Chairman Bennett, Vice Chairman Dodd, distinguished committee members, thank you for
inviting me here today to discuss my highest priority. We must assure that the more than 70
million Medicare and Medicaid beneficiaries experience no interruption in services because of
the Year 2000 computer problem. We also must assure that the approximately 1.6 million
Medicare and Medicaid providers continue to receive prompt and efficient payment for their
I am committed to doing everything possible to address this issue, and we are making substantial
progress in addressing the Year 2000 problem. Since I became HCFA Administrator in
November we have:
- completed renovation of five of our six standard systems;
- completed renovation of 24 of our 37 most critical internal systems;
- initiated testing of renovated systems;
- conducted at least one site visit to every claims processing contractor, and at least two site
visits to every systems maintainer for independent verification and validation;
- provided clear instructions to contractors on everything they must do to be Year 2000
compliant, and made sure they assessed their status based on those instructions;
- negotiated a contract that makes clear the responsibility Medicare claims processing
contractors have in ensuring that their systems are Year 2000 compliant;
- developed more realistic cost estimates for Year 2000 work after contractors reassessed
their workload based on the instructions we provided;
- conducted outreach to states, providers, and other health care entities; and
- gathered data from states on Medicaid system Year 2000 status.
The Year 2000 especially affects Medicare because of our extensive reliance on multiple
computer systems. More than 183 systems are used in administering the Medicare and Medicaid
programs, and 98 of these are considered "mission critical" for establishing beneficiary eligibility
and making payments to providers, plans, and states. Medicare is the most automated health care
payer in the country. We process nearly one billion claims each year, or about 17 million
transactions each week. Fully 98 percent of inpatient hospital and other Medicare Part A claims
are processed electronically, as are 85 percent of physician and other Medicare Part B claims.
The renovation process is complicated because each system used by Medicare and by its 60-plus
claims processing contractors, as well as interfaces with State Medicaid programs, banking
institutions and some 1.6 million providers all must be thoroughly reviewed and renovated by
those responsible for each particular system. They must be tested, both alone and for the
complicated interfaces among them. To fix Medicare systems alone, nearly 50 million lines of
internal and external systems code must go through the renovation process. We must renovate
all Medicare-specific software, and work with new versions of vendor-supplied software,
including operating systems that drive the hardware we use. Some hardware must be upgraded,
and our telecommunications equipment and software must be compliant. We must assure that all
data exchanges with thousands of partners are compliant. I have attached a chart to my testimony
which depicts the systems that must interface to process Medicare claims.
Testing of Year 2000 changes presents a far greater burden than testing of routine system
changes because we must test multiple times on a range of different dates. For example, we must
test February 29, 2000 and March 1, 2000 because 2000 is a leap year. Normally we would
never consider so much change and testing at one time, but we have no choice.
If we do not fix all information systems that might have Year 2000 problems, 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.
Processing paper claims by hand is one contingency if we fail. Given the nearly one billion
Medicare claims we process each year, it is a possibility that strongly motivates us to succeed.
Paying providers prospectively, based on previous payments to them, is another option, which
would be a considerable endeavor itself. Clearly our best option is to successfully complete all
of our Year 2000 renovations.
That is why we are requiring contractors to be in full compliance with Year 2000 requirements,
with all code renovated and fully future date tested, by December 31, 1998. Renovations to
mission critical internal systems also must be complete by December 31, 1998. We expect to
complete end-to-end testing of how claims are processed through our entire network of renovated
systems in the Spring, and then have the rest of 1999 to fix any remaining glitches and take any
additional corrective action that might be necessary.
Year 2000 compliance for the Medicare program is considered a mission critical activity and as
such, is being closely scrutinized and monitored by many sources, including the Office of
Management and Budget, General Accounting Office, Office of the Inspector General and the
U.S. Department of Health and Human Services Chief Information Officer, the Assistant Secretary of
Management and Budget.
I have committed significant staff and other resources to this priority. Actions taken include:
- setting up special teams of employees whose sole responsibility is making Year 2000
- hiring retired federal programmers to assist with Year 2000 efforts;
- hiring Intermetrics, a special Independent Validation and Verification contractor, to make
sure Year 2000 fixes are done right;
- hiring Seta Corp. to independently test systems after we and our contractors conclude
renovation and testing to make sure they work properly;
- negotiating contract amendments with the more than 60 Medicare fiscal intermediaries
and carriers to ensure that they use information technology that is Year 2000 compliant;
- closely tracking contractor progress to ensure that work is on schedule;
- creating a special contingency planning unit to make sure disruptions do not result from
any unexpected problems;
- working with the Congress to redirect $62 million within the Agency and Department to
this effort for FY 1998; and,
- working with Congress to obtain an additional $62 million for FY 1999.
Intermetrics is now very actively providing comprehensive oversight of contractors, with more
site visits for those with high volumes of claims or evidence that they are behind schedule.
Intermetrics is monitoring contractors' Year 2000 resources, quality assurance, test plans, use of
commercial software, and progress in non-Medicare systems in order to fully assess their Year
2000 status. Because of their efforts and our own increased attention to this problem, we now
have a much more accurate assessment of what must be done and how it should be
This more accurate assessment makes clear that, because of the Year 2000 imperative, related
work must take precedence over other projects that require systems changes. Many other private
and public organizations, including most major insurance companies, have reached the same
conclusion and are halting other projects involving information technology changes to clear the
decks for the Year 2000. Intermetrics advises that we must clear the decks of projects that could
interfere with Year 2000 work. Intermetrics specifically advised us to "seek necessary relief
from Congressional mandates, system transitions and version releases to allow near-term,
focused attention to achieving Y2K compliant systems." This includes projects that are complex,
or which would occur during a critical window between October 1999 and March 2000.
