[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
MANAGEMENT OF THE MEDICARE PROGRAM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
FEBRUARY 11, 1999
__________
Serial 106-42
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
65-630 CC WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
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20402
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
------
Subcommittee on Health
BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut FORTNEY PETE STARK, California
JIM McCRERY, Louisiana GERALD D. KLECZKA, Wisconsin
PHILIP M. CRANE, Illinois JOHN LEWIS, Georgia
SAM JOHNSON, Texas JIM McDERMOTT, Washington
DAVE CAMP, Michigan KAREN L. THURMAN, Florida
JIM RAMSTAD, Minnesota
PHILIP S. ENGLISH, Pennsylvania
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C O N T E N T S
----------
Page
Advisory of February 4, 1999, announcing the hearing............. 2
WITNESSES
Health Care Financing Administration, Hon. Nancy-Ann DeParle,
Administrator.................................................. 7
U.S. General Accounting Office, William J. Scanlon, Ph.D.,
Director, Health Financing and Public Health Issues, Health,
Education, and Human Services Division......................... 37
------
Anthem Alliance Health Insurance Company, Anthem Blue Cross and
Blue Shield, and Blue Cross and Blue Shield Association,
Barbara Gagel.................................................. 52
EDS, David M. Bryan.............................................. 65
Wisconsin Physicians Service Insurance Corporation, and Medicare
Administration Committee, Ned Boston........................... 58
SUBMISSIONS FOR THE RECORD
American Medical Association, statement.......................... 79
American Occupational Therapy Association, Inc., Bethesda, MD,
Christina Metzler, statement................................... 82
Association for Ambulatory Behavioral Healthcare, Alexandria, VA,
Mark Knight; National Mental Health Association, Alexandria,
VA, Al Guida; and National Council for Community Behavioral
Healthcare, Rockville, MD, Pope Simmons, joint statement....... 85
Green Cross, Inc., Miami, FL, Miguel A. Nunez, Jr., letter and
attachments.................................................... 88
Health Insurance Association of America, statement and
attachments.................................................... 89
Information Technology Association of America, Arlington, VA,
Harris N. Miller, letter....................................... 99
National Association for the Support of Long Term Care,
Alexandria, VA, Jack Pivar, statement and attachments.......... 99
MANAGEMENT OF THE MEDICARE PROGRAM
----------
THURSDAY, FEBRUARY 11, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Health,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:35 p.m., in
room 1310, Longworth House Office Building, Hon. William Thomas
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
CONTACT: (202) 225-3943
FOR IMMEDIATE RELEASE
February 4, 1999
No. HL-1
Thomas Announces Hearing on
Management of the Medicare Program
Congressman Bill Thomas (R-CA), Chairman, Subcommittee on Health of
the Committee on Ways and Means, today announced that the Subcommittee
will hold a hearing to examine the Health Care Financing
Administration's (HCFA's) ability to administer the current Medicare
program and to manage the future needs of growing numbers of seniors.
The hearing will take place on Thursday, February 11, 1999, in 1310
Longworth House Office Building, beginning at 2:30 p.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. Invited
witnesses will include HCFA Administrator, Nancy-Ann Min DeParle,
representatives from the U.S. General Accounting Office, and
contractors who process and audit claims for the Medicare program.
However, any individual or organization not scheduled for an oral
appearance may submit a written statement for consideration by the
Committee and for inclusion in the printed record of the hearing.
BACKGROUND:
Medicare serves 37 million Americans, providing health coverage to
seniors, disabled beneficiaries and kidney failure patients. According
to recent analysis by the Congressional Budget Office, total Medicare
spending for Fiscal Year 1999 is expected to be approximately $218
billion. HCFA, which administers the Medicare program, faces both
short-term challenges and potential long-term pitfalls.
The short-term challenge for HCFA is implementing the Balanced
Budget Act of 1997 (BBA) (P.L. 105-33). The BBA ensures solvency of the
Medicare trust funds for the next decade by establishing new payment
methodologies for skilled nursing facilities, home health agencies,
hospital outpatient departments, and other service categories. In
recent months, HCFA has delayed implementation of a number of BBA
provisions. The long-term problems facing the program, including
demographic changes and rising medical costs, are being addressed by
the Bipartisan Commission on the Future of Medicare. But, unless the
short-term challenges are successfully resolved, HCFA will be ill-
prepared to cope with future needs of seniors.
One year ago, the Subcommittee asked GAO to do a thorough
examination of HCFA's ability to meet its program management challenges
and to describe any actions HCFA needed to take to accomplish its
objectives over the next few years. The GAO found that the program
growth and greater responsibilities were ``outstripping HCFA's capacity
to manage its existing workload'' and made several recommendations. The
Subcommittee has requested that the GAO return to HCFA, one year later,
to document the current status of the agency and to note any areas of
particular concern.
In announcing the hearing, Chairman Thomas stated: ``Taxpayers and
our nation's seniors deserve a well managed Medicare program that meets
their health needs. As the Committee begins its work addressing the
complex issues facing the Medicare program, a natural place to start is
with a thorough examination of the agency which administers the
program.''
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Chairman Thomas [presiding]. The Health Care Subcommittee
will come to order.
This is our first hearing obviously of the 106th Congress.
We're going to focus on the management of the Medicare Program
and its administering by the Health Care Financing
Administration.
It's our honor once again to have as our lead off witness,
the administrator of the Health Care Financing Administration,
Nancy-Ann Min DeParle. And, as I've often said, one of these
days, I'm going to reverse the order of the hearing. You get to
go first this time. But oftentimes when we have additional
panels, their written testimony references concerns which I
think would be more properly addressed by having the
administrator respond to those. So we have to kind of make it
happen before the panel gets to testify. And the administrator
came in after we began the organizational meeting, but I'm
going to talk to her about that because of pending time
constraints. I do think that kind of a structure might be more
useful when we're dealing with some of the issues that we'll be
facing for example today. Oftentimes people will pose
questions. There are answers to those questions, but if we
don't get to answer them, they seem like more significant
questions than they are.
We are, as was indicated, waiting for the Bipartisan
Commission on the Future of Medicare to hopefully provide some
solutions for the long-term solvency of the program. We're
going to be looking at our ability to deal with short-term
issues, including obviously the implementation of the Balanced
Budget Act of 1997. And, as significantly, getting an update on
the so-called Y2K ability for us to respond because, frankly,
if we can't handle the short-term structural concerns, we're
not going to be as prepared as we would like to be for the
long-term changes.
All of us are cognizant of the fact that this program needs
to be restructured. The degree to which it needs to be
restructured, the manner in which it needs to be restructured
is obviously open for discussion.
Following the administrator, we will, as per our usual
script, have Dr. Scanlon, head of the General Accounting
Office's Health section, review management and practices. There
has been extensive interviewing. And it was clear from the
testimony, if the members read Dr. Scanlon's testimony, that
HCFA personnel were more than open and cooperative in
discussing those things that have been successful and some of
those things that have not been successful.
And then, as I said, the final panel will be some frontline
private contractors who deal with contracting on the A and the
B side of Medicare to provide us with the view from the private
contractors day-to-day functioning process within the
structure. And we look forward to hearing from them as well.
So prior to your testimony, I call on the gentleman from
California, the Ranking Member, for any comment he may have?
Mr. Stark. Thank you, Mr. Chairman. I just want to comment
about enforcing the rules regarding testimony. I was never very
successful in the past, but perhaps the Chair could be. A
solution would be to be very tough about requiring witnesses
submitting written testimony, to submit it 24 to 48 hours
before the hearing and to distribute it to all of us so we have
the night before to go through it, or at least have our staffs
do so. And, it would seem to me, when we have administration
witnesses, I would think there would be nothing wrong with
having the testimony shared among the prospective panels.
There's really no reason they can't get it in. It's just that
we all procrastinate.
So I would urge the Chair, and I would be glad to join with
him, to urge all witnesses and panel members to get their
testimony in on time. I think it would make the hearings more
interesting for all of us.
I would like to congratulate you for this hearing and
congratulate the administrator, Nancy-Ann Min DeParle, for the
work that she's done. It was recently reported that her error
rates dropped from 11 to 7 percent, and it saved us about $10
billion. Now, if she could just do that every year for the next
several years, we would be home free. However, she is still, in
my opinion, overwhelmed by workload and criticism. And it's
interesting to note that under her administration. HCFA, the
Health Care Financing Administration, is actually smaller today
than it was 20 years ago when it was created. So as we've
increased the responsibilities, we have not increased the
authority and the flexibility to expand the staff and support
that they need to keep up with the work.
It's essential that they look beyond this Y2K problem to
modernizing their entire system and use market measures to
obtain fairer prices in buying the services. The contracting
rules also should be updated. They were last written in 1965.
For several years, I have worked with the Appropriations
Committee to make sure that HCFA's administrative
appropriations have been fully funded. And while I've praised
HCFA for low overhead, I've also cautioned that we may have
reduced their overhead too much.
I would like to paraphrase for a minute and submit for the
record a letter, an open letter in Health Affairs, by Stuart
Butler, Bill Gradison, Marilyn Moon, Uwe Reinnard, Bob
Reischauer, Bill Roper, John Rother, and Gail Wilensky. This is
an unusual group to be agreeing with each other and sending a
letter. And without belaboring the point, they point out that
Medicare spending has increased in 1997 by tenfold, but the
agency's work force is even smaller. They hammer on that point
and they criticize both, or all, previous administrations for
the failure to provide the agency with adequate administrative
resources. They say that we must reexamine the funding,
management, and oversight and to do anything else is short-
changing the public and leaving HCFA in a State of disrepair.
I think we can all find places to criticize, but I think we
have to look here. We don't have the authority on this
Subcommittee provide HCFA with the money and the resources they
need. But, I certainly think we would probably be--and I say
this with all trepidation--that we probably are in a better
position to analyze HCFA's need than our colleagues on the
Appropriations Committee. And I hope that I'll see all the Members
of this Subcommittee joining with me when we go to the Appropriations
Committee and the Budget Committee to see that HCFA is
appropriately funded. You can't expect them to do the job we
want, Mr. Chairman, unless we provide them the resources. And I
don't say that to assess any blame. Since we can't provide the
resources, we have to go out and lobby for HCFA and be an
advocate for them once we tell them what to do.
Thank you very much for having this hearing.
Mr. Kleczka. Mr. Chairman.
Chairman Thomas. The normal rules of the Subcommittee is
that opening remarks are reserved for the Chairman and the
Ranking Member and other Members may submit written statements.
But the gentleman from Wisconsin?
Mr. Kleczka. Mr. Chairman, we've been joined by a fellow
Member of the Committee, Mr. John Tanner from Tennessee, and if
the Chairman agrees, he would like to offer a welcome to the
administrator since she hails from his State?
Chairman Thomas. And the Chair would also welcome the
gentleman from Georgia once again, Mr. Lewis. I would tell the
gentleman that if he does the introduction, the Chair would
like to take a brief time between the introduction and the
administrator's testimony, but I don't want to step on the
Tennessee welcome to the administrator. Mr. Tanner.
Mr. Tanner. Thank you, Jay. Thank you, Mr. Chairman. And I
want to--Ms. DeParle has been a long time friend. She's from
Tennessee. She worked in administration down there when I was
in the legislature. I saw an article in the Los Angeles Times
just the other day about how the error rate in billing has been
cut in half during your tenure or shortly after you came. And
this Subcommittee I know is anxious to hear you, and I just
wanted to stop by and welcome you. And we appreciate the job
you're doing here for us.
Ms. DeParle. Thank you so much.
Mr. Tanner. Thank you, Mr. Chairman.
Chairman Thomas. I thank the gentleman. Let the Chair say
that this is an important Subcommittee. Ways and Means has some
of the brightest and best Members in the House. This
Subcommittee, in my opinion, selects from that pool. And that
over the years we have done some very, very difficult work. The
work is on behalf of the seniors in the United States and the
Chair has noted, including himself at times, that perhaps the
way in which the meetings have been conducted probably were not
at the level of the responsibility we feel to the seniors.
In casting around to come up with a way in which we would
not be disruptive of the business of the Subcommittee, in the
past the Chair has noticed that the way that it has evidenced
itself has been that Members would follow other Members'
responses. The Chair's initial reaction was to go with the NBA
season and provide Subcommittee Members with whistles. That
probably would be more disruptive than the suggestion I came up
with since the NFL season has just ended. The idea would be
that the Chair would pass out to Members a penalty flag in
which if any Member, including the Chair, were to make remarks
which clearly would be out of bounds using the test of the
importance of the mission in front of us, the Chair would say
that a single flag from the minority side probably is not as
relevant as a flag from both the minority and the majority
side. [Laughter.]
However, two flags from either side should be sufficient.
The goal being that we don't take up the Committee time in
terms of the verbal fencing, but that you simply let it be
known that a penalty in your opinion has been committed and
then we move on. I think that will at least create an
atmosphere, if not of civility, no severe physical wound will
occur from this. Hopefully, a bit of a psychic damage will
occur and we can move forward.
With that, I would ask the gentlewoman from the State that
has the national champions in football, and that's purely
coincidental, give us her report. Thank you for your report in
writing. It will be submitted to the record in it's entirety,
and the administrator has our ear to present her information as
she see fits.
Welcome, Nancy.
STATEMENT OF HON. NANCY-ANN DePARLE, ADMINISTRATOR, HEALTH CARE
FINANCING ADMINISTRATION
Ms. DeParle. Thank you, Chairman Thomas and thank you, Mr.
Stark and other distinguished Members of the Committee.
I appreciate being here today to discuss the progress that
we're making in strengthening the management of the Health Care
Financing Administration. I also want to thank my colleagues at
the General Accounting Office for their careful evaluation and
advice. This is the second of these evaluations that this
Committee has sponsored, and they've been extremely helpful to
me as I look at the problems facing the Agency and how I should
be addressing them.
I have now been the administrator of the Health Care
Financing Administration for a year. When I came before you in
January of last year, I told you that I had several immediate
goals and they were first to strengthen Medicare, starting with
implementation of the 335 provisions of the Balanced Budget Act
that had recently been passed. Second, to ensure that our
computer systems were Y2K compliant, that there would be no
disruption of services to beneficiaries or claims payment to
providers because of the computer system problem. Third,
sharpening our focus on fraud, waste, and abuse, reducing the
number of claims that Medicare pays inappropriately. And,
fourth, launching the new children's health insurance program,
which was one of the signal achievements of the last Congress
in providing health insurance coverage to millions of low-
income children whose families couldn't afford it.
What I've tried to do in the past year are really three
things: First, to set forth clear goals for the agency, and
those are the ones that I've outlined for you last year and
we've stuck to this year.
Second, I brought in a new leadership team, many people
from the private sector to help us achieve those goals. And to
name just a few of them, we now have a physician who was a
practicing internist for more than 20 years, Dr. Bob Berenson,
and also ran a PPO, who is now the head for the Center for
Health Plans and Providers and is leading us in the
implementation of the Balanced Budget Act. We have a
geriatrician, Dr. Jeff Kang as the chief clinical officer,
leading our efforts in quality and working to establish a more
open and accountable Medicare coverage process, which I know is
one of the issues of particular interest to you, Mr. Chairman.
We have a gerontologist, Carol Cronin, who specialized in
providing health care education for consumers and for large
corporations and their employees, running our Center for
Beneficiary Services which was created as part of the
reorganization. And she is leading the development of the
national Medicare education program. And we have a veteran of
the Inspector General's Office, Penny Thompson, who is leading
our efforts to improve program integrity in the Medicare and
Medicaid Programs.
Finally, with this team I've tried to provide leadership to
the 4,000 HCFA employees who are working to achieve the vision
that I have for the agency, which is a more efficient,
responsive, and effective agency. Our job is enormous and it's
far from done.
And if you'll allow me one more reference to Tennessee, Mr.
Chairman, I come from the hills of east Tennessee and we have a
saying there. When someone asks for directions, we tell them,
``You go over those hills and then there's some more hills.''
That's how it is at the Health Care Financing Administration as
well. When you're providing health insurance coverage to 74
million Americans; when you're working with 1.6 million
providers; when you're the steward of more than $300 billion a
year in public dollars, there are many challenges and there are
new challenges every day. But with your help and with Congress'
help, we have been making solid, steady progress.
Since I was here last year, we've implemented some 188 of
the 335 provisions in the Balanced Budget Act. And I'm not
counting there some of the things like provider updates that
have been partially implemented but we have to do it again this
year.
We're making substantial progress on the other 147
provisions. And to do this, last year we published 92
regulations, which I think has to be something of a modern
record for us. In fact, today we're publishing a rule
clarifying several aspects of Medicare Plus Choice. It's what
we refer to as the ``mini-rule'' that responds to some of the
concerns that plans had about the regulation that we put out
last July. We're also announcing today the establishment of a
new Citizens Advisory Committee on Beneficiary Education. And
we're soliciting nominations from the public and from all of
you for people who can help us to make sure that we're keeping
the beneficiary first as we establish our beneficiary education
program.
We have made enormous progress on the Y2K computer problem.
As of December 31, 1998, all 25 of our internal mission
critical systems and 54 of 78 external mission critical systems
had been repaired, tested, and certified. We are on track to
fix and certify any remaining systems by March of this year.
We have worked aggressively with States, providers, Members
of Congress, and others to implement the new children's health
insurance program. We've approved plans for 47 States and also
the District of Columbia and two territories.
We have made I think good progress in improving our record
on program integrity. As Mr. Stark noted, on Tuesday the
Inspector General announced that the Medicare error rate, the
rate of claims that we pay inappropriately had dropped to 7
percent, I'm not satisfied with 7 percent, but I am happy to
see that we had a 45 percent drop in 2 years. And, again, I
thank you for the support that you've given us in making those
efforts.
And, finally, we launched a new initiative last summer to
improve our enforcement with the States of quality in our
Nation's nursing homes. There are 17,000 nursing homes in the
country, and many, many of our fellow Americans are living
there and deserve a better quality of life.
I appreciate the help that many Members of this Committee
have given me over the past year. Many of you have worked with
me personally to identify problems as we've been implementing
the Balanced Budget Act. You've helped us get the resources to
deal with those problems, and you've been understanding about
the difficulty and the magnitude of the job that we're trying
to do. We're going to, of course, be asking you for more help
this year, both with our budget and also for help with some
management changes that we would like to make. Mr. Stark
referred to one of them, contractor reform. We would like some
more flexibility to deal with some of the problems we have, and
we think that would help us to enhance our capacity.
We share the same goals I think. We all want Medicare and
Medicaid to be strong, well-managed, and fiscally sound. We all
want to put the beneficiary first. And we all share a vision of
HCFA as more efficient, accountable, and a more effective
agency.
On behalf of our beneficiaries and on behalf of the 4,000
people at the Agency who worked very hard last year to make
progress, I want to thank you for your interest and support and
for your help in achieving the vision I have of a more
effective HCFA.
Thank you very much, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. Nancy-Ann DeParle, Adminstrator, Health Care
Financing Administration
Chairman Thomas, Congressman Stark, distinguished committee
members, thank you for inviting me to discuss our progress in
strengthening Health Care Financing Administration (HCFA)
management of Medicare and our other programs and
responsibilities. I would also like to thank the General
Accounting Office (GAO) for its evaluation and advice on this
and other subjects over the past year since I became
Administrator.
HCFA is the nation's largest health insurer, providing
coverage to about 74 million people. Our workload has grown
immensely with the Balanced Budget Act (BBA) of 1997, the
Health Insurance Portability and Accountability Act (HIPAA) of
1996, the challenges of complying with Year 2000 computer
issues, fighting fraud, waste, and abuse, and meeting the needs
of the ever-growing number of beneficiaries we serve.
Our programs--Medicare, Medicaid, and the new Children's
Health Insurance Program--now provide more coverage, more
health plan options, and more health care security to Americans
than ever before. Together they will pay for an estimated $335
billion in benefits in 1999, and represent the Federal
Government's third largest outlay. Medicare alone now processes
about 900 million claims each year, is the nation's largest
purchaser of managed care, and accounts for 11 percent of the
federal budget.
We are working to meet our management challenges despite a
rapidly growing workload. I want to thank this Committee for
its support of the President's request for HCFA last year. The
growth in our workload over the past three years is
unprecedented in HCFA's history. Our discretionary program
management appropriation has remained relatively flat in recent
years. The Congress did provide the Administration's full
request for an increased management appropriation for fiscal
year 1999, which represents a good first step. The President's
FY 2000 HCFA budget request builds on last year's
appropriation, and includes user fee proposals to allow better
program efficiency. We are eager to work with Congress to
secure adequate funding to meet all of HCFA's responsibilities
in fiscal year 2000 and beyond.
HCFA spends less than one percent of Medicare benefit
outlays on Medicare program management, and less than 2 percent
on administrative costs overall, compared to private sector
administrative costs of 12 percent and higher. Some of the
difference is due to efficient management and economies of
scale. However, our growing workload makes it necessary to
secure adequate funding to continue to improve our management
of the program.
We are accomplishing a great deal with our resources. In
the past year, we have:
published 92 regulations and Federal Register
notices implementing important Congressional directives,
beneficiary protections, and taxpayer savings, including the
savings in the Balanced Budget Act that are critical to
extending the life of the Medicare Trust Fund;
responded to nearly 7,000 pieces of Congressional
correspondence, and delivered 15 official Reports to Congress;
participated in more than 1,000 events around the
country to help beneficiaries understand health plan changes;
made remarkable progress in addressing our Year
2000 challenge, and participated in more than 100 events around
the country to help providers address this challenge;
made major strides in fighting fraud, waste and
abuse and preventing payment errors;
approved 50 Children's Health Insurance Plans
which States expect to cover more than 2.5 million children;
issued more than 50 program guidance letters to
State Medicaid and health officials on issues such as the
managed care reforms in the BBA;
implemented a carefully planned National Medicare
Education Program to help beneficiaries understand their rights
and options, and make informed health care decisions;
converted the vast majority of Medicare HMOs to
the new Medicare+Choice program, and added 10 new plans and
expanded service areas for another 10 plans.
worked closely with state insurance regulators on
important Health Insurance Portability and Accountability Act
consumer protections;
updated our Strategic Plan to reflect our expanded
mission, set clear goals and specific objectives, and establish
performance measures to gauge our progress; and
begun a nationwide initiative to improve nursing
home oversight and care.
Manangement Reforms
We have made significant strides in improving HCFA
management since I testified before this Subcommittee on this
issue last year. In the past year I have tried to articulate a
clear vision of a more efficient and effective HCFA. I brought
in a new leadership team to help me achieve these goals. And we
have taken a number of steps to help us do more and be more
efficient, effective, responsive and accountable. In addition,
the fiscal year 2000 President's budget builds on these steps
by seeking new flexibilities to manage our programs more
effectively.
Our first step was to completely reorganize our agency to
focus on serving beneficiaries and outside partners like plans,
providers and States. Our structure is now built around our
``customers'' rather than internal issues. This has sharpened
our focus on the changes in our mission, and is helping us be
more accessible and responsive. Most important, for the first
time ever we have a Center for Beneficiary Services to ensure
that we have beneficiaries first in mind in every decision we
make and every action we take.
We brought in new staff and leadership from the private
sector.
A computer scientist and security expert from the
Los Alamos National Laboratory serves as our first-ever Chief
Information Officer and heads our information technology team
and Year 2000 efforts.
An internist who helped establish a private sector
preferred provider organization health plan now leads our
Center for Health Plans and Providers.
A geriatrician who was a private sector managed
care plan medical director is our Chief Clinical Officer and
heads our Office of Clinical Standards and Quality.
A gerontologist who ran a private sector firm
devoted to helping corporations educate their workers on health
care is leading our Medicare beneficiary education program.
A physician who has worked as a Medicare
contractor medical director is in charge of implementing much
stronger oversight of Medicare claims processing contractors,
with a special emphasis on making sure contractors meet their
responsibility to be diligent in preventing fraud and payment
errors.
A physician is leading a review of all our rules
and regulations to see where they can be simplified, clarified,
and refined to reduce administrative burdens on physicians and
better meet beneficiary needs.
And a former State insurance department director
is coordinating our new State-level responsibilities under the
Health Insurance Portability and Accountability Act.
Overall last year we doubled the number of physicians at
the agency and hired about 450 new employees to replace
retirees, fill new positions, and provide us with fresh private
sector insight and expertise.
We have taken steps to make sure policies are applied
fairly and evenly across the country. We have strengthened
communication between leaders of our Regional Offices and our
main policy and operations divisions. And we have established
``Product Consistency Teams'' to make sure that policies and
procedures are applied uniformly across the country.
We are creating new advisory committees, pursuant to the
Federal Advisory Committee Act, that will continually bring
outside insight and expertise to our agency. They will also
help bring more openness to our operations and help us make
sure we are managing our programs to meet beneficiary needs.
One advisory committee, the Citizens Advisory
Panel on Medicare Education, will help us make sure we are
giving beneficiaries the information they need to be informed
consumers in the new Medicare+Choice program.
Another advisory committee, the Medicare Coverage
Advisory Committee, will foster openness and public input in
our coverage decision-making process. It will include experts
in medicine, biology, public health, ethics, economics, data
analysis, and other professions, and work from objective
medical evidence for recommending when Medicare should pay for
new medical treatments and services.
A third advisory committee, announced in the
President's budget, will include private sector business and
management experts who can advise the Administrator on how to
improve HCFA's business processes and incorporate innovations
that will better serve our beneficiaries.
We are also seeking new flexibilities to strengthen our
capacity to manage our programs. The President's budget calls
for:
an assessment of our personnel skill mix and an
evaluation of increased flexibilities in personnel matters that
would help us pay competitively, hire the right staff to serve
beneficiaries, and hold employees accountable for results;
increased accountability by establishing the
outside advisory committee discussed above to advise the
Administrator on management issues and by regularly reporting
to Congress and the public on the status of programs and
initiatives;
reengineering our relationship with our Regional
Offices and with the Department;
allowing Medicare use market forces to prudently
purchase care and services so we get the best quality and price
for beneficiaries; and
reforming Medicare contracting authority so we can
hire from a broader pool of private businesses to handle
Medicare claims and move toward a more competitive and
effective procurement environment.
These reforms are needed to help us manage our programs
efficiently and with a sharper focus on serving beneficiaries
and ensuring access to high quality care.
The Year 2000
Meeting the Year 2000 computer programming challenge must
be our highest priority. HCFA got a late start but we are now
making substantial progress in addressing this critical
challenge. I want to assure beneficiaries that they should not
worry. We are working with the health care community to assure
that beneficiaries will continue to have access to the care
they need. And I want to assure health providers that HCFA and
its contractors will be prepared to pay their claims come
January 1, 2000. However, providers must act now to be sure
that their computer systems are fixed so they can submit claims
to us. We continue our work and testing, but I am confident
that we will be ready well before January 1, 2000. To date:
all of our 25 internal mission critical systems
are now certified as Year 2000 compliant (``certified'' means
that independent experts have overseen renovations and testing
and validated that they have been done properly);
our 78 external mission critical systems that our
claims processing contractors use to pay bills are fully
renovated, and more than 70 percent are certified as compliant.
We have experts on-site every day, monitoring and assisting
contractors who have significant amounts of remaining Year 2000
work;
systems for about 95 percent of Medicare managed
care plans are reported compliant; and
we have completed the first round of certification
testing on twenty-four of our sixty non-mission critical
internal systems.
There is no question that we have faced an uphill battle in
achieving Year 2000 compliance. We have a substantial amount of
work remaining this year to test and validate our systems. We
are working to encourage and help providers meet their Year
2000 responsibilities, and to help beneficiaries understand
what they need to know about the Year 2000 issue. We also must
work to renovate our non-mission critical systems, and to make
temporary fixes permanent.
A number of key steps are getting us where we need to be.
They include:
building a ``War Room'' to track Year 2000 efforts
within the agency and with partners across the country so we
know the current status of all essential Year 2000 projects;
negotiating contract amendments with more than 60
claims processing contractors to establish clear Year 2000
requirements;
establishing contractor oversight teams to closely
monitor and manage Year 2000 work on-site and full time for
claims processing contractors who most need help;
hiring independent expert contractors to give us
greater assurance that Year 2000 work is done properly by us,
our claims processing contractors, and States; and
helping health care providers through a broad
outreach campaign that includes mailings, publications, an
Internet site, a speaker's bureau, and a wide range of other
efforts.
I must be clear, however, about what HCFA can and cannot
do. We are responsible for all our own systems, our claims
processing contractors' systems, and data exchange interfaces
among all of these systems and the systems of States,
providers, banks, phone companies, and other partners. We do
not have the authority, ability, or resources to step in and
fix systems for others, such as States or providers. And that
leads to a rather substantial concern.
It is not enough for HCFA alone to be ready for the Year
2000. Health care providers must be Year 2000 compliant in
order to bill us properly and continue to provide high quality
care and service to Medicare beneficiaries. States also must be
Year 2000 compliant for Medicaid and CHIP programs to continue
uninterrupted service. Our monitoring indicates that some
States and providers could well fail. We are providing
assistance to the extent that we are able, but that likely will
not be enough. This matter is of urgent concern, and literally
grows in importance with each passing day.
Our own progress in meeting the Year 2000 challenge is due
in large part to the outstanding effort and commitment of staff
throughout HCFA and at our claims processing contractors. I
also want to thank the Secretary and my colleagues at the
Department of Health and Human Services, especially the HHS
Inspector General, for their support. We have been greatly
aided by wise counsel from the General Accounting Office and,
importantly, by the expert independent validation contractors
the GAO recommended we hire to ensure that Year 2000 work is
done correctly. And, without question, we could not have come
so far so quickly without the timely support and funding that
Congress has provided.
Fighting Fraud and Paying Right
We are making unprecedented strides in promoting program
integrity. This includes both fighting fraud, waste and abuse,
and making sure we are paying right. We have set new records
for restitutions, convictions, and exclusions of problem
providers by working more closely with our law enforcement
partners. Since 1993, these efforts have saved taxpayers
billions of dollars and increased health care fraud convictions
by more than 240 percent. We also are addressing honest errors
in billing and payment through good program management and
business practices, improved education and communication with
providers, and correcting payment errors regardless of the
reason for them.
We have developed a comprehensive program integrity plan to
build on these successes. The plan calls for:
increasing the effectiveness of medical review by
increasing the overall level of review, targeting it on problem
areas, hiring additional physicians to improve its
effectiveness, using more computer ``edits'' that prevent
improper payments, training employees to develop cases for
prosecution, evaluating local policies to see where national
policy may be needed, and measuring how well individual
contractors perform medical reviews;
stepping up efforts to help providers comply with
rules, establishing clear enrollment and periodic reenrollment
requirements; and requiring bonds for certain types of
providers.
proactively addressing potential program integrity
problems before they occur in the new programs, benefits, and
payment systems created under the BBA;
planning how to deal with potential program
integrity problems related to the Year 2000 computer issue; and
focusing on special areas of concern, such as
inpatient hospital care, congregate care such as nursing homes
and assisted living centers, community mental health centers,
as well as addressing the unique program integrity issues
related to managed care.
We further expect our program integrity successes to
increase this year as we begin to use new authority to hire
special program integrity contractors. We plan to hire payment
safeguard contractors to focus on medical review, fraud case
development, cost report audits and related program safeguard
functions as needed; a coordination of benefits contractor to
consolidate all activities associated with making sure Medicare
does not pay for claims when other insurers are liable; a
statistical analysis contractor to provide on-going analyses to
help detect fraud; and managed care integrity contractor(s) to
target issues unique to health plans.
We expect to start these new, special program integrity
contractors on the job this year. This is important, because
the HHS Inspector General reports that not all Medicare's
claims processing contractors are effectively fighting fraud
and abuse. We have responded by including fraud case developing
in the scope of work for our new special program integrity
contractors, and by ordering existing contractors to report all
suspected fraud cases immediately to the HHS Inspector General.
But, clearly, we need to do more.
That is one reason why the President's budget proposes a
new legislative package to fight fraud, waste and abuse that
will save about $3 billion over 5 years. It includes
eliminating excessive reimbursement for drugs, putting stricter
controls on outpatient mental health services, requiring other
insurers to report all Medicare beneficiaries they cover so
Medicare can make sure it does not pay bills that should be
paid by other insurers. It also include more authority to
choose the most effective Medicare contractors.
Balanced Budget Act
The BBA includes 335 provisions that affect our programs,
with savings that are critical to achieving a balanced budget
and extending the life of the Medicare Trust Fund for 10 years.
We have fully implemented more than half of those provisions,
and many more are partially implemented.
We have implemented provisions for Medicare coverage of new
preventive benefits, including expanded coverage for test
strips and education programs to help diabetics control their
disease, bone density measurement for beneficiaries at risk of
osteoporosis, and several colorectal cancer screening tests. We
also expanded preventive benefits for women so Medicare now
covers a screening pap smear, pelvic exam and clinical breast
exam every three years for most women, and every year for women
at high risk for cervical or vaginal cancer. And Medicare now
covers annual screening mammograms for all women age 40 and
over, and a one-time initial, or baseline, mammogram for women
ages 35-39, paying for these tests whether or not beneficiaries
have met their annual deductibles.
We are implementing important demonstration projects
designed to test whether market forces can help Medicare save
money and promote high quality care. We will soon begin a test
in Polk County, Florida of competitive bidding as a way to get
the best quality and price for durable medical equipment and
supplies. Bidding documents are scheduled for release this
week, and a conference for potential bidders is scheduled for
February 23. A toll-free hotline (888-289-0710) is available to
answer beneficiary and provider questions about the project.
We will soon begin a test of competitive pricing for
managed care, in which a bidding process will be used to set
rates for Medicare+Choice plans in two local markets. A
Medicare Competitive Pricing Advisory Commission, chaired by
General Motors Health Care Initiative Executive Director James
Cubbin, has made recommendations regarding key design features
of the project, and selected the markets of Phoenix, Arizona
and Kansas City, Kansas and Missouri, as initial demonstration
sites.
We also are developing important new payment systems that
include incentives to provide care efficiently. We have already
implemented a new prospective payment system called for in the
BBA for skilled nursing facility costs. Similar prospective
payment systems are being developed for rehabilitation
hospitals, home health care, and outpatient hospital care.
Medicare+Choice
We are implementing the new Medicare+Choice program, which
was also mandated by the BBA. It allows Medicare beneficiaries
to select from a wide range of plan options available in the
private sector today. It requires a massive new beneficiary
education campaign, and includes important new protections for
patients and providers, as well as statutory requirements for
quality assessment and improvement.
We believe very strongly that managed care is good as a
voluntary option next to traditional Medicare. Medicare managed
care enrollment has nearly tripled under the Clinton
Administration, from 2.3 million when the President took office
to now 6.8 million. We are taking steps to help beneficiaries
understand their new options and encourage plans to provide
these new options.
We have launched the National Medicare Education Program to
help beneficiaries understand the program and receive accurate
and unbiased information about their benefits, rights, and
options. The campaign includes:
mailing a Medicare and You handbook to explain new
benefits and health plan options;
a toll-free ``1-800-Medicare'' call center with
live operators to answer questions and provide additional print
information on request;
a consumer-friendly Internet site,
www.Medicare.gov;
a program to teach partners in other organizations
that serve Medicare beneficiaries how to teach others in their
organizations and communities to explain the changes;
enhanced beneficiary counseling from State Health
Insurance Assistance Programs;
a national publicity campaign;
a multitude of state and local outreach efforts;
and
a comprehensive assessment of these efforts. An
initial pilot test was begun in five states in 1998. Results
will help to refine the program for a full-scale, national
campaign in preparation for the 1999 open enrollment period
beginning in the fall.
We are taking several steps to reach out to health plans to
encourage participation in the Medicare+Choice program. Last
summer we held outreach sessions attended by more than 1,500
plan representatives. And we are strengthening lines of
communication with plans. I have named a high-level point
person within HCFA whom plans can call directly if they have
trouble resolving issues through normal HCFA channels.
We have converted the vast majority of Medicare HMOs--more
than 300--to the new Medicare+Choice program. We have approved
a total of 10 new Medicare+ Choice plans and 10 service area
expansions for existing plans since November. We are currently
reviewing another 28 new plan applications and 19 service area
expansion applications. The newly approved plans include
provider sponsored organizations, which are HMOs run by
hospitals and physicians rather than insurers. One of these
plans is the first to enter Medicare with a federal waiver from
State licensure, which is allowed for the first time ever under
the Medicare+Choice program. We have also taken all necessary
steps so that Medicare beneficiaries can be offered Medical
Savings Account options, as well.
We have taken several additional steps to implement
Medicare+Choice. We have developed new beneficiary and plan
enrollment systems, payment systems, appeals and grievance
procedures, and quality assurance mechanisms. And we are
collecting data that will be used to phase in ``risk
adjustment'' to meet the BBA requirement that payments to plans
take into account the health status of individual enrollees.
We will soon publish refinements to regulations which
improve beneficiary access to timely information about plan
changes that affect them. The refinements also address plan
concerns and should help encourage plans to offer more options
to Medicare beneficiaries.
And, to further facilitate plan participation, the
President's budget gives plans two additional months to file
the information that we use to approve benefit and premium
structures. This ``Adjusted Community Rate'' (ACR) data would
not be due until July 1, rather than May 1. July 1 is the
latest we can accept, process, and approve premium and benefit
package data and still mail beneficiaries information about
available plans in time for the November 1999 Medicare+Choice
open enrollment period.
While I am concerned about the business decision that some
Medicare HMOs made last October to pull out of the program this
year, it is important to put those business decisions in
context. Some of the plans that withdrew had market positions
or internal management issues that made it hard for them to
compete. And they faced rising prescription drug prices and
other commercial pressures. Many of the disrupted beneficiaries
had several other plans to choose from, and all but 50,000 had
at least one other plan option.
