[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
               STATUS OF THE MEDICARE TRANSACTION SYSTEM
=======================================================================

                             JOINT HEARING

                               before the

                    SUBCOMMITTEE ON HUMAN RESOURCES

                                and the

                 SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                      INFORMATION, AND TECHNOLOGY

                                 of the

                        COMMITTEE ON GOVERNMENT
                          REFORM AND OVERSIGHT
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 16, 1997

                               __________

                           Serial No. 105-48

                               __________

Printed for the use of the Committee on Government Reform and Oversight







                       U. S. GOVERNMENT PRINTING OFFICE
44-342                          WASHINGTON : 1997
___________________________________________________________________________
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              COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois          TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland       ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico            EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California          PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida         GARY A. CONDIT, California
JOHN M. McHUGH, New York             CAROLYN B. MALONEY, New York
STEPHEN HORN, California             THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida                ELEANOR HOLMES NORTON, Washington, 
THOMAS M. DAVIS, Virginia                DC
DAVID M. McINTOSH, Indiana           CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida             DENNIS J. KUCINICH, Ohio
JOHN B. SHADEGG, Arizona             ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio           DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South     JOHN F. TIERNEY, Massachusetts
    Carolina                         JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire        THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas                 HAROLD E. FORD, Jr., Tennessee
MICHAEL PAPPAS, New Jersey                       ------
VINCE SNOWBARGER, Kansas             BERNARD SANDERS, Vermont 
BOB BARR, Georgia                        (Independent)
ROB PORTMAN, Ohio
                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                       Judith McCoy, Chief Clerk
                 Phil Schiliro, Minority Staff Director
                                 ------                                

                    Subcommittee on Human Resources

                CHRISTOPHER SHAYS, Connecticut, Chairman
VINCE SNOWBARGER, Kansas             EDOLPHUS TOWNS, New York
BENJAMIN A. GILMAN, New York         DENNIS J. KUCINICH, Ohio
DAVID M. McINTOSH, Indiana           THOMAS H. ALLEN, Maine
MARK E. SOUDER, Indiana              TOM LANTOS, California
MICHAEL PAPPAS, New Jersey           BERNARD SANDERS, Vermont (Ind.)
STEVEN SCHIFF, New Mexico            THOMAS M. BARRETT, Wisconsin

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
                Marcia Sayer, Professional Staff Member
                       R. Jared Carpenter, Clerk
                    Cherri Branson, Minority Counsel

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
PETE SESSIONS, Texas                 CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
JOE SCARBOROUGH, Florida             MAJOR R. OWENS, New York
MARSHALL ``MARK'' SANFORD, South     ROD R. BLAGOJEVICH, Illinois
    Carolina                         DANNY K. DAVIS, Illinois
JOHN E. SUNUNU, New Hampshire
ROB PORTMAN, Ohio

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
             J. Russell George, Staff Director and Counsel
                         Mark Uncapher, Counsel
                 John Hynes, Professional Staff Member
                          Andrea Miller, Clerk
           David McMillen, Minority Professional Staff Member
          Mark Stephenson, Minority Professional Staff Member





                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 16, 1997.....................................     1
Statement of:
    Vladeck, Bruce, Administrator, Health Care Financing 
      Administration.............................................    44
    Willemssen, Joel C., Director, Information Resources, General 
      Accounting Office, accompanied by Leonard J. Latham and 
      Mark E. Heatwole...........................................     8
    Zaks, Irving, vice president and general manager, information 
      systems division, GTE; and Bruce Burton, vice president, 
      Intermetrics Systems Services Corp.........................    77
Letters, statements, etc., submitted for the record by:
    Burton, Bruce, vice president, Intermetrics Systems Services 
      Corp., prepared statement of...............................    87
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     7
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............     4
    Vladeck, Bruce, Administrator, Health Care Financing 
      Administration:
        Additional questions and responses.......................  , 75
        Prepared statement of....................................    46
    Willemssen, Joel C., Director, Information Resources, General 
      Accounting Office, prepared statement of...................    11
    Zaks, Irving, vice president and general manager, information 
      systems division, GTE:
        Information concerning summary list of meetings..........   100
        Prepared statement of....................................    80

 
               STATUS OF THE MEDICARE TRANSACTION SYSTEM

                              ----------                              


                          FRIDAY, MAY 16, 1997

        House of Representatives, Subcommittee on Human 
            Resources, joint with the Subcommittee on 
            Government Management, Information, and 
            Technology, Committee on Government Reform and 
            Oversight,
                                                    Washington, DC.
    The subcommittees met, pursuant to notice, at 11:28 a.m., 
in room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the Subcommittee on Government Management, 
Information, and Technology) presiding.
    Present: Representatives Horn, Sessions, Davis of Virginia, 
and Maloney, Subcommittee on Government Management, 
Information, and Technology; Representatives Snowbarger and 
Kucinich, Subcommittee on Human Resources.
    Ex officio present: Representative Waxman.
    Staff present: Lawrence J. Halloran, staff director and 
counsel; Marcia Sayer, professional staff member; R. Jared 
Carpenter, clerk; J. Russell George, staff director and 
counsel; Mark Uncapher, counsel; John Hynes, professional staff 
member; Andrea Miller, clerk; Cherri Branson, minority counsel; 
and David McMillen and Mark Stephenson, minority professional 
staff members.
    Mr. Horn. Today, we're reviewing the information and data 
systems in support of America's Medicare program. A quorum 
being present, we shall begin. Mr. Snowbarger will give the 
statement of our co-chairman of this hearing, Mr. Shays of 
Connecticut. He is unavoidably detained, and so I will yield to 
my colleague for reading the co-chairman's statement as well as 
any remarks he has on his own.
    Mr. Snowbarger. Thank you, Mr. Chairman.
    Think of Medicare as the trusty family station wagon, the 
aging, but serviceable, vehicle that we rely upon to carry 
precious cargo safely and efficiently. Although many cars can 
go faster and some run more cheaply, we wouldn't think of using 
anything else.
    But our Medicare vehicle needs substantial mechanical 
repairs if it's going to carry us into the next century without 
a major breakdown. Under the hood, Medicare's engine, the 
computerized claims payment system is a sputtering, inefficient 
tangle of jury-rigged repairs and incompatible parts that no 
one mechanic can understand and fix.
    Rather than continue tinkering with the old system, the 
Health Care Financing Administration correctly decided to 
replace the entire Medicare drive train with integrated up-to-
date technology. That was almost 5 years ago. Today the repair 
project, called the Medicare Transaction System, is a costly 
shambles. After spending more than $40 million dollars, 
committing to spend more than $100 million, and projecting to 
spend more than $1 billion, HCFA has halted work on all but the 
newest and simplest element of the new computer system.
    Despite earlier and repeated warnings from the General 
Accounting Office, congressional committees, including our 
subcommittees, and HCFA's own technical consultants, the MTS 
project has been hobbled by poor management, weak risk 
assessment, and questionable cost assumptions.
    Now HCFA is re-evaluating MTS. This is no midcourse 
correction, but a fundamental reassessment of the MTS process 
and the prospects for completion before the millennium dawns. 
Alarms are sounding, and the future of the Medicare program 
hinges on our response.
    At our joint hearing in November 1995, I asked if MTS would 
succumb to delays and design flaws that doomed other Federal 
computer acquisitions to early obsolescence or failure. We were 
assured HCFA was on schedule for transition to MTS beginning in 
September 1997, with full transition completed by September 
1999. We were also assured HCFA welcomed our continuing 
interest and would periodically report MTS progress and 
problems. Neither assurance proved very accurate.
    Pursuant to our bipartisan request, GAO audited the MTS 
development process, risk assessment, cost estimates and the 
year 2000 transition activities. We will hear their findings 
and recommendations today. They describe critical managerial 
and technical weaknesses that continue to delay and undermine 
the MTS effort.
    Nor was HCFA forthcoming with information as the process of 
defining the system requirements churned endlessly and the MTS 
schedule slipped further. The complexity of the project, the 
fluidity of the design process, and HCFA's introverted culture 
combined to veil MTS behind multiple layers of disclaimers and 
equivocations. For months, while renegotiating the design 
contract, HCFA would not tell us the exact status of MTS. Now, 
in view of the 90-day stop-work order issued April 4, HCFA 
disclaims its own cost estimates because key design elements 
may be changed.
    An unrealistic schedule and an unwillingness or inability 
to communicate critical information make it very difficult to 
be confident MTS will ever be the fix Medicare needs to serve 
beneficiaries and stem losses to fraud and abuse. Today, we ask 
the HCFA Administrator to assure us once again that MTS is both 
a realistic vision for Medicare and one within the agency's 
capacity to realize. We also need to be sure the still distant 
promise of MTS is not blinding the agency to other near-term 
cost-effective steps to a unified Medicare claims system.
    This joint hearing reflects the determination of all our 
Members to keep Medicare on a safe course. The Government 
Management, Information, and Technology Subcommittee, led by my 
good friend Mr. Horn, is responsible for the oversight of the 
governmentwide performance and procurement issues. The Human 
Resources Subcommittee oversees Federal health and human 
services programs. Together we will continue to examine the 
problems and progress of MTS.
    Finally, I have to express my disappointment that the 
Office of Management and Budget declined our invitation to 
testify today. Their testimony would have been helpful to us. 
OMB's role in directing agency information, technology and 
acquisitions is central, and I hope the lessons of MTS will not 
be lost in the one agency in position to guide all other major 
system procurements.
    To all the other witnesses who accepted our invitation, 
welcome. Your testimony is an important part of our ongoing MTS 
oversight, and we appreciate you being here.
    Thank you, Mr. Chairman.
    Mr. Horn. We thank you for reading co-Chairman Shays' 
statement. And that is very helpful.
    [The prepared statement of Hon. Christopher Shays follows:]
    [GRAPHIC] [TIFF OMITTED] 44342.001
    
    [GRAPHIC] [TIFF OMITTED] 44342.002
    
    Mr. Horn. Let me briefly read one of my own. As I noted 
when we started today, we're reviewing the information and data 
systems that support America's Medicare program. We've been 
here before on this subject. In November 1995, these two 
subcommittees held a joint hearing that considered among other 
matters how existing information technology processes could be 
incorporated into the Medicare claims system to more 
effectively identify fraud.
    Based on several reports from the General Accounting Office 
over the years, we've had very serious concerns at that time as 
well as now about the ambitious Medicare Transaction System or 
MTS. We believe that the Health Care Financing Administration 
was ill-equipped to manage such a massive and complex project. 
We believe that the costs would outweigh the benefits.
    Unfortunately, our beliefs have materialized. On April 4th, 
the Health Care Financing Administration announced that it was 
exploring other options to develop MTS. The project is in 
jeopardy. Moreover, we've learned that the Health Care 
Financing Administration has a serious year 2000 problem as 
well.
    The General Accounting Office has written a report that 
includes sharp criticism of the Health Care Financing 
Administration's involvement in the year 2000 software 
conversion effort of its claims contractors and standard 
systems maintainers. Needless to say, if the Medicare system is 
unable to process claims accurately in the year 2000, the 
impact on Medicare beneficiaries across the country, and, 
indeed, the entire health care system, could be catastrophic.
    Where do we stand now? We need to get assurances today 
about the future of the Medicare Transaction System as well as 
the Health Care Financing Administration's management of the 
year 2000 problem.
    [The prepared statement of Hon. Stephen Horn follows:]
    [GRAPHIC] [TIFF OMITTED] 44342.003
    
    Mr. Horn. So I'm delighted to start with panel one. I'm not 
sure that was a vote on the floor. It is a vote. I'm going to 
swear you in, then I'm going to go to vote and come back and 
begin the hearing.
    So, gentlemen, you know the routine of the committee. Raise 
your right hands.
    [Witnesses sworn.]
    Mr. Horn. The clerk will note that all three witnesses have 
affirmed.
    We are going to be in recess until we've cast the vote and 
return.
    [Brief recess.]
    Mr. Horn. The subcommittees will reconvene, and we will 
begin with the testimony of the first panel. With us is Joel 
Willemssen, the Director of Information Resources of the 
General Accounting Office, and if you would identify your 
colleagues, we would appreciate it.
    Mr. Willemssen. Thank you, Mr. Chairman.
    Accompanying me today is Mark Heatwole, Assistant Director, 
and L.J. Latham, Technical Assistant Director. Thank you for 
inviting us to testify today on MTS.
    Mr. Horn. I might say at this point you know your full 
statement will be in the record, and so will the GAO study on 
which it is based, as well as the various exhibits you have. Go 
ahead.

