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SENATE COMMITTEE ON FINANCE
TOMMY G. THOMPSON
DEPARTMENT OF HEALTH AND HUMAN SERVICES
JUNE 19, 2001
Chairman Baucus, Senator Grassley, distinguished members of the Committee, it's a
pleasure to be with you. I appreciate the Committee's excellent work on so many issues
important to our economy and to the lives of people across our country. And I welcome
the opportunity of appearing before you to talk about what we're doing at the Department
of Health and Human Services to make our department more capable of fulfilling the
mission our name describes - service to people who need help.
Today, I'm going to discuss changes we're bringing to the Centers for Medicare and
Medicaid Services, or CMS - formerly known as the Health Care Financing
Administration, or HCFA. But I want to set my remarks about the Centers in a broader
context. The transformation of the Centers is part of a larger effort to renew my
Department, to make it more efficient so that it can be more effective.
We are taking aggressive steps toward bringing a culture of responsiveness to H-H-S.
This culture, this spirit, is rooted in a commitment to compassion and a call to
responsibility. We intend to reinvigorate the entire department with a spirit of
responsiveness to our constituents - to you, members of Congress; to our colleagues in
government, here in Washington and throughout the nation; and to those who really are
our most important constituents, the men and women and children we serve. And we
intend to answer our call to serve our constituents with a deepened sense of responsibility
and a heightened sense of mission.
Too often, we've had to deal with an attitude that says, "This is the ways it's always been.
It's the best we can do." I reject that attitude completely. H-H-S is a wonderful
department staffed by thousands of dedicated public servants. Yet it's human nature to
accept the status quo. So, I've sent a clear message - accepting mediocrity runs counter
to our duty as servants of the public's interests and the public's trust. Our constituents,
the American people, deserve better. Under the new spirit we're bringing to H-H-S, they
will have better.
One of the first thing's we've done is to demand a renewed dedication to answering
people when they need help. When physicians call us, when ordinary people write us,
when other agencies ask for help and when people like you in the Senate or the House
have questions and concerns, we need to respond quickly, thoroughly and accurately.
The days of long delays, unintelligible answers and inadequate assistance are over.
To that end, we've established a new protocol for responding to requests for help and
information. As a first step, the HHS Executive Secretariat has been charged with
clearing away all backlogged correspondence by July 1.
I've directed that an answer to any letter for my signature must be on my desk within 15
business days of the time it arrives in my office. Frankly, I think even that's too long.
But at least it sets a deadline for accountability.
We are also moving toward a paperless system to speed up our response time. And I've
insisted that all written material be expressed in plain, understandable English. If we can
perform cross-continental surgery using satellite technology and electronic data transfer,
we can write a simple English sentence that anyone can understand.
Responsiveness must extend to states, as well. As all of you know, I was a governor for
14 years. From my own experience, I know the frustration of trying to get help from
Washington. Let me emphasize that the difficulty lies not with any one group of
individuals but with a system that sometimes seems to put nicely filled-out forms ahead
of pressing human needs.
Of course, there is a genuine need for some rules. But rules should exist to help, not
hinder, our efforts to assist hurting people. When regulations, mandates and paperwork
obscure or even thwart the help we are called to provide, those rules need to be changed.
In the past four months, I've approved more than 600 Medicaid and SCHIP waivers and
State Plan Amendments. I have authorized these changes because people with immediate
needs cannot wait for a rumbling bureaucracy to plod along. They need help when they
need it - and in most cases, that means not at some distant point in the future, but now.
We must give states the flexibility to develop Medicaid and SCHIP programs that suit
their needs and we must speed approval of their innovative ideas and solutions. As is
indicated by the number of waivers and State Plan Amendments I have approved, we
have already made significant progress in this area, but we know there is much more to
be done. Since I became Secretary, we have reengineered the Medicaid waiver process
with a focus on "getting to yes." We are working with states to be more responsive and
timely in our decision-making on waivers and amendments, to encourage innovation by
the states and to grant speedy approval for "look-alike" waivers. We are also cleaning-up
the backlog of State Plan Amendments, now have a new database in place to track the
status of state waiver requests and are fostering a new culture at CMS of giving states an
answer - period. Of course, we would like the answer to be "Yes," but whatever the
answer, we must foster a culture of deciding and of answering even if the answer is "No."
In addition, we're forming a new regulatory reform group that will look for regulations
that prevent physicians and other health care providers from helping people in the most
effective way possible. This group will determine what rules need to be better explained,
what rules need to be streamlined and what rules need to be cut altogether.
