INTRODUCTION
Mr. Chairman, Mr. Stark, and Members of this Subcommittee, I'm very pleased to have this
opportunity to discuss my priorities as Administrator, and to explain how the re-organization is
helping the Health Care Financing Administration (HCFA) achieve our mission, and to present a
status report on our implementation of the Balanced Budget Act (BBA) passed last year. This
ground-breaking piece of legislation provides for the most significant changes in Medicare and
Medicaid since the original legislation was enacted more than thirty years ago. Implementing the
Medicare and Medicaid BBA provisions, launching the new Children's Health Insurance
Program (CHIP), fighting waste, fraud and abuse, and preparing our computer systems for the
Year 2000 Millennium are among my highest priorities as Administrator. To achieve these goals
in a tight fiscal environment, HCFA must be a finely tuned and smoothly running organization.
The goals of the recent re-organization were to eliminate redundancies, improve the sharing of
information, streamline processes, and maximize the efficient use of resources. We have
concentrated on realigning agency components for the new organization into three main building
blocks, with a customer-based view in mind, recognizing that our primary audiences are
beneficiaries, States, and health care providers and plans.
HCFA'S RE-ORGANIZATION
At the time HCFA was created in 1977, running the Medicare program primarily meant paying
the bills on time. As the health care environment evolved in the following years, introducing
new health care models such as managed care, it was clear that these changes needed to be
addressed in HCFA's organizational structure. In the past, such activities as managed care
responsibilities were added but not integrated into the organization in a coherent manner. After
20 years, it was time to address whether the organization was functioning efficiently. HCFA's
recent reorganization was, in fact, the first comprehensive one since the Agency's inception. In
early 1996, HCFA began a process of examining whether it was organized in the best way to
fulfill its responsibilities. This process included consultation and discussion with a broad
spectrum of individuals and groups with whom we interact. We carefully considered comments
and recommendations from many sectors and tried to learn from many of the innovative
approaches to management in the health care and business communities.
The culmination of the process was the reorganization that HCFA began six months ago. The
primary focus of the reorganization was to structure the Agency in such a way that the primary
groups with whom we interact --beneficiaries, the States, and health plans and providers-- have
"one-stop shopping" to address their needs. An important decision was to combine the
responsibilities of managed care and fee-for-service policy development and operations into a
single organization. This allows HCFA greater flexibility to respond to changes in the
environment as new and different delivery systems are developed. Another important focus was
the creation of full-scope organizations for a Chief Information Officer (CIO) and a Chief
Financial Officer (CFO) in response to Congressional direction that federal agencies should learn
from private sector management experience and to comply with recently passed legislation.
HCFA has recently recruited its first-ever CIO from Los Alamos National Laboratory who brings
current computer technology expertise as well as a specialized background in computer and
network security issues. He is responsible for defining an information architecture and a capital
asset plan for HCFA, as well as fostering the development of agency-wide information systems,
including the critical efforts to achieve Millennium compliance of all computer data systems by
December 31, 1998.
As with any agency adjusting to a major reorganization, there are both brand-new working
relationships, and new policies and procedures. We are still in the process of "fine-tuning" our
organization. I began my tenure as HCFA Administrator soon after HCFA's reorganization, and
after my confirmation, I made a few changes. First of all, I ensured that critical staff', such as the
CIO and the Program Integrity Director, had direct access to the Administrator, cutting away
some of the layers of bureaucracy that sometimes prevent timely decisions from being made.
Secondly, as specified by the BBA, the Office of the Actuary is now a separate office also
reporting directly to me. I have attached a HCFA organizational chart to this testimony, which
shows these changes. In every sense, HCFA is making a fresh start, which we believe will
strengthen the organization and allow us to meet our tremendous responsibility of being the
nation's largest health care purchaser.
Some comments have been made about the reassignments of employees and reconfiguration of
components within the agency, and I would like to say a word about this. As exemplified by
private industry and noted in the National Performance Review, cross-training and sharing of
personnel expertise is vital to the health of an organization. The processes involved in
re-organizing are difficult at times, but we consider them "growing pains" that other agencies
have experienced as well. However, we are beginning to see the benefits of agency streamlining
and re-alignment, and it is clear that the benefits accrued outweigh the disadvantages. Through
employee mentoring and staff rotation opportunities, we have tried to make the transition to the
new organization as trauma free as possible, and I believe that most HCFA staff support the
objectives of the re-organization. My ultimate goal as HCFA Administrator is to ensure that
changes to the agency are implemented in a manner that makes Medicare and Medicaid stronger
and more efficient, not only for today's beneficiaries, but for future generations.
