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Testimony on Management Improvement at DHHS by Kevin L. Thurm
Deputy Secretary
U.S. Department of Health and Human Services
Before the House Committee on Appropriations, Subcommittee on Labor, Health and Human Services,and Education
April 9, 1997
Mr. Chairman and Members of the Subcommittee:
Good morning, Mr. Chairman and members of the Subcommittee. I am Kevin L.
Thurm, Deputy Secretary of the Department of Health and Human Services. I am
pleased to be here today to describe several important management improvement
efforts underway in the Department of Health and Human Services and to discuss,
along with my colleagues here at the table, some broader topics of interest to
the Committee.
Mr. Chairman, our Department is playing a leading role in the
Administration's plan to put our Federal budget in the black. But we are
doing much more than that. When we target our resources responsibly and
innovatively, when we team up with our private and public partners, and when we
act as savvy managers, the Federal government can help lead the way in creating
a stronger and healthier nation.
I am proud to say that under Secretary Shalala's leadership, we have taken a
tough new approach to management -- an approach that is designed to accomplish
two goals: improve our efficiency and improve the health and economic well-being
of the American people. This new way of doing business includes three essential
elements:
First, we are choosing priorities where we can make a real difference and
focusing on the only bottom line that matters: results. We believe that our
success should be measured against the yardstick of steady, broad-based
improvements in the health and economic well-being of individuals, families and
communities in this country, and advances in medical and public health science
that benefit the entire world.
Second, we use the tools established by the Congress to better manage the
Department and to ensure accountability for program results from a variety of
stakeholders.
And third, we have found new ways of doing business. Here's how we're doing
that: we've reached across the artificial lines that too often impeded us in the
past and instead worked collaboratively -- not just within the Federal
government, but with the states, businesses, non-profits, and other leaders
across the nation.
OPERATION RESTORE TRUST
Operation Restore Trust (ORT) is an example of how we are identifying
priority areas where we can make a difference and cooperating across
organizations to ensure that we achieve desired results. ORT is an ambitious
interdisciplinary project in which federal and state agencies join to fight
fraud, waste, and abuse in health agencies, nursing homes, and the medical
equipment and supply industry. With strong Secretarial support, the two-year
demonstration project targeted five states which account for about 40 percent of
the Nation's Medicare and Medicaid beneficiaries. Teams of investigators,
auditors, and other professionals were assembled from the Office of the
Inspector General, the Health Care Financing Administration, the Administration
on Aging's ombudsman program, the Department of Justice, and the states. We also
enlisted the support and participation of the public and the industries that the
initiative targets. As of February 1997, 69 criminal convictions, 61 civil
actions, and 50 current indictments have been obtained under Operation Restore
Trust. In addition, 177 fraudulent or abusive providers have been excluded. The
Inspector General has identified a total of almost $132 million in fines,
recoveries, settlements, and civil monetary penalties owed the federal
government. The project has resulted in numerous inspection and audit reports
and proposals to change policies to correct systemic weaknesses.
This interagency and interdisciplinary approach to enforcement is a model
that exemplifies the kind of coordinated planning program required by the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) to control health
care fraud and abuse. ORT has shown how cooperation between departments,
agencies, and all levels of government can increase overall effectiveness. Under
HIPAA, HHS will continue the activities piloted in ORT, such as the use of
state survey nurses in detecting fraud and the training of state Aging Ombudsmen
in fraud detection. Under ORT, the Department has also developed a tracking and
monitoring system that allows for the tracking of accounts receivable owed to
the federal government and actual collections received.
MANAGING FOR RESULTS
HHS is committed to improving program accountability and information through
aggressive implementation of the Government Performance and Results Act (the
Results Act) beginning with the formulation of our strategic plan. We have
completed a draft HHS strategic plan and will begin consulting shortly with our
partners, stakeholders and Congress. Initially we will mail the plan to over 500
national constituent organizations and Indian tribes and ask for their views on
the draft plan. Subsequently, we will hold a series of meetings with key groups
to review and discuss the plan. We are also sending the draft plan to our
appropriate Congressional committees and anticipate a productive dialogue and
exchange with the committees on the plan. Simultaneously, our Regional
Directors will be consulting with state and local organizations and
constituencies in their regions. After we have completed our consultations
sometime in early June, we will analyze the views and incorporate them as
appropriate in the development of a final strategic plan. A final version of the
plan will be submitted to Congress as required by September 30.
The Results Act will be a powerful tool as we strive to manage for results
at HHS. We have already applied the concepts of the Results Act last year as
part of our FY 1998 budget process when 12 Operating Divisions submitted
performance plans for at least one program -- one year ahead of schedule. In
all, 24 performance plans were submitted and were an additional source of useful
information. HHS program managers benefited from the effort to identify what
constitutes success in our programs. We see improved communication with program
partners and stakeholders, such as states, local governments and tribes, and
this is key to the success of our programs. This process has taught our program
managers that, while the performance concepts the Results Act espouses are
simple, the implementation of these concepts is not. As we improve the
usefulness of program performance information in this iterative process, we will
increasingly use these results to make program and budget decisions.