    STATEMENT OF JOEL C. WILLEMSSEN, DIRECTOR, INFORMATION 
RESOURCES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY LEONARD J. 
                  LATHAM; AND MARK E. HEATWOLE

    Mr. Willemssen. Thank you, Mr. Chairman. Accordingly, as 
agreed, I will summarize our statement today. The results are 
presented in more detail in a report to you that's being 
released today at the hearing.
    In summarizing my statement, my comments will focus on 
three areas. First, HCFA's management of its interim claims 
processing environment in which it must operate until MTS 
software is implemented; second, how HCFA has managed the MTS 
as an investment and assessed the system's cost and benefits; 
and third, how effectively sound systems practices have been 
used in developing the MTS software.
    Prior to MTS being fully implemented, HCFA will continue to 
operate in an interim processing environment for a number of 
years. In doing this, HCFA plans to reduce the number of 
existing claims processing systems to one for Part A and one 
for Part B and cut the number of processing sites by about 
half, to about 20 nationwide. HCFA was then planning in mid-
1998 to move these systems to two planned MTS processing sites 
and then fully implement the MTS software at these sites 
sometime after the year 2000.
    To successfully handle this major transition, careful and 
detailed planning is necessary. However, this has not been 
done. In particular, we see unnecessary risk in HCFA's approach 
to address the year 2000 computing issue. Failure to adjust 
systems for the year 2000 could cause payment delays as well as 
losses due to bypassed system controls. However, HCFA's year 
2000 plan has been focused predominantly on its own internal 
systems rather than its contractor systems, which are 
responsible for processing about $200 billion annually in 
claims.
    A further complication is that these contractors may not 
have much incentive to make changes because HCFA intends to 
eliminate the contractors once MTS has been implemented. We are 
concerned that HCFA is relying predominantly on its contractors 
and has not been closely monitoring their activities or 
demanding assurances from the contractors that they will indeed 
fix the systems.
    Second, regarding managing MTS as an investment, HCFA 
cannot make informed technology investment decisions without a 
valid cost-benefit analysis and an effective assessment of 
available alternatives. However, this has not been done for 
MTS. HCFA's estimates of MTS benefits are based primarily on 
unsupported assumptions. For example, officials said that much 
of the anticipated program savings would result from automated 
edits, to identify unnecessary medical services and abuse of 
billing that could result in excessive payments. They 
acknowledge, however, that since they have not yet identified 
the edits to be included in MTS, resulting savings could differ 
substantially from these estimates.
    Another incorrect assumption is that without MTS, costs for 
claims would continually increase between the years 1993 and 
2002. Yet, actual contractor reports for 1994 through 1996, 
show a drop in costs of about 10 percent. Our chart over here 
shows the escalation in MTS costs. The figure on the left gives 
the escalation in total estimated costs for the entire MTS 
program, while the figure on the right on that chart is the 
escalation in costs for the software development contract with 
GTE. As shown on the chart, total estimated costs have 
dramatically increased almost sevenfold since the 1992 estimate 
of about $151 million. We now estimate, based on HCFA figures, 
that the total MTS price tag will be approximately $1 billion.
    Regarding the GTE contract, which was awarded slightly more 
than 3 years ago at about $18 million, actual estimated cost of 
that contract is now slotted at $92 million. There are 
alternatives to spending of this magnitude, and we believe that 
HCFA has a responsibility to explore them. For example, 2 years 
ago we urged HCFA to investigate commercial off-the-shelf 
software to help detect billing abuse. We understand that HCFA 
is currently looking into this.
    The third major area of our review is that HCFA is not 
assuring that sound systems development practice is being 
followed. HCFA has not developed plans critical to system 
success, has not managed its schedule well, and has not 
adequately monitored its contractor's software development 
strategy.
    If I may point you to the other chart we have here, the 
chart has six figures. Each of those figures represents a major 
release or major module or piece of the software that GTE is 
responsible for developing. But what we've seen on the 
requirements for each of those releases is continued 
volatility. Even 3 years after the contract has been awarded, 
there is still not agreement on exactly what the system is 
supposed to do. This makes it, of course, very difficult for 
GTE to go ahead and program, and this is a key critical 
continuing concern.
    Deficiencies in critical systems development processes 
provide warnings of weaknesses in the management capability of 
HCFA and its contractors. These factors all increase risk. 
Among the critical areas that remain unresolved include missing 
or inadequate plans for requirements management, configuration 
management, and systems integration.
    In summary, we believe serious weaknesses with MTS exist. 
These weaknesses call into question whether MTS, without 
significant change, will be able to perform as required.
    Further, given the escalation in estimated costs, we have 
concerns whether MTS is worth the estimated $1 billion price 
tag. More can and must be done if HCFA is to obtain the type of 
system that it needs.
    Our report that's being released today includes 20 major 
recommendations to help HCFA enhance the likelihood of 
acquiring a cost-effective system. We are encouraged that in 
commenting on a draft of our report, both OMB and HHS agreed 
with our findings and have agreed with all of our 
recommendations. However, our recommendations must be 
effectively implemented in order for a project such as MTS to 
succeed.
    That concludes the summary of my statement. I would be 
pleased to address any questions you may have.
    Mr. Horn. Well I thank you very much for that statement.
    [The prepared statement of Mr. Willemssen follows:]
    [GRAPHIC] [TIFF OMITTED] 44342.004
    
