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Testimony on Preparing HCFA for the 21st Century by Nancy-Ann Min DeParle
Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Committee on Ways and Means, Subcommittee on Health
January 29, 1998


Mr. Chairman, Mr. Stark, and Members of this Subcommittee, I'm very pleased to have this opportunity to discuss my priorities as Administrator, and to explain how the re-organization is helping the Health Care Financing Administration (HCFA) achieve our mission, and to present a status report on our implementation of the Balanced Budget Act (BBA) passed last year. This ground-breaking piece of legislation provides for the most significant changes in Medicare and Medicaid since the original legislation was enacted more than thirty years ago. Implementing the Medicare and Medicaid BBA provisions, launching the new Children's Health Insurance Program (CHIP), fighting waste, fraud and abuse, and preparing our computer systems for the Year 2000 Millennium are among my highest priorities as Administrator. To achieve these goals in a tight fiscal environment, HCFA must be a finely tuned and smoothly running organization. The goals of the recent re-organization were to eliminate redundancies, improve the sharing of information, streamline processes, and maximize the efficient use of resources. We have concentrated on realigning agency components for the new organization into three main building blocks, with a customer-based view in mind, recognizing that our primary audiences are beneficiaries, States, and health care providers and plans.


At the time HCFA was created in 1977, running the Medicare program primarily meant paying the bills on time. As the health care environment evolved in the following years, introducing new health care models such as managed care, it was clear that these changes needed to be addressed in HCFA's organizational structure. In the past, such activities as managed care responsibilities were added but not integrated into the organization in a coherent manner. After 20 years, it was time to address whether the organization was functioning efficiently. HCFA's recent reorganization was, in fact, the first comprehensive one since the Agency's inception. In early 1996, HCFA began a process of examining whether it was organized in the best way to fulfill its responsibilities. This process included consultation and discussion with a broad spectrum of individuals and groups with whom we interact. We carefully considered comments and recommendations from many sectors and tried to learn from many of the innovative approaches to management in the health care and business communities.

The culmination of the process was the reorganization that HCFA began six months ago. The primary focus of the reorganization was to structure the Agency in such a way that the primary groups with whom we interact --beneficiaries, the States, and health plans and providers-- have "one-stop shopping" to address their needs. An important decision was to combine the responsibilities of managed care and fee-for-service policy development and operations into a single organization. This allows HCFA greater flexibility to respond to changes in the environment as new and different delivery systems are developed. Another important focus was the creation of full-scope organizations for a Chief Information Officer (CIO) and a Chief Financial Officer (CFO) in response to Congressional direction that federal agencies should learn from private sector management experience and to comply with recently passed legislation.

HCFA has recently recruited its first-ever CIO from Los Alamos National Laboratory who brings current computer technology expertise as well as a specialized background in computer and network security issues. He is responsible for defining an information architecture and a capital asset plan for HCFA, as well as fostering the development of agency-wide information systems, including the critical efforts to achieve Millennium compliance of all computer data systems by December 31, 1998.

As with any agency adjusting to a major reorganization, there are both brand-new working relationships, and new policies and procedures. We are still in the process of "fine-tuning" our organization. I began my tenure as HCFA Administrator soon after HCFA's reorganization, and after my confirmation, I made a few changes. First of all, I ensured that critical staff', such as the CIO and the Program Integrity Director, had direct access to the Administrator, cutting away some of the layers of bureaucracy that sometimes prevent timely decisions from being made. Secondly, as specified by the BBA, the Office of the Actuary is now a separate office also reporting directly to me. I have attached a HCFA organizational chart to this testimony, which shows these changes. In every sense, HCFA is making a fresh start, which we believe will strengthen the organization and allow us to meet our tremendous responsibility of being the nation's largest health care purchaser.

Some comments have been made about the reassignments of employees and reconfiguration of components within the agency, and I would like to say a word about this. As exemplified by private industry and noted in the National Performance Review, cross-training and sharing of personnel expertise is vital to the health of an organization. The processes involved in re-organizing are difficult at times, but we consider them "growing pains" that other agencies have experienced as well. However, we are beginning to see the benefits of agency streamlining and re-alignment, and it is clear that the benefits accrued outweigh the disadvantages. Through employee mentoring and staff rotation opportunities, we have tried to make the transition to the new organization as trauma free as possible, and I believe that most HCFA staff support the objectives of the re-organization. My ultimate goal as HCFA Administrator is to ensure that changes to the agency are implemented in a manner that makes Medicare and Medicaid stronger and more efficient, not only for today's beneficiaries, but for future generations.


