DHHS Eagle graphic
ASL Header
Mission Nav Button Division Nav Button Grants Nav Button Testimony Nav Button Other Links Nav Button ASL Home Nav Button
US Capitol Building
HHS Home
Contact Us
dot graphic Testimony bar

This is an archive page. The links are no longer being updated.

Testimony on Year 2000 Computer Problem and Health Care Industry by Nancy_Ann DeParle
Administrator Health Care Financing Administration U.S. Department of Health and Human Services

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

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 services.


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 fixes;
  • 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 accomplished.


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 schedule slippage."

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 postponed include:

  • prospective payment systems for outpatient hospital care and home health services;
  • consolidated billing for physician and other Medicare Part B services in nursing homes; and,
  • 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 new year.


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 amendment.


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.

A Systems Perspective

Providers or their billing agents submit claims.

"Front End" Systems at each local contractor collect, format, and edit claims data.

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 enrollment status.

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 adjustments.

Privacy Notice (www.hhs.gov/Privacy.html) | FOIA (www.hhs.gov/foia/) | What's New (www.hhs.gov/about/index.html#topiclist) | FAQs (answers.hhs.gov) | Reading Room (www.hhs.gov/read/) | Site Info (www.hhs.gov/SiteMap.html)