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    Mr. Horn. I'm going to only ask one or two questions and 
yield to my colleagues. But the first question I want to ask: 
you've been with GAO since 1979. Did you have anything to do 
with reviewing what the FAA did in terms of their failures in 
computerization and what IRS has done in its failures on 
computerization? Were you involved in those reviews at all?
    Mr. Willemssen. I participated and led numerous reviews at 
the Federal Aviation Administration, not at the IRS.
    Mr. Horn. Not at the IRS, because my question is--and I 
think you probably have some knowledge of the IRS since they 
did take a look at it--what's different about this? Are they 
going down the same path that led to $4 billion down the drain 
with FAA, $4 billion down the drain with IRS? Are we headed 
there?
    Mr. Willemssen. I would say we are concerned that we do see 
certain similarities, but I am encouraged by recent actions at 
OMB, HHS, and HCFA, that they intend to stop and reassess and 
not proceed in a hurried manner, but at the same time 
expeditiously try to do what's right. We would encourage them 
to base future decisions on full and complete analysis rather 
than deciding and then putting together analysis to support 
those presupposed decisions.
    So I have seen some similarities, but again, we're 
encouraged by recent actions. We support the stop-work order of 
April. We think that was a recognition that there are problems, 
and that we have to halt and reassess and do what's best from 
here on out.
    Mr. Horn. Is part of the problem the failure to have 
initial planning cost-benefit analysis, all of which you 
mentioned, and the GAO report released today mentions, or is it 
the management of the project as it evolves where decisions are 
made, not simply drift, and everybody's ideas get put into the 
mix? And that, I think, was some of the problem in the other 
two agencies.
    Mr. Willemssen. Yes, I think it's--it definitely has 
elements of both. We think, for example, in accordance with 
Clinger-Cohen, it is especially critical for a project such as 
this, the agency should be routinely providing the estimated 
cost of the project. Unfortunately, that kind of information 
has not been available until very recently so that key 
stakeholders, such as critical congressional committees such as 
yours, can keep an eye and watch on what's going on. That has 
not been done. And we would hope that from this point forward 
that kind of continuing investment analysis, tracking what the 
estimated costs and benefits and risks are going to be, and 
comparing them to what the actual--what actually occurs, is 
going to happen.
    In this particular case, a key element that I want to 
emphasize again is the fact that requirements for what you want 
the system to do have to be defined before you're going to be 
able to really do--write software and develop a product. More 
than 3 years after the contract is awarded, we still aren't at 
that point.
    Mr. Horn. Let me ask you about an issue that is of great 
interest to this subcommittee which began focusing on this over 
a year ago. In your report and in your testimony, you're highly 
critical of the Health Care Financing Administration's 
management of the year 2000 conversion efforts and of the 
existing claims processing contractors as well as the standard 
systems maintainers. Now the Health Care Financing 
Administration responded that it has relied on its contractors 
to make necessary software changes in the past and expects they 
will be able to make these changes in the future.
    The obvious question is: What are the risks for the 
Medicare claims processing system if these year 2000 software 
changes are not successfully completed, and what do you think 
of the plan they have to move ahead in that area? In the recent 
report of the Director of the Office of Management and Budget, 
as the basis for their budget estimate, which is absolutely off 
the wall in terms of the $2.3 billion cost to the Federal 
Government, they had these agencies turn in a semi-timetable. I 
can't say it was a plan, but it was a timetable. And one of the 
problems is it seems to all pile up in the year 1999, and not 
much time is left with some agencies to really work the bugs 
out of it. And I just wondered what your reaction is on this?
    Mr. Willemssen. We've been very concerned with HCFA's plans 
to address the year 2000 issue with its contractors. Until very 
recently its plan essentially dealt with only its internal 
systems, and it was relying entirely on its contractors to make 
the fixes. We thought that was a highly risky approach. There 
weren't contingency plans developed, and still aren't. In the 
event there is a failure, what are we going to do; what's the 
backup plan? There has been no assessment of the severity of 
the impact, in the event there is year 2000 failure, what would 
actually happen to claims. That's another area that we think 
definitely needs to be addressed.
    Mr. Horn. On that point, what would happen to claims? 
Obviously, one is eligibility----
    Mr. Willemssen. Potentially.
    Mr. Horn [continuing]. Just are you 65?
    Mr. Willemssen. Definitely.
    Mr. Horn. And are you subtracting from 1900 or the year 
2000, 00. And I assume there are other things, such as hospital 
days, nursing home days, all the rest of the scheduling.
    Mr. Willemssen. Dating is especially critical, but that 
assessment of the particulars, we have not seen that yet, so we 
are obviously concerned. We are also concerned because HCFA 
hasn't required contractors to provide them assurance that 
they're going to fix it. We would assume that that would be a 
bare minimum step.
    Mr. Horn. In other words, in neither the hardware nor the 
software they're examining to see that they're 2000-compliant--
or not examining?
    Mr. Willemssen. One of the contractors we visited was 
examining the software. One of the difficulties, though, is 
that software is sent to multiple locations. What assurance 
does HCFA have that each location is using the same version of 
the operating system, same data base management system, same 
telecommunications, same communications, and other peripherals? 
They're relying on the contractor. So we definitely have 
concerns in that area.
    Mr. Horn. Is there a separate chief information officer for 
the Health Care Financing Administration?
    Mr. Willemssen. It's one positive note in our report that 
HCFA has recently established the position, and will be filling 
it shortly as part of their reorganization, which I believe is 
going into effect this summer.
    Mr. Horn. In other words, they've had a year to do 
something about this since the law was passed, maybe a year and 
a half, and they haven't filled the position yet?
    Mr. Willemssen. Well, actually, under the law, HHS is 
required to have the chief information officer. And many of the 
component agencies often follow suit, but are not legally 
required to do so.
    Mr. Horn. I now yield 10 minutes to the gentleman from 
Kansas, Mr. Snowbarger.
    Mr. Snowbarger. Thank you, Mr. Chairman.
    I've got a couple of questions specific to MTS, but let me 
ask an overall question first. One of the problems it seems 
that we're dealing with here is that the original estimates 
were far understated, so much so that it would seem like 
anybody that knew what they were doing would have come a little 
bit closer anyway. My question to you is: To what extent is GAO 
involved either formally or informally in the original RFP 
process and trying to make those estimates, determinations of 
cost to the program?
    Mr. Willemssen. We are only involved from an evaluation 
perspective, from an external perspective. We are not involved 
in actually getting in with the agency and helping them make 
those decisions. We do participate as an--in an evaluative 
role.
    Mr. Snowbarger. So basically you come in after the fact and 
say, here's your estimate, but here are the mistakes you've 
made in trying to come up with that or----
    Mr. Willemssen. Well as Chairman Horn pointed out, in this 
case, though, we have previously reported on many of our 
concerns with the Medicare Transaction System. I guess I'm 
trying to make the point that we can't tell HCFA, obviously, 
what to do. We can offer suggestions, offer recommendations as 
it pertains to cost estimates. And, in fact, that's what we 
tried to do in the report we're releasing today. But we can't 
direct action.
    Mr. Snowbarger. I understand that. And I guess my concern 
is--and the chairman mentioned two or three different 
underestimations, particularly in terms of computerization 
technology--that it seems like we're not doing a very good job 
with coming up with estimates in the first place. When it comes 
in with a significantly understated cost, Congress is more 
likely to accept the program and accept the direction; whereas 
if we knew the real cost, perhaps we'd have a different 
assessment of cost benefit analysis program. And I'm just 
trying to figure out a way that we can get a better, more 
accurate job in getting those estimates in the first place.
    Mr. Willemssen. I think, if I may----
    Mr. Snowbarger. Sure.
    Mr. Willemssen [continuing]. Insert, Congressman, I think 
full implementation of the Clinger-Cohen Act, which was enacted 
in the last year, would go a long ways in doing that which is 
going to force agencies to take an investment approach to their 
information technology acquisitions and at all times, from 
cradle to grave, have an understanding of what the costs, 
benefits, and risks are on a schedule and an actual basis.
    Mr. Snowbarger. What's the--if you could single out any 
change that you recommend to HCFA, what would that change be 
for the success of the MTS project?
    Mr. Willemssen. I would say the one thing that we are 
greatly encouraged by is the stop-work order and the 
recognition----
    Mr. Snowbarger. I'm encouraged by that, too, because they 
are--they've been failing thus far. I'm glad they're stopping. 
But just because they stopped doesn't mean they're going to 
proceed in the right direction once they gear up again.
    Mr. Willemssen. And the most important next step is to do 
the analyses that we pointed out both in the statement and in 
our report that drive the decisions rather than vice versa, 
that HCFA or whoever makes a decision and then puts together an 
analysis to support that decision. We think, for example, in 
the investment area, cost benefits and risks, there needs to be 
a full assessment of available alternatives on costs, benefits, 
and risks of each of those alternatives for what can best meet 
the needs of the Medicare claims processing area. That is 
especially critical.
    Mr. Snowbarger. Do you have any assurance or confidence 
that that kind of assessment is going to be done?
    Mr. Willemssen. I have more confidence today than I would 
have stated 6 weeks ago.
    Mr. Snowbarger. I'm not sure how comforting that is, but 
that's OK.
    What recommendations have you made that have not been 
heeded, but you think would make significant impact on MTS 
project?
    Mr. Willemssen. Unfortunately the same ones that we just 
talked about. When we testified 18 months ago, we were pushing 
hard to have a full disclosure of investment cost benefits and 
risks. And subsequent to that, that did not occur. We are 
certainly hoping at this point that it will.
    Mr. Snowbarger. The combination of your two answers is not 
very comforting at all, because basically you're saying you're 
hoping you're going to get what you asked for 18 months ago but 
didn't get then, but you've been assured you will get it in the 
future.
    Mr. Willemssen. Well, the one distinction is there has been 
the stop-work order and a general recognition. When these kind 
of figures are disclosed, I don't think the project can go much 
further without some substantial change.
    Mr. Snowbarger. I thank you.
    Thank you, Mr. Chairman.
    Mr. Horn. I'm now delighted to recognize the gentleman from 
Ohio, Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Chairman, members of 
the committee.
    Mr. Chairman, I certainly appreciate the work which this 
committee is doing in trying to protect the taxpayers' 
investment in computer systems which are designed to handle not 
just bits of information, but the--the complex social and 
medical concerns which the American people have. We can 
sometimes get so bogged down in the technical details of 
computer or program failure that we forget that millions of 
