is this too small potatoes with an ongoing book of business? >> i think the pressure to maintain ongoing business -- >> that's why i wanted -- >> is really what brings about a cooperative relationship between the vendor and v.a. >> glad to hear it. thank you, ma'am. >> i thank the gentleman for yielding back. our thanks to the panel. you are now excused. and i invite the third panel to the witness table. on this panel, we will hear from mr. phillip makoski. he is accompanied by dr. lucille beck, chief consultant for rehabilitation services, director for audiology and

speech pathology and acting chief consultant for prosthetic and century age service in the veterans health administration. also accompanied by mr. norbert doyle and mr. ford hurd, associate deputy assistant secretary in the department of veterans affairs office of acquisitions and logistics. mr. makofski, your complete written statement will be made part of the record and you are recognized for five minutes. >> chairman johnson, ranking member donnelly, and members of the is subcommittee. thank you for the opportunity to speak about the department of veterans affairs ability to deliver quality care and acquire prosthetics and other devices. i'm accompanied today by lucille beck, rehabilitation services and acting chief consultant prosthetics and century aid service. mr. norbert doyle and mr. ford

hurd san hurd assistant secretary. to improve the business processes governing the procurement of prosthetic devices for veterans. we are taking care to ensure these changes approve the accountability of these purchases while maintaining the high quality of care and clinical decision making critical to veterans health care. enhancing access and tailoring devices to the unique needs of veterans is and will remain our chief priority. in the few minutes i have now, i'd like to broadly outline how we are exercising better oversight of our operations and maintaining patient care. first, v.a. is transitioning the authority to purchase prosthetics from clinical support to contracting staff. the authority to select the most appropriate prosthetic device remains, however, with a clinical provider and a veteran. technologies and equipment must be highly individualized to meet each veterans' unique

rehabilitative needs. we are making this transition, though, to bring our practices more in line with federal and v.a. acquisition regulations. while these regulations generally require full and open competition and procurement, section 8123 as we heard today authorizes v.a. to limit competition when physicians require specific devices or equipment for patient care. and similarly authorized limiting competition under these circumstances if the secretary elects to use section 8123 in this manner, all applicable requirements must be followed. when products are generally available and interchangeable, competitive procurements may be more appropriate. v.a. has aggressively pursued national contracts over the past ten years for these types of items achieving cost savings and standardize and define component commodities where appropriate. when we can purchase products, devices, supplies, generally available and interchangeable, we will comply to ensure we are

obtaining the best price possible. in the long-term, vha will develop a catalog of such items to facilitate better, more cost effective purchasing decisions. we are also increasing the number of audits of purchases to identify best practices and to conduct better oversight to ensure we are realizing the best value. as we gather more data on how these changes are working, we can continue to refine and streamline and simplify our processes. we are using new templates, checklists and justifications and we are improving the communication between staff and leadership so we have a comprehensive view of our procurement activities. we will correct noncompliant contracts as required and evaluate contractor performance as required by the institute collection activities when warranted. finally, we are better defining our policies and guidance to the field. strengthening our training programs and increasing oversight and audit functions.

we are directing our facilities to reconcile physical inventories and taking action to eliminate excess inventories without creating supply shortages. we are revising our standards for facilities to require at least one prosthetic supply inventory manager to become a certified v.a. supply chain manager. in conclusion, vha's prosthetic and sensory aid service is one of the largest providers of sensory aids in the world offering a full range of equipment in services. v.a. supports high-quality amputation and prosthetics care by promoting ground breaking research into new technologies, training highly qualified staff in v.a.'s amputation system of care. we are improving our oversight and management to better utilize the resources we have been appropriated by congress as we serve america's veterans.

