TESTIMONY OF NANCY-ANN DEPARLE, ADMINISTRATOR HEALTH CARE FINANCING ADMINISTRATION ON THE YEAR 2000 CHALLENGE BEFORE THE HOUSE GOVERNMENT REFORM SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

Chairman Horn, Congressman Turner, distinguished committee members, thank you for inviting me here today to discuss my highest priority -- the Year 2000 computer challenge.I am happy to report today that, despite serious concerns about the Health Care Financing Administration's (HCFA) ability to meet this challenge, we are making remarkable progress.In fact, I am confident that HCFA's own Year 2000 systems issues will be resolved well before January 1, 2000.

Our foremost concern has been, and continues to be, ensuring that our more than 70 million Medicare, Medicaid and Children's Health Insurance Program (CHIP) beneficiaries continue to receive the health care services they need.We are aggressively addressing Year 2000 issues in those systems over which we have responsibility.And we are engaging in an unprecedented outreach effort to raise awareness and provide information to those other parts of the health care system where we have little authority and control.I want to personally assure beneficiaries that the care they have come to expect from our programs will continue throughout the millennium transition.

Although our Year 2000 work is not yet complete, we have already accomplished a great deal.

All 25 of our internal mission-critical systems are now certified as Year 2000 compliant, three months ahead of the government-wide deadline of March 31, 1999.

All 78 of our external mission-critical claim processing systems that our claims processing contractors use to pay bills are renovated.Of these, 54 have been self-certified as compliant.Our independent verification and validation (IV&V) expert contractor has rated 17 systems as highly compliant and will require only a minimal effort to resolve any remaining issues; another 39 will require a moderate level of effort.We will recertify all mission-critical systems before October 1999.

And 27 of our 55 non-mission critical internal systems are certified as compliant.

We recognize the importance of our programs to our beneficiaries and have put together a vigorous Year 2000 program, with extensive testing and independent review.We have asked our IV&V contractor to set rigorous performance measures and be hard in their judgment of our contractors' progress.

As mentioned above, 54 of our external contractors' claims processing systems are self-certified as compliant.We and our IV&V contractor have noted that this does not mean our entire claims processing environment is completely ready.It does mean that the software for these systems has been renovated and made compliant, and that the systems have been proven, by extensive testing, to be able to pay claims with future dates.These renovated systems are currently implemented for claims processing.Self-certification of these systems' compliance was a critical milestone in becoming Year 2000 ready.

We acknowledge that not every piece of hardware, nor every system that does not go to the heart of claims processing is compliant.However, for 54 of the 78 systems, we are confident that the qualifications are not substantial enough to warrant a non-compliant status.Our IV&V contractor agrees with us.

For the remainder of 1999, we will continue to renovate, test, and retest our systems.We are ahead of schedule on our internal mission-critical systems, and are well on our way to meeting the Federal government's deadline for our external systems.We will certainly be ready before January 1, 2000.

I want to be clear about what HCFA can and cannot do.We are responsible for financing health care for our beneficiaries.We can assure that our claims processing and payment systems will work and that doctors and hospital bills will be paid.Ensuring continuity of care for our beneficiaries, however, goes well beyond processing payments successfully.It depends on a host of other entities ensuring that their own systems are compliant, such as States, doctors, hospitals, and other service providers.And it depends on the continued operation of pharmaceutical and medical supply chains, as well as basic utility and telecommunication services.HCFA does not have the authority, ability, or resources to step in and fix systems for others, such as States and providers.And that leads to a rather substantial concern that we need the help of Congress and others to fully address.

HCFA's Year 2000 Efforts

There is no question that we have faced an uphill battle in achieving Year 2000 compliance.A number of key steps are getting us where we need to be.They include:

• Building a "War Room" in our Baltimore headquarters dedicated solely to tracking Year 2000 efforts on a daily basis not only within our own agency, but also with our partners across the country.I can now find out what is happening on any of our essential Year 2000 projects at a moment's notice.That is something I could not do last year.
• Establishing contractor oversight teams specifically responsible for closely monitoring and managing Year 2000 work for all contractors involved in processing Medicare claims.These oversight teams include staff who are on-site overseeing and helping contractors who most need assistance in meeting the March 31, 1999, deadline.They also provide timely information on the status of contractors' progress to the War Room.
• Negotiating amendments to contracts with more than 60 claims processing contractors.These amendments established, for the first time, clear requirements that contractors must meet for their information systems to be Year 2000 compliant.
• Hiring AverStar, Inc., formerly Intermetrics, Inc., an IV&V contractor to provide assurance that our Year 2000 work is done right.They have helped us refine our renovation processes, audit our testing plans and processes, as well as measure our progress.
• Hiring Seta Corporation, another contractor providing independent testing of especially critical systems, to further ensure that the Year 2000 work on these systems has been done correctly. This additional testing goes beyond that described by GAO.
• Helping States by hiring another IV&V contractor, TRW, to visit every state and validate their Year 2000 progress.TRW is giving us direct information regarding the status of States' renovation efforts on critical areas, such as Medicaid enrollment and claims processing systems. We also are providing the States with whatever information and insights we can.
• Helping providers learn what they must do to prepare for the new millennium through an unprecedented provider outreach campaign.This broad effort includes mailings, publications, an Internet site, a speakers' bureau, a number of seminars and conferences, and a wide range of other efforts.

Scope of HCFA's Year 2000 Workload

The Year 2000 especially affects the programs HCFA administers because of our extensive reliance on multiple computer systems.More than 150 different systems are used by HCFA in administering the Medicare program.About 100 of these systems are considered mission-critical. These systems are responsible 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 annually, most electronically.In fact, 97 percent of inpatient hospital and other Medicare Part A claims and 81 percent of physician and other Medicare Part B claims are submitted electronically to the Medicare claims processing contractors.Most claims are processed to payment by entirely electronic means.This high level of electronic billing has allowed us to achieve significant operating efficiency and cost savings.This reliance on automated systems, however, has made the Year 2000 computer fix a major challenge.Critical dates in computerized claims processing include the date a beneficiary became eligible, the date a patient was admitted or discharged from a hospital, the date a wheelchair rental began, or the date an enrollee entered a managed care plan.

Renovating all these systems has been complicated.Each system used by our programs and our 60-plus claims processing contractors, as well as interfaces with State Medicaid programs, banking institutions and some 1.3 million providers has to be thoroughly reviewed and renovated by those responsible for each particular system.Our renovation standards require that systems be tested individually, as well as with the exchanges they perform with other partners.

To fix the Medicare systems alone, we have had to renovate some 49 million lines of internal and external systems code to find date-sensitive processes.We have had to repair all of our Medicare-specific software so it will work with new versions of vendor-supplied software.We have had to update the operating systems that drive the hardware we use with millennium compliant versions.We also have had to test and upgrade deficient operational hardware, including our telecommunications equipment and software.And we must assure that all data exchanges with thousands of our partners will function properly.

Contingency Planning

Although we fully intend to have our own systems ready long before January 1, 2000, we know we must be prepared in case any unanticipated problems arise.We are undertaking an extensive effort to develop contingency plans for all our mission-critical business processes.Our top priorities in developing 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.

Contingency planning is an Agency-wide effort with active participation of all of our most senior executives.We are closely following the GAO's advice on contingency planning which they outlined in their August 1998 guidance, Year 2000 Business Continuity and Contingency Planning and in their September 1998 report, Medicare Computer Systems --Year 2000 Challenges Put Benefits and Services in Jeopardy.

We recently completed the second phase of the contingency planning process by reviewing 280 Medicare business processes, performing risk and impact analyses, and identifying the potential impact of mission-critical failures.We are now in the third phase in which we will clarify and document our contingency plans and implementation modes, define events that will trigger use of the plans, as well as establish and train implementation teams should the need arise to execute the plans.

Protecting Beneficiaries

I must stress that our concern must always be focused first and foremost on protecting the beneficiaries and their continued access to care.Providers who fail to fix their own systems, and thus are unable to bill us for services, are strictly prohibited from billing beneficiaries. Beneficiaries are legally protected from liability for bills that Medicare would ordinarily pay, even if the provider is not Year 2000 compliant.To safeguard beneficiaries in the new millennium, we will provide them with a phone number to call to report any inappropriate billings they receive from providers or any difficulties they encounter in accessing care.Our beneficiaries are counting on us.Their health care needs will continue regardless of what day it is.

