Copyright 1999 Federal News Service, Inc.
Federal News Service
FEBRUARY 11, 1999, THURSDAY
SECTION: IN THE NEWS
HEADLINE: PREPARED STATEMENT OF
HONORABLE NANCY-ANN MIN DEPARLE
ADMINSTRATOR, HEALTH CARE FINANCING
BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON HEALTH
SUBJECT - MANAGEMENT OF THE MEDICARE PROGRAM
Chairman Thomas, Congressman Stark,
distinguished committee members, thank you for inviting me to discuss our
progress in strengthening Health Care Financing Administration (HCFA) management
of Medicare and our other programs and responsibilities. I would also like to
thank the General Accounting Office (GAO) for its evaluation and advice on this
and other subjects over the past year since I became Administrator.
the nation's largest health insurer, providing coverage to about 74 million
people. Our workload has grown immensely with the Balanced Budget Act (BBA) of
1997, the Health Insurance Portability and Accountability Act (HIPAA) of 1996,
the challenges of complying with Year 2000 computer issues, fighting fraud,
waste, and abuse, and meeting the needs of the ever-growing number of
beneficiaries we serve. Our programs -- Medicare, Medicaid, and the new
Children's Health Insurance Program -- now provide more coverage, more health
plan options, and more health care security to Americans than ever before.
Together they will pay for an estimated $335 billion in benefits in 1999, and
represent the Federal government's third largest outlay. Medicare alone now
processes about 900 million claims each year, is the nation's largest purchaser
of managed care, and accounts for 11 percent of the federal budget.
working to meet our management challenges despite a rapidly growing workload. I
want to thank this Committee for its support of the President's request for HCFA
last year. The growth in our workload over the past three years is unprecedented
in HCFA's history. Our discretionary program management appropriation has
remained relatively flat in recent years. The Congress did provide the
Administration's full request for an increased management appropriation for
fiscal year 1999, which represents a good first step. The President's FY 2000
HCFA budget request builds on last year's appropriation, and includes user fee
proposals to allow better program efficiency. We are eager to work with Congress
to secure adequate funding to meet all of HCFA's responsibilities in fiscal year
2000 and beyond.
HCFA spends less than one percent of Medicare benefit
outlays on Medicare program management, and less than 2 percent on
administrative costs overall, compared to private sector administrative costs of
12 percent and higher. Some of the difference is due to efficient management and
economies of scale. However, our growing workload makes it necessary to secure
adequate funding to continue to improve our management of the program.
are accomplishing a great deal with our resources. In the past year, we have:
* published 92 regulations and Federal Register notices implementing
important Congressional directives, beneficiary protections, and taxpayer
savings, including the savings in the Balanced Budget Act that are critical to
extending the life of the Medicare Trust Fund;
* responded to nearly 7,000
pieces of Congressional correspondence, and delivered 15 official Reports to
* participated in more than 1,000 events around the country to
help beneficiaries understand health plan changes;
* made remarkable
progress in addressing our Year 2000 challenge, and participated in more than
100 events around the country to help providers address this challenge;
made major strides in fighting fraud, waste and abuse and preventing payment
* approved 50 Children's Health Insurance Plans which
States expect to cover more than 2.5 million children;
* issued more than 50
program guidance letters to State Medicaid and health officials on issues such
as the managed care reforms in the BBA;
* implemented a
carefully planned National Medicare Education Program to help beneficiaries
understand their rights and options, and make informed health care decisions;
* converted the vast majority of Medicare HMOs to the new Medicare+Choice
program, and added 10 new plans and expanded service areas for another 10 plans.
* worked closely with state insurance regulators on important Health
Insurance Portability and Accountability Act consumer protections;
our Strategic Plan to reflect our expanded mission, set clear goals and specific
objectives, and establish performance measures to gauge our progress; and
begun a nationwide initiative to improve nursing home oversight and care.
We have made significant strides in improving HCFA
management since I testified before this Subcommittee on this issue last year.