It is our understanding that the Federal Employees Health
Benefits Program (FEHBP) experienced a similar rate of plan
pullouts. We have observed instances where plans that withdrew
Medicare service from specific counties also withdrew their
FEHBP service in many of those same counties. As mentioned
above, the majority of Medicare HMOs converted to the
Medicare+Choice program, we have approved 20 new plan and
service area expansions approved since November, and are now
reviewing applications from another 47 plans that want to get
into or expand their role in Medicare+Choice. This suggests
that plan withdrawal decisions have more to do with internal
plan and larger marketplace issues than with Medicare rates or
regulations.
Still, the President's budget does include proposals to
protect beneficiaries from disruption by plan withdrawals.
Beneficiaries need earlier notification of plan withdrawals,
and broader access to supplemental Medigap polices if they are
forced to return to fee-for-service coverage.
Other Initiatives
We have several other important initiatives underway
addressing children's health insurance, consumer protections
for Medicaid beneficiaries in managed care, consumer
protections in the private insurance market, and consumer
protections in nursing homes.
Children's Health Insurance Program
We are implementing the new Children's Health Insurance
Program, or CHIP. We have approved 50 State and Territory
plans, which States expect to cover more than 2.5 million
children, most of whom are in working families who do not earn
enough to afford coverage for their children. Amendments
expanding state plans have been approved for nine states, and
we are now reviewing another nine amendment proposals, which
should cover even more children.
Medicaid
We have proposed regulations to implement BBA provisions
mandating strong, new patient protection and quality
improvement rules for managed care plans that now serve about
half of all Medicaid beneficiaries nationwide are now enrolled
in managed care. This is a comprehensive and important change
that should not affect States or plans ability to make Year
2000 systems changes. We also have sent State Medicaid
Directors more than 50 letters with guidance as other Medicaid-
related BBA provisions became effective. These letters address
provisions that help States expand assistance to low-income
Medicare beneficiaries, let States cover working disabled
people with incomes up to 250 percent of poverty, allow states
to mandate that most Medicaid beneficiaries enroll in managed
care without obtaining a federal waiver, and many others.
Health Insurance Portability and Accountability Act
We have undertaken tasks under the Health Insurance
Portability and Accountability Act that are well outside our
traditional responsibilities. We are charged with overseeing
protections for individuals with preexisting conditions and
other broad private sector insurance reforms, and we must
enforce these reforms in States that fail to do so. To date, we
are enforcing all provisions of the law in Rhode Island and
Missouri, and several major provisions in California. As many
as 30 other States may not have implemented all provisions of
the law. Our fiscal year 2000 budget request includes resources
for direct enforcement and close coordination with State
insurance departments that are necessary for us to meet our new
obligations.
HIPAA also charges our agency with improving and protecting
health care data that is exchanged electronically. We are now
reviewing several thousand, often highly technical, comments on
Notices of Proposed Rule Making regarding a national provider
identifier system, an employer identifier system, electronic
transactions and code sets, and electronic data security. We
expect to soon publish Notices of Proposed Rule Making for a
health plan identifier system and for electronic claims
attachments.
Nursing Home Initiative
We have also undertaken a new initiative to improve
oversight and quality of nursing home care. We are working with
States to improve inspections, cracking down on homes that
repeatedly violate safety rules, focusing on prevention of
physical abuse and neglect such as dehydration and
malnutrition, and posting nursing home quality ratings on the
Internet. These reforms build on progress made since 1995, when
we began enforcing the toughest nursing home regulations ever.
The Clinton Administration will again submit legislation to
Congress to require criminal background checks of prospective
nursing home employees, establish a national registry of
nursing home workers who have abused or neglected residents or
misappropriated residents' property, and allow more types of
nursing home workers to help residents eat and drink during
busy mealtimes.
Conclusion
We are making substantial progress in meeting our
challenges and better managing the programs that so many
millions of Americans rely on for health care coverage.
Clearly, we have much more to do. That is why we are
implementing the many management reforms discussed in this
testimony. That is why the President's budget includes
provisions to increase our flexibility in procurement and
personnel matters, and to establish an official advisory
committee to help us stay on top of the rapidly evolving health
care marketplace. And that is why I am grateful for the advice
and assistance of this Committee and of the General Accounting
Office. I thank you again for holding this hearing, and I am
happy to answer your questions.
Chairman Thomas. Thank you, Nancy. And we have in the past
covered those concerns that previous administrators had thought
they were solving the potential Y2K problem with an
administrative, sweeping administrative change which eventually
was swept out the door rather than going into effect. And I
don't want to spend a lot of time on that, but it is something
that we do have to consider in terms, as you indicated,
although it seems a lot longer than that, you have been there
only 1 year? OK. It seems like three already. You did come in
at a time when not only the BBA and all of the changes included
in that which would have been more than sufficient, you came in
following a reorganization which people hadn't physically been
moved to where they were supposed to go and the Y2K problem as
well. And I just personally want to say that notwithstanding
those factors, which have to be dealt with, and, frankly, have
not been dealt with as well as sometimes we thought they should
have been, you personally, in my opinion, have done an
excellent job.
Ms. DeParle. Thank you.
Chairman Thomas. You recall the last time that we had the
audit and I tried to indicate that whatever the amount, $22,
$23 billion, whatever it was, should not automatically be
placed in the waste, fraud, and abuse column. That, in fact, I
wasn't going to use that to beat up on the Administration
because I thought a lot of it could be attributed to improper
coding, not understanding exactly from an administrative point
of view where it was to be classified, and it was all rolled up
together. At the same time, I don't believe, if you'll allow
me, that we've dropped that dramatically in our reduction of
fraud and abuse. My guess is that the second time around we
wound up finding a home for all of those mis-filed, that had
wound up as part of the total lost cost. Is that true? Do you
have any way to quantify the portion of the reduction that was
actually waste, fraud, and abuse reduction rather than getting
the administrative classification and the coding correct?
Ms. DeParle. I think I understand your question, Mr.
Chairman. And as I understand it the methodology of this audit
the Inspector General has used has been the same for the last 3
years.
Chairman Thomas. But if you'll recall, when we discussed
the audit there were a number of categories: Incorrect coding,
lack of medical necessity, there were a series of items that
were all bundled together to produce the dollar amount, some of
which were fraud and abuse?
Ms. DeParle. That's right. And the Inspector General has
always said there is no way to determine from just this audit
how many of these claims were fraudulent. What we do do is we
take the claims that they find and we go back after them and
some time later you can determine I suppose if there was any
true fraud involved. But you're right, the categories that they
divided into are: Documentation, medical necessity, coding.
Chairman Thomas. Non-covered incorrect?
Ms. DeParle. Yes, Sir.
Chairman Thomas. Now, there's nothing wrong with saying
we've made great strides in putting the piece of paper in the
right bin because that needs to be done, but I think the
impression is sometimes left that that means that that
significant reduction, i.e., putting the right paper in the
right bin, was in fact reduction of fraud and abuse. I guess I
would have a little higher comfort level if the report didn't
come out 2 days prior to the hearing.
Ms. DeParle. Well, the Inspector General--my audit is due
to the Office of Management and Budget under the Chief
Financial Officer's Act on March 1 of this year. And the reason
why they made it available is because they have to give it to
Ernst and Young who actually puts together the audit. And the
Inspector General said they had to give it to them by the
middle of the month. So I think that's why they did it.
Chairman Thomas. But there's more material that usually
comes out on the March 1 date, isn't there?
Ms. DeParle. Yes, there's an entire audit and it talks
about things like our accounts payable, our accounts
receivable, where we've had problems in the past.
Chairman Thomas. Electronic data processing?
Ms. DeParle. Exactly, exactly. And that will all be
available, well, we give it to OMB I think on March 1. And then
it will be available to the Congress shortly thereafter.
Chairman Thomas. And my assumption of course is that all of
the other parts of that report will be as rosy and the
reduction of what other people are calling fraud and abuse?
Ms. DeParle. Well, I don't know anything about it yet, but
I do know that last year we made progress in achieving a
qualified opinion. The year before, the auditors had said they
could not render an opinion about our books. Last year they
said qualified opinion. My goal is to get a clean opinion. I
don't know whether I'll achieve that this year or not. I
suspect I won't because there are problems with our accounts
receivable at the contractors. But, you know, I'm always
optimistic, as you might imagine, in this job.
Chairman Thomas. One of the difficulties on the Medicare
Commission is that we're trying to come up with as many useful
measuring devices as possible. One of the things we did in BBA
1997 was ask for a number of tools. One that came across a
discussion some time ago was the definition of ``homebound.''
That was something that was due out of your shop by----
Ms. DeParle. October 1998.
Chairman Thomas. October 1, 1998. Where are we on that?
I've discovered now that it really is something I would find
useful if we could get it?
Ms. DeParle. HCFA completed its draft of the report in
December, and we have been working to get coordinated with the
rest of the department. This is a report, Mr. Chairman, from
the Secretary. So we did the initial draft and we're working
with the other agencies within the department to get a
clearance on that report. And also we will then need to work
with the Office of Management and Budget. But we're close to
having it finished.
Chairman Thomas. What does that mean?
Ms. DeParle. That I've personally held meetings to try to
get things worked out, and I believe that I'll be able to get
it up here within a couple of months I hope.
Chairman Thomas. So it will be after we have to make a
report from the Medicare Commission, OK. Some of those tools
would be very, very helpful and we thought from the time line
that the statute they required be available?
Ms. DeParle. Yes, Sir. I don't want to excuse it because
you know I take the deadlines very seriously in the Balanced
Budget Act. The people who are working on the homebound report
are the same staff who have been working on all the other home
health changes.
Chairman Thomas. I understand.
Ms. DeParle. And they got it done, but they didn't turn it
in until December. And so it's now been going through a
clearance process. And knowing of your interest, perhaps I can
move it a little faster.
Chairman Thomas. Well, and knowing we did send you a
legislative second bite of the apple on home health care.
Ms. DeParle. You did and I appreciated it.
Chairman Thomas. The gentleman from California?
Mr. Stark. Just a couple of questions on your budget
request. I notice that you have already been up to see Mr.
Porter, and you're asking for a 3.6-percent increase, is that
right?
Ms. DeParle. Yes, Sir, that's right, not including the year
2000 funding for the computer systems.
Mr. Stark. One of the things I'm concerned about is that
part of your program includes some user fees as a revenue
source. What happens if the user fees aren't enacted?
Chairman Thomas. Can the gentleman yield briefly?
Mr. Stark. Yes.
Chairman Thomas. Apparently we have 3 minutes on a vote on
the floor of the House. And so if the gentleman----
Mr. Stark. I would reserve the balance of my questions.
Chairman Thomas. Actually, they'll be available just as
soon as we get back. The Subcommittee stands in recess.
[Recess.]
Chairman Thomas. The Subcommittee will reconvene. The
gentleman from California, the Ranking Member, is recognized.
Mr. Stark. Mr. Chairman, I am concerned about two things in
HCFA's appropriations request. One is that there is some
revenue there from user fees which Congress possibly won't
enact. I wonder what would happen in that situation? Could you
comment on a statement I make when I give speeches? I've always
said that HCFA's budget, or Medicare's overhead, was under 3
percent. I don't know if that's accurate. So, what is the
correct percentage and if you got your full funding, what would
it be?
Ms. DeParle. The last time I looked at this calculation,
our administrative budget was somewhere less than 2 percent I
think of our--of the dollars we spend on behalf of the
taxpayers and the beneficiaries. And I don't believe this
budget or even the last one which was, as I said, quite a
substantial increase from what we've gotten in the past and we
really appreciate it, would really change that calculation
much.
You ask about the user fees and I've had----
Mr. Stark. I'm not sure that continues to be a hallmark.
Maybe it ought to get to 3 percent, but----
Ms. DeParle. No, I think that--you and I have talked about
this, Mr. Stark. And I think that what the President has asked
me to do and what you all have asked me to do is make the most
out of the dollars we have and to be as efficient as we can.
And I believe we are doing that. I think certainly most private
insurance companies operate with higher overhead. But having
said that, as I said, last year we did receive a lot of support
from the Congress and we hope to work with you this year.
On the user fees, I've had deep philosophical discussions
with some of you about the pros and cons of user fees, and I
understand there are a number of different views on it. I think
I can make the case why these are modest, why given the things
we have to do, that it makes some sense to charge $100 for a
provider coming into the program so that we can check them out,
do a site visit, that sort of thing. But having said that, I
know they're not necessarily the most popular up here and I'll
be working with all of you again on what to do if they're not
enacted. But we hope you'll see fit to look at them and enact
them.
Mr. Stark. Thank you. You mentioned that the President has
some proposals to protect beneficiaries from disruption of
managed care plan withdrawals. Do you suggest that
beneficiaries need earlier notification of plans leaving the
program, becoming unavailable, or closing? Do they need broader
access to supplemental or Medigap policies if they're forced to
return to fee-for-service? Now, that only sounds like a bill
that I just introduced, but can you elaborate at all as to what
you're going to be asking us for? I think it's on page 17 of
your written statement. What do you all have in mind?
Ms. DeParle. I'd be happy to. Starting----
Mr. Stark. Unless you just want my bill, that would be all
right too.
Ms. DeParle. I haven't studied your bill, but I did look at
a summary of it and it does seem that some of the ideas are the
same. We started today by providing the plans with more
information and clarification of some of the things that had
been in the regulation last year with this mini-rule that we
put out today. We're also asking on the plan side for some
changes that we hope will make the system go smoother next
year, as you noted, changing the submission deadline for the
ACRs to July 1, which we think makes more sense both from the
standpoint of the plans and giving them more information about
the market and also from the standpoint of running our
beneficiary education campaign. We are phasing in risk
adjustment, which is part of the Balanced Budget Act. We're
phasing that in so as to promote stability in the marketplace.
We want to do some things to reduce administrative burdens on
plans. And, as I said, the mini-rule that we're putting out
today, we're publishing today, should help with that as well.
We're asking for some reforms that would allow the expansion of
Medigap protections for disabled and ESRD beneficiaries that
would allow beneficiaries who are affected by plan termination
and service area reductions access to all Medigap plans. And we
want to work with you all on that.
We would like a one time special open enrollment period for
beneficiaries who didn't have a Medicare Plus Choice option.
After the plan terminations last year, there were about 50,000
beneficiaries who were left without a choice and for some of
them, some insurance carriers didn't properly answer inquiries
and some of them got left out in the cold, and we want to make
sure they're given some more rights.
Mr. McDermott. Mr. Chairman? Mr. Chairman? Could I have a
clarification on what Ms. DeParle said? You said that people
who were out of plans can get into the Medigap, into all
Medigap policies at the same premium they had before or can
that be changed?
Ms. DeParle. I believe it's just access. Right now----
Mr. McDermott. Just access?
Ms. DeParle [continuing]. The Balanced Budget Act made an
improvement, as you know.
Mr. McDermott. But they can be underwritten?
Mr. Stark. I believe they prohibit pre-existing conditions
but if you're older, you pay more.
Ms. DeParle. That's right.
Mr. Stark. In other words, if it's an age-related premium
and you had it at 70 and you want to get it back and you're 75,
you have to pay the 75-year-old premium.
Chairman Thomas. The law says that within 1 year, you can
go back and there is no pre-existing requirement. However, in
this situation, and the gentleman from California is correct,
they could charge a different price, but it cannot be on
physical pre-existing condition. It would be age-related.
Ms. DeParle. That's my understanding. And what we're doing
is, the Balanced Budget Act made an improvement here for
beneficiaries but, given what happened last year, we would like
to go further and extend further protections.
Mr. McDermott. Thank you, Mr. Chairman.
Mr. Stark. Thank you very much.
Chairman Thomas. The gentleman from Louisiana.
Mr. McCrery. Thank you, Mr. Chairman. Ms. DeParle, last
summer I guess when you were before this Subcommittee, I talked
with you about the hospital wage index and how it was weighted
toward certain regions of the country and it didn't seem fair.
And you agreed and you said that you all were going to
undertake a revision of the formula. And in an effort to help
you to get the data for that, I think the American Hospital
Association put together an effort to do a couple of things:
No. 1, provide HCFA with the data necessary to reformulate that
wage index; and, No. 2, in the interim, their group, their task
force that they formed, came up with an interim formula, if you
will, to serve as a change for the index while you were
gathering the data, are you familiar with that? And what are
your plans to utilize the efforts of that task force and their
product?
Ms. DeParle. Mr. McCrery, sitting here, I don't have the
latest on that. I need to talk to Dr. Berenson and his staff
about what they've done. I would like to get back to you on
that.
Mr. McCrery. OK. If what I've told you is correct, and the
industry has gotten together and agreed on an interim formula
to tie you over until you get the data that you need to
reformulate the index on your own, would you be inclined to use
that industry agreement as long as it's revenue neutral?
Ms. DeParle. Well, what I would want to do is, obviously
the industry's analysis is something that I would want to look
at. And I will talk to Dr. Berenson and I'll look at it as soon
as I can. What I would want to do is work with all of you to
make sure that it is what Congress intended. I would also need
to work with our lawyers to be sure that they think I have the
authority to do that. But, yes, Sir, I would be happy to take a
look at it.
Mr. McCrery. OK. With respect to the Y2K problems, you did
talk about that in your testimony. And I just want to get some
more assurance from you that this is not going to cause a
problem to beneficiaries. After all, we've been told before
that HCFA is working on computer problems only to find out that
the work didn't really produce any good results. Specifically,
the Medicare Transaction System that we were told was going to
solve all the problems and $50 million later, it didn't amount
to much. Can you give us some further assurances that computer
problems are not going to cause beneficiaries to go wanting
after the year 2000?
Ms. DeParle. Yes, Sir, I can. And let me be clear. The Y2K
problem is not a computer software problem or design of an
infrastructure problem like the Medicare Transaction System
was. And I understand and I regret that we all had a bad
experience with that. The Y2K problem is a management problem.
And it has been the No. 1 priority that I've had at the agency.
I wouldn't say that I came to the Health Care Financing
Administration to work on it, but I had no choice and we've
really put all of our resources and efforts on it.
We also, thanks to the recommendations of the General
Accounting Office when I first got there--we've done a number
of things to make sure that we have the proper oversight in
place, including hiring outside independent experts to come in
and look over our shoulders and over the shoulders of our
contractors as they make the changes. And that gives me more
assurance, and I think it should give you more assurance.
And I would also like to ask the Members of the Committee
to help me, as you have in other areas. I've sent a letter out
to all 1.6 million providers that we deal with telling them
what they need to be doing to get Y2K compliant. I am convinced
that we're going to be ready to pay their claims, but we need
your help in making sure that the providers are making the
changes that they need to make to be able to submit claims to
us first of all. And, second, of course to be able to provide
services to all of our friends who may be in the hospitals or
needing health care around that time. If we can do anything in
your districts to provide more information to your health care
providers, to your doctors or hospitals, I hope you'll let me
know.
Mr. McCrery. OK. Thank you. On the hospital wage index
question, would you get back to me when you discover more
information on that?
Ms. DeParle. I will call you tomorrow.
Mr. McCrery. Let me know what that's doing?
Ms. DeParle. Yes, Sir.
Mr. McCrery. Thank you.
Chairman Thomas. The gentleman from Wisconsin wish to
inquire?
Mr. Kleczka. Administrator DeParle, I have a couple of
concerns. The first involves the improper payments. The audit
indicates that there has been a significant decrease in actual
improper payments. My question to you is what percentage are
you at now of total program cost versus improper payments? Are
we down to 7 percent I think?
Ms. DeParle. Seven point one percent I believe, Sir.
Mr. Kleczka. Is there a health insurance industry standard
for errors in billing and things of that nature? Is there a
norm we can compare that to?
Ms. DeParle. No, in fact, it's sort of interesting. This is
a rather esoteric area, as you might imagine. There's a few
people who have done work in this area, one is Professor
Malcolm Sparrow at Harvard. And what he says is that, in fact,
that Medicare is ahead of the rest of the industry in that we
at least measure it and say what it is and then publicly go
about attacking it. And that's consistent with the experience
I've had. And I've been working a lot with the private health
insurance industry, and they've told me that our efforts here
have helped them a lot. In fact, they're working with us now on
some of these things.
Mr. Kleczka. Ultimately you're responsible for the entire
$12.6 billion in overpayments. However, the amazing part is
that the bulk of it is out of your hands; it's the
responsibility of the contractors you select. In selecting new
contractors or renewing contracts, is their error in billing a
factor in that decisionmaking?
Ms. DeParle. Yes, it is. And, in fact, one of the things
that we did over the past year is we're moving to strengthen
our contractor oversight. You're right that it's not in our
hands. A lot of people don't understand that we don't actually
pay the claims in Baltimore. This happens all over the country
with these 77 contractors. But we do have an obligation to
oversee them and we're strengthening our oversight of them and
that includes looking at their error rate and looking at how
they're doing here as part of selecting contractors to do
business.
Mr. Kleczka. How many contractors do you employ nationwide?
Ms. DeParle. The ones that process claims, I believe it's
77 or 80. Something like that.
Mr. Kleczka. OK. And for all 80, you know what their error
rate is? You have a pretty good fix on it?
Ms. DeParle. I don't know what their error rate is sitting
here, Sir, no.
Mr. Kleczka. No, not off the top of your head, but you do
have some record of that back in the office?
Ms. DeParle. We probably don't have it on an individual
contractor basis. I have asked for that and we've talked to the
Inspector General about doing that. To do that, would be very
expensive and the sample would have to be much larger because
what they do right now is a statistical sample; and they pick
600 beneficiaries and then look at all their claims. And I
think it would be valid maybe for some contractors, but not for
all of them.
Mr. Kleczka. But if that's part of the criteria you use to
select a contractor or renew a contract, I would think it would
be important that you have a little better fix on what the
error rate is per contractor. For the bad actors, when renewal
time comes, or when they're vying for a contract in another
region, that deficiency might be enough to doom their request.
Let's give that some further thought.
Do you still think we need some contractor reform
legislation?
Ms. DeParle. Yes, I do.
Mr. Kleczka. And what would that consist of?
Ms. DeParle. Well, the Medicare contractors by statute, by
the 1965 statute, are treated differently than any other
government contractors. And I believe that it's in the
government's interest and Congress' interest for us to have
more flexibility with who we contract with. Some of our
contractors do a very good job. With others it's been
difficult, frankly, to improve their performance. An example is
on Y2K. We've come a long way over the last year, but when we
started out the GAO recommended to me that I have a contract
amendment to each of my contracts requiring them to be Y2K
compliant. And a lot of them balked at that and told me that I
had no right to ask for that. The statute is too narrow and we
need more flexibility.
Mr. Kleczka. OK, you just led into my second question. From
what I understand, your agency is mostly prepared for Y2K.
Where are you and the contractors? You did issue the change in
the contracts but where are they as far as coming up to the
standards? I know with 1.6 million providers, we're definitely
going to see some problems there but the contractors are
something you control.
Ms. DeParle. Well, I hope not and that's what we're working
toward. And that was Mr. McCrery's question. We've made a lot
of progress. On our internal systems, as you say, for our
mission critical systems as of December of this year, we were
compliant on Y2K with all of them. On the external systems, we
went from 0 last year to 54 of 77 this year. And I'm working on
correcting all the others and getting them tested by the end of
March.
Mr. Kleczka. You went from zero to what?
Ms. DeParle. To 54 of 77, which is around 70 percent of the
external ones are done.
Mr. Kleczka. OK.
Ms. DeParle. And, as I said, this was a tense situation,
but I want to thank the contractors for really focusing on this
and helping us get the job done this year.
Mr. Kleczka. So you have about 30 percent more contractors
to come up to snuff?
Ms. DeParle. That's right.
Mr. Kleczka. Thank you very much, Mr. Chairman.
Chairman Thomas. Thank you. It's been noted, or at least
indicated to me, that the press corps wishes to have yellow
flags issued so they can throw them at us. [Laughter.]
You don't have your tables that you normally have in 1100,
so if you'll allow us to get through the hearing. I do hope
there is no reporter that is left outside. Any reporter left
outside raise your hand? [Laughter.]
Let's just make sure, and I don't mean that facetiously.
Who's on the door? Have we got everybody in? Everyone is
created equal but some folks write and others don't.
[Laughter.]
The gentleman from Texas.
Mr. Sam Johnson of Texas. Thank you, Mr. Chairman. Welcome.
Ms. DeParle. Thank you.
Mr. Sam Johnson of Texas. In your testimony, you say that
HCFA has doubled the number of physicians that you have on your
staff. How many do you now have? You know twice one two?
Ms. DeParle. I know that. And we have about 30. When you
asked me this last year, we had about 15.
Mr. Sam Johnson of Texas. I know. Are they actively
participating?
Ms. DeParle. Yes, Sir, they're at the very senior levels of
the agency.
Mr. Sam Johnson of Texas. And do they have some----
Chairman Thomas. If the Chair could interrupt, these
microphones are very uni-directional, you need to speak
directly into it.
Ms. DeParle. I'm sorry.
Chairman Thomas. No, you're fine.
Ms. DeParle. I was answering Mr. Johnson's question in
saying that we have 30 physicians now working at the agency and
we had 15 last year. And this is an area that he and I have
talked about in the past.
Mr. Sam Johnson of Texas. And they are physicians that have
actually practiced medicine?
Ms. DeParle. Yes, Sir, they are.
Mr. Sam Johnson of Texas. That's great. OK, I want to
pursue the question Mr. Kleczka was talking about a little bit.
You're requiring all contractors to be certified as Y2K
compliant. Do you have oversight in HCFA to pursue that and
make sure they are, No. 1? And, No. 2, what happens to
contractors that aren't ready? You said they don't have any
right--they told you you didn't have any right to ask for that,
well, what did you do with the ones that told you that?
Ms. DeParle. In the end we worked it out and they all
signed a contract amendment. So I have that now.
Mr. Sam Johnson of Texas. They did?
Ms. DeParle. They did.
Mr. Sam Johnson of Texas. Or they were going to be
terminated, right?
Ms. DeParle. No, I don't----
Mr. Sam Johnson of Texas. Would you do that?
Ms. DeParle. I don't know what it would have come to. I
don't know--the problem is that under the statute that we have,
their position legally was that I didn't have any authority,
the Secretary didn't have the authority to require that of them
because the statute is written very normally. I mean very
narrowly. I think I probably could have done that. I'm glad
that we didn't have to. They've worked with us. And, as I said,
we're making good progress. Your question was, I'm sorry, Sir?
Mr. Sam Johnson of Texas. Do you have some oversight and
some way of testing them?
Ms. DeParle. Yes, Sir. In fact, I would venture to say
there's more oversight on this project than there's ever been
on anything at HCFA before. There is one person who is in
charge of contractor oversight now. And she is, in fact, one of
the physicians I was talking about, Dr. Marjorie Kanoff, who
worked at a contractor in Massachusetts before she came to
HCFA. There is also Dr. Gary Christoph, who I brought in as our
chief information officer from Los Alamos, and he is also
overseeing that effort. And we have HCFA employees out
stationed at the contractors. So especially at the ones I was
mentioning before where they're still not compliant, we've had
people on the premises checking them and making sure that we
know on a day-to-day basis where they are because the problem
when I first got there was we weren't sure and all we had was
what they were telling us about where they were. And that,
given I think what we all recognize as the problem here, wasn't
enough. So we have HCFA staff who are out there.
Mr. Sam Johnson of Texas. Are all your reimbursements
computer-generated?
Ms. DeParle. Virtually all of them. I think we may be the
most electronic-billing insurance company in the world.
Mr. Sam Johnson of Texas. So if you get a regional blackout
somewhere, are you capable of writing checks manually?
Ms. DeParle. We will be. We're doing right now a
contingency plan that we hope to have ready, the final draft of
it, sometime this spring. And it will describe plans for doing
something like that. Now, I will be honest with you. I don't
know that anybody could write checks for 900 million claims. So
what we are preparing is what we believe is more likely to
happen, which is a short-term small regional, a few States,
that kind of thing. If this happened everywhere, we wouldn't be
able to do it. We would not be able to process paper claims
with the staff that we have.
Mr. Sam Johnson of Texas. You indicated 77 contractors.
Then you said it might be 77 or 80. And then in answer to a
question, you said you lacked 30 percent having it done. Can
you clarify that for me, those numbers?
Ms. DeParle. Well, the reason I said 77 or 80 is because
when I'm talking about mission critical external systems that
pay Medicare claims, I know the number is 77. But there may be
some overlap, there may be some higher number of contractors
that we have. And Mr. Kleczka was asking how many contractors?
Mr. Sam Johnson of Texas. I know.
Ms. DeParle. So it's 77 mission critical external systems.
Mr. Sam Johnson of Texas. OK, let me ask you one more quick
question. It's my understanding that you currently have about
70 data centers. Could they be consolidated? In other words,
could you more efficiently operate the data centers if there
were a smaller number of them?
Ms. DeParle. Yes, and I think that's something that we've
been looking at. The problem has been that with all those
contractors originally there were many different actual
computer systems. What we've been trying to move toward is a
standard system for Part A claims, a standard system for Part
B, a standard system for durable medical equipment. And when
that is done, I would think we could consolidate the number of
data centers.
Mr. Sam Johnson of Texas. With back-ups, of course?
Ms. DeParle. Yes, Sir.
Mr. Sam Johnson of Texas. OK. Thank you very much. Thank
you, Mr. Chairman.
Chairman Thomas. Does the gentleman have off the top of his
head any idea where he would locate this centralized?
[Laughter.]
Mr. Sam Johnson of Texas. Well, Dallas is pretty central.
Chairman Thomas. Does the gentleman from Georgia wish to
inquire?
Mr. Lewis. Thank you very much, Mr. Chairman. Madam
Administrator, thank you for being here.
Ms. DeParle. Thank you.
Mr. Lewis. Why should the Congress be concerned about
contracting reform? What problems are we trying to solve? The
current contractors seem to think that the system is working
pretty well as a current structure and doesn't need to be
changed. I would like for you to respond?
Ms. DeParle. I would be happy to. As I said, I want to be
clear that many of the current contractors are doing a very
good job. And we are going to be doing a very good job of
overseeing them. So we're going to make sure that we get good
value for the taxpayer's dollar. But the authority under which
Medicare contractors are hired and the way they operate is
different from any other authority for contractors. The rest of
the Government operates under what are called the FAR
regulations, the Federal Acquisition Regulations, and they
provide more flexibility to the Government in competing
contracts. The statute right now says that we're limited to
dealing with insurance companies for claims processing for Part
B, for example. It says on the Part A side, we're limited to
dealing with entities nominated by groups of providers. And
since 1965, that's been essentially one group.
And I just happen to believe it's in the Government's
interest and in the beneficiary's interest to have a broader
group and more of a marketplace and more competition for that.
And, again, I'm not saying that every single, that if we get
contractor reform, which I hope we can work with you to do,
that the next year there's going to be a whole new set of
contractors. Some of them will be the same. But I will have
more leverage. I will have more oversight authority. Even
terminating contractors is a difficult thing to do right now
even when there are program integrity problems. And I just
think that's not in the Government's interest.
Mr. Lewis. Health Affairs said that many of your problems
stem from funding, flexibility to accomplish your tasks. Is
that correct? What do you need from Congress to be able to
successfully manage your agency and accomplish your tasks and
fulfill the challenges that you're facing?
Ms. DeParle. Thank you. One of the things that I need from
Congress are hearings like this one today and the interest that
this Committee has shown in helping us to improve our
management capacity. Resources are scarce, and I understand
that, across the Government, but the programs that we're
running are very, very important and I appreciate that this
Committee recognizes that and has tried to help us to get the
resources we need to do our job.
I also think that we need some more management flexibility.
Again, this Committee has tried to give us some of those
authorities in terms of being able to do competitive bidding
for some of the things that Medicare does. There's no reason
why Medicare should pay so much more than the Veterans'
Administration does for certain products for its beneficiaries.
So there are things like that that we can work together on, and
I would like to work with the Congress and with this Committee
to get those things done.
Mr. Lewis. Will you be so kind to help us understand the
rationale for the President's proposal to use 15 percent of the
budget surplus for Medicare?
Ms. DeParle. Yes, I think what the President has in mind is
ensuring the solvency of the trust fund through 2020. And I
believe that he has made this proposal to the Congress as a way
of ensuring that the health care of our Medicare beneficiaries,
like our Social Security beneficiaries, comes first in the
debate that's going to follow about how we handle the surplus.
Mr. Lewis. Thank you very much. Thank you, Mr. Chairman.
Chairman Thomas. Thank you. Does the gentleman from
Minnesota wish to inquire?
Mr. Ramstad. Thank you, Mr. Chairman. Administrator
DeParle, as a new Member of the Subcommittee, I have more
questions than the time will allow. So I assume, Mr. Chairman,
that I can submit them for the record in writing and there will
be written responses?
Chairman Thomas. You certainly can and I think you'll find,
and I want to thank the gentleman for his attendance today,
that we have enough of these that this isn't a one time shot.
This is an ongoing road show.
Mr. Ramstad. The most pressing question I have, and I ask
it as somewhat of a follow-up to Mr. Lewis' question, I think
you know Blue Cross/Blue Shield of Minnesota recently notified
HCFA that it will end its participation as an intermediary for
Medicare Part A. I know this also happened in Illinois last
year. In addition, in 1995 in Minnesota, HCFA awarded Medicare
Part B administration to United Health Care over the previous
administrator, Blue Cross/Blue Shield. Again, as a follow-up to
Mr. Lewis, I was wondering if you could clarify how a new
contractor for Medicare Part A is chosen? And I ask this
because I want to make sure that no Minnesota beneficiary, or
for that matter, provider, is harmed by this switch?
Ms. DeParle. Well, we look at a number of factors. I can
name off some of them and this does happen with some frequency,
that contractors come and go. One of the examples you cited was
from a program integrity problem, in fact. And what we do is we
look at their record for program integrity, meaning have they
paid claims appropriately, are there problems there? We look
at, wherever we can, we try to make sure that the jobs can be
maintained in the place that they were. And we have a pretty
good track record there as well. And we look at how it will
affect the providers because if providers have to change from
one system to another, I've described before that the
contractors use different computer systems. So if we were
changing the Minnesota providers over to another system,
another contractor, it would be in their best interest if it
could be the same computer system so they wouldn't have to make
changes to their computer system. So we look at things like
that.
Also, I must make clear that under current law, the Blue
Cross and Blue Shield Association chooses replacements for Part
A contractors known as fiscal intermediaries, not HCFA, and
that is one of the things we propose to change with contracting
reform legislation.
Mr. Ramstad. I appreciate that response. Let me shift to a
different area, Administrator DeParle. I know that HCFA's rules
delineate the criteria for determining whether a reimbursement
level is grossly excessive or grossly deficient. Yet the DMERC
notices on inherent reasonableness do not reference any of
these criteria. I would like to know what criteria were used to
determine that the payment levels were inherently unreasonable?
Ms. DeParle. I believe, Mr. Ramstad, you're referring to
the notices that were put out some time in the fall under the
inherent reasonableness authority that the Congress gave us.
And what we were looking at--there are items of durable medical
equipment and we did do analyses. The DMERC medical directors
did do analyses. And what I recall about it is they looked
particularly at what the Veterans' Administration is paying,
and in some cases we were paying two to three times what the
Veterans' Administration was paying for certain items of
durable medical equipment. I would be happy to provide you with
a briefing on the analyses behind that.
Mr. Ramstad. That I would appreciate, thank you. Let me ask
finally I know under current law the Medicare Plus Choice plans
are paying for most of the beneficiary education programs even
though the health plans currently enroll, as I understand it,
only about 15 percent of Medicare beneficiaries. It's been
suggested to me by a number of people in Minnesota that the
fee-for-service Medicare should contribute to the user fee
since it's also one of the choices. Can you respond?
Ms. DeParle. Well, this is an area that the Committee and
the Committee staff have paid a lot of attention to. What we
tried to do with the $95 million is make sure that we used it
only as the statute said. In the handbook, for example, if we
were providing information that is more about fee-for-service
Medicare or general Medicare that was not part of what the
Congress talked about in this education campaign, we funded
that out of our regular program management budget because I
wanted to be sensitive to what you all intended with the user
fees. And I understand the health plans' position on the user
fees. I've met with a number of them and I understand how they
feel and we're open to working with the Congress on what you
think is equitable here.
Mr. Ramstad. Thank you, Administrator. Mr. Chairman, I
yield back.
Chairman Thomas. Thank the gentleman. The gentlewoman from
Florida wish to inquire?
Mrs. Thurman. Thank you, Mr. Chairman. Administrator
DeParle, thank you for being here. This is my first time on
this Committee, so I don't have some of the advantages of some
of the work has done. However, as was maybe mentioned in the
opening, I probably do have a lot of Medicare and more than
most on this Committee. And one of the issues hitting Florida,
and quite frankly hitting all across the country, has been the
issue of HMOs pulling out and leaving hundreds of thousands of
people without any care. I know that you've recently done some
information on the Internet, which I thank you for. It's been a
great help. Can you give us some ideas of some other things
that might be taking place over the next couple of months that
will help these people who have lost this care?
Ms. DeParle. Well, as I mentioned, we want to work with the
Committee on some proposals that we've come up with to try to
help the people who were affected this year; and also to
provide more of a safety net for folks next year in case there
are more plan withdrawals. Florida was particularly heavily hit
on this, and we did something like a thousand meetings around
the country sitting down one-on-one with beneficiaries in
townhall meetings to try to help them work through this. We
want to have a more concerted campaign next year so that they
know where to go for information and help.
It is interesting in looking at the pattern around the
country, we've been analyzing this some, and there are some
parallels to what happened in the Federal Employees Health
Benefit Plan. In fact, in some counties, it was precisely the
same counties where they pulled out, and in that program it's
interesting I think there was a 5-percent increase last year.
So we're trying to analyze exactly what happened, and we're
doing what we can to work with the plans to minimize disruption
next year. One of the things we want to do is change the
deadline for the submission of ACRs, the Adjusted Community
Rate documents, which we hope will give the plans more time to
fully assess the market and know where they intend to be
because it is extremely damaging to beneficiaries to hear at
the last minute that their plan isn't going to be there. So we
want to work with you to try to make improvements.
