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 The links are no longer being updated.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 HCFA Management by Nancy-Ann DeParle
Administrator, Health Care Financing Administration
U.S. Department of Health and Human Services

Before the House Ways & Means Health Subcommittee
February 11, 1999

Chairman Thomas, Congressman Stark, distinguished Committee members, thank you for inviting me to discuss our progress in strengthening Health Care Financing Administration (HCFA) management of Medicare and our other programs and responsibilities. I would also like to thank the General Accounting Office (GAO) for its evaluation and advice on this and other subjects over the past year since I became Administrator.

HCFA is the nation's largest health insurer, providing coverage to about 74 million people. Our workload has grown immensely with the Balanced Budget Act (BBA) of 1997, the Health Insurance Portability and Accountability Act (HIPAA) of 1996, the challenges of complying with Year 2000 computer issues, fighting fraud, waste, and abuse, and meeting the needs of the ever-growing number of beneficiaries we serve.

Our programs -- Medicare, Medicaid, and the new Children's Health Insurance Program -- now provide more coverage, more health plan options, and more health care security to Americans than ever before. Together they will pay for an estimated $335 billion in benefits in 1999, and represent the Federal government's third largest outlay. Medicare alone now processes about 900 million claims each year, is the nation's largest purchaser of managed care, and accounts for 11 percent of the federal budget.

We are working to meet our management challenges despite a rapidly growing workload. I want to thank this Committee for its support of the President's request for HCFA last year. The growth in our workload over the past three years is unprecedented in HCFA's history. Our discretionary program management appropriation has remained relatively flat in recent years. The Congress did provide the Administration's full request for an increased management appropriation for fiscal year 1999, which represents a good first step. The President's FY 2000 HCFA budget request builds on last year's appropriation, and includes user fee proposals to allow better program efficiency. We are eager to work with Congress to secure adequate funding to meet all of HCFA's responsibilities in fiscal year 2000 and beyond.

HCFA spends less than one percent of Medicare benefit outlays on Medicare program management, and less than 2 percent on administrative costs overall, compared to private sector administrative costs of 12 percent and higher. Some of the difference is due to efficient management and economies of scale. However, our growing workload makes it necessary to secure adequate funding to continue to improve our management of the program.

  • We are accomplishing a great deal with our resources. In the past year, we have: published 92 regulations and Federal Register notices implementing important Congressional directives, beneficiary protections, and taxpayer savings, including the savings in the Balanced Budget Act that are critical to extending the life of the Medicare Trust Fund;
  • responded to nearly 7,000 pieces of Congressional correspondence, and delivered 15 official Reports to Congress;
  • participated in more than 1,000 events around the country to help beneficiaries understand health plan changes;
  • made remarkable progress in addressing our Year 2000 challenge, and participated in more than 100 events around the country to help providers address this challenge;
  • made major strides in fighting fraud, waste and abuse and preventing payment errors; approved 50 Children's Health Insurance Plans which States expect to cover more than 2.5 million children;
  • issued more than 50 program guidance letters to State Medicaid and health officials on issues such as the managed care reforms in the BBA;
  • implemented a carefully planned National Medicare Education Program to help beneficiaries understand their rights and options, and make informed health care decisions;
  • converted the vast majority of Medicare HMOs to the new Medicare+Choice program, and added 10 new plans and expanded service areas for another 10 plans;
  • worked closely with state insurance regulators on important Health Insurance Portability and Accountability Act consumer protections;
  • updated our Strategic Plan to reflect our expanded mission, set clear goals and specific objectives, and establish performance measures to gauge our progress; and
  • begun a nationwide initiative to improve nursing home oversight and care.


We have made significant strides in improving HCFA management since I testified before this Subcommittee on this issue last year. In the past year I have tried to articulate a clear vision of a more efficient and effective HCFA. I brought in a new leadership team to help me achieve these goals. And we have taken a number of steps to help us do more and be more efficient, effective, responsive and accountable. In addition, the fiscal year 2000 President's budget builds on these steps by seeking new flexibilities to manage our programs more effectively.

Our first step was to completely reorganize our agency to focus on serving beneficiaries and outside partners like plans, providers and States. Our structure is now built around our "customers" rather than internal issues. This has sharpened our focus on the changes in our mission, and is helping us be more accessible and responsive. Most important, for the first time ever we have a Center for Beneficiary Services to ensure that we have beneficiaries first in mind in every decision we make and every action we take.

