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Testimony on the Readiness of the Health Care Industry for the Year 2000 Date Issue 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 Problems
April 14, 1999


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). I am pleased to appear before this Committee to provide you with a report on the accomplishments and the challenges faced by the Department of Health and Human Services (HHS) in ensuring that our systems are Millennium compliant.

The Secretary and I have declared the Year 2000 (Y2K) date issue to be our job #1. 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 solving the Year 2000 problem. 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 by the Y2K problem.

For this reason, we established December 31, 1998, as our internal deadline for Year 2000 compliance of mission critical systems, intentionally setting it three months ahead of the official government-wide deadline of March 31, 1999. This was done in order to provide a full year of operations in which to detect and remedy any adverse interactions among HHS systems and those of our many service partners, including other Federal agencies, States and local governments, Tribes, and contractors. As of March 31, 1999, most of our mission critical systems were Y2K compliant. We have two internal systems, Resource and Patient Management System (RPMS) and Payment Management System (PMS). The RPMS is an integrated solution for management of both clinical and administrative information in healthcare facilities. The PMS is a centralized electronic payment and cash management service.


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 Divisions (OPDIV) Chief Information Officers (CIOS). Each OPDIV CIO is responsible for regular reporting directly to the OPDIV head and the Department's Chief Information Officer on Year 2000 efforts until the Year 2000 date compliance is achieved.

HHS has also taken action to retain, re-employ, and attract qualified information technology professionals, using both employment and contrActing authorities. On

March 31, 1998, 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, the Health Care Financing Administration has used the waiver authority to reemploy forty-one annuitants, and the Program Support Center has hired one annuitant.

HHS agencies collect a tremendous amount of information that requires data exchanges. The Department has inventoried our data exchanges and contacted our service partners to emphasize the importance of ensuring 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, 1998, HHS provided a listing of State interfaces to NASIRE for its review of completeness and accuracy. We have been and will continue to update this listing monthly until all of our State interfaces are compliant. HHS continues to 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 (IV&V) 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. Consequently, all of our Operating Divisions have submitted initial business continuity and contingency plans to the Department. These plans will be finalized and tested throughout 1999 to permit business continuity in the event of system failure.


The foremost concern of the Health Care Financing Administration (HCFA) has been, and continues to be, ensuring that the more than 70 million Medicare, Medicaid, and State Children's Health Insurance Program (SCHIP) beneficiaries continue to receive the health care services they need. HCFA has been aggressively addressing the Y2K issues in those systems over which it has responsibility. It has also gone well beyond its responsibility as a payer by engaging in an unprecedented outreach effort to raise awareness and provide information to governmental and private entities in the health care sector to ensure continuity of needed services and to protect patient safety.


Fixing Medicare systems has proven to be HHS's greatest Year 2000 challenge, and we expect it to be our greatest success story. Medicare is the most automated health care payer in the country. Payment of fee-for-service bills is accomplished by 60 external contractors that operate and maintain 78 mission-critical systems that process nearly one billion claims each year from over one million Health care providers.

HCFA has aggressively attacked those areas over which it has direct responsibility. While the entire effort will necessarily continue throughout the year, HCFA has already accomplished its major milestones. HCFA is confident that its claims processing and payment systems will work and that hospitals, doctors, and other health care providers will be timely and accurately paid -- assuming they can appropriately submit bills.

  • All of HCFA's 81 internal systems were renovated, tested, and certified compliant by the government-wide deadline of March 31, 1999. In fact, HCFA's 25 mission-critical internal systems were compliant three months ahead of the government-wide deadline. Among other things, these internal systems:
    • manage the eligibility, enrollment and premium status of 39 million beneficiaries;
    • make payments to approximately 450 managed care plans on behalf of over six million beneficiaries; and
    • operate HCFA's accounts receivable and payable operations.
  • All of the 78 mission-critical external systems that process claims and pay bills have been renovated, and HCFA will announce the compliance status of these systems in the near future.