Mrs. Thurman. I appreciate that because they really are
very concerned. For most of them, it's the pharmaceutical
assistance but it really has put them in a feeling of just
being left out. So they're very concerned about it.
I know that on the MSNs we've cleared that up, and I
appreciate the help you gave on this because we started to hear
from our folks at home. On the other side of that though, it
really won't go into effect until July of this year. Are there
some other places where our patients can get this information
before it actually is reinstated so that they would have that
available to themselves?
Ms. DeParle. There are and I want to say that I appreciate
your bringing this problem to my attention because I hadn't
been aware of it. What Mrs. Thurman is talking about is that
some beneficiaries were not getting the explanations of
Medicare benefits, or Medicare summary notices, because of a
change that had been made last year to suspend them in certain
cases. If there's a beneficiary who wants one and they're not
getting them yet because it hasn't been phased in--we expect to
have them all in by July--they can call the carrier or
intermediary that's in this document that all the beneficiaries
got last year. They either got the handbook, if they were in
Florida, or they got this bulletin that gives the number for
their intermediary or carrier. If they call there, they can get
a copy of their Medicare summary notice.
Mrs. Thurman. Let me follow-up with that then because at
any time that we do legislation there's unintended consequences
that maybe wasn't thought all the way through or as rules go
and change. As you've gone through in implementing these, you
said you've been through like 188 of them. You have 300 of them
to do. And we're starting to hear from these constituents who
have now been placed under these rules. And there are some that
I don't think we thought was going to happen, and I think, Mr.
Chairman, you talked about one with the homebound. We've got an
awful problem with people with disabilities that are not
getting the home health care and don't really fall under the
homebound that may end up going into nursing care homes when
they're perfectly capable of staying home. But are there some
other areas that we have gotten some unintended consequences
that we need to be aware of or that we can be helping work on
over this next year?
Ms. DeParle. Well, one of them is one that we've been
discussing a little bit this afternoon, which is some of the
filing dates in the Balanced Budget Act. And I don't think when
we were working on that, anyone thought about the impact that a
May filing date might have on plans, for example. And that was
a domino effect on beneficiaries later on. So there are things
like that that I think we can work together to fix.
There were things in the regulation that we put out that we
didn't realize were going to be difficult for plans to meet.
And, as I said, today we issued a regulation to try to deal
with those things. Some of them we can deal with
administratively. Some of them we'll need your help on.
Certainly in areas like home health, we've been monitoring that
very closely around the country to sort of see what the
patterns are.
I was very concerned about were there going to be increases
in nursing home admissions? And so far we're not seeing that.
But we want to continue to work with the Committee and identify
those areas as quickly as we can. And then if we need to
address them, we'll do whatever we can to work with you to get
that done.
Mrs. Thurman. Thank you.
Chairman Thomas. Thank the gentlewoman for her questions.
The gentleman from Maryland is no longer a Member of the
Committee. His ticket has expired. Apparently he went for power
such as it is within the minority side to become Ranking Member
on another Subcommittee. [Laughter.]
Mr. Cardin. I was just following the term limits I thought
that was in the rules package from the---- [Laughter.]
Chairman Thomas. Unfortunately, that's on our side of the
aisle and not yours. But I do appreciate his commitment to me
personally that he will stay with us on the major issues. His
knowledge and background is invaluable. You were not here when
I passed out the penalty flags, so you can have an honorary
one. The idea is instead of us talking over each other, we're
just going to throw penalty flags at each other. And no one has
thrown one today. So I'll be the first to throw it. [Laughter.]
Mr. Cardin. Well, Mr. Chairman, let me thank you----
Chairman Thomas. Let the Chair first of all say that if we
had these over the last several Congresses, the gentleman from
Maryland would never have gotten one. [Laughter.]
Mr. Cardin. Now he says that. When I was on the Committee--
-- [Laughter.]
Chairman Thomas. I don't need your vote any more.
[Laughter.]
Mr. Cardin. Well, I'll take this and I might use it from
the audience. Let me first thank you for the courtesy.
Chairman Thomas. I'll tell the gentleman I've already told
that reporters don't get any. [Laughter.]
Mr. Cardin. Oh. I might trade this for a vote from the
Committee. But first let me thank you for the courtesy of
allowing us to participate in this hearing and subsequent
hearings. The work of this Subcommittee is very important to
all of us and I very much appreciate that.
If I might, I just really wanted to ask the administrator,
following up really on Mrs. Thurman's questions on outreach to
our constituents. Our health care system is very complicated.
It's difficult for seniors to understand what's covered and
what's not covered. The President in his initiative on long-
term care is suggesting more resources to HCFA in order to
assist seniors in understanding what their options are to cover
long-term care. With Medicare Plus Choice and many HMOs pulling
out of the market, my State had I think the fifth largest
number of dis-enrollees in HMOs and our telephone lines were
ringing off the hook, so I can imagine what was happening at
HCFA at the time. You have established a 1-800 hotline in I
think five States. Maryland is not one of those States that had
those services.
My question to you is do you have adequate resources in
order to help our seniors understand the complexities of our
system, whether it's Medicare Plus Choice or whether it's long-
term care or whether it's prescription drugs, we're all getting
questions about that. Do you have the capacity to help us in
getting the information out to our seniors as to what the law
is, what their options are, and how they can best cover their
own health care needs?
Ms. DeParle. Well, that's a very good question, Mr. Cardin.
And I would say this. We're trying to build something new here.
And we started from the ground up and it's not going to be
perfect overnight. And it was a shame that last year the
disruptions in the market occurred at the same time that we're
trying to run this new beneficiary education campaign.
Having said that, in the five States where we did the
initial work--we piloted it last year--we've done focus groups,
and I think the Committee will be glad to know that in general
beneficiaries liked the information. I think something like 80
percent of them said they saved the handbook because they
thought it was going to be useful as a reference tool. So over
time, I think that we're going to see that that makes a big
difference, that this campaign, which is not just a handbook
and not just a toll free line, but is a whole system really, is
going to make a difference. And I hope that part of that will
be educating people on long-term care because that's something
many of them don't begin planning until it's almost too late.
And we are asking for resources to do that.
As far as whether we have enough, we have asked for more
resources. We did last year as well, and that was the one area
of our budget that we were not successful in. And we want to
work with the Committee to make sure you understand what we're
trying to do and to seek your support for more resources to do
a better job on the beneficiary education campaign.
It's clear to me that while beneficiaries like the handbook
and they like the toll free lines, and by the way we are
expanding that nationwide over the next 6 to 8 months, a lot of
them want individual contact. We can't do that. Many of your
States, you should know, should be complimented because the
insurance commissioners, I met with this weekend, and the
insurance commissioners in your States have been active in
trying to help us with this as have the agencies on aging and
those networks and the State insurance counseling programs. We
need to put all of this together to make this work for our
beneficiaries. And I believe we can do it, but it's going to
take more work on both of our parts. And I'm eager to work with
you on it.
Mr. Cardin. I appreciate that and I hope that we'll
continue to work on it. Just one last point, to underscore
again what Mrs. Thurman said about the rationale of HMO pull-
out and that in some regions in our State, which are the so-
called low-cost areas, beneficiaries don't understand why they
have to pay more money for an HMO to get coverage than someone
who enrolls in a high-cost area. So it doesn't seem to make a
lot of sense, and I think we need to re-think how Medicare Plus
Choice should operate to guarantee citizens of a State equal
access to the variety of options that are out there. And we
look forward to working with you on that particular issue.
Thank you, Mr. Chairman.
Chairman Thomas. Thank the gentleman. The gentlewoman from
Connecticut wish to inquire?
Mrs. Johnson of Connecticut. Thank you very much, Mr.
Chairman. First of all, let me say welcome and I appreciate the
tremendous workload that you have shouldered since you've
become head of HCFA; and feel that the American people should
be grateful for your intelligence and capabilities. I thank
you.
Ms. DeParle. Thank you.
Mrs. Johnson of Connecticut. I also want to dissent from a
word that my friend used earlier, Mr. Stark, ``overwhelmed.''
I've never seen anyone carry such a load and not be
overwhelmed. I appreciate not only what you've accomplished but
also your endless openness to those of us who are out in the
field to the problems that we see and to allowing them to have
an effect in your department and the work that you're doing. So
I think that's very helpful for all of us.
I have three questions I want to try to get through and I
know I have very little time. So let me just try to at least
lay them all on the table with one other comment before that. I
was very interested to read that the managed care plans are
going to pay for the costs of clinical trials. And I think we
need to at least do a demonstration project in Medicare so that
we can find out whether this is going to raise our costs or
lower our costs. I believe it will lower our costs. So I think
we're being held back by a false estimate. Maybe we could work
out some way to find out the truth in that matter before
seniors are the only portion of the population not allowed to
benefit.
Ms. DeParle. Well, as you know, I want to do that too. And
we have a proposal and want to work with you on it.
Mrs. Johnson of Connecticut. Good. In the budget, in the
President's budget, there is a proposal to require all private
insurance companies to provide Medicare second payer
information to help HCFA coordinate benefits when Medicare is
the secondary payer. It seems to me that this will be
extraordinarily difficult for you to get in place, just the
information management technology and the coordination with the
private sector. Is this going to be possible to do this year?
Ms. DeParle. I believe that that proposal would take effect
some time in the spring after we've already accomplished our
Y2K changes that we need to make.
Mrs. Johnson of Connecticut. Well, they have no effective
date. It does, however, have a $650 million fiscal impact,
apparently over 5 years. So I wonder if we are going to be able
to actually make the changes required to get that kind of money
when we aren't even going to be able to do the updates this
year?
Ms. DeParle. For this year, I think for Fiscal Year 2000,
the actuary is estimated only about $10 million in savings from
it and that's why we wouldn't be able to begin implementing
that until after we finish all the Y2K changes that need to be
made. And then I have an agenda of getting the home health
prospective payment system done, out-patient, and all the other
things that are in the queue. So I believe that these estimates
are reasonable, but it is true that we won't be able to do it
right away.
Mrs. Johnson of Connecticut. Thank you. I also wanted to
know if you still needed contractor reform legislation? As I
think you are now aware, we've had terrible problems with a
contractor in Connecticut. And, in fact, the hospitals are
months behind in their Medicare reimbursements. And for
institutions now that are under tremendous pressure, especially
the small hospitals, this is a really serious situation. Do you
still need contractor reform legislation and what kind of
changes are you looking for?
Ms. DeParle. Yes, I think we do need contractor reform
legislation. And I want to thank you for bringing to my
attention the problems up in Connecticut and urge other members
to do the same thing when you're having problems because
sometimes we don't hear about them unless you let us know. As
I've said to other members who have asked about this, I think
the Government needs more flexibility. We need a more
competitive environment. We should not be limited to dealing
with a set group of insurance companies or other entities. And
I think that that part of the statute has been pretty much the
same since 1965 while other Government contracting authorities
have been reformed and revised to give the Government more
flexibility and, frankly, a better price, more competition. So
I look forward to working with the Committee on coming up with
some sort of equitable solution to this problem.
Mrs. Johnson of Connecticut. OK. And then let me just get
on the table a very serious problem that is looming for the
nursing homes. It's particularly, again, a particularly
difficult problem for small nursing homes and that is the issue
of medically complex patients. I am absolutely focused on
dealing with the problem of nursing homes not being able to
handle what we are not requiring them to handle or at least
they think we're requiring them to handle in the way of
transportation costs, ambulance costs, and prosthetic device
costs. But a separate and very important problem is the issue
of the medically complex patient. Things are changing so
rapidly that there are hospitals re-categorizing beds so that
they don't have to accept these patients because they can't
afford to care for them. This would back them up into our small
hospitals and finally have a terrible effect on the system.
What are you doing, or are you doing anything, to develop
an interim solution? Ultimately the PPS system hopefully will
deal with this fairly but in between now and then, we really
have problems.
Ms. DeParle. Well, as you know, Mrs. Johnson, we
implemented the skilled nursing facility prospective payment
system last year on schedule. And one of the components of it
are these resource utilization groups that attempt to capture
the cost of providing care to different types of patients. The
issue I think you're referring to is whether or not those, the
RUGs system captures the acuity of patients. And we have spent
a lot of time with many nursing facilities around the country
talking about this, and, in fact, we've already contracted with
Abt Associates to develop some better measures so that we can
fine-tune the payments for more acutely ill patients. And we're
working on that as quickly as we can.
Mrs. Johnson of Connecticut. I would like to work with you
further on this because those RUGs are based on 1995 data. And
the treatments that nursing homes are carrying out now 3 years
later are just very different and that old data really doesn't
capture the kinds of patients that many of the nursing homes
are dealing with now. So we have a disconnect, but it's serious
enough that if a small home has a couple of bad experiences,
they could be financially at risk. So I appreciate the
opportunity to work with you on it.
Ms. DeParle. Thank you.
Mrs. Johnson of Connecticut. Thank you, Mr. Chairman.
Chairman Thomas. Just to follow-up on that, I suppose it's
a cardinal sin for us to say that we would welcome all of those
complaints and concerns because that's our job to resolve them.
But one of the things that I think would be very, very helpful
is if you could indicate to us a willingness and a desire to,
for want of a better term, maybe have a townhall meeting to get
these folks in. Clearly, a procedure to sophisticate the RUG,
some mitosis process to produce the sub-RUGS that grow up to be
RUGs fairly quickly. I guess throw mats become area RUGs or
whatever. [Laughter.]
The appropriate analogy would be. It doesn't make a lot of
sense to have them go through us. We hold you in a hearing.
This stuff has to move fairly quickly and if you would indicate
that it might be possible that you could have some open
meetings for these folks to indicate their concern and then you
could reflect back to them directly, that seems to me something
that would be worthwhile. What's your comment on that?
Ms. DeParle. Yes, I think so. That's something we've been
doing, in fact, successfully on some other issues, and we would
be happy to host a townhall meeting, either in Washington or
Baltimore, to get as many of those folks in to make sure we
understand the problem.
Chairman Thomas. And let me end on this. One of the charges
of the Medicare Reform Commission is to deal with solvency. And
I've been thinking about this, and join with me in going
through this thought process, especially focused on the
President's most recent budget. When we say the Medicare
Program is solvent, it's in reference to Part A.
Ms. DeParle. Yes.
Chairman Thomas. Which is a payroll tax because Part B was
an add-on with physicians and it's the general fund. And the
payroll tax was analogous to the Social Security payroll tax.
But the HI Trust Fund is now different because in the early
nineties, we lifted the lid. It is much more of a progressive
tax, notwithstanding that it's on payroll.
And that the old analogy, Greenspan, in front of the Full
Committee, said it better than I ever heard anybody say,
``These people have holdings which are appreciating at greater
than market rates.'' They get three and four times the amount
they paid in. That's still true of early retirees today. But if
you project over the period that the Medicare Commission is
supposed to be looking at this, those beneficiaries in 2020,
2030, in terms of the amount that they're paying in, with no
cap on their income, looks a whole lot more like an income tax,
because that's what it is with no cap, but it's a limited, it's
a particular category of an income tax.
Then in 1997, to add additional years to the solvency of
the HI Trust Fund, we transferred the fastest growing portion
of Medicare, home health care, to Part B. Now, if we're still
talking about solvency, and you just in response to a question
of a member, and the President said, ``I can get you out to
2020 if we take general revenue surplus and put it in the HI
Trust Fund.'' I can create an infinite solvency test. Any time
you're in trouble, transfer a program from Part A to the
general fund or, in fact, do what we all think is appropriate,
combine A and B.
And all of these things are happening to the point that if
we simply allow current law to affect itself over time, what
was 50/50 with the initial switch of home health care becomes
60/40 general fund and will ultimately become 70/30 general
fund. I don't know that solvency makes any sense as a test any
more, especially with the President's offer to get us to 2020.
I can get us to 2626, or whatever that song was, by doing that
same sort of thing. It doesn't mean anything any more.
I think maybe, and this is what I've been trying to do, and
I would appreciate your reaction, not now, but as we talk over
the next several months, I think exposure is a term that's far
more useful, exposure of the general fund, because if you still
have a payroll tax and it is progressive, you're going to have
people who are paying in who are payers, hopefully they become
beneficiaries. So if you take a snapshot in time, you've got
payers into the system, you have the beneficiaries, but you
have the general fund.
I do think it's a useful dynamic, for those paying in and
those who are receiving, to have the ability to negotiate
between them what an appropriate rate of payment versus
beneficiary reciprocation is. But if you have a general fund
that's available at any time to continue to add to it, using
the old solvency test, it is the general fund that will be the
bag that holds all concerns of both the payers not wanting
their rate to go up or the beneficiaries not wanting their
benefits to diminish.
So one of the difficulties in the Commission now is how,
given this dynamic, do we deal with what is an appropriate
substitute for solvency since solvency isn't a problem because
you can buy it away? And you buy it away with the general fund,
either through a transfer programmatically or simply dumping
cash into it. Think about it. Exposure to the general fund I
think is something that--how much is the general fund going to
carry of this program, notwithstanding the fact that you have
payers in the payroll tax and that you have a package of
benefits that will change over time, the people who are
receiving them?
We haven't talked about this, but I think we need to think
about it.
Ms. DeParle. I see the issue and I'll be happy to spend
some time thinking about it.
Chairman Thomas. Thank you very much. And thank you once
again.
The Committee would now ask--if there are no further
questions? Quick one?
Mrs. Johnson of Connecticut. I just want to ask one brief
question? I notice you've hired a lot of physicians and
gerontologists. That's a very good thing. Have you hired anyone
who has had experience within managed care?
Ms. DeParle. Yes.
Mrs. Johnson of Connecticut. Making protocols work, managed
care actually work?
Ms. DeParle. Yes, in fact, the geriatrician, who's the
chief clinical officer for HCFA now, Dr. Jeff Kang, was the
medical director of a managed care plan up in Boston. And Dr.
Berenson, who is the head of the Center for Health Plans and
Providers, ran a PPO, in fact, here on Capitol Hill and so has
had that experience as well.
Mrs. Johnson of Connecticut. Thank you.
Ms. DeParle. I think most of our physicians have had
experience in managed care.
Mrs. Johnson of Connecticut. Thank you.
Chairman Thomas. Thank you again.
The Chair would now ask Dr. Scanlon to come forward as the
Director of the Health Financing and Public Health Issues,
Health Education and Human Services Division of the U.S.
General Accounting Office. He has always assisted us in a
systematic examination of the operation of HCFA, and we welcome
you once again. Your written testimony would be made a part of
the record, without objection, and we invite you to inform in
any way you see fit. Welcome, doctor.
STATEMENT OF WILLIAM J. SCANLON, PH.D., DIRECTOR, HEALTH
FINANCING AND PUBLIC HEALTH ISSUES, HEALTH, EDUCATION, AND
HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING OFFICE
Mr. Scanlon. Thank you very much, Mr. Chairman, and Members
of the Subcommittee. With me today is Leslie Aronovitz who is
an Associate Director in the Health Financing and Public Health
group at GAO and who has been very heavily involved in our
review of HCFA for this hearing today.
In 1996 and 1997, Congress passed the Health Insurance
Portability and Accountability Act as well as the Balanced
Budget Act to help HCFA combat fraud and abuse and constrain
Medicare spending growth. However, implementing these laws
added substantially to HCFA's ongoing responsibilities to
manage both Medicare and Medicaid.
Last year, you asked us to assess HCFA's capacity for this
Subcommittee, because you were concerned that the HCFA was not
prepared to shoulder all these responsibilities. Then we
reported that the HCFA's tasks appeared to be outstripping its
ability to manage its workload. This year, you have asked us
again for such an assessment. Today, our message is a bit more
complicated. HCFA has made great strides in addressing many of
its immediate priorities. These include readying critical
computer systems for the year 2000 problem and implementing
many provisions of HIPAA and the BBA. But the number and the
complexity of BBA requirements and the urgency of the computer
system changes, coupled with a backlog of decades-old problems
with HCFA's routine operations, make it clear that much more
needs to be accomplished. Its capacity, while greater than last
year, also needs further strengthening for the agency to
successfully fulfill its mission.
The immediacy of the threat, the amount of work, and the
resources needed to meet the Y2K challenge, coupled with the
Agency's late start, have put a tremendous burden on HCFA this
past year. It has pushed hard to catch up, and, as you have
heard, it has made considerable progress. The GAO has been
monitoring this progress closely, and Joel Willemssen from our
Information Resources Issue area is scheduled to provide our
assessment at a hearing of the Full Committee on February 24.
Unfortunately, the rush to complete the Y2K renovation
affected the timing and quality of the Agency's work on many
other projects. For example, this delayed needed computer
systems modernization. As a result, the Agency has been forced
to spend millions to renovate certain systems for Y2K readiness
that it then plans to replace soon after the year 2000.
Similarly, HCFA has had to delay the implementation of new
prospective payment systems intended to slow program growth for
services such as home health and hospital outpatient care.
There has also been less managerial time and attention
available to oversee ongoing operations. HCFA's financial
management and oversight of Medicare's fee-for-service claims
administration contractors are longstanding problems needing
more attention as is assurance of the quality of care provided
in nursing homes and by home health agencies.
HCFA has made strides in improving the fiscal integrity of
the Medicare Program. This year, it promptly distributed the
Medicare Integrity Program funds to contractors so that they
could work to reduce fraud and abuse. It has developed a
strategic plan to better focus its activities for program
integrity, but many of these initiatives are just starting.
While there has been progress made in putting in place many
of the HIPAA and BBA requirements, we believe that important
refinements are still needed. To give you just one example, we
are concerned that the design for the new Prospective Payment
System for skilled nursing facilities does not fully eliminate
payment for unnecessary services and that there is not
sufficient oversight planned to ensure that providers do not
game the system. In addition, we are aware of the concern that
Mrs. Johnson raised in talking with Administrator DeParle about
the adequacy of rates for medically complex cases and are, for
this Subcommittee, looking into that issue as well.
Compared to last year, HCFA's capacity is greater. Many of
the transitional problems of the reorganization are history.
Additional staff with needed skills have been hired, and some
of the losses due to attrition have abated. On the other hand,
in focus groups we conducted, HCFA managers and staff discussed
issues that continue to hamper effective agency operations.
Some of the communication and decisionmaking difficulties
associated with the reorganization still persist.
At times, the Agency's decisionmaking process has been
slowed considerably. For example, travel funds were not
allocated well into the middle of last fiscal year. Managers
also stated that the performance and awards systems do not
motivate or hold their staffs accountable for achieving program
results.
HCFA still faces the challenges of an aging work force. In
fact, almost a quarter of its staff, most with management and
technical expertise, will be eligible to retire in the next 5
years.
In conclusion, I would note that HCFA's senior officials
have taken concrete steps to improve agency management this
year. But the Agency's continuing challenges are taxing. After
the dusts settles from Y2K, HCFA will need to overhaul its
antiquated computer systems. In addition, it will need to
improve its financial management, its oversight of Medicare
contractors, and its effort to assure the quality of
beneficiary care. Strong leadership and management, more
effective planning, acquisition of staff with needed skills,
and better accountability are keys to addressing these
challenges. A true measure of HCFA's success will be its
ability to maintain its current momentum as it enters the 21st
century.
Thank you very much, Mr. Chairman. I would be happy to
answer any questions you or the Members of the Subcommittee may
have.
[The prepared statement follows:]
Statement of William J. Scanlon, Ph.D., Director, Health Financing and
Public Health Issues, Health, Education, and Human Services Division,
U.S. General Accounting Office
Mr. Chairman and Members of the Subcommittee, we are
pleased to be here today to discuss the Health Care Financing
Administration's (HCFA) ability to meet its new and growing
responsibilities. HCFA pays for health care coverage for nearly
a quarter of the population. Two of the programs HCFA
administers cost federal and state taxpayers about $370 billion
in fiscal year 1998--$193 billion for Medicare and $177 billion
for Medicaid--and represent an ever growing proportion of the
federal budget--currently about 18 percent. Because of the size
and complexity of its programs, we have been reviewing HCFA's
operations since the agency was created more than 20 years ago.
Over the years, we have reported on problems in HCFA's
management that weakened the fiscal integrity of these
programs--leading to increased monetary loss from fraud, abuse,
and erroneous payments. We have also reported on management
problems that have led to poor-quality care provided to
vulnerable beneficiaries. In 1990, we developed a list of
agencies and programs that were ``high risk'' because of their
vulnerability to waste, fraud, abuse, and mismanagement. We
included Medicare on our original list, and it remains on the
list to this day.
The long-term financial condition of Medicare is now one of
the nation's most pressing problems. Recent legislation gave
HCFA substantial new authorities and responsibilities for
reforming Medicare in order to extend the solvency of
Medicare's Hospital Insurance Trust Fund beyond 2008. This
legislation also established the Bipartisan Commission on the
Future of Medicare to develop more long-term solutions for
further ensuring Medicare's integrity and solvency. Because of
your concern about HCFA's preparedness to implement these new
authorities and administer its programs, you asked us to review
HCFA's management capacity and to testify before this
Subcommittee last January. You asked us to report today on our
updated assessment of HCFA's progress--focusing on the agency's
ability to meet its increasing workload in the short term.
Specifically, you asked us to review HCFA's progress in (1)
addressing its most immediate priorities and (2) strengthening
its internal management to effectively discharge its major
implementation and oversight responsibilities.
We relied on our substantial body of past and ongoing work
to assess HCFA's performance in meeting its current
responsibilities.\1\ We supplemented this work by interviewing
28 agency managers and officials, including the Administrator
and Deputy Administrator. In addition, we conducted small focus
groups attended by 46 senior and midlevel managers and 20
staff, and reviewed agency documents.
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\1\ See Related GAO Products at the end of this statement.
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In summary, HCFA is facing an unprecedented set of
challenges. The Balanced Budget Act of 1997 (BBA) and the
Health Insurance Portability and Accountability Act of 1996
(HIPAA) were designed, with considerable input from the
administration, to strengthen HCFA's ability to prevent fraud
and abuse and constrain spending growth in the Medicare
program. These laws added substantial new authorities and
programmatic responsibilities to HCFA's ongoing management of
Medicare and Medicaid. In response to these mandates and
program responsibilities, HCFA's accomplishments have been
impressive. However, measured against the magnitude of
challenges it faces, HCFA's progress seems more modest. The
immediacy and resource demands associated with meeting the Year
2000 computer system challenges--coupled with HCFA's late start
in addressing them--have put a tremendous burden on the agency
this past year and have affected the timing and quality of its
work on many other projects. For example, it has delayed needed
systems modernization and computer changes that implement new
payment systems intended to slow program cost growth. It has
also slowed efforts to improve the oversight of ongoing
operations, such as financial management and Medicare fee-for-
service claims administration, which desperately need
attention. Even where HCFA has made progress--such as in
implementing a number of the mandated HIPAA and BBA
requirements--we believe that more work, and many refinements,
are still needed.
HCFA must meet these challenges with an aging workforce. In
fact, almost one quarter of its staff--most with managerial and
technical experience--will be eligible to retire in the next 5
years. HCFA has taken a number of steps internally to
capitalize on its staff's strengths to deal with a rapidly
changing health care marketplace and growing responsibilities.
For example, HCFA has developed a strategic plan that better
articulates its future direction, has progressed in its
customer-focused reorganization by moving staff to their new
organizational units, and has hired more staff with needed
skills. On the other hand, in focus groups we conducted, HCFA
managers and staff discussed issues that continue to hamper
effective agency operations. For example, HCFA's reorganization
slowed the agency's decision-making process so that even travel
funds were not allocated until well into the middle of the
fiscal year. Managers also stated that the performance and
awards systems neither motivate staff nor hold staff
accountable for achieving program results.
To further strengthen HCFA's ability to effectively manage
its employees and programs, the administration has proposed new
authorities for contracting and new flexibility in hiring in
the President's budget for fiscal year 2000. It also proposes
new mechanisms to enhance agency accountability, with biannual
reports to the Congress and an advisory board to help the
agency streamline internal and program management. HCFA senior
officials have taken concrete steps to improve agency
management this year but will need to maintain the momentum
over the next several years to overcome the agency's current
and future challenges. This will be especially difficult in an
agency that for years has been plagued by external pressures
and management problems.
Background
HCFA, an agency within the Department of Health and Human
Services (HHS), is responsible for administering much of the
federal government's multibillion-dollar investment in health
care--primarily the Medicare and Medicaid programs. Rapid
increases in Medicare program costs, coupled with increasing
concern about fraud and abuse in the program, led the Congress
to enact legislation--HIPAA and the BBA--to strengthen
Medicare. HIPAA established the Medicare Integrity Program,
which ensures increased funding for Medicare program safeguard
efforts and authorizes HCFA to hire specialized antifraud
contractors. The BBA made the most significant changes to
Medicare in decades, designed to reduce the growth of Medicare
spending. The law requires HCFA to implement new payment
methodologies, expand managed care options, and strengthen
program integrity activities. At the same time, these laws also
added entirely new responsibilities--such as oversight of
private health insurance and implementation of a new state
children's health insurance program--to HCFA's historic mission
to administer Medicare and Medicaid.
Medicare is the nation's largest health insurance program,
covering about 39 million elderly and disabled beneficiaries at
a cost of more than $193 billion. Most of these beneficiaries
receive health care on a fee-for-service basis, in which
providers are reimbursed for each covered service they deliver
to beneficiaries. HCFA contracts with about 60 insurance
companies to process the high volume of fee-for-service
claims--numbering about 900 million in fiscal year 1997--
submitted by about a million health care providers for payment.
Medicare's managed care program, the other principal component,
covers the growing number of beneficiaries who have chosen to
enroll in prepaid health plans, where a single monthly payment
covers any needed services. About 6.8 million people--about 17
percent of all Medicare beneficiaries--were enrolled in more
than 450 managed care plans as of December 1, 1998.
Medicaid, a $177 billion federal and state grant-in-aid
entitlement program administered by states, finances health
care for about 36 million low-income families and blind,
disabled, and elderly people. At the state level, Medicaid
operates as a health insurance program covering acute-care
services for most recipients, financing long-term medical care
and social services for elderly and disabled people, and
funding programs for people with developmental disabilities and
mental illnesses. In addition, the BBA created the state-
operated Children's Health Insurance Program, which provides
federal grants to states to provide basic health insurance
coverage for low-income, uninsured children. Through this
program, states have a choice of either expanding their
Medicaid programs or developing a separate program to insure
children.
Under HIPAA, HCFA also has a completely new responsibility
for ensuring that private health insurance plans comply with
federal standards. In five states that did not pass legislation
conforming to key provisions of HIPAA, HCFA has direct
responsibility for enforcing HIPAA standards for individual and
group insurance plans. In addition, HIPAA, along with the BBA,
provides HCFA more opportunities to improve its fraud and abuse
identification and prevention programs in Medicare.
HCFA had about 4,100 staff as of October 1998. About 65
percent were located in the central office and the remainder
worked in the agency's 10 regional offices. In addition to its
workforce, HCFA oversees Medicare claims administration
contractors who employed an estimated 22,000 people in fiscal
year 1997.
HCFA Has Made Some Progress Addressing its Highest Priorities, But Many
Problems Remain
Last year, we told you that substantial program growth and greater
responsibilities appeared to be outstripping HCFA's capacity to manage
its existing workload. Today, the message is a more complicated one.
HCFA has made great strides in addressing many of its immediate
priorities--including readying critical computer systems for the year
2000 and implementing many provisions of HIPAA and the BBA. But the
number and complexity of the BBA's requirements and the urgency of
systems changes, coupled with a backlog of decades-old problems
associated with HCFA's routine operations, make it clear that much more
needs to be accomplished.
HCFA Made a Concerted Effort on Y2K, but Critical Tasks Are Incomplete
Over the past year, HCFA has made a concerted effort to deal with
its most pressing priority--the Year 2000 computer systems problem--
commonly referred to as Y2K.\2\ If uncorrected, Y2K problems could
cause computer systems that run HCFA's programs to shut down or
malfunction, resulting in serious disruptions to payments to Medicare
providers and services to Medicare beneficiaries. Addressing Y2K is a
formidable task for HCFA, because the Medicare program uses 6 standard
claims processing systems, about 60 private contractors, and financial
institutions nationwide to process about 900 million Medicare claims
each year for about 1 million hospitals, physicians, and medical
equipment suppliers.
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\2\ This problem stems from the use in many computer systems of a
two-digit dating system for indicating the year. With this abbreviated
format, the year 2000 is indistinguishable from 1900.
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In September 1998, we reported that time was running out for HCFA
to modify Medicare systems to handle Y2K.\3\ HCFA was severely behind
schedule in repairing and testing its systems and in developing
contingency plans to handle system failures. Until 1997, HCFA was
attempting to develop the Medicare Transaction System--which would be
Y2K compliant--to replace its existing Medicare claims processing
systems. But the project was halted because of design problems and cost
overruns. This left HCFA with multiple, noncompliant Medicare claims
processing systems that needed modernization. Compounding this
difficult task was HCFA's failure to adequately direct and monitor its
Y2K project. We recommended changes to better manage its Y2K efforts,
and HCFA agreed to implement our recommendations as soon as possible.
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\3\ Medicare Computer Systems: Year 2000 Challenges Put Benefits
and Services in Jeopardy (GAO/AIMD-98-284, Sept. 28, 1998).
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HCFA recently reported to HHS that as of December 31, 1998, it had
completed renovating 5 of the 6 standard systems used by its
contractors to pay claims and all 25 of its mission-critical internal
systems. We are now monitoring HCFA's progress in implementing the
recommendations in our September 1998 report, and we are reviewing the
agency's progress in addressing the critical areas of Y2K testing and
business continuity and contingency planning. We will testify on these
issues to the Congress in the next few weeks. Furthermore, although
HCFA is not directly responsible for state Medicaid enrollment and
payment systems, agency officials said they are concerned that some
state systems may fail. To help prevent this, the agency has begun to
work with states on their Y2K problems.
HCFA's progress on the Y2K front is tempered by one unfortunate
reality: some of the systems HCFA is expending so much energy and
resources to modify to achieve Y2K compliance are obsolete and will
need to be replaced soon after the year 2000. Y2K presented an
immediate problem with an inflexible end point, which has forced HCFA
to shelve its efforts to consolidate its Medicare claims processing
systems and modernize other systems. After the termination of the
Medicare Transaction System, HCFA decided to consolidate the number of
systems that pay claims to reduce systems maintenance costs and
streamline efforts to implement required systems changes. But systems
consolidation could not go forward while HCFA and its contractors were
renovating and testing their systems for Y2K readiness. As a result, it
is spending millions to renovate certain systems for Y2K readiness that
it plans to stop using soon after 2000.
HCFA Has Made Some Progress but Is Still Struggling With HIPAA and BBA
Implementation
HCFA has completed many major tasks this past year and has
implemented significant portions of HIPAA and the BBA, but progress
remains slow. For example, HCFA has taken steps to allocate HIPAA
funding and to implement authorities to combat waste and abuse in the
Medicare program. HIPAA provided additional funds for HCFA's Medicare
claims processing contractors to use to detect fraudulent and abusive
billing practices. The claims administration contractors use these
funds to hire and retain staff knowledgeable in conducting provider
audits, claims reviews, and payment data analyses, among other
activities. HCFA promptly issued the contractors' fiscal year 1999
budget allocations, unlike the situation in fiscal year 1998, when HCFA
did not provide this funding to the contractors until a third of the
year had passed.
As part of HIPAA, the Congress also gave HCFA the authority to
contract with specialists to perform payment safeguard activities. HCFA
is now reviewing the submissions it received in response to its
September 1998 solicitation for bids to become a program safeguard
contractor. Such a contract could be awarded by May 1999, but the scope
will be limited and will not provide many of the benefits initially
envisioned from using a specialty contractor.
As part of its work on BBA-mandated Medicare+Choice, \4\ HCFA
issued interim final regulations for health maintenance organizations
and other types of managed care organizations (for example, preferred
provider organizations and provider-sponsored organizations) to
participate and took several steps toward implementing the new National
Medicare Education Program last year. The regulations, published in
June 1998, represented a massive undertaking accomplished within a very
short time period. In rushing to reach the deadline, however, some of
the provisions were developed without full consideration of their
impact on managed care organizations. For example, the regulations
required that managed care plans assess the health status of all new
Medicare members within 90 days of enrollment, but this requirement
would include existing plan members for whom the plan may already have
comprehensive information. Similarly, the regulations require each
managed care organization's chief executive officer to certify that the
encounter data provided to HCFA are 100-percent accurate. To managed
care plans, such a standard seems unreasonable because these data are
generated from many sources not directly under their control, including
contracting physicians, hospitals, and other providers. In addition,
managed care plans are concerned that other requirements cannot
realistically be accomplished in the required time frames, may be
duplicative of existing accreditation and reporting requirements, and
could create disincentives to work on more difficult quality
improvement projects. HCFA has agreed to reconsider a number of items
and is planning to change the standard for data accuracy so that plans'
chief executive officers will certify to the best of their knowledge
that the data provided to HCFA are accurate.
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\4\ Medicare+Choice widens beneficiary and health plan
participation in Medicare managed care by (1) guaranteeing plans a
minimum payment level, intended to encourage plans to locate in areas
they had previously not served; (2) expanding the types of plans
eligible to contract with Medicare to include--in addition to health
maintenance organizations--preferred provider organizations and
provider-sponsored organizations; and (3) informing beneficiaries of
the plan choices in their area through a national information campaign.
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For the new National Medicare Education Program, HCFA established
an eight-point plan for educating beneficiaries about their new managed
care options; implemented an Internet site for providing comparative
managed care plan information; and has begun phasing in its toll-free
call center and its mail-out of a revised Medicare handbook to
beneficiaries in five states, which foreshadowed the nationwide mail
campaign planned for this fall. The effort to produce Medicare
handbooks was more complicated than the agency originally expected. Of
the 15 comparative handbooks mailed to beneficiaries in different
geographic areas, 12 were inaccurate because HCFA published them before
managed care plans finalized their Medicare participation decisions.
The Congress' efforts to encourage the growth of Medicare managed care
could be thwarted if plans refuse to participate and if beneficiaries
are confused, instead of enlightened, about their many health care
choices.