Otherwise, they warned, "many of your most critical system renovations have risk of significant
Most of the more than 300 provisions affecting HCFA in the Balanced Budget Act of 1997 do
not have to be delayed. That is because they are already complete, or can be completed before
major systems must be frozen for the critical Year 2000 transition period.
Projects affected by the Year 2000 include both Balanced Budget Act provisions and other
Agency priorities. For example, in April, we made the difficult decision to postpone final
transitions to uniform systems for Part A and Part B contractors. Over the past two years we
have whittled the number of different computer systems used by our contractors down to six
from nine. Uniform systems will go a long way in helping us to streamline Agency operations
and provide better access to program data. But the delay is essential if our contractors are to
renovate and test systems before our December 31, 1998 deadline. Postponing this activity
allowed us to redirect both valuable programmer time and $20 million in FY 1998 appropriated
funds to Year 2000 work.
At present, Balanced Budget Act provisions whose implementation we believe must be
- prospective payment systems for outpatient hospital care and home health services;
- consolidated billing for physician and other Medicare Part B services in nursing homes;
- a new fee schedule for ambulance services.
These activities must be postponed because they involve complex systems changes and
interactions with other systems that would interfere with critical Year 2000 work. Our claims
processing contractors concur with the decision to postpone these activities; a July 7, 1998 letter
expressing their support is attached to my testimony.
We may also need to delay some activities that are not complicated but which involve changes
that could create an unstable environment during a critical window of Year 2000 activity, such as
provider payment updates. We will work with Congress and providers to evaluate our options
and ensure that any necessary delays in provider updates do not create a hardship.
If Year 2000 system renovations are completed ahead of schedule, we will make every effort to
put these provisions back on their original schedule. But at this time it appears that postponing
some projects is necessary to focus resources and freeze systems so essential Year 2000 work can
be done, and thereby avoid complicating factors in the critical months right before and after the
As mentioned above, we have developed with our claims processing contractors an amendment
to their contracts articulating the requirement that they be Year 2000 compliant by December 31,
1998. It includes a clear definition of Year 2000 compliance, a clear statement that contractors
will not be held accountable for factors beyond their control, and expressly states that Year 2000
activities are functions under the contract for which the Indemnification and Limitation of
Liability provisions will apply. It also acknowledges our responsibility to provide adequate
funding. All contractors with whom we have spoken about this indicate that they will sign the
HCFA began funding millennium efforts to renovate both its internal and external systems in
fiscal year 1996. The Agency spent $7.6 million in fiscal year 1996 and $14.5 million in fiscal
year 1997 on millennium related activities.
The continually evolving definition of what is required to meet millennium requirements has a
significant impact on the budget process. This year, we recognized that the FY 1998 funding of
$45 million we had allocated was not enough to support millennium efforts at our claims
processing contractors. We reallocated $62.1 million in additional funds from within the Agency
and the Department to fund these essential activities. We have already spent approximately
$53.4 million of the $107.1 million we have budgeted for millennium activities in FY 1998.
The constantly evolving definition of millennium compliance also impacts our fiscal year 1999
budget estimate. The President's budget requests $37.5 million to support millennium activities.
We are working with Congress to acquire an additional $61.5 million, which would provide a
total of $99 million to continue millennium code renovation and other millennium related
activities. It is also likely that we will need additional funding in FY 1999 and FY 2000 to be
prepared for the possibility that not all our remediation efforts will be completely successful. As
we continually reassess our millennium compliance funding needs, we will work with Congress
to ensure that funding will be available to support this critical project.
We are making solid, steady progress in preparing for the Year 2000. We have taken steps to
obtain and direct necessary resources. We have made difficult decisions to delay other priorities
in order to clear the decks for necessary Year 2000 work. We are closely monitoring our own
efforts and those of our contractors to ensure that we are on track. And we are making necessary
contingency plans to prepare for any unexpected problems. We appreciate this committee's
support, and I am happy to answer any questions you might have.
PROCESSING A MEDICARE CLAIM
A Systems Perspective
Providers or their billing agents submit claims.
"Front End" Systems at each local contractor collect, format, and edit claims
Standard Systems -- two for Part A, three for Part B, and one that is a
combined Part B/Durable Medical Equipment system -- validate claims data,
put claims through medical review screens, make sure claims are not
duplicates, validate services, check for fraud and abuse, assign payment
rates, and compute any patient financial liability.
HCFA-furnished Software is integrated into the claims process at each
operating site to address provider codes, service groupings, payment rates
and fee schedules, and reimbursement statistics.
The Common Working File (CWF) maintains information about Medicare
beneficiary entitlement, eligibility, deductibles, payment limits for specific
services, whether they have other insurance that has to pay before Medicare
does, hospice enrollment, end-stage renal disease status, and managed care
HCFA Internal Systems collect information from the CWF and the contractors'
systems when the processes are completed.
HCFA Enrollment Systems interface with Social Security for new enrollees,
changes in beneficiary data, and billing of beneficiaries and states, and they
track managed care enrollments.
"Back End" Systems at each local contractor issue payments, explain
benefits to beneficiaries, settle provider cost reports, coordinate with other
insurers, maintain history files, and perform interim rate reviews and payment