HCFA PRIORITIES
My priorities as HCFA Administrator are simple to state, but much harder to accomplish. As I
stated earlier in my testimony, they are: first, to reform and strengthen Medicare and Medicaid,
starting with the provisions of the Balanced Budget Act of 1997 that expand choices for
beneficiaries and guarantee Medicare's solvency until 2010; second, to expand health care
coverage to children through the new Children's Health Insurance Program (CHIP); third, to
sharpen our focus against fraud and abuse; and fourth, to ensure that HCFA's information
systems are ready for the Millennium. Since CHIP and Medicaid are not within the oversight of
this Subcommittee, I will focus on the other priorities:
Priority #1 -- BBA Implementation
My goal is not only to ensure that the Balanced Budget Act provisions are implemented, but that
we do it right. There are about 300 separate provisions that must be carried out to fully
implement the law, and because some of them are extraordinarily complex, our project
management staff is keeping track of implementation status of each item in a document that we
plan to share with the staff of this Subcommittee and others. During just the month of December
alone, we made significant headway in our BBA implementation plans. We completed 16 of the
18 regulations on our December agenda, and the remaining two were well on their way through
the clearance process. This was double our pre-BBA average during a month that historically
has decreased productivity, due to reduced staff availability because of the holidays. Our staff
worked tirelessly to finish these regulations in late-December and early January, a time which
they otherwise would have spent among family and friends.
Under the best of circumstances, implementing the provisions of the new law would be a
daunting challenge for HCFA. As it happens, we are taking it on at a time when the agency has
just undergone a much-needed structural reorganization. As if this were not enough, we are also
working with unusually tight deadlines and tight budgets. Our approach has been to organize
ourselves internally to be as efficient and effective as we can be. We are combining resources
and setting up new internal communication structures designed to sham information without
sacrificing valuable analyst and management time. We are working actively with our colleagues
in the Department and at the Office of Management and Budget (OMB) to speed up internal
review and clearance processes. In short, we are doing everything we can to get the job done
with the resources we have, but the fact remains that our budgets have decreased in real terms,
while our responsibilities have grown.
Between 1993 and 1997, HCFA has successfully met growing workload demands while
decreasing its administrative spending in real dollars by about 11 percent. In this same period of
time, the number of claims processed has gone up by 168 million, or about 25 percent. The
number of managed care plans with whom we have contracts has increased from about 200 to
over 400, At the same time, the number of skilled nursing facilities and home health agencies has
increased by over 30 percent. With the addition of major new responsibilities through
legislation such as HIPAA and BBA, HCFA faces considerable challenges in continuing to meet
our goals.
We appreciate the fact that in action on the Fiscal Year 1998 appropriation, the Congress and in
particular, this Subcommittee, worked to provide $95 million of the $200 million authorized for
the beneficiary information requirements of BBA. The Congress also indicated that funds for
BBA implementation were included. However, HCFA's program management budget increased
only 0.5 percent over the previous year. Many of the new activities such as Medicare + Choice
will require additional work in Fiscal Year 1999 and subsequent years. When the
Administration's budget is released next week, I hope we will be able work together to ensure
that HCFA has adequate resources to carry out the programs for which we are responsible.
Secretary Shalala will be transmitting to Congress legislation implementing user fees to fund
certain program management activities. We will need your assistance to enact this legislation in
early 1998.
At the same time, I intend to continue, working closely with members of Congress to keep you
informed of our progress and to let you know what we need to maintain the momentum. You
understand the magnitude of the task we face and you know that we will be seeking more
appropriations including additional user fees to complete implementation, particularly for our
Beneficiary Information campaign. By maintaining a dialogue with you, I believe we can
achieve the support and flexibility we will need to get it all done. At this point, I wish to
describe the progress which we have made implementing some specific provisions of the BBA
within this Subcommittee's jurisdiction.
Preventive Health Benefits
As of January 1, Medicare beneficiaries can receive a new set of preventive health benefits,
which will include annual screening mammograms for women over 40; screening pap smears
and pelvic exams every three years or more, depending on risk; and colorectal cancer screening
exams for all beneficiaries over 50. In July, bone density measurements to detect osteoporosis
will be covered. And in January, 2000, we will cover prostate cancer screening for men over 50.
We are out a comprehensive media and outreach campaign to get the word out to both providers
and beneficiaries to take advantage of the new benefits.
Medicare+Choice
Another major provision of the budget law is the new Medicare Part C, known as the Medicare+
Choice program. This program provides Medicare beneficiaries with a wider range of health
plan choices, similar to those that are currently available in the private sector. It establishes a
new authority permitting contracts between HCFA and a variety of different managed care and
fee-for-service entities, including Health Maintenance Organizations (HMOs), Preferred Provider
Organizations (PPOs), and Provider-Sponsored Organizations (PSOs).