Within H-H-S, we must solve our own technology problems. For example, HHS
currently is home to nearly 1,200 different computer systems, most of which can't talk to
one another. There are 981 toll free numbers, hundreds of computer rooms and many of
individual agency support services, such as help desks. In one department office, we
have five financial management systems, 13 grants management systems, six acquisition
management systems, six personnel systems and 13 email systems. As one might guess,
they have difficulty communicating with one another since there is no common
infrastructure. When I arrived at HHS and learned about this, it seemed to me that this
was very much like a city in which every block had its own power plant and its own
In the short time I've been in HHS, I've taken a number of steps to start making sense of
all of this. First, I am determined that HHS Information Technology will be managed on
an enterprise basis-with a common infrastructure, rather than by many separate agencies.
I will establish the HHS Chief Information Officer with authority over HHS information
technology resources with the charge to implement a "One Department," one-enterprise
approach to information technology. I've recently decided that HHS will have one
financial management system for CMS. It's called HIGLAS, and I will describe it in a
moment. There will be another management system for the rest of the department. And I
have decided that HHS will have one personnel system.
So, the transformation of the Department of Health and Human Services has begun. It
will take time and will demand some expenditure. But it can be done, and it will be done.
There is no place where that transformation is more critical than in the agency that
administers Medicare, Medicaid, and the State Children's Health Insurance Program
(SCHIP). Administrator Tom Scully and I are committed to ensuring these programs are
more responsive to our provider partners, the States, and the millions of Americans who
depend on them. We intend to work with this Committee and with Congress in a
bipartisan fashion to accomplish our objectives, so that these critical programs are
prepared to meet not only today's needs, but also tomorrow's challenges.
CMS is the nation's largest health insurer, providing coverage to more than 70 million
Americans. This year alone the Medicare, Medicaid, and SCHIP programs will pay an
estimated $476 billion in benefits. CMS has one of the largest budgets of any federal
agency or Department. Each year Medicare alone processes nearly one billion claims
from over one million physicians and other health care providers.
The Medicare and Medicaid programs have been the center of our society's commitment
to protect the low-income and ensure that all of our seniors enjoy a healthy and secure
retirement. Honoring this commitment means making sure that the Medicare program is
financially prepared for new beneficiaries, and ensuring that current beneficiaries have
access to the highest quality care. And it means ensuring that States are afforded
flexibility to meet the needs of their citizens. It also means changing the way the CMS
does business, improving its relationship with its business partners, and taking bold
action to modernize its programs for the future. As Tom Scully and I announced last
week, we have made several important management improvements to CMS. I will
discuss these and other changes in greater detail in my testimony today and also highlight
future objectives that I hope we can accomplish together during this Congress.
NEW AGENCY NAME AND STRUCTURE
Last week, we announced our plans to rename the Health Care Financing Administration
and call it the Centers for Medicare and Medicaid Services. The department asked a
variety of sources for suggestions and reactions to the proposed names, including seniors,
the Agency's provider partners, State Health Insurance Assistance Programs, and State
Medicaid Directors. We conducted extensive focus group testing. We even set up a
contest for our employees to offer suggestions. This change is more than cosmetic. It
represents a new openness and a new atmosphere at CMS. It also better reflects the
Agency's mission to serve Medicare and Medicaid beneficiaries and it makes it clear to
the Americans, who rely on these programs, that the CMS is responsible for
administering these programs. All the focus groups said, "What is HCFA?" and
"Medicare and Medicaid should be in the name." So, we did what they suggested.
In addition to the name-change, several constructive organizational changes were also
announced. The Agency has been reorganized and simplified around three centers that
better represent the Agency's major lines of business. These core centers will give
beneficiaries, States, physicians and other providers a clear and direct point of contact
within the Agency for information on policies and programmatic changes that impact
them. The three core centers are as follows:
· The Center for Beneficiary Choices will focus on educating beneficiaries
about their health care choices. From traditional fee-for-service and Medigap,
to Medicare Select and Medicare+Choice, beneficiaries too often do not
understand their options and we are determined to change that. The Center
also will be responsible for managing the Medicare+Choice plans, conducting
consumer research and demonstration programs, providing beneficiary
education, as well as overseeing beneficiary grievance and appeals processes.
· The Center for Medicare Management will be responsible for managing the
traditional fee-for-service Medicare program. The center will develop and
oversee the Agency's fee-for-service payment policies and manage the
Medicare fee-for-service contractors. These functions are over 85 percent of
Medicare program operations and represent CMS's largest functions.
· The Center for Medicaid and State Operations will be primarily responsible
for programs administered by the States. The center will work in partnership
with the States in administering the Medicaid and SCHIP programs, as well as
overseeing insurance regulatory activities, survey and certification, and
clinical laboratories. The profile of the center will be raised, so will its
responsiveness to States.