HCFA required that all of the mission-critical external systems be renovated and tested by March 31, 1999. As the Committee is aware, 54 of the systems were self-certified as compliant at the end of 1998, some with minor qualifications. A thorough review of all systems is now underway. HCFA mandated that all contractors, including those that had previously self-certified with qualifications, submit written certifications and accompanying qualifications, if any. HCFA is in the process of carefully reviewing all of the documentation recently received from the contractors and supplementing it, where necessary, with other evidence gathered by its onsite review teams. HCFA will determine compliance in collaboration with its IV&V expert, AverStar. HCFA's analysis and conclusions will also be supported through consultation with the Department's Office of the Inspector General (OIG) and the General Accounting Office (GAO).

With remediated contractor systems in place, providers have been able to test whether their claims, with simulated future dates, can be accepted by the contractors. The results of these tests have been promising so far.

HCFA's progress on remediation and testing has been so successful that the Agency is now confident it will be able to effectuate the FY 2000 and CY 2000 provider payment updates in a timely manner. HCFA had previously announced to the Congress and provider community that it might have to substantially delay these statutorily-mandated updates. HCFA recently determined that the updates to hospitals, skilled nursing facilities, home health agencies, and other Part A providers can be implemented on October 1, 1999. Updates to physicians, clinical laboratories, and other Part B providers and suppliers, while they cannot take place on January 1, 2000, will be implemented starting January 17 and apply to all claims received after January 1.

For the remainder of 1999, HCFA will continue to renovate, test, and retest its systems. In July, HCFA will require recertifications from all of its 78 mission-critical external systems. By July, HCFA will have made all of the changes required to its payment systems before it must freeze its systems to perform final tests in a fully production-ready, integrated environment.

Contingency Planning

Although HCFA fully intends to have all its systems ready long before January 1, 2000, it is developing contingency plans for all mission-critical business processes in case any unanticipated problems arise. The top priorities, as reflected in these plans, are to:

  • Process claims so as to be able to pay providers promptly;
  • Prevent payment errors and potential fraud and abuse;
  • Ensure quality of care; and
  • Enroll beneficiaries.

HCFA is closely following the GAO's guidance on contingency planning. HCFA will soon complete the Agency-wide task of drafting the contingency plans, defining events that will trigger use of the plans, and establishing and training implementation teams should the need arise to execute the plans.

Providers' Progress

Providers must ready their own billing systems for the Year 2000 if the health care system is to meet the millennium challenge completely and successfully. One of the first steps is changing the format of Medicare claims to allow for 8-digit date fields. As the Committee is aware, HCFA required that all providers or their billing agents submit Y2K-compliant claims by no later than April 5, 1999. HCFA's contractors made compliant billing software available to all claims submitters for free or minimal cost. We are pleased to announce that providers have made substantial progress in submitting compliant claims. As of last week, 99.99 percent of Part B claims submitters were submitting claims with 8-digit date fields. About 79 percent of the Part A claims submitters were doing the same. HCFA has been working with industry trade groups to identify the few remaining problems to bring the compliance rate to 100 percent.

While this is an important first step toward Y2K readiness, it is not the only step. Providing quality care to beneficiaries goes well beyond processing payments successfully. It depends upon doctors, hospitals, and other service providers ensuring that their equipment will work and their offices will remain open. It depends upon pharmaceutical and medical supply chains, which rely heavily on information technology, continuing to operate normally. Health care providers must take all steps necessary to fully prepare for the Year 2000.

Provider Outreach

While HCFA does not have the authority, ability, or resources to step in and fix systems for others, it has devoted much of its energies toward educating the health care community.

