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Testimony on the Health Care Financing Administration's Appropriations Request for FY 1998 by Bruce C. Vladeck, Ph.D.
Administrator, Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Appropriations Committee, Subcommittee on Labor, Health and Human Services, Education and Related Agencies
February 11, 1997

Mr. Chairman and Members of the Subcommittee:

I am pleased to have this opportunity to present to you the Health Care Financing Administration's appropriation request for fiscal year 1998.

This year's request reflects this Administration's commitment to transform HCFA from a passive bill payer into a beneficiary-centered purchaser of quality health care while keeping operating costs, in real dollars, essentially constant. This goes well beyond the concept of doing more with less'-- this is a fundamental redirection of health benefits administration, along lines now familiar in the private sector, toward providing 71 million Medicare and Medicaid beneficiaries the highest quality health care at the lowest possible cost.

This is an exciting and historic transformation. It requires us, with your help in the Congress, to provide creative policy leadership, to reengineer our approach to bill-paying, to refocus our quality assurance activities, to effectively implement the new Medicare Integrity Program, and to dramatically improve our dialog with Medicare and Medicaid beneficiaries.

The current public debate about the role and size of Medicare and Medicaid benefits highlights the already obvious fact of the overwhelming importance of the programs to the American people. What is not so obvious is the great importance of the way we administer these two enormous programs. Many people mistakenly assume that Medicare and Medicaid operational costs are a significant percentage of benefit payments. I am very proud to say that federal operating costs represent less than 1% of total benefit payments for Medicare and Medicaid.

Although HCFA is a small agency, it is the largest purchaser of health care in the world. In FY 1998, HCFA will oversee the spending of $334 billion in Medicare and Medicaid benefits, including $141 billion to hospitals, $53 billion to physicians, $ 40 billion to nursing homes, $31 billion to HMOs, $30 billion to home health agencies and other non-institutional alternatives, and $39 billion to other providers of health care services and supplies. Rather than asking the traditional budget reviewer question of why HCFA is asking for so much, it might be more appropriate to ask how we do what we do with such a small staff and small operating budget. The answer to that question is, we work in partnership with the private sector and the States and we constantly seek innovative ways to do our work more effectively and efficiently.

Over two-thirds of our program management appropriation, $1.2 billion out of $1.8 billion, goes to the private sector Medicare contractors who review and pay Medicare claims. Eight percent of HCFA's program management appropriation funds State agencies which perform health, safety, and quality inspections of providers serving Medicare and Medicaid beneficiaries. Since the same providers serve all other Americans as well, the entire Nation benefits from HCFA's survey and certification activities. Of the 3% appropriated for HCFA's research and demonstrations, most goes to private sector researchers, health care providers and States.

We continuously strive to improve our service to Medicare and Medicaid beneficiaries while constantly increasing our productivity. In this process, we are redefining HCFA's role as a beneficiary-centered purchaser of high quality health care, and we are pursuing customer-oriented initiatives such as the Medicare Transaction System. Let me explain what I mean by beneficiary-centered purchaser'.

Medicare and Medicaid were originally designed to provide access for underserved segments of our population to the same level of health care available to all Americans. In order to achieve this, it was expected in the health care environment of the 1960's that the programs would essentially pay, within reason, the costs of providing medical care to beneficiaries, with a minimum of review or questioning of bills submitted by providers. This was how the private sector health insurance system worked then, and it was intended that Medicare, and to a lesser extent Medicaid, would mirror the private sector. It quickly became apparent, however, that soaring program costs required increasing levels of claims review and other measures designed to control spending, such as prospective payment and a physician fee schedule. In the meantime, the private sector after which Medicare was patterned, itself went through a long evolution and recently a revolution so that it is now radically different from the health care system of the 1960's. Various forms of managed care, managed competition, and prudent purchasing now dominate the private health care system. It is essential that Medicare and Medicaid take an approach that is more in sync with the health care world of the 1990's and the next century.

To be faithful to the fundamental purpose of Medicare and Medicaid, we cannot focus solely on reducing costs. We must also focus on meeting beneficiary health care needs. In a broad sense, we are all beneficiaries of the Medicare and Medicaid programs. If we are not currently on the rolls, one or more members of our families almost certainly are, relieving working families of the crushing burden of directly paying for the health care of their parents and grandparents. All of us are almost certain to become Medicare beneficiaries in the future, and some of us may need help from Medicaid. What we provide for current beneficiaries sets a pattern for what we can expect for ourselves.