IMPROVING AND EXPANDING EDUCATION
In the next few months, we also will launch an aggressive new education campaign to
ensure that all Medicare beneficiaries understand the program, their coverage options, and
the costs associated with the health care decisions they may make. We know from our
polling and focus groups that far too many Medicare beneficiaries have a limited
understanding of the Medicare program in general, as well as their Medigap, Medicare
Select, and Medicare+Choice options. We firmly believe that CMS must improve and
enhance its existing outreach and education efforts so that beneficiaries understand their
health care options. In addition, CMS will tailor its educational information so that it
more accurately reflects the health care delivery systems and choices available in
beneficiaries' local areas. We know that educating beneficiaries and providing them
more information is vital to improving health care and patient outcomes.
With that goal in mind and in an effort to ensure that Medicare beneficiaries are active
and informed participants in their health care decisions, the CMS will expand and
improve the existing Medicare & You educational campaign. For example, CMS is:
· Initiating a Multimedia Education Campaign to raise awareness among
Medicare beneficiaries of their health care options. The Agency will use
major television, print, and other media to reach out and share information and
educational resources to all Americans who rely on Medicare, their families,
and their caregivers.
· Increasing the Capacity of Medicare's Toll-Free Lines so that the new wave
of callers to 1-800-MEDICARE generated by the advertising campaign
receives comprehensive information about the health plan options that are
available in their specific area. By October 2001, the operating hours of the
toll-free lines will be expanded and made available to beneficiaries, their
families, and caregivers 24 hours a day, seven days a week. The information
available by phone also will be significantly enhanced, so that specific
information about the health plan choices available to beneficiaries in their
state, county, city, or town can be obtained and questions about specific
options, as well as costs associated with those options, can be answered. Call
center representatives will be able to help callers walk-through their health
plan choices step-by-step and obtain immediate information about the choices
that best meet the beneficiary's needs.
For example, a caller from Bozeman, Montana could call 1-800-MEDICARE
and discuss specific Medigap options in Montana. Likewise, a caller from
Des Moines, Iowa or Dallas, Texas could call and get options and costs for
Medigap or Medicare+Choice alternatives. If requested, the call centers will
follow-up by mailing a copy of the information discussed after the call.
· Improving Internet Access to Comparative Information and providing new
decision making support tools on the Agency's excellent website,
www.medicare.gov. These enhanced electronic learning tools will allow
visitors, including seniors, family members, and caregivers to compare
benefits, costs, options, and provider quality information. This expanded
information is similar to comparative information already available, such as
Nursing Home Compare and ESRD Compare websites. With these new tools,
beneficiaries will be able to narrow down by zip code the Medicare+Choice
plan options that are available in their area based on characteristics that are
most important to them, such as out-of-pocket costs, whether beneficiaries can
go out of network, and extra benefits. They also will be able to compare the
direct out-of-pocket costs between all their health insurance options and get
more detailed information on the plans that most appropriately fit their needs.
In addition, the Agency will provide similar State-based comparative
information on Medigap options and costs.
CREATING A CULTURE OF RESPONSIVENESS
One of my top priorities, as Secretary and I know one of Tom Scully's top priorities, is to
improve the CMS's responsiveness. The concerns and interests of beneficiaries and the
Agency's provider, plan, State, and Congressional partners clearly deserve greater
attention and focus. And we are committed to addressing this head-on and fostering a
new culture at CMS. The Agency is:
· Eliminating Regulatory Red Tape for the plans, providers, and other
stakeholders who provide services to Medicare beneficiaries. Far too many of
our partners have raised concerns about the extent of the Medicare program's
regulatory burden and the cost of doing business with Medicare. I am
committed to taking swift action to reduce unnecessary burden and
complexity. We need to streamline Medicare's requirements, bring openness
and responsiveness into the process, and ensure that regulatory changes are
sensible and predictable.
· Establishing Key Contacts for the States at the regional and central office
level. These staff will work directly with the States to help eliminate Agency
obstacles in obtaining answers, feedback, and guidance. Each State will have
one Medicaid staff assigned to them in the regions and another in Baltimore,
who will be accountable for their specific issues. I have attached a list of
these contacts to my testimony.
· Creating Primary Contacts for beneficiary groups, plans, physicians,
providers, and suppliers to strengthen communication and information sharing
between stakeholders and the Agency. CMS will designate a senior-level staff
member as the principal point-of-contact for each specific provider group,
such as hospitals, physicians, nursing homes, and health plans. These
designees will work with the industry groups to facilitate information sharing
and enhance communication between the Agency and its business partners.