Implementation of the Medicare+Choice program is extraordinarily complex, cutting across
every aspect of the Medicare program. We are on track with this effort. Starting on January 1,
1998, we began paying all risk-based Medicare contractors using the new Medicare + Choice
payment methodology. We are on track for publishing solvency standards for PSOs by the
April 1 deadline. Finally, we are on track for publishing interim final regulations for all other
contracting standards by the June 1 deadline. Medicare +Choice and the new prevention benefits
will be launched along with a nationwide information-nation campaign that will be user-friendly
and comprehensive.
Beneficiary Information Campaign
This information campaign is unprecedented in the history of Medicare and constitutes a
fundamental change in the way we collect, store, and share information about plans and
providers. We are offering beneficiaries an internet-based resource that draws on all of HCFA's
current data and systems, along with new health plan information-nation and a completely new
enrollment process. This knowledge base mill serve as a resource for enrollees, their utilities and
friends, community based organizations, insurance counselors, and other interested parties. In
concert with this information campaign, our new internet capabilities should be on-line next
month and will enable users to access detailed comparative information on health plans through
the "Medicare Compare" location at our HCFA web page. HCFA's Internet capabilities offer a
revolutionary change in the ability to access Medicare and Medicaid information, since it will
literally be available 24 hours a day, every day of the week.
Our Center for Beneficiary Services is developing a detailed plan for our 1998 informational
campaign. We will be using printed material, the Internet, a toll-free telephone system and
community-based resources to make the information about options available to Medicare
beneficiaries. Thanks to the caliber and dedication of the staff working on this, I am optimistic
about this campaign, despite the uncharted territory incumbent in this enterprise.
Prospective Payment Systems (PPS)
Effective payment systems are vital to achieving quality health care and preventing waste, fraud,
and abuse. The three new prospective payment systems for home health agencies, skilled
nursing facilities, and outpatient departments will help us to achieve these goals. These
prospective payment systems will provide incentives to make the most appropriate use of
resources and, over the long-term, will help control overall expenditures. The cost-saving value
of these payment systems is widely recognized and well-accepted in the industry. As an
example, the Home Health PPS provision allows HCFA to establish a PPS that will pay
providers a unit of payment for an episode of care. It also will end "periodic interim payments"
to home health agencies that are made in advance and not reconciled until the end of each year
The lay provides the authority to establish a prospective payment system by October 1, 1999, and
we are working hard to meet that date with the necessary research and infrastructure
development. Meanwhile, in accordance with the BBA, a home health interim payment system
is being implemented.
-Priority #2 - Combating Waste, Fraud and Abuse
We must continue to fortify our programs so we can prevent incursions by those who view them
not as the vital national resources they are, but as targets for money-making scams. As a bold
step in the fight against fraud and abuse, the Administration imposed a moratorium on new home
health agencies (HHAs), effective from September 15, 1997 through January 13, 1998. This
moratorium allowed HCFA sufficient time to strengthen its entry requirements for HHAS. The
Agency published a regulation on January 5, 1998, which requires surety bonds of all HHAs and
initial capitalization standards for new HHAS. In addition, HCFA is requiring new HHAs to
serve a minimum of ten patients before entering the Medicare program. Lastly, HCFA instituted
a requirement that HHAs provide information on related businesses which they own.
The Health Insurance Portability and Accountability Act (HIPAA) and the Balanced Budget Act
gave us new methods of preventing fraud and abuse and of identifying and punishing
perpetrators: but we will not be satisfied with these efforts alone. Our strategy, which allows us
to best manage our anti-fraud and abuse resources, has four basic principles: prevention, early
detection, collaboration, and enforcement. As an example of our prevention and detection
efforts, we have increased our efforts to review claims before payments are made, and as I
mentioned before, we screen more carefully home health agencies and providers before
certification, and require that they post surety bonds for home health agencies. We have also
closed some loopholes with our new proposed regulation requiring surety bonds and
strengthened our standards for durable medical equipment suppliers. These
enhanced fraud prevention efforts contributed to a record number of civil and criminal
prosecutions in FY' 1997 --- double the number of prosecutions in the previous yew@ As the
President announced just last week, in Fiscal Year 1997, we have collected nearly one billion
dollars in fines for health care fraud. In addition, the Budget Submission for Fiscal Year 1999
will contain a number of new and previously submitted proposals to address waste. fraud, and
abuse for consideration by this Subcommittee.