Americans depend on these programs to work, and if there's a 
glitch in a computer which has an effect on someone's delivery 
for benefits or their being able to even be listed at all, 
that's something that concerned the Congress. So it's 
appropriate we're here.
    I would just like to add to this discussion, Mr. Chairman a 
slightly new wrinkle, which perhaps the GAO has heard about, 
and the Chair, I'm sure, is familiar with. Since 1984, the 
Federal Government has spent over $2 billion in Federal funds 
to help develop statewide computer tracking systems to catch 
deadbeat dads and to make them pay child support. Only eight--
and I'm sure the GAO knows all about this. Only eight States 
currently have systems that are certified by the Department of 
Health and Human Services. And furthermore, since the inception 
of Ohio's State Enforcement Tracking System, Ohio has spent, 
since 1988--now follow this, Mr. Chairman--$35 million of 
Federal money on the development and installation of the 
system. Yet only one county in all of Ohio, all of 88 counties, 
is currently on-line. That's Pickaway County, which has 140 
delinquent child support cases. Are you following this, 
Congressman Snowbarger; 140 delinquent child support cases, and 
yet we've spent $35 million already. Now you want to talk about 
``deadbeat dads.'' How about a ``deadbeat'' computer system? 
Right now they're talking the current projected costs of Ohio's 
computer system is about $92 million. I don't know what success 
we're having in tracking those 140 cases in Pickaway either.
    We have a mess here of a major order, and while this is 
tangential, this issue is tangential to what we're speaking 
about today, let it be said that this problem of computer chaos 
is systemic. It is not related just to MTS. Certainly, the 
Senate Governmental Affairs Committee in their report in 
October 1994, in talking about the billions that have been 
wasted in the computer systems, have hit a nerve, but I want 
the GAO to know, and, Mr. Chairman, this would be, I believe, a 
worthy topic for a future meeting of this committee, where 
perhaps the GAO could grace the committee meeting with their 
attendance as well. I've sent a letter to Chairman Christopher 
Shays about it outlining some of my concerns.
    But you know, we've--I think all of us share the concern 
that the Federal dollars be used to deliver services. We're 
putting the money into hardware, and we're not creating any 
solutions. We're creating more problems and more waste.
    So thank you, Mr. Chairman.
    Mr. Horn. On that tale of horrors that you've described, we 
could endow the helpless spouse and children left behind at 
about $657,000 endowment, and that would draw, if properly 
invested, $60,000 a year to solve some of the problems at home.
    Mr. Kucinich. Exactly, Mr. Chairman. And when you think 
about how you could distribute those benefits in a different 
way, it boggles the mind. And that's why this committee's work 
is so important to the American people, and I appreciate the 
Chair's further insights on this.
    Mr. Horn. Well, I thank the gentleman from Ohio. One of my 
pet targets last year was the Columbus Processing Center of the 
Department of Defense. Now they've assured me that they've 
straightened that out, and maybe you and I and whoever else we 
could get to go along should have a field hearing out there and 
look at both of them.
    Mr. Kucinich. Did the Chair say a field hearing or a field 
day?
    Mr. Horn. A little of both.
    Mr. Kucinich. Thank you.
    Mr. Horn. Would the General Accounting Office like to 
comment on that?
    Mr. Willemssen. Yes. Congressman, I wanted to let you know 
that we will be issuing a report on June 30, to Congressman 
Hyde and Congressman Woolsey on child support enforcement 
systems. I would expect that report to be released probably 
sometime in the July timeframe. We would be more than pleased 
to come up and brief you on it.
    Mr. Kucinich. Thank you, Mr. Chairman. Thank you.
    Mr. Horn. I hope you're including in that the Horn-Maloney 
Debt Improvement Act which Commissioner Adams in Massachusetts 
said made his day, and he plans to collect millions from 
``deadbeat dads'' using the access to the Federal systems to 
track addresses and everything else. But I was rather pleased 
when he called me up that day and said that law pleased him, as 
opposed to some others we passed down here.
    Now I'm delighted to yield to the gentleman from Virginia, 
who is an expert in this area. Mr. Davis.
    Mr. Davis of Virginia. Thank you. I don't know. I used to 
be an expert.
    You know the IT field is changing so rapidly and needs 
change, but I was puzzled. Two years ago, the IV&V contractor 
gave warnings to HCFA. I don't know how they responded to it. 
But I would like to know GAO's best observation of HCFA's 
management structure. How does this fit into the reorganization 
currently going? And then GAO's responses to the IV&V 
contractors' warnings on this, and was it satisfactory?
    These systems can be so complex. I know how difficult it 
can be sometimes, how sometimes these projects are poorly 
defined at the beginning, and there are different 
understandings between the contractor and the Government. And 
that's why we have IV&V contractors to help oversee that and 
give warnings and the like, because it's very often beyond the 
abilities and the capabilities of in-house to understand 
everything that's going on. I am just interested in how that 
process got astray here----
    Mr. Willemssen. I totally agree with your comments on the 
need for help and oversight from an IV&V. Frankly, HCFA isn't 
in the business of going out and acquiring major software 
projects, so it's unrealistic to think they would go out the 
first time and acquire this huge system and do it incredibly 
well. They don't have the experience to do it. That's why we 
were supportive of them getting an IV&V contractor, 
Intermetrics. Ideally, it would have been obtained before the 
contract was awarded, to give them additional support. But 
agencies such as HCFA, throughout the Federal Government, as 
you noted, need support. They don't always have the expertise 
to carry it out themselves.
    One area of disappointment that we've noted is that, not in 
all cases, some of the IV&Vs' findings were not heeded by HCFA. 
The IV&V pointed out many of the same risks in the software 
development area that we're illustrating in our report today. 
HCFA was aware of those and didn't take the necessary actions 
at the time.
    Mr. Davis of Virginia. I'm not sure why they wouldn't. I 
mean, this is something that most contracting officers and 
procurement professionals when they get these, they understand, 
it's a complex nature, would not want to go out on their note. 
They want to have the background support. They know they have 
to stand up and answer to this someday before a committee like 
us. And I don't understand why they weren't heeded, and he'll 
get to that, I guess, a little later. Any thoughts as to why it 
wasn't heeded?
    Mr. Willemssen. I think, again, going back to the major 
underlying cause for this, there was a severe underestimation 
of the complexity involved, something you touched on in your 
earlier comments. And I think, given that, when somebody from 
the outside identifies problems, there is sometimes a general 
feeling, well, that doesn't really seem that significant, I 
don't think we'll have to deal with that. Let's just go ahead 
and progress forward.
    Mr. Davis of Virginia. Was this a cost-driven procurement, 
or was this a value-driven procurement in terms of awarding the 
original contract?
    Mr. Willemssen. Cost plus award fee.
    Mr. Davis of Virginia. So it was won on price basically?
    Mr. Willemssen. As I recall, yes. In retrospect, again, the 
contract was for requirements definition, design.
    Mr. Davis of Virginia. OK.
    Mr. Willemssen. Design, development and implementation. In 
retrospect one could say we might have looked at a requirements 
contract, which is appropriate for a cost plus environment, and 
then look at developing and implementing under a firm fixed 
price. That is something in retrospect that could have been 
considered.
    Mr. Davis of Virginia. Let's go back to your observation of 
HCFA's management structure. Where does this fit into the 
reorganization currently going on at HCFA?
    Mr. Willemssen. The reorganization is, I believe, expected 
to hit this summer. And as the chairman pointed out, there will 
be a chief information officer within HCFA so designated. We 
would obviously like to see that position take over much of the 
management and control of this project. We don't know yet--we 
don't have the details on whether that's actually going to 
occur. That could obviously be a question you want to pursue 
with HCFA.
    Mr. Davis of Virginia. What if you were trying to take a 
look at today and say, what is it, was it $38.7 million that's 
been spent to date roughly? What has that bought us? Are we 
further down the pike from when we started, or do we really 
have to go back to the drawing boards, or we have some value 
for that?
    Mr. Willemssen. I think we have some value and a better 
understanding of exactly what we think we want the system to 
do. There was a limited understanding of that up front. As 
depicted on the chart, we still don't have full agreement 
exactly on what those requirements are going to be. We're 
getting a little closer, but again, there was severe 
underestimation of the complexity involved, so we don't have 
that yet.
    Mr. Davis of Virginia. So the underestimate was on the part 
of both the Government and everybody involved; is that right?
    Mr. Willemssen. Yes, sir.
    Mr. Davis of Virginia. I'm sorry, I didn't mean to stop you 
if you had anything else, any other observation on that. I 
think those are my questions at this point. And the project, 
how well-defined was it when we started? Is that part of the 
problem as well, the whole project being defined?
    Mr. Willemssen. Not well-defined because the first key 
element of it was to define requirements.
    Mr. Davis of Virginia. Yes. OK. I got you. Thanks. I yield 
back.
    Mr. Horn. Yes. The gentleman from Ohio.
    Mr. Kucinich. Is it in order? Do I----
    Mr. Horn. I was going to turn to you next. I was going to 
get in a few questions here and then----
    Mr. Kucinich. I yield, of course.
    Mr. Horn. OK. Let me just get in. It's one question with a 
number of parts, and that's looking at the fact that you've 
concluded that the transaction system is likely to reach $1 
billion. Under the Information Technology Management Reform 
Act, which you mentioned in your testimony, the Clinger-Cohen 
Act, which came out of this committee last year, agencies must 
justify information technology expenditures through an 
investment review process.
    Now, having said that, for nearly 4 years up until last 
fall, the Health Care Financing Administration justified its 
MTS expenditures by claiming $200 million per year in potential 
annual administrative savings.
    Has either the Health Care Financing Administration or the 
General Accounting Office evaluated how much of these 
administration savings could be realized, or, in fact, has 
already been reached, simply by reducing the number of claims 
processing contractors or duplicative standard systems 
maintainers?
    Mr. Willemssen. It appears that the data based on 
contractor cost reports for the years 1994 through 1996, do 
indicate that there is a reduction in claims processing costs 
on a unit basis. Neither we nor HCFA has gone into detail to 
explain the reasons for that reduction. That is something that 
we are recommending that HCFA do. As part of this interim 
environment, they may be getting benefits. We think it's 
especially important to track those benefits to see if, indeed, 
they are accruing, and they can compare those against the cost 
of the investment.
    Mr. Horn. A substantial portion of these total savings 
promised by the MTS system might also be available from a far 
less expensive option. If so, wouldn't this undermine MTS's 
ability to meet the investment review criteria required by the 
Clinger-Cohen Act and the Information Technology Management 
Reform Act as it's called?
    Mr. Willemssen. We're greatly encouraging HCFA to explore 
those other options, such as commercial off-the-shelf 
alternatives which may indeed be less costly; at the same time, 
may not give HCFA everything it wants, but that's part of the 