  • We brought in new staff and leadership from the private sector.
  • A computer scientist and security expert from the Los Alamos National Laboratory serves as our first-ever Chief Information Officer and heads our information technology team and Year 2000 efforts.
  • An internist who helped establish a private sector preferred provider organization health plan now leads our Center for Health Plans and Providers.
  • A geriatrician who was a private sector managed care plan medical Director is our Chief
  • Clinical Officer and heads our Office of Clinical Standards and Quality.
  • A gerontologist who ran a private sector firm devoted to helping corporations educate their workers on health care is leading our Medicare beneficiary education program.
  • A physician who has worked as a Medicare contractor medical Director is in charge of implementing much stronger oversight of Medicare claims processing contractors, with a special emphasis on making sure contractors meet their responsibility to be diligent in preventing fraud and payment errors.
  • A physician is leading a review of all our rules and regulations to see where they can be simplified, clarified, and refined to reduce administrative burdens on physicians and better meet beneficiary needs.
  • And a former State insurance department Director is coordinating our new State-level responsibilities under the Health Insurance Portability and Accountability Act.

Overall last year we doubled the number of physicians at the agency and hired about 450 new employees to replace retirees, fill new positions, and provide us with fresh private sector insight and expertise.

We have taken steps to make sure policies are applied fairly and evenly across the country. We have strengthened communication between leaders of our Regional Offices and our main policy and operations divisions. And we have established "Product Consistency Teams" to make sure that policies and procedures are applied uniformly across the country.

We are creating new advisory Committees, pursuant to the Federal Advisory Committee Act, that will continually bring outside insight and expertise to our agency. They will also help bring more openness to our operations and help us make sure we are managing our programs to meet beneficiary needs.

  • One advisory Committee, the Citizens Advisory Panel on Medicare Education, will help us make sure we are giving beneficiaries the information they need to be informed consumers in the new Medicare+Choice program.
  • Another advisory Committee, the Medicare Coverage Advisory Committee, will foster openness and public input in our coverage decision-making process. It will include experts in medicine, biology, public health, ethics, economics, data analysis, and other professions, and work from objective medical evidence for recommending when Medicare should pay for new medical treatments and services.
  • A third advisory Committee, announced in the President's budget, will include private sector business and management experts who can advise the Administrator on how to improve HCFA's business processes and incorporate innovations that will better serve our beneficiaries.

We are also seeking new flexibilities to strengthen our capacity to manage our programs. The President's budget calls for:

  • an assessment of our personnel skill mix and an evaluation of increased flexibilities in personnel matters that would help us pay competitively, hire the right staff to serve beneficiaries, and hold employees accountable for results;
  • increased accountability by establishing the outside advisory Committee discussed above to advise the Administrator on management issues and by regularly reporting to Congress and the public on the status of programs and initiatives;
  • reengineering our relationship with our Regional Offices and with the Department; allowing Medicare use market forces to prudently purchase care and services so we get the best quality and price for beneficiaries; and
  • reforming Medicare contrActing authority so we can hire from a broader pool of private businesses to handle Medicare claims and move toward a more competitive and effective procurement environment.

These reforms are needed to help us manage our programs efficiently and with a sharper focus on serving beneficiaries and ensuring access to high quality care.


Meeting the Year 2000 computer programming challenge must be our highest priority. HCFA got a late start but we are now making substantial progress in addressing this critical challenge. I want to assure beneficiaries that they should not worry. We are working with the health care community to assure that beneficiaries will continue to have access to the care they need. And I want to assure health providers that HCFA and its contractors will be prepared to pay their claims come January 1, 2000. However, providers must act now to be sure that their computer systems are fixed so they can submit claims to us. We continue our work and testing, but I am confident that we will be ready well before January 1, 2000. To date:

  • all of our 25 internal mission critical systems are now certified as Year 2000 compliant ("certified" means that independent experts have overseen renovations and testing and validated that they have been done properly);
  • our 78 external mission critical systems that our claims processing contractors use to pay bills are fully renovated, and more than 70 percent are certified as compliant. We have experts on-site every day, monitoring and assisting contractors who have significant amounts of remaining Year 2000 work;
  • systems for about 95 percent of Medicare managed care plans are reported compliant; and
  • we have completed the first round of certification testing on twenty-four of our sixty non-mission critical internal systems.

There is no question that we have faced an uphill battle in achieving Year 2000 compliance. We have a substantial amount of work remaining this year to test and validate our systems. We are working to encourage and help providers meet their Year 2000 responsibilities, and to help beneficiaries understand what they need to know about the Year 2000 issue. We also must work to renovate our non-mission critical systems, and to make temporary fixes permanent.

