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
- 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
- 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
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
- 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
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
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.
THE YEAR 2000
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.
FIGHTING FRAUD AND PAYING RIGHT
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.
BALANCED BUDGET ACT
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
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
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
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
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.