however, we must always ensure our processes do not adversely affect our ability to provide veterans with high quality, individualized and timely prosthetic services they have earned. we appreciate the opportunity to appear before you, sir, to discuss this important program. my colleagues and i are prepared to answer your question. >> thank you. and we'll begin with questions. i'll recognize myself for five minutes. as a procurement official responsible for documenting that a procurement is authorized under title 38 section 8123 as outlined in the 6.2, 6.302-1 and five? >> yes, they are. >> also required to document the technical health care and other factors supporting this decision through justification and approval for other than full and open competition in the contract file? >> we expect that the

contracting official will document the basis for the sole source justification in using 8123 especially as we have developed the templates moving forward, the basis for that justification is clinical indication as in a physician's prescription, so noted. or a veteran choice. >> so the short answer's yes. >> yes, sir. >> okay. why did deputy secretary gould's letter cite section 8123 and state that the v.a. is not required to document from the federal supply schedule when invoking section 8123? >> so i believe the deputy secretary's letter was with respect to some specific acquisitions that were cited in the incoming correspondence and in explaining why we did not actually have to cite or provide a prior waiver request, 8123 was noted as the reason not requiring a prior waiver from

the bar hierarchy of contracts. >> many physicians that the v.a. are part-time employees and in this capacity can promote companies with which they are associated as consultants. through section 8123, these physicians can also direct sole source contracts. are v.a. physicians required to disclose any outside partnerships that could create an ethical or moral dilemma for the v.a.? >> they are absolutely required to do so, sir. >> okay. >> you note the policy for purchases over $3,000. approximately 5% of biologics cost more than $3,000. so your policy will have minimal bearing on 95% of biologics purchased. will you describe how it will affect the other 95% of biologics purchased? >> well, i don't actually have the specific cost breakout for

the biologics themselves, but the $3,000 threshold was noted that it was 97% of the cost would be below $3,000. the number is north of 50, 55% of all the prosthetics purchases greater than $3,000 in costs. it's the number of transactions is the 3% number. in terms of the biologics themselves, our expectation is that we're asking in this policy moving forward that we document that a waiver from fsf was achieved. we will collect information why it's not being selected as a source for biologics or other items or national contracts for that matter and be able to attenuate practice through education, communication in the field as well. >> okay. numerous contracts reviewed by

this subcommittee show v.a. purchasers splitting contracts in order to remain under a specific price threshold for purchase. in one case, 12 purchases went to the same company for the same product from the same contracting officer one right after the other. why is vha not aggregating their micropurchases of biologics and other prosthetic supplies to be cica compliant notwithstanding the section 8123 authority? >> sir, it is not appropriate to split transactions to below a micropurchase threshold. if that is occurring, that is not a condoned practice. >> okay. what then would the vha do to stop that? >> monitor the action and ensure that -- look, every purchase

card holder with a transaction below $3,000 is supposed to be monitoring that. they should be looking for any split transaction to remain below a threshold. that is an inappropriate action. and, you know, i would request taking that item for the record to research it. >> well, i appreciate you recognizing that, sir. we've got page after page of examples of that kind of thing. so i would hope that the vha would take that issue very seriously because we on this committee do. why are some prosthetic items purchased using far guidelines instead of section 8123? >> initiate the discussion. 8123 is not actually as much in conflict as it seems in prior discussion today.

you know, within part 6 302-5, there is reference to other statutory authority. the question is under what conditions does the physician prescribe a specific product? or does a veteran choice weigh in as the justification for sourcing a particular item? and that's primarily the scenario within which 8123 is used. v.a. over a number of years has been awarding national contract. there are well above 50 national contracts for prosthetic supplies. some of the more high-performing being, of course, within body of devices. there are roughly 600 contracts throughout the country for local regional contracts. all of those are precompeted price negotiated, as well. the use of 8123 the way we use it is for the source

justification for other than full and open when it is a physician prescription or a veteran choice. >> okay. i may have additional questions, but i'll yield to mr. beryl from georgia at this point. >> thank you, mr. chairman. when it comes to exercising discretion under the statute, do you think -- what problems would you foresee if the v.a. was to adopt the definition of prosthetic? >> thank you for the question. i believe the concern we would have is many of our veterans have come to expect a certain degree of their own choice to be honored in the system. and frankly, the expectation that a physician doesn't have to defend his or her prescription through an administrative process. my concern would be that the degree of individual lens to ensure those elements in our system are not lost is what i

would worry about that it would work 90% of the time. i would be concerned that as we try to constrain the definition of a prosthetic, our definition is because we have a broad system that is geographically distributed, serves veterans across many ages. my concern would be that we -- that we restrict the ability to source specifically what is for the benefit for a veteran either through a physician prescription or through the veterans' choice and that we would overcorrect and lose that dimension, sir. >> i get -- i get that, i understand what the purpose of 8123 is to cut through the red tape. supposed to make sure nothing stands in the way of getting just what the person needs. but biologics don't seem to fit that definition. that's clearly something that the doctor is going to use, like something that comes off a shelf. how a doctor applies that, of course, is highly individualized to the patient. and what i'm getting at, the