  • Last month, in an unprecedented step, HCFA Administrator Nancy-Ann Min DeParle mailed a letter to the more than 1.3 million providers serving Medicare beneficiaries explaining the gravity of the Year 2000 problem and providing a checklist for what must be done to achieve compliance.
  • HCFA launched a special Y2K Internet site (cms.hhs.gov/y2k) that counsels providers on how to: identify hardware and software that is mission-critical to their business operations and assess the readiness of this inventory; test systems and their interfaces; and develop business continuity plans for unexpected problems. The website also included links to other essential sites for providers, such as the FDA's site on medical device compliance. HCFA also recently installed a toll-free provider assistance line (1-800-958-HCFA [4232]) that updates providers on HCFA's Y2K policies and provides general assistance to help providers prepare their systems.
  • HCFA is also reaching out especially to the more than 300 managed care organizations (MCOs) with which it contracts. As I mentioned earlier, HCFA's systems for maintaining managed care enrollment and paying MCOs is already compliant. HCFA is requiring its MCO partners to report on their Y2K readiness and to submit contingency plans, which HCFA will assess.
  • HCFA staff throughout the country have been actively involved in sponsoring and participating in conferences, symposiums, and other outreach programs. Members of HCFA's Speakers' Bureau have made hundreds of presentations and answered questions on Y2K issues around the country. HCFA recently co-sponsored Y2K Action Week conferences in 12 cities across the country. Soon, HCFA will present listening sessions at ______.
  • HCFA is leading the health care sector of the President's Council on Year 2000 Conversion, which includes working closely with provider trade associations and public sector health partners to raise awareness of the millennium issue and encourage all providers to become compliant.

Providers must meet the Y2K challenge head on or risk not being able to receive prompt payment from Medicare, Medicaid, or virtually any other insurer. We welcome Congress' help in making providers aware of the Year 2000 and energizing them to address their part of the problem. I invite you to help us identify opportunities to get the Year 2000 message across and encourage you to stress the importance of this issue when you meet with providers.

States' Progress

Our concern for States is as great as our concern for providers. It is each State's responsibility to take the steps it believes are appropriate to meet the needs of its Medicaid and SCHIP beneficiaries. HCFA's primary role is to assess, as best its can, each State's progress and to provide guidance on remediation, testing, and contingency planning. While HCFA does not have the authority, ability, or resources to fix State systems, it is doing all it can to assist States.

HCFA's ten regional offices are monitoring the status of each State's remediation effort. HCFA also engaged an expert IV&V contractor, TRW, to assist in conducting on-site visits in every State to provide advice (including examples of best practices) and validate assessments. To date, HCFA and its IV&V experts have visited 35 States and the District of Columbia and will visit the remaining States by the end of this month. The preliminary reports confirm earlier work by the GAO which strongly suggests that some States will not be ready on time. HCFA and the IV&V team will revisit all Sates where there appeared to be medium to high risk of some Y2K failure.

HCFA has asked all Medicaid and CHIP Directors to:

  • Report the status of their Year 2000 compliance efforts;
  • Document contingency plans for systems that may not be compliant; and
  • Provide updates to HCFA's regional offices on States' progress.

In addition to furnishing the services of TRW, HCFA has developed technical assistance documents, and held regional meetings and workshops for States on how to develop contingency plans. We know that States and Congress share our goal of protecting all our beneficiaries throughout the millennium transition.

Congressional support

HCFA's progress in meeting the Year 2000 challenge is due in large part to the outstanding effort and commitment of staff throughout HCFA and at its Medicare contractors. HCFA has also been greatly aided by wise counsel from the the IV&V experts, the Office of the Inspector General, and GAO. And, importantly, HCFA could not have come so far so quickly without the timely support and funding that this and other Congressional Committees have provided.


The Program Support Center (PSC), operates the Payment Management System (PMS) that provides centralized electronic funding and cash management service to all organizations receiving HHS grants. Besides making automated payments, DPM monitors funds in the hands of recipients, provides debt management services such as debt collection, and serves as a customer service intermediary between grant recipients and grant awarding agencies.

The PMS is a historically sound and successful system that provides grant payment services, which include the expeditious flow of cash and corresponding disbursement data between awarding agencies and grant recipients. HHS has over 30 years experience in paying grants on a centralized/consolidated basis and in developing and maintaining systems to support this function. In the 1960s, NIH centralized payments for all of its grants. In 1975, the operation was transferred to the Office of the Secretary and began paying grants for all the components of HHS, and in the 1989 HHS began paying grants for other Federal agencies. This operation has proven extremely reliable, efficient, and cost effective -- realizing significant savings due to economies of scale. Indeed, this system was down only one half day in recent history due to a blizzard during 1996.