HCFA officials acknowledge they were slow to realize that the
complexity and magnitude of the Y2K problem would stall implementation
of key BBA requirements. The BBA mandated the design and implementation
of new payment methods called prospective payment systems (PPS), which
pay providers--regardless of their costs--fixed, predetermined amounts
that vary according to patient need. To meet BBA targets, HCFA has to
design and implement four PPS systems:
a skilled nursing facility (SNF) PPS by July 1, 1998;
a home health agency PPS by October 1, 1999, which was
delayed by later legislation until October 1, 2000;
a hospital outpatient PPS by calendar year 1999; and
an inpatient rehabilitation PPS by fiscal year 2001.
The SNF PPS was implemented on July 1, 1998. However, to prevent
additional complications during system renovation and testing for Y2K,
the agency has missed deadlines to make systems changes needed for
beginning the hospital outpatient and home health agency prospective
payment systems. These delays could affect both budgetary savings and
Medicare beneficiaries themselves. The Congressional Budget Office had
estimated that new payment methods for home health and outpatient
services would save Medicare about $23 billion between fiscal years
1998 and 2002. In addition, the hospital outpatient PPS would have
reduced the amounts elderly patients pay for such services. HHS
estimated that between January 1999 and April 2000, senior citizens
will have to pay an extra $570 million in higher copayments over what
they would have paid if the hospital outpatient PPS had been
implemented on time. While many Medicare beneficiaries have some sort
of third-party coverage for costs that Medicare does not cover--
referred to as ``Medigap'' policies--they are likely to be indirectly
affected because premiums for Medigap policies are increasing in line
with rising Medicare costs.
Although HCFA officials were tracking both BBA and Y2K
implementation, top agency officials did not inform the Congress until
July 1998 that the agency would be delayed in instituting the new
payment methods. HCFA officials attributed their late awareness of this
problem to communications breakdowns at three levels. First, they
believe operations and policy staff at headquarters responsible for
designing the program changes were not consulting with each other and
with others who were responsible for implementing them in the field.
Second, they stated that top agency officials did not immediately find
out what lower-level HCFA managers knew--how long it would take to
implement complex BBA changes and how that could complicate Y2K testing
of the systems. Finally, officials believe that there was inadequate
consultation with Medicare contractors responsible for making the
actual programming changes to their systems.
While some parts of the BBA implementation were put on hold, HCFA
moved quickly to implement a new SNF PPS.\5\ However, we believe that
the SNF PPS has design flaws, and coupled with a lack of adequate
planned oversight, this may diminish the anticipated reduction in
Medicare costs that prospective payment was supposed to create. Savings
depend on developing an appropriate daily payment (per diem) rate to
reflect patients' needs. The new daily payment rate is based on the
average daily cost of providing all Medicare-covered skilled nursing
services, adjusted to take into account the patient's condition and
expected care needs. We are concerned that the new SNF PPS' design
preserves the opportunity for providers to increase their compensation
by supplying potentially unnecessary services, since the amounts paid
still depend heavily on the number of therapy and other services
patients receive. Furthermore, HCFA has not planned sufficient
oversight to prevent fraud and abuse. For SNFs, a facility's own
assessment of its patients will determine whether a patient is eligible
for Medicare coverage and how much will be paid. When Texas implemented
a similar payment method for Medicaid, its on-site reviewers found that
nursing homes' assessments were often inflated. Despite Texas'
experience, HCFA does not currently have plans to monitor facilities'
assessments to ensure they are appropriate and accurate. Nor has it
ensured that the Medicare contractors--who pay the facilities' claims--
will have timely information on patients to determine whether the rate
to be paid is appropriate.
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\5\ The prior payment method reimbursed providers on the basis of
their costs, with capital costs and ancillary services virtually
unlimited. Because providing more services generally triggered higher
payments, facilities had no incentive to provide only necessary
services or to improve efficiency. Prospective payment is intended to
slow spending growth by paying providers fixed, predetermined amounts
that vary according to patient need, regardless of providers' actual
costs.
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The last major BBA implementation challenge we want to highlight is
the Children's Health Insurance Program--the largest health care
investment in children since Medicaid was created in 1965. Although
states are given broad flexibility in tailoring programs to meet their
own circumstances, HCFA is responsible for approving each state's plan,
providing technical assistance to the states, and ensuring that
programs meet statutory requirements designed to guarantee meaningful
health coverage. HCFA has initiated (1) a comprehensive effort with the
states, private companies, advocacy organizations, the Health Resources
and Services Administration, and others to promote this initiative and
(2) an outreach effort to find those children who are eligible for
health insurance under the Children's Health Insurance Program or
Medicaid but are not enrolled. Since passage of the act, HCFA has
approved 46 state plans, after providing extensive guidance and interim
instructions to states. We are currently studying HCFA's and the
states' efforts to implement the Children's Health Insurance Program
and will report on the results later this year.
HCFA's Handling of Ongoing Responsibilities for Financial Management
and Routine Oversight Raises Serious Concerns
Over the last several years, HCFA has been lax in managing critical
ongoing program responsibilities, such as financial management--
particularly by Medicare claims administration contractors--and
oversight of nursing home compliance. For example, our work on high-
risk programs such as Medicare highlighted the need for major federal
financial management reforms, which the Congress initially enacted in
the 1990 Chief Financial Officers Act and later expanded in the 1994
Government Management Reform Act. Under this legislation, the 24 major
departments and agencies such as HCFA must now produce annual financial
statements subject to independent audit, beginning with those for
fiscal year 1996.
Since 1996, in conjunction with its audit of HCFA's financial
statements, the HHS Office of Inspector General (OIG) has estimated the
error rate for improper payments made by Medicare claims administration
contractors. For fiscal year 1998, the OIG estimated that about 7
percent of Medicare fee-for-service payments for claims--$12.6
billion--did not comply with Medicare laws and regulations. This
represents an improvement over fiscal year 1997, when the OIG estimated
that Medicare contractors made $20.3 billion in improper payments--
about 11 percent of all claims. However, the difference from 1997 to
1998 was almost entirely attributable to better documentation provided
to the auditors, rather than to a substantive reduction in improper
payments in categories such as ``lack of medical necessity,''
``incorrect coding,'' and ``noncovered services.''
HCFA has made progress in strengthening its financial oversight.
Nevertheless, serious weaknesses remain for both Medicare and Medicaid.
Many of the financial weaknesses in Medicare relate to its oversight of
Medicare claims administration contractors, which process over $700
million in Medicare fee-for-service claims each working day. In its
audit of HCFA's 1997 financial statements, HHS' OIG found material
weaknesses in managerial control over contractor operations, and, as a
result, HCFA may not be collecting millions of dollars in overpayments
from providers. The fiscal year 1997 audit identified one contractor
transitioning out of the program that reported transferring $266
million in accounts receivable to other contractors, but neither HCFA
nor the auditors could determine whether these receivables had been
transferred onto the new contractors' books. HCFA depends on
contractors' financial reports to provide information for its financial
statement because HCFA lacks an integrated accounting system that can
capture financial information at the contractor level. Moreover, the
OIG found indications that HCFA's central and regional office oversight
of operational and financial management controls was inadequate to
ensure that contractor-provided financial information was consistent
and accurate.
Similarly, the OIG found that security for contractor and HCFA
information systems was inadequate, imperiling the confidentiality of
Medicare beneficiary personal and medical data. While HCFA had
corrected some weaknesses found during the audit for fiscal year 1996,
it was still possible for an unauthorized user to gain access to HCFA's
database and modify sensitive beneficiary files. HCFA has recognized
the need to protect the security of its information systems and,
starting in 1997, began revising security policy and guidance, and
implementing corrective action plans. Because of the need to focus on
Y2K modifications, however, HCFA probably will not address many of
these weaknesses in the near term.
Medicaid financial management also is in need of reform. The OIG's
1997 audit revealed that HCFA had limited information on the federal
portion of Medicaid accounts receivable and payable. In fiscal year
1997, HCFA relied on survey information from the states to estimate the
amounts to record in the financial statements, and because the survey
data were so limited, the OIG could not verify their accuracy. In
addition, the audit noted that HCFA regional offices were not providing
sufficient oversight of states' Medicaid claims processing and
reporting, including states' efforts to deter fraud and abuse and
collect overpayments.
HCFA's oversight of the quality of care Medicare and Medicaid
beneficiaries receive also needs improvement. HCFA is responsible for
defining requirements for certain providers, such as nursing homes and
home health agencies, to participate in the Medicare and Medicaid
programs and certify that their enforcement is adequate to protect the
health and safety of Medicare and Medicaid beneficiaries. HCFA
contracts with state agencies to review nursing homes and home health
agencies for their adherence to these federal requirements. Our work
has shown that HCFA's policies and oversight have been insufficient to
ensure quality of care for nursing home residents or home health
patients, and serious problems have resulted. One in nine nursing homes
in the country were cited in both of the last two inspections for
harming residents or putting residents' health and safety in immediate
jeopardy--but such homes often faced no federal sanctions. In response,
HCFA began taking actions to improve state inspection practices, revise
state oversight activities, and strengthen enforcement for nursing
homes. HCFA has also added requirements that home health agencies
demonstrate experience and expertise in home care by serving a minimum
number of patients before initially certifying them as Medicare
providers. However, these steps may not go far enough to protect
vulnerable beneficiaries. We are now reviewing HCFA's oversight of
state nursing home complaint investigations and inspections and will
report to the Congress on these issues this year.
HCFA Has Made Changes to Enhance its Management Capacity, But Problems
Persist
Because its mission has been rapidly growing and changing,
HCFA officials have worked hard to strengthen the agency's
management capabilities. Despite these efforts, problems remain
that hamper effective agency operations. While HCFA has
developed a new focus on planning, including publishing a
strategic plan, it does not require units to develop detailed
plans to carry out day-to-day operations. The agency has
completed its reorganization, but the resulting structure has
contributed to various communication and coordination problems.
Last year, HCFA lacked sufficient trained staff with the skills
to effectively implement its top priorities. It hired more
staff with needed skills in 1998, but it has not completed a
long-term strategic approach to meet its future human resource
needs. HCFA staff and managers are also concerned that its
performance and award systems are not well linked to
accomplishing its mission and that many managers are
overburdened and lack managerial skills. These types of
problems are found in other agencies, but HCFA still must be
diligent in addressing them. The President's budget for fiscal
year 2000 proposes a reform initiative for HCFA that is
designed to increase its flexibility in the human resources
area and to increase the agency's accountability.
Tactical Planning Is Limited
In December 1998, HCFA published its strategic plan, which
focused on the organization as a whole and communicated the
agency's vision, mission, and broad approaches to realizing
that vision. This plan was developed to help HHS respond to
requirements in the Government Performance and Results Act of
1993. In its strategic plan, HCFA clearly states that serving
beneficiaries is its primary mission and, in doing so, the
agency must be a prudent purchaser of health care. In addition
to its overarching strategic plan, HCFA has also produced draft
strategic plans for such significant areas as information
technology and program integrity.
Strategic plans are an important first step; to be useful,
however, they must be implemented. Tactical plans, which
identify specific, measurable, desired outcomes; time frames;
and assignments of responsibilities for task completion, are
critical. Last year, we reported that HCFA was not planning its
activities on a tactical level. Although tactical planning has
been used in some specific instances during the past year, such
as to help track implementation of BBA requirements, HCFA has
still not institutionalized this level of planning in its day-
to-day operations.
In our interviews and focus groups, a pervasive theme was
the need to work in a crisis mode, made worse by a lack of
planning. For example, a staff member stated that she was being
pulled from one ``hot project'' to another--which caused her to
lose efficiency because she barely managed to master one
subject before she was tasked with another. A manager told us
that since the reorganization, little planning has taken place
in his division, making even simple tasks harder. He said, as
an example, that the divisions did not know how much travel
money was available until the middle of the fiscal year and
that routine trips had to be written up as emergencies to get
approval. We heard similar concerns from managers and staff
working on data systems and coverage policy.
Reorganization Has Created Coordination Problems
HCFA's July 1997 reorganization established a totally new
structure designed to better focus the agency as a
``beneficiary-centered purchaser'' of health care. The
reorganization created new centers that were intended to
respond directly to HCFA's customers--the Center for
Beneficiary Services, the Center for Health Plans and
Providers, and the Center for Medicaid and State Operations--
and to provide additional resources to Medicare's growing
managed care program.
In our January 1998 testimony, we noted that the agency's
staff had not yet moved to the actual location of their new
organizational units, which tended to exacerbate problems with
internal communication and coordination. Almost a year after
the reorganization, between June and August 1998, HCFA
completed the physical relocations, placing staff within their
new organizational units. Relocation was a major undertaking
because HCFA had made dramatic shifts of groups and people. An
estimated 80 percent of HCFA central office staff, along with
their computers, files, and shared office equipment, were
relocated during the move. Managers told us that the physical
move was implemented well, minimized work disruptions, and
enhanced HCFA's operational efficiencies.
The 1997 reorganization set out to eliminate HCFA's
``stovepipes'' by placing policy and operations staff together
in specific customer-focused centers to enable them to work
more closely together. We found that HCFA is still in the
process of learning how to make its new organization work.
Several managers said that they believe the quality of
decision-making will be enhanced because input from many
individuals and groups is required. But other managers and
staff reported substantial internal and external communication
problems as a result of the reorganization. For example, they
said that the organization's decision-making process has become
slow and cumbersome because it is more difficult to identify
the key decisionmakers and find meeting times that can fit
their busy schedules. We also were told that even identifying
appropriate points of contact is sometimes difficult because
new organizational titles are confusing. Finally, some managers
and staff were concerned that when accountability for issues
was shared by more than one center or office, tasks could
``fall through the cracks'' unless responsibilities were more
clearly defined. Agency officials recognize that coordination
is a problem and that there is sometimes a lack of
accountability for decision-making. In response, they indicated
that they are establishing teams on priority projects where key
participants are identified and accountability for project
completion is placed on one person.
HCFA's reorganization and emerging role as a health care
purchaser and beneficiary advocate have also led to changes in
the way HCFA communicates with those outside the agency. Some
changes, such as those brought on by the Medicare +Choice
program and the availability of Medicare and Medicaid
information on the Internet, have increased interaction with
providers, provider groups, and beneficiaries, according to
several HCFA employees. Some staff we spoke with expressed
concern about this increased workload and their inability to
readily refer people to appropriate HCFA entities because the
new organizational lines of responsibility are still unclear.
Also, we found that although the Internet means that HCFA is
``open 24 hours a day'' and can communicate differently through
this new medium, neither senior staff nor agency plans have
fully addressed the impact of the Internet on HCFA's workload
and how managers might need to reallocate responsibilities.
Maintaining Experienced and Appropriate Staff Will Continue to
Be a Long-Term Need
Last year, we reported that HCFA lacked sufficient staff
with needed skills to effectively implement top-priority tasks.
Today, managers are somewhat less concerned about staffing
shortages because, during the year, HCFA hired more than 400
new employees--a net gain of more than 250 after accounting for
attrition. Of the new staff, a little over one-half were hired
as GS-7s through GS-12s and about one-third were health
insurance specialists. Senior agency officials told us that the
new staff, with skills in areas such as managed care, private
insurance, and market research, should help HCFA meet its new
and growing responsibilities.
We believe that HCFA's focus on attracting new employees
needs to be long term and continuous because it will continue
to lose staff whose expertise must be replaced or supplemented.
Over the next 5 years, almost a quarter of HCFA's staff--who
make up a large part of the agency's management and technical
expertise--will be eligible to retire. In addition, managers
say HCFA will need staff with ``real world'' expertise in
private industry, including those who know how to purchase care
competitively. While HCFA has not fully assessed its long-term
human resource needs, senior officials told us that the agency
is taking initial steps toward developing a long-term plan for
investing in its human resources. HCFA currently has a draft
human resources plan that covers the years 1999 through 2003.
Performance System, Awards Program, and Flexible Work Hours
Affect Agency Productivity
HCFA managers and staff discussed a variety of factors that
hamper agency operations and limit effective management.
Although we believe that HCFA is not unique in experiencing
these problems, mitigating them could improve agency
performance. These include a pass/fail performance rating
system where virtually all staff pass, an awards program that
does not necessarily reward superior performance, and flexible
work schedules and locations that limit staff availability.
Participants in our focus groups believed that HCFA's
performance appraisal system for nonexecutive staff does not
allow managers to meaningfully assess and report on staff
performance because virtually everyone receives a passing
grade. Staff believed that the pass/fail system is demoralizing
to hard workers because no adverse action is taken for
unsatisfactory performance. Similarly, according to managers
and staff, the performance appraisal system does not give staff
a sense of satisfaction when they perform well because it fails
to recognize outstanding efforts. Some cited the prior
performance system as preferable because exceptional performers
could benefit by receiving more rapid pay increases.
The Administrator found that the performance appraisal
system for executives was also not useful in holding managers
accountable and made changes this year to better differentiate
senior managers' performance. The executive appraisal system
has changed to a system with five levels of performance. Each
executive manager has a performance agreement that is linked to
performance goals for his or her set of responsibilities.
Many managers and staff members also told us that the
current awards program is not working. Although the program is
intended to motivate staff, the opinions we gathered suggest
that it may have just the opposite effect. Each unit
establishes its own panel that makes award decisions and
controls award amounts. Panels consist of an equal number of
union-appointed and management-appointed representatives. Each
panel sets its own criteria for making awards and determining
the portion of its awards budget to give to managers for ``on-
the-spot'' awards, which are awarded directly to staff for
performance on specific projects throughout the year. Managers
told us that they would like to be able to distinguish among
the accomplishments of staff members and reward them
accordingly, but both managers and staff perceive the awards
process as lacking equity and integrity. Any staff member can
nominate another for an award, and we were told that staff
members sometimes nominate themselves and friends nominate each
other. Managers also told us that sometimes almost all nominees
in a unit receive awards because panels find it difficult to
distinguish among nominees' performance. One manager who served
as a panel member said that during the last fiscal year, about
250 employees were nominated for an award in his center--about
two-thirds of all that center's employees. He said that only
five of the nominees did not get an award. Last fiscal year,
panels awarded about $678,000 to about 2,200 employees in
grades 1 through 15--an average of about $300 per awardee.
Managers also directly awarded about $213,000 through on-the-
spot awards that can range from $50 to $250.
While staff were highly critical of the performance
appraisal and awards processes, they approved of the
flexibility to set their own work hours and work locations.
HCFA's personnel rules provide for flextime--in which employees
may arrive at work at different times each day within core
periods or work longer hours in a day and earn time off--and
flexiplace--which allows employees to work at alternative
locations. Under these rules, however, staff who work in the
office only 4 days a week may be off when their managers need
them to be in the office. Managers also told us that more time
can be taken up with administrative matters as a result of more
flexible work arrangements. They said that managing staff is
more complicated, noting that planning the work, managing
resources, and scheduling meetings is difficult, for instance,
when all of the staff are only required to be in the office
during a core period from Tuesday through Thursday--3 days a
week. Employees need special approval to begin flexiplace, and
a senior manager told us that they are now only approving about
half of such applications.
Managers and Staff Express Concerns About Management Capacity
and Training
Some managers and staff discussed their concerns about
supervisors' span of control and the lack of adequate training.
They said that they believe some managers are responsible for
supervising too many employees and do not have enough time to
work with people who could benefit from on-the-job training.
They also stated that some managers are not skilled at managing
people, which they attribute largely to HCFA's tradition of
promoting staff with excellent technical skills to the
managerial level, and not rewarding them for developing their
staff. Some also cited the lack of training provided to
managers to improve their supervisory skills.
Many managers and staff agreed that HCFA does not provide
enough training opportunities to help them do their work. We
were told that new staff get little orientation to the agency's
organization, programs, goals, and mission. Focus group
participants added that limited training and travel funds
prevented them from attending seminars and receiving training.
Each HCFA staff member received an average of 8 hours of
training last year. New staff, who generally were hired within
the last year, averaged even fewer hours.
HCFA's senior management has identified management and
other training as an area where HCFA must improve. The agency
is developing a ``model management initiative,'' which focuses
on matching a manager's competencies with the specific skills
that a manager needs for a given position. If approved by the
Administrator, this model will be tested in the Office of the
Chief of Operations. Then, if the initiative proves effective,
it will be implemented in other parts of HCFA. HCFA is
identifying better approaches to providing technical training
and has doubled its training budget for next year--from about
$800,000 in fiscal year 1998 to about $1.6 million in 1999.
HCFA Has New Proposals to Strengthen Management
To strengthen HCFA's ability to meet growing
responsibilities, the President's fiscal year 2000 budget
proposes several reform initiatives. The budget seeks more
personnel and pay flexibility to allow HCFA to recruit high-
level staff with specific, needed skills, such as physicians
and executives with managed care plan operational experience.
Coupled with such flexibility, HCFA is seeking authority to
selectively offer buy-outs to some staff members. In addition,
HCFA is seeking new authority that would allow it to contract
competitively for its Medicare claims administration
contractors. To improve agency performance, HCFA is proposing
to add an advisory board of corporate executives and management
experts for advice on improving its business practices.
Finally, HCFA wants to increase its accountability to the
Congress by providing biannual reports on its progress.
Conclusions
As HCFA moves into the 21st century, its challenges will continue
to become more numerous and complex. Once it has finished preparing for
Y2K, HCFA must face tasks it has had to put aside or has not fully
addressed. Several immediate challenges lie ahead. HCFA must finish and
then refine program changes to fully realize the benefits expected from
the BBA. It also needs to renovate antiquated, and streamline
redundant, computer systems. Furthermore, it needs to strengthen its
financial management and efforts to preserve program integrity.
Added to these responsibilities will be potential additional
challenges associated with any restructuring of Medicare that follows
the deliberations of the Bipartisan Commission on the Future of
Medicare. Even if no major changes are introduced, HCFA's continuing
challenges are taxing--strong leadership and management will be
required to meet them. More effective planning, new staff with needed
skills, and better accountability could help HCFA address these
challenges and better ensure quality health care for the elderly, poor,
and disabled. A true measure of HCFA's success will be its ability to
maintain current momentum as it enters the 21st century.
Mr. Chairman, this concludes my statement. I will be happy to
answer any questions you or other Members of the Subcommittee may have.
Related GAO Products
Major Management Challenges and Program Risks: Department of Health and
Human Services (GAO/OCG-99-7, Jan. 1999).
High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999).
Medicare Computer Systems: Year 2000 Challenges Put Benefits and
Services in Jeopardy (GAO/AIMD-98-284, Sept. 28, 1998).
California Nursing Homes: Care Problems Persist Despite Federal and
State Oversight (GAO/HEHS-98-202, July 27, 1998).
Balanced Budget Act: Implementation of Key Medicare Mandates Must
Evolve to Fulfill Congressional Objectives (GAO/T-HEHS-98-214, July
16, 1998).
Medicare: HCFA's Use of Anti-Fraud-and-Abuse Funding and Authorities
(GAO/HEHS-98-160, June 1, 1998).
Medicare Managed Care: Information Standards Would Help Beneficiaries
Make More Informed Health Plan Choices (GAO/T-HEHS-98-162, May 6,
1998).
Financial Audit: 1997 Consolidated Financial Statements of the United
States Government (GAO/AIMD-98-127, Mar. 31, 1998).
Medicaid: Demographics of Nonenrolled Children Suggest State Outreach
Strategies (GAO/HEHS-98-93, Mar. 20, 1998).
Medicare: HCFA Faces Multiple Challenges to Prepare for the 21st
Century (GAO/T-HEHS-98-85, Jan. 29, 1998).
Medicare Home Health Agencies: Certification Process Ineffective in
Excluding Problem Agencies (GAO/HEHS-98-29, Dec. 16, 1997).
Medicare: Effective Implementation of New Legislation Is Key to
Reducing Fraud and Abuse (GAO/HEHS-98-59R, Dec. 3, 1997).
Medicare Home Health: Success of Balanced Budget Act Cost Controls
Depends on Effective and Timely Implementation (GAO/T-HEHS-98-41,
Oct. 29, 1997).
Chairman Thomas. Thank you, Bill.
One of the things that I think is becoming useful is that
this isn't a one-shot process. Our assumption is on your
second-time around, there was a little more interaction and
they were a little more comfortable and, perhaps, a little more
insightful and willing to talk about certain situations.
You will be followed by a panel of contractors, and my
concern is that some of the testimony from the contractors
concerns me. The idea and the discussion between the Ranking
Member and
Ms. DeParle can be a launching point. It is always argued that
HCFA has extremely low management percentages--2 percent, 3
percent. Testimony from Mr. Boston indicates that he believes
that to a certain extent contractors subsidize HCFA in terms of
those kinds of costs.
In addition to that, they are concerned about changes that
are occurring in the way in which in attempting to follow the
law they have the money for termination, either for profit or
termination. But if you deny both, you simply can't function,
and there seems to be from the panel that is coming--and that
is why it is always difficult when you have this sequentially--
an attitude that, perhaps, there is some malaise or discontent
among the contractors.
In talking to HCFA, did you get some feeling--what does it
seem to be in terms of the HCFA contractor relationship put in
the context of last year, this year, tomorrow?
Mr. Scanlon. I believe that we did encounter tension
between HCFA and the contractors, but not just over the last
year. This is something I think that has been----
Chairman Thomas. Building----
Mr. Scanlon [continuing]. Building over time. It partly
reflects the fact that the administrative budget of HCFA has
diminished relative to the workload that is being dealt with by
the contractors and HCFA. HCFA's increased workload, in part,
is compensated for by the automation that has occurred over the
last decade. We have expressed concerns many times that so
little program integrity activity today is being conducted
relative to what was being conducted a decade ago. This limited
activity is tied to the loss of program dollars to fraud and
abuse.
We are also concerned that HCFA needs to be able to hold
contractors accountable for being as efficient as possible with
existing dollars, and we have been critical of HCFA for not
being able to accomplish this. For example, HCFA has not been
able to take best practices from some contractors and have
these practices become the norm for all contractors. As you
heard from Ms. DeParle, negotiating with contractors on the Y2K
problem turned out to be a difficult chore. So, there
definitely is a tension between HCFA and its contractors. It is
partly an issue of a change that has occurred as the workload
has increased. It is also, potentially, an issue of the
structure of the relationship between HCFA and its contractors
and the leverage that is on both sides.
Chairman Thomas. We also hear a lot about how many new
burdens or work requirements were placed on HCFA by BBA. I
think the record needs to show also that we did provide
additional moneys for BBA especially in the fraud and abuse
area, and, as I recall, we were the ones who kicked off the
user fee structure, because we provided some user fees in BBA.
My guess is the Administration says, ``Gee, let us go ahead and
ask for them.'' It has not been successful in the areas they
wanted to ask for them, because I think it made sense in the
area of Medicare Plus Choice to help in the recruitment of
patients of which the contractors would benefit. But there were
additional resources.
Just a word or two on your reaction as to whether or not
HCFA is getting its money's worth in terms of the way it has
employed the new resources that were provided in the Balanced
Budget Act of 1997.
Mr. Scanlon. We have not looked at this issue in enough
detail to answer globally. We have looked at many specific
areas, and we have noted the considerable progress HCFA has
made in implementing both BBA procedures as well as moving
forward on some program operation activities. We have also
identified some of the areas where we think HCFA could have
done a better job. However, I don't have, at this point, the
ability to give you a score on how I would evaluate HCFA's net
use of funds.
The BBA's requirements defined a new vision for the
Medicare Program. It is a challenging task to change the
program to conform to that vision. Although HCFA has made some
progress, our concern is that progress needs to continue to be
made for that vision to be accomplished, and there can be
absolutely no let-up if that is going to happen.
Chairman Thomas. Notwithstanding the fact that they are
trying to ride bareback the Y2K bug at the same time, and we
understand and appreciate that, but had they not gone off on
the other tracking program; had they not had a one-shot silver
bullet solution; had they not been as naive as they have been,
perhaps the Y2K problem would have been addressed earlier. Is
that a fair statement?
Mr. Scanlon. I think that is very fair. We were very
hopeful that something like the Medicare Transaction System
would be available, because, frankly, HCFA's computer systems
need upgrading. HCFA needs better management information to
operate this program. To be able to also solve Y2K would have
been icing on the cake, so to speak. But we were also concerned
that the Medicare Transaction System was not well planned, and,
therefore, its demise was not unexpected.
Chairman Thomas. And what bothers me is that we are
spending an awful lot of money to get by the year 2000 on some
wheezy stuff that is going to have to be replaced immediately
after that, and it is probably not the highest and best use of
limited resources, but necessary, nevertheless.
Mr. Scanlon. Right.
Chairman Thomas. Thank the gentleman.
Mr. Scanlon. Thank you.
Chairman Thomas. Gentleman from California--Louisiana--
tried to recruit you.
Mr. McCrery. Yes, thanks. Just one question: Are you as
comfortable as Ms. DeParle says she is with the Agency's--with
HCFA's readiness for the Y2K eventuality?
Mr. Scanlon. In general, we have been pleased with the
progress that HCFA has reported. We have been looking at its
efforts to make a critical, external assessment of its
progress. Mr. Willemssen will be testifying on this issue
before the Full Committee later this month.
There are three areas we are looking at closely and which
you will be hearing about then. First, we are looking at
testing to ensure that systems can perform under varying
circumstances.
The second issue is when these systems are put together and
operate simultaneously, do they work effectively?
And third is an area that Ms. DeParle mentioned, which is
the contingency planning. What happens when one component or
another is not working--whether it is a regional, a provider,
or an intermediary component--what do you do then? And how do
you make sure that the system functions well in terms of
continuing the payment-for-services?
Mr. McCrery. I guess I will just wait till later this month
to----
Mr. Scanlon. Right. They didn't fill us in either.
Mr. McCrery. OK, thanks.
Chairman Thomas. Does the gentlewoman from Florida wish to
inquire?
Ms. Thurman. It is amazing how quickly you become Ranking
Member in these Committees. [Laughter.]
Chairman Thomas. As long as it stops there, I am
comfortable. [Laughter.]
Ms. Thurman. I kind of like that, Mr. Chairman.
Actually, I just want to ask a couple of questions, because
in some of your remarks or in our booklet here, you talked
about some of the issues that the President has put in his
budget that you think might strengthen. Have you looked at
those, and can you comment on any of those issues?
Mr. Scanlon. We have looked at what I would call the
outlines of these proposals, because the details are not there.
In many ways, the proposals address some of the issues that we
have encountered in our interviews at HCFA and also in our work
on other portions of HCFA's activities over the year.
Getting this agency to be more flexible, to be more
accountable, to focus on productivity, are things that are very
important. We think that the proposals relative to personnel
and to bringing in outside management experts to provide them
with advice are aimed in that direction.
HCFA's relationship with its contractors has been
problematic, and there is the potential that, with the right
set of reforms, this relationship could improve. Therefore, the
idea of contractor reform is something generically we may
support; the devil would be in the details.
The idea of HCFA focusing on the management of the program
may relate to its relationship to the Department. HCFA has
often engaged a major portion of its time on policy initiatives
versus program management. It really needs a focus on program
management for the program to work effectively, and we are
hoping that this foucs is something else that emerges from
these reform proposals.
Ms. Thurman. You mentioned that they needed maybe to bring
in some outside management. Is that where this issue of
potential higher salaries is coming from? I am not----
Mr. Scanlon. Well, it is, I think, in two ways: one is the
issue of potential higher salaries, because, frankly, HCFA
would like to attract individuals with operations expertise,
particularly from the managed care area, who could assist them
in doing things like designing the Medicare Plus Choice
requirements and being able to take into account truly what it
is like to operate a managed care organization. Frankly, those
individuals are valuable in the private sector, so to woo them
away for government may take additional dollars.
The second activity is bringing in an advisory panel made
up, perhaps, of CEOs of private companies--insurance companies
as well as, perhaps, some other kinds of service companies--
that could talk about the way they structured their successful
organizations and what lessons might be applicable to
government. That activity, if it is going to be useful, will
have to take into account the unique aspects of a governmental
agency as opposed to a private sector company.
Ms. Thurman. OK, thank you.
Mr. Scanlon. Thank you.
Chairman Thomas. Any additional questions? Thank you very
much.
Mr. Scanlon. Thank you.
Chairman Thomas. Same time next year. [Laughter.]
Could we now ask for the third panel consisting of Barbara
Gagel, chairman of the Anthem Alliance in Indianapolis, Indiana
on behalf of the Blues; Ned Boston, from the Wisconsin
Physicians Service Insurance Corp., and David Bryan, vice
president of EDS Health Care Senior Markets in Plano, TX.
Thank you very much. The written testimony that you have
provided us with will be made a part of the record, without
objection. Ms. Gagel, we will just start with you; we will move
across the panel, and thank you very much for coming, and we
look forward to your testimony.
STATEMENT OF BARBARA GAGEL, CHAIRMAN, ANTHEM ALLIANCE HEALTH
INSURANCE COMPANY, ANTHEM BLUE CROSS AND BLUE SHIELD,
INDIANAPOLIS, INDIANA, AND BLUE CROSS AND BLUE SHIELD
ASSOCIATION
Ms. Gagel. Thank you very much for inviting us. I am
pleased to be here today. For more than 30 years, Blue Cross
Blue Shield plans have partnered with the Government to handle
the day-to-day work of paying Medicare claims accurately and
timely. We are extremely proud of our role as Medicare
contractors.
Contractors have several traits: one is that they are cost-
effective, operating on administrative budgets that today
represent only approximately 1 percent of Medicare benefit
payments; contractors are efficient, having a track record of
quickly and accurately implementing major programmatic changes
under extremely tight timeframes, and, importantly, Medicare
contractors very aggressively pursue Medicare fraud and abuse.
As you have heard this afternoon, the extra funds provided by
this Committee for the Medicare Integrity Program are having
excellent results. Yesterday, the HHS Inspector General did
report a 45-percent reduction in overpayments since 1996.
Mr. Chairman, I would like to especially thank you for
allowing us the resources so that we can improve our
performance in this area.
My testimony today will focus on three areas: first, is our
progress in assuring that the year 2000 computer adjustments
are made correctly and timely; second, why new Medicare
contracting legislation is unwise and could jeopardize our
efforts to fight fraud and abuse, and, third, the critical need
for stable and adequate funding for Medicare contractor
operations.
Let me speak first to Y2K readiness. It is a top priority
of Medicare contractors. We are making, as Mr. DeParle
indicated, excellent progress to ensure that Medicare payments
are renovated and tested for millennium compliance. We are
working closely with HCFA in this regard and have for at least
the last 12 months now. In my written testimony, I talk to you
about the activities that are under way at Anthem to assure
that this will happen in our four States. There is an immense
amount of work that remains to be done with regard to Y2K,
although Medicare contractors, the majority of them, did
certify to the adequacy of their systems at the end of December
of this year. It is very important to understand that
tremendous testing will continue to need to be done, as Mr.
Scanlon indicated, throughout 1999 to assure that claims will
be paid correctly in the year 2000.
Contractor reform we think is unnecessary and unwise at
this point in time. HCFA is again proposing legislation that
would dramatically restructure the Medicare contracting
process. This legislation would permit HCFA to fragment the
functions of current contractors. We do not think we should be
doing this at this point in time. All Medicare contractor
functions--and the primary functions are claims processing,
customer service, and fraud and abuse activities--are linked
and need to be integrated to be successful. Separating the
functions as HCFA intends to do, represents trouble for
Medicare contractor operations and particularly for the fraud
and abuse activities. Contractor functions are not autonomous,
and moving forward with contractor reform and the split-off of
these functions needs to be done very, very, very carefully to
protect services for Medicare beneficiaries going forward in
the future.
Finally, let me point to the need for stable and adequate
funding. It is absolutely critical to the performance of
Medicare contractors. While the additional Medicare Integrity
Program funding is helping us to strengthen our efforts to
fight fraud and abuse, the large majority of contractor
operations remains subject to the annual appropriation process
and the tight budget limits that apply to those funds.
So, we have a very, very, very short time line always that
we are dealing with. We don't have the opportunity as Medicare
contractors--and HCFA, of course, doesn't have the
opportunity--to really think and plan long range and make the
kinds of investments in the program that are necessary for it
to be a top notch program. So, we do need stable funding, and
we look forward to working with this Committee in ways to
assure that there is stable funding in the future. Thank you.
[The prepared statement follows:]
Statement of Barbara Gagel, Chairman, Anthem Alliance Health Insurance
Company, Anthem Blue Cross and Blue Shield, Indianapolis, Indiana, and
Blue Cross and Blue Shield Association
Mr. Chairman and members of the committee, I am Barbara
Gagel, Chairman of Anthem Alliance Health Insurance Company, a
subsidiary of Anthem Blue Cross and Blue Shield. I am
testifying on behalf of the Blue Cross and Blue Shield
Association, the organization representing 52 independent Blue
Cross and Blue Shield Plans throughout the nation.
As a former contract officer at the Health Care Financing
Administration (HCFA), I am pleased to see that the agency has
made improvements in managing the Medicare program. I
appreciate the opportunity to testify before you today on this
important issue.
The Medicare program is administered through a successful
partnership between the private industry and HCFA. Since 1965,
Blue Cross and Blue Shield Plans have played a leading role in
administering the program. They have contracted with the
federal government to handle much of the day-to-day work of
paying Medicare claims accurately and in a timely manner.
Nationally, Blue Cross and Blue Shield Plans process over
90 percent of Medicare Part A claims and about 67 percent of
all Part B claims. At Anthem, we process about 18 million Part
A claims and 37 million Part B claims each year.
Responsibilities of Medicare Contractors
Medicare Contractors have four major areas of responsibility:
1. Paying claims. Medicare contractors process all the bills for
the traditional Medicare fee-for-service program. In FY 2000, it is
estimated that contractors will process over 900 million claims, more
than 3.5 million every working day.
2. Providing Beneficiary and Provider Customer Services.
Contractors are the main point of routine contact with the Medicare
program for both beneficiaries and providers. Contractors educate
beneficiaries and providers about Medicare and respond to about 40
million inquiries annually.