In the past year I have tried to articulate a clear vision of a more efficient
and effective HCFA. I brought in a new leadership team to help me achieve these
goals. And we have taken a number of steps to help us do more and be more
efficient, effective, responsive and accountable. In addition, the fiscal year
2000 President's budget builds on these steps by seeking new flexibilities to
manage our programs more effectively.
Our first step was to completely
reorganize our agency to focus on serving beneficiaries and outside partners
like plans, providers and States. Our structure is now built around our
"customers" rather than internal issues. This has sharpened our focus on the
changes in our mission, and is helping us be more accessible and responsive.
Most important, for the first time ever we have a Center for Beneficiary
Services to ensure that we have beneficiaries first in mind in every decision we
make and every action we take.
We brought in new staff and leadership from
the private sector.
* A computer scientist and security expert from the Los
Alamos National Laboratory serves as our first-ever Chief Information Officer
and heads our information technology team and Year 2000 efforts.
* An internist who helped establish a private sector preferred provider
organization health plan now leads our Center for Health Plans and Providers.
* A geriatrician who was a private sector managed care plan medical director
is our Chief Clinical Officer and heads our Office of Clinical Standards and
* A gerontologist who ran a private sector firm devoted to
helping corporations educate their workers on health care is leading our
Medicare beneficiary education program.
* A physician who has worked as a
Medicare contractor medical director is in charge of implementing much stronger
oversight of Medicare claims processing contractors, with a special emphasis on
making sure contractors meet their responsibility to be diligent in preventing
fraud and payment errors.
* A physician is leading a review of all our rules
and regulations to see where they can be simplified, clarified, and refined to
reduce administrative burdens on physicians and better meet beneficiary needs.
* And a former State insurance department director is coordinating our new
State-level responsibilities under the Health Insurance Portability and
Overall last year we doubled the number of physicians at
the agency and hired about 450 new employees to replace retirees, fill new
positions, and provide us with fresh private sector insight and expertise.
We have taken steps to make sure policies are applied fairly and evenly
across the country. We have strengthened communication between leaders of our
Regional Offices and our main policy and operations divisions. And we have
established "Product Consistency Teams" to make sure that policies and
procedures are applied uniformly across the country.
We are creating new
advisory committees, pursuant to the Federal Advisory Committee Act, that will
continually bring outside insight and expertise to our agency. They will also
help bring more openness to our operations and help us make sure we are managing
our programs to meet beneficiary needs.
* One advisory committee, the
Citizens Advisory Panel on Medicare Education, will help us make sure we are
giving beneficiaries the information they need to be informed consumers in the
new Medicare+Choice program. * Another advisory committee, the Medicare Coverage
Advisory Committee, will foster openness and public input in our coverage
decision-making process. It will include experts in medicine, biology, public
health, ethics, economics, data analysis, and other professions, and work from
objective medical evidence for recommending when Medicare should pay for new
medical treatments and services.
* A third advisory committee, announced in
the President's budget, will include private sector business and management
experts who can advise the Administrator on how to improve HCFA's business
processes and incorporate innovations that will better serve our beneficiaries.
We are also seeking new flexibilities to strengthen our capacity to manage
our programs. The President's budget calls for:
* an assessment of our
personnel skill mix and an evaluation of increased flexibilities in personnel
matters that would help us pay competitively, hire the right staff to serve
beneficiaries, and hold employees accountable for results;
accountability by establishing the outside advisory committee discussed above to
advise the Administrator on management issues and by regularly reporting to
Congress and the public on the status of programs and initiatives;
reengineering our relationship with our Regional Offices and with the
* allowing Medicare use market forces to prudently purchase care
and services so we get the best quality and price for beneficiaries; and
reforming Medicare contracting authority so we can hire from a broader pool of
private businesses to handle Medicare claims and move toward a more competitive
and effective procurement environment.
These reforms are needed to help us
manage our programs efficiently and with a sharper focus on serving
beneficiaries and ensuring access to high quality care.