A number of key steps are getting us where we need to be. They include:

  • building a "War Room" to track Year 2000 efforts within the agency and with partners across the country so we know the current status of all essential Year 2000 projects; negotiating contract amendments with more than 60 claims processing contractors to establish clear Year 2000 requirements;
  • establishing contractor oversight teams to closely monitor and manage Year 2000 work on-site and full time for claims processing contractors who most need help;
  • hiring independent expert contractors to give us greater assurance that Year 2000 work is done properly by us, our claims processing contractors, and States; and
  • helping health care providers through a broad outreach campaign that includes mailings, publications, an Internet site, a speaker's bureau, and a wide range of other efforts.

I must be clear, however, about what HCFA can and cannot do. We are responsible for all our own systems, our claims processing contractors' systems, and data exchange interfaces among all of these systems and the systems of States, providers, banks, phone companies, and other partners. We do not have the authority, ability, or resources to step in and fix systems for others, such as States or providers. And that leads to a rather substantial concern.

It is not enough for HCFA alone to be ready for the Year 2000. Health care providers must be Year 2000 compliant in order to bill us properly and continue to provide high quality care and service to Medicare beneficiaries. States also must be Year 2000 compliant for Medicaid and CHIP programs to continue uninterrupted service. Our monitoring indicates that some States and providers could well fail. We are providing assistance to the extent that we are able, but that likely will not be enough. This matter is of urgent concern, and literally grows in importance with each passing day.

Our own progress in meeting the Year 2000 challenge is due in large part to the outstanding effort and commitment of staff throughout HCFA and at our claims processing contractors. I also want to thank the Secretary and my colleagues at the Department of Health and Human Services, especially the HHS Inspector General, for their support. We have been greatly aided by wise counsel from the General Accounting Office and, importantly, by the expert independent validation contractors the GAO recommended we hire to ensure that Year 2000 work is done correctly. And, without question, we could not have come so far so quickly without the timely support and funding that Congress has provided.


We are making unprecedented strides in promoting program integrity. This includes both fighting fraud, waste and abuse, and making sure we are paying right. We have set new records for restitutions, convictions, and exclusions of problem providers by working more closely with our law enforcement partners. Since 1993, these efforts have saved taxpayers billions of dollars and increased health care fraud convictions by more than 240 percent. We also are addressing honest errors in billing and payment through good program management and business practices, improved education and communication with providers, and correcting payment errors regardless of the reason for them.

We have developed a comprehensive program integrity plan to build on these successes. The plan calls for:

  • increasing the effectiveness of medical review by increasing the overall level of review, targeting it on problem areas, hiring additional physicians to improve its effectiveness, using more computer "edits" that prevent improper payments, training employees to develop cases for prosecution, evaluating local policies to see where national policy may be needed, and measuring how well individual contractors perform medical reviews;
  • stepping up efforts to help providers comply with rules, establishing clear enrollment and periodic reenrollment requirements; and requiring bonds for certain types of providers.
  • proactively addressing potential program integrity problems before they occur in the new programs, benefits, and payment systems created under the BBA;
  • planning how to deal with potential program integrity problems related to the Year 2000 computer issue; and
  • focusing on special areas of concern, such as inpatient hospital care, congregate care such as nursing homes and assisted living centers, community mental health centers, as well as addressing the unique program integrity issues related to managed care.

We further expect our program integrity successes to increase this year as we begin to use new authority to hire special program integrity contractors. We plan to hire payment safeguard contractors to focus on medical review, fraud case development, cost report audits and related program safeguard functions as needed; a coordination of benefits contractor to consolidate all activities associated with making sure Medicare does not pay for claims when other insurers are liable; a statistical analysis contractor to provide on-going analyses to help detect fraud; and managed care integrity contractor(s) to target issues unique to health plans.

We expect to start these new, special program integrity contractors on the job this year. This is important, because the HHS Inspector General reports that not all Medicare's claims processing contractors are effectively fighting fraud and abuse. We have responded by including fraud case developing in the scope of work for our new special program integrity contractors, and by ordering existing contractors to report all suspected fraud cases immediately to the HHS Inspector General. But, clearly, we need to do more.

That is one reason why the President's budget proposes a new legislative package to fight fraud, waste and abuse that will save about $3 billion over 5 years. It includes eliminating excessive reimbursement for drugs, putting stricter controls on outpatient mental health services, requiring other insurers to report all Medicare beneficiaries they cover so Medicare can make sure it does not pay bills that should be paid by other insurers. It also include more authority to choose the most effective Medicare contractors.


The BBA includes 335 provisions that affect our programs, with savings that are critical to achieving a balanced budget and extending the life of the Medicare Trust Fund for 10 years. We have fully implemented more than half of those provisions, and many more are partially implemented.

