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Testimony on Year 2000 Computer Problem and Health Care Industry by Kevin L. Thurm
Deputy Secretary of Health and Human Services
U.S. Department of Health and Human Services

Before the Senate Special Committee on the Year 2000 Technology Problem
July 23, 1998

Good morning. I am Kevin Thurm, Deputy Secretary of the Department of Health and Human Services. I am accompanied by Dr. John Callahan, the HHS Assistant Secretary for Management and Budget and our Chief Information Officer (CIO); Nancy-Ann Min DeParle, the Administrator of the Health Care Financing Administration; and Dr. Michael Friedman, the Acting Commissioner of the Food and Drug Administration. I am pleased to appear before this Special Committee to provide you with a report on the accomplishments and the challenges faced by the health care industry in preparing for Year 2000.

The Secretary and I have declared the Year 2000 date issue to be our highest information technology priority. We have taken and will continue to take actions to ensure that HHS information systems are Year 2000 compliant.

We have involved all parts of our organization, including staff with expertise in information systems, budget, human resources, and acquisition management in our work to ensure that HHS information systems are able to recognize the Year 2000. No matter what else we do and what other initiatives we undertake, we must ensure that our ability to accomplish the Department's mission is not impaired.

We must continue to exchange data with partners and accomplish the Department's mission in the next century. HHS is also working to inform the health care and human service communities about the Year 2000 issue, and to encourage awareness and facilitate Year 2000 compliance of their equipment and facilities.

The Secretary has established December 31, 1998, as our internal deadline for Year 2000 compliance of mission critical systems. This was done in order to provide a full year of operations in which to detect and remedy any adverse interactions among our systems and those of our many service partners, including other Federal agencies, States and local governments, tribes, and contractors. HHS mission critical systems pay Medicare benefits, provide billions of dollars in grant payments, collect and analyze epidemiologic, clinical trial, and other public health data, and track patient care and records data.


To meet our Year 2000 responsibilities, we have taken a series of strong administrative actions. We have encouraged aggressive reallocation of funds, where necessary, to meet Year 2000 deadlines; we have established direct reporting lines between staff working on year 2000 activities and the Operating Division (OPDIV) Chief Information Officers. Each OPDIV CIO is responsible for regular reporting on Year 2000 efforts directly to the OPDIV head and the Department's Chief Information Officer until Year 2000 date compliance is achieved.

HHS has also taken action to retain, attract, and re-employ qualified information technology professionals, using both employment and contracting authorities. On March 31, HHS received Department-wide personnel authorities from the Office of Personnel Management (OPM) to waive the pay and retirement reduction for re-employed military and civilian retirees who return to work on Y2K remediation. To date, Health Care Financing Administration has used the waiver authority to reemploy eleven annuitants.

HHS agencies collect a tremendous amount of information that requires data exchange. The Department has inventoried our data exchanges and contacted our service partners to emphasize the importance of assuring Year 2000 compliance. HHS is working with the National Association of State Information Resource Executives (NASIRE) and others to assure a coordinated response. On April 22, HHS provided a listing of State interfaces to NASIRE for its review of completeness and accuracy, and we will update this listing monthly until all of our State interfaces are compliant. Later this month, HHS will update the listing on the GSA web- site for NASIRE review. In addition to data exchanges with States, HHS systems also exchange data with other federal agencies, local governments, Medicare contractors and fiscal intermediaries, private insurance companies, universities, banks, and drug manufacturers.

In addition, HHS is requiring all of its operating divisions to conduct thorough testing and independent verification and validation of its renovated systems. We also know there is a possibility that, try as we might, some systems may not be fully compliant in time. All of our Operating Divisions have submitted initial business continuity and contingency plans to the Department. These plans will be finalized and tested, as appropriate, to provide us with the operational policies needed to permit business continuity in the event of system failure. EN


Of all the HHS programs, the Medicare program, administered by the Health Care Financing Administration (HCFA), is our greatest Year 2000 challenge. Payment of health care claims is accomplished by over 60 external contractors which operate and maintain a base of software programs that process nearly one billion claims each year from over one million health care providers.

All of the external Medicare contractors have completed assessments of their systems. However, two critical steps are needed to ensure contractor compliance: (1) additional resources may need to be dedicated to Year 2000 remediation, and (2) HCFA must delay implementation of a small number of new initiatives to enable Year 2000 remediation efforts be completed on time.

Additional Resources:
In May 1998, President Clinton signed a 1998 supplemental appropriations bill redirecting $20 million of HCFA contractor funds to HCFA's Year 2000 efforts. In addition, HHS in May 1998 shifted discretionary funds to make an additional $62.1 million available for HCFA's Year 2000 efforts in FY1998. Further, HCFA is working with Congress to provide an additional $61.5 million above the $37.5 million requested in the Budget, for a total of $99 million for FY1999. Finally, it is likely that HCFA will require additional Year 2000 funding for FY2000.