tradeoff that we have to look at in assessing alternatives.
    Mr. Horn. Can the Health Care Financing Administration also 
realize program savings by focusing resources on waste, fraud 
and abuse software tools and incentives for the remaining 
contractors rather than building an entire MTS system? Is that 
an option?
    Mr. Willemssen. That is definitely an option.
    Mr. Horn. How good an option is it?
    Mr. Willemssen. Well, again, I'm not going to sit here and 
tell you that they should do it. What I will tell you is that 
we think they need to do the analysis and let that drive the 
appropriate decision rather than thinking--having a 
preconceived notion up front and then going with that and 
letting that drive the analysis.
    Mr. Horn. I've got a number of questions here in that area, 
and I'm not going to take up time in the hearing room to do it. 
So you know our usual routine is for the joint staffs, Democrat 
and Republican, on both the subcommittees will be sending and 
following up with a series of questions.
    I now yield to the gentleman from Ohio who had a comment to 
make.
    Mr. Kucinich. Mr. Chairman, I have had a chance to review 
here page 58 of the GAO report, critical unmitigated MTS risks.
    And to the gentleman from the GAO, when you were first 
researching this, when was its earliest time you began this 
investigation?
    Mr. Willemssen. We have done predominantly three separate 
reviews. This current assessment was started late last summer.
    Mr. Kucinich. And all of the impacts listed on table 4.1, 
each and every one of those impacts are things that exist now 
and into the immediate future, as opposed to something that you 
are commenting on existed and is now no longer a problem. These 
are current problems; is that correct?
    Mr. Willemssen. Yes, sir.
    Mr. Kucinich. Who does the GAO use in its own realm of work 
for analysis of software and hardware?
    Mr. Willemssen. Mr. Leonard J. Latham here is an expert in 
software development.
    Mr. Kucinich. Could I----
    Mr. Horn. Certainly.
    Mr. Kucinich. Mr. Latham, was the problem in the 
development or in the implementation?
    Mr. Latham. In the software, I think the problem started 
right from the beginning in a lack of being able to define 
requirements for the contractor to develop the code.
    Mr. Kucinich. Wait. To develop?
    Mr. Latham. The software. The requirements need to be 
stable, they need to be well defined, before you can begin to 
address how you are going to achieve that requirement through a 
piece of software.
    Mr. Kucinich. Was the problem in the programming?
    Mr. Latham. No, it was not in the programming.
    Mr. Kucinich. Was it in the code?
    Mr. Latham. It was up front in setting requirements that 
would be used to develop code. They did not start coding 
immediately on the software.
    Mr. Kucinich. So if they didn't start coding immediately, 
the code was dependent on----
    Mr. Latham. The code is strictly dependent, very dependent, 
on the up front analysis and identifying requirements, and 
writing those requirements in a form that the contractor and 
the programmers----
    Mr. Kucinich. By contractor, you mean?
    Mr. Latham. GTE would be able to use to translate into a 
set of instructions for the computer to execute. Without those, 
they could not develop software.
    Mr. Kucinich. Right. And so was it the problem, the person 
who was doing the analysis really didn't understand the 
complexity of the system?
    Mr. Latham. Well, I think what happened is, this has been a 
problem since the very beginning. GTE has been trying to help 
HCFA identify requirements from the beginning. At first, they 
started developing requirements and they returned some to HCFA; 
HCFA said they were too detailed; then they sent them back and 
redid them, and HCFA said it was not enough detail, then they 
said you just concentrate on integrating the future and current 
requirements to----
    Mr. Kucinich. And who did that part of it?
    Mr. Latham. HCFA did that part of it basically.
    Mr. Kucinich. In house?
    Mr. Latham. In house, they formed working panels and gab 
sessions, people who process claims in the various areas, fee-
for-service and managed care, and they basically arrived at 
those requirements through those sessions. Those requirements 
were passed off to the contractor to form the basis for writing 
the code, the software, translating that into software.
    Mr. Kucinich. Mr. Chairman, in looking over this table 4.1, 
the critical unmitigated MTS risks, and reading the GAO's 
report about the impact that HCFA will be unable to assess MIS 
software development, difficulty in tracing requirements to MTS 
or Medicare functions, cannot assure the systems are 
interfacing appropriately, cannot assure the integrity of the 
management information systems products maintained, expected 
completion dates cannot be met--I am hopeful that in this 
recitation which GAO presents us with that there is going to be 
some way out of this morass. I guess the problem at this point 
isn't anymore who is responsible, it is who can help us 
straighten this out.
    Mr. Latham. I think that is correct.
    Mr. Kucinich. Well, I'm asking you, who can help you?
    Mr. Latham. I think HCFA needs to rely on its IV&V 
contractor to arrive at solutions and enlist the private sector 
contractor who can do those things. They could use the services 
of Carnegie-Mellon, who has developed a model to assess the 
weaknesses that there are in the software development process 
and bring together some mitigating controls to help them 
prevent problems.
    Mr. Kucinich. Mr. Chairman--and I will conclude with this 
discussion makes me wonder if people at HCFA took 
responsibility for the--essentially structuring the program, 
because they told GTE, look, we will handle it; who at HCFA was 
supervising that so that they could then take the 
responsibility and essentially not fulfill it.
    And this isn't a matter of finger pointing, it is a matter 
of trying to understand why a system failed so that we don't 
repeat these problems, because it is possible that someone may 
have taken on a bigger challenge than they could have imagined. 
I mean, obviously, that is what happened, and that appears to 
be happening everywhere.
    I just want to add an anecdote, even to the GAO, something 
as simple as a computer system with a local area network in a 
congressional office. Now hear this. I had a vendor who 
couldn't deliver. In my own office in Cleveland, we have had 
problems for weeks and months and have people in there right 
now, as we speak, trying to straighten it out. You wonder how 
many times this scenario happens across this country.
    The whole idea of computerization is, we do things better 
and faster.
    Mr. Horn. I might say to the gentleman, we all can 
empathize with his experience. I had one major firm, that will 
go nameless to protect the guilty, work 6 months in my office 
and not be able to get their system in, and we finally didn't 
pay them anything for 6 months, and they took it out, and we 
went back to our old system, which is a commentary on why I 
learned 10 years ago as a chair executive in the university 
that I always want to be the beta site, not the alpha site; let 
some other poor soul struggle through that. But we have 
repeated alpha sites in the Federal Government, and the 
question is, where is the learning curve?
    I now yield to the gentlewoman from New York, Mrs. Maloney.
    Mrs. Maloney. Thank you, Mr. Chairman. We have a vote, so I 
will be brief.
    We have another scathing GAO report. How would you rate 
this one compared to the IRS, the one you did on the IRS? Which 
is worse, IRS or HCFA?
    Mr. Willemssen. I would say both are in the same ballpark.
    Mrs. Maloney. That's surprising, because in 1995 we had a 
hearing and HCFA testified we were on schedule and moving 
forward and everything was all right. And I just want to 
suggest, why don't we just go back to approaching it brick by 
brick, breaking it up, instead of trying to do everything in 
this one computer system, maybe taking it and taking one 
component, like we have started doing with the health care 
plan?
    Instead of trying to come forward with a plan totally on 
health care, we are going brick by brick, taking children's 
health care, we are taking portability, issues like that. Why 
don't we take the various components of what we are trying to 
track to help you and break it down into manageable units 
instead of trying to do the whole thing at once? Maybe that 
could be something we could do.
    And I just want to know, do you think we should continue 
with this contract, or do you think we should break it up into 
units, or should we just scrap this and start from the 
beginning? How do you get a computer system that works?
    Mr. Willemssen. I think the critical steps that needs to be 
done is that HCFA should look at all available alternatives to 
accomplish what it wants to accomplish, and that is providing a 
more efficient information processing system that can better 
track fraud and abuse of the claims processing system, and, to 
date, HCFA hasn't looked at those other alternatives, such as 
commercial off-the-self options which may give them quite a bit 
of bang for the buck; may not give them everything they are 
looking for, but could be possibly implemented at a lower 
price.
    Mrs. Maloney. OK, that's a very fascinating recommendation, 
and, as you know, we have passed a procurement reform bill that 
moved to off-the-shelf purchases.
    And I think you raise an important point too, which is, 
what do we do in the interim as we try to create a system that 
will be helpful to HCFA? What do we do in the interim on fraud 
and abuse and tracking and all the other things we are trying 
to do?
    What might be helpful is if GAO came back to us with 
specific off-the-shelf items that they might be able to 
purchase right now that might track fraud and abuse, track the 
various components of what they are trying to achieve, and that 
maybe that could help them in the interim.
    And I also would like a response in writing of probably 
breaking down the components; instead of trying to go into a 
computer system that does everything at once, if you took off 
one area and tried to solve that, and then another area, 
instead of trying to do it all together.
    And, you know, what can I say? You can't get your computers 
to work.
    Anyway, thank you.
    Mr. Horn. Thank you. I believe we have already had a GAO 
report on the off-the-shelf programs, have we?
    Mr. Willemssen. Yes, sir.
    Mr. Horn. Certainly major insurance companies are using 
these now to check particular procedures that you are billed 
for, and I would hope Medicare is using them. Do we know if 
they are--go through what is checked off and say, gee, that 
doesn't make sense with a kidney operation?
    Mr. Willemssen. May I defer to Mr. Latham on that?
    Mr. Horn. Certainly.
    Mr. Latham. I think, much to HCFA's credit, they have moved 
forward and are using a prototype of commercial off-the-shelf 
software at a location--I think it's one location, maybe more; 
I will beg off until I have those numbers--but to try to 
prototype the use of the software to see the kind of benefits 
they are going to be getting from it. I think the State they 
are using it in is Iowa; I'm not sure, but I think that's the 
first State.
    They bought the package and installed it on one of the 
standard systems, and they are trying to basically observe how 
good or how well the software works in this fraud and abuse 
situation.
    The problem seems to be HCFA's insistence, in order to use 
the commercial product, that they would have to significantly 
change their policies, because the types of edits that are in 
the commercial software basically are not in compliance with 
their particular policy on edits for particular services and 
benefits.
    Mr. Horn. I thank you all for your testimony.
    I can see, Mr. Willemssen, you have testified before us, 
while you have won the Meritorious Service Award from the 
General Accounting Office, and I thank you and both of your 
colleagues joining you to lay out the usual, very solid 
presentation. Thank you.
    We will now move to panel two, Dr. Bruce Vladeck, the 
Administrator of the Health Care Financing Administration.
    If you would raise your right hand?
    [Witness sworn.]
    Mr. Horn. Welcome. Please start. I have read your 
testimony. Mr. Davis will come back, and he will be acting 
chairman.

