Mr. Chairman and Members of the Subcommittee:
Good afternoon, Mr. Chairman and members of the Subcommittee. I am John J.
Callahan, Assistant Secretary for Management and Budget and Chief Financial
Officer of the Department of Health and Human Services. Here with me today is
Dennis P. Williams, Deputy Assistant Secretary for Budget.
I am pleased to be here today presenting to you the fiscal year (FY) 1997
budget request for the Departmental Management accounts and to discuss, with my
colleagues here at the table, some broader management topics of interest to the
Committee.
STREAMLINING AND REINVENTION IN HHS
My colleagues and I have had the experience of living in interesting times
-- to paraphrase an old adage -- in our efforts to manage executive branch
agencies in a ever-changing environment of dramatic organizational change,
personnel streamlining, reinvention and innovation, and continuing budget
reductions -- not to mention multiple continuing resolutions and agency
furloughs.
In HHS, we have faced unique challenges over the past year. However, I
believe that our actions in dealing with those challenges reflect a record of
solid achievements, including a new -- and more streamlined -- headquarters
corporate structure for the Department. Mr. Chairman, as the Secretary said in
her earlier testimony, we're changing the way we do business at HHS -- not only
in Medicare, Medicaid, and welfare, but throughout the Department. We are
committed to strong, lean, business-like management procedures throughout the
Department.
As part of the President's plan to dramatically shrink the size of the
federal government, we reduced our staff by nearly 3,300 FTE, a full 5 percent,
between FY 1994 and FY 1995 alone. To meet the goals of the President's plan,
we have committed ourselves to a seven-year fight-sizing effort that will reduce
the Department's personnel by 7,000 FTE (from the FY 1993 level) by the year
2000. Departmental Management resources, which were significantly impacted by
government- wide streamlining, Social Security Administration (SSA)
independence, and creation of the Program Support Center, shrunk by 60 percent,
from 3,866 FTE in FY 1993 to the 1,548 FTE included in our FY 1997 budget
request.
In March 1995, we successfully launched the Social Security Administration
as an independent agency, thanks to the careful planning of both HHS and SSA
staff. Although the negotiations went smoothly -- as evidenced by GAO reports
on the subject -- the residual impact on the Department was substantial. In
Departmental Management (DM), we transferred 25 percent of our total workforce
to SSA, leaving many DM components with reduced staffing levels to carry out
effective and efficient operations. For example, 85 percent of our Regional
Personnel Offices and half of the General Counsel's office were transferred to
SSA.
At the same time, we reassessed the management structure in the Department
and determined that at the headquarters level many of the support services that
the Office of the Assistant Secretary for Health (OASH) had provided to the PHS
agencies could be reorganized and at least partially consolidated with the
administrative services provided to the HHS Operating Divisions by the Office of
the Secretary.
On May 11, 1995, Secretary Shalala announced the results of the Department's
reevaluation of its structure, functions, and mission as part of President
Clinton's historic effort to create a government that works better and costs
less. One of the initiatives announced was the elimination of an entire layer
of management by consolidating the Office of the Secretary and the Office of the
Assistant Secretary for Health. Combining these two offices also allowed us to
eliminate redundant functions and layers of review and transfer many functions
to the Operating Divisions. By bringing together these two offices, we are in a
better position to integrate health and human services policy and programs --
one of our principal goals.
As a result of this consolidation, a new Staff Division -- the Office of
Public Health and Science (OPHS) -- was created under the Secretary and headed
by the Assistant Secretary for Health (ASH). This merger has freed the
Assistant Secretary for Health from day-to-day management responsibilities for
the Public Health Service in order to strengthen this absolutely critical
leadership and policy role in the Department's public health and science agenda.
The ASH will, by necessity, have a "hybrid" role, acting as senior advisor to
the Secretary on public health and science and providing senior professional
leadership in the Department on population-based public health and clinical
preventive services. In addition, the ASH provides leadership on cross-cutting
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.
We also merged the operations of the Assistant Secretary for Management and
Budget with the Assistant Secretary for Personnel Administration on October 1,
1995. The final result of both these reorganizations is a lean, tightly
organized Office of the Secretary.
