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July 9, 2002
Chairman Davis and Members of the Subcommittee, thank you for inviting me here today to discuss the State information technology (IT) systems through which the Department of Health and Human Services (HHS) programs are administered. You have indicated an interest in the process by which we review and approve States' IT systems and have asked questions about opportunities for improving this process. I hope that the information I will provide today is helpful and that it opens doors to a constructive dialogue about improvements we can make to the review and approval process.
HHS, as well as the US Department of Agriculture (USDA), reviews and approves major IT developments in programs for which federal funding is open-ended. These programs in HHS are Medicaid, the child support enforcement program, and child welfare programs. Since States receive matching Federal funds for IT expenditures related to these programs, and since IT projects can be costly and risky, the Federal government has exercised oversight in this area for a long time.
For example, HHS committed $1.903 billion in FY 2001 to State systems, with States contributing $809 million. State IT systems provide important information that helps both the States and HHS manage the Medicaid, child support enforcement program, and child welfare programs, including performance and outcome information that assists Congress in making legislative decisions.
The Federal government has traditionally seen the necessity of reviewing expenditures in programs that are potentially open-ended, such as Medicaid. The Clinger-Cohen Act establishes that, at the Federal level major IT projects should be subject to high-level scrutiny in terms of cost, relationship with other projects, and IT system outcomes. This public stewardship role is especially relevant for this Administration's management agenda, which stresses improving financial management and the effectiveness of e-government solutions and reducing redundancies in IT projects in the Federal government.
HHS is committed to a review and approval process that helps States meet their program goals, serves the taxpayers' interests, and adheres to applicable regulations and cost principles. The process used by HHS to review and approve State programs' IT expenditures (referred to as the Advance Planning Document, or APD, process) ensures that States have thought through their systems planning and that they are identifying cost-effective IT solutions that improve the management of these programs.
How Does the Review and Approval Process Work?
Briefly, the process works as follows:
There are two major types of APD submissions; planning APDs are used to seek reimbursement for planning costs and implementation APDs are used to seek reimbursement for costs of designing, developing and implementing a system. Before starting a project, States must submit a planning APD. Once the planning phase is complete, States are required to submit an implementation APD in order to obtain funding for the complete project.
After States submit APDs, Federal agencies grant approval, grant conditional approval, disapprove the request, or defer decision pending submission of additional information. An implementation APD may be disapproved if the State does not comply with the regulatory requirement for a feasibility study and analysis of alternatives, there are not enough resources allocated to the project, the project management is poor or inadequate, the project plan is ill conceived, or for a variety of other reasons.
If a State does not receive a written response from Federal agencies within 60 days regarding their decision, the State receives "provisional approval" from the 61st day following the Federal agencies' receipt of the State's APD submission. Under these conditions, a State can proceed with its project, at its own risk, without waiting for Federal, written prior approval. Once the Federal agency approves the project, the project will be eligible for funding from the date of provisional approval.
In addition to planning and implementation APD submissions, States are also required to submit APD updates. The purpose of these updates is to keep the Federal government informed of the systems projects' status and are used to obtain continued federal funding throughout the life of the project. There are two types of updates-annual updates are used to provide official project status updates, request continued project funding, and report post-implementation costs and benefits. As-needed updates are used to report significant changes to the project approach, procurement, methodology, schedule or costs as they occur.
Finally, States also have to obtain written prior approval from Federal agencies before releasing Request for Proposals (RFP) and before executing contracts and contract amendments that exceed a certain dollar value.
This summary is only a generalization because the statutory and regulatory authorities for Medicaid, child support and child welfare are all somewhat different as they relate to Federal reimbursement of State systems and for the requirements of State systems in general. However, HHS and USDA have worked together continuously for decades, publishing corresponding regulations to ensure that our processes coincide to the maximum extent possible.
How Well Do We Do With This Process?
The APD process generally provides States with fast responses. In the past two years of APDs, HHS responded to States within 60 days in 94 percent of the cases. Even where more complex situations demand a more lengthy analysis, such as integrated systems that serve multiple programs of several Federal agencies, HHS staff maintain productive communications with the States and coordinate with their Federal peers to ensure a fair and timely review. In fact, in the recent GAO audit of this process, out of a total of about 1,150 State submissions, only three incidents were identified in which a State claimed that the Federal process had contributed to project delays.
HHS has also worked to require no more documentation than is necessary for adequate Federal oversight. For example, in many cases a State's own IT project plan suffices for an APD. Also, we routinely waive the requirement for a State to submit contracting documents, such as RFPs, contracts or contract modifications, as long as a State's APD does not indicate a high level of risk or likelihood of problems for an IT project.