Concern for States and Providers

It is not enough for HCFA alone to be ready for the Year 2000.Health care provider computers and systems must be Year 2000 compliant in order for providers to be able to generate and submit bills to us.State computers and systems also must be Year 2000 ready for Medicaid and CHIP to continue uninterrupted payment of services.Many States and providers will meet the Year 2000 challenge on time.However, monitoring by us and the General Accounting Office (GAO) indicates that some States and providers could well fail.This is the first time any of us have had to deal with such a problem, and we at HCFA are eager to share the lessons we have learned along the way.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 Medicare contractors.We have been greatly aided by wise counsel from the GAO, and especially by the expert IV&V contractors we hired, based on the GAO's recommendations, to ensure that our Year 2000 work is done correctly.And, importantly, we could not have come so far so quickly without the timely support and funding that Congress has provided.

Providers' Progress

Providers must ready their own systems for the Year 2000 in a timely manner if the health care system is to meet the millennium challenge completely and successfully.One of the first steps, and perhaps the easiest, is changing the format of Medicare claims to allow for 8-digit date fields. Our electronic claims monitoring indicates that over 98 percent of Part B claims submitters (either physicians/suppliers or their billing agents) are submitting claims with 8-digit date fields. Fifty-eight percent of Part A submitters (hospitals and other institutions or their billing agents) that submit claims electronically are also using the 8-digit fields.

It is essential that all providers address the Year 2000 issue.Thus, we recently announced that we would require all claims submitters to start using the 8-digit date format by April 5, 1999. Claims received on or after that date without the new format will not be accepted.That does not mean that providers need to be fully compliant by April 5, but it does mean that we want to be assured that they have started to prepare their systems by, at least, taking this first step.

We recognize that providers should be able to test whether Year 2000-compliant claims can be accepted by our claims processing contractors.We are now instructing our claims processing contractors to begin testing with those providers throughout the country who want to submit future-dated claims.

We are concerned that providers address other Year 2000 issues as well, not just billing and claims system issues.To ensure continued patient care, providers must take appropriate Year 2000 remediation steps to prepare biomedical devices, as well as clinical and other systems.

Provider Outreach.

Due to the critical need for providers to become Year 2000 compliant, we have launched a broad outreach campaign.Last month, in an unprecedented step, we mailed a letter to all 1.3 million providers serving our beneficiaries explaining the gravity of the Year 2000 problem and providing a checklist for what must be done to achieve compliance.

Our provider outreach campaign features a special Year 2000 Internet site, www.hcfa.gov/Y2K, which includes some of the basic steps that can be taken by a Medicare provider or supplier, such as:

• Preparing an inventory of hardware and software programs and identifying everything that is mission-critical to their business operations;
• Assessing the Year 2000 readiness of their inventory as well as options for upgrading or replacing systems, if necessary;
• Updating or replacing systems important to business operations, if necessary;
• Testing existing and newly purchased systems and software and their interfaces; and
• Developing business continuity plans for unexpected problems.
• Our Internet site also includes links to other essential sites for providers, such as the Food and Drug Administration's Internet site on medical device compliance.

We have developed a speakers' bureau with staff trained to make presentations and answer questions on Year 2000 issues around the country.We are 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.And our claims processing contractors are offering providers Year 2000 compliant electronic billing software for free or at minimal cost.

I was pleased that some provider associations have recently announced their intention to assess the Year 2000 readiness of their membership and to step-up educational efforts on the critical nature of this problem.This is an essential undertaking.Quite simply, Year 2000 compliance cannot be a one-way street.Providers also must meet this 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.As I mentioned previously, we have established a special Year 2000 speakers' bureau with staff around the country prepared to speak and offer guidance.You may want to have them join you when you meet with providers, and let others know that they are available.

States' Progress

Our concern for States is as great as our concern for providers.For both, we do not have the authority, ability, or resources to step in and fix their systems for them.Our ten regional offices are monitoring the status of each State's remediation effort.We also have an expert IV&V contractor, TRW, to assist us in conducting on-site visits in every State to provide advice and validate assessments.This allows us to maintain an accurate picture of each State's progress.We have already done on-site visits in 16 States and the District of Columbia and expect to visit the remaining States by the end of April.The preliminary reports confirm earlier work by the GAO which strongly suggests that some States will not be ready on time.