Delaying Implementation of New Projects:
To achieve Year 2000 compliance, HCFA estimates that 49 million lines of contractor code will need to be renovated. Assuring services to beneficiaries in the Year 2000 is HCFA's number one priority. Therefore, HCFA instructed Medicare contractors in June 1998 to suspend further work on converting their systems to the HCFA-selected standard claims systems. HCFA will also have to delay implementation of a small number of provisions of the Balanced Budget Act of 1997.

Implementing these new initiatives would delay the Year 2000 renovation process, jeopardizing the Medicare program's ability to ensure that its systems are Year 2000 compliant. If not fixed, enrollment systems might not function, beneficiaries could be denied services because providers may not be able to confirm eligibility, and providers could have cash flow problems because of delayed payments. Because of this imperative, Year 2000 activities must take precedence over other projects that require changes to computer and information systems.

Initiatives being delayed include: implementing a new payment system for Medicare home health agencies, institutional outpatient Prospective Payment System (PPS), and a consolidated billing system that would require nursing homes to bill Medicare directly for all Part B services. In addition, HCFA has been advised by its independent verification and validation contractor, as well as by the Medicare contractors, to delay the provider updates scheduled for October 1, 1999 and January 1, 2000. We will work with Congress and providers to evaluate our options and ensure that necessary delays in provider updates do not create a hardship.

HCFA has been proactive in addressing Year 2000 compliance with its contractors and works closely and well with the contractors through a joint steering committee. The agency established a December 31, 1998 deadline for contractor certification of compliance in order to ensure there is a full year to accomplish end-to-end testing and any final corrections. HCFA is also amending its formal agreements with the contractors to make clear that contractors are responsible for ensuring that their Medicare systems are Year 2000 compliant. All contractors with whom we have spoken have committed to signing the amendment, and at least one amendment has already been signed.

Finally, as you are aware, HHS has sent proposals for Medicare contracting reform to Congress that would have allowed the Secretary of Health and Human Services more authority in dealing with Medicare's Year 2000 compliance efforts. There are a number of provisions in the existing Medicare law that hinder HCFA's ability to manage the Medicare program, including requiring Year 2000 compliance. The Administration's contracting reform proposal would give the Secretary greater flexibility in contracting for claims processing and payment functions and put HCFA on the same footing as other federal agencies. Under this authority, the Secretary could award contracts to a larger pool of qualified contractors. We believe this change would promote competition and potentially allow the Medicare program to obtain better value for its dollar. It would allow us to enhance relationships with our existing partners and give us an opportunity to build new relationships. The new authority would also be helpful in allowing the Secretary to implement contingency plans that permit business continuity in the event of system failure. In addition to having the full support of the Secretary, this proposal has received the endorsement of John Koskinen, Special Assistant to the President for Year 2000, in testimony before the Senate Governmental Affairs Committee. Medicare contracting reform has been, and continues to be, a Department and Administration priority.


In response to the Year 2000 problem, the President established on February 4, 1998 the President's Council on Year 2000 Conversion. To deal with the issue of outreach, the Council has enlisted agencies to increase awareness of the problem and to offer support to public and private sector organizations -- both domestically and internationally -- within their policy areas. Industry trade organizations, which have unique capabilities for communicating with their members about the Year 2000 problem, individuals companies, and State and local governments, are working closely with these agencies.

HHS is currently implementing a public outreach effort aimed at the health care and human services communities.

HHS's outreach to the private sector encourages awareness and facilitates Year 2000 compliance to prevent disruptions to health care and human service providers and those served by those providers. The program also includes, to a lesser degree, an initiative to make health care providers aware of their responsibility to assure that their own information systems are millennium compliant.

Our goal is to make sure that public and private health care insurers, health plans, providers and third party payers have systems that are Year 2000 compliant to avoid cash flow problems and possible disruption of health care services to millions of U.S. citizens. Health care providers generally have patient record and accounting systems that document the care provided to a patient and then bill the patient or his insurer or third party payer for the care provided.

HHS has worked with most of the major insurers, managed care plans and public medical assistance programs in the U.S. to make them aware of the Year 2000 problem and encourage the appropriate remedial action. HHS has a working relationship with most of the major health care provider associations and with most of the health care providers in the U.S. through the Medicare program. It is taking advantage of these direct and indirect relationships to make health care providers aware of the millennium problem and encourage the appropriate corrective action.

HHS and its constituent agencies have made millennium awareness a key component of opportunities to address physicians, hospitals, managed care plans, Medicaid State agencies, and other Medicare provider groups. Numerous speeches and presentations by senior departmental and agency officials have contained a millennium message.