These important and significant changes in the structure of the corporate
headquarters for the Department have been accomplished amidst significant
personnel streamlining and unprecedented budgetary constraints. I am proud to
say that we have accomplished these changes quickly and efficiently, and, most
importantly, without having to involuntarily separate or furlough any HHS
employees.
DECENTRALIZATION
An important feature of our efforts to redefine the HHS corporate entity has
been a planned effort to delegate administrative and program authorities to the
Department's Operating Divisions to enable them to operate without excessive --
and unnecessary -centralized controls. The elimination of the management layer
represented by OASH was a significant advance in this area -- all of the PHS
agencies now report directly to the Secretary.
In March 1996, the Secretary approved a comprehensive array of human
resources, administrative, and management delegations of authority to the HHS
Operating Divisions to free the OPDIVs from unnecessary higher-level intrusion
into day-to-day operations. (A list of these delegations of authority is
attached.)
The Secretary, for example, delegated directly to the National Institutes
for Health virtually all civil service personnel administration and personnel
management authorities, as well as authorities connected with management of its
share of the Senior Biomedical Research Service in order to provide NIH with
greater flexibility to manage its research workforce, reduce costs, and recruit
and retain the highest quality workforce.
The Secretary and the NIH Director have also signed a performance agreement
committing to a vigorous and comprehensive evaluation of the impact after five
years of this streamlined personnel system on the research environment.
In addition, we worked with NIH to identify options and bring about
Departmental consensus on financing construction of a new Clinical Research
Center and on re-inventing the Clinical Center's management and operations.
MANAGEMENT IMPROVEMENT AND INNOVATION
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 OASH, the Food
and Drug Administration, the Health Resources and Services Administration, and
the Indian Health Service -- formerly 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 will be approved by a Board of Directors consisting of
representatives of both customers and service providers. This customer-driven
Board will provide an incentive for competitive pricing of quality services over
the long term.. (A copy of the PSC functional statement is attached.)
After a nationwide search, the Secretary recently appointed Lynnda Regan as
the first Director of the PSC. Ms. Regan is a highly respected executive from
Westinghouse and brings to the Department valuable private sector knowledge and
experience. With Ms. Regan's leadership and the management structure we have
created, the PSC is really a model built for the future. It represents our
fundamental commitment to business-like management throughout the Department.
CROSS SERVICING AND INTERAGENCY COOPERATION
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.
The Department has long-term cross-servicing arrangements with other federal
departments and agencies which represent the kinds of models that the
reinvention teams have been pressing for government- wide:
In accordance with the Government Performance and Results Act, HHS submitted
its application to OMB for the HRSA Division of Federal Occupational Health as
its 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
(1992-1995).
The Payment Management System (PMS) is the Department's centralized grants
payment system. PMS provides an effective disbursement mechanism for the
Department's grant programs, and also provides these services under cross
servicing arrangements to numerous other agencies (NASA, USIA, FEMA Labor,
Interior, Agriculture, Energy, and Transportation). This system assures more
timely and efficient cash management of the funds disbursed using the latest
payment technologies, including electronic funds transfer and automated bank
clearinghouse methods. PMS also substantially reduces the paperwork burden on
grant recipients receiving funds.
In FY 1995, PMS made over $186 billion in grant payments to recipients,
including state governments, hospitals, colleges, universities, and other profit
and non-profit organizations receiving grants. During this year, outstanding
results were achieved against the goals of increasing the quality and efficiency
of service, while expanding cross servicing. As compared to FY 1994, PMS more
than doubled the number of recipients who requested federal cash electronically,
utilizing the Automated Clearing House (ACH) through the Federal Reserve Bank in
Richmond. This method allows grant funds to be electronically deposited
directly into the recipients bank account, at a transaction cost of $.04 versus
$.30 for check transactions. In addition to cheaper transaction costs, ACH
payments contribute significantly to improved cash management, as recipients can
draw funds on an "as needed" basis, which decreases the occurrence of static
federal cash in the recipients hands. This system also provides benefits to the
recipient community as ACH payments are faster, easier, and paperless. In FY
1995, the PMS recorded revenues of $9 million for its fee-for-service
activities.
The Supply Service Center at Perry Point, Maryland, operates a full service
medical supply depot whose activities include the purchase, receipt, storage,
packing, distribution, shipping and inventory control of drugs, chemicals,
medical and hospital supplies, and special program needs. The depot provides
support to over 1,700 customers worldwide and is an economical source of supply
for all federal customers.