We are moving forward from the pilot phase to implementing the Results Act
for ALL of our programs. We face a significant challenge in implementing the
Results Act in such a decentralized and diverse Department as HHS. To meet this
challenge, we have taken a flexible approach and have chosen to implement the
Results Act "at the grass roots" in our Operating Divisions at the program
level. This approach, while flexible, stresses first having the programs and
partners deciding what they want to achieve and then using performance
information to determine actual program results. We fully expect our Operating
Divisions to have complete Results Act information within tograms achieve their goals.
IMPLEMENTATION OF THE CHIEF FINANCIAL OFFICERS ACT
Mr. Chairman, HHS accounts for approximately 20 percent of the Federal
budget, with $327 billion in expenditures in FY 1996. Managing resources of
this magnitude is a serious responsibility, and improving financial management
is a top priority at HHS. Through the innovative use of technology, continuous
improvement of our financial systems and financial reporting, and through new
business policies that move us toward more competitive, market- oriented
organizations, HHS is strengthening its financial management to meet the
challenges of the years ahead.
The implementation of the Chief Financial Officers (CFO) Act has
significantly strengthened the Department's financial management. The scope of
HHS' financial statement audits was expanded for FY 1996 to include virtually
all of our accounts. In April, we expect to receive the final audit opinions for
ACF, FDA, HRSA, IHS, and SAMHSA. HCFA's final audit opinion is expected in June.
Substantial audit work was also performed at NIH and CDC, and we have received
drafts of those reports to management. We also had audit work performed to
evaluate the internal controls of several systems at the Program Support Center
which provide accounting and other administrative services to other Operating
Divisions. The audit of those systems revealed strong internal controls in those
"shared systems."
Under the CFO 5-Year Plan, HHS has continued to make grograms achieve their goals.
IMPLEMENTATION OF THE CHIEF FINANCIAL OFFICERS ACT
Mr. Chairman, HHS accounts for approximately 20 percent of the Federal
budget, with $327 billion in expenditures in FY 1996. Managing resources of
this magnitude is a serious responsibility, and improving financial management
is a top priority at HHS. Through the innovative use of technology, continuous
improvement of our financial systems and financial reporting, and through new
business policies that move us toward more competitive, market- oriented
organizations, HHS is strengthening its financial management to meet the
challenges of the years ahead.
The implementation of the Chief Financial Officers (CFO) Act has
significantly strengthened the Department's financial management. The scope of
HHS' financial statement audits was expanded for FY 1996 to include virtually
all of our accounts. In April, we expect to receive the final audit opinions for
ACF, FDA, HRSA, IHS, and SAMHSA. HCFA's final audit opinion is expected in June.
Substantial audit work was also performed at NIH and CDC, and we have received
drafts of those reports to management. We also had audit work performed to
evaluate the internal controls of several systems at the Program Support Center
which provide accounting and other administrative services to other Operating
Divisions. The audit of those systems revealed strong internal controls in those
"shared systems."
Under the CFO 5-Year Plan, HHS has continued to make great strides in this
area:
- The Department increasingly uses more electronic methods through which to
conduct day-to-day business and improve its program management. In FY 1996, for
example, funds were transferred electronically for 90 percent of employee salary
payments and for 99 percent of grants payments, totaling over $170 billion, for
HHS and other agencies we service through cross-servicing arrangements.
- We have fully automated the vaccine purchases in the Vaccines for Children
Program. In FY 1996, we placed 8,742 electronic delivery orders for $361.5
million. In a typical month, we also processed 1,700 invoices electronically for
$5 million, thus hastening assistance to children and providing companies with
faster payments.
- Last year, the use of the government credit card for making small
purchases increased throughout HHS: sales volume exceeded $38 million -
compared to $25 million in FY 1995 -- on more than 100,000 transactions. Our
travel management system reduced paperwork and staff time through the automation
of travel authorizations and advances and voucher preparation and payments. The
system is being expanded to process items such as local travel payments and
transit subsidy payments.
- We are developing a centralized grants tracking system covering $139
billion in HHS grant awards. By consolidating grants information from HHS' major
grants information systems and financial systems, this new system will be able
to analyze trends in historical grants data; support development of a grants
performance measurement system; and respond quickly and accurately to
information requests.
- HHS will be implementing new cost accounting standards to enhance the
linkage of program performance measures with financial statements. This will
enable us to meet the requirements of the Federal Accounting Standards Advisory
Board (FASAB) and the Federal Financial Management Improvement Act of 1996.