The Health Care Financing Administration has employed a variety of strategies to reach organizations and individuals involved in health care activities. HCFA has developed a comprehensive Year 2000 outreach program with three main areas of concern. First, third party payers must be able to assure health care providers that they have taken the necessary steps to receive bills and issue payments. Second, health care providers must take the steps necessary to make sure that their patient record and accounting systems will be able to send bills and receive payments. Finally, health care providers must take the steps necessary to make sure that their biomedical equipment is Year 2000 compliant.

To accomplish its outreach goals, HCFA has:

  • engaged the corporate leaders of over 60 major insurers in Year 2000 millennium awareness and renovation activities;
  • promoted Year 2000 awareness to over 400 managed care plans;
  • offered technical assistance to each State medical assistance program administrator;
  • established a provider outreach and education subcommittee; and
  • conducted a Year 2000 briefing in Washington, D.C. for representatives of more than 50 national health care provider associations and payer associations.

HCFA is also publishing a Year 2000 awareness article in each of its Medicare carrier and fiscal intermediary provider bulletins this summer. These articles are expected to reach hundreds of thousands of large and small provider offices.

Other HHS operating divisions have also been proactive in issuing guidance, publishing articles in various medical and healthcare bulletins and magazines, and sending letters to state, local, and other public health and health care organizations. This month, the Indian Health Service (IHS) will be sending an awareness package to all tribal governments, tribally operated programs, urban Indian programs, and other Indian organizations. This package will include key references related to the Y2K issue in Indian health programs (the IHS Year 2000 Plan, an awareness presentation for local use, administrative and technical resources available for them from the IHS) to enhance awareness and assist them in their Y2K activities.

The Centers for Disease Control and Prevention (CDC) works closely with public health partners in State and local governments as well as health care practitioners to improve public health through prevention of disease, disabilities, and injuries. In November 1997, CDC distributed a letter to over 300 State, local, and other public health and health care organization recipients informing them about the Year 2000 and proposing a set of public health data standards including one that requires all dates to be Year 2000 compliant. In addition, CDC is currently collaborating with HCFA to ensure effective communications with all clinical laboratories regulated under the Clinical Laboratory Improvement Act (CLIA) and to ensure that the clinical laboratory community is informed of this issue.

In July 1997, the National Institutes of Health (NIH) established the Y2K Medical and Laboratory Equipment Work Group to advise it on biomedical equipment assessment and to take any remediation action necessary. In the spring of 1998, NIH initiated a study of Y2K impact on all medical equipment owned by the NIH Clinical Center. A notice was published in the NIH Guide for Grants and Contracts, to remind recipients of NIH grants and cooperative agreements that they must anticipate and mitigate any potential problem that might be caused by the Year 2000. This Y2K information is available on a continuous basis via a public NIH web site. The NIH data center had an exhibit at the Information Processing Interagency Conference to advertise Y2K inventory analysis, code conversion, and validation testing services. Finally, NIH has made inquiries to vendors concerning Y2K compliance of Commercial Off-The-Shelf (COTS) software, hardware and biomedical equipment and software. That information is currently disseminated via a clearinghouse on the web.

The Administration for Children and Families (ACF) outreach is a two part effort. One part is directed at State grantees which are responsible for administering ACF's major programs, such as Child Support Enforcement and Temporary Assistance for Needy Families. Another part is directed at sub-State, non-profit service providers and Indian Tribe grantees served by ACF in program areas such as Head Start and Community Services.

Among the key activities involved in outreach to human service providers are the following: identifying key audience members and appropriate points of contact, such as associations and publications; distributing information to those audiences, for example by using attendance at major meetings to raise awareness of the problem; developing and including Y2K awareness language in grant awards; developing Internet Y2K information web-sites; and exploring other opportunities for effective outreach.

The Health Resources and Services Administration (HRSA) is targeting their outreach awareness campaigns at universities and colleges, health care facilities, and local government audiences. In the HRSA Grants Preview, Summer 1998 issue, HRSA has included a section dealing with the Year 2000 policies and provided a list of Year 2000 resources. HRSA has alerted potential grantees/applicants on the Year 2000 issue and asked potential grantees and applicants to address their organizations efforts to become Year 2000 compliant as part of their business or operational plan. The Summer 1998 issue of the HRSA Preview has already been distributed to 14,000 grantees, associations and partners of HRSA. In addition, it is on the Internet in both English and Spanish for grantees and users to see. The Internet address is www.hrsa.dhhs.gov/grants.htm. The HRSA Preview will also be distributed at the National Association of Local Boards of Health (July 29-August 1, 1998), the Joint Annual meeting of the Association of County and City Health Officials (September 23-26, 1998) and the American Public Health Association Annual Meeting/Convention (November 15-19, 1998).