We are equally proud of several new intergovernmental initiatives launched
in the past year which will leverage government-wide resources to achieve
important national objectives.
Earlier this week, the Secretary marked the first-year anniversary of HHS'
anti-fraud and abuse initiative, Operation Restore Trust, announcing that new
approaches in the pilot program have already identified $42.3 million in fines,
restitutions, settlements, and recovery of overpayments. This represents a
return of nearly $10 in recoveries for every $1 spent on the project. ORT is a
two-year effort to combat health care fraud, waste, and abuse in the five states
with the highest Medicare expenditures.
In Operation Restore Trust, HHS designated an interdisciplinary project team
of federal and state government representatives to target Medicare abuse and
misuse in California, Florida, New York, Texas, and Illinois. These states
account for 38.5 percent of Medicaid beneficiaries and 34 percent of Medicare
beneficiaries. The team is focusing on home health care, nursing home care, and
medical equipment and supplies -- three of the fastest growing areas in
Medicare.
Three agencies within HHS -- the Office of Inspector General, the Health
Care Financing Administration, and the Administration on Aging -- are involved
in ORT, as is the Department of Justice. As HHS Inspector General June Gibbs
Brown has said: "Operation Restore Trust is proving what it was meant to prove:
that a new focus on fraud and abuse, and new cooperative approaches, can help
us to better protect federal Medicare and Medicaid dollars."
In FY 1997, we are seeking permanent legislation to expand Operation Restore
Trust to include all states and all services covered by Medicare. We will
continue to work with State Medicaid Fraud Control Units and law enforcement
agencies to ensure that claims are properly paid in both Medicare and Medicaid.
To achieve our objectives, two new HHS programs, along with new initiatives in
the Department of Justice, designed specifically to fight health care fraud and
abuse are proposed: the Medicare Anti-Fraud and Abuse Program (MAAP) in the
Office of Inspector General and the Medicare Benefit Integrity System (MBIS) in
the Health Care Financing Administration. These new mandatory programs will
provide secure and dependable funding for anti-fraud and abuse efforts.
Another important interagency initiative is the National Disaster Medical
System (NDMS) administered by the HHS Office of Emergency Preparedness -- an
activity funded through the Departmental Management account. The NDMS is a
cooperative asset-sharing partnership among HHS, the Department of Defense, the
Department of Veterans Affairs, the Federal Emergency Management Agency, state
and local governments, and the private sector. NDMS includes deployable medical
response capability to the disaster site or receiving location, a medical
evacuation system, and more than 110,000 pre-committed non-federal acute care
hospital beds in more than 1,800 hospitals throughout the country. NDMS does
not replace state and local disaster planning efforts; rather it is prepared to
supplement and assist when state and local medical resources are overwhelmed and
federal assistance is required.
In short, the Department remains committed to intra-agency and interagency
cooperation in providing cost-effective services.
COMMITMENT TO STRONG FINANCIAL MANAGEMENT
The implementation of the Chief Financial Officers (CFO) Act has
significantly strengthened the Department's financial management. Under the CFO
5-Year Plan, HHS has continued to make great strides in this area:
- Our emphasis on compatible financial systems should facilitate the
preparation of Department-wide financial statements. For example, 96% of our
financial systems have implemented the government-wide Standard General Ledger
and 96% of our core accounting systems meet the government-wide functional
requirements.
- We have made significant progress in implementing Electronic Funds
Transfer (EFT) in lieu of paper checks as a more efficient means of disbursing
federal funds. Currently over 99% of our grant payments and about 90% of our
salary payments are made via EFT.
HHS continues to meet the legislative requirements of the Federal
Acquisition Streamlining Act, as well as the electronic commerce goals set forth
by this Administration. Previously, HHS met the initial legislative and
Presidential goals when it established the necessary computer infrastructure
within the Department to carry out electronic commerce with the business
community and when it became one of the first Federal agencies to transmit a
procurement request over the government-wide computer network. Additional
accomplishments in implementing electronic commerce include:
- The implementation of electronic commerce procurement capabilities in six
of our major components -- FDA, NIH, OS, HCFA, PSC and CDC.