3. Handling Appeals for Payment. Contractors handled more than 7
million hearings and appeals for reconsideration of initial
determinations last year. In FY 2000, HCFA expects the cost to process
appeals and hearings to rise by ten percent.
4. Fighting Medicare fraud, waste and abuse. Contractors saved $8
billion in 1997, yielding $17 in Medicare savings for every $1 invested
from activities to review claims, to assure services are medically
necessary, and to detect possible fraud and abuse.
Medicare contractors successfully have met many significant
challenges during this thirty-four year partnership. These include:
Handling a dramatic increase in workload that has grown
from 61 million claims in 1970 to an estimated 935 million in 1999.
Quickly implementing major programmatic changes under
extremely tight timeframes, such as the institution and refinement of
the Medicare prospective payment system for hospitals, the physician
resource-based relative value payment system, and several payment
system changes required by the Balanced Budget Act of 1997.
We are very proud of our role as Medicare administrators and our
record of efficiency and cost effectiveness for the federal government.
In 1998, contractors' administrative costs represented less than 1
percent of total Medicare benefits. While workloads have increased
dramatically, operating costs--on a unit cost basis--have declined
about two-thirds from 1975 to 1998.
My testimony today focuses on three areas:
I. Progress on our current major challenge: assuring that Year 2000
computer adjustments are timely and accurate;
II. Why new contracting legislation is unnecessary; and
III. The critical need for stable and adequate funding to assure
the efficient administration of Medicare.
I. Progress on Efforts to Assure Year 2000 Readiness
Year 2000 readiness is a top priority for Medicare
contractors. Medicare contractors are making excellent progress
to ensure Medicare payment systems are renovated and tested for
millenium compliance. HCFA has reported that as of December 31,
1998, 57 of the 78 contractors and shared systems self-
certified without significant qualifications. Most of the
remaining contractors are on target to self-certify by March
31, 1999, without significant qualifications.
Contractors are now working to complete their testing and
to finalize contingency plans. In addition, contractors are
focusing on readiness preparation of the provider communities.
Although there is still much to be done, significant and
steady progress has been made. We are confident that
contractors will be ready and that claims will be paid properly
on January 1, 2000.
Let me describe for you the efforts my company has made to
become ready: We began planning for Y2K renovation in 1996 with
the goal of paying or denying Medicare claims correctly on and
after January 1, 2000. By December 31, 1998, we had inventoried
software and hardware, reviewed the LAN and WAN environments,
assessed millions of lines of code, renovated code, retired
modules, upgraded hardware to make it Y2K compliant, tested
each module, and established a simulated production
environment.
We then ran test cases--test claims--through the entire
claims processing system to ensure that the system processes
the claims, with the same result, both before and after the Y2K
renovation. This is a full simulation of production. We want to
be sure that all steps in the process are capable of supporting
business after 2000. We tested 11,403 claims using eight
different dates that spanned late December 1999 to early
January 2000, and February 28 through March 1, 2000. Based on
the results of these tests, we were able to certify Y2K
compliance to HCFA as of December 31, 1998.
Even with this certification, much remains to be done in
1999. We will continue our integration testing, and plan to
test 50,000 claims and recertify compliance to HCFA by November
1, 1999. It is critically important that all changes from HCFA
be completely tested. We will engage providers who submit bills
electronically in ``end to end testing,'' to assure that
providers can submit claims to us, and that we can receive them
and provide a remittance advice. And, importantly, although we
don't expect failure, we are developing and testing contingency
plans for all mission critical applications and business
partners.
We have 25 people devoted full-time to the Y2K project. An
additional 50 people supported Y2K testing in 1998 on a part-
time basis. These numbers will increase to 145 people as
recertification testing and contingency planning testing and
rehearsals reach intense levels in mid-1999.
BCBSA Efforts with HCFA to Ensure Compliance
BCBSA and Medicare contractors have been working closely
with HCFA on compliance issues. Last year, BCBSA worked with
HCFA to find an agreeable contract amendment related to Year
2000 compliance. In addition, we worked with HCFA to develop a
formal process to assure regular communication on Y2K issues.
In response to a BCBSA recommendation, HCFA established a
steering committee chaired by HCFA's chief information officer
and vice-chaired by BCBSA.
I serve on this steering committee. Let me briefly describe
the significant areas that are being addressed by the
committee:
1. Progress Measurement--Monitors the progress of
individual contractors and contractors as a whole.
2. Critical Path--Identifies necessary activities, risk
points, and key assumptions for Year 2000 compliance.
3. Provider Relations--Informs providers about Year 2000
issues and provides training.
4. Common Testing Protocols--Develops testing procedures.
5. Contingency Planning--Determines processes and time
frames for paying providers if mission critical systems are not
Year 2000 compliant.
6. Resource Allocation--Defines standard definitions for
Year 2000 activities and estimates costs.
Very good progress is being made. As an example, the
Contingency Planning group has developed a protocol that is
supported by a comprehensive planning template applicable to
any mission critical risk a Medicare contractor might identify
in its operations. While contractors are already developing
contingency plans, the work group's combined input into
development of this protocol has produced a tool that can add
significant value to this process and produce uniform planning
documentation.
Beyond the specific products, operation of the steering
committee has facilitated very constructive and useful dialogue
between contractors and HCFA about Year 2000 compliance. The
committee has met with the HCFA administrator and meets monthly
with many of the agency's key directors and other top
management staff. We look forward to continuing these
cooperative efforts with HCFA.
In reviewing the issues related to Year 2000 compliance,
the committee should be aware of three additional issues that
have made Year 2000 readiness activities even more challenging:
Significant Change in Direction. Originally, many
of the system changes that were necessary for readiness would
have been accomplished by the conversion of all Medicare
contractors to the Medicare Transaction System (MTS). As you
know, the MTS initiative was dropped in 1997. As a result,
contractors have been required to make significant changes
that, in the absence of the MTS initiative, they would have
been working on for a long time.
Transition to New Standard Systems. Instead of
converting to the MTS system, HCFA had directed contractors to
transition to a single Part A and a single Part B system. In
some cases, this conversion to different systems would have
diluted experienced contract and HCFA staff from focusing on
critical millenium readiness activities. As a result, HCFA
approved a request by several contractors to delay transition
requirements so they could focus on Year 2000 issues.
Numerous and Broad Programmatic Demands. HCFA
already has said that it will not be able to implement all of
the BBA requirements because of the need to concentrate on Year
2000 efforts. We continue to recommend to HCFA that as many
non-Year 2000 system changes as possible should be removed from
contractor workloads so that experienced technical resources
can be devoted to assuring Year 2000 readiness.
II. Contractor Reform is not Necessary
HCFA's FY 2000 budget once again includes a legislative
proposal to dramatically restructure the Medicare contracting
process. This effort to make broad changes in contract
authority is not a new initiative. For several years, HCFA has
been seeking contractor reform legislation that would give HCFA
broad authority to fragment the functions of current
contractors. While we have not yet seen the details of this
current proposal, our understanding is that it is similar to
previous legislation.
We believe that contractor reform provisions are unwise and
unnecessary for the following reasons:
1. It could jeopardize services to beneficiaries and
providers. HCFA's proposal would eliminate the requirement that
Medicare contractors have experience working with the Medicare
program and would not even require that entities be familiar
with health claims processing. Allowing HCFA to contract with
organizations unfamiliar with Medicare's intricate payment
methodologies could reduce payment accuracy, delay payments to
providers, and reduce the quality of service providers and
beneficiaries expect.
2. It could undermine HCFA's efforts to administer its
other initiatives effectively. Potentially, HCFA would have to
manage many new contracts for claims processing services with
entities unfamiliar with Medicare. These new contracts would
require strict management by HCFA at a time when HCFA has many
other new responsibilities, including BBA and HIPAA. With these
other large workloads, we believe the agency does not have the
resources, staff, or expertise to implement this type of new
procurement activity.
3. It is based on the flawed Medicare Integrity Program.
HCFA has just begun to implement the new contracting provisions
for the Medicare Integrity Program (MIP). As of yet, no
contracts have been awarded. Further authority for HCFA to
significantly revise contracting relationships is premature.
Moreover, we believe that HCFA's strategy to split the MIP
functions from the Program Management (PM) functions in
Medicare is flawed. Due to the historical and functional
integration of claims processing, customer service, and fraud
and abuse activities, separating PM and MIP functions
represents potential trouble for future fraud and abuse
detection. PM and MIP are not autonomous services, and require
constant coordination and communication in a rapidly changing
Medicare program.
4. It would place Medicare contractors under legislative
constraints that exceed other government contractors. The
legislation eliminates the requirement that HCFA pay
termination costs to contractors that leave the Medicare
program. This provision would make Medicare contracts different
than any other type of government contract, including defense
contracts. The Federal Acquisition Regulations (FAR) require
that the government pay contractors reasonable termination
costs. There is no basis to treat Medicare contractors
differently.
5. HCFA's proposals could impede contractors' progress to
become Y2K ready. At this point, HCFA's proposal would not
improve the Year 2000 problem, and, in fact, could make it much
worse. Contractors unfamiliar with the Medicare program would
have the added burden of having to learn its extremely complex
rules and regulations while simultaneously working to achieve
millenium readiness. Moreover, the testing requirements for
contractor certification are extremely complex given the number
of links contractors have with external systems (e.g., HCFA,
banks, providers, etc.). It is highly unlikely that HCFA would
be able to identify a new contractor that could meet the
certification requirements.
Finally, contractor reform is unnecessary to ensure the
quality of Medicare contractors. HCFA currently has the
authority to replace or terminate contractors for poor
performance.
HCFA has marketed this proposal as increasing cost
effectiveness of contractor operations. However, this
legislation has no positive effect on the budget. It does not
reduce expenditures for Medicare contractors. More importantly,
inexperienced contractors could potentially harm the trust
funds by increasing improper payments.
Success in Medicare claims administration requires that
HCFA and the contractors work together toward their mutual goal
of accurate and timely claims payment. This partnership should
extend to planning the future of Medicare contract
administration. We believe the most effective manner to proceed
in strengthening Medicare administration is to raise
performance standards, aggressively enforce them, and terminate
the contracts of those not performing at the required level.
III. Stable and Adequate Funding is Critical
As Medicare's first line of defense against fraud and abuse,
Medicare contractors require adequate funding in order to meet the
demands of the program and to effectively combat fraud and abuse.
The President's FY 2000 budget proposes $1.27 billion for Medicare
contractors, virtually the same funding level as 1999. Of this total
level, $93 million is dependent on proposed new user fees from
providers, which have previously been rejected by this Subcommittee.
In addition, the President's budget requests $150 million for HCFA
millenium readiness. It is unclear, at this point, how much of these
proposed funds would be made available for Medicare contractors' Y2K
needs.
We strongly support HCFA's efforts to secure additional funding for
Year 2000 activities. However, we are extremely concerned that HCFA's
budget once again puts the effective administration of Medicare at risk
by relying on proposed user fees to fund contractor activities.
Moreover, additional funds will be needed to cover a significantly
greater workload next year, including:
Implementing BBA provisions, including new prospective
payment systems for inpatient rehabilitation facilities and outpatient
hospital care.
Implementing HIPAA administrative simplification
provisions, including the national payer identifier initiative and the
development of transaction and security standards for electronic
processing of claims.
Adequate funding is critical to maintain anti-fraud efforts and to
prevent further service reductions to beneficiaries and providers. An
independent study commissioned by BCBSA last year indicates that
contractor funding will be significantly strained by the increased
anti-fraud and abuse detection efforts under the newly enacted MIP. The
report shows that every 10 percent increase in MIP funding will result
in a $13 million increase in contractor costs due to increased appeals,
inquiries, and hearings.
Additionally, a letter published in a recent Health Affairs
journal, signed by 14 health policy experts, stressed the need for more
Medicare administrative funding. Specifically, the letter stated that
``HCFA's ability to provide assistance to beneficiaries, monitor the
quality of provider services, and protect against fraud and abuse has
been increasingly compromised by the failure to provide the agency with
adequate administrative resources.''
We believe that finding a reliable and stable funding source for
Medicare contractors is critical. In the President's budget, HCFA
indicated a willingness to explore alternative funding options for
Medicare administrative activities. We support HCFA's efforts and would
like to work with HCFA and Congress to move toward a stable and
reliable funding source.
Conclusion
Let me reiterate that Medicare contractors are working
diligently to become millenium ready. This is a monumental
task, and we will face a number of challenges along the way.
Medicare contractors are committed to meeting these challenges
just as they have done in the past.
Congress should reject HCFA's request to legislate far-
reaching changes to the Medicare contractor program. Contractor
reform raises fundamental issues and implications for the
Medicare program. In fact, contractor reform would introduce
change, confusion, and diversion of resources at a time when
experience and focus is important. Alternatively, HCFA should
tell contractors exactly what standards they want contractors
to meet. Let contractors meet these standards; otherwise, HCFA
can terminate our contracts.
Finally, given the importance of Medicare to its
beneficiaries, providers, and the nations' economy, it is
critical that the administrative resources necessary to manage
the program effectively be provided.
Chairman Thomas. Thank you very much. Mr. Boston, I thank
you for what I consider to be unusually candid written
testimony provided for this Subcommittee and look forward to
your oral testimony.
STATEMENT OF NED BOSTON, VICE PRESIDENT FOR MEDICARE, WISCONSIN
PHYSICIANS SERVICE INSURANCE CORPORATION, AND MEDICARE
ADMINISTRATION COMMITTEE
Mr. Boston. Thank you, Mr. Chairman. My name is Ned Boston.
I am vice president for Medicare with Wisconsin Physicians
Service Insurance Corp. in Madison, Wisconsin. WPS is the
Medicare Part B carrier for the States of Wisconsin, Michigan,
and Illinois.
At the moment, WPS is Medicare's largest carrier and will
process approximately 70 million claims this year. To give you
a prospective on that, WPS will process this each minute of
each working day this year over 500 health care claims, and
that ties to what Ms. Gagel was talking about a little bit ago
about the intricate and interrelated nature of the kinds of
systems that we administer.
I am appearing today on behalf of the nine commercial
insurance companies that comprise the Medicare Administration
Committee. Our members serve Medicare as carriers,
intermediaries, and regional durable medical equipment
carriers. In fiscal year 1998, our members processed 258
million Medicare claims. My testimony will focus on a few
limited areas and amplify some things that were in my written
testimony.
My first and foremost concern I want to express to the
Subcommittee is in the area of year 2000 readiness. If we, as
contractors, and HCFA fail to achieve Y2K readiness, the
orderly processing of 900 million claims on behalf of Medicare
beneficiaries could grind to a halt. Both the Agency and its
contractors are and have been hard at work on the modifications
and testing that will assure that we are ready for the
millennium. The professional staff at our carriers and
intermediaries have been devoting thousands of hours of
overtime to getting the job done while pursuing all of their
regular job functions processing Medicare claims.
HCFA has pushed its contractors very hard to modify and
successfully test their systems. We are confident that if the
current rate of progress continues, there will be few, if any,
Y2K problems in the Medicare Program itself. We are, however,
vitally concerned about the progress we see from those health
care organizations who are billing the Medicare Program.
Contractors first brought Y2K concerns to HCFA's attention
more than 4 years ago, but the problem had to compete with
other priorities and, as you have heard earlier, with the
thought that the Medicare Transaction System might solve all
these issues. As continued analysis of the scope and
implications of Y2K has heightened everyone's understanding and
the immensity of the problem, HCFA has accorded it the highest
priority in its management of its multiple responsibilities.
From the perspective of carriers and intermediaries, the
greatest problems have been finding and retaining expert staff
to do the kind of work necessary to fix the systems. We are
very pleased that in this effort there has been sufficient
financial support from the Congress and from HCFA that have
allowed us to do this.
Despite an occasional frustration we have experienced with
HCFA over some of the details, we are going to be ready.
However, just because we have certified that we are ready for
Y2K as of this date, doesn't mean that we do not have a very
busy year in front of us in 1999. We must spend this year
completing our contingency planning for what happens if
something is not available. What happens if the electrical
power doesn't work? What happens if major health care delivery
systems are not able to submit bills? There are many factors
that could affect us.
My message to you would be that what we need in 1999 is a
stable Medicare Program with very few changes that we need to
implement so that we can concentrate on recertifying,
retesting, and testing again to make sure that we are prepared
for the millennium. If we try to implement a great rate of
change in this calendar year, we could jeopardize our
readiness.
Let me spend just a minute talking about the Medicare
Integrity Program. Our Committee supports the cautious and
incremental approach that HCFA is taking in its Medicare
implementation program strategy. If carried forward, this
program would involve transitioning huge workloads to new
contractors. Although HCFA has some experience with these
transitions, they have not always been successful. Some of the
new contractors may not have had prior Medicare experience. We
believe it is wise to start on a small scale and incorporate
the experience gained in each successive expansion of the
program. The incremental approach may be the largest lesson
that we have learned from the Medicare transaction system;
sometimes, the big bang theory simply doesn't work.
It is important to note that the contractors are continuing
to perform fraud and abuse activities while this new program is
getting ready, and despite the intended stable funding for
these activities, some contractors, including WPS, received
less this year for fraud and abuse activities than we received
in the last fiscal year. We are trying to do everything we can
within those funds to make sure that we complete our
obligations to the program.
And, finally, addressing for a moment contractor reform--
and the work reform is one that we find difficult. We believe
what HCFA is seeking is simply a different way of contracting
for the administration of the program. Reform to me indicates a
need for a change; we believe HCFA wants a change. We believe
HCFA has a great many powers that they have not necessarily
used in the area of competitive procurements and on other than
cost reimbursement basis. We would certainly be willing to work
with HCFA on those things, but we caution, again, that a slow
incremental approach be used. We are processing 900 million
claims on behalf of almost 40 million beneficiaries. Any change
to the system needs to be very, very carefully considered.
Mr. Chairman, that concludes my oral testimony, and I would
be delighted to answer any questions the Committee may have.
[The prepared statement of Mr. Boston follows:]
Statement of Ned Boston, Vice President for Medicare, Wisconsin
Physicians Service Insurance Corporation, and Medicare Administration
Committee
Mr. Chairman, members of the Subcommittee, I am Ned Boston,
Vice President for Medicare of Wisconsin Physicians Service
Insurance Corporation. My company is the Medicare Part B
carrier for the states of Wisconsin, Michigan and Illinois. At
the moment WPS is Medicare's largest carrier. This Fiscal Year
we expect to process approximately 70 million claims for the
Program.
I am appearing today on behalf of the nine insurance
companies that comprise the Medicare Administration Committee.
Our members serve Medicare as carriers, and/or intermediaries.
Two of our members are also regional durable medical equipment
carriers (DMERCs). In Fiscal Year 1998, our members processed
258 million Medicare claims.
We appreciate your invitation to appear today to discuss
the management of the Medicare Program.
My testimony will focus on five topics.
Medicare Contractor readiness for the Year 2000;
The Medicare Integrity Program;
Proposals to restructure or ``reform'' the
administration of Medicare;
Funding of Medicare contractor operations; and
Why some Medicare carriers and intermediaries are
leaving the program.
The past decade has been a difficult one for the Health
Care Financing Administration and for its Medicare contractors.
While the agency has been formulating strategies for the future
of Medicare, the fee for service claims workload has grown
steadily. However, the funding, measured on a per claim basis,
has declined. In addition, Congress has legislated numerous
complex changes in both Part A and Part B that have required
considerable additional effort beyond the ongoing energy and
resources that go into processing over 3 million Medicare
claims each working day. While the growth of the Medicare +
Choice portion of Medicare may someday reduce the workloads of
those of us involved in the fee-for-service segment of the
program, we have yet to see that happen. Based upon the
constantly increasing number of seniors and the limited number
who have elected managed care, we believe that the traditional
Medicare fee-for-service program will exist for many more
years.
Year 2000 Readiness
The fact that most computer systems in place in both
government and the private sector allow only two digits to be
used to indicate a year means that computers are not able to
distinguish between dates in the 20th and 21st century. This
simple problem has amazingly complex and calamitous
implications that, world-wide, are costing billions of dollars
to avoid. Equipment must be modernized, millions of lines of
computer programming must be thoroughly studied, the linkages
with other program segments must be traced, and corrections
designed and implemented in order to assure the smooth
transition of business and government to the next century.
For HCFA, the number of contractors and the number of
electronic data processing (EDP) systems affected by the Y2K
problem constitute a major management challenge. If we and HCFA
fail to achieve Y2K readiness, the orderly processing of 900
million claims by more than 65 contractors on behalf of
Medicare could grind to a halt. Both the agency and its
contractors are hard at work on the modifications and testing
that will assure that Medicare is Y2K ready. While becoming Y2K
ready is an expensive process, it should be noted that
professional staff at carriers and intermediaries have been
devoting thousands of hours of overtime to getting the job
done, while also pursuing their ongoing Medicare duties.
HCFA pushed its contractors very hard to modify and
successfully test their systems for Y2K by the end of 1998. The
vast majority of contractors did meet the December 31, 1998,
deadline with regard to their mission-critical information
processing systems. The few that were not able to document
their full compliance with HCFA's guidelines at the end of last
year are expected to be fully ready by the end of March, which
is the government-wide deadline for achieving that status. The
cooperative effort between HCFA and its contractors has
achieved an immense amount of progress over the past six
months. We are confident that if the current rate of progress
continues, there will be few if any Y2K problems in the
Medicare program, itself. We are, however, vitally concerned
about the progress we see from those health care organizations
billing the Medicare program.
Looking back, it is fair to say that HCFA and its
contractors got off to a slow start on Y2K. Contractors first
brought their Y2K concerns to HCFA's attention more than four
years ago, but the problem had to compete for priority with
many other important projects for which HCFA is also
responsible. As continued analysis of the scope and
implications of Y2K has heightened everyone's understanding of
the immensity of the problem, HCFA has accorded it the highest
priority in the management of its multiple responsibilities.
The initial response from HCFA concerning Y2K was that
virtually all Medicare EDP systems would be replaced by the
Medicare Transaction System (MTS) which was then under
development. The MTS would be Y2K compliant, and, since it
would be in place before the end of the century, it would take
care of the Y2K problems that concerned contractors.
In late 1996, HCFA came to the realization that it would
not be possible to replace all existing systems in one massive
transition to MTS. It abandoned the ``big bang'' approach and
instead adopted an incremental strategy for modernizing
Medicare's claims processing and data management functions.
Later, when HCFA acknowledged that the MTS initiative had
failed to progress as hoped and shut the project down, it
decided to move all carriers and intermediaries to standard
core EDP systems, one each for Part A, Part B and durable
medical equipment, as a transitional step toward realizing some
of the goals of MTS.
HCFA planned to move its carriers and intermediaries to the
standard claims processing systems incrementally over a two
year period. However, for nearly all contractors, the standard
systems conversions required the efforts of the same expert
personnel that were needed for Y2K. It took awhile for HCFA to
accept that both jobs could not be accomplished simultaneously
within the time frames they had set. Once they became
convinced, they modified their standard systems conversion
schedules to give precedence to Y2K. They also cut back on the
issuance of routine system updates that tended to interfere
with Y2K work, although those updates still have not been
entirely eliminated.
Despite some initial uncertainty about financing, getting
the money to pay for Y2K renovations and testing has not proven
to be a big problem. From the perspective of carriers and
intermediaries, the greatest problems have been finding and
retaining scarce expert staff to do the work, and getting the
necessary guidance and approval from HCFA that is required for
work to proceed within an increasingly tight time frame.
Despite the occasional frustrations we have experienced with
HCFA over some details of the Y2K effort and over trying to
conform with detailed agency guidelines that keep changing, we
believe that the agency deserves a lot of credit for planning
and defining the complex work to be done and for its
coordination of the efforts of so many contractors. HCFA has
achieved a great deal of progress in a short period of time.
We realize that, in giving singular priority to making
Medicare Y2K ready, HCFA has postponed a number of other very
important projects mandated by Congress. While we contractors
do not wish to second guess the agency's judgments about which
projects should proceed and which should be postponed, we do
support the Administrator's decision to make Y2K readiness
HCFA's singular top priority. The chaos produced by a collapse
of Medicare's information, claims processing and payment
systems surely would be far more damaging to the Medicare
program's beneficiaries and partners than the delay that Y2K
has caused in other HCFA projects from which the program will
eventually benefit.
Medicare Integrity Program
Despite all of the attention being devoted to Y2K, HCFA is
proceeding in a deliberate manner toward implementation of the
Medicare Integrity Program (MIP) mandated by the Health
Insurance Portability and Accountability Act (HIPAA). It has
received and is now evaluating bids received from potential
program safeguard contractors and has just issued an RFP for a
coordination of benefits contractor. An RFP has not yet been
issued for a statistical analysis contractor.
Under HCFA's strategy, the work performed by MIP
contractors will be integrated with that performed by carriers
and intermediaries employing the standard Part A, B and DME
systems that I mentioned earlier. While HCFA intends to
implement the MIP program incrementally, eventually it will
greatly reduce the number of contractors performing audits,
medical reviews, and fraud investigations.
Our committee supports the cautious, incremental approach
that HCFA is taking in its MIP implementation strategy. The
evolution of this program will involve the transitioning of
huge workloads to new contractors. HCFA has gained considerable
experience in contractor transitions, but they have not always
gone smoothly. Since some of the new MIP program safeguard
contractors HCFA selects may not have prior Medicare
experience, we believe it is wise to start on a small scale and
incorporate the experience gained in each successive expansion
of the program. This may be one of the major lessons learned
from the MTS initiative.
Many current carriers and intermediaries decided not to bid
for the role of MIP program safeguard prime contractor--though
some did and several others may serve as subcontractors. All
contractors, whether they decided to bid or not, had several
concerns with the procurement.
First, despite a great deal of detail provided by the RFP,
it left many questions unanswered. For example, it did not
specify the scope of the workload to be awarded or the
geographic areas to be served. Some potential bidders were
reluctant to enter a commitment lacking that information.
Second, the commitment of the government to indemnify MIP
contractors for lawsuits resulting from their fraud and abuse
activities offers less protection than is currently afforded to
carriers and intermediaries under their existing contracts.
This was a significant factor in evaluating the economic risk
of being an MIP contractor--particularly so for contractors who
have experienced the disruption and expense of litigation with
parties being diligently investigated for fraud and abuse.
Third, the MIP contracts will not guarantee contractors
termination costs. This is a point discussed in more detail a
little later in this statement.
Fourth, many companies that were approached as potential
MIP partners were reluctant to get involved because of their
need to devote all of their available resources to getting
ready for the Year 2000.
Fifth, the trend of funding for overall Medicare operations
during the past decade caused some potential bidders to doubt
that the MIP initiative will be funded at a level sufficient to
produce the quality and quantity of work that needs to be done.
On this last point, it is worth noting that while the MIP
contracting program is getting underway, carriers and
intermediaries are still performing program safeguard
activities. Despite the intended stable funding for those
activities specified in HIPAA, some contractors have
experienced significant cuts in the program safeguard segment
of their budgets. In addition to conducting their own program
safeguard activities with lower funding, they are also having
to devote a very substantial portion of their limited capacity
to providing support for investigations being conducted by the
Office of the Inspector General and the Federal Bureau of
Investigations.
Many carriers and intermediaries are concerned that in the
end it will be difficult to prove whether the restructuring of
Medicare administration under MIP will really enhance the fight
against fraud and abuse. The gradual implementation of MIP
could provide an opportunity for an ongoing comparative
evaluation between the performance of the MIP model and an
adequately funded and better-tuned version of program
safeguards as they are now conducted by carriers and
intermediaries.
As a final comment on the Medicare Integrity Program, we
would like to recommend to the Subcommittee, and everyone
interested in controlling health care fraud, a research brief
just released by the National Institute of Justice, U.S.
Department of Justice. Entitled ``Fraud Control in the Health
Care Industry: Assessing the State of the Art,'' this
thoughtful review of fraud controls suggests to us the need for
rethinking the MIP strategy. This is not to say that MIP should
be discontinued, but rather that its heavy reliance on highly
automated, large volume, EDP techniques to effectively control
fraud is likely to produce disappointing results. A more
balanced approach may be advisable.
Contractor Reform
For several years the Administration has been recommending
that Congress enact its ``contractor reform'' proposal--an
amendment to the Medicare law that would allow it to
restructure its contracting process and drastically reconfigure
the administrative structure of the program. Among the changes
proposed are:
opening the carrier and intermediary functions to
non-insurance companies and awarding all contracts on a
competitive basis, but not fully complying with the Federal
Acquisition Regulations that other agencies must use;
removing all statutory restrictions on how various
functions now conducted by carriers and intermediaries are
clustered;
abandoning the cost-reimbursement method of
contracting; and
removing the present law requirement that
contractors that leave the Medicare program shall be reimbursed
for their termination costs.
The ``Contractor Reform'' contemplated by this proposal is
really just a different way of contracting. The argument that
contracting reforms are urgently needed in order to permit
Medicare to be restructured to meet the challenges of the 21st
century, is, to us, something of a red herring.
In the administration of the Medicare program, HCFA already
has the power to conduct competitive procurements, but has
seldom chosen to exercise that power. It also has authority to
contract on an other-than-cost-reimbursement basis, but has
been very tentative about doing so.
It is true that when Congress enacted Medicare, it
specified that the carrier and intermediary roles were to be
performed by health insurance companies. We understand that
this was a political decision made in 1965 to satisfy concerns
expressed by providers of care and the public about having
their health care administered directly by the government.
Health insurers were specified because they represented an
experienced, qualified buffer between the government and the
health care system.
In fact, the health insurer requirement is not much of a
barrier to competition. An entity that wants to be a carrier or
intermediary merely needs to set up a health insurance
subsidiary, or acquire one. Medicare currently has contractors
that have followed that route. Having said that, the members of
our Committee really have no fundamental objection to opening
Medicare to non-insurers, provided the competition is conducted
fairly, based upon the demonstrated capacity of bidders to
perform the work required.
In general, carriers and intermediaries want to work for
Medicare on a for-profit basis. However, we are concerned
whether HCFA and its contractors are ready to deal with a
fixed-price contract environment in which every substantial
operational change would require the negotiation of a contract
amendment or formal change order that has to be paid for.
With respect to breaking up the many functions now
performed by each carrier and intermediary and packaging them
differently with other entities, it should be noted that that
is exactly what Congress has authorized for program safeguard
activities under the Medicare Integrity Program. We suggest
that it would be prudent to wait and evaluate the results of
MIP before granting HCFA similar latitude with regard to
contractor program management functions.
Under current law, Medicare carriers and intermediaries are
entitled to recover their termination costs if they cease to be
carriers or intermediaries. The rationale for this provision is
that under their cost-reimbursement contracts carriers and
intermediaries do not make a profit, nor are they allowed to
fund a reserve for the eventual cost of terminated employees.
Should they terminate their Medicare contracts and lay off
employees, they would be expected to treat those employees the
same as if they worked in other divisions of their companies.
Yet, those other corporate divisions, which are not limited by
government cost-reimbursement contracts, can fund reserves for
termination costs as an ongoing expense of doing business. In
order to correct this disadvantage under long-term cost-
reimbursement contracts, the law provides for Medicare carriers
and intermediaries to recover their termination costs.
As I mentioned previously, carriers and intermediaries,
generally, would like to operate under for-profit contracts. If
they had been operating under for-profit contracts for the past
three decades, there would be no need for special treatment of
termination costs.
Funding of Carrier and Intermediary Operations
Medicare carriers and intermediaries are proud of their
record of steadily increasing productivity. Next fiscal year,
they will process more than 900 million claims, provide
customer service to over 35 million Medicare beneficiaries and
hundreds of thousands of providers of care, support numerous IG
and FBI investigations, and handle an increased workload of
appeals, inquiries and hearings being generated by our own
intensified campaign against fraud and abuse. Once the Y2K
crisis is past, we will also be involved in the implementation
of numerous provisions of the Balanced Budget Act of 1997.
In its funding request for the current fiscal year, the
Administration took the unusual step of stating that, after
several years of rising workloads and decreased funding,
Medicare contractor operations cannot be reduced further
without jeopardizing the best interests of beneficiaries as
well a providers and suppliers of care. Yet, in its proposal
for the Year 2000, the Administration has reduced the claims
processing budget by 8 percent, based upon a projected 1.1
percent reduction in workload.
Frankly, we are skeptical of the Administration's claim
that Medicare's fee-for-service claims workload will decrease
in 2000 due to growth in the Medicare + Choice program. We also
doubt that the proposed overall increase of one third of one
percent in the contractor operations budget will provide
adequate funding for contractor operations.
The January issue of Health Affairs features an ``Open
Letter to Congress and the Executive'' which addresses the need
to provide HCFA with adequate resources to carry out its
responsibilities. Speaking of the overall HCFA administrative
budget, of which contractor operations is a significant part,
it states:
The latest report of the Medicare trustees points out that
HCFA's administrative expenses represented only 1 percent of
the outlays of the Hospital Insurance trust fund and less than
2 percent of the Supplementary Medical Insurance trust fund. In
part, these low percentages reflect the rapid growth of the
denominator--Medicare expenditures. But, even accounting for
Medicare's growth, no private insurer, after subtracting its
marketing costs and profit, would ever attempt to manage such
large and complex insurance programs with so small an
administrative budget.
Finally, we are concerned that the Administration has
predicated part of the funding of contractor operations upon
collecting $93 million in user fees from providers of care who
submit paper claims or duplicate claims. These user fees were
proposed in the President's Budget for the current fiscal year,
but were not approved by the Congress. Unfortunately, their
inclusion in the FY 2000 proposal may only serve to confuse the
prospects for adequate funding of contractor operations, as it
did last year.
Why Contractors Are Leaving Medicare
At present, there are more than 65 Medicare carriers and
intermediaries. We understand that HCFA estimates that only
about 15 are committed to remain over the next few years. We
have no idea whether HCFA's estimate will prove true, but we do
know that unless the Medicare contracting environment improves
significantly , more contractors are sure to leave. The task of
finding replacement contractors and transferring workload to
them without disruptions in service to beneficiaries and
providers will present HCFA with significant management
problems.
HCFA has made no secret of the fact that it wants fewer
contractors. Those who want to stay in the program will have to
expand. Those who do not regard Medicare as a promising line of
business will leave.
Medicare offers no opportunity for contractors to make a
profit on their work. The one financial benefit it does offer
is that it helps pay its share of corporate overhead. If work
is transferred away from contractors, Medicare's contribution
to overhead is reduced. Eventually, the decreasing corporate
financial benefit derived from participating in Medicare may be
outweighed by the many challenges and risks that go with being
a contractor.
Some contractors have found that Medicare reimbursement of
their operating costs is so inadequate that, even with the
program's contribution to corporate overhead, they are
subsidizing Medicare operations. Once a thorough analysis of
corporate finances reveals this imbalance, a corporation must
decide whether it can balance the books by achieving economies
of scale or whether there is some benefit to being a Medicare
contractor that makes it worth paying the government for the
privilege.
Some contractor companies have elected to expand their
insurance business to include Medicare managed care products.
Rather than attempt to mitigate potential conflicts of interest
between the two lines of business--as provided for under the
Federal Acquisition Regulations--a few of these companies have
elected to terminate their carrier or intermediary contracts
with HCFA.
There are two factors that may tend to delay a decision to
quit the program. The most important is loyalty to employees.
Some departing contractors have been able to spin off their
entire Medicare operation to other ownership without any damage
to their employees. Others have been able to absorb their
Medicare employees elsewhere in the corporation. Until they
were able to make these arrangements, they endured the losses
from doing business with Medicare.
A second factor is losing the prestige that contractors may
derive from being associated with a worthwhile federal social
program. However, after years of struggling with increasing
Medicare workloads and decreasing resources, that factor, for
some contractors, has lost much of its appeal.
Finally, the recent imposition of civil and criminal
penalties upon a few contractors has emphasized not only the
need for effective internal programs to prevent fraud and
abuse, but also the substantial financial risk associated with
being a Medicare contractor.
Contractors have all instituted vigorous compliance
programs designed to help prevent fraud and abuse from
occurring within their Medicare operations. However, should
these programs reveal some fraudulent activity, they offer no
guarantee against penalties being imposed.
Earlier, I mentioned the issue of contractors recovering
their termination costs if they leave Medicare. If legislation
that would eliminate that right of contractors begins to move
toward enactment, we would expect that action to trigger the
rapid departure of a number of contractors.
Mr. Chairman, members of the subcommittee, this concludes
my prepared remarks on behalf of the Medicare Administration
Committee. Thank you for inviting us to appear today and share
with you our concerns about the future of Medicare
administration. I will be glad to try to answer any questions
you may have.
Chairman Thomas. Thank you very much, Mr. Boston. Mr.
Bryan.
STATEMENT OF DAVID M. BRYAN, VICE PRESIDENT, EDS HEALTH CARE
SENIOR MARKETS, PLANO, TEXAS
Mr. Bryan. Mr. Chairman and Members of the Committee, I am
Dave Bryan, vice president for EDS Health Care Services for
Senior Markets as well as for our subsidiary, NHIC, which is a
Medicare carrier. I thank you for your invitation to testify
today.
EDS has served the Medicare and Medicaid Program for over
30 years, nearly since their inception. In 1999, we will
process in excess of 100 million Part B claims; provide
customer service and outreach services to 2.4 million
beneficiaries and 77,000 providers. We will provide data center
services processing in excess of 170 million Part B claims, and
we will support HCFA's standard Part B system which operates
today in 22 States and the District of Columbia.
We believe there are three management and contracting
principles that can help meet Medicare's growing administrative
demands which will improve service and create better taxpayer
value. They are, No. 1, leveraging the Medicare Program's
administrative resources to reduce the number of prime
contractors to one-tenth the number that exists today; No. 2,
value purchasing for Medicare Program management and
administrative services must replace a low-cost purchasing
decision, and, No. 3, measurable accountability based on
objective performance criteria for both contractors and
oversight entities.