- As we work to ensure the effectiveness of our dollars, HHS has long been
committed to recovering all debts owed to us in a timely and efficient manner.
Indeed, we consider debt management to be one of the cornerstones in our
responsibilities to the public that the funds we disburse are spent and
accounted for properly. HHS' debt management practices have provided additional
protection to the federal government through our active assessment of late
payment charges on interest, administrative cost charges, and additional
penalties on debts that are not timely paid. Our collection methods are
constantly reviewed for both effectiveness and cost, with many debts referred to
private collection agencies and credit bureaus. This year we will expand
participation in the Tax Refund Offset Program and work with Treasury to improve
collection programs and tools under the Debt Collection Improvement Act of 1996. We hope to see the Program Support Center become a Treasury designated Debt
Collection Center this year.
In our continued efforts to be more accountable to Congress and the
taxpayers for the dollars entrusted to us, as well as being responsive to the
new requirements under the Government Management Reform Act, we plan to publish
the first HHS Annual Accountability Report early this summer. One of its most
important components will be the first-ever Department-wide audited financial
statements. The report will also contain excerpted information from several
other financial management and related reports. In the Accountability Report, we
plan to link program, financial, and budget information and the application of
cost accounting standards to our programs will provide important information
about the cost of our programs, and will also help us to improve our financial
reporting. We plan to explain where the money came from, where it went, and what
we did to make sure it was spent effectively. As the Results Act performance
reports for all of our programs are developed, we will have more information for
future accountability reports to help us answer the real "bottom line" question:
How can our dollars best be spent to ensure America's health and support its
human needs?
As you can see, the Department is firmly committed to a vital and
progressive financial management program, while meeting the challenges of a
reduced workforce, tighter budgets, greater information needs and the
advancements in technology.
CROSS SERVICING AND FRANCHISING
We have further improved our operations by moving toward more competitive,
market-oriented organizations. We've created an innovative new Operating
Division in the Department - the Program Support Center - whose sole purpose is
to provide administrative services on a fee-for-service basis to customers
throughout HHS and other federal agencies. The PSC combines the administrative
service activities formerly located in the Office of the Secretary and funded
under the OS Working Capital Fund -- with activities formerly in the Office of
the Assistant Secretary for Health, the Food and Drug Administration, the Health
Resources and Services Administration, and the Indian Health Service -- and
funded by the PHS Service and Supply Fund.
In addition to HHS offices and agencies, PSC customers include 12 other
executive departments, 12 independent federal agencies, and the General
Accounting Office. This agency is internally financed; under this arrangement,
fees and service levels are approved by a Board of Directors consisting of
representatives of both customers and service providers. This customer-driven
Board provides an incentive for competitive pricing of quality services over the
long term.
Along with all of these changes that are unique to HHS, we have continued to
work toward implementation of government-wide improvements through our
participation in cross-servicing arrangements with other federal agencies and in
other interagency initiatives.
In accordance with the Government Performance and Results Act, for example,
the HRSA Division of Federal Occupational Health has been approved by OMB as a
franchise fund pilot. Franchising is the application of competition and
marketing principles to the delivery of common administrative services. FOH is
an excellent candidate for franchising because it has been in head-to-head
competition with the private sector for some time and is a leader in federal
cross-servicing with interagency agreements involving over 160 federal
departments and agencies with projected annual expenditures and reimbursements
of $100 million in FY 1996. FOH has been successful in retaining 97 percent of
its customer base over the most recent four-year period (1992-1996).
YEAR 2000 CONVERSION
Secretary Shalala and the HHS Chief Information Officer (CIO) have made the
Year 2000 conversion issue a top priority. The CIOs in the HHS Operating
Divisions are responsible for developing and organizing their respective
conversion plans. The HHS CIO has personally met, and will continue to meet
regularly, with each Operating Division CIO individually to determine their
progress and problems. All Operating Divisions have determined the criticality
of their systems and what they intend to do to make them Year 2000 compliant.
Six Operating Divisions will be fully compliant by the end of 1997, one by 1998,
and the rest by the end of the first quarter 1999.
There are three primary issues affecting HHS' conversion efforts: reliable
budget figures, interfaces with external systems, and warranties to ensure
compliance for all purchases of hardware and software.
- Budget Estimates-- HHS estimates that its conversion costs over the next
three years (FY 1997-FY 2000) will be $90.7 million, with HCFA ($31.5
million), NIH ($25.3 million), and CDC ($14.3 million) responsible for the bulk
(78%) of the costs. Conversion costs for the other Operating Divisions are
estimated to be relatively small. Most of HHS' conversion activities are
currently being absorbed within the Operating Divisions' existing budgets
through reallocation of funds. The exception is HCFA. In the FY 1998 budget
request before the Committee, the Department has requested $15 million for HCFA
to implement the necessary system changes to accommodate the millennium date
changes to internal systems.