We have implemented provisions for Medicare coverage of new preventive benefits, including expanded coverage for test strips and education programs to help diabetics control their disease, bone density measurement for beneficiaries at risk of osteoporosis, and several colorectal cancer screening tests. We also expanded preventive benefits for women so Medicare now covers a screening pap smear, pelvic exam and clinical breast exam every three years for most women, and every year for women at high risk for cervical or vaginal cancer. And Medicare now covers annual screening mammograms for all women age 40 and over, and a one-time initial, or baseline, mammogram for women ages 35-39, paying for these tests whether or not beneficiaries have met their annual deductibles.

We are implementing important demonstration projects designed to test whether market forces can help Medicare save money and promote high quality care. We will soon begin a test in Polk County, Florida of competitive bidding as a way to get the best quality and price for durable medical equipment and supplies. Bidding documents are scheduled for release this week, and a conference for potential bidders is scheduled for February 23. A toll-free hotline (888-289-0710) is available to answer beneficiary and provider questions about the project.

We will soon begin a test of competitive pricing for managed care, in which a bidding process will be used to set rates for Medicare+Choice plans in two local markets. A Medicare Competitive Pricing Advisory Commission, chaired by General Motors Health Care Initiative Executive Director James Cubbin, has made recommendations regarding key design features of the project, and selected the markets of Phoenix, Arizona and Kansas City, Kansas and Missouri, as initial demonstration sites.

We also are developing important new payment systems that include incentives to provide care efficiently. We have already implemented a new prospective payment system called for in the BBA for skilled nursing facility costs. Similar prospective payment systems are being developed for rehabilitation hospitals, home health care, and outpatient hospital care.


We are implementing the new Medicare+Choice program, which was also mandated by the BBA. It allows Medicare beneficiaries to select from a wide range of plan options available in the private sector today. It requires a massive new beneficiary education campaign, and includes important new protections for patients and providers, as well as statutory requirements for quality assessment and improvement.

We believe very strongly that managed care is good as a voluntary option next to traditional Medicare. Medicare managed care enrollment has nearly tripled under the Clinton Administration, from 2.3 million when the President took office to now 6.8 million. We are taking steps to help beneficiaries understand their new options and encourage plans to provide these new options.

We have launched the National Medicare Education Program to help beneficiaries understand the program and receive accurate and unbiased information about their benefits, rights, and options. The campaign includes:

  • mailing a Medicare and You handbook to explain new benefits and health plan options; a toll-free "1-800-Medicare" call center with live operators to answer questions and provide additional print information on request;
  • a consumer-friendly Internet site, www.Medicare.gov;
  • a program to teach partners in other organizations that serve Medicare beneficiaries how to teach others in their organizations and communities to explain the changes;
  • enhanced beneficiary counseling from State Health Insurance Assistance Programs; a national publicity campaign;
  • a multitude of state and local outreach efforts; and
  • a comprehensive assessment of these efforts. An initial pilot test was begun in five states in 1998. Results will help to refine the program for a full-scale, national campaign in preparation for the 1999 open enrollment period beginning in the fall.

We are taking several steps to reach out to health plans to encourage participation in the Medicare+Choice program. Last summer we held outreach sessions attended by more than 1,500 plan representatives. And we are strengthening lines of communication with plans. I have named a high-level point person within HCFA whom plans can call directly if they have trouble resolving issues through normal HCFA channels.

We have converted the vast majority of Medicare HMOs -- more than 300 -- to the new Medicare+Choice program. We have approved a total of 10 new Medicare+Choice plans and 10 service area expansions for existing plans since November. We are currently reviewing another 28 new plan applications and 19 service area expansion applications. The newly approved plans include provider sponsored organizations, which are HMOs run by hospitals and physicians rather than insurers. One of these plans is the first to enter Medicare with a federal waiver from State licensure, which is allowed for the first time ever under the Medicare+Choice program. We have also taken all necessary steps so that Medicare beneficiaries can be offered Medical Savings Account options, as well.

We have taken several additional steps to implement Medicare+Choice. We have developed new beneficiary and plan enrollment systems, payment systems, appeals and grievance procedures, and quality assurance mechanisms. And we are collecting data that will be used to phase in "risk adjustment" to meet the BBA requirement that payments to plans take into account the health status of individual enrollees.

We will soon publish refinements to regulations which improve beneficiary access to timely information about plan changes that affect them. The refinements also address plan concerns and should help encourage plans to offer more options to Medicare beneficiaries.