To translate the broad concept of beneficiary-centered purchasing into operational reality, we have defined six key roles HCFA will carry out:

  • Protect, serve, and advocate for beneficiaries
  • Provide information to beneficiaries, partners, and the public
  • Provide leadership in the broader public interest
  • Be a prudent purchaser
  • Be an efficient and effective program administrator
  • Promote quality-centered health care through continuous quality improvement and quality management.

These roles, in conjunction with the HCFA strategic plan which I presented to this Committee as part of our FY 1996 request, will form the basis for developing our next budget along the lines required by the Government Performance and Results Act. Our budget request for FY 1998 includes initiatives to enable us to carry out these roles effectively. For example, health advisory services, many provided by volunteers, help us to protect, serve, and advocate for beneficiaries by providing assistance to beneficiaries and their families on Medicare and Medicaid matters. We are also piloting in a Philadelphia center city shopping mall the provision of direct walk-in beneficiary services by HCFA employees.

To provide information effectively, I believe it is essential to send the Medicare Handbook to all beneficiaries every year to ensure that they and their families have at their fingertips the latest and most complete information on Medicare benefits. We have also put the Medicare Handbook on the Internet, along with a host of other information about HCFA programs and the agency itself. When the MTS is implemented, we will also be able to send beneficiaries the Medicare Summary Notice, an integrated and simplified notice combining Part A and Part B benefit information, as well as giving beneficiaries the detailed notices required by the Health Insurance Portability and Accountability Act. Finally, to promote better two-way communication with beneficiaries, we are developing plans to consolidate about 159 toll-free numbers into a single nationwide toll-free information and referral service.

HCFA provides leadership in health care in many ways. In the area of research and demonstrations, examples include a competitive pricing demonstration to develop better methods of setting payments for managed care and the Medicare Current Beneficiary Survey which provides a unique source of information on the use of and reimbursement for health care services.

Being a prudent purchaser includes, among other things, using our large purchasing power to negotiate health care prices, and aggressively combating fraud and abuse. MTS, complemented by advanced computer techniques being developed by the Los Alamos National Laboratory, will improve our ability to detect improper claims and prevent inappropriate payment. Under the Medicare Integrity Program, which transfers funding for payment safeguards from annual appropriations to mandatory funding, we will be able to establish specialized, multi-year contracts for program integrity and thereby concentrate our efforts to detect and deter fraud within the Medicare Program. We also intend to expand on the success of the Operation Restore Trust demonstration in detecting fraud, waste, and abuse by extending the ORT approach to additional States.

MTS is central to HCFA's role as an efficient and effective program administrator. MTS will standardize and improve Medicare claims processing and provide a state-of-the-art computer system with the flexibility to respond to changing legislation, business needs, and technology. HCFA is also in the process of implementing the most far-reaching and fundamental reorganization in the agency's 20 year history. The new organizational structure is designed to enable the agency to carry out its mission and roles with greatly increased responsiveness to our key customers--beneficiaries, States, and providers. My hope is that our new structure will position HCFA to serve at least as effectively in the next century as it has in this one. This is our small piece, if you will, of the bridge to the 21st century.

To promote quality-centered health care, we are implementing the Health Care Continuous Quality Improvement Program, which, along with revisions to the conditions for participation for providers, increases emphasis on results and outcomes and moves away from the former focus on processes and structures.

Mr. Chairman, HCFA's appropriation request is consistent with the goal of a balanced budget. This request reflects a continuing decline in HCFA's operating costs in real inflation-adjusted dollars. I truly believe that it is a tremendous achievement that we can submit such a request when program enrollment and spending, claims volumes, numbers of providers, and the complexity of our responsibilities (MIP for example) all continue to increase substantially. Conclusion

Mr. Chairman, I am very proud of what HCFA has accomplished in my nearly four years with this agency, and I am very optimistic about the agency's ability to cope with the challenges of the future. Medicare and Medicaid are now essential parts of the fabric of American life and HCFA is committed to administering them as effectively and efficiently as humanly possible. We hope that we can have your Committee's support in securing the resources essential to getting our job done.

I thank you for the opportunity to present our appropriation request to the Committee, and I look forward once again to working with you. I will now be pleased to respond to any questions or suggestions from the Committee.

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