My priorities as HCFA Administrator are simple to state, but much harder to accomplish. As I stated earlier in my testimony, they are: first, to reform and strengthen Medicare and Medicaid, starting with the provisions of the Balanced Budget Act of 1997 that expand choices for beneficiaries and guarantee Medicare's solvency until 2010; second, to expand health care coverage to children through the new Children's Health Insurance Program (CHIP); third, to sharpen our focus against fraud and abuse; and fourth, to ensure that HCFA's information systems are ready for the Millennium. Since CHIP and Medicaid are not within the oversight of this Subcommittee, I will focus on the other priorities:

Priority #1 -- BBA Implementation

My goal is not only to ensure that the Balanced Budget Act provisions are implemented, but that we do it right. There are about 300 separate provisions that must be carried out to fully implement the law, and because some of them are extraordinarily complex, our project management staff is keeping track of implementation status of each item in a document that we plan to share with the staff of this Subcommittee and others. During just the month of December alone, we made significant headway in our BBA implementation plans. We completed 16 of the 18 regulations on our December agenda, and the remaining two were well on their way through the clearance process. This was double our pre-BBA average during a month that historically has decreased productivity, due to reduced staff availability because of the holidays. Our staff worked tirelessly to finish these regulations in late-December and early January, a time which they otherwise would have spent among family and friends.

Under the best of circumstances, implementing the provisions of the new law would be a daunting challenge for HCFA. As it happens, we are taking it on at a time when the agency has just undergone a much-needed structural reorganization. As if this were not enough, we are also working with unusually tight deadlines and tight budgets. Our approach has been to organize ourselves internally to be as efficient and effective as we can be. We are combining resources and setting up new internal communication structures designed to sham information without sacrificing valuable analyst and management time. We are working actively with our colleagues in the Department and at the Office of Management and Budget (OMB) to speed up internal review and clearance processes. In short, we are doing everything we can to get the job done with the resources we have, but the fact remains that our budgets have decreased in real terms, while our responsibilities have grown.

Between 1993 and 1997, HCFA has successfully met growing workload demands while decreasing its administrative spending in real dollars by about 11 percent. In this same period of time, the number of claims processed has gone up by 168 million, or about 25 percent. The number of managed care plans with whom we have contracts has increased from about 200 to over 400, At the same time, the number of skilled nursing facilities and home health agencies has increased by over 30 percent. With the addition of major new responsibilities through legislation such as HIPAA and BBA, HCFA faces considerable challenges in continuing to meet our goals.

We appreciate the fact that in action on the Fiscal Year 1998 appropriation, the Congress and in particular, this Subcommittee, worked to provide $95 million of the $200 million authorized for the beneficiary information requirements of BBA. The Congress also indicated that funds for BBA implementation were included. However, HCFA's program management budget increased only 0.5 percent over the previous year. Many of the new activities such as Medicare + Choice will require additional work in Fiscal Year 1999 and subsequent years. When the Administration's budget is released next week, I hope we will be able work together to ensure that HCFA has adequate resources to carry out the programs for which we are responsible. Secretary Shalala will be transmitting to Congress legislation implementing user fees to fund certain program management activities. We will need your assistance to enact this legislation in early 1998.

At the same time, I intend to continue, working closely with members of Congress to keep you informed of our progress and to let you know what we need to maintain the momentum. You understand the magnitude of the task we face and you know that we will be seeking more appropriations including additional user fees to complete implementation, particularly for our Beneficiary Information campaign. By maintaining a dialogue with you, I believe we can achieve the support and flexibility we will need to get it all done. At this point, I wish to describe the progress which we have made implementing some specific provisions of the BBA within this Subcommittee's jurisdiction.

Preventive Health Benefits

As of January 1, Medicare beneficiaries can receive a new set of preventive health benefits, which will include annual screening mammograms for women over 40; screening pap smears and pelvic exams every three years or more, depending on risk; and colorectal cancer screening exams for all beneficiaries over 50. In July, bone density measurements to detect osteoporosis will be covered. And in January, 2000, we will cover prostate cancer screening for men over 50. We are out a comprehensive media and outreach campaign to get the word out to both providers and beneficiaries to take advantage of the new benefits.


Another major provision of the budget law is the new Medicare Part C, known as the Medicare+ Choice program. This program provides Medicare beneficiaries with a wider range of health plan choices, similar to those that are currently available in the private sector. It establishes a new authority permitting contracts between HCFA and a variety of different managed care and fee-for-service entities, including Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Provider-Sponsored Organizations (PSOs).