The APD process reduces potential problems or waste by ensuring that once taxpayers buy a new IT system for one State, that same system can be offered to other States across the country. This prevents States from duplicating work that was already performed using Federal funds.
GAO recently worked with us to gain a better understanding of the APD process and to assess whether it hindered State development of IT systems. We were pleased to have GAO reaffirm for us that, in the vast majority of cases, we are timely in our responses to States. We were encouraged by the fact that States generally reported that when the delays did occur, they not cause problems in the development or implementation of the new IT systems. We were also very pleased that a number of the States interviewed by GAO commented on the positive working relationships they have with the Federal agencies.
We would like to point out GAO found that such delays usually cited cost/funding issues as the reason for the longer time needed the for review, which means we are continuing to stress our financial responsibilities and not getting caught up in the bureaucratic process. However, we also note that GAO found a few States that were not happy with their experiences, and we continue to strive to maintain open communications with such States so that we can move forward together in their systems development.
What Have We Been Doing to Improve?
While we continue to believe that Federal oversight, including prior approval of open-ended, major IT expenditures, is necessary, we also believe that the review and funding process could be improved to reduce States' burdens and to improve program outcomes.
In 1996, after working for several years with States, State associations, and within the Federal government, we raised the dollar threshold for triggering the APD requirements. HHS helps lead an interagency group with State representatives that is examining whether thresholds could be raised again. The workgroup is devoted to identifying other potential improvements in the process as well, including ideas for helping reduce documentation and process requirements in exchange for increased accountability from States and better system outcomes.
HHS also provides technical assistance to States through a variety of means, including weekly meetings with States that are developing major systems. We conduct training sessions, share best practices at conferences and through web sites, and facilitate system transfers to help save States and the Federal government money.
Why Do We Continue to Believe That IT Planning and Review Is Necessary
We realize that some States have raised questions and concerns as they move through this process. For example, some States believe that the process induces project development delays that cost both time and money, and some States feel the process prevents them from making the best decisions in terms of systems integration or system design.
We acknowledge that it does take some additional time and management attention to develop a strong plan for a major IT project and to ensure that all relevant organizations approve it. We go through a similarly demanding process for any new IT investments at HHS, as required by the Clinger-Cohen Act. As overseers of these investments, the Office of Management and Budget (OMB) and Congress frequently request additional information or explanations about the projects. However, this process often raises important issues that HHS needs to address before moving forward with a project and therefore, the time taken to move through such a review and approval process is critical to the success of the project.
Likewise, we want to make sure that State investments of Federal dollars in IT are the best investments possible. The management attention and time are important parts of the project's success. Decisions about allocating the costs of an IT system among all relevant programs are made in accordance with OMB Circular A-87 cost principles, which allocate an organization's or program's costs among different cost centers or programs according to the extent to which the centers or programs benefit. While we sympathize with some States' financial situations, we are not in a position to authorize cost allocations designed purely to maximize Federal financial participation.
We have worked to ensure that States have access to Federally funded IT tools and systems that already are developed and want to continue to maximize our previous investments. For example, the Oklahoma child welfare system has been transferred to seven States, and eight other States also chose to transfer in another system rather than develop one from the ground up. While system transfer is not always the best solution, we believe that exercising our right to reuse these systems and building upon the work of other States can substantially reduce system development costs, time frames and risks when Federal funds were used.
Some States also have sought to select a vendor's product without engaging in full and open competition. We have the obligation to enforce Federal rules that grantees must create opportunities for full and open competition, and we believe that such competition generally ensures that the most cost-effective IT solution is procured.
Potential Next Steps
As described above, we continue to work with States and our Federal counterparts at OMB and USDA to improve the process for reviewing and approving these major IT expenditures. One approach that is being considered at this time is to assist States in achieving industry-standard certification in such areas as software development and project management. This would require an investment in the States' IT organizations, but would ultimately result in better and more successful projects, for which less Federal oversight would be required.
In addition, we would like to involve both the State and Federal partners in a joint effort to develop performance measures for the development of systems that would tie funding specifically to desired outcomes. We believe that it is important to maintain accountability for the substantial investment being made in these systems and that any approach to more comprehensive reform should achieve an appropriate balance between Federal oversight and State project management including, but not limited to, financial responsibility.
We look forward to working with States on issues surrounding review and approval of IT systems. In particular, we want to focus on how we can help States implement IT systems that support the program outcomes they want to achieve. This hearing is a wonderful opportunity to engage in that dialogue and I look forward to further discussions.
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Last revised: July 16, 2002