- CDC has fully automated its processes for buying vaccines for use by the
states under the Vaccine For Children program. The states request vaccine from
CDC, CDC places orders with the vendors (about $24 million worth monthly), the
vendors submit invoices to CDC and CDC pays the vendors all electronically with
minimal manual intervention.
- IHS is collecting payments electronically, which has cut the processing
time from 45 to 14 days, thus increasing the interest earned by $200,000 per
month.
HHS is also actively pursuing the implementation of modem technology and new
business procedures to improve and streamline our administrative processes. For
example:
We have implemented a Travel Management System which fully automates the
travel functions by eliminating the use of paper travel orders and vouchers and
reimburses the traveler via direct deposit. We have also significantly reduced
the need for cash advances by taking advantage of the travel credit card.
HHS has also implemented alternative payment procedures which rely on
statistical sampling to provide a more efficient vendor payment process and to
reduce Prompt Payment interest penalties.
- Under the Government Performance and Results Act (GPRA), HHS continues to
prepare for the full implementation of the Act by 1998 by:
- Participating in a number of ongoing pilots with OMB, including the Office
of Child Support Enforcement and the Food and Drug Administration's Prescription
Drug User Fee Program.
- Creating a cross-cutting HHS roundtable involving finance, budget planning
and programs to address GPRA implementation. The roundtable is using this
approach to integrate budget, financial and program performance information for
more results oriented management decision-making.
- Co-chairing the government-wide Research Roundtable of over 20 federal
agencies to identify performance measurement issues and approaches for research
programs.
As a member of OMB's Federal Credit Policy Working Group, we are deeply
involved with working with other agencies -- including Education, Housing and
Urban Development, Veterans Affairs, Small Business Administration, and others
-- to not only recover monies owed the government, but also to analyze our
current credit collection efforts and jointly design effective credit management
program performance measures in coordination with GPRA.
At the end of this month, HHS will report to the Congress on its efforts to
follow up on the recommendations of the HHS Inspector General. I can report now
that the Department continues to emphasize timely resolution of audits which
identify money owed to the Department. HHS continues to reduce its inventory of
unresolved audits that require financial restitution to the government. Three
years ago, at the end of March 1993, HHS had an inventory of 506 unresolved
audits where the collection of funds was required, and 274 of those were audits
over one year old. In the last three years, HHS has gradually reduced this
ongoing inventory of unresolved audits. In March 1996, the inventory has been
reduced to 306, representing a reduction of 40 percent. Only 159 of those are
over one year old, also a 40 percent reduction. The funds associated with this
activity are important to this Department in the last six months, HHS agencies
have resolved audits worth approximately $150 million in savings to the
Department.
FY 1997 DEPARTMENTAL MANAGEMENT BUDGET REQUEST
Let me briefly discuss the unique and important role that the Departmental
Management budget performs in the Department. DM is a consolidated display of
budget accounts that includes all activities funded under three separate
appropriations: General Departmental Management, Office for Civil Rights, and
Policy Research.
The DM components directly administer programs providing legal services,
appellate reviews and adjudication, and civil rights enforcement efforts in
support of all HHS Operating Divisions (through the Office of General Counsel,
Department Appeals Board, and Office for Civil Rights) 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-cutting
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.
The FY 1997 budget request for Departmental Management includes $176 million
in appropriated funds and 1,548 FTE. This request includes $5 million to
support the Department's responsibilities as lead Federal agency under the
Federal Response Plan for managing the government's response to the health and
medical consequences of a major terrorist event. In view of Congressional
action on our FY 1996 appropriation -- in which the Congress increased funding
for several OPHS program offices and established additional funding for anti-
terrorism activities under the Public Health and Social Services Emergency Fund
to be carried out under this account -- this request is a reduction of $6
million, or 3 percent, from the FY 1996 enacted level.
Mr. Chairman, the Secretary will continue with her efforts to promote sound
fiscal management throughout the Department. I want to thank this committee for
providing us the flexibility contained in the FY 1996 appropriations bill, and
the Secretary intends to exercise that flexibility with due diligence. In
summary, I believe that the FY 1997 budget request for Departmental Management
will provide sufficient funds to operate effectively and efficiently. Thank you
again, Mr. Chairman, for the opportunity to present our budget to the
Subcommittee. I will be happy to answer any questions that you may have about
this request or other management topics of interest to the Committee.