THE YEAR 2000
Meeting the Year 2000 computer programming challenge must be our highest
priority. HCFA got a late start but we are now making substantial progress in
addressing this critical challenge. I want to assure beneficiaries that they
should not worry. We are working with the health care community to assure that
beneficiaries will continue to have access to the care they need. And I want to
assure health providers that HCFA and its contractors will be prepared to pay
their claims come January 1, 2000. However, providers must act now to be sure
that their computer systems are fixed so they can submit claims to us. We
continue our work and testing, but I am confident that we will be ready well
before January 1, 2000. To date: * all of our 25 internal mission critical
systems are now certified as Year 2000 compliant ("certified" means that
independent experts have overseen renovations and testing and validated that
they have been done properly);
* our 78 external mission critical systems
that our claims processing contractors use to pay bills are fully renovated, and
more than 70 percent are certified as compliant. We have experts on-site every
day, monitoring and assisting contractors who have significant amounts of
remaining Year 2000 work;
* systems for about 95 percent of Medicare managed
care plans are reported compliant; and
* we have completed the first round
of certification testing on twenty-four of our sixty non-mission critical
There is no question that we have faced an uphill battle
in achieving Year 2000 compliance. We have a substantial amount of work
remaining this year to test and validate our systems. We are working to
encourage and help providers meet their Year 2000 responsibilities, and to help
beneficiaries understand what they need to know about the Year 2000 issue. We
also must work to renovate our non-mission critical systems, and to make
temporary fixes permanent.
A number of key steps are getting us where we
need to be. They include:
* building a "War Room" to track Year 2000 efforts
within the agency and with partners across the country so we know the current
status of all essential Year 2000 projects;
* negotiating contract
amendments with more than 60 claims processing contractors to establish clear
Year 2000 requirements;
* establishing contractor oversight teams to closely
monitor and manage Year 2000 work on-site and full time for claims processing
contractors who most need help;
* hiring independent expert contractors to
give us greater assurance that Year 2000 work is done properly by us, our claims
processing contractors, and States; and
* helping health care providers
through a broad outreach campaign that includes mailings, publications, an
Internet site, a speaker's bureau, and a wide range of other efforts.
be clear, however, about what HCFA can and cannot do. We are responsible for all
our own systems, our claims processing contractors' systems, and data exchange
interfaces among all of these systems and the systems of States, providers,
banks, phone companies, and other partners. We do not have the authority,
ability, or resources to step in and fix systems for others, such as States or
providers. And that leads to a rather substantial concern.
It is not enough
for HCFA alone to be ready for the Year 2000. Health care providers must be Year
2000 compliant in order to bill us properly and continue to provide high quality
care and service to Medicare beneficiaries. States also must be Year 2000
compliant for Medicaid and CHIP programs to continue uninterrupted service. Our
monitoring indicates that some States and providers could well fail. We are
providing assistance to the extent that we are able, but that likely will not be
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 claims processing contractors. I also want to thank
the Secretary and my colleagues at the Department of Health and Human Services,
especially the HHS Inspector General, for their support. We have been greatly
aided by wise counsel from the General Accounting Office and, importantly, by
the expert independent validation contractors the GAO recommended we hire to
ensure that Year 2000 work is done correctly. And, without question, we could
not have come so far so quickly without the timely support and funding that
Congress has provided.
FIGHTING FRAUD AND PAYING RIGHT
We are making
unprecedented strides in promoting program integrity. This includes both
fighting fraud, waste and abuse, and making sure we are paying right. We have
set new records for restitutions, convictions, and exclusions of problem
providers by working more closely with our law enforcement partners. Since 1993,
these efforts have saved taxpayers billions of dollars and increased health care
fraud convictions by more than 240 percent. We also are addressing honest errors
in billing and payment through good program management and business practices,
improved education and communication with providers, and correcting payment
errors regardless of the reason for them.