HCFA has communicated an administrative vision of
consolidating Medicare operations onto shared standard systems
at fewer sites conducted by a lower number of contractors. We
concur with HCFA's strategy and believe it is vitally important
for the agency to achieve this vision in order to continue its
efforts to improve management of the Medicare Program in a
dynamic health care industry and for an unprecedented growth in
the Medicare population.
EDS' software was competitively selected to process all
Medicare Part B claims as one of these shared systems. We
strongly encourage a resumption of the agency's transition to
its standard systems. In conjunction with the consolidation of
system software, we are also strongly encouraging the
consolidation of the number of prime contractors and data
centers used to support the Medicare Program taking advantage
of existing technology and market capabilities, the Medicare
Program can lower its cost, improve the consistency of service,
and reduce risk to the program by reducing both the number of
prime contractors and data processing centers to one-tenth of
that number existing today.
I am not speaking about a brave new world of tomorrow. This
environment can exist today with current market capabilities
that are ready to be leveraged to the benefit of the Medicare
Program. These reductions should be based on objective,
quantifiable measures of performance for program managements
tasks. It is essential that HCFA define mission-driven,
quantifiable performance measures that reflect its strategy and
operational goals for the administration of the Medicare
Program. Such measures will ensure the agency maximizes the
value from its contracting arrangements and will increase the
agency's confidence in the accountability of its contractors
based on expected results and not best efforts.
Clear expectations for contractors facilitate price
competition, increase innovation, and foster improvements
within and among contractors. HCFA's purchasing strategies
should capitalize on these market incentives by moving away
from cost-based contracting to providing partners the financial
incentives to bring the best market innovations to bear on
Medicare's needs. In the competitive private sector, best-in-
class corporations are motivated by being recognized and
rewarded for the value they bring to their clients and not on
how much overhead expense we can allocate to a single contract.
Mr. Chairman, we, at EDS, understand and have keenly
experienced the challenge posed by the upcoming millennium
change. Preparing systems for the year 2000 has consumed an
enormous amount of time and resources and, quite honestly,
slowed progress toward realizing HCFA's information technology
goals. However, a consolidated administrative environment will
improve the agency's stance with regard to the year 2000 and
reduce the risk to the program. It is imperative that HCFA
assess and identify in the first quarter of 1999 which of its
partners will or will not be prepared to meet the
responsibilities of the new millennium. Early identification
will allow those partners that are able to support HCFA to have
adequate time to effectively increase their assistance to the
agency. We believe this approach will attract the right
partners to support the Medicare Program and strengthen the
program for beneficiaries and taxpayers as it meets its
future's challenges.
Thank you again for the opportunity to testify before this
Subcommittee and share these perspectives. I look forward to
answering any questions the Subcommittee may have.
[The prepared statement follows:]
Statement of David M. Bryan, Vice President, Health Care Senior
Markets, EDS, Plano, Texas
Mr. Chairman, members of the committee, I am Dave Bryan,
Vice President for EDS Health Care Senior Markets, including
its subsidiary NHIC, a Medicare carrier. Thank you for your
invitation to testify today and participate in the Health
subcommittee's pursuit of a more effectively administered
Medicare program. We appreciate the opportunity to share our
ideas for meeting Medicare's expanding challenges in such a
dynamic health care and technological environment.
EDS has served the Medicare and Medicaid programs for over
30 years, nearly since their inception. EDS's corporate
experience currently encompasses a broad range of program
management, information technology, and professional services.
We deliver these services directly to the Health Care Financing
Administration (HCFA), to a wide array of the agency's
partners, including other Medicare contractors and States, and
to the beneficiaries and providers served by the program. In
1999, as a Medicare Part B Carrier, NHIC will process over 100
million Part B claims, as well as providing customer service
and outreach services to 2.4 million beneficiaries and 77,000
providers. EDS will provide data center services for over 170
million Part B claims and will support HCFA's Standard Part B
system, which is currently installed and supporting Medicare
beneficiaries and providers in 22 states and the District of
Columbia. We understand the essential challenge facing the
stakeholders in the Medicare program: to improve services and
outcomes within limited resources.
HCFA requires contracting partners that understand and
share the vision for Medicare's future as expressed by Congress
and the agency. These partners must be capable of delivering on
dynamic future needs and able to objectively demonstrate the
attainment of defined goals. In today's technological
environment, the current cost-based contracting arrangements
impede the Medicare program and its contractors from optimizing
capabilities and flexibility to best serve beneficiaries and
taxpayers. We believe three management and contracting
principles can help meet Medicare's growing administrative
demands, with improved service, yet at a better value for the
taxpayer financed program. They are:
1. Leveraging the Medicare program's administrative
resources to reduce the number of prime contractors to one-
tenth of today's number;
2. Value purchasing for Medicare program management and
administrative services replacing ``low cost'' purchasing
decisions; and
3. Measurable accountability based on objective performance
criteria for both contractors and oversight entities.
Leveraging Medicare's Administrative Resources
The administrative structure of the Medicare program has
evolved over the past three decades, a time of immense change
in the health care industry, the information technology
environment, and the programmatic framework of the Medicare
program itself. Given the magnitude of these changes, the
administrative infrastructure of the Medicare program must be
revisited to leverage what already exists in the private
sector. The administrative foundation for operating this large,
complex, and vital program should not be based on outdated
assumptions or left to historical circumstance. Instead, the
program's infrastructure should be rationalized, and future
partners determined by the quality of their performance and
demonstrable contributions to the program's efficiency.
HCFA has crafted an Information Technology Architecture
(ITA) vision for the agency and its programs. An Information
Technology Architecture ensures that technology supports and
enhances business (operational) needs and processes. HCFA's ITA
vision includes:
consolidation of replicated functions;
``maneuverability'' through greater modularity and
standardized interfaces;
greater focus on information, rather than data, to
facilitate interactive program analysis; and
decision support based on reliable and consistent
inputs.
EDS concurs with HCFA's ITA vision and is assisting the
agency in defining a path to achieving its broad goals. To the
extent possible within an environment of significant
legislative change and preparing for the new millennium, the
agency has taken strides in achieving this vision and continues
to pursue elements of this framework. We believe it is vitally
important to achieve this vision in order to improve the
agency's capacity to meet the challenges of an increasingly
dynamic health care industry and to be responsive to the
program's stakeholders.
In 1994, HCFA undertook a revision of the Medicare
program's administrative environment through its Medicare
Transaction System initiative. This initiative sought to build
a single claims processing system for all Medicare claims,
operating in a significantly consolidated number of facilities.
In November 1995, EDS testified in support of the agency's
basic vision, while arguing for a flexible, phased approach,
based on the principles of risk management and return on
investment for the program. The agency eventually segmented its
approach to the project, much in line with EDS's testimony, due
to a host of challenges. However, the drive to achieve the
agency's ultimate goal of consolidation was sidetracked for a
number of reasons, including preparing Medicare systems for the
millennium change. It remains imperative that HCFA return to
its vision of consolidation for all the same reasons the agency
initially deemed this necessary to the sound administration of
the Medicare program.
Part of HCFA's segmented approach to consolidating
Medicare's administrative infrastructure is the transition to
standard, shared claims processing systems. EDS's claims
processing software was competitively selected to process all
Medicare Part B claims as one of these standard, shared
systems. We strongly encourage a resumption of the agency's
transition to its selected shared systems. In conjunction with
the consolidation of system software, we also strongly
encourage the consolidation of the number of data centers used
to support the Medicare program. Taking advantage of existing
technology and market capabilities, the Medicare program could
realize lower costs, greater operational efficiencies and
consistency, and reduced risk by using one-tenth of the data
centers currently being funded by the agency. Additionally,
existing technology, knowledge, and capabilities would allow
HCFA to reduce the number of Medicare Part B contractors to
one-tenth of what is being used today, creating even greater
cost reductions, operational efficiencies, and consistency in
program administration. What I am speaking of is not a ``brave
new world.'' In fact, the environment I refer to exists today
and is ready to be leveraged to benefit the Medicare program,
reduce risk for the program, and improve the service we provide
to beneficiaries and other stakeholders across the nation.
Mr. Chairman, we understand and have keenly felt the
challenge posed by the upcoming millennium change. Preparing
systems for the Year 2000 has consumed an enormous amount of
time and resources and slowed progress toward realizing HCFA's
information technology goals. However, a consolidated
administrative environment with well-prepared, committed
partners will improve the agency's stance with regard to the
Year 2000 and reduce the risks to the program. It is imperative
that HCFA assess and identify in the first quarter of 1999
which if its partners will or will not be prepared to meet the
responsibilities of the new millennium. Early identification
will allow those partners that can help HCFA achieve a smooth
transition into the new millennium ample time to provide the
agency this assistance.
There is no doubt that the health care and technology
environments have changed fundamentally over the past three
decades, thereby demanding that a new and revised skill set for
managing the Medicare program be established. Legislative and
regulatory changes along with these industry trends have only
increased the necessity for more flexibility and agility in
meeting Medicare's administrative needs. HCFA can capture
economies of scale and access new sources of innovation and
expertise by redefining its contracting partnerships. But
partnerships for the new millennium must be based on specific
capabilities and objective performance that meet evolving
program needs. It is incumbent upon HCFA to continue to:
identify these needs; seek assistance from industry leaders in
developing fair performance criteria for meeting these needs;
objectively measure performance among all its contracting
partners; and foster open communication among all partners to
share successes and improve service across the Medicare
program.
Value Purchasing
Another essential principle in improving Medicare's
administrative effectiveness involves purchasing decisions
based on value rather than the short-term allure of low cost.
Low cost administrative purchasing practices can often create a
higher total cost to taxpayers and reduce the quality of
services provided to beneficiaries and other program
stakeholders. Medicare's program management expenditures must
be treated as public investments aimed at achieving clearly
defined operational standards and outcomes. Administrative
value must be defined by the quality of service delivery and
the level of protection provided to the Medicare Trust Funds,
as well as by the unit cost of services. Cost-effectiveness is
not driven solely by price or unit costs, but also accounts for
the efficacy of purchased services in accomplishing desired
program outcomes. When the balance between cost and outcomes is
not attained, both the results and cost of the program lose
taxpayer confidence. When the balance is achieved, the program
operates at the highest level of efficiency.
We support HCFA's stated goal to be a prudent purchaser of
health care services on behalf of the public. In the
administrative area, prudent purchasing demands a clear,
objective expression of expectations and operational standards
so that program goals can be mutually understood and met by
contractors. The application of standards and measures must be
consistent across time and geographic areas. Without such
clarity and consistency, program management funds might be
ineffectively prioritized and misallocated toward competing
needs, wasted in pursuit of undesired ends, or overspent
towards ends that are already met and exceeded but left
unmeasured.
Clear expectations for contractors facilitate price
competition, increase innovation, and foster improvements
within and among contractors. The incentive for contractors to
expand their participation in the Medicare program drives them
to meet and surpass defined goals. Everyone involved with the
program benefits from such competition to grow business through
better service and program savings. HCFA's purchasing
strategies should capitalize on these market incentives to
improve service, increase efficiency, and expand program
participation by moving away from cost-based contracts to
providing partners the financial incentives to bring the best
market innovations to bear on Medicare's needs. In a cost-based
contracting environment, only the government is motivated to
find cost reductions. Cost-based contracting insulates the
Medicare program from the best technology and professional
services that industry has to offer in pursuit of higher
productivity and higher rates of return. In the competitive
private sector, best-in-class corporations are motivated by
being recognized and rewarded for the value they bring their
customers and not how much overhead expense can be allocated to
a single contract.
We are aware that Federal budget rules treat discretionary
administrative and entitlement benefit dollars differently. But
the total amount of tax dollars available to fund benefits can
be significantly increased by providing adequate resources to
purchase the best administration of Trust Fund benefit dollars.
Given the magnitude of the public resources at stake in the
Medicare program, and the relatively small percentage paid for
administration, the Congress and HCFA could extend Trust Fund
resources and capture savings if they treated administrative
expenditures as investments. Value to program beneficiaries and
taxpayers is not realized when outlays are incurred, but rather
when high quality services are delivered and desired program
outcomes are achieved.
Measurable Accountability
All Federal agencies have begun to shift focus toward
measurable outcomes in pursuit of the statutory requirements in
the Government Performance and Results Act of 1993. We believe
that HCFA will better achieve its own Annual Performance Plan
goals to the extent it projects this framework into its
contracting arrangements and partnerships.
It is essential that HCFA define mission-driven,
quantifiable measures that reflect its strategic and
operational goals for the administration of the Medicare
program. EDS's work with other federal agencies has proven the
power of this approach. Such measures will ensure that HCFA
derives maximum value from its contracting arrangement and will
increase the agency's confidence that its partnerships are
centered around shared understandings and expected results, as
opposed to best efforts.
Several ongoing, operational benefits will also accrue from
defining objective, quantifiable measures, in addition to
reaching desired program outcomes. The process of developing
and monitoring performance measures will structure and
facilitate open and clear communication among HCFA and its
partners. Improved communication will increase the extent to
which different entities understand the challenges and risks
facing each other. In addition, such an environment will
identify areas where HCFA perceives conflicts of interest
within and among its partners. With better identification, such
areas can be mitigated or corrected more rapidly. Similarly,
with the ever-increasing emphasis on assuring the integrity of
the Medicare program and its administrative structure, these
performance measures will clarify the roles and
responsibilities of all parties involved. We believe strongly
that a program as large and complex as Medicare can only
achieve the efficiency, effectiveness, and integrity necessary
to sustain the trust of its beneficiaries and the taxpayers
when roles, responsibilities, and expectations are clearly
defined and measured.
In conclusion, as the infrastructure of Medicare is
revisited in light of new priorities and a new environment, it
is essential that the oversight focus of Medicare operations
rest on the content and quality of program management tasks and
performance. Many diverse skills and capabilities make up the
pool of expertise necessary to effectively administer the
Medicare program and this array of needs will continue to
evolve. Building the capacity to define specific outcomes,
measure results, and allocate resources most effectively is of
primary importance towards these ends. We believe this approach
will attract the right partners to support the Medicare program
and strengthen the program for beneficiaries and taxpayers as
it meets its future challenges.
Thank you again for the opportunity to testify before the
subcommittee and share these perspectives. I look forward to
answering any questions the subcommittee may have.
Chairman Thomas. Thank you very much, Mr. Bryan, for your
testimony. The gentlewoman from Connecticut wish to inquire?
Ms. Johnson of Connecticut. Yes, Mr. Bryan, I find your
testimony very interesting, and I will read it at more detail
in the future, but I am concerned by your belief that it can
all be so clearly defined. In the past, we have had to use best
effort, because often the regulations were not out; it wasn't
clear what the law was; we were operating by letters of
direction; those letters often change; they sometimes even
reverse themselves. So, I think you have to be careful about
believing that, in essence, we can blame it on the contractors,
particularly in this sort of brave new world of the Inspector
General and audit resources. You saw what happened when the
Inspector General came in using inappropriate, outmoded,
inaccurate standards in the medical schools of the country and
made medical schools look like criminals for doing what they
had been specifically instructed to do. So, I am worried about
that.
The second thing that I find very concerning about your
testimony is this idea of having a few very big ones. Well, we
went through that in Connecticut, and we went from Connecticut-
controlled to Maine, and I will tell you, it wasn't easy; it
hasn't been easy; it never has been easy. And we are having
problems with a Connecticut contractor now, but we want another
Connecticut contractor. I don't know that--I understand that
information management cuts costs and the bigger the better,
but there are also complicated systems, the regional
variations, and reimbursement rates and all those things, and I
think we run a tremendous risk of trying to have too few
centers, and I would rather get things running smoothly and not
have Maine try to remember all of the variations that happen in
Connecticut and all the variations that happen in other States.
So, I am concerned about those two aspects of your testimony,
and if you have a brief comment, I do have a question also for
Mr. Boston.
Mr. Bryan. I believe that as we look at the consolidation
of contractors, to the extent that data can be consolidated,
consistency can be created in the programs and into the
processes. Consistency creates a better view for the Medicare
beneficiaries and the providers to work with the programs.
Consolidation does not necessarily mean that you wouldn't
have support centers in each of the States or at a local area
that would assist for the local needs of the beneficiaries and
understanding what that community has to offer.
At the same time, we believe that what technology can bring
and create--what we would call--peak performance in terms of
the number of claims processed creating maximum efficiencies,
that the economies of scale that it would bring to the program
in administrative funds as well as reducing the number of
oversight individuals required by the agency to oversee such a
large number of contractors, this would free up resources
financially as well as HCFA staff to move to other areas of the
program such as the Balanced Budget Act or HIPAA.
Ms. Johnson of Connecticut. See, I really disagree
profoundly with that point of view. Rate setting now and
oversight of rate paying varies so much from one little
hospital to the next little hospital; a little tiny nursing
home to a bigger nursing home. I mean, this is not easy, and
there is a big advantage to having your payer know the
territory and know the variations, and there is no way a
regional administrator can know this; they just literally
can't. And when we have something go wrong, it goes wrong all
over the place.
So, I personally think--I have not yet seen--let us put it
this way--I have not yet seen a technology system in HCFA
function well enough to want it to be spread across the region,
and I would have no confidence in a regional center. So, maybe
down the road apiece, but I say let us get the thing operating
right; let us get the reforms made; let us get the regulations
written, but don't jump to bigness.
Look at what is happening in all the mergers in managed
care; they are having trouble. Why? Because health care is very
local, and I think--I had one big provider say to me, ``We will
big provide certain kinds of things, but in every area there
are going to be small plans, because you can't do it from the
bigness. You can do certain things; you can't do others.'' We
are always going to have fee-for-service medicine in rural
areas, because you can't do managed care everywhere.
So, I am not at all comfortable with the position you are
taking, but I don't want to belabor that point.
I do want to ask Mr. Boston a specific question: HCFA has
made some efforts to reach out to hospitals and doctors and
medical equipment providers and press them on being prepared
for Y2K--there are 1.25 million providers. Do you see their
efforts as being successful? Are they doing enough? Should they
be doing more? Are they concentrating too much on the big
providers and not enough on the little guys out in the sticks
that really need help or at least reminders?
Mr. Boston. Mrs. Johnson, I believe that HCFA and its
contractors are working very closely together to try to
accomplish that
notification. Where HCFA may be meeting with the national
organizations, we as contractors are meeting with many of the
State
organizations and the local organizations to try to get the
word out, and I think it is a very concerted effort of both
parties to try to get the word out. We are very worried that
people understand the complexity, and we find that,
particularly the smaller medical care providers, don't
understand the problem and need our help.
Ms. Johnson of Connecticut. Right. Well, I am glad to hear
that you are meeting with them. I mean, it is a better effort
than we have been making. Are you prepared, though, to handle
paper claims if there are problems with Y2K?
Mr. Boston. We believe that we are prepared to handle an
increase in paper claims, although I don't believe that that is
what we are going to see. Most doctors' offices, clinics, other
kinds of providers these days use computers in generating their
records and their claims. My belief is if that computer system
is not millennium-ready, it won't be able to generate a paper
claim, electronic claim or anything else. And what a more
likely scenario will be is that the provider simply won't be
able to bill the Medicare Program for some period of time. Now,
with HCFA, we are working on strategies to prepare for a
probability of some providers not being able to bill, but,
again, I don't believe that we are going to see a tremendous
increase in paper.
Ms. Johnson of Connecticut. Interesting, thank you. Thank
you, Mr. Chairman.
Chairman Thomas. Certainly. Does the gentlewoman from
Florida wish to inquire?
Ms. Thurman. Thank you, Mr. Chairman. Ms. Gagel, let me ask
you a couple of questions, because I noted in your testimony
that you said that we don't need any contractor reform. But let
me ask you this, because you have been on both sides: What
could you offer to this Committee that would give us an
indication or that would help HCFA evaluate these contractors,
better than what we are doing today? I am just curious.
Ms. Gagel. I think that--and I found the questioning of the
Committee members to the administrator very insightful--I think
the most important thing that we all need to do is understand
what is going to be needed in Medicare administration in the
future. We know the program will change. When the program
changes, presumably, the administration of the program needs to
change, and it seems to me that the first thing we need to do
is to understand what that administration needs to look like
and act like and feel like. I think, probably, most people
would suggest it doesn't need to look like what it looks like
now which is what it has looked like, in one way or another,
for 30 years, but to move to specific proposals in the absence
of a dialog and a clear articulation of goals and a strategy
for Medicare administration, is actually what is concerning, I
think, probably more than anything else.
There is some agreement on some of the tactical things,
standard systems, for example, and the fact that that does
improve program administration in terms of making it certainly
more reliable; reducing error rates; making it more efficient,
more economical. There is general agreement on that kind of
thing, but if the focus is going to be on improving services to
the elderly population in this country which is clearly one of
the goals that the Health Care Financing Administration is
articulating, you aren't going to want that customer service to
look like what Medicare contractors do today, but we haven't
really articulated what it does need to look like and who needs
to be providing that service.
Ms. Thurman. But also in your testimony you say that HCFA
has this authority to replace or not renew their contract on
poor performance. The problem is--and I guess where I am trying
to figure out--is how do we figure out what that poor
performance is? And, for example, in the Inspector General they
said, ``Nine of the eleven contractors with audited financial
ledgers could not support the accounts receivable. There is
little assurance that amounts eventually paid to providers
through the final cost report settlement process meet Medicare
guidelines for reasonableness and appropriateness.''
So, it seems to me, there are two things going on here,
then. I mean, in one sentence we are talking about we could
just let them go for poor performance, whatever that means--and
I am trying to figure out how we put a standard to that--but at
the same time, I understand the direction issue of the kind of
direction that we need to be given, but there seems to me that
there ought to be some way to pull those two things together.
Because contractors need to know what is going on out there in
their lives too, so if you do contractor reform and you have a
working relationship and you know what your job is and you know
what we are expecting from you and you know what potentially
puts you in a situation of not having a renewable, I mean,
somehow there has got to be a way to work through this, and it
sounds to me, from what I can gather, the system today is not
happening that way.
Ms. Gagel. The standards have--the expectations, if you
will--with the exception of Y2K, where HCFA is very clear in
its expectations--have I think, indeed, become more murky over
the years. We know, for example, that we have to be very
efficient; that efficiency becomes a negotiating tool.
But we have a hard time understanding with the exception of
``do a lot of it'' what the expectation of the Health Care
Financing Administration really is. We have a hard time talking
about understanding results, and that is the dialog I think
that needs to take place.
Ms. Thurman. Some of that is not just HCFA. I mean, some of
that is just us, too, changing things constantly around and
trying to put in new rules, and, obviously, we have gone
through a very difficult time, because we have tried to balance
the budget and we have, but the fact of the matter is, I mean,
there are things we are doing as well. So, we couldn't just----
Ms. Gagel. One of the things that we are working on in
other parts of our program--and, indeed, we are working with
this with the Medicare contractor also--is establishing a very
tight system of metric, so that we can understand what we need
to do to be successful in health care compared to all of our
competitors. There isn't any reason why we wouldn't want to do
that; why HCFA wouldn't want to do that for Medicare
contractors also--establish the metrics; measure yourselves
against both the private sector and in our case other Medicare
contractors so that expectations become very clear. There is a
tremendous discipline involved in doing that, and it provides
tremendous focus for the people involved in it.
Ms. Thurman. Actually, that sounds like a little bit of
reform there to me. Thank you.
Chairman Thomas. My understanding is the gentlewoman from
Connecticut has another question that she really wants to ask.
Ms. Johnson of Connecticut. I appreciate your experience in
the system. I try to keep extremely close touch with the system
out in the real world, and I just wondered if, from your
perspective, do you think the system can tolerate the cuts in
spending in the President's budget?
Ms. Gagel. In the budget for the year 2000? We are still
analyzing the budget and have not yet taken a position on that.
We are concerned, of course, about the user fees, and I know
that we testified to the Committee about that last year and
were pleased that they did not go forward.
Again, I think it depends on expectations. As Mr. Boston
said, I think, with regard to the year 2000, funding is
adequate unless contingency planning, testing, becomes--
particularly with regard to working with providers--end to end
testing becomes a much greater expectation than we expect it to
be right now.
I think if you really want Medicare beneficiaries in this
country to understand the Medicare Program--how to access the
benefit; how you use the benefit wisely, are we funding that in
this country? I think not now. I suspect in years to come we
will, because the demographics of the population will kind of
require it, I suspect, but--so, again, it depends on what your
expectations are.
Ms. Johnson of Connecticut. Mr. Boston.
Mr. Boston. Yes, if I can respond on behalf of the Medicare
Administration Committee, we are very concerned about what we
think is in the budget for the year 2000 and some of the cuts
that are there if, in fact, the operational requirements remain
as they are today. We are----
Ms. Johnson of Connecticut. You mean, if they don't get
bigger or if they stay the same? You wouldn't be concerned if
they got less?
Mr. Boston. Well, if the requirements put on us are in line
with the money available, then it is not a concern.
Ms. Johnson of Connecticut. Is that true now?
Mr. Boston. It is always a very difficult goal to hit
HCFA's targets. We did a great many changes throughout the
year, and most of them say do it within your current budget; we
are all quite used to that.
Ms. Johnson of Connecticut. Well, you have some formidable
challenges ahead of you, some of the very biggest with BBS for
home health and outpatient and stuff, and, frankly, the
resources aren't that much greater, so I would assume the
answer to my question is really, no, that the resources don't
appear to be adequate.
Mr. Boston. We are going to be very interested in seeing
how that budget progresses and what changes are made. We are
very concerned as it is presented that it might not have
sufficient resources, but we also know that the initial budget
presentation, the final budget, there is a great deal of work
in between and an opportunity to make our concerns known.
Mr. Bryan. I would like to echo one item presented by Ms.
Gagel and that is that we are concerned about the level of
funding for communication and outreach to the beneficiaries.
With such rapid change, we have only seen decreases in those
areas, and we think that that is an area that should be
increasing, because beneficiaries have many questions. It is
not easy to understand the new Medicare information and there
is going to be a greater demand on our resources as someone
mentioned earlier to spend time on the phone with the
beneficiaries and to go out into their communities and to put
on seminars.
The other component that we are concerned about is as we
move toward the Program Safeguard Independent Contractor, in
MIP, we will see an increase in the number of appeals and
requests for reviews on those programs, and so we are concerned
about that level of funding. All of this I would center around
the communications and the interaction with the beneficiary
communities.
Ms. Johnson of Connecticut. Well, I would urge you as you
analyze the budget to assume that the fees won't be passed;
that is just a new tax source for what should be administrative
costs. I think you should look back at the past when the fees
were not pressed by either--members from either side of the
aisle, and I would say that if other members are seeing what I
am seeing out there, and what I have talked to MEDPAC about,
the case for cutting reimbursement to hospitals can't be made.
So, I would say there are lot of cuts in that--I don't see
any so far that are going to survive, and if that is the case,
then we have a big budget problem, because, of course, those
savings were used to fund new spending elsewhere in the budget.
So, we are in very serious circumstances; many, many promises
have been made, and it is unfortunate that some of them have
been made on the basis of savings that can't be realized, and
we look to your help to be as realistic as you can with us but
also to be willing to stand and say this can't be done. Thank
you.
Chairman Thomas. Well, thank you for your testimony. Both
the Ranking Member and I have written HCFA with concerns about
the suggested shift toward MIC. I have a hunch that maybe it
will be about as successful as the user fees in other areas. It
just, at the current time, does not seem like an approach that
makes a lot of sense.
Part of the tension that I hear in terms of this discussion
is that you are talking about wanting to try to deal in a
market-based world with an administered price animal, and that
is always going to be conflicting. And that is one of the
reasons, of course, the Medicare Reform Commission is looking
at trying to make some changes which would provide
beneficiaries the kinds of services in a world in which many of
these decisions that are now made laboriously through a
bureaucracy with administered prices in a box called market,
because we find out it works very well and there are
compensations that take place.
Mr. Boston, I said that your testimony was interesting,
and, Mr. Bryan, I would like a reaction to it, because you
described the way in which some of the carriers and contractors
got started, because they had to be licensed insurers as though
that is some kind of a hurdle or a requirement that produces
some level of competency or certifiability. How hard is it to
get over the hurdle of being a licensed insurer, and does it
mean anything anymore? Anybody?
Mr. Bryan. I would say for us----
Chairman Thomas. Well, I know you have got a whole bunch of
contracts, and I understand you are trying to be a licensed
insurer in California.
Mr. Bryan. NHIC is actually approved by the California
Insurance Commission to administer the Medicare program in
California.
Chairman Thomas. So, you were a shopper; you are now a
buyer, so you are a--did you buy an insurance company?
Mr. Bryan. No, we actually had one that we had never
utilized before in the Medicare Program. We only utilized the
insurance subsidiary to help with our Medicaid contracts.
Chairman Thomas. How did that make you a better contractor?
Mr. Bryan. Quite honestly, I don't think it did. What I
think did make us a contractor was the picking up of the staff
and the knowledge capabilities from the workload that we
assumed, and we pulled forward a very knowledgeable work force.
What we brought into place were different management practices
to create the efficiencies we thought we could bring to the
program.
Chairman Thomas. And that is the kind of market-based,
bottom-up structure changes that I think simply have to take
place instead of the discussion that took place previously.
Mr. Boston, you made some fairly provocative statements as
far as I am concerned, and I alluded to them earlier where
invariably in one of these hearings with whoever the
administrator happens to be to extol the virtues of the
administrative cost structure of HCFA versus the outside
world--and that somehow they are always half of what goes on in
the private sector--but you indicated that you thought that
there was and has been a degree of subsidy going on among
contractors. Now, the big bucks, I assume, are over with the
Blues, and maybe I am wrong; you are kind of representing the
non-Blues--whatever the rest of the color spectrum is, it is
not blue. Has anybody ever looked at attempting to quantify
this or is it such a variable over time or in certain
circumstances that you know you do it, but it is difficult to
show? Or by the time people show they are out of it because
they realize they were doing it and couldn't stay in business
because they did?
Mr. Boston. I think it has been far more anecdotal, Mr.
Chairman, than studies. We have heard from people who, in some
cases, have pulled out of the program that the amount of money
HCFA was willing to give them to perform the administrative
services was no longer covering their costs, and in some cases
they had elected to use corporate funds to make up that
difference. How a company chooses to do that is certainly a
business decision they make. I can tell you that the board of
directors I report to at WPS have given me a very clear
indication that we will never subsidize the program. We will
certainly do it at a very efficient cost, but we won't
contribute private subscriber funds to do that. But some have;
some have gotten out; some may continue to.
Chairman Thomas. Ms. Gagel, I saved you for last, because
clearly the pitch--and I really do appreciate the testimony; we
are going to bring you back as we begin to look at some of the
administration's suggested changes when they firm up and we
have the ability to have a programmatic discussion--but you are
interesting to me, because, as the gentlewoman from Florida
said, you have been in the structure and you are now outside
the structure, and you were in a responsible position. The
whole MTS situation, as comfortable as you are or to the best
of your ability, how in the world--I mean, when I first took
over, I was wheeled over to Baltimore, and they brought out all
these charts to show me the solution for tomorrow and that all
of the problems that I was concerned about and others were
concerned about, including indigestion---- [Laughter.]
Chairman Thomas [continuing]. Were all going to disappear
once this MTS was put in place. And then like 4 months later I
find out that at the time that they were informing me about
this wonderful new change, they were pulling the rug out from
under it as well or they were coming to the realization that it
just wasn't going to work. What happened?
Ms. Gagel. I could only, I think, probably, speculate on
what happened. I was involved in the very early planning, the
conceptualization, of what turned out to be MTS, and the
conceptualization of that was, indeed, some of the things that
were talked about earlier: the need for HCFA to have systems
that it controls that are predictive of payment. That was
essentially what MTS was all about; to have HCFA control the
claims processing operation rather than have 10 or however many
systems around the country do that. That was a very important
thing. The other thing we were looking at was looking forward
to the day that the Medicare Program would change. The systems
in Baltimore are fairly antiquated. If indeed as you are now
going to Medicare Plus Choice and will not only have a fee-for-
service option but beneficiaries might also have PPO options
and HMO options, we felt that the systems at HCFA could not in
any kind of an efficient way recognize all those options and be
able to pay claims.
The other thing the systems cannot do today and that we as
Medicare contractors cannot do--and the CFO, the Inspector
General, study that was released yesterday points this out very
well--we can still not aggregate data so that we are looking at
data from the beneficiaries' point of view. If you look at what
the Inspector General study does, it looks at claims paid for a
beneficiary over a 3-month period of time, and in hindsight we
can all do a real good job of deciding what was necessary and
what was not and knowing that you don't pay an outpatient bill
if somebody is really in a skilled nursing facility and stuff
like that. We could do a lot of that on the front end if we had
the computer systems that permitted us to do that or simply the
data warehouses that would collect the data, and that is really
what MTS was all about. Obviously, there were management issues
with it, and that was very unfortunate, but some of the
conceptual design is, I think, probably still where HCFA needs
to go and will probably end up going at sometime in the future.
Chairman Thomas. But to me it is almost an example of what
happens when you try to create a front-loaded resolution of an
administered-price system. You just can't do it, and that is
one of the beauties of the ability to adjust that in the
marketplace and why the Medicare Commission is looking at a
prospective payment system for that area of HCFA. Now, clearly,
in the old-fashioned, if you will, fee-for-service which is
still 85 percent of the folk, we have got to figure out ways to
get some of the benefits changed like putting prescription
drugs in, and that if we are going to have to live with
administered prices, we are going to have to clean it up so
that the decisions can be made more transparently.
We all draw from our own analogies, and I just noted in the
news the other day that a company in the automobile industry
that is considered fairly efficient in management is the BMW
company, and they acquired the so-called Rover Group from
England, and they thought for particular amounts of money they
could breathe life into it, and, as a matter of fact, the top
management position at BMW bet his career on it. He recently
resigned, because it did not do it in the timeframe and for the
money they thought it was going to do.
One of the real frustrations I have with our dealing with
HCFA in the current system, to me, is that MTS in the health
care area is analogous to the Rover Group with BMW. I know the
administrator left; he got out of town. Inside that structure,
there were obviously some folk in important administrative
positions whose responsibility it was to make this happen and
that it didn't, and it has caused all the problems that we are
in now with Y2K and the rest. To your knowledge, are these
folks still in their positions? Did any heads roll over this?
Ms. Gagel. I have been away from HCFA too long, I think, to
be able to make an assessment of, frankly, whose head should
have rolled, and so I really can't respond.
Chairman Thomas. I tell you, Ms. Gagel, we have
investigated, and the fact of the matter is virtually no heads
rolled and certainly the ones who should have rolled didn't. It
is one of the frustrations with a bureaucratic structure with
administered prices, and that you folks in the world that you,
in interfacing with that world, have got to change.
Ms. Thurman. Mr. Chairman.
Chairman Thomas. And as we go through with these
programmatic changes that are being offered by the
administration, we are going to want your input to evaluate
them vis-a-vis other models or options so that we can make the
best decision possible in reforming the very needed reform area
of the bureaucracy interfacing with contractors.
The gentlewoman from Florida.
Ms. Thurman. Are you--I am just asking because I don't
know--so, none of the folks that were involved with this are--
they are all still there? Are these civil servants or were--I
would imagine the civil servants could still be there, but were
the top officials--I mean, at least one of those we know is
gone. I mean what about the rest of them? Are they still
around?
Chairman Thomas. I would love to visit with the gentlewoman
on the scenario of what happened on something as fundamentally
failing as the MTS system and the--first of all, why do you put
something at the absolute core? You have got all of your eggs
in that particular basket and then not have a fallback
position.
Ms. Thurman. When did that happen?
Chairman Thomas. That happened in----
Mr. Bryan. It was toward the end of 1996 and early 1997.
Chairman Thomas [continuing]. 1994, because it was just----
Ms. Thurman. That was when the system was bought?
Chairman Thomas. No, no, no. It was being developed. It was
going to be--the rollout was eminent. When we became the
majority, I went over there to get my information, and Bruce
Lattick had everybody come in and talk to me about this new
program when at the very time they knew that it wasn't going to
work. January, 19----
Ms. Thurman. But the development of this had been going on
before.
Chairman Thomas. It had been going on for a long time. Ms.
Gagel, can you help us on that?
Ms. Gagel. Well, I left that part of the organization in
1992, and it was in the late conceptual stages at that time,
and we started a year or two before that.
Ms. Thurman. So, it has been going on for a while, OK.
Chairman Thomas. Oh, yes, it went on for a long time. They
put all their eggs in that basket.
Ms. Thurman. Thank you.
Chairman Thomas. And, actually, maybe we will do a head
count.
I want to thank you very much and look forward to your
input. I hope it is as honest and frank as your written
testimony was today.
The Subcommittee stands adjourned.
[Whereupon, at 5 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the American Medical Association
The American Medical Association (AMA) appreciates the
opportunity to submit this written statement for consideration
by the Ways and Means Subcommittee on Health and requests that
it be included in the printed record.
The American Medical Association believes that
Congressional intervention is needed to correct management
problems at the Health Care Financing Administration (HCFA).
These problems have been building up for many years. An ill-
advised reorganization and a heavy workload from requirements
of the Balanced Budget Act of 1997 (BBA) have overwhelmed the
agency.
Consider the following examples:
Three primary care physicians in Idaho Falls,
Idaho, recently felt compelled to stop treating Medicare
patients altogether in the wake of an overzealous and overly
punitive effort by the local Medicare carrier to recoup
thousands of dollars in payments due to differences of opinion
about appropriate coding and documentation. A number of the
disputed claims were for laboratory tests, which is all the
more outrageous because, at the same time the carrier was
making its recoupment demands, HCFA was engaged in a negotiated
rulemaking process to determine what rules should guide its
administration of Medicare's lab test benefit. Rather than face
the prospect of civil fines of up to $10,000 per clerical error
or billing mistake in the future, prosecutorial zealotry, and
the associated legal costs, the physicians simply decided to
discontinue their involvement with the Medicare program.