    STATEMENT OF BRUCE VLADECK, ADMINISTRATOR, HEALTH CARE 
                    FINANCING ADMINISTRATION

    Mr. Vladeck. Thank you very much, Mr. Chairman. We are 
pleased to be here today to discuss the Health Care Financing 
Administration's implementation of the Medicare Transaction 
System, which will provide a state-of-the-art platform for 
electronic billing and claims processing to meet the needs of 
Medicare beneficiaries well into the next century.
    We all agree upon the common goal. Medicare needs to update 
its information technology capabilities. We believe MTS will 
provide a single, national, integrated information and 
transaction system that is central to our ability to meet our 
customer service and fiduciary responsibility.
    As envisioned, MTS will be fundamentally an information 
system with a large payment processing component capable of 
adapting to changing needs. Our current claims processing 
systems are old and form a cumbersome and inadequate network 
with no integrated data base. Therefore, to solve problems, we 
must frequently access data bases, which is time consuming, 
laborious, and increases the potential for error. It is 
imperative that we make the transition to a new system as 
quickly as possible to continue to effectively serve Medicare 
and Medicaid beneficiaries.
    MTS will provide the capability for timely information 
retrieval, introduce improved control over the distribution of 
benefit payments to comply with provisions of the Chief 
Financial Officers Act, process transactions more efficiently 
and for less cost, enhance our ability to detect and prevent 
payments for services that represent fraudulent or abusive 
billings, and dramatically improve customer service. Most 
importantly, MTS will have the ability to respond to the 
rapidly changing health care environment because of the modular 
nature of the system, which can plug in or modify systems as 
needed.
    The development of the MTS system without disrupting 
service to providers is the largest task we have attempted. 
When the work began, we did not fully understand the 
enormousness of what we were undertaking. It is an exceedingly 
complex task, and as we continue through our re-evaluation 
process, we are refining our scope of work and comprehensive 
cost assessments. We welcome the assistance of this committee 
and others as we work to develop and implement MTS.
    Some have asked us why we don't just update our current 
systems and build better interfaces rather than investing the 
time and resources to build MTS. This is analogous to asking 
someone with a 15-year-old computer trying to add memory and 
continue to repair it rather than taking advantage of new 
technology and buying a state-of-the-art model.
    If we do nothing and stay with our current systems, we will 
still spend over the next 10 years approximately $20 billion 
processing claims and at least another billion dollars just 
maintaining current systems. The important point here is that 
through the use of superior technology, MTS can change our 
focus from paying claims to meeting program needs.
    We appreciate the comments of the General Accounting Office 
and others who have advised us in the management of the MTS 
initiative, and we realize the formidable challenge we face in 
making the transition without adversely affecting our 
beneficiaries while continuing to process almost 1 billion 
claims a year. This workload is added to ongoing activities 
such as implementation of Operation Restore Trust and the 
Medicare Integrity Program and the turnover of Medicare 
contractors.
    Let me emphasize that we would be the first to admit that 
the task is more complex than we originally contemplated. 
During the past 3 years, we have learned how best to identify 
the type and level of system requirements necessary for MTS and 
how to improve the management of the program. The assistance 
provided by our IV&V contractors and others has been invaluable 
and has redirected our software development approach by 
breaking down the project to multiple phases or releases, 
resulting in reduced risk and incremental implementation and 
more thorough testing of each component.
    Mr. Davis of Virginia [presiding]. You were trying to get 
through before anybody got back to ask you any questions.
    Mr. Vladeck. Now that you are here, I would be happy to 
stop with the statement. I had to keep talking until one of the 
Members appeared. Should I continue?
    Mr. Davis of Virginia. Sure.
    Mr. Vladeck. Recognizing the importance of managed care in 
Medicaid's future, we have clarified the contract in this area 
and given it priority as the first release----
    Mr. Davis of Virginia. I will tell you what. We will enter 
that in the record and go right to the questions.
    Mr. Vladeck. Can I say one thing for the record, because I 
need to correct something in the written testimony and I would 
like to read it into the record if I can? It was on, I don't 
know what page, on some of the budget numbers. They need to be 
updated and corrected slightly.
    As of March 31, 1997, the testimony we submitted to you 
said that we had spent $43.4 million. The correct figure is 
$43.5 million. There is also a flat out typo in terms of total 
money obligated in all MTS related contracts. The testimony 
reads ``$110 million.'' That should have been ``approximately 
$101 million,'' and that is purely a typo. And I would like to 
have both of those corrected in the record, if I may. The rest 
will be submitted for the record.
    Mr. Davis of Virginia. Without objection, the rest will be 
entered in the record.
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    Mr. Davis of Virginia. Let me ask, do you see the chart up 
there, the volatility of MTS requirements? What happened in 
January 1997, that brought the requirements down so low?
    Mr. Vladeck. The only version of the MTS report that I 
have, the GAO report I saw was a fax version that was not 
entirely clear. But you have to understand that prior to early 
1997, all requirements or projections are estimates, based on 
what is very much a work in progress. In fact, requirements for 
releases 2 through 5 have not yet been completed; GTE has just 
completed work on requirements for release 1.
    So all of the numbers are projections of estimated future 
requirements, and as the project has proceeded, those 
requirements have evolved and those estimates have changed and 
evolved over time.
    Mr. Davis of Virginia. I understand that, but you go to 1/
97, and in all but one of the charts it is at a low point. Is 
there any explanation for why at that point it was--do you see 
what I am saying?
    Mr. Vladeck. Yes, and the only thing I can say is that for 
release 1, the February 1997 date is near completion of the 
specification requirement work.
    So the only observation I can make is, all of the rest of 
these charts reflect estimates associated with work that is 
still very, very much in progress. I think we estimated then 
February 7 the requirements for release 1 were about 90, 95 
percent completed, and we had the most solid numbers associated 
with that.
    Mr. Davis of Virginia. OK. I wonder if you would identify 
the HCFA activities which will ensure that the interim 
operating environment is being well managed. You heard GAO 
suggest that detailed planning is lacking, and I know you are 
trying to ensure that the current claims process remains 
uninterpreted while the additional systems are integrated, at 
the same time addressing the year 2000 issues. What is going 
on?
    Mr. Vladeck. Let me say two words about that, if I can, and 
about the management of the overall current environment, and 
then let me speak specifically to the year 2000 issue.
    The issue of the current environment is something of a 
euphemism, if I may, for the existing relationships we have 
with approximately 70 contractors. Those relationships are 
changing all the time, often in ways that are not entirely 
within our control.
    For example, one of our largest contractors since the 
beginning of the Medicare program was Aetna, which about a year 
ago undertook a merger with U.S. Healthcare and then decided 3 
or 4 months thereafter that they no longer wanted to be in the 
fee-for-service business, including the Medicare claims 
processing business. So we all of a sudden were confronted with 
the need to convert the very, very large workload associated 
with Aetna to other contractors.
    We have in place some very well-specified and well-
established routines and plans for dealing with contractor 
transitions, when one contractor leaves, distributing the work. 
We have contingency plans with most of the large continuing 
contractors.
    For Part A, the Blue Cross Association still has a 
statutory master contract for which individual plans for 
subcontractors, and we work regularly with them. But there is 
an inherent unpredictability and inability to plan in any 
formal document that is associated with that activity.
    The second issue is the transition from the three standard 
systems on Part A and five standard systems on Part B to a 
single Part A and a single Part B system. We have a very 
detailed project management plan for the Part A transitions, 
and we have already completed the switchover of one of the 
nonsurviving Part A software systems to what will become the 
standard system.
    We have also contracted with Los Alamos National 
Laboratories for some very specific sorts of project management 
and project tracking software to help give a little bit more 
formal structure and a little bit more external accountability 
to the management of all of these transitions over the next 
number of years. The beginning pieces of that Los Alamos work 
is already beginning to be incorporated into our system 
management.
    On the year 2000 issue, we began about 18 months ago to 
work with our existing contractors to address the year 2000 
issue. To date, they have all identified for us, and we have 
reviewed their work in this regard, all of the lines of code 
that will need to be rewritten in order to be year 2000 
compliant. We have agreed on standard formats and standard 
solutions for the implementation of the new codes. Our 
contractors have all given us schedules to rewrite all of the 
relevant lines by December 31, 1998, and we are tracking their 
progress, actually doing that coding rewrite on a quarterly 
basis for each contractor.
    Now, we had thought at one time that since we are 
transitioning to standard systems, we might just want to focus 
on making sure that the standard A, standard B, and standard 
durable medical equipment software was year 2000 compliant and 
not worry about the systems we have hoped to phaseout before 
then. But we have taken a little bit of a belt-and-suspenders 
approach to that, so we are taking the time to rewrite all of 
the necessary lines of code even for those systems we will be 
phasing out probably before the year 2000.
    And I think if GAO were to come back and revisit our status 
of the management of that particular issue at the moment, I 
think their comments on that specific issue might be more 
favorable than they were in the report they provided to you.
    Mr. Davis of Virginia. OK. At what point did HCFA modify 
its original cost estimate of $150 million for the MTS project 
to reflect the transition costs, administrative costs, and 
costs due to the underestimates of the MTS project?
    Mr. Vladeck. The $150 million estimate was never our 
estimate for total systems development and implementation cost, 
but we have provided the committee recently, for example, a 
long-term cost-benefit model for implementation of the system 
which we prepared in November. That was the fifth such cost 
model that we have prepared since the inception of the project 
in 1993, 1994.
    We are going to need to revise it and update it once we 
have completed the reevaluation of our systems development 
strategy over the next 6 or 8 weeks. But part of the issue has 
been that as the implementation strategy has evolved, what goes 
into the particular cost model has changed over time.
    And so I would say that the big change in terms of the 
evolution of our estimation of the cost of the product came 
when we got the systems design architecture documents from GTE 
and went back and forth with them and accepted the documents. 
Those identify the need for a test facility and began to 
specify some of the hardware requirements associated with full 
implementation, some of the telecommunications requirements 
associated with that in a way that we had never before been 
able to identify because we never had an overall systems 
design.
    Mr. Davis of Virginia. I was just trying to aggregate the 
transition costs, and I am having a hard time because we have a 
lump sum here. Could you help me with that?
    Mr. Vladeck. Which transition costs over which period?
    Mr. Davis of Virginia. This would be the total costs over 
the time--particularly as you look at it, it looks like the 
1988--1997, 1998, 1999 timeframe when the costs are estimated 
increasing significantly.
    Mr. Vladeck. Well, we estimate, I think, the total 
transition costs associated with the President's budget for 
fiscal 1998 are approximately $80 million, if I'm not mistaken, 
compared to $50 or $60 million in the current fiscal year.
    And I would have to check with my staff on what our 
projections are in the transition numbers in the following 
fiscal years. I think we are running in the range of $75 to 
$100 million per year through the next 4 or 5 years for 
transitions either of contractors leaving the program and 
switching their workload and for the transitions of the 
obsolete A and B systems into the new system.
    Mr. Davis of Virginia. OK. To date--I asked this question 
to GAO--what do you think the $38.7 million spent for GTE's 
work on the project has purchased us so far?
    Mr. Vladeck. Well, it has gotten us a basic systems design; 
it has gotten us a set of requirements, plans relative to 
communications and relative to security in the 
telecommunications network; it has gotten a design for a test 
facility; and we believe it has just about completed the 
requirements portion of the work for writing the new release 1 
for a new managed care claims processing system.
    Mr. Davis of Virginia. And that has cost us $38.7 million. 
What is that worth?
    Mr. Vladeck. I can't answer that question. I don't have a 
sense of what a market price of that would be. I think in the 
context of what we spend on maintenance of the current claims 
processing system in a given year, I think it represents some 
progress, but I think it will have to be further down the line 
in terms of development of the system before we can look back 
and say, was that $38 million worth; $50 million worth; $25 
million worth? I couldn't answer that question any better.
    Mr. Davis of Virginia. All right. We saw earlier warning 
letters going back a couple years from the IV&Vs noting there 
were some problems. At what point did HCFA realize that the 
contract had incurred substantial cost overrun? Whom did you 
advise at that point?
    Mr. Vladeck. I think we really began to identify problems 
in the cost part of the contract probably in early 1995, and--
or mid-1995, and we began at that point to discuss with them 
modifications of the project to talk about reallocation of 
responsibilities on the requirements between ourselves and 
them.
    We didn't really get to beginning to discuss a 
renegotiation of the contract relative to these cost issues and 
so forth until the very early part of 1996, and we then spent 
about the first half of 1996 in negotiations with them over 
modifications to the contract.
    During that period of time, I guess some of the other folks 
involved in information technology management within HHS were 
aware of that. I don't know the extent to which they shared 
that with folks in OMB.
    In addition, at some point in the spring or summer of 1996, 
the GAO became aware of it as part of our discussions with them 