The designees will help ensure that industry groups' voices are heard within
· Enhancing Outreach and Education to providers, plans, and practitioners by
building on the current educational system with a renewed spirit of openness,
mutual information sharing, and partnership. The Agency will provide
improved training on new program requirements and payment system
changes, increase the number of satellite broadcasts available to industry
groups, and make greater use of web-based information and learning systems.
· Responding More Rapidly and Appropriately to Congress and External
Partners by promptly responding to Congressional inquiries. The Agency
also is exploring ways to make data, information, and trend analyses more
readily available to the Agency's partners and the public in a timely manner.
In addition, the Agency will make explicit and widely publicize the
requirements for obtaining data and analyses from the Agency, including
protecting the confidentiality of the data. I have attached to my testimony a
copy of a detailed response to a letter from Representatives Nancy Johnson
and Pete Stark, which posed a series of questions I know many of you have
asked of Tom Scully and me. I think this response, which was completed
within two weeks of Tom's arrival, is indicative of this new culture at the
Department and CMS. We are committed to responding promptly to
Since 1965, when Medicare was created, the government has relied on private health
insurance company contractors to process claims and perform related administrative
services. Today, CMS relies on 49 contractors to provide these services. In May, I
moved my office to CMS headquarters in Baltimore to get a firsthand look at the
employees, operations, and programs administered by CMS. Of the extensive technical
briefings I received from the Agency staff that week, none was more eye opening than the
briefing on the Agency's fee-for-service contractors. I was stunned at the way these
contractor arrangements work - it is one of the worst remnants of Medicare's original
1965 design. I came away from that meeting convinced that we must take bold action to
reform the current contracting system and I want to work with this Committee to achieve
this important objective.
In order to manage the Medicare program efficiently and effectively, we must change the
Centers for Medicare and Medicaid Services' relationship with the Medicare fee-for-service contractors. I firmly believe that this work should be awarded competitively to
the best-qualified entities using performance-based service contracts that include
appropriate payment methodologies that result in contracts receiving payment when they
deliver something of value and profit only when they perform at or above the satisfactory
level. We must be able to maximize economies of scale and improve the level of service
to our beneficiaries and providers. We would like to work cooperatively with our
existing contractors to get to this goal - but the changes will require legislative action.
Today, the fee-for-service contractors are governed by Medicare laws that impose
outdated requirements and diverge from general federal acquisition laws in several
respects. The Medicare statute restricts the Secretary as to the types of entities that may
administer Medicare claims. On the Part A side, providers nominate the entity that
processes their claims. For Part B, the program must use health insurers to process
claims. We intend to forward legislation to address these differences and we want to
work with this Committee and Congress on a viable, sensible solution.
Through these changes, the CMS hopes to accomplish the following:
- Provide flexibility to CMS and its contractors to better Adapt t changes in
the Medicare Program.
- Promote competition, leading to more efficiency and accountability.
- Establish better coordination and communication between CMS, its
Contractors and providers.
- Promote CMS' ability to negotiate incentives for Medicare contractors to
These changes will enhance the Agency's ability to more effectively manage claims
processing for the Medicare program in the future and ensure that the future changes to
the Medicare program's operating structure are free from unnecessary constraints.
FINANCIAL MANAGEMENT REFORM
On a related topic, CMS currently lacks a dual entry financial management system that
fully integrates the Agency's accounting systems with those of its Medicare contractors.
Today, many Medicare contractors rely on PC-based spreadsheets and a series of
fragmented and overlapping systems to maintain their accounts receivable. Most
contractors do not use double entry accounting methods or have claims processing
systems with general ledger capabilities. As a result, the accuracy of reported activities
must be verified manually, which increases the risk of administrative and operational
errors and misstatements. Despite these difficulties, I am proud that CMS has maintained
clean audit opinions in recent years.
A major component of the Department's Chief Financial Officer's (CFO) audit
comprehensive plan is to replace these systems with a state-of-the-art, integrated
accounting system, which will include our Medicare contractors' activities and ensure the
Medicare Trust Funds and the Agency's financial operations are protected from needless
waste and errors.
I want to assure you that Tom Scully and I are committed to working with this
Committee and Congress on a bipartisan basis to strengthen the programs administered
by the CMS. We already have taken the first steps towards improving CMS's
management and changing the culture and attitude of the Agency. We are committed to
strengthening beneficiary understanding of the Agency's programs, enhancing education
and outreach to the Agency's provider and State partners, and reforming fee-for-service
contracting so that the Agency's programs are prepared for the future. Thank you again
for the opportunity to be here today. I appreciate your interest and commitment and I am
happy to answer any questions.
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Last revised: June 25, 2001