We have developed a comprehensive
program integrity plan to build on these successes. The plan calls for:
increasing the effectiveness of medical review by increasing the overall level
of review, targeting it on problem areas, hiring additional physicians to
improve its effectiveness, using more computer "edits" that prevent improper
payments, training employees to develop cases for prosecution, evaluating local
policies to see where national policy may be needed, and measuring how well
individual contractors perform medical reviews;
* stepping up efforts to
help providers comply with rules, establishing clear enrollment and periodic
reenrollment requirements; and requiring bonds for certain types of providers. *
proactively addressing potential program integrity problems before they occur in
the new programs, benefits, and payment systems created under the BBA;
planning how to deal with potential program integrity problems related to the
Year 2000 computer issue; and
* focusing on special areas of concern, such
as inpatient hospital care, congregate care such as nursing homes and assisted
living centers, community mental health centers, as well as addressing the
unique program integrity issues related to managed care.
We further expect
our program integrity successes to increase this year as we begin to use new
authority to hire special program integrity contractors. We plan to hire payment
safeguard contractors to focus on medical review, fraud case development, cost
report audits and related program safeguard functions as needed; a coordination
of benefits contractor to consolidate all activities associated with making sure
Medicare does not pay for claims when other insurers are liable; a statistical
analysis contractor to provide on-going analyses to help detect fraud; and
managed care integrity contractor(s) to target issues unique to health plans.
We expect to start these new, special program integrity contractors on the
job this year. This is important, because the HHS Inspector General reports that
not all Medicare's claims processing contractors are effectively fighting fraud
and abuse. We have responded by including fraud case developing in the scope of
work for our new special program integrity contractors, and by ordering existing
contractors to report all suspected fraud cases immediately to the HHS Inspector
General. But, clearly, we need to do more.
That is one reason why the
President's budget proposes a new legislative package to fight fraud, waste and
abuse that will save about $3 billion over 5 years. It includes eliminating
excessive reimbursement for drugs, putting stricter controls on outpatient
mental health services, requiring other insurers to report all Medicare
beneficiaries they cover so Medicare can make sure it does not pay bills that
should be paid by other insurers. It also include more authority to choose the
most effective Medicare contractors.
BALANCED BUDGET ACT
includes 335 provisions that affect our programs, with savings that are critical
to achieving a balanced budget and extending the life of the Medicare Trust Fund
for 10 years. We have fully implemented more than half of those provisions, and
many more are partially implemented.
We have implemented provisions for
Medicare coverage of new preventive benefits, including expanded coverage for
test strips and education programs to help diabetics control their disease, bone
density measurement for beneficiaries at risk of osteoporosis, and several
colorectal cancer screening tests. We also expanded preventive benefits for
women so Medicare now covers a screening pap smear, pelvic exam and clinical
breast exam every three years for most women, and every year for women at high
risk for cervical or vaginal cancer. And Medicare now covers annual screening
mammograms for all women age 40 and over, and a one-time initial, or baseline,
mammogram for women ages 35-39, paying for these tests whether or not
beneficiaries have met their annual deductibles.
We are implementing
important demonstration projects designed to test whether market forces can help
Medicare save money and promote high quality care. We will soon begin a test in
Polk County, Florida of competitive bidding as a way to get the best quality and
price for durable medical equipment and supplies. Bidding documents are
scheduled for release this week, and a conference for potential bidders is
scheduled for February 23. A toll-free hotline (888-289- 0710) is available to
answer beneficiary and provider questions about the project.
We will soon
begin a test of competitive pricing for managed care, in which a bidding process
will be used to set rates for Medicare+Choice plans in two local markets. A
Medicare Competitive Pricing Advisory Commission, chaired by General Motors
Health Care Initiative Executive Director James Cubbin, has made recommendations
regarding key design features of the project, and selected the markets of
Phoenix, Arizona and Kansas City, Kansas and Missouri, as initial demonstration
We also are developing important new payment systems that include
incentives to provide care efficiently. We have already implemented a new
prospective payment system called for in the BBA for skilled nursing facility
costs. Similar prospective payment systems are being developed for
rehabilitation hospitals, home health care, and outpatient hospital care.