- Interfaces with External Systems -- The Department is working with the
National Association of State Information Resources Executives (NASIRE) to
ensure state Year 2000 compliance. The strategy for dealing with issues related
to interfaces with external systems varies by Operating Division:
- CDC has developed a compliant data format for data exchange with its
external partners but has also developed a process by which they intercept any
noncompliant or compliant but still incompatible data and make it compatible
with their own.
- formats that their external partners must use if they wish to exchange data with
them.
- HCFA has ensured that the Common Working File, the Medicare Part A and
Part B contractor systems have been fully funded to enable them to complete
their millennium changes. (Part B standard systems were funded for analysis and
will be fully funded for changes soon.)
- Warranties - Most information resources management and procurement officials
are using Year 2000 compliance and warranty language in existing contracts and
new procurement requests for proposals and purchase orders. Programming
contracts have been modified to include this language. Future acquisitions of
commercial software products will include similar terms and conditions of Year
2000 compliance and warranty.
QUALITY OF WORK LIFE
Our employees are our most valuable resource and a major reason for our
success. We need their dedication, commitment, and creativity now more than
ever. In late December 1996, the Secretary launched her Quality of Work Life
Strategy. The Quality of Work Life Strategy has three objectives: improve
employee satisfaction; strengthen workplace learning; and better manage ongoing
change and transition. We believe that when we meet these objectives, individual
and organizational performance will improve and we will provide even better
service to our customers and partners. To meet these objectives and achieve
these outcomes, the Department will:
- reconfirm our commitment to streamline and modernize without involuntary
separations;
- establish a model work and family center at headquarters to coordinate
work and family programs and serve as a catalyst for improving work and family
programs across the department
- increase our investment in workplace learning;
- improve skills of our managers and supervisors, including their ability to
manage change and transition;
-
- organizational effectiveness and the quality of work life; and
- ask the HHS Union-Management Partnership Council to serve as the steering
group for implementation of the Quality of Work Life Strategy and to report
annually on the status of the quality of work life of HHS employees.
The Secretary has designated the week of May 12th as Quality of Work Life
Week, during which she will communicate with each HHS employee -personally via
satellite, video-conference, or video tape -- concerning her vision and
overarching goals for the Department, challenges facing us, and actions taken or
underway to improve the quality of work life. For example, the Department has
now discontinued the use of sequential sign-in/sign-out time- keeping
procedures. As part of Quality of Work Life Week, we will conduct Departmental
forums on topics such as change and transition management and family-friendly
work arrangements.
In keeping with the President's commitment to the American people to
reinvent and reshape the size of government, the Department has continued to
streamline organizational structures and focus our efforts on reducing
employment while preserving the resources necessary to carry out our missions.
The Department as a whole ended FY 1996 at a comparable level of 57,629 FTE,
which is 1,600 FTE under the budget target for the year. Since FY 1993, the
Department has reduced staffing levels by approximately 7,600 FTE, or 12
percent. As we struggle to meet budget targets, we will be looking for
innovative ways of financing our streamlining plans for this and future years.
Our efforts have led to better service to our customers, reduced bureaucracy
and red tape, increased flexibility in the administration of our programs, and
internal changes that help the Department work better to save taxpayer dollars.
For example, as a result of a recent study of our data processing centers, we
are consolidating our data operations, resulting in an expected savings of $57.3
million over five years.
FY 1998 DEPARTMENT MANAGEMENT BUDGET REQUEST
The FY 1998 budget request for Departmental Management includes
approximately $172 million in appropriated funds -- $24.3 million (or 13
percent) below the comparable FY 1997 funding. The DM components directly
administer programs providing legal services, appellate reviews, and
adjudication in support of all HHS Operating Divisions and assist the Secretary
in providing executive leadership over the organizations, programs, and
activities of the Department. In addition, the new Office of Public Health and
Science advises the Secretary on public health and science issues; provides
senior professional leadership in the Department on population-based public
health and clinical preventive services; provides leadership on cross-cuffing
Departmental public health and science initiatives; directs the program offices
within OPHS; and, at the direction of the Secretary, provides assistance in
managing the implementation of Secretarial decisions for the PHS Operating
Divisions. This request includes $3.4 million in payroll and other
administrative increases offset by $27.8 million in reductions in the Office of
Emergency Preparedness and for one-time funding approved by the Congress in FY
1997 for extramural construction grants in the Office of Minority Health and for
a study on the effects of medical savings accounts. This funding level will
support 1,159 FTE -- the same level as FY 1997.
Mr. Chairman, I want to thank this committee for providing us the
flexibility contained in the FY 1997 appropriations bill and to assure you that
the Secretary intends to exercise that flexibility with due diligence. I will be
happy to answer any questions that you may have about these issues or other
topics of interest to the Committee.
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