as they were conducting their reviews of the project 
management.
    Mr. Davis of Virginia. OK, I think my time is up. Mr. 
Chairman, I yield back.
    Mr. Horn [presiding]. Thank you very much.
    You might have discussed this when I was out of the room 
voting, but let me pursue this since I have read your 
statement. I'm curious, in the 90-day review during which the 
Health Care Financing Administration is reviewing its options 
for MTS, will you be considering both the cost and the savings 
associated with each option?
    Mr. Vladeck. We will be, although the issue on the savings 
is less a question of estimating what the savings might be as 
when they will be attainable.
    The real complicated part of a cost-benefit analysis on the 
MTS has to do with the timing of incurring of expenditures as 
opposed to the realization of savings. I don't think we will be 
making a lot of effort to re-estimate what the steady State 
level of savings is at completion of the project. The question 
will be trying to estimate when those savings streams will 
become available in terms of development options.
    Mr. Horn. I don't know if you were in the room when I asked 
the General Accounting Office the degree to which commercial 
software that insurance use to check some of their bills 
against particular operations--let's say you have got a kidney 
operation; there are certain characteristics of that before, 
during, and after. Would it have been better if your 
administration had taken a look at those existing commercial 
software packages?
    Mr. Vladeck. Well, as the witness for the General 
Accounting Office said, we are testing one package in Iowa at 
the moment. I would like to amend slightly what he said about 
that, however.
    The problem we have had using the commercial software, 
which is the problem we anticipated, is that we have to modify 
the commercial software to meet Medicare rules. These are not 
arbitrary software requirements or computer programming rules, 
these are statutory or regulatory coverage rules which are part 
of the Medicare program which, in many instances, are different 
from those that apply to private health insurers.
    So while it is, in a sense, an off-the-shelf product, it 
turns out it requires a significant amount of customization in 
order to be consistent with Medicare rules and policies. That 
process is just about complete, as I understand it, and we will 
begin the test and ought to have results from it in the next 3 
to 6 months.
    Again, that is one particular example of the software, but 
it is also being used with one particular existing standard 
system of software, and the extent to which we would have to 
customize it again to apply it to existing systems is one that 
we are now looking at but about which I can't yet give you an 
answer.
    Mr. Horn. On the 90-day review process, if a less ambitious 
option could achieve a substantial portion of the savings, 
would this 90-day review result in such a finding?
    Mr. Vladeck. Absolutely.
    Mr. Horn. When will you share the analysis of costs and 
savings with our respective subcommittees and any other 
authorization committees of the Congress, as well as with the 
General Accounting Office?
    Mr. Vladeck. We expect this process to be completed in 
about the first 10 days to 2 weeks of the month of July, and 
within 10 days to 2 weeks of the completion of the process we 
would expect to be in the committee's offices reviewing our 
analyses with your staff and whoever else wanted to 
participate.
    Mr. Horn. Well, I thank you, and I'm delighted to yield 10 
minutes to the ranking Democratic member on the full committee, 
and I am sure he has a number of questions.
    Mr. Waxman. Thank you.
    With all the problems you have experienced with MTS, are 
you still convinced MTS is the right thing to do? And can we 
still expect a system that will bring the benefits you hope for 
in finding fraud and abuse and making the Medicare system work 
the way we want it to work?
    Mr. Vladeck. Mr. Waxman, we have no question, based on some 
of our custom-tailored additional expenditures we have had to 
make, for example, as part of Operation Restore Trust, where we 
have had to take Part A data and Part B data from a State and 
merge it with Medicaid data at enormous expenditure, but once 
we had that merged data base, we were able to do a number of 
really neat things in terms of detecting fraud and abuse.
    So if we ever get our system to the point where we have on-
line A and B and can integrate it with data from other 
entities, such as Medicaid, we know, based on our experience 
from the past couple of years, that will have an enormous 
benefit on behalf of the program integrity side.
    But I want to emphasize as well, because it tends to be 
overlooked, that there are very, very important customer 
service implications for this as well, some of which have very 
programmatic savings, and I would like to give my favorite 
example, if I can.
    As all of you know, the nightmare associated with every 
Medicare beneficiary is the shopping bag full of pieces of 
paper, each of which says, ``This is not a bill,'' which are 
the explanation of Medicare benefits which we now mail out 
every time we process a claim to every beneficiary and which 
then often, depending on the supplemental or medigap insurance 
the beneficiary has, generates two or three additional pieces 
of paper in correspondence with the supplemental.
    We are already field testing what we call a Medicare 
Summary Notice, which is a single one- or two-page document 
modeled on the credit card or department store monthly billing 
statement, which can incorporate all of the claims information 
that a beneficiary has in a given month.
    Now, for Medicare only because our ability to 
electronically integrate the supplemental carriers is limited, 
but when MTS is up and running we will be able to have that 
integrated file for both Parts A and B and supplemental 
insurance. Our beneficiaries will get a single statement every 
month of the claims that have been incurred, what we paid, what 
their co-payment obligations might be, what their supplemental 
carrier paid, and so forth.
    We think that will be an enormous improvement in terms of 
customer service. Not inconsequently, at the price of 32 cents 
postage if we are mailing 300 million of these statements a 
year to beneficiaries, as opposed to 1 billion EOMBs a year, we 
are saving a couple million dollars in postage as a result of 
that improvement in our capability.
    So that's one example on the customer service side. There 
are major, major customer service implications. Everything is 
in place except the underlying data processing capability at 
the moment.
    Mr. Waxman. And, of course, if you are able to have a 
computer system track fraud and abuse of the system, that can 
also lead to enormous savings of dollars, because I think a lot 
goes to fraud and abuse in the system.
    Mr. Vladeck. Our actuaries have estimated conservatively 
that the ability of the kind of data base that MTS would 
permit, as well as being able to plug in commercial fraud 
detection software, conservatively, would save us in program 
expenses and trust fund outlays half a billion dollars a year 
every year after the implementation of this system.
    Mr. Waxman. Thank you.
    Looking at the existing law where you have 40 different 
processing sites you have to pay if there is any termination of 
a contract, have you looked at any recommendations for us that 
would help you hold down some of the costs?
    Mr. Vladeck. Well, as you know, Mr. Waxman, as part of the 
health insurance portability legislation last year, we were 
given new contracting authority relative to the program 
integrity functions in the Medicare contracting system which 
also gave us some new ability to reach out to new kinds of 
contractors and establish relationships with those contractors 
under general Federal procurement law rather than under special 
title 18 provisions.
    We are learning how to use those authorities at the moment, 
and if we have the kind of experience we look to have, then I 
think we would probably want to be back to you to talk about 
further changes in the law as relates to Medicare contractors.
    Mr. Waxman. Mr. Chairman, we are serving a very important 
purpose for the Congress, and that is oversight over taxpayers' 
money, and we have seen in a number of different instances, 
where we have attempted to move into huge computer systems, a 
lot of money spent without much gain for it. And we are serving 
an important purpose, and GAO is being very helpful to us in 
analyzing how well we are doing in this regard.
    I hope that, Dr. Vladeck, this will be a very constructive 
way for us to all figure out the best way to come to the 
realization of a system that will accomplish what could be so 
important for Medicare, the integrity of the Medicare program 
and the benefit to the Medicare beneficiaries to get the kind 
of information that we hope the system will provide.
    It is a frustration for all of us to see, like in the IRS 
and other areas, high hopes not being realized. So any 
suggestions you have or talking to GAO could recommend to us, I 
know the chairman of our subcommittee--and I want to work with 
him--wants to be as helpful and constructive as he possibly 
can.
    I thank you, Mr. Chairman, for your leadership for holding 
this hearing and yielding the time to me, which I yield back to 
you.
    Mr. Horn. I thank the gentleman, and we are delighted you 
could come to the hearing.
    I yield to the gentleman from Texas.
    Mr. Sessions. Good morning--I guess it is afternoon 
already. When you haven't had lunch yet, you tend to call it 
morning.
    I would like to direct you to page 4, and I will be candid 
with you, I have not had an opportunity to read or review this. 
It is just now evidently available today. But it talks about 
results in brief, and I am not going to ask you to defend or 
deny anything that is here but, rather, to discuss it with some 
objectivity if you could.
    In particular, I would like to take you to the second 
paragraph, and I will read: ``Further, HCFA is relying on its 
Medicare systems contractors to assess, plan, and implement 
essential changes for the year 2000 issue, but it is not 
closely monitoring these critical activities or receiving 
certifications or assurances from contractors that the problems 
will be corrected.''
    Mr. Vladeck. Mr. Sessions, as I think I said earlier, we 
found much in the GAO report quite helpful, but I am frankly--
this particular assertion I frankly find kind of puzzling, 
because I believe--and maybe it has to do with the time of when 
the GAO looked at particular parts of our system--we are, in 
fact, monitoring the work that our contractors are doing on 
addressing the year 2000 problems on a quarterly basis. We are 
checking their testing of some of the new code they are writing 
and so forth.
    I think there are many legitimate criticisms of us in the 
course of this report, and I think some of the broader 
questions that the GAO raises are recommendations that they 
make about the way in which we manage the transition of our 
current system to a future system. We have very much taken them 
to heart.
    But I almost feel a little bit of a catch-22 on this 
particular criticism, if I may, for the following reason. One 
of the reasons we have always said we need an MTS system is 
because we have all these different software systems out there 
which we don't own, and some of which are proprietary. Part B 
bills are paid in some parts of the country by proprietary 
systems the Government doesn't even own. Once we have MTS, we 
will have a system, and after the next crisis is after the year 
2000 crisis, we will have one set of software under the 
Government's ownership and the Government's control, and we can 
bring in all kind of folks to look at that and work on that and 
fix the system once.
    Under the existing systems, we have these eight sets of 
software, some of them proprietary, each of them customized, 
which are owned by our contractors or shared contractor 
providers, and each of them needs to be rewritten. That's sort 
of a demonstration of why we need MTS.
    But the fact is, we are sitting on the process of the 
actual line-by-line code writing that the contractors are 
doing. We have provided them additional budget dollars with 
which to do it; we are auditing those expenditures; and, again, 
of all the assertions in the GAO report, this is the one where 
I think we would most take issue with the facts.
    Now, again, they have been working on this a long time, and 
there may be a timing issue.
    Mr. Sessions. Well, the reason why I bring this up, this 
is, as you know, the Y2K problem; and it is universal, it is 
not you; it is a show-stopper. Are you telling me that you have 
your hands around the project, that at the year 2001 you are 
not going to have a show-stopping incident within this system?
    Mr. Vladeck. Well, I have learned never to say ``never.'' 
We have a plan for the claims process, and we have a number of 
other projects, Y2K updates as well, and we are working on it 
and have a detailed plan for working on it. But basically we 
are not under as much scrutiny on some of those.
    Mr. Sessions. You are not under scrutiny or not putting 
your contractors under----
    Mr. Vladeck. We are not putting ourselves under as the 
contractors on the basic claims processing.
    So let me say this to you, because I think this is the 
appropriate way to answer. We have required of all the Medicare 
contractors that they have completed their year 2000 
corrections by December 31, 1998. We will have the first part 
of 1999 to do extensive testing on the extent to which they 
have in fact achieved, accomplished, those changes.
    I have a high degree of confidence that we will be there 
with some time to spare, but we have left in a cushion because 
nothing ever goes perfectly, and for a problem of this 
magnitude we want to know that we have thoroughly tested it, 
and we will have a number of months to find and test the glitch 
that will undoubtedly--I have a paper here, we're talking about 
the actual rewriting of 12 to 15 million--more than that, 
something like 20 million lines of code, of software code. And 
again, we have detailed work plans for that. We think we have 
identified the lines of code that need to be rewritten. We have 
budgets and plans to do that over the next what would be 19 
months.
    But we are going to extensively test all that revised 
software after it has been rewritten, and, with 20 million 
lines of code, somebody is going to mess up somewhere, and we 
will find things in the testing process. But we will find that 
in late 1998, early 1999, not on December 31.
    Mr. Sessions. Or at least that's your plan.
    Mr. Vladeck. That's our hope and plan.
    Mr. Sessions. For the sake of my discussion here, trying to 
be a reasonable and logical person, could you please, within a 
reasonable time after going back to your office, please respond 
back to this paragraph, this last statement. You are saying to 
me that you don't really know when the GAO looked at that and 
received that snapshot of an idea. You now think you are beyond 
that. Obviously, GAO is going to come and comment on this. I 
would like to have your latest analysis that you could have 
provided them had they done this snapshot today that simply 
addresses not the larger picture but the smaller issues and how 
you would have responded.
    Mr. Vladeck. We will be happy to.
    Mr. Sessions. It will avoid me getting into things you have 
corrected as opposed to beating you up--you get my point.
    Mr. Vladeck. Yes.
    Mr. Horn. If the gentleman would cite the reference?
    Mr. Sessions. We were on page 4, Mr. Chairman, the GAO 
report, May 1997 Medicare Transaction System, MTS. Sir, I am on 
the second paragraph, the last----
    Mr. Horn. Begins: ``The risks associated . . .''
    Mr. Sessions. It does. The sentence that I am after: 