We are implementing the new Medicare+Choice program,
which was also mandated by the BBA. It allows Medicare beneficiaries to select
from a wide range of plan options available in the private sector today. It
requires a massive new beneficiary education campaign, and includes important
new protections for patients and providers, as well as statutory requirements
for quality assessment and improvement.
We believe very strongly that
managed care is good as a voluntary option next to traditional Medicare.
Medicare managed care enrollment has nearly tripled under the Clinton
Administration, from 2.3 million when the President took office to now 6.8
million. We are taking steps to help beneficiaries understand their new options
and encourage plans to provide these new options.
We have launched the
National Medicare Education Program to help beneficiaries understand the program
and receive accurate and unbiased information about their benefits, rights, and
options. The campaign includes:
* mailing a Medicare and You handbook to
explain new benefits and health plan options;
* a toll-free "1-800-Medicare"
call center with live operators to answer questions and provide additional print
information on request;
* a consumer-friendly Internet site, www.Medicare.
* a program to teach partners in other organizations that serve
Medicare beneficiaries how to teach others in their organizations and
communities to explain the changes;
* enhanced beneficiary counseling from
State Health Insurance Assistance Programs;
* a national publicity campaign;
* a multitude of state and local outreach efforts; and
* a comprehensive
assessment of these efforts. An initial pilot test was begun in five states in
1998. Results will help to refine the program for a full-scale, national
campaign in preparation for the 1999 open enrollment period beginning in the
We are taking several steps to reach out to health plans to encourage
participation in the Medicare+Choice program. Last summer we held outreach
sessions attended by more than 1,500 plan representatives. And we are
strengthening lines of communication with plans. I have named a high-level point
person within HCFA whom plans can call directly if they have trouble resolving
issues through normal HCFA channels.
We have converted the vast majority of
Medicare HMOs -- more than 300 -- to the new Medicare+Choice program. We have
approved a total of 10 new Medicare+Choice plans and 10 service area expansions
for existing plans since November. We are currently reviewing another 28 new
plan applications and 19 service area expansion applications. The newly approved
plans include provider sponsored organizations, which are HMOs run by hospitals
and physicians rather than insurers. One of these plans is the first to enter
Medicare with a federal waiver from State licensure, which is allowed for the
first time ever under the Medicare+Choice program. We have also taken all
necessary steps so that Medicare beneficiaries can be offered Medical Savings
Account options, as well.
We have taken several additional steps to
implement Medicare+Choice. We have developed new beneficiary and plan enrollment
systems, payment systems, appeals and grievance procedures, and quality
assurance mechanisms. And we are collecting data that will be used to phase in
"risk adjustment" to meet the BBA requirement that payments to plans take into
account the health status of individual enrollees.
We will soon publish
refinements to regulations which improve beneficiary access to timely
information about plan changes that affect them. The refinements also address
plan concerns and should help encourage plans to offer more options to Medicare
And, to further facilitate plan participation, the
President's budget gives plans two additional months to file the information
that we use to approve benefit and premium structures. This "Adjusted Community
Rate" (ACR) data would not be due until July 1, rather than May 1. July 1 is the
latest we can accept, process, and approve premium and benefit package data and
still mail beneficiaries information about available plans in time for the
November 1999 Medicare+Choice open enrollment period.
While I am concerned
about the business decision that some Medicare HMOs made last October to pull
out of the program this year, it is important to put those business decisions in
context. Some of the plans that withdrew had market positions or internal
management issues that made it hard for them to compete. And they faced rising
prescription drug prices and other commercial pressures. Many of the disrupted
beneficiaries had several other plans to choose from, and all but 50,000 had at
least one other plan option.
It is our understanding that the Federal
Employees Health Benefits Program (FEHBP) experienced a similar rate of plan
pullouts. We have observed instances where plans that withdrew Medicare service
from specific counties also withdrew their FEHBP service in many of those same
counties. As mentioned above, the majority of Medicare HMOs converted to the
Medicare+Choice program, we have approved 20 new plan and service area
expansions approved since November, and are now reviewing applications from
another 47 plans that want to get into or expand their role in Medicare+Choice.