The Administration on Aging's (AoA) outreach plan involves raising awareness at all meetings, monitoring visits, and presentations made by the Assistant Secretary for Aging, Regional Administrators, and other senior management. The AoA UpDate, a monthly newsletter reaching over 2000 members of the aging network, will have an article in every issue beginning in August highlighting important Y2K messages. All grant award packages beginning in August will have a Y2K message from the Assistant Secretary for Aging.

Finally, the Substance Abuse and Mental Health Services Administration (SAMHSA) plans to raise awareness of the Year 2000 problem with the various organizations which deal with substance abuse and mental health services. A letter was sent in May 1998 to all State and territorial mental health and substance abuse directors alerting them to the seriousness of the problem and requesting that they review their systems for Year 2000 conformance. Year 2000 requirements have been included in all grant award notices beginning in fiscal year 1998 and in all Request-for-Contracts since late 1996. SAMHSA management staff have been including the Year 2000 issue in all speaking opportunities, and Year 2000 information is being included on the SAMHSA WEB site.

On a regular basis agency representatives will be meeting with me to ensure continued success in our outreach efforts.


We are also addressing the need to develop public information about the compatibility of systems embedded in biomedical devices. Because it is imperative that medical equipment continues to function properly in the next century, the Department is requesting information about the Year 2000 compliance of medical devices and scientific laboratory equipment manufactured by biomedical equipment manufacturers.

HHS is working with the VA to better serve our mutual interests in Year 2000 compliance of biomedical equipment by merging our efforts on biomedical equipment. We have convened a steering committee to develop a charter and action milestones, and have asked the Department of Defense to participate as well. We will also work through the Health Care Outreach Sector Committee and the White House Year 2000 Conversion Council to enhance our ability to make more information available to the public.

Medical devices and scientific laboratory equipment may experience problems beginning January 1, 2000 if the computer systems, software applications, or embedded chips used in these devices and equipment contain two-digit fields for year representation. Agencies, such as the Department of Defense, Department of Veterans Affairs, and Department of Agriculture as well as HHS, are concerned that the existence of the Year 2000 date problem in biomedical equipment could pose potentially serious health and safety consequences.

On January 21, 1998, I signed a letter sent to over 16,000 biomedical equipment manufacturers, strongly urging them to identify noncompliant products and the actions they are taking to ensure compliance. The manufacturers are responding to this survey developed by the Department and the Food and Drug Administration (FDA). The Food and Drug Administration now operates and maintains an Internet web site listing all biomedical equipment information received from manufacturers relating to Year 2000 compliance. The site address is: www.fda.gov/cdrh/yr2000/year2000.html. In addition, the FDA moderated a session at the annual meeting of the Association for the Advancement of Medical Instrumentation and issued to industry, "Guidance on FDA's Expectations of Medical Device Manufacturers Concerning the Year 2000 Date Problem."

The response from manufacturers has been disappointing. To date, approximately ten percent of the 16,000 manufacturers have provided information. FDA issued a more targeted, follow-up letter on June 29, 1998, to about 2,700 manufacturers of computerized devices urging them to submit product data. Dr. Friedman will provide you with the specific results from the manufacturers' responses, but we see no indications that there will be significant problems that will place patients at risk, assuming that the manufacturers are implementing the reported solutions.

The Food and Drug Administration has held both Executive level and technical meetings with the Veteran's Health Administration (VHA) to assure a unified approach to the Y2K compliance of biomedical equipment. A Steering Committee has been formed, which will define HHS and DVA roles, responsibilities and schedules, determine the scope and content of the data to be collected from the manufacturers, reconcile redundant and conflicting data, merge data collected by VHA and FDA from the same manufacturer into a common format, and disseminate the data to interested parties via a single biomedical equipment website to be housed at FDA.


HHS will undertake additional outreach activities to inform the health care and human services community about the Year 2000 issue. These efforts are part of the government-wide outreach efforts developed and managed by the White House Year 2000 Conversion Council. The President's Council on Year 2000 Conversion created over 30 industry sector outreach groups. The purpose of these groups is to inform all the constituents of a given sector about what the federal government is doing to achieve Year 2000 in a timely way and to work with these constituencies, as appropriate, to increase their awareness and their own readiness. HHS chairs two groups - the Health Care Sector Outreach Committee and the Human Services Sector Outreach Committee. In addition, HHS is a member of other outreach committees, such as Benefit Payments, Education, Emergency Management, Employment-related Protection, Food Supply, and Science and Technology. We are also encouraging all our operating divisions with an Internet presence to establish a Year 2000 web site.


HHS still faces substantial challenges in its Year 2000 efforts. However, let me assure you, on behalf of Secretary Shalala, that we will continue to vigorously pursue Year 2000 remediation as our most important information technology initiative.

We recognize our obligation to the American people to assure that HHS's programs function properly now and in the next millennium.

I thank the Committee for its interest and oversight on this issue, and would be happy to answer any questions you may have.

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