July 18, 2002




The Honorable Thomas Scully
Administrator
Centers for Medicare and Medicaid Services
Department of Health and Human Services
Room 309-G, Hubert Humphrey Building
200 Independence Avenue, S.W.
Washington, D.C. 20201

Dear Administrator Scully:

     As Chief Counsel for Advocacy at the Small Business
Administration, I want to extend to you my congratulations
on the recent progress made by the Centers for Medicare and
Medicaid Services (CMS) on several important issues of
concern to small business.  As a result of your leadership,
and that of your staff, CMS and the Office of Advocacy have
begun a dialogue that should contribute greatly to the
fulfillment of the President's and Secretary Thompson's
commitment to reducing the regulatory burden on small
businesses.

     I would like to commend CMS for its efforts in three
specific areas: the recent collaboration between CMS and the
Office of Advocacy; the quality of CMS's regulatory impact
analysis of the 2003 revisions to the payment policies under
the physician fee schedule; and the steps taken by CMS to
alleviate some of the economic burden experienced by the
portable x-ray and EKG providers.
Increased Collaboration between CMS and Advocacy

     Considerable progress has been made since May 16, 2002,
when you and I made a joint commitment to the U.S. House
Small Business Committee to increase the working
relationship between our offices.  You and I have met
individually, and I met with your deputy, Ruben King-Shaw,
Jr.  Just last week, members of my staff joined me in
another meeting with Mr. King-Shaw and other CMS senior
staff to discuss ways in which our offices can institute
productive collaboration on specific issues, such as
improved industry data acquisition.  We also laid the
foundation for the possible use of regular meetings between
CMS and Advocacy, and training for CMS staff by Advocacy to
address how CMS can better implement the requirements of the
Regulatory Flexibility Act.
     
     I am confident that a continued dialogue between CMS
and Advocacy will produce benefits on issues that are of
concern to the small business health care community.  I can
assure you that Advocacy is dedicated to making the
relationship work.

Improved Regulatory Impact Analysis of the Physician Fee
Schedule

     Based on our review of the regulatory impact analysis
published in the Federal Register on June 28, 2002, CMS
should be commended for improvement in the rule's
transparency in general.  We noted a significant improvement
in the discussion of alternatives and explanation of why CMS
chose the rule's proposed requirements over the possible
alternatives.  CMS identified the medical specialties that
will likely be affected by the revisions in the physician
fee schedule and why.  In general, it was clear
that CMS sought to improve many aspects of the analysis that
Advocacy and industry have criticized in the past.  We hope
to see analyses of such quality in future rulemakings by CMS
and other federal agencies.

Portable X-ray and EKG Industry

     I would be remiss if I did not acknowledge the steps
CMS took to address the concerns raised by the portable x-
ray and EKG industry.  As you know from our joint appearance
before the Small Business Committee on May 16, 2002, the
payment policies under the previous physician fee schedules,
if unchanged, would likely cause the demise of the industry.
This would result in far reaching public health
implications.  These concerns were also raised in our
comment letters to CMS.

     Thank you for taking the concerns raised by Advocacy
and the portable x-ray providers into consideration when
drafting the 2003 revisions to the physician fee schedule.
The 2003 revisions to the physician fee schedule not only
provide the portable x-ray industry with an increase in
reimbursement rates, reducing some of the adverse impacts on
the providers, but CMS also identifies how the rulemaking is
expected to impact the industry.

     In addition, it is our understanding that CMS is
working directly with the portable x-ray industry to address
the inequities caused by the transportation codes and how
they are reimbursed by the regional offices and local
carriers.  I commend you for opening those lines of
communication and am encouraged that this development will
result in a resolution that is acceptable to CMS and the
industry.

     While I am confident that we have many challenges ahead
of us, I wanted to take this opportunity to thank you for
the steps you have taken to facilitate this relationship.
As a result of our shared commitment to ensuring that CMS
and Advocacy work
cooperatively in an effort to identify and reduce the
regulatory burdens for the small health care businesses, we
will be in a position to build on our most recent successes.
I look forward to working with you and your staff on an
ongoing basis.

                         Sincerely,


                         Thomas M. Sullivan
                         Chief Counsel for Advocacy
                              

CC:  Secretary Tommy Thompson, U.S. Department of Health and
Human Services
     Chairman Donald Manzullo, Committee on Small Business,
     U.S. House of Representatives
     Representative Nydia Velazquez, Ranking Member,
     Committee on Small Business, U.S. House of
     Representatives
     Chairman John Kerry, Committee on Small Business &
     Entrepreneurship, U.S. Senate
     Senator Kit Bond, Ranking Member, Committee on Small
     Business & Entrepreneurship, U.S. Senate