To enable beneficiaries to do their part in fighting fraud and waste, I will be in publishing,
the HHS Inspector General' s toll-free anti-fraud hotline on beneficiaries Explanation of
Medicare Benefits (EOMB) statement. Initially, the 1-800 numbers will appear on beneficiaries'
EOMB in about half of the States, and will be expanded to the rest of the country in the spring.
The hotline also offers assistance in both English and Spanish.
I consider a strong anti-fraud and abuse program an essential part of building public confidence
in the future of Medicare and Medicaid, and our goal is to develop a comprehensive anti-fraud
and abuse plan. We will meet early this spring with a broadly representative group from both the
Federal and private sectors to listen their views and experiences. We plan to consider all
possible avenues to combat fraud and abuse. I would like to acknowledge past Congressional
support for these efforts in our budget requests, and note that the FY 1999 Budget will include
increased funding for our increased responsibilities in BBA implementation and enhanced fraud
and abuse prevention programs.
Priority #3 - Year 2000 Millennium Initiatives
As we look to the future, the Year 2000 looms close on the horizon. In regard to the Millennium,
I just want to say that we view the threat of a breakdown of our national information flows -- and
its potential impact on Medicare -- with the utmost seriousness. Medicare represents
approximately one-fifth of the nation's health care economy and we simply cannot afford to let
this problem interfere with continuity in Medicare payment operations. We are working to
ensure that the 74 mission-critical external systems are millennium compliant no later than
December 31, 1998, and are monitoring our contractors to ensure that we make the transition
smoothly and in a timely manner I would like to emphasize that our regional staff are making
on-site inspections to ensure that each and every item required is being completed on schedule,
and at the present time, over half of the fiscal intermediaries and carriers have completed their
assessments. I also intend to submit legislation to amend the existing carrier and intermediary
contracts to allow HCFA to terminate the contract and/or migrate to other contractor types if the
contractor falls behind the project schedule. At this point I would like to directly address an area
which this Subcommittee has been concerned with -- the Medicare Transaction System project.
We have recently received the final deliverable from GTE and the contract is now over. We do
not yet know the final costs because they cannot be determined until the HHS Office of the
Inspector General has completed the audit of the GTE contract. With the termination of the
contract we are no longer continuing the Medicare Transaction System. I want to be clear,
however, about the status of our efforts. We are moving forward on two tracks. First, we are
beginning the process of developing an overall information architecture and a capital
asset plan, the prerequisite to any future systems development efforts. This is a complex effort,
but we plan to keep the Subcommittee informed of future developments. We are committed to
meeting the spirit as well as the letter of the Information Technology Management Reform Act
(ITMRA) to ensure that HCFA systems resources are wisely invested to meet our highest priority
business needs. In the meantime, we are continuing to make modifications to the Current
systems needed to implement BBA and HIPAA requirements. Without these changes, the
significant Medicare savings enacted in BBA could not be achieved. We welcome your
continued interest in information technology and will work with you to ensure that business
needs are met and resources invested wisely.
CONCLUSION
Agencies, like individuals, are often faced with multiple and sometimes conflicting
responsibilities. In 1998, HCFA will be challenged as never before to meet new and expanded
needs of Medicare and Medicaid beneficiaries. We are witnessing an unprecedented
demographic shift, as greater numbers of elderly than ever before become eligible for Medicare.
This is why BBA implementation takes on such a great significance, since it will add 10 years of
additional solvency to the Medicare Hospital Insurance Trust Fund. At the same time, many
HCFA personnel will be asked to carry a heavier burden of added tasks and adjust to new offices
and co-workers. I can say without hesitation that I have great confidence in the ability of HCFA
employees to meet these challenges, and I have been consistently impressed by their ability to get
the job done.
I would also point out that, though my observations reflect our recent efforts, the list of HCFA's
accomplishments, past and ongoing, is long and distinguished. This is the agency that pioneered
fee schedules, and it is my expectation that it will likewise be the agency viewed as a pioneer in
setting quality, risk-adjustment, and purchasing standards in the future. HCFA established a
common set of expectations for 50 diverse Medicaid programs in the past and we will work with
our partners in State government to bring Medicaid program administration into the twenty-first
century. This same partnership will serve to launch the new Children's Health program and
enable more than 5 million of society most vulnerable members to go off to a healthy start in life.
Thanks to the BBA, we will see concrete improvements in our programs that will provide
tangible improvements in services for our beneficiaries. Our highest priority will be to work
closely with Congress on implementation of BBA, and to keep you informed of our progress.
We are making every effort to meet the required deadlines and will seek extensions only, when
absolutely necessary. I am confident that together, we can achieve our mutual goals of
strengthening Medicare and Medicaid, extending the life of Medicare's Hospital Insurance Trust
Fund, and providing beneficiaries with the best possible care in the most efficient manner.