And, to further facilitate plan participation, the President's budget gives plans two additional months to file the information that we use to approve benefit and premium structures. This "Adjusted Community Rate" (ACR) data would not be due until July 1, rather than May 1. July 1 is the latest we can accept, process, and approve premium and benefit package data and still mail beneficiaries information about available plans in time for the November 1999 Medicare+Choice open enrollment period.

While I am concerned about the business decision that some Medicare HMOs made last October to pull out of the program this year, it is important to put those business decisions in context. Some of the plans that withdrew had market positions or internal management issues that made it hard for them to compete. And they faced rising prescription drug prices and other commercial pressures. Many of the disrupted beneficiaries had several other plans to choose from, and all but 50,000 had at least one other plan option.

It is our understanding that the Federal Employees Health Benefits Program (FEHBP) experienced a similar rate of plan pullouts. We have observed instances where plans that withdrew Medicare service from specific counties also withdrew their FEHBP service in many of those same counties. As mentioned above, the majority of Medicare HMOs converted to the Medicare+Choice program, we have approved 20 new plan and service area expansions approved since November, and are now reviewing applications from another 47 plans that want to get into or expand their role in Medicare+Choice. This suggests that plan withdrawal decisions have more to do with internal plan and larger marketplace issues than with Medicare rates or regulations.

Still, the President's budget does include proposals to protect beneficiaries from disruption by plan withdrawals. Beneficiaries need earlier notification of plan withdrawals, and broader access to supplemental Medigap polices if they are forced to return to fee-for-service coverage.


We have several other important initiatives underway addressing children's health insurance, consumer protections for Medicaid beneficiaries in managed care, consumer protections in the private insurance market, and consumer protections in nursing homes.

Children's Health Insurance Program.

We are implementing the new Children's Health Insurance Program, or CHIP. We have approved 50 State and Territory plans, which States expect to cover more than 2.5 million children, most of whom are in working families who do not earn enough to afford coverage for their children. Amendments expanding state plans have been approved for nine states, and we are now reviewing another nine amendment proposals, which should cover even more children.


We have proposed regulations to implement BBA provisions mandating strong, new patient protection and quality improvement rules for managed care plans that now serve about half of all Medicaid beneficiaries nationwide are now enrolled in managed care. This is a comprehensive and important change that should not affect States or plans ability to make Year 2000 systems changes. We also have sent State Medicaid Directors more than 50 letters with guidance as other Medicaid-related BBA provisions became effective. These letters address provisions that help States expand assistance to low-income Medicare beneficiaries, let States cover working disabled people with incomes up to 250 percent of poverty, allow states to mandate that most Medicaid beneficiaries enroll in managed care without obtaining a federal waiver, and many others.

Health Insurance Portability and Accountability Act

We have undertaken tasks under the Health Insurance Portability and Accountability Act that are well outside our traditional responsibilities. We are charged with overseeing protections for individuals with preexisting conditions and other broad private sector insurance reforms, and we must enforce these reforms in States that fail to do so. To date, we are enforcing all provisions of the law in Rhode Island and Missouri, and several major provisions in California. As many as 30 other States may not have implemented all provisions of the law. Our fiscal year 2000 budget request includes resources for direct enforcement and close coordination with State insurance departments that are necessary for us to meet our new obligations.

HIPAA also charges our agency with improving and protecting health care data that is exchanged electronically. We are now reviewing several thousand, often highly technical, comments on Notices of Proposed Rule Making regarding a national provider identifier system, an employer identifier system, electronic transactions and code sets, and electronic data security. We expect to soon publish Notices of Proposed Rule Making for a health plan identifier system and for electronic claims attachments.

Nursing Home Initiative

We have also undertaken a new initiative to improve oversight and quality of nursing home care. We are working with States to improve inspections, cracking down on homes that repeatedly violate safety rules, focusing on prevention of physical abuse and neglect such as dehydration and malnutrition, and posting nursing home quality ratings on the Internet. These reforms build on progress made since 1995, when we began enforcing the toughest nursing home regulations ever. The Clinton Administration will again submit legislation to Congress to require criminal background checks of prospective nursing home employees, establish a national registry of nursing home workers who have abused or neglected residents or misappropriated residents' property, and allow more types of nursing home workers to help residents eat and drink during busy mealtimes.


We are making substantial progress in meeting our challenges and better managing the programs that so many millions of Americans rely on for health care coverage. Clearly, we have much more to do. That is why we are implementing the many management reforms discussed in this testimony. That is why the President's budget includes provisions to increase our flexibility in procurement and personnel matters, and to establish an official advisory Committee to help us stay on top of the rapidly evolving health care marketplace. And that is why I am grateful for the advice and assistance of this Committee and of the General Accounting Office. I thank you again for holding this hearing, and I am happy to answer your questions.

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)