Implementation of the Medicare+Choice program is extraordinarily complex, cutting across every aspect of the Medicare program. We are on track with this effort. Starting on January 1, 1998, we began paying all risk-based Medicare contractors using the new Medicare + Choice payment methodology. We are on track for publishing solvency standards for PSOs by the April 1 deadline. Finally, we are on track for publishing interim final regulations for all other contracting standards by the June 1 deadline. Medicare +Choice and the new prevention benefits will be launched along with a nationwide information-nation campaign that will be user-friendly and comprehensive.

Beneficiary Information Campaign

This information campaign is unprecedented in the history of Medicare and constitutes a fundamental change in the way we collect, store, and share information about plans and providers. We are offering beneficiaries an internet-based resource that draws on all of HCFA's current data and systems, along with new health plan information-nation and a completely new enrollment process. This knowledge base mill serve as a resource for enrollees, their utilities and friends, community based organizations, insurance counselors, and other interested parties. In concert with this information campaign, our new internet capabilities should be on-line next month and will enable users to access detailed comparative information on health plans through the "Medicare Compare" location at our HCFA web page. HCFA's Internet capabilities offer a revolutionary change in the ability to access Medicare and Medicaid information, since it will literally be available 24 hours a day, every day of the week.

Our Center for Beneficiary Services is developing a detailed plan for our 1998 informational campaign. We will be using printed material, the Internet, a toll-free telephone system and community-based resources to make the information about options available to Medicare beneficiaries. Thanks to the caliber and dedication of the staff working on this, I am optimistic about this campaign, despite the uncharted territory incumbent in this enterprise.

Prospective Payment Systems (PPS)

Effective payment systems are vital to achieving quality health care and preventing waste, fraud, and abuse. The three new prospective payment systems for home health agencies, skilled nursing facilities, and outpatient departments will help us to achieve these goals. These prospective payment systems will provide incentives to make the most appropriate use of resources and, over the long-term, will help control overall expenditures. The cost-saving value of these payment systems is widely recognized and well-accepted in the industry. As an example, the Home Health PPS provision allows HCFA to establish a PPS that will pay providers a unit of payment for an episode of care. It also will end "periodic interim payments" to home health agencies that are made in advance and not reconciled until the end of each year The lay provides the authority to establish a prospective payment system by October 1, 1999, and we are working hard to meet that date with the necessary research and infrastructure development. Meanwhile, in accordance with the BBA, a home health interim payment system is being implemented.

-Priority #2 - Combating Waste, Fraud and Abuse

We must continue to fortify our programs so we can prevent incursions by those who view them not as the vital national resources they are, but as targets for money-making scams. As a bold step in the fight against fraud and abuse, the Administration imposed a moratorium on new home health agencies (HHAs), effective from September 15, 1997 through January 13, 1998. This moratorium allowed HCFA sufficient time to strengthen its entry requirements for HHAS. The Agency published a regulation on January 5, 1998, which requires surety bonds of all HHAs and initial capitalization standards for new HHAS. In addition, HCFA is requiring new HHAs to serve a minimum of ten patients before entering the Medicare program. Lastly, HCFA instituted a requirement that HHAs provide information on related businesses which they own.

The Health Insurance Portability and Accountability Act (HIPAA) and the Balanced Budget Act gave us new methods of preventing fraud and abuse and of identifying and punishing perpetrators: but we will not be satisfied with these efforts alone. Our strategy, which allows us to best manage our anti-fraud and abuse resources, has four basic principles: prevention, early detection, collaboration, and enforcement. As an example of our prevention and detection efforts, we have increased our efforts to review claims before payments are made, and as I mentioned before, we screen more carefully home health agencies and providers before certification, and require that they post surety bonds for home health agencies. We have also closed some loopholes with our new proposed regulation requiring surety bonds and strengthened our standards for durable medical equipment suppliers. These enhanced fraud prevention efforts contributed to a record number of civil and criminal prosecutions in FY' 1997 --- double the number of prosecutions in the previous yew@ As the President announced just last week, in Fiscal Year 1997, we have collected nearly one billion dollars in fines for health care fraud. In addition, the Budget Submission for Fiscal Year 1999 will contain a number of new and previously submitted proposals to address waste. fraud, and abuse for consideration by this Subcommittee.