HHS is now a recognized leader in the providing funds to recipients of federal grants on a just-in-time basis. The PMS supports organizations funded by ten other federal agencies and 42 different subagencies. In FY 1998 the system made 260,000 payments totaling $165 billion to 20,000 grantees. The PMS can receive automated or manual payment requests, edit them for accuracy and content, batch them for forwarding to the Federal Reserve Bank for payment, and record the transaction to the appropriate general ledger accounts.

The current PMS was implemented in 1984. Major enhancements have been implemented, such as providing the capability for grantees to request funds and obtain information about their account balances electronically via their personal computers, and allowing the grantees to report expenditures electronically, thereby reducing the administrative burden on the grantees. Being committed to good business practices and to improving and reengineering our systems to provide better customer service, in 1994 a business review of the PMS Legacy system was initiated, resulting in a recommendation for a major reengineering effort to modernize the PMS. This system development effort, the fourth major PMS redesign in 30 years, was identified as mission critical for Y2K compliance purposes.

The actual programming of the re-engineered PMS began in January 1998 with a planned operational date of December 1998. As work progressed, management became concerned about potential slippage in the schedule. In order to ensure Y2K compliance, the code of the existing Legacy PMS was renovated. We, therefore, proceeded on a parallel track, remediating the legacy code while continuing to develop the new PMS.


The Assistant Secretary for Management and Budget, in conjunction with PSC, initiated expedited Y2K compliance assessment activity to review PMS alternatives against the government-wide March 31, 1999, Y2K compliance deadlines imposed by OMB. To accomplish this, we sought expert outside advice to assess the risk and schedule for completing development of the new PMS versus testing and implementing the legacy remediated code.

The PMS is undergoing major re-engineering; major development deliveries have been completed; and testing and Y2K certification activities are still pending. The Re-engineered PMS introduces additional functionality not available with the Legacy PMS, in particular a Web-based interface and improved tracking and reporting features. The Legacy PMS has been Y2K renovated, but has not yet been validated or IV&V certified.

Currently, based on the findings of an independent study neither the Legacy nor the Re-engineered PMS can be certified as Y2K compliant by March 31, 1999. Our lowest risk alternative is priority testing and implementation of the remediated Legacy system. Our secondary initiative will be to continue development of the new generation PMS with the goal of its implementation prior to January 1, 2000. This strategy is now being implemented by the PSC. This decision has the full backing of the PSC leadership, me, and Secretary.

We will report back to the Committee monthly on the status of our PMS Y2K testing and IV&V certification efforts. It is our expectation that we will have the Legacy system validated and implemented by June 1999. We would further hope to have a compliant version of the newly developed PMS prior to year's end.

This Department believes we have thoroughly analyzed and evaluated the options for Y2K compliance of PMS, and we have chosen the lowest risk alternative, a remediated Legacy system that will yield rapid PMS Y2K compliance.


The PSC has also developed a business continuity and contingency plan for the critical processes of PMS. This plan documents action items required should there be a Y2K problem and provides for testing of the contingency actions. This document will be shared with our federal customers. We have been using the PSC quarterly technical bulletin, "Quickdraw," to keep our 20,000 recipients informed on Y2K issues and are fully prepared to make payments to our recipients on time when the year 2000 arrives.

Although we are confident that our efforts to ensure that PMS is Y2K compliant and that transactions in the end-to-end business process will be successfully executed at the century roll-over, we have also developed plans to ensure business continuity in the event of an unforeseen system failure. The end-to-end process includes a number of critical components in addition to the Payment Management System. The other key components include: the systems at the grant-awarding agencies that transmit data on new awards or modifications to awards that are the input to PMS, the NIH/CIT Data Center on which the PMS software runs, and the Federal Reserve systems that provide for payments into the commercial banking systems.

The Business Continuity Plan developed by the PSC's Financial Management Service (PSC/FMS) provides for a back-up process in the event of a failure in any of these critical resources. Should the granting agencies' input systems be affected, or if the agencies are unable to transmit electronically, PSC/FMS can receive data on paper forms via fax (if operational), mail, or courier service. Normal in-transit authorization procedures would then be followed. Grant recipients may also request payments using phone, fax, or courier. Data will be maintained by PSC/FMS on a backup system using stand-alone compliant PC's. Should a problem occur at the Data Center, an alternative back-up processing site would be available through the NIH/CIT contingency plan. If a problem occurs in the transmission of transactions to the Federal Reserve, PSC/FMS will take advantage of redundancy in the processing path for PMS transactions. Alternative Federal Reserve processing locations have been established, and the contingency procedures as established by those organizations will be followed to ensure that transactions can be completed. Finally, in the event that a Y2K problem prevents PSC/FMS staff from gaining access to their workplace to conduct business, plans and procedures have been developed for staff to be able to continue to work from home or from an alternate site.