d.o.d. has a definition that seems to be fairly comprehensive and meets what most folks walking around have an idea of what we're talking about here. y'all have a definition much broader than that. and i want to make sure that nothing we do or nothing we recommend puts a red tape barrier between the provider and the veteran, the person who needs the benefit of the device or the technology that we're trying to make available to them. at the same time, though, i think we need -- we have an obligation both to the taxpayer, we don't have a loosy goosy definition that all kinds of stuff -- we're cutting all kinds of corners and not applying best practices. what do you say to that? >> sir, when we compared our definitions at the committee's kb, we compared our definitions with other entities, and you know, there are some commercial entities that actually use a

definition of prosthetics that's comparable to our definition. >> i'm sure there'd be folks that would conform to yours. >> i'm sorry? >> i'm sure there are folks that would broad enough to conform to yours, but that's not the -- that's not -- >> the other thing i wanted to mention. as we're committing this transition process and we are trying to commit that process as carefully as possible. but we are committed to completing within this fiscal year. there's nothing in the use of a source justification that precludes us from engaging in a price negotiation. a warranted contracting officer is the on the person authorized to make a fair and reasonable price determination within the v.a. and it's our expectation that price negotiation even when sourced is under limited or restricted competition that the price reasonableness would still continue. that is our mechanician to

source a physician with procurement reform. >> i understand your position. one last question. you heard from representatives of the provider community, representatives of d.o.d., representatives of v.a.oig. is there anything else you heard folks talk about today that you think needs to be amplified in order to give us a fuller appreciation of the issue before the committee? >> is there anything you think needs to be said that is going unsaid? >> yes. i don't think we heard from the veteran community today. and hearing directly from their concerns. you know, this is -- this is not a process, this is not a rule that we invoke to make our life easier. this is a process that is in place to serve our clients. >> i understand that. >> that would be it, sir. >> and i appreciate that. how about any clarification or correction from what you've heard from these other folks. >> i made one clarification

point. what we're talking about in the transition process is over 50% of the prosthetics, and i think that's clarification that we wanted to make sure was understood. so as the procurement, as well, over 50%, 55%, of the procurement action in dollars. the next thing i would indicate is part of what our challenge is to ensure that we have available prosthetics timely for veterans. and this notion of timely has to be true across the entire system. >> thank you, mr. chairman, my time has expired. >> thank you. >> i thank the gentleman for yielding. mr. matkofski, what you're saying here today is the exact opposite of what the deputy secretary's letter said in regards to the application of 8123. why is that?

>> i do not believe it's the exact opposite. i think that with respect to the specific acquisitions that were noted, we were asked a specific question about whether or not we had to seek waiver approval prior to sourcing the items that were not on federal supply schedule. we cited 8123 as the source justification that would allow us to the need for a waiver. what we are doing here today is not something we've embarked on over the last couple of months. the transition in prosthetics to the procurement community is something that mr. doyle and dr. beck began in last august. and we have been working on. so this is not a new transition for us either. >> okay. what policies and processes does the v.a. have in place for the purchasing officials to determine when and when not to

use the far in purchasing prosthetics? >> well, we mentioned a few policies that we have, we have a few policies that identify the conditions under which we would apply the 8123 source authority that remains. we also have the var which makes reference to 8123 contained within it. we are updating our policies now to ensure that they are current. we have recent directives out to the field in the form of memorandum requesting that unless explicitly specified by a physician prescription that for biologics the var hierarchy is to be followed. >> okay. why does the v.a. not document purchases made under section 8123 in accordance with the far?

