillion of it is already, in effect, enacted by congress in discretionary caps and cuts to discretionary programs. he has laid out $800 billion in medicare reductions over ten years 6789 -- $500 billion went to aca. he laid out $1.5 trillion in revenue increases, and he's laid out defense cuts which are really the savings from resolving the wars in iraq and afghanistan. as he promised in 2008. um, and so he has a $4 trillion program. we can argue about whether or not that's enough. i think there will be a very clear debate on this because the governor has proposed $5 trillion in additional tax cuts. a 20% cut in every personal rate and a 20% cut in the corporate

rate plus the abolition of the estate tax. so that creates a different context, i think, for the debate over the deficit. i think the president's, the president's detail is certainly much greater than we have seen from other candidates. but i would certainly welcome a debate which forced both candidates to go beyond their current positions with even more detail. >> i, for one, thought we did not hear nearly enough of the details that the president made in west virginia who took, like, 40% of the vote from the president in the democratic primary. [laughter] no, but, doug, i think rob raises an important question which is governor romney is running in part on the idea that we need to control this deficit, but he's proposing huge tax cuts. can those things be reconciled? >> the tax rates he's proposing

are the same as the bowles-simpson program had, and it was a sensible solution to the problems we faced. the president ignored it entirely. so that characterization just misses the facts. you can do the tax reform that bowles-simpson proposed. it would look like what governor romney's tax rates are proposed and still do deficit reduction. you know, it is imperative to move quickly. we already have debt to g, the p ratios that are over 900% -- 100% historically. we're already paying the price of the enormous debt runup, and that's ant a million job -- about a million jobs in this economy. if you want to get jobs, you do have to deal with the debt problem, and you have to 2k50e8 with -- deal with it quickly. heavy reliance on short-term borrowing, lots of sort of hidden and disguised lights keep -- liabilities keep popping

up. the governor is committed to structural reforms on entitlements and on taxes to deal with that problem because it has near-term benefits and it's an imperative. >> but i'll ask you the same question i asked rob, when will we these to see the details, for example, on the tax loopholes he'd eliminate? everyone's for tax reform until you get down to the hard parts. so when do we see those or when do we need to? >> well york u.n., as the campaigns progress, you get more details. putting out a detail early, it just gets lost. people don't focus until june, july, august. i think during that period after the conventions we should see both candidates laying out what they're going to do in their second term. we have no idea what the president's promising to do in his second term. he hasn't said a thing. and and so i think, you know, the governor's talked about medicare reform, tax reform, laid out a sensible education reform proposal the other day, he's talked about what he would do on international trade, and the president's silent.

so, yeah, you'd hope to see something. >> well, i expected this to degenerate to -- [laughter] the fact of the matter is, the fact of the matter is -- >> [inaudible] [laughter] >> governor romney's position is nothing like simpson-bowles be. simpson-bowles calls for more revenue increases than -- not just, not just neutral, but revenue increases -- >> the point is you can -- [inaudible conversations] >> of over $1.5 trillion. the governor has specified no revenue increases, instead has specified $5 trillion of additional revenue losses on top of the current levels and says, well, trust me, i'm going to come up with reforms that address the tax preferences ha that high income -- that high income people have. that's what he's said in general. there simply aren't enough preferences for high income people to begin to pay for that

and, in fact, the governor's position is contrary to that of his senior economic advisers, glenn mancue and glenn hubbard, both of whom have said the only way we can resolve the deficit issue is by including substantial new revenues, not new tax cuts, as well as -- >> shock, shock, find out a candidate doesn't listen to his advisers. [laughter] >> i want to bring, i want to bring bob in. >> you have no personal experience. >> no, none. i want to bring bob in because, again, what we saw from your commission and from simpson-bowles and other independent groups who have tried to solve this deficit problem is a mix, right? a mix of tax increases and spending cuts. our -- whoever is the next president, will they have to adopt something like that to really solve this problem? >> i think so. that would certainly be the wisest course, i think, politically. and it, but it's -- you know, the problem is you looked at

simpson-bowles and what rivlin-domenici did, and we were working independently, we really came out with the same basic approach which was you did have to look at the long-term, you had to look at health care, you had to look at social security, and on tax reform you had to broaden the base and lower the rates. and that was the key in our commission to greating agreement, was what -- how low could you go on the rate that would attract republicans to say, okay, this is a substantial reduction in rates, and so i could, you know, bring that to my people and say that we were improving the tax code. but, you know, so long as we were doing a tax, you know, entitlement reform as well to bring down the long-term spending. but the key is filling in those details. you know, when you -- because we lowered the top rate to, i think

it was 28%, and then we had a 16% rate. we had some very specific proposals about how you would broaden the base to do that. and all too often i think that gets glossed over as exactly how that would happen. we did broaden the base, lower rates, but we also used some of it for deficit reduction, so we ended up with a revenue increase, and that's something that has to happen. but i think that, you know, when you look ahead to say if be romney is looking at the ryan budget as a model, he's got two rates, 25 and 10, i think, that he -- but in order to do that in a revenue-neutral way, you really would have to whack the heck out of so-called tax expenditures, and some of them function just like entitlements. the exclusion from employer-provided health care, the mortgage interest deduction. so implementing that, it's easy to say, you know, close loopholes for the rich. >> right. >> okay, but once you start to

do it, it's going to be very difficult. and that's why when these commissions look at it, you finally figure out that you probably are going to have to have a mix of things in order to get to where you want to go. >> we have just a few minutes left before i take audience questions, so i want to get rapid fire on domestic issues. number one, immigration. what can we expect from either candidate? gentlemen? >> nothing quickly. [laughter] >> i think the president will try again for be broad immigration reform as he has in the past. whether or not we can pass it through congress, i'm pretty doubtful. >> okay. question two, question. governor romney has a interesting kind of education plan, is that something you would actually expect to move if he wins? >> yes. i think that's an imperative. education and health care are two large sectors of the economy that underperform and cost us an enormous amount of money, they're part of the structural problems we want to address. >> what about the president? >> i think the president will focus as he has said on expanding access to college

education, to higher education, um, as well as the continuing reforms for associated with the funding of no child left behind. >> the housing market. any chance that we see a change in policy on housing in the next term, first, from the president? >> well, the president has been trying to move step by step towards a series of supports for people in danger of losing hair homes -- their homes. i think this is fundamental -- a critically important policy. it's very, very difficult politically. i hope that the election outcome will give him the basis to go further than he has, but it is certainly a sharp contrast with the governor. >> and the governor? >> i don't think you'll see a large federal housing policy because the reality is we have 900-odd house -- 300-odd