In preparation for operation at the century roll-over, PSC/FMS, as part of an overall HHS-wide effort, is also developing a Day One strategy. We will have key program and systems staff on site during the week preceding and following January 1 to ensure systems and processes are functioning properly, and to expedite the implementation of any needed business continuity measures or system contingency plans.

Resource and Patient Management System (RPMS)

The mission of the Indian Health Service (IHS) is to raise the physical, mental, social, and spiritual health of American Indians and Alaska Natives to the highest level. This is accomplished through a system of hospitals and clinics that are operated by the IHS directly or by Tribal or Urban Indian health programs. The range of services includes inpatient and ambulatory care, with extensive preventive care focused toward health promotion and disease prevention activities.

The IHS, Tribal, and Urban health programs provide health services to an active American Indians and Alaska Natives user population of 1.3 million. There are 49 inpatient facilities, including 37 operated directly by the IHS and 12 operated by Tribal and Urban Indian health programs. For outpatient services, there are 214 health centers and 287 "other" types of ambulatory care facilities, which include health stations, satellite clinics, and Alaska village clinics. Of the total ambulatory facilities, the IHS operates 107 facilities and 394 facilities are Tribally operated. In addition, various health care and referral services are provided to Indian people away from reservation settings through 34 Urban Indian health programs.

The Resource and Patient Management System (RPMS) is the heart of the medical facilities' information resource management activities for the IHS, Tribal, or Urban health programs. RPMS consists of modules that are developed, maintained, distributed nationally and locally installed at the heath care facility. Assessment of the 91 RPMS modules determined that 38 were Y2K compliant, 27 needed to be renovated, and 26 could be retired. All of the 27 modules requiring renovation have been renovated, validated and distributed for implementation to the health care facilities. A technical expert contractor will conduct and Independent Verification and Validation (IV&V) through April.

IHS has three unique and extremely important challenges which dramatically affect Y2K compliancy. First, many of the people served by the IHS live in some of the most remote areas in 35 different states across the nation. Secondly, unlike many organizations where implementation of Y2K compliant software is installed at only a single or few facilities, RPMS implementation is required at 101 IHS operated facilities and 175 Tribal and Urban facilities. Finally, IHS is not only addressing the Year 2000 issues in the IHS direct facilities for which we are responsible, but IHS is also actively involving all of the Tribes and Urban programs who have elected to assume responsibility under Indian Self Determination for the delivery of services in their own communities. It is projected that IHS direct facilities will complete implementation by April 30, 1999, and it is anticipated that Tribal and Urban programs will complete implementation by June 30, 1999.

In addition to addressing the Y2K issues in the IHS direct facilities over which IHS has direct oversight responsibility, IHS is also engaged in an aggressive outreach effort to raise Y2K awareness and provide information to the Tribal and Urban health care facilities where IHS has minimal authority and control. To support outreach activities to Tribal and Urban programs, a Y2K resource kit composed of videos, brochures, and reference literatures was produced and distributed to nearly 1100 addressees. A Y2K Internet site was also established (www.ihs.gov/y2k) and is continuously being updated to provide a common source of pertinent information for IHS, Tribal, and Urban Indian programs. The majority of the Tribal and Urban health programs are on schedule for ensuring Y2K readiness of their health care facilities by June 30, 1999, well in advance of the advent of the millennium.


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 initiative. The Department of Health and Human Services intends to meet its responsibility to ensure that our few remaining systems will be Year 2000 compliant. There will be no cash flow problems for our customers due to Y2K problems. Our customers will be paid in full and on time. Our Medicare claim will also be paid in full and on time. Our direct patient care facilities will still provide patient health services.

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 I would be happy to answer any questions you may have.

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