While 85% of Medicare beneficiaries remain in the
fee-for-service program, conflicting HCFA priorities and a high
attrition rate among experienced staff have led to serious
problems. For example, in setting the Sustainable Growth Rate
for physician services, as required by the Balanced Budget Act,
HCFA significantly underestimated Gross Domestic Product growth
for 1998 and enrollment for 1999. So far, HCFA has made no
effort to revise its estimates to reflect more up-to-date
information. Physician payments for 1999 have already been
underfunded by about $645 million due to these projection
errors, and HCFA's continued use of the erroneous estimates
could lead to steep payment cuts as soon as next year.
In testimony before this Committee in January
1998, the General Accounting Office described numerous
deficiencies in HCFA's oversight of its claims processing
contractors, using as an example the region that formerly had
six staff dedicated to contractor oversight but now has only
two. This lack of oversight has allowed the Part B carriers to
get away with establishing local coverage policies that
parallel abuses of some managed care organizations:
In some localities, claims for the physical
evaluation necessary to clear patients for anesthesia and
surgery are being denied as noncovered because ``Medicare does
not cover screening services.''
Similarly, it is standard clinical practice in
urology to give a man who complains of lower urinary tract
symptoms a PSA test, but in many localities patients have no
idea if the test will be covered because carriers will not pay
for the test if the diagnosis turns out to be enlarged
prostate. When administered to diagnose lower urinary tract
problems, the PSA test is clearly not a screening test.
Virtually no effort is made by the carriers to
inform or educate physicians about Medicare's coding, payment,
and coverage policies, nor are they provided with meaningful
appeal options once the carrier has decided a problem exists.
Often, carriers themselves have little knowledge of
appropriate coding practices. In one case, a carrier attempted
to recoup more than $80,000 from a physician, but after the
physician persistently and relentlessly sought a reevaluation,
the amount owed was suddenly reduced to $2,000. In another
case, during the audit process, the carrier auditor made
written notes and verbal comments demonstrating he was unaware
of the existence of the ICD-9 code book.
We believe that HCFA's problems will only get worse as the
number of Medicare patients, claims, and health care delivery
systems increase. To say that HCFA's current problems could
lead to a crisis is an understatement.
The AMA believes that a crisis exists, and that this crisis
is beginning to spill over into the actual delivery of health
care to our nation's Medicare patients.
We believe that HCFA is currently traveling down the same
road the Internal Revenue Service (IRS) was on before Congress
heeded the demands of taxpayers and forced the IRS to
restructure its policies. Just as the IRS is struggling to
reinvent itself into a ``customer'' friendly agency, HCFA must,
with a push from Congress and the Administration, reassess its
role and relationships with medical professionals who care for
Medicare patients.
Further, there is a growing sense among Medicare experts
that HCFA is ready to collapse under the sheer weight of its
administrative duties. This sentiment was clearly stated in a
January/February 1999 Health Affairs article co-written by
several of the nation's leading health economists, including
three former HCFA administrators: ``The mismatch between the
agency's administrative capacity and its political mandate has
grown enormously over the 1990s. . . . HCFA's ability to
provide assistance to beneficiaries, monitor the quality of
provider services, and protect against fraud and abuse has been
increasingly compromised by the failure to provide the agency
with adequate administrative resources.'' The AMA shares these
sentiments and believes that HCFA needs additional resources to
meet its continually expanding statutory requirements.
The AMA commends Congress for holding hearings last year to
assess HCFA's initial implementation of the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) (P.L. 104-
191), and the Balanced Budget Act of 1997 (BBA) (P.L. 105-33).
However, many issues remain. We implore Congress, and
particularly this committee, to hold additional oversight
hearings to assess:
the overly burdensome regulatory requirements
placed on physicians, hospitals, and other health care
providers;
whether HCFA has remained within its statutory
authority in the rulemaking process;
HCFA's failure to distinguish inadvertent billing
errors from intentional acts to defraud the government;
HCFA's ongoing implementation of the
Medicare+Choice program;
the process HCFA utilizes to draft rules and
regulations;
HCFA's process for considering and responding to
public comments on its rules and regulations; and
HCFA's oversight of Medicare carriers and other
contractors.
Beyond the critique of HCFA that will be provided by the
General Accounting Office, Congress should consider the many
ways in which HCFA's regulations for administering Medicare and
Medicaid affect virtually every physician, hospital, and other
health care provider in this country and their ability to care
for Medicare and Medicaid patients.
The AMA also urges Congress to hold hearings to address the
following critical issues:
Improving Medicare's SGR System
HCFA's mismanagement has had a deleterious effect on the Medicare
fee-for-service (FFS) program as well as the more frequently discussed
Medicare+Choice program, and the Sustainable Growth Rate (SGR) provides
a good example. The SGR is a target rate of spending growth. Cumulative
actual spending is compared to cumulative target spending, and payment
updates are determined by whether actual spending exceeds or falls
short of the target amount. The target is based on annual changes in:
inflation, Medicare FFS enrollment, real per capita GDP, and spending
due to law and regulation.
HCFA established a 1999 SGR of -0.3%, which became effective
October 1, 1998 for fiscal year 1999. This negative growth target means
that, unless total FFS physician spending is less in 1999 than it was
in 1998, next year's physician payment update could actually result in
a payment cut. A key HCFA assumption underlying the negative SGR is
that the number of beneficiaries enrolling in Medicare+Choice plans
will grow by 29% in fiscal 1999. With the recent HMO withdrawals from
Medicare, this assumption seems seriously overstated and obviously
erroneous. In fact, the rate of increase in managed care enrollment has
been declining since July, and the most recent monthly data show an
actual decline in managed care enrollment.
HCFA has already made one significant error in setting the first
SGR for 1998. In October 1997, HCFA projected 1998 GDP growth of 1.1%,
but 1998 GDP growth is now estimated to have been at least 2.8%. When
combined with other, smaller projection errors in the 1998 SGR, HCFA
made a net underestimate in the 1998 SGR of 1.5%. With Medicare
spending on physician services currently at about $43 billion annually,
the projection errors led HCFA to set the payment update for 1999 about
$645 million lower than it should have been.
HCFA has acknowledged the projection error problem, stating that,
``[w]hile we will use our best efforts to make estimates at the time
the SGR is established, we are concerned that there will be differences
compared to later estimates of some of the components of the SGR.'' In
one regulation, HCFA also stated the errors would be corrected:
``[d]ifferences between projected and actual real gross domestic
product per capita growth will be adjusted for in subsequent years.''
But to date, HCFA has not revised its estimates to reflect the more
accurate, updated information.
Because the SGR system is cumulative, if left uncorrected,
projection errors will be compounded with each year's payment update
calculation. To have the cumulative SGR become merely an accumulation
of erroneous HCFA estimates would defeat the whole purpose of the
spending target system. The level of underfunding of Medicare physician
services due to these errors could grow to the $1-2 billion range as
early as next year.
Program Integrity
The AMA is very concerned about HCFA's overly zealous
implementation of its policies in addressing waste, fraud, and abuse.
The Administration continually fails to distinguish between ``genuine''
fraud (knowing and willful) and legitimate billing issues, i.e.,
differences in medical judgment over one level of coding. There is a
vast continuum of issues arising in Medicare claims (e.g., deficiencies
in documentation, inadvertent coding and billing mistakes, intentional
criminal fraud, etc.) that HCFA constantly lumps together in the
catchall category of waste, fraud, and abuse. To date, HCFA has
essentially taken a single approach in dealing with a whole range of
problems.
HCFA's sole response to a broad range of complex problems has been
to address each one in an aggressive and punitive manner. The blurring
of the lines between waste and fraud has tremendous implications for
HCFA's policies and programs, not to mention for physicians trying to
follow all the rules to comply with the program. In response to the
current environment, carriers are forced to pursue aggressive tactics.
In this ``gottcha'' environment, both patients and physicians suffer.
Physicians want to provide quality care for their patients without
running afoul of HCFA's labyrinth of complex and burdensome
requirements. We have received numerous reports that carrier feedback
is severely lacking. The AMA has repeatedly urged the Administration to
increase its educational efforts to individual practicing physicians
who may not be aware of their honest and inadvertent billing errors. We
have argued strenuously to HCFA that when a carrier identifies that a
physician has a billing problem, the carrier has an obligation to start
a dialogue with the physician regarding the steps the physician can
take to correct the problem.
The AMA has critical concerns about HCFA's post-payment audits.
These audit procedures lack fundamental fairness. In order to avoid a
total disruption of their practice, as well as expensive legal bills,
physicians are frequently forced into civil settlements without the
ability to appeal. In many cases auditors extrapolate hefty fines from
a small sample of claims. At the hands of aggressive auditors,
overpayments can quickly mount. We recommend that the Administration
temper its rhetoric and refine its program initiatives so that those
physicians honestly participating in the Medicare program are not
subjected to the federal government's overly aggressive and punitive
approach. The AMA urges the Administration and Congress to target their
efforts toward ferreting out true fraud rather than penalizing honest
physicians whose primary goal is to provide quality care to their
patients.
Regulatory Relief
Physicians are voicing their growing concern about their Medicare
and Medicaid patients access to quality health care services. Numerous
unnecessary and unduly complicated administrative requirements
interfere with the patient-physician relationship causing strain on
both patients and physicians. These requirements increase the cost of
care while reducing access for Medicare beneficiaries. If the Medicare
program is to provide the nation's Medicare patients with greater
access, greater choice and lower cost medical services, passage of
regulatory relief legislation for physicians, hospitals, and other
health care providers is a must. Examples include:
Physician input should be considered in annual carrier
performance reviews. In determining whether the Secretary of HHS will
contract with a carrier to administer the Medicare program, the
Secretary should consider physician input in evaluating whether to
contract with that carrier.
Physicians should have an opportunity to provide
substantive input before any ``black box'' commercial off-the-shelf
software (COTS) is implemented by HCFA for code editing/bundling. These
``black box'' methods do not draw on physicians' expertise and
practical knowledge of the services billed. Their use distorts the
billing process, discourages correct coding, creates inefficiencies and
often results in physicians being paid less than the physician's cost
of providing the service.
Carrier use of the extrapolation technique should be
revised. The practice of determining Medicare's estimated overpayment
to a physician based on a statistical sampling of a small number of
disallowable claims is inequitable. Carriers should identify a problem
and provide the physician with an opportunity for a telephone
discussion or a face-to-face meeting, in which the carrier must
adequately explain how to correct the billing problem in the future. If
a physician's future billing activities are found in error, HCFA may
recoup overcharges based on actual errors found.
Carriers should be required to provide physicians, upon
request and without charge, with carrier-generated information needed
for the submission of claims. This information includes the identifier
number or other code of a referring physician, a list of maximum
allowable charges, and coding protocols needed by physicians to submit
a claim for payment or to respond to a carrier inquiry.
Carriers should compensate aggrieved individuals for
violating Medicare policy. Any individual, including a physician, who
is aggrieved by the failure of a carrier to carry out Medicare policy,
and establishes that the individual has suffered damages aggregating at
least $500 as a result of the failure, should be permitted a hearing
before the Secretary of HHS. If the carrier were found to have such
failure, it should be required to compensate the aggrieved individual
for such failure.
HCFA should develop and provide a Medicare compliance
manual to all participating physicians without charge.
Medicare should fund toll free lines used for the
submission of electronic claims to the program. Payment for use of a
telephone line to submit electronic claims to Medicare is de facto a
user fee. Medicare formerly provided this service at no charge.
Carrier medical review screens or associated parameters
should be released before denial of physician claims.
Conclusion
HCFA's ability to adequately manage the Medicare program is an
issue of great importance to Medicare patients and the physicians who
care for them. We implore the Committee to hold additional hearings to
further assess the issues raised in our testimony, and encourage all
Members of Congress to contact the AMA for further elaboration on
issues addressed in our statement.
Statement of Christina Metzler, American Occupational Therapy
Association, Inc., Bethesda, MD
The American Occupational Therapy Association (AOTA)
submits this statement for the record of the hearing on
February 11, 1999. AOTA calls your attention to an issue
critical to the health, well being and quality of life of
Medicare beneficiaries.
The change in the payment under Medicare for services in
skilled nursing facilities (SNFs) from a cost-based system
(with routine limits) to a fully prospective system (PPS) is
causing tremendous upheaval in the occupational therapy
profession. Practitioners are experiencing changes in their
employment status, in their economic status, challenges to
their professional standards and ethics, and, most importantly,
limitations in their ability to provide adequate, appropriate,
and required services to Medicare beneficiaries in these
settings.
HCFA Oversight
AOTA is concerned that the Health Care Financing
Administration (HCFA) is not adequately or effectively
monitoring the implementation of this massive change. To our
knowledge, HCFA has provided no guidance to fiscal
intermediaries about medical review or quality assurance
criteria to assure patients are receiving the care that nursing
facilities are being paid for. We are not aware of any
information transmitted to fiscal intermediaries on how to
monitor the provision of care in relation to the payment
received. Nor are we aware of any efforts by HCFA to empower
the intermediaries with methods to determine the accuracy of
the SNF categorization of individuals into appropriate RUG
categories. AOTA urges that efforts be undertaken to assure
nursing homes are not minimizing care, either intentionally or
because of inadequate payment levels.
When Medicare payment to hospitals was changed to the
prospective payment system in the 1980's, based on diagnosis-
related groups (DRGs), hospitals used many ways to adjust to
the new payment system. Not all were sensitive to patient needs
and desired outcomes. In that post-DRG environment, many
changes were observed and reported and beneficiaries felt the
consequences. Increased use of outpatient pre-admission
services billed to Part B, decreases in length of stay, and
movement to non-hospital post-acute care settings were common.
Also common were problems for patients and beneficiaries:
transfer to nursing facilities unable to treat the acute
conditions patients had, discharges to home with subsequent
readmissions for exacerbations of conditions, and shifting
provision of care to other, perhaps less appropriate, sites.
AOTA is concerned that similar negative consequences will
accrue as the PPS is implemented by SNFs and that HCFA is
neglecting critical oversight issues, which may jeopardize
patient health and safety.
AOTA urges you to use your authority to hold HCFA
accountable for instituting the proper guidelines and
procedures to prevent problems that are likely to occur and to
monitor changes in patient care and outcomes that may result
from the change in the payment system. Patients in skilled
nursing facilities are too vulnerable to be left to suffer the
vagaries of funding changes without some protection from the
agency charged with that duty.
General Accounting Office Testimony
AOTA is concerned about issues raised in the testimony of
the General Accounting Office (GAO). First, we would like to
support GAO's statement that ``the SNF PPS has design flaws''
and that this is ``coupled with a lack of adequate planned
oversight'' by HCFA. While GAO merely raises the specter of
less than expected savings from the combination of these two
problems, AOTA is deeply concerned for patient welfare under a
system that is ``flawed'' and, as GAO admits, the
implementation of which is unfettered by appropriate oversight.
GAO goes on to state that ``the new SNF PPS' design
preserves the opportunity for providers to increase their
compensation by supplying potentially unnecessary services,
since the amounts paid still depend heavily on the number of
therapy and other services patients receive.'' This statement
has no connection to the reality our therapists and their
patients are experiencing in SNFs and belies the experience and
common sense understanding of capitated payment systems. GAO
appears not to understand the other major problems with the PPS
system: the incentives to under provide, under identify, and
provide minimal care for patients.
For instance, rules for using qualified professionals to
provide therapy services are being skirted. Standards of
supervision of aides and assistants, though covered by law in
most states and reaffirmed in Medicare regulation, are a
particular area of concern. If standards of care, including use
of qualified personnel, are not upheld, patients will suffer
loss of function and reduced health status and the purposes of
the Medicare program will not be achieved.
Indeed, if standards of care are not reaffirmed by HCFA
direction and assured by HCFA oversight, patients' health care
needs will increase, thus further limiting savings by increased
hospitalization and other service utilization.
AOTA urges the Committee to hold hearings on SNF quality
and the PPS system. AOTA also supports the notion raised by
Chairman Thomas during the hearing that perhaps a ``town hall''
meeting with HCFA, Congress, MedPAC, GAO and affected members
of the public, including health professionals, would be useful
to discuss problems with the RUGs system.
Specific Requests
In addition we urge the Committee to question HCFA further
on its lax oversight.
Specifically:
When will HCFA issue medical review guidelines for fiscal
intermediaries to assess correct and appropriate categorization
of patients?
When will HCFA put in place quality assurance mechanisms to
assess any decreases in patient access to care and subsequent
deterioration in patient status due to the move to PPS?
When will HCFA institute guidelines and procedures to
assure that nursing homes are not minimizing care, either
intentionally or because of inadequate payment levels under
PPS?
What plans and timetable does HCFA have to develop the
medical review process required in the Balanced Budget Act, now
Sec. 1888 (d)(1) of the Social Security Act?
What immediate steps will HCFA undertake to assure quality
services are adequately and appropriately provided with no
negative impact on patients until such medical review criteria
and processes are established?
What steps will HCFA take to assure that patients, once
classified into a Resource Utilization Group (RUG) will receive
services appropriate to each individual's condition and not
simply the minimum for classification into a category?
What steps will HCFA take to monitor access to the
appropriate clinical professionals to meet the full spectrum of
patient needs as assessed by the Minimum Data Set process?
Legislative changes
In addition, AOTA believes the Committee must look at
legislative changes that will improve the functioning of the
system, and prevent some potential abuses of payment and
patient care.
AOTA urges the Committee to consider a legislative change
to allow facilities to move immediately to the full federal
rate. The three-year transition period was intended to allow
for a gradual absorption of the process changes and the funding
reductions. However, when the rates for many facilities for
some RUGs categories are reviewed, there can be a significant
difference between the full federal rate and the combined,
transitional rate. For instance, for one facility whose rates
we have reviewed, the first year transitional rate for the
ultra high rehabilitation category is $294.59 per day while the
full federal rate is $409.29, for a difference of more than
$110 per day. HCFA developed the federal RUGs rates based on
resource requirements to meet the service needs identified for
these categories. Yet the discrepancy is so significant, we
question whether a facility would even choose to place a
patient in this category, denying them access to needed
therapeutic interventions and other services. Several
categories of a lesser intensity have full federal rates and
transitional rates that are more closely aligned providing an
incentive to downgrade patients, providing fewer services. The
Committee should request a report from HCFA on these
discrepancies and identify which categories and facilities are
more vulnerable to underpayment. AOTA urges Congress to allow
facilities that identify such a discrepancy to request use of
the full federal rate immediately. With proper HCFA oversight,
this could serve to prevent three years of operation on
terribly inadequate funding levels, with severe consequences
for patients.
Another issue in the RUGs categories is the lack of
requirements for more than one type of therapy to be provided
to patients who are in high and very high rehabilitation
categories. Under the demonstration project which developed the
RUGs, we understand that patients in the high and very high
categories were required to receive more than one type of
therapy. The rationale was that if a patient had needs complex
and involved enough to require a significant number of minutes
of therapy per week, then that patient logically needed more
than one type of intervention. We also note that in the
demonstration project these categories required a lower number
of minutes; now the ultra high category is the only one
requiring the use of more than one type of therapy. It was
established for the PPS implementation. AOTA questions HCFA's
change in this policy, especially as the high and very high
categories may include more complex patients than in the
demonstration. We urge the Committee to clarify and correct the
requirements in the high and very high categories.
AOTA also believes legislation should be considered to
allow for a pass-through or exception process for high cost
items such as durable medical equipment and orthotics/
prosthetics/supplies These items, according to anecdotal
reports from our members, are not always being provided as part
of a patient's treatment protocol under Part A. It is believed
that patients may be forced to wait until Part B can be billed
separately to provide such items as prosthetic legs. Proper
fitting as well as training by therapists in the use and care
of the prosthesis are required before the patient leaves the
SNF, especially for safety of the patient when s/he returns
home and to community life.
The Committee should conduct an inquiry on this issue and
consider legislation to allow these items and services, the
costs of which are controlled by existing Medicare limits, to
be billed separately to assure needed equipment and services
are provided in a timely and appropriate manner. Patients
should not have to wait until the end of their SNF stay to
obtain a proper, well-fitting and functional prosthetic leg or
arm. Yet the current payment amounts appear inadequate for
facilities to be compelled to provide them as soon as possible.
In addition, AOTA urges the Committee to investigate how an
outlier system might be developed to assure that patients that
do not fit into even the highest reimbursement categories are
not deprived of necessary services.
Maintain Intent of OBRA; Conduct Studies
The protection of the health and quality of life of nursing
home patients has been frequently addressed by Congress.
Congressional intent and expectations are clearly stated in the
protections included in the 1987 Omnibus Budget Reconciliation
Act which assure the public interest in patients maintaining
highest possible function, being free of inappropriate
restraints, and achieving optimum physical and mental health.
AOTA believes that it is Congress' duty to assure that the
changes it made in the Balanced Budget Act are not implemented
in a way that is contrary to the important safeguards
established in OBRA.
Because our members are being laid off, are spending less
time with patients because of cutbacks in hours, and are being
asked to adhere only minimally to standards of appropriate
practice, AOTA is concerned that there will be increases in
health and other problems in nursing facilities. We believe the
Committee should ask GAO to act on its concerns about SNFs
under PPS and immediately undertake a monitoring effort to look
at questions such as the following:
Comparing charts of similar patients one or two years ago
with post-PPS charts, are there changes in patient routines?
(E.g., are patients in bed more and moving to activities less?)
Is use of pharmaceutical or other restraints increasing
because reduced hours of receiving therapy are causing
cognitive or behavioral problems?
Is there an increase in problems such as decubiti ulcers
(bed sores), incontinence, pneumonia, and circulatory problems
which can be linked to fewer hours spent receiving therapy, and
loss of function and slower recovery due to receipt of less
therapy?
Are there more feeding and hydration problems because
occupational therapy or speech-language pathology services are
not provided to address feeding or swallowing problems?
Is nursing staff following different routines with patients
because of increased burdens of care due to less access to
therapy?
AOTA is aware that there are concerns about some therapy
services provided to SNF patients in the past. Even if some
therapy was improperly documented or not appropriately
authorized, the reductions in the amount of therapy patients
are and will be receiving based on the staff and contract cuts
observed in the SNF sector are, in our view, disproportionate
to reductions in payment and to any amount of possible
overutilization. AOTA is very concerned for patient well being
and protection under Medicare standards and the OBRA
requirements.
AOTA urges the Committee to move forward with dispatch on
its agenda to hold hearings on the implementation of the PPS
and on quality issues. AOTA urges the Committee to pursue
efforts to gather better data on the status of patients and the
care they are receiving. AOTA urges the Committee to address
the needed administrative and legislative changes that can
improve the PPS system, enabling it to achieve cost savings
without sacrificing patient health, safety and well-being.
Statement of Mark Knight, Association for Ambulatory Behavioral
Healthcare, Alexandria, VA; Al Guida, National Mental Health
Association, Alexandria, VA; and Pope Simmons, National Council for
Community Behavioral Healthcare, Rockville, MD
To: A.L. Singleton, Chief of Staff
From: LMark Knight, Executive Director, Association for Ambulatory
Behavioral Healthcare; Al Guida, Vice President, Government Affairs,
National Mental Health Association; Pope Simmons, Vice President,
Government Relations, National Council for Community Behavioral
Healthcare
Re: LManagement of the Medicare Program Hearing on February 11, 1999 at
2:30 pm
Date: February 24, 1999
Thank you for the opportunity to share our perspective on the
current problems impacting on the Medicare Partial Hospitalization
Program and to suggest ideas on legislative and administrative
solutions.
The findings in the October 1998 Office of the Inspector General
report, Five State Review of Partial Hospitalization Programs at
Community Mental Health Centers,'' address two separate issues, which
understood together, are very troubling indeed. The first issue has to
do with the definition(s) of Community Mental Health Centers as a venue
for providing Partial Hospitalization Services, and the second, with
concerns related to medical review of partial hospitalization claims.
We will discuss each of these issues in turn and then explain how taken
together, they have contributed to the serious problems identified in
the OIG report. Finally, we will make some suggestions on legislative
and administrative solutions.
1. Federal definition and State-by-State implementation of Community
Mental Health Centers has been unclear and inconsistently interpreted
from their inception, more than 30 years ago.
In 1990, when Section 1861 (ff) of the Social Security Act was
amended to permit community mental health centers to provide Medicare
covered partial hospitalization services, there was a recognition that
many Medicare recipients were individuals with serious and persistent
mental illnesses who were being treated in community systems of care;
and further that a level of care between inpatient and outpatient
service would benefit the recipient and avoid costly and unnecessary
inpatient hospitalization.
However, the law was vague and created a loophole. It defined a
community mental health center as an entity which (1) provides services
described in section 1916 4 of the Public Health Service
Act\1\, and (2) meets applicable licensure or certification
requirements for community mental health centers in the State in which
it is located. In order to receive a Medicare provider number under
current law, a CMHC simply has to sign an attestation agreement that it
meets these two requirements. Since the operational meaning of the
Public Health Service definition has never been clearly defined (and
has been differentially interpreted across time and place)--and nearly
two/thirds of the states have no distinct CMHC licensure requirements,
some individuals and newly created organizations took advantage of this
loophole and got into this program for the wrong reasons.
---------------------------------------------------------------------------
\1\ These services include: (1) outpatient services to children,
the elderly, and the serious and persistent mentally ill, (2) day
treatment, psychiatric rehabilitation, or partial hospitalization
services, (3) 24 hours a day emergency care, and (4) screening for
patients being considered for admission to a mental health facility.
2. The original authorizing language (Section 1861 (ff) of the Social
Security Act) defining partial hospitalization and the physician
certification requirement in Section 1835(a)(2)(F) has created
contradictory language resulting in confusion as to the type of patient
who is appropriate for partial hospitalization and the kinds of
services that would be considered covered services under the Medicare
---------------------------------------------------------------------------
program.
In Section 1861 (ff), partial hospitalization is defined ``as those
services which are reasonable and necessary for the diagnosis or active
treatment of the individual's condition, reasonably expected to improve
or maintain the individual's condition and functional level and to
prevent relapse or hospitalization.''
In Section 1835(a)(2)(F), it states that as a condition for
reimbursement, a physician must certify that ``the individual would
require inpatient psychiatric care in the absence of partial
hospitalization services.''
According to the former, if the service simply prevented relapse
and maintained the patient's level of functioning, such services would
fall under the definition. In contrast, the physician certification
requirement is explicit that the patient must be in an acute situation
(i.e., in imminent need of hospitalization).
3. Taken together, these contradictions and vagaries of the law have
made the Medicare PH program a very difficult program for HCFA to
implement and for its contractors to adjudicate.
When combined, the lack of clarity in the law, inconsistencies in
interpretation, and wide variance in implementation of both Community
Mental Health Center definitions and Partial Hospitalization Programs,
create a double-edged sword for Community Mental Health Centers
attempting to provide a legitimate, authorized venue and appropriate
covered services to beneficiaries for whom partial hospitalization is
medically necessary. Likewise, the absence of clear and consistent
interpretation invites fraud and abuse in both CMHC and Hospital-based
Partial Hospitalization Programs.
4. How has this played out in the implementation and adjudication of
this program?
There have been recent efforts to clarify both the Medicare
definition of Community Mental Health Centers as a venue for the
purpose of providing Partial Hospitalization Services, and the
definition of the Partial Hospitalization Program itself. Both efforts
have been wrought with significant challenges.
(A) Efforts to clarify the definition of a CMHC.--Current efforts
have underscored the conflicting current definitions of the Community
Mental Health Center core services. Earlier this year, HCFA central
office and its Southern Consortium (Regions 4 and 6) implemented a
project to verify that CMHCs were providing the four core services to
which they attested in their original agreement. Beginning in January
1998 and ending on August 30, site visits were conducted at all current
Medicare CMHCs and selected applicants in Florida, Texas, Georgia,
Mississippi, Arkansas, Alabama, South Carolina, Tennessee, and
Louisiana. This initiative was problematic because what was being
verified was not clearly defined in measurable, operational terms, and
in some cases, those conducting on-site visits had no psychiatric
training.
Where this problem is most dramatic is in the interpretation of the
core service defined as ``screening for patients being considered for
admission to a state mental health facility.'' HCFA is interpreting
this requirement to mean that the entity conducting the screening must
also have the authority to admit the patient to a state mental health
facility. While all CMHCs had the authority to admit patients to state
mental health facilities following enactment of the Community Mental
Health Center Act of 1963, since that time, the system has changed
considerably. Currently, some CMHCs have a contract to do this and
others do not, and some are simply not able to get such a contract
because they are not considered part of the public system. Further, in
some states, there is not a state mental health facility to which
patients can be admitted. Finally, in some states, only the state
mental health facility has the authority to admit a patient.
(B) Efforts to clarify who is appropriate for Medicare PHP and
which services are covered.--Medical review policy is at the discretion
of individual fiscal intermediaries. HCFA's 1995 National Memorandum on
Partial Hospitalization and the 1997 Model Local Medical Review policy
have helped to clarify certain guidelines for medical review overall,
but these are inconsistently interpreted and regarded by fiscal
intermediaries at a local level. What constitutes a provider's
compliance and results in payment under one fiscal intermediary, could
easily fail to comply and result in denial of payment under a different
fiscal intermediary. Increasing scrutiny of Partial Hospitalization
will not be a useful tool unless we clarify, understand and achieve
greater consistency of the fiscal intermediary local medical review
policies against which programs are scrutinized. Therefore, aggregation
of Partial Hospitalization denial rates across fiscal intermediaries is
not a valid measure at present.
5. Recommendations.
1. The law should be amended to clarify the definition of a CMHC
and of partial hospitalization. In regard to the former, the four core
service definition should be amended so that it accurately reflects how
community mental health centers currently operate (See National Council
for Community Behavioral Healthcare).
In regard to the later, challenges with the Medicare partial
hospitalization program present an opportunity to reconsider Medicare
coverage of the continuum of mental healthcare. Because of gaps in
coverage, in some cases, patients may be admitted to PH when they would
benefit from a less intensive level of care. Thought should be given to
building upon the demonstration program in H.R. 2640 which would permit
CMHCs to provide a more flexible array of mental health services. In a
similar vein, the 120 day intensive nonresidential treatment services
benefit that was proposed in 1994 as part of the Democratic healthcare
reform legislation should be dusted off!
2. A formal rulemaking process should be initiated as soon as
possible to develop clear and measurable certification standards with
industry, clinician and patient input. HCFA should expedite a
regulatory process for promulgating clear conditions of participation.
This approach is consistent with that taken with other Medicare
benefits.
Green Cross, Inc.
Miami, Florida
February 24, 1999
A.L. Singleton, Chief of Staff,
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, D.C. 20515
Re: Oversight of HCFA's Management of Medicare: For inclusion in the
printed record for the hearing of Feb. 11, 1999.
To Whom It May Concern:
HCFA has grossly mismanaged the Medicare Program as it relates to
Mental Health Care. In the State of Florida HCFA failed to publish
conditions of participation for Community Mental Health Centers. When
this area blew up with several hundred centers, then HCFA proceeded to
use Draconian methods to crack down and close programs without gauging
the damage that this would do to patient care. Hence, we have a problem
created by HCFA's poor management, giving out provider numbers freely
to anyone who applies, then using a reckless approach to kill the
industry.
Mental Health Care in Florida has been underserved and underfunded
for years. The Federal Government agreed to allow Mental Health Centers
to provide Partial Hospitalization Services and have it reimbursed by
Medicare. In Florida, there were no guidelines or licensure protocols
for Community Mental Health Centers, and HCFA provided none. So, by
1997 there were more programs in Florida than in any other state.
Almost anyone could apply and receive a provider number for this
service. Again, this could have been averted if HCFA would have issued
guidelines or conditions for participation like they do in almost all
other areas of health care.
To further compound this problem Partial Hospital Benefits was
placed under cost reimbursement. That is, programs are reimbursed on
cost. The higher the cost, the greater your reimbursement. This again
encouraged ever escalating cost on top of the ever escalating number of
providers.
By the end of 1997 it was clear that the industry had gotten out of
hand. There were providers in every street corner and costs were
growing exponentially. HCFA then decided to crack down using a three-
pronged approach: (1) Medical Review instructing the fiscal
intermediary to implement a Medical Review of charts placing programs
on a 100% and denying all charts based on not meeting admission
criteria. (2) Provider Audit and Reimbursement Department (PARD) (3)
Criteria for Community Mental Health Centers inquires of service.
On the issue of Medical Review, Blue Cross and Blue Shield of
Florida took a stance of denying almost all charts reviewed placing
programs on 100% review, thereby shutting off all funding to the
program. When confronted with these facts, Curtis Lord, President of
First Coast Services made a statement ``There was a point by last March
or April where we kicked a lot of people up to 100% without regard to
all this. We made a concerted effort to bump the majority of providers
up to 100% until we could get a handle on what was going on, and I
don't think we did that by considering all individual cases. I think it
was a pretty large movement of the community to a 100% review''
(exhibit A) at a meeting with representatives of the Florida
Association of Community Mental Health Centers (FACMHC). A local
contingent of Congressmen and women became involved and a letter was
sent to Secretary Donna Shalala (exhibit B). After having a meeting in
Atlanta in which Ms. Rose Crum-Johnson of HCFA's Atlanta Office agreed
to accept a sampling of charts that had been denied by Blue Cross &
Blue Shield, and to send them to an independent psychiatrist that HCFA
would contract. As can be seen in the results reported to us by HCFA
(exhibit C) ``sixteen of the eighteen patient for whom charts were
submitted were eligible to receive PHP.'' This re-confirms the grossly
inappropriate and unfounded decision to place programs on 100% medical
review and deny all claims for the same issues--especially when those
reviewing the claims were far less qualified than a psychiatrist. This
pattern of poor management is further compounded by the action of the
Provider Audit and Reimbursement Dept. (PARD).
PARD typically takes two years to complete a desk review of a cost
report, at which time they are able to deny listed expenses as non
reimbursable. In many cases, these decisions are taken in an arbitrary
manner. If an expense was incurred two years ago and hence continued in
a program's budget through the present day then their adjustment will
reverberate across three years into the current year. Hence, an
adjustment to one year when multiplied by three can result in a
devastating impact to a program. PARD does not issue clear guidelines
on what it feels are reasonable costs and salaries. PARD never requests
a proposed budget for the future for review which would aid in planning
and management. Instead, their adjustments are retrospective when money
has already been spent on patient care. If a cost report shows an
amount payable back to the Medicare Program they want the money
immediately. If it shows a receivable to the program then they hold on
to the funds until they complete their desk review two years down the
line. The issue of compensation for bad debts is also an area of great
concern as far as PARD. In Florida, the Medicaid Program, which at the
Federal level is administered by HCFA, refused to grant crossover
provider numbers to many PHP programs early on. Hence, programs serving
the poor were unable to collect the 20% co-payment and deductible from
Medicaid. In filing cost reports, these are very real bad debts.
However, it has been the policy to deny these bad debts as reimbursable
costs because Medicaid should have covered it. Hence, programs are left
in the untenable position of subsidizing the State's Medicaid Program.
An example of this can be seen in (exhibit D), a letter from Steel
Hector & David, LLP to the State of Florida's Attorney, Gordon Scott.
Many of these issues still remain in contention without final
resolution. If resolved unfavorably it can be devastating and shut down
any program finding itself in this quandary.
The third prong of this assault comes from the ``Core Areas of
Service'' to qualify as a ``Community Mental Health Center.'' HCFA has
never issued conditions of participation and has never been clear as to
what constitutes compliance. In the last 18 months HCFA has been ever
more nebulous and at the same time aggressive in trying to
``decertify'' programs for not fulfilling the four core areas of
service. Almost all programs have some compliance plan in place.
However, since HCFA constantly changes its articulation of criteria
they leave open the possibilities of ``pulling out the rug'' from under
a program claiming it doesn't meet their latest, arbitrary and hazy
interpretations (see attached exhibit E).
A summary of how many of these issues can affect a program can be
seen in the letter sent to Mr. Michael Hash, Deputy Administrator of
HCFA, in reference to Green Cross, Inc., a Joint Commission accredited
facility in South Florida (exhibit F). In conclusion, in the area of
outpatient mental health services, HCFA has demonstrated extremely poor
management of the Medicare Program. Without question, patients have
been very much affected and have expressed great concern (exhibit G is
a letter of concern from patients). Action needs to be taken so that
HCFA and its contractors act in a professional manner and work with
providers to care for the nation's sick and needy rather than
persisting in an adversarial relationship. Whenever there is ``fraud
and abuse,'' I suggest the main culprit is weak and poor management on
the part of HCFA.
Should you have any further questions or require any more
information, please do not hesitate in contacting me.
Miguel A. Nunez Jr., M.D.
[Attachments are being retained in the Committee files.]
Statement of the Health Insurance Association of America
The Health Insurance Association of America (``HIAA'') is
pleased to present this written testimony to be added to the
records of your hearing of February 11, 1999 on the
``Management of the Medicare Program.'' As the preeminent
health insurance trade association, HIAA is the principal voice
of the broadest spectrum of the health insurance industry. HIAA
represents over 265 members that include commercial insurers,
health maintenance, preferred provider and managed care
organizations and businesses that provide products and services
to the health insurance industry. Together, HIAA members
provide health, long-term care, supplemental, and disability
income insurance coverage to more than 110 million Americans.
Association members include companies currently serving as
Medicare+Choice managed care contractors, companies who are
considering offering new Medicare+Choice options, and companies
that have recently withdrawn from the Medicare+Choice program,
giving us a unique perspective on the issues under review by
this Committee.
I am pleased to have this opportunity to discuss the
implementation of the Medicare+Choice program with you and to
share a few of our principle concerns. We believe that the
Medicare+Choice program represents an essential component in
the government's effort to ensure the financial survival of the
Medicare program and to meet the health care needs of the baby
boom generation as we move into the 21st Century. HIAA applauds
the Commerce Committee for its role in shaping these bold
Medicare reforms through the Balanced Budget Act of 1997.
Recent developments, however, suggest that the Committee's work
is not yet done. To ensure the promise of the reform, and to
facilitate beneficiary choice under the Medicare program,
additional legislative and policy modifications must be made.