>> i can tell you that on a moving forward basis, all of our procurements that would use 8123 as a source justification will be templated and will contain the basis of justification within them. they will also be, within the ecms system, will be our procurement contracting officers will actually initiate and conclude those purchase actions with any cms and would be documented. >> well, that would be helpful because for the last 30 years they haven't been documented, the fact that you're going to do it moving forward will certainly be helpful. does the v.a. have records or can it audit purchases made under section 8123? >> on a point forward basis we expect -- we don't expect. we expect all of our procurement officials to use ecms as a contract writing, not as a shell system but a contract writing

system and contain all of their procurement actions and documentation within them. the justification for limited scope competition must be documented and there must be a justification contained in the contract file. that would be an auditable item. we expect the ability to audit any procurement action that contains a less than open full competition in our ecms system. >> does the v.a. system need section to acquire prosthetics? >> we believe section 8123 allows us to preserve intact the physician's prescription from their professional opinion and the veteran's choice and not subjected to a second guess, a request for strengthening the definition or justification. we believe it codifies that for us and actually, when used appropriately allows us to actually have a standard basis

for the justification for the prescription or veteran choice. >> how and when did the v.a.'s definition of prosthetics come into use? >> i would believe this over time but we have in our specific policy documents we have explicit definition of the prosthetics, items that are contained in that definition. >> when was the last time that policy and definition was updated? >> i have to defer to dr. beck on this one. sorry. >> our handbook is from 2001. we have an internal initiative now and are working on updating our regulations. >> 11 years. wow. does the v.a. employ vha directive 2003-037 titled

prostheticssism pli fied acquisition training in its prosthetics acquisition? >> yes, we do, sir. >> that expired on july 31, 2008. >> that is correct. the directive that's expired unless explicitly rescinded or replaced remains in force until one of those two actions comes about. >> there we go again. you know, not doing things for 30 year, working off of expired directives, 11 years between reviewing documents, i mean, that's part of what's gotten us into this mess now. wouldn't you agree? >> i would say that we do need -- >> you wouldn't run a business that way. >> i would say that we need to strengthen some of our policies now. i would say that the definition, however, you know, 11 years for

the definition of a prosthetic i don't know that in and of itself is problematic. >> when can this committee expect to see the full detailed plan on reorganizing your prosthetics purchasing process? >> we are right now, and i will ask mr. doyle to elaborate on this. we are in the midst right now, as we testified earlier two weeks ago, in the process of transitioning. that process was documented in a plan that was approved by the senior procurement executive in v.a. september of last year. we committed to pilot test that. we did not want to production change this, so we tested it in three and we're now in the process of completing that transition process. again, our target date is july 1. we have some additional time built in to ensure that we don't take unnecessary risks. >> let me reask my question. it sounds like you're saying you have gone into the execution

phase of the plan. what i'm asking is when can this committee expect to see the full detailed plan of reorganizing your prosthetics purchasing process? >> we'll provide that to the committee, sir. >> one more time. when? >> i will go back and work on it. as soon as we can, sir. we've been executing -- >> a week, two weeks? >> i'll commit to two weeks. >> great. i think those are all my questions. let me go back to mr. beryl. >> thank you for being here today. i think we have a better understanding of where you're coming from but i think you also have a better understanding of our concerns as well. and i would like to thank dr. beck, mr. doyle and mr. hurd also for your service. i think you get an idea what we're concerned about. this conversation is not going to end today. we need to make sure you have the flexibility that you need to

do what needs to be done when it needs to be done but not have unnecessary waste because it all comes out of the same pocket, affecting the folks we're trying to help. with that i yield back. >> i thank you for your comments, mr. barrow. mr. matkoksky i sense your desire to do the right thing. we're all focused on the same issue. i know the questioning at times appears, you know, potentially confrontational. that's because we have a responsibility here on the o and i subcommittee to make sure that we're asking the right questions. we don't always get the answers that we want but i certainly sense the sincerity in what you're trying to do and i appreciate that. i want to say thanks to the panel, and you are also now excused. the v.a.'s sweeping definition

for prosthetics opens the door for confusion. i think we've heard that today. such an inclusive definition means small policy changes can have impacts on areas that would not otherwise be impacted under a traditional definition of prosthetic. however, it is also clear that actions by the v.a.'s purchasing agents have greatly reduced the chances for getting the best value in prosthetics acquisition. while some guidance and regulations existed that would have helped ensure that best value, even those were ignored time and time again. as i mentioned earlier the committee looks forward to receiving the v.a.'s detailed plan on changes to its acquisition structure for prosthetics before it moves forward. a partner sthp between the v.a. and the committee can further assure that veterans continue to receive the best care possible. with that, this hearing is now adjourn adjourned. thank you.

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