To enable beneficiaries to do their part in fighting fraud and waste, I will be in publishing, the HHS Inspector General' s toll-free anti-fraud hotline on beneficiaries Explanation of Medicare Benefits (EOMB) statement. Initially, the 1-800 numbers will appear on beneficiaries' EOMB in about half of the States, and will be expanded to the rest of the country in the spring. The hotline also offers assistance in both English and Spanish.

I consider a strong anti-fraud and abuse program an essential part of building public confidence in the future of Medicare and Medicaid, and our goal is to develop a comprehensive anti-fraud and abuse plan. We will meet early this spring with a broadly representative group from both the Federal and private sectors to listen their views and experiences. We plan to consider all possible avenues to combat fraud and abuse. I would like to acknowledge past Congressional support for these efforts in our budget requests, and note that the FY 1999 Budget will include increased funding for our increased responsibilities in BBA implementation and enhanced fraud and abuse prevention programs.

Priority #3 - Year 2000 Millennium Initiatives

As we look to the future, the Year 2000 looms close on the horizon. In regard to the Millennium, I just want to say that we view the threat of a breakdown of our national information flows -- and its potential impact on Medicare -- with the utmost seriousness. Medicare represents approximately one-fifth of the nation's health care economy and we simply cannot afford to let this problem interfere with continuity in Medicare payment operations. We are working to ensure that the 74 mission-critical external systems are millennium compliant no later than December 31, 1998, and are monitoring our contractors to ensure that we make the transition smoothly and in a timely manner I would like to emphasize that our regional staff are making on-site inspections to ensure that each and every item required is being completed on schedule, and at the present time, over half of the fiscal intermediaries and carriers have completed their assessments. I also intend to submit legislation to amend the existing carrier and intermediary contracts to allow HCFA to terminate the contract and/or migrate to other contractor types if the contractor falls behind the project schedule. At this point I would like to directly address an area which this Subcommittee has been concerned with -- the Medicare Transaction System project. We have recently received the final deliverable from GTE and the contract is now over. We do not yet know the final costs because they cannot be determined until the HHS Office of the Inspector General has completed the audit of the GTE contract. With the termination of the contract we are no longer continuing the Medicare Transaction System. I want to be clear, however, about the status of our efforts. We are moving forward on two tracks. First, we are beginning the process of developing an overall information architecture and a capital asset plan, the prerequisite to any future systems development efforts. This is a complex effort, but we plan to keep the Subcommittee informed of future developments. We are committed to meeting the spirit as well as the letter of the Information Technology Management Reform Act (ITMRA) to ensure that HCFA systems resources are wisely invested to meet our highest priority business needs. In the meantime, we are continuing to make modifications to the Current systems needed to implement BBA and HIPAA requirements. Without these changes, the significant Medicare savings enacted in BBA could not be achieved. We welcome your continued interest in information technology and will work with you to ensure that business needs are met and resources invested wisely.


Agencies, like individuals, are often faced with multiple and sometimes conflicting responsibilities. In 1998, HCFA will be challenged as never before to meet new and expanded needs of Medicare and Medicaid beneficiaries. We are witnessing an unprecedented demographic shift, as greater numbers of elderly than ever before become eligible for Medicare. This is why BBA implementation takes on such a great significance, since it will add 10 years of additional solvency to the Medicare Hospital Insurance Trust Fund. At the same time, many HCFA personnel will be asked to carry a heavier burden of added tasks and adjust to new offices and co-workers. I can say without hesitation that I have great confidence in the ability of HCFA employees to meet these challenges, and I have been consistently impressed by their ability to get the job done.

I would also point out that, though my observations reflect our recent efforts, the list of HCFA's accomplishments, past and ongoing, is long and distinguished. This is the agency that pioneered fee schedules, and it is my expectation that it will likewise be the agency viewed as a pioneer in setting quality, risk-adjustment, and purchasing standards in the future. HCFA established a common set of expectations for 50 diverse Medicaid programs in the past and we will work with our partners in State government to bring Medicaid program administration into the twenty-first century. This same partnership will serve to launch the new Children's Health program and enable more than 5 million of society most vulnerable members to go off to a healthy start in life.

Thanks to the BBA, we will see concrete improvements in our programs that will provide tangible improvements in services for our beneficiaries. Our highest priority will be to work closely with Congress on implementation of BBA, and to keep you informed of our progress. We are making every effort to meet the required deadlines and will seek extensions only, when absolutely necessary. I am confident that together, we can achieve our mutual goals of strengthening Medicare and Medicaid, extending the life of Medicare's Hospital Insurance Trust Fund, and providing beneficiaries with the best possible care in the most efficient manner.

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