This suggests that plan withdrawal decisions have more to do with internal plan
and larger marketplace issues than with Medicare rates or regulations.
Still, the President's budget does include proposals to protect
beneficiaries from disruption by plan withdrawals. Beneficiaries need earlier
notification of plan withdrawals, and broader access to supplemental Medigap
polices if they are forced to return to fee-for- service coverage.
We have several other important initiatives underway addressing
children's health insurance, consumer protections for Medicaid beneficiaries in
managed care, consumer protections in the private insurance market, and consumer
protections in nursing homes.
Children's Health Insurance Program. We are
implementing the new Children's Health Insurance Program, or CHIP. We have
approved 50 State and Territory plans, which States expect to cover more than
2.5 million children, most of whom are in working families who do not earn
enough to afford coverage for their children. Amendments expanding state plans
have been approved for nine states, and we are now reviewing another nine
amendment proposals, which should cover even more children.
have proposed regulations to implement BBA provisions mandating strong, new
patient protection and quality improvement rules for managed care plans that now
serve about half of all Medicaid beneficiaries nationwide are now enrolled in
managed care. This is a comprehensive and important change that should not
affect States or plans ability to make Year 2000 systems changes. We also have
sent State Medicaid Directors more than 50 letters with guidance as other
Medicaid-related BBA provisions became effective. These letters address
provisions that help States expand assistance to low-income Medicare
beneficiaries, let States cover working disabled people with incomes up to 250
percent of poverty, allow states to mandate that most Medicaid beneficiaries
enroll in managed care without obtaining a federal waiver, and many others.
Health Insurance Portability and Accountability Act
We have undertaken
tasks under the Health Insurance Portability and Accountability Act that are
well outside our traditional responsibilities. We are charged with overseeing
protections for individuals with preexisting conditions and other broad private
sector insurance reforms, and we must enforce these reforms in States that fail
to do so. To date, we are enforcing all provisions of the law in Rhode Island
and Missouri, and several major provisions in California. As many as 30 other
States may not have implemented all provisions of the law. Our fiscal year 2000
budget request includes resources for direct enforcement and close coordination
with State insurance departments that are necessary for us to meet our new
HIPAA also charges our agency with improving and protecting
health care data that is exchanged electronically. We are now reviewing several
thousand, often highly technical, comments on Notices of Proposed Rule Making
regarding a national provider identifier system, an employer identifier system,
electronic transactions and code sets, and electronic data security. We expect
to soon publish Notices of Proposed Rule Making for a health plan identifier
system and for electronic claims attachments.
Nursing Home Initiative
have also undertaken a new initiative to improve oversight and quality of
nursing home care. We are working with States to improve inspections, cracking
down on homes that repeatedly violate safety rules, focusing on prevention of
physical abuse and neglect such as dehydration and malnutrition, and posting
nursing home quality ratings on the Internet. These reforms build on progress
made since 1995, when we began enforcing the toughest nursing home regulations
ever. The Clinton Administration will again submit legislation to Congress to
require criminal background checks of prospective nursing home employees,
establish a national registry of nursing home workers who have abused or
neglected residents or misappropriated residents' property, and allow more types
of nursing home workers to help residents eat and drink during busy mealtimes.
We are making substantial progress in meeting our challenges
and better managing the programs that so many millions of Americans rely on for
health care coverage. Clearly, we have much more to do. That is why we are
implementing the many management reforms discussed in this testimony. That is
why the President's budget includes provisions to increase our flexibility in
procurement and personnel matters, and to establish an official advisory
committee to help us stay on top of the rapidly evolving health care
marketplace. And that is why I am grateful for the advice and assistance of this
Committee and of the General Accounting Office. I thank you again for holding
this hearing, and I am happy to answer your questions.
LOAD-DATE: February 19, 1999