We have 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.

It is each State's responsibility to take the steps it believes are appropriate to meet the needs of its Medicaid and CHIP beneficiaries.Our primary role is to assess, as best we can, each State's progress and to provide guidance.While we do not have the authority, ability, or resources to fix State systems, we can and do want to help.In addition to furnishing the services of TRW, we have 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.

Budgetary Needs

The Year 2000 problem is not static.We are obligated to perform rigorous testing because of the extent of our reliance on information systems.Efforts to solve one element of the problem often uncover other problems.This makes it challenging to determine our budgetary requirements.As you know, we previously have had to request additional funding and redirect existing funding to meet these changing demands.

In fiscal year 1998, we received $107.1 million in funding for millennium activities.This funding included a $15 million appropriation; an additional $30 million that was transferred from other agency projects; $20 million in redesignated funds originally appropriated for systems transitions; and $42.1 million made available by the Department of Health and Human Services (HHS) through the Secretary's one percent transfer authority.Through very careful financial management and a keen recognition of the importance of the Year 2000 effort, we actually obligated approximately $148 million in fiscal year 1998 on Year 2000 activities: $130 million on external systems and $18 million on internal systems.

Thanks to your support in the fiscal year 1999 appropriations process we are making significant progress toward obtaining the funding needed to support all of our Year 2000 efforts.We received $82.5 million in our appropriation for this year.The Office of Management and Budget (OMB), with Congressional concurrence, transferred an additional $205.1 million from the Year 2000 emergency fund.This funding provides a total of $287.6 million to support our Year 2000 efforts in fiscal year 1999.We plan to use FY 1999, as well as FY 2000, funding to increase our contingency planning efforts by developing, testing, and rehearsing contingency plans.

The President's Budget request for FY 2000 includes an additional $150 million for our Year 2000 effort.In addition to funding our contingency planning efforts, a large portion of this funding will support outreach, continuing external systems remediation, and increases in billing and communications activities at our contractors.Increased public awareness of the Year 2000 and concern about potential problems, coupled with possible disruptions in claims processing, may increase the number and cost of paper and duplicate claims, the level of inquiries from beneficiaries and providers, as well as related printing and postage costs.This funding will help us and our contractors meet these anticipated challenges.

It is important to note that because our systems are highly automated and the majority of our processes are completed electronically, we are performing far more rigorous Year 2000 testing than many businesses.Many businesses are not testing their systems for future dates and they will not know with certainty if their systems will operate in the Year 2000.HCFA will.Our testing regimen is far more rigorous than the industry standard, with multiple layers of testing, including regression testing, testing in a simulated Year 2000 environment, and testing our entire systems in an actual Year 2000 environment.

In addition to the extensive tests performed by those who actually maintain the system, we also are requiring independent testing of our most critical systems and additional oversight by an IV&V contractor.This coming year we expect to perform extensive validation and recertification of these critical systems to ensure that changes made during 1999 do not affect our Year 2000 renovations.Although this additional testing and validation significantly increases the time required for, and the cost of, certifying the Medicare systems, we know that we simply cannot afford to fail and are doing everything within our power to ensure that we do not.

Our systems are not only complex in their own right, they also require extensive data exchanges with more than one million partners, such as providers, banks, and vendors.We must guarantee that all of our renovated systems work with all of these partners.And so we must conduct data exchange tests with the provider community to ensure that we can exchange the transactions required for electronic commerce.

Conclusion

We have made remarkable progress in our Year 2000 compliance effort and have taken critical steps to ensure that all of our systems will be ready for the new millennium.There is still a great deal of work to be done, but we now feel that we are making adequate progress.We will continue in 1999 to work, test and retest our systems.But I must reiterate our concern with the progress of some States and providers in meeting their own Year 2000 challenges.We are committed to providing all the assistance we can, but in some cases that may not be enough.We all share a common goal of guaranteeing that our systems and programs function in the new millennium.I thank you for your attention to this essential issue, and I am happy to answer any questions you may have.