Concerns About Low Anticipated Medicare+Choice Organization Payment
Rate Increases
1. Limits on Annual Increases in Capitation Rates and Concerns
Regarding the New Proposed Risk Adjustment Methodology Threaten
the Continued Attractiveness of the Medicare+Choice Program to
Beneficiaries and Providers
a. Most Plans Will Experience Cost Increases From Medical
Inflation That Exceed Payment Increases During the Coming
Year.--Perhaps the greatest threat to the success of the
Medicare+Choice program is the collective impact of changes in
Medicare's payment methodology enacted by the BBA. In order to
achieve a successful partnership between the federal government
and Medicare+Choice organizations, program rules must: (1)
allow payment rates that recognize and adjust for the actual
costs of providing health care and permit necessary investment
in clinical and operational improvements, and (2) incorporate
financial incentives to reward those Medicare+Choice
organizations that achieve the government's economic, clinical
and operational objectives.
As set forth in Section 1853(c) of the BBA, Medicare+Choice
organizations will be paid the greater of:
(a) a blended capitation rate, which is the sum of a
percentage of the area-specific capitation rate and a
percentage of the national Medicare+Choice capitation rate (the
percentage balance will change over time until it reaches a 50/
50 blend in 2002); or
(b) a minimum amount, which is $379.84 per enrollee per
month in 1999; or
(c) a minimum percentage increase for 1998 equal to an
increase of 2 percent of the 1997 Adjusted Average Per Capita
Cost (``AAPCC'') rate for the particular county, with increases
of 2 percent in each subsequent year.
Due to a budget neutrality requirement, the blended
capitation rate was not available in 1998 or 1999. The Health
Care Financing Administration (HCFA) anticipates, however, that
the blend will apply for the first time in the year 2000. While
the majority of counties will receive blended payments, it is
HIAA's understanding that approximately 30 percent of counties
will continue to receive the floor amount and 11 percent of
counties will receive the minimum two percent increase.
The practical result, based on actual Medicare+Choice
enrollment, is that Medicare+Choice organizations serving a
majority of Medicare beneficiaries enrolled in such
organizations will receive rate increases of the minimum 2
percent or only slightly more. For many--if not all--of these
organizations, this increase would not be sufficient to cover
the increased cost of providing mandated services, given
projected medical inflation \1\. This, combined with the fact
that many Medicare+Choice organizations experienced significant
losses in 1998 (and anticipate additional losses in 1999),
forecasts trouble for the program.
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\1\ The budget for fiscal year 2000 includes funding original fee-
for-service Medicare that reflects anticipated increases in medical
costs over a five year period of 27% and an increase in the Federal
Employee Health Benefit Program of about 50%. Estimates of the likely
growth for Medicare+Choice plans in high paying counties for the same
period is less than 10%.
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Indeed, inadequate reimbursement rates largely were responsible for
the retrenchment of Medicare+Choice plans last Fall. At that time, some
of the most respected Medicare+Choice organizations in the country
withdrew from states and counties with low capitation rates. Other
withdrawals occurred in low enrollment areas even though capitation
rates were above average. As reported, 42 health plans decided to
withdraw from the Medicare+Choice program and 53 plans decided to cut
back their services. In all, about 400,000 Medicare beneficiaries were
effected. To put this in perspective, HCFA averaged two Medicare risk
contract cancellations per year from 1993 through 1997.
The use of the blended rate for some Medicare+Choice plans for the
first time in 2000 is clearly a step in the right direction in terms of
ensuring fair and adequate reimbursement. However, HIAA strongly
believes that additional adjustments are necessary to attract and
maintain the number and diversity of Medicare+Choice organizations
necessary to establish a sound and attractive market-based alternative
to the traditional fee-for-service program.
Accordingly, HIAA urges Congress to reconsider the artificial and
arbitrary limits on capitation rate increases set forth in the BBA.
Specifically, HIAA suggests that annual increases in Medicare+Choice
payment rates be sufficient to fully cover medical inflation
experienced in the local markets. Because local employer health plans
and other commercial customers have a tremendous incentive to keep
costs down, they will positively affect the inflation rate in each
market. If the current reimbursement structure is not adjusted, more
Medicare+Choice organizations are likely to withdraw from areas served
and beneficiaries enrolled in the remaining plans will likely
experience premium increases or reduced benefits. Finally, as
Medicare+Choice plans leave the market, the original Medicare program
(with its higher per capita costs) will have more beneficiaries and put
additional strain on both the Part A Trust Fund and the budget.
b. The New Risk Adjustment Methodology Will Substantially
Reduce Payments to Medicare+Choice Organizations.--Change in
the Medicare+Choice payment calculations is all the more
necessary because the risk adjustment process which HCFA is
implementing is expected to substantially reduce aggregate
payments to Medicare+Choice plans while adding additional
administrative requirements and expenses. According to
preliminary HCFA estimates, total Medicare+Choice plan revenues
for the year 2000 are projected to be $200 million less than
they would have been under the Adjusted Average Per Capita Cost
(``AAPCC'') payment method and $6.3 billion less in 2004. As a
result, some plans will see even their minimum two percent
increase eroded in 2000 as the risk adjustment methodology is
phased in. Thus, what began as a straightforward effort to more
accurately compensate plans for the health care costs of their
particular members will, unexpectedly, result in an overall
reduction in funds to Medicare+Choice organizations.
This development runs counter to HIAA's understanding of
Congressional intent, i.e., that the savings resulting from the
percentage reduction\2\ in plan payments for years 1998 through
2002 was intended to be in lieu of any net program savings from
risk adjustment. (Indeed, the Congressional Budget Office did
not score any projected savings in connection with the risk
adjustment program under BBA 97). The new methodology, and huge
projected revenue reductions, underscores HIAA's concerns
regarding the inadequacy of plan payments under
Medicare+Choice. To the extent that the proposed HCFA risk
adjustment methodology translates into a significant overall
decrease in payments for the Medicare+Choice program, it will
undoubtedly be an additional deterrent to program
participation. Accordingly, HIAA urges Congress to require HCFA
to modify the risk adjustment methodology so that aggregate
payments to Medicare+Choice plans for 2000 and beyond are based
on aggregate BBA adjustments, making the risk adjustment
process budget neutral.
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\2\ In addition to the 5 percent reduction in payment from fee-for-
service costs which existed prior to the BBA, the increase in payment
to Medicare+Choice organizations under both the blended rate and the
floor will not fully reflect anticipated medical inflation. A reduction
of 0.8 percent was made in 1998 and reductions of 0.5 percent are to be
included in 1999 through 2002. The cumulative effect of these
reductions will be that even the blended rate adjustment will be
inadequate. This, coupled with the insufficient increases in the
minimum rate, will undermine Congressional intent to encourage growth
of Medicare+Choice options for seniors in low cost areas.
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c. The User-Fee ``Tax'' on Medicare+Choice Organizations for
Beneficiary Education is Inequitable and Reduces Even Further Payments
to Medicare+Choice Organizations.--HIAA strongly supports educating and
informing Medicare beneficiaries about all coverage options, including
the Medicare+Choice program, and supplying beneficiaries with
straightforward, unbiased information to help them choose appropriate
coverage. That said, we are concerned that the BBA, to support
beneficiary education activities for all 37 million beneficiaries,
places a ``user fee tax'' on Medicare+Choice organizations only.\3\ The
educational campaign is a benefit to all Medicare beneficiaries.
Indeed, initial information suggests that the toll-free number HCFA
established last year with funds from the $95 million dollar ``tax''
assessed upon Medicare+Choice organizations primarily fielded calls
from beneficiaries seeking information about the fee-for-service
program. Considerations of equity dictate that the educational
program--which informs beneficiaries about basic program benefits and
requirements--be funded from the Medicare trust fund, or another broad-
based source of revenue, as are other such essential program functions.
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\3\ Medicare+Choice organizations essentially pay a ``head tax''
(i.e., an amount based on the number of Medicare+Choice enrollees in
their plan) to support the public information program.
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We note that this tax, which is .355% of the total monthly
payments to each Medicare+Choice plan in 1999, further
exacerbates the problems outlined above concerning inadequate
reimbursement. Indeed, when the user fee tax is combined with
potential large revenue reductions from risk adjustment, some
existing Medicare+Choice plans will see little or no increase
in their payment rates from 1999 to 2000 even though HCFA is
using a phase-in of an interim risk-adjustment methodology.
The cumulative effect of these three payment reductions
will vary depending upon the relationship of the current
payment, current benefits, and the number of beneficiaries
enrolled.
In your district, Chairman Thomas, there were 33,527
beneficiaries enrolled in Medicare risk plans (or 29.1% percent
of Medicare beneficiaries). We project\4\ that Medicare+Choice
plans will receive only 53.3% percent of the increase per
capita relative to Medicare fee-for-service increases. We also
project an increase in the 65+ population from 103,296 in 1998
to 117,030 in 2003. If Medicare+Choice options are withdrawn or
have less perceived value by then, a reduction of
Medicare+Choice enrollment to 75 percent of existing numbers
would reduce the savings from BBA for 2003 by $14.6 million \5\
from your district alone.
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\4\ Our projections of the change from 1997 to 2003 utilize
September 1998 enrollment figures, a 1998 Price Waterhouse report on
Medicare Capitated Payments, and reflect HCFA's assumption for the
average cost to Medicare+Choice organizations of risk adjustment.
\5\ Lost savings, based on the difference in projected per capita
payments to HCFA vs. Medicare+Choice, multiplied by the potential
Medicare+Choice enrollment less 75 percent of current enrollment.
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In your district, Representative Stark, there were 137,276
beneficiaries enrolled in Medicare risk plans (or 41.9% percent
of Medicare beneficiaries). We project that Medicare+Choice
plans will receive only 46.2% percent of the increase per
capita relative to Medicare fee-for-service increases. We also
project an increase in the 65+ population from 312,704 in 1998
to 351,438 in 2003. If Medicare+Choice options are withdrawn or
have less perceived value by then, a reduction of
Medicare+Choice enrollment to 75 percent of existing numbers
would reduce the savings from BBA for 2003 by $72.8 million
from your district alone.
Overall, the average increase per capita to Medicare+Choice
plans will be 49.5% of the expected increase in the period 1997
to 2003 per capita to the fee-for-service portion of Medicare.
In some areas of the country, Medicare+Choice plans may get
less than $50 more per month over this entire period to deal
with medical inflation.
2. The May 1 Deadline for Filing ACRs Has Created Serious
Problems in the Administration of the Medicare+Choice Program
and Should Be Changed to November 1
The BBA moved the deadline by which Medicare+Choice plans
must submit their adjusted community rate (ACR) proposals from
November 1 to May 1. This was done in order to allow HCFA
sufficient time to approve rates and include this rate
information in the materials to be distributed to beneficiaries
as part of the educational campaign. The problem with this time
frame is two-fold. First, by submitting proposals seven months
in advance of the actual effective date (i.e., January 1),
plans place themselves at substantial risk that health care
costs will rise in unexpected ways in the latter half of the
year and thus not be captured in the proposals. This is what
occurred last year, contributing to the decision by many
Medicare+Choice organizations to not renew their
Medicare+Choice contracts for 1999, or to reduce their service
areas. Also, proposals submitted by May 1st are based on
relatively limited claims experience with the Medicare
beneficiary population enrolled in the more rapidly growing
plans and are thus less likely to be accurate predictors of
costs than proposals based on a longer period of time.
Accordingly, HIAA proposes moving the ACR deadline to November
1 or as close to that date as operationally possible. \6\
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\6\ We recognize that HCFA may prefer a date earlier than November
1 in order to collect information for the annual public information
campaign. We believe that HCFA's public information objectives can be
met while permitting Medicare+Choice organizations to submit ACRs on
the old schedule. Working with third party publishers, including daily
newspapers, HCFA could more than adequately distribute plan specific
information to beneficiaries in a timely fashion.
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In regulations published earlier this month, HCFA
``recognize[d] the difficulties inherent to estimating the cost
of a benefit package for 2000 based on at most 4 months of
experience under the 1999 benefit package,'' but indicated that
it had no discretion in this matter due to the statutory
mandate. The President's fiscal year 2000 budget includes a
proposal that would extend the deadline for ACR submissions
until July 1. HCFA strongly supports this proposal. Given the
importance of this issue to Medicare+Choice organizations, and
the concerns involved HIAA urges the Committee to take steps to
put in place a permanent workable deadline for ACR submissions
and suggests that an ACR date of November 1.
3. Congress Should Return to the Previous Policy Allowing
Flexible Benefits and Premiums Within a Service Area
Historically, Medicare risk contractors were able to offer
different benefit or charge structures within a given
contracted service area. For example, modified benefit packages
were often developed and offered in a subset of the contracted
service area. While Medicare beneficiaries residing in the
segmented service area were offered a uniform array of benefits
at a uniform price, uniformity was not required across the
entire service area. This flexibility was important because it
allowed contractors to adjust their benefit package and premium
structure to take into account differences in capitated payment
rates received, which varied by county.
In the BBA, Congress mandated a new policy requiring that
organizations offer uniform benefits and premiums throughout a
service area, despite varying payment levels. Under the
Medicare+Choice regulations, an organization may offer multiple
plans and propose different services areas for each plan. (Were
this not the case, organizations would be discouraged from
expanding to outlying rural counties
that typically offer lower reimbursement rates.) This
regulatory policy allows Medicare+Choice organizations to
achieve results similar to the original flexible benefit
policy, but only at significant additional expense. Instead of
one ACR being filed for a broad service area with benefits
modified to reflect anticipated revenues, as used to be the
case, multiple ACRs must be generated for separate
Medicare+Choice plans by each organization, and reviewed and
approved by HCFA. The Congressional mandate thus imposes
significant administrative costs on the organizations and the
agency, with absolutely no benefit to beneficiaries. Therefore,
HIAA urges Congress to repeal the uniform benefits and premium
provisions of the BBA.
In Many Places the Regulations are Overly Rigid and Demanding so They
Become an Impediment to Small and/or Rural Medicare+Choice
Organizations
1. The Quality Assurance Approach is Misguided
HIAA believes that some form of quality standards are
important to any market-based approach to Medicare. Without
quality standards, or some other performance measurement, the
added costs of maintaining quality will be difficult to present
fairly although over time, it will be obvious. That being said,
HIAA has serious concerns about the breadth and depth of the
onerous quality assessment, performance improvement and
performance measurement standards developed by HCFA.
a. Performance Measures Should Vary More by Type of Plan.--
As an initial matter, we believe that performance measures
should be designed to fit the services offered by various types
of plans. HCFA, however, has essentially embraced a ``one size
fits all'' approach. As a result, it is unlikely that
Medicare+Choice PPO plans that offer a broad choice of
providers to beneficiaries (but are loosely ``managed'') will
be able to meet the quality requirements. Similarly, the
extensive quality-related requirements applied to MSA plans and
private fee-for-service plans are likely to deter the necessary
investment required before these types of plans can be offered.
The bottom line is that the HCFA regulations are so inflexible
that few options other than existing managed care arrangements
with large numbers of beneficiaries can be developed. As a
result, beneficiary choice will suffer, and a key goal of the
Congress' work on BBA will have been defeated. In rural areas
with no existing private health plan options, these regulations
effectively preclude any chance that new choices will develop
under most reasonable financial scenarios.
b. The Extensive Data Collection Proposed Is Not
Necessary.--Second, the extensive data collection and reporting
efforts required under the regulations will add significant
administrative costs to Medicare+Choice organization
operations. We question whether these costs are justified or
desirable, and whether the quality assurance goals might not be
met just as well through alternative approaches. HIAA strongly
believes that consumers, not government officials, should
dictate through their plan choices the extent and nature of
quality improvement, balanced against costs. Under this
approach, organizations that are responsive to consumer
preferences would be rewarded with greater market share. Fewer
government resources would be required for oversight.
HCFA could, however, play a central role in ensuring that
minimum standards are met and encouraging quality initiatives
through flexible, incentive-based standards established by
contracts. HCFA is to be congratulated for posting beneficiary
satisfaction survey results and other such information on the
Medicare internet site (www.medicare.gov). In HIAA's view, this
would be far superior to the current practice of setting
detailed regulatory mandates which run the risk of leading to
micromanaging and encouraging uniformity at the price of
creative experimentation.
In trying to determine the cost of the extensive data
collection effort proposed, HIAA notes that many health care
organizations, particularly those with loosely managed network-
style delivery systems (such as PPOs) do not currently have the
capability to capture or report performance data at the level
being proposed. The BBA's limitations on increases in
capitation rates means that outside sources will be required to
fund system upgrades. Even if financially possible, the time
required for procurement, installation, training, and
validation are not consistent with HCFA's scheduled
implementation and reporting requirements for Medicare+Choice
plans. As a result, these quality assessment requirements will
be a significant deterrent to expanding senior's choices as
potential new plans decide not to participate in the
Medicare+Choice program. At the very least, HIAA believes that
organizations making a good faith effort to meet the regulatory
requirements should be provided a transition period where
penalties would not be imposed. This is particularly important
given plan efforts to address Year 2000 computer issues.
c. The ``Deemed Status'' Program Should Be Implemented
Immediately.--Most Medicare+Choice organizations already adhere
to rigorous quality assurance review by nationally accredited
health care organizations. HCFA has provided by regulation that
Medicare+Choice organizations may be ``deemed'' to meet quality
assessment and performance improvement requirements if judged
to do so by a national accreditation organization approved by
HCFA and applying HCFA's standards for assessing compliance.
This approach has much merit. It would allow plans to work with
reviewers who already are familiar with their operations,
creating obvious efficiencies and potential cost-savings. HCFA
has failed, however, to establish procedures to implement the
``deemed status'' process. To date, HCFA has not designated any
national accreditation organization for this purpose, nor has
it issued policy guidance on how this process will work. HIAA
urges Congress to direct HCFA to promptly institute a procedure
for awarding deemed status since this process has the potential
to reduce some of the substantial costs associated with HCFA's
extensive quality assurance measures.
2. The Proposed Risk Adjustment Policy is Ill-Conceived
On January 15, 1999, HCFA announced its methodology for
implementing the risk adjustment mandate set forth in the BBA.
While HIAA believes that improved risk adjustment is an
appropriate and essential long-term goal for the program, we
have serious concerns regarding the current HCFA proposal,
which calls for the initial use of only inpatient hospital
data. During the Administration's proposed 5-year phase-in
period, plans would receive capitated payments based on a blend
of payment amounts under the current demographic system and the
interim (PIP-DCG) risk adjustment methodology. For the year
2000, for instance, the HCFA plan calls for a separate
capitated payment rate for each enrollee based 90 percent on
the demographic method and 10 percent on the risk adjustment
methodology. By 2004, payment rates would be based on
comprehensive risk adjustment using full (i.e., inpatient and
other) encounter data and the demographic method would not be
used. HIAA's concerns with this proposal are both practical and
programmatic.
First, the practical. The time frame for implementation
outlined by HCFA is simply far too short. Given the significant
technological considerations involved, it is unreasonable for
the agency to require that all Medicare+Choice organizations be
able to provide physician, outpatient hospital, skilled nursing
facility and home health data beginning as early as October 1,
1999. (HCFA has not yet identified a specific date by which
this information must be provided, creating additional
uncertainty.) The collection, verification, transmission and
analysis of ``representative'' encounter data is a complicated
endeavor. Capturing this data in a valid, accurate and
transferable manner will be a major challenge for most plans.
Indeed, some HIAA member companies that currently contract with
HCFA do not have the technical capability to capture and
transmit encounter data other than inpatient encounters. Nor do
our members with PPO and similar network-style delivery systems
have the capability to do so. They are simply not organized in
a manner that will allow them to collect this level of data.
Even if the capital for such purposes can be arranged,
HCFA's proposed time frame is insufficient to allow
Medicare+Choice organizations to procure and install the
required systems. Procuring systems that can accomplish these
tasks requires very careful planning and assessment, review of
the capabilities of competing technologies and vendors. Time is
needed to install the systems, modify provider contracts if
necessary to ensure adequate reporting to the Medicare+Choice
plan, train the staff (both at the Medicare+Choice organization
and provider locations) and verify and validate the data. All
of these steps must be carefully executed or the system will
fail. These obstacles to compliance cannot simply be wished
away. Moreover, the imposition of these costs on all
Medicare+Choice plans will make the development of rural plans
even more difficult because they will continue to have fewer
beneficiaries enrolled compared to plans in other areas.
The process by which information is communicated to, and
received by, HCFA is likely to present significant
technological problems as well, if past experience is any
guide. HIAA members have experienced, and continue to
experience, problems in ensuring that accurate inpatient
hospital data is transmitted via Medicare fiscal intermediaries
to HCFA.
Difficulties can also be expected as HCFA attempts to
manipulate significant amounts of data for the first time using
the proposed PIP-DCG risk adjustment model. The methodology
developed by HCFA is complicated and requires numerous steps.
The process is yet untested. HCFA faces a monumental task in
getting the PIP-DCG system to work. We are awaiting the
opportunity to review the plan-specific effects of the data
collected to date. Moreover, as HCFA acknowledges, ``the PIP-
DCG model is [simply] an interim step towards implementation of
a comprehensive risk adjustment model (i.e., one which uses
diagnoses from all sites of service.)'' HIAA strongly believes
that the ambitious time frame proposed by the agency rests on a
flawed premise: namely, that all of the anticipated
technological and methodological problems can be resolved in
the five-year window.
HIAA's doubts in this regard are heightened by the fact
that planned implementation coincides, at least initially, with
agency efforts to ensure Year 2000 readiness, both internally
and in connection with Medicare+Choice organizations and other
contractors. If HCFA transitions to risk adjustment before the
necessary fixes are made and before reliable data are gathered
and properly analyzed, the consequences could be catastrophic
for individuals enrolled in Medicare+Choice plans, as well as
the Medicare managed care program generally.
As if all this were not reason enough to delay
implementation, HIAA has significant programmatic concerns
regarding the proposed risk adjustment model. First, HIAA is
concerned that variations resulting from excessive payments
under the original Medicare fee-for-service program have been
incorporated into the risk adjustment calculation. Additional,
unnecessary hospitalizations that have occurred within the
original Medicare Part A fee-for-service program, despite
HCFA's attempt to fight this, are still significant. As a
result, Medicare+Choice organizations will receive lower
payments through the proposed risk adjustment methodology. HCFA
should not penalize the managed care portion of Medicare for
the program's failure to limit false or fraudulent claims and
medically unnecessary hospitalizations. One approach to avoid
this, would be to limit the use of risk adjustment so that the
total amount paid to all Medicare+Choice plans is not reduced
but instead redistributed among Medicare+Choice plans only.
Second, recognizing the fact that most federal agencies
rely on sampling, HCFA's expectation of reported data on all
individuals seems excessive. Given that even the more
comprehensive risk adjuster will not be able to fully reflect
all differences, HIAA believes that Congress should require
HCFA to reexamine the use of plan-based sampling to reduce the
administrative burden on the plans, reduce the potential for
errors in the start-up phases, and increase the privacy of each
individual's sensitive medical information.
Third, HIAA strongly believes that it is poor public policy
to base risk adjustment--even temporarily--on inpatient
hospital data only. Such an approach, even with the adjustments
that HCFA has made to its initial risk adjustment proposal,
would reward Medicare+Choice plans with excessive hospital use,
and penalize plans that have effectively reduced inpatient
hospitalizations and focused on providing more care on an
outpatient basis. The incentives created by a risk adjustment
methodology based exclusively on inpatient hospital data could
result in increased inappropriate hospital use, increased
avoidable costs, and a set back in the effort to realize
greater efficiency in the health care system. Beneficiaries
enrolled in plans with a relatively high proportion of members
who receive care for expensive chronic illnesses outside the
hospital setting would be particularly harmed.
For all these reasons, HIAA urges HCFA to delay the
implementation date of risk adjustment beyond January 1, 2000.
Since HCFA believes it does not have the authority to do this,
Congress should revise the implementation date. While the
effort to collect encounter data should proceed in a careful
and deliberate manner, changes in payment methodology based on
risk adjustment should not be implemented until complete and
reliable encounter data are available. To ensure the validity
of the data and a viable risk adjustment process, Congress
should direct HCFA to (1) conduct a demonstration project aimed
at validating the proposed methodology and (2) identify less
costly and less data intensive ways of performing risk
adjustment.
Impact of BBA Implementation on Medigap Plans
A number of HIAA members offer some or all of the Medigap
standard plans. These members are concerned with the impact of
the continuing implementation of BBA on the premium increases
they must pass on to the many seniors trying to maintain this
valuable protection.
Seemingly socially responsible actions, allowing increased
anti-selection when guaranteed issue opportunities are expanded
beyond the first six months following attaining age 65 will
require higher premiums. HIAA does not believe that only those
seniors purchasing individual Medigap should have to bear this
extra cost.
Proposals to expand Medigap drug coverage, legislation to
allow specialty providers to select their highest cost patients
and pay only the average rate while receiving Medicare and
Medigap payments on every single one of these insureds, and
regulations seeking to expand the scope of guaranteed issue are
examples of why HIAA opposes mandates. In the name of expanding
access, they result in increased costs, leaving more people
without insurance.
Finally, the cost of Medicare supplement insurance, which
covers more than 80 percent of Medicare beneficiaries, is
increasing as a result of HCFA's delays in controlling the
portion of hospital outpatient services which Medicare both
doesn't cover and doesn't limit balanced-billing of the
beneficiaries. Estimates of the cost of this delay are $570
million to be bore by Medicare beneficiaries or their Medicare
supplement coverage while HCFA uses its resources to rush
implementation of risk adjustment designed to save the
government only $200 million in 2000.
Summary and Conclusion
If the Medicare program is to be sustained for the next
generation of beneficiaries and beyond, it is crucial that the
federal government employ every strategy appropriate to enhance
quality health care options for beneficiaries and encourage the
development of lower cost options rather than relying on
punitive regulations which will reduce choice and funnel more
people into the highest cost option--fee-for-service Medicare.
The Medicare+Choice program already is at an early crossroad
where improvements can allow it to flourish but neglect of
necessary change will doom it to failure. It would be more
wise, in the long run, for the government to employ market-
oriented strategies to ensure that there are Medicare+Choice
options available to beneficiaries and to create incentives for
private health insurers and providers to deliver value in the
context of the Medicare program. Because it is a critical
building block in this market-based strategy, Medicare+Choice
must be successful.
In summary, HIAA believes that the prospects for success
will be greatly improved if the following steps are taken with
respect to the Medicare+Choice program:
Adjust the payment structure so that increases
cover medical inflation;
Issue revised regulations to reduce costly
administrative burdens on small, rural and non-HMO plans;
Change the due date of ACRs to November 1 to
eliminate unnecessary risk;
Delay and revise the proposed risk adjustment
model to reduce the cost of reporting and system development;
and
Modify the role of risk adjustment so that overall
revenues to the Medicare+Choice program are not reduced, but
simply reallocated among plans based on the health status of
enrollees.
A final word of caution: Congress must act quickly to
direct HCFA to change course in the manner outlined and to find
ways to reduce the regulatory burden of participating in the
Medicare+Choice program if it wants the program to succeed. The
time frames for critical decisions relating, for instance, to
system investments are very short, particularly given HCFA's
anticipated risk adjustment schedule. Thus, if Congress is to
make adjustments to the program, it should act now.
[GRAPHIC] [TIFF OMITTED] T5630.001
[GRAPHIC] [TIFF OMITTED] T5630.002
Information Technology Association of America
Arlington, Virginia
February 25, 1999
Chairman Willliam Thomas
Committee on Ways and Means
Subcommittee on Health
U.S House of Representatives
1102 Longworth HOB
Washington, D.C. 20515
Dear Chairman Thomas:
On behalf of the 11,000 direct and affiliate members of the
Information Technology Association of America (ITAA), I would like to
submit this statement for the printed record of the Subcommittee's
February 11, 1999, hearing on the Management of the Medicare Program.
Since 1965, the Health Care Financing Administration (HCFA) has
been tasked with the ever-increasing workload of administering the
Medicare program through a limited group of Health Insurance Providers.
ITAA strongly believes that it is time to leverage the free-market
benefits of competition and flexibility by opening the Medicare claims
processing bidding to a broader group of service providers,
specifically, the information technology sector. We believe competition
would better serve the customer, the American public.
In addition to their expertise in this area, the IT industry also
builds and runs many of the systems and applications that HCFA's
current contractors and their partners already utilize. The IT industry
has extensive experience in the claims processing area in both the
public and commercial sectors. An example, when Title 19 was enacted in
1965, it gave authority to the states to run the Medicaid, Program.
Many of the states turned to cutting edge information technology
companies who could excel in innovative solutions and adapt technology
to best serve the customer in a timely fashion. ITAA firmly believes
Medicare recipients too would benefit greatly from competitive bidding
on claims processing and increasing the number of potential vendors.
The IT industry also is not subject to some potential provider/
contractor conflicts of interests.
ITAA supports the requests of current HCFA Administrator Nancy-Ann
Min DeParle and her predecessors who state that the best solution for
the government, and ultimately the customer, is to open up the Medicare
program to increased competition in order to obtain the best management
possible. If my staff or I can provide you with additional information
on this subject, please let me know.
Sincerely,
Harris N. Miller
President
Statement of Jack Pivar, President, National Association for the
Support of Long Term Care (NASL), Alexandria, VA
Chairman Thomas: On behalf of the National Association for the
Support of Long Term Care (NASL), I am pleased to submit the following
written testimony to you and members of the House Ways and Means Health
Subcommittee. This testimony is provided in response to the hearing
held by your Subcommittee on February 11, 1999 to examine the Health
Care Financing Administration's (HCFA's) ability to administer the
current Medicare program.
NASL represents over 150 companies involved in the provision of
services and supplies to the long term care industry and is the only
organization at the national level concentrating its concerns and
endeavors exclusively on legislative and regulatory matters regarding
the ancillary service and product supply components to long term care
facilities. NASL has worked closely with Congress and HCFA in
developing the skilled nursing facility prospective payment system (SNF
PPS) and in setting policy for (non-physician) Part B issues.
We appreciate not only the opportunity to comment, but also your
continuing efforts to monitor HCFA's Medicare program management
challenges. We, like you, agree that our nation's seniors deserve a
well managed Medicare program that meets their health needs.
Essential to this examination, are the following principles:
Beneficiary services should not be put at risk or
disadvantaged by HCFA's computer systems problems.
Clinical standards and program safeguards are being
undermined by the inability of HCFA or its contractors to meet minimum
performance standards.
HCFA's administrative problems should not supersede the
need to address real policy issues.
Each principle is discussed in greater detail below.
I. Beneficiary Services Should Not be Put at Risk or Disadvantaged by
HCFA's Computer Systems Problems
We are deeply concerned that HCFA has begun to cite Y2K
issues as the primary reason for not moving forward on needed policy
changes.
The skilled nursing facility prospective payment system must be
finalized. SNF PPS, perhaps the biggest change to the industry since
the beginning of the Medicare program, is currently being implemented
pursuant to an interim final rule. HCFA now projects the final rule
will be released in May. By definition, an interim final rule lacks the
level of certainty needed by providers who are in the process of making
costly changes to their own systems. By the time the final rule is
released, providers will have worked under this interim rule for almost
a year.
Non therapy ancillary services must be appropriately
funded. Early research findings show the Resource Utilization Group III
(RUG III) system under the skilled nursing facility prospective payment
system (SNF PPS) fails to adequately account for the costs of certain
non-therapy ancillary services. These non-therapy ancillary services
include prescription drugs, respiratory therapy, laboratory and certain
complex medical equipment. Without the implementation of an interim
solution, elderly Medicare beneficiaries may not have access to these
services.
As evidenced by Representative Johnson's comments during the
hearing, this problem is real. Nevertheless, potential, interim
solutions continue to be rejected or limited by HCFA's Y2K computer
compliance problems. Policy decisions directly affecting beneficiaries'
needs are being dictated by the status of HCFA's ``mission critical
systems.''
Seniors must be afforded relief from the $1,500 therapy
cap. Due to computer systems problems, HCFA has also been unable to
fully implement the $1,500 on outpatient rehabilitation therapy
services which has exacerbated the already inequitable impact of these
financial limitations. The way HCFA has implemented the policy
significantly impacts skilled nursing facility outpatient and
rehabilitation facility patients, many of whom may exceed the cap.
Nursing homes are put at risk to provide services without assurances
such services will be reimbursed.
NASL continues to oppose as bad health care policy, the
implementation of any type of arbitrary financial limitations on
medically necessary services. We believe beneficiary needs should
dictate the provision of services.
II. Clinical Standards and Program Safeguards are Being Undermined by
the Inability of HCFA and its Contractors to Meet Minimum Performance
Standards
We are concerned the integrity of the Medicare program is being
compromised by management challenges within HCFA and its contractors.
HCFA's lack of oversight of its contractors, coupled with inadequate
training, has resulted in inconsistent and incorrect implementation
instructions.
Criticisms have been leveled against HCFA, particularly by the
Small Business Administration for HCFA's apparent disregard of the
requirements under both the Administrative Procedures Act and the
Regulatory Flexibility Act in promulgating regulations pursuant to the
Balanced Budget Act of 1997.
Informal directives in the form of program transmittals and HCFA
web site guidances are being used as pseudo rulemaking vehicles. Many
of these directives have been inconsistent or contrary to the language
of the interim final rule. Systems crucial to the SNF PPS transition,
including the Arkansas Shared System, continue to remain inoperable
seven months after the effective date of SNF PPS.
The following are just a few illustrative examples of management
performance problems which are threatening to undermine services being
provided under the Medicare program:
Fiscal intermediaries under the Arkansas Shared System,
have notified facilities they will be unable to pay claims pursuant to
the physician fee schedule until ``approximately'' April. (See Mutual
of Omaha notice attached.) According to the notice, Medicare claims
will be temporarily paid under cost reimbursement methodology which
will likely result in overpayments. These overpayments will in turn
likely result in a future recovery of payments. In addition, the
contractor predicts the coinsurance amounts calculated during the
interim period will also be invalid.
In a recent transmittal, HCFA instructed their
contractors, as of April 5, 1999, to ``return as unprocessable'' all
claims submitted by providers that are not Y2K compliant. At this time,
a standard UB92 form capable of accepting that much data still does not
exist.
A provider's claims for outpatient services were recently
rejected due to the inclusion of discipline specific modifiers on the
claim. The provider was instructed by the fiscal intermediary to
resubmit the claims, without the modifiers. A week later the claims
were again rejected for not including discipline specific modifiers.
A provider contacted their fiscal intermediary in an
effort to obtain a copy of the physician fee schedules, and was told
they would need to submit a Freedom of Information Act request to
obtain the information.
III. HCFA's Administrative Problems Should not Supersede the Need to
Address Real Policy Issues
As indicated in our February 22, 1999 letter to you (copy attached)
we commend you and Representative Johnson for your leadership roles in
addressing the crucial policy issues associated with the treatment of
medically complex patients under the skilled nursing facility
prospective payment system. We strongly support your recommendation
that HCFA hold a Town Hall Meeting to discuss interim solutions to the
problem and offer any assistance we may be able to provide in this
regard.
HCFA's ``short term'' management challenges, while administrative
in nature, can and do have a direct and immediate impact upon policy
and the quality of services provided to beneficiaries. We thank you,
Mr. Chairman, for not allowing the debate on HCFA's administrative
performance, to eclipse the need to address the real policy issues that
continue to exist.
We see the need for the following policy issues to be addressed:
1. The skilled nursing facility prospective payment system
structure is under-funded.--Estimates show the actual reduction in
Medicare skilled nursing facility prospective payment system
expenditures has far exceeded original savings projections. Some
portion of those savings needs to be returned to ensure success of the
system as well as access and quality of services for nursing home
residents.
2. An interim solution must be implemented to address the non-
therapy ancillary component of the skilled nursing facility prospective
payment system.--The skilled nursing facility prospective payment
system (SNF PPS) fails to adequately account for the costs of certain
non-therapy ancillary services including Without the implementation of
an interim solution, elderly Medicare beneficiaries may not have access
to these services.
3. The $1,500 therapy cap placed on outpatient rehabilitation
services must be repealed or modified to ensure seniors receive
medically necessary rehabilitative services based on their condition
and health and not on arbitrary payment limits.--Senator Grassley is
expected to introduce legislation which would exempt from the caps,
Medicare beneficiaries meeting certain criteria. We encourage the
introduction of a companion bill in the House.
4. The merits of consolidating a number of services which
historically have been infrequently delivered in nursing homes, must be
re-evaluated.--Due to Y2K systems problems, HCFA has delayed ``until
further notice'' consolidated billing requirements for residents in a
Part B stay. HCFA should provide the industry with a minimum of six
months notification once the determination has been made to fully
implement SNF PPS consolidated billing requirements. We hope Congress
will use this time to reconsider what obligations should be placed on
nursing homes such as services provided under agreement with suppliers
of x-ray, clinical lab and ambulance services. The law creates an
overwhelming burden upon the nursing home, and an administrative
catastrophe for the Program.
5. HCFA needs to establish an appropriate site of service
differential for non-physician services shifted to fee schedules by the
Balanced Budget Act of 1997.--Establishing a site of service
differential for services performed at a SNF or similar facility is
needed to reflect the fact that different providers have different cost
structures and that different costs arise in connection with the
performance of similar services.
Conclusion
Severe Balanced Budget Act of 1997 implementation problems continue
to exist, particularly within the skilled nursing facility prospective
payment system. Computer systems capabilities are dictating decisions
being made regarding beneficiaries' access to services. Policy
decisions which should be made in accordance with the Administrative
Procedures Act, are being implemented by informal notices. Providers
are struggling to comply with rules that seem to change daily, only to
find out the claims systems are not capable of processing the claims.
HCFA and its contractors must be required to meet the same standards to
which providers continue to be held.
Once again, Mr. Chairman, we appreciate your leadership and your
continued attention on these matters. We request these comments be made
part of the hearing record.
[Attachments are being retained in the Committee files.]