``Further, HCFA is relying on . . .'' And if you like, I will 
provide that in writing.
    Mr. Horn. Without objection, that exchange of letters will 
go into the record at this point.
    Mr. Sessions. Thank you, Mr. Chairman.
    Mr. Vladeck. We will do that.
    [The information referred to follows:]
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    Mr. Sessions. One last point, if I could. Further on page 
4--you probably could draw the conclusion that I read to page 
4--there is, two paragraphs down: ``MTS is not being adequately 
managed as an investment.'' And then last, further down: ``Also 
since 1992, when the first analysis was completed, the total 
cost of the project has increased from $151 million to about $1 
billion.''
    Can you please simply give me some comment on that, those 
two thought-processes?
    Mr. Vladeck. Yes, sir. If I can do the second one first?
    Mr. Sessions. Please.
    Mr. Vladeck. I think if you look at the sentence 
immediately following the $151 to $1 billion, you will see the 
inference which we would certainly strongly support that the 
difference between the $151 million and the $1 billion is 
partially an apples and oranges problem. That is to say, the 
$151 million dollars estimate in 1992 was not inclusive of the 
actual physical facilities for the operation of MTS nor for the 
transition of contractors and the costs associated with 
closeout costs and other Government obligations that are 
associated with such transitions. Those were clearly not part 
of the $151 million; they are part of the $1 billion.
    Having said that, I think it is also true and fair to say 
that our conception of what the system is in 1997 is very 
different from what it was in 1992. But I would also say that 
one of the things for which we specifically contracted was for 
a design and specification of the system, and that was produced 
for us by GTE in late 1994 or early 1995. On the basis of that, 
we have been able to make much more informed estimates.
    On the issue of managing as an investment, I think the 
detail of that that is described elsewhere in the report by GAO 
really has to do with sort of a systematic evaluation of risk 
and mitigation strategies, and, consistent with this notion of 
investment strategies, some of the legislation that Congress 
has enacted in the last couple years such as the Clinger-Cohen 
Act, the Office of Budget has established a set of eight 
principles by which to lay out the criteria by which to 
establish whether a project meets appropriate investment 
management criteria.
    And we have, I believe in our letter to Mr. Shays, included 
a copy of a letter to the Office of Management and Budget, in 
which we describe the extent to which we believe we are or are 
not meeting those eight principles. We have a way to go on some 
of the components of it, but we are clearly moving toward a 
State, once we have the revised project plan, when we will be 
able to meet all eight of those criteria. Clearly, that is 
something we need to do that we have not adequately done in the 
past, but we will be doing over the next several months.
    Mr. Sessions. Mr. Chairman, I have exceeded my time. Thank 
you.
    Mr. Horn. If you have a followup question or anything, feel 
free to ask it?
    Mr. Sessions. Well, the followup question I guess I would 
really have is: It seems like what you are attempting to 
describe to me is that the original configuration, perhaps the 
original contract, the architecture, the design and plan of 
that has changed multiple times, and now you are attempting to 
retrofit, and that that is why you are having trouble?
    Mr. Vladeck. No. I think it is fair to say two things. We 
largely acknowledge when we let the contract that well, we 
could specify what we wanted the final system to do. We didn't 
know what it would look like in terms of how many hardware 
sites we would need, how many, what kind of telecommunications 
we would need, how much software would need to be written, and 
so forth, and a large part of what we have paid GTE for is that 
design of a system, which we didn't have when we started. We 
specified what we wanted the system to be able to do, but we 
didn't know what it would look like.
    The other thing that has changed, though----
    Mr. Sessions. You did not know what you were asking for?
    Mr. Vladeck. No. We knew what we were asking. We 
specifically communicated with GTE to design a system that 
would be capable of achieving certain objectives and performing 
certain functions. That's what the first part of the GTE 
contract was about.
    Once we got that systems design and began to put it in 
place, there was one other very significant change, and that 
was, as a result of our experience with GTE, our advice from 
our independent verification and validation contractor, the 
advice from GAO, the advice from this subcommittee and others, 
were very concerned that the plan that we developed to 
implement this system was a so-called ``big bang'' plan. It 
relied on putting a lot of pieces together that were all new, 
all at the same time, and having a new system that was up and 
running and you would flick a switch and leave the old system 
and move into the new system.
    Having a new system that was up and running, and you would 
flick a switch and leave the old system moving into the new 
system, and we were advised by lots of folks that that was not 
a prudent strategy, that that increased the risk of total 
failure, and it increased the risk of spending too much money. 
So beginning last summer, we modified the strategy to, in the 
terms the computer folks used, reduce concurrency and make the 
implementation plan more chunky, and we are still very much in 
the process of seeing if we can continue to break it down into 
even smaller pieces, which are less dependent on one another, 
and it is, in the political sense, instead of going for the 
whole thing at once, we are in a much more incremental strategy 
at the moment.
    Mr. Sessions. And now someone is finding fault with that.
    Mr. Vladeck. If I understand what GAO is saying, they are 
saying we are not yet being incremental enough and saying we 
need to look at some even more incrementalist options.
    Mr. Sessions. So too big a bite, you can't swallow what you 
chewed; is that the philosophy?
    Mr. Vladeck. I think that is a fair way to characterize it; 
yes, sir.
    Mr. Sessions. Thank you.
    Mr. Horn. I thank the gentleman for that very penetrating 
series of questions.
    Now let me just ask a few closing questions. The rest we 
will have staff exchange with you. You are still under oath 
when you answer those.
    Let me start out with, to what extent is the Health Care 
Financing Administration still dependent on the computer 
systems of the Social Security Administration for any of its 
eligibility determinations or anything else that it relates to 
that?
    Mr. Vladeck. The Social Security Administration still has 
responsibility for actually doing the initial eligibility 
determination, and enrollment of Medicare beneficiaries, and 
changes in enrollment status, such as changes in marital status 
or changes in--or deaths of a beneficiary are still generally 
coming to the system through Social Security. We are on a 
dedicated line, a data-center-to-data-center, data exchange 
with Social Security, and we do maintain beneficiary records 
for the Medicare program. But much of the input into that 
record system, the great bulk of the input, comes on a tape-to-
tape basis, essentially from Social Security, and comes through 
the Social Security computer systems.
    Mr. Horn. So, conceivably, if they solve the Y2K or year 
2000 problem, you wouldn't be at fault on failing to have the 
proper eligibility data because presumably they have been 
working on this problem since 1989 and are ahead of every other 
agency on that.
    Mr. Vladeck. Well, we do maintain our own file with our own 
software associated with the file. It's not just a copy of 
theirs, and so we have our own obligation for our own 
beneficiary records to make sure that all potential year 2000 
risks have been addressed. We can't pawn it off on them.
    Mr. Horn. Now on that year 2000 risk, if I read in the GAO 
report, on page 27, on March 26, 1997, the Health Care 
Financing Administration asked its Medicare contractors to 
provide an inventory of the Medicare applications affected by 
the year 2000 change and their schedules for converting, 
replacing or eliminating these systems. Then it says, a little 
further down, on April 22, 1997, at the conclusion of our 
review, the Health Care Financing Administration provided us 
with information regarding a technical work group, which is to 
identify and resolve any year 2000 technical issues. However, 
this work group, which was established on January 10, 1997, had 
not yet discussed or resolved any technical issues.
    Now, do you think our pace is appropriate to get this--in 
other words, I am wondering how seriously do you take this 
problem?
    Mr. Vladeck. Again, I think there is some confusion in this 
report, and I would have to double-check. There are two 
processes going on. One is the year 2000 work that our 
contractors are doing and have been doing for more than the 
past year. The second is our in-house year 2000 work, and which 
I believe that the technical work group referred to in the last 
paragraph of this session largely refers to our in-house 
systems, not to the basic Medicare claims processing systems. 
That is the work group that was established on January 10. It 
replaced several earlier staff efforts that had been going on 
since 1996 on the year 2000 issues and has taken responsibility 
for the in-house software.
    But the contractor software, we have been working with the 
contractors since 1996 to do year 2000 in the claims processing 
software, and we are monitoring that on a quarterly basis. The 
March 26 request is a routine quarterly reporting request.
    The independent validation question, we will ourselves be 
doing validations. We have not identified a third-party 
contractor to do the work of our Medicare contractors, but on 
the basis of the GAO's recommendation, that is something we 
ought to look at.
    Mr. Horn. So presumably, your contractors, if they do not 
meet that Y2K criteria, would not have earned their payment; is 
that the way the contract is written?
    Mr. Vladeck. We would be in a position to withhold funding 
from them, yes.
    Mr. Horn. You could withhold funding.
    Mr. Vladeck. On an issue of this sort, again, we will be 
testing at the very end of 1998 and 1999, in early 1999, 
whether they have achieved those changes, and I would suggest 
that if there are contractors, by which--by the first quarter 
of 1999 or the year 2000 are not compliant, we would probably 
seek to move the work to compliant contractors rather than hold 
our breath and hope they would fix it in a remaining period of 
time.
    Mr. Horn. So this committee I cited is really more 
interested in the in-house conversion.
    Mr. Vladeck. That is correct.
    Mr. Horn. To what extent--let's say, how many lines of--
millions of lines of code has been gone over, or has anything 
happened on your in-house system that would give us sort of a 
good feeling when we leave for lunch that something has 
happened in this?
    Mr. Vladeck. I regret, I actually saw last week the latest 
report of our task force, which had the number, both the total 
number of lines of code that had been identified as requiring 
modification and the lines that had been rewritten to date, and 
I don't remember those numbers. I would be happy to supply them 
to you as part of the supplemental material.
    Mr. Horn. It will be at this point in the record, not 
wherever that other thing is.
    Mr. Vladeck. Wherever it is, we will have it for you.
    [The information referred to follows:]
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    Mr. Horn. So I am wondering, is there anything else that 
should be done by your agency, that you feel should be done as 
the Chief Administrator, to make sure that both the in-house 
and the contractor Y2K approaches are moving along in a timely 
way?
    One of our real concerns is that a lot of people aren't 
going to discover that the efforts they have made are going 
nowhere until late 1998, maybe late 1999, and the resources 
cost of hiring the people that know what they are doing are 
going to be sky high because everybody will suddenly have 
awakened, and then they will have a problem.
    So we are trying to get the Federal executive branch and 
the Office of Budget and Management to take the lead in this on 
behalf of the President, get them moving in some steady way so 
we don't have them yelling and screaming about Congress, you 
have to appropriate something here. The Director of the Budget, 
Dr. Raines, and I agree, this ought to be reprogrammed money. 
We shouldn't be wasting the year up here going through an 
authorization and an appropriations process. We should be doing 
the end of the year money, which happens in every agency, and 
if they don't, there is something wrong with the 
administration, and put that to work on where the critical 
problems are.
    This is a critical problem, and I must say, my other 434 
colleagues in the House will be delighted when you get these 
systems because we would probably have to double our field in 
the district offices just to handle the complaints, and yours 
is obviously the one our citizens care about the most.
    Mr. Vladeck. Let me just say that we, in fact, began by 
reprogramming fiscal 1996 money to support the initiation of 
this work with our contractors. We have 1997 money, but I would 
also be unable to resist, Mr. Chairman, the plug that in the 
President's 1998 budget request for HCFA, we have identified 
$10 million for the in-house data systems for year 2000 
reprogramming work that we think is not otherwise available 
within the budget request, and since you have given me the 
opportunity, I feel I should note that for the record.
    Mr. Horn. And since I am going to give you a further 
opportunity, since you are under oath, and it is a question you 
now have to respond to--you couldn't before the budget is 
released--what did you ask for?
    Mr. Vladeck. We got what we asked for.
    Mr. Horn. You asked for $10 million, and you got it?
    Mr. Vladeck. That's correct.
    Mr. Horn. From a recommendation of the President?
    Mr. Vladeck. That is correct.
    Mr. Horn. So that is part of the $2.3 billion, which is, 
frankly, underfunded, probably, because they don't have the 
analysis. It's like this whole discussion. The planning work 
hasn't been done, the analysis hasn't been done, it is just 
rhetoric flying around, and until it gets done, we won't know.
    I suspect it is going to be closer to $10 billion now. 
Cortner and Associates said it would be a $30 billion problem. 
I always thought that was a little high. But I think as we get 
into it, the Pentagon alone might have $5 billion of that, and 
there is certainly $1 billion of the current $2.3, and they 
testified before us that they hadn't even gotten into the 
analysis yet where you would look at the number of the lines of 
code that you have to deal with. So unless the gentleman from 
Texas has any further questions, I will excuse you.
    Mr. Sessions. Sir, just a statement, and I do want to end 
it because I want to go to lunch, also. I think that what we 
are really trying to say is that you are the person with your 
hand on the wheel. You have come to us today and said you have 
confidence in what is going on. That is slightly different than 
what we may be looking at and observing in this GAO report that 
you think you have addressed some of those things more near 
term. We are deeply interested in your success, and if we have 
communicated that to you today, that is important.
    Likewise, I think what the chairman has said, maybe not 
point blank, is if in your evaluation you run into trouble, 
please do not wait for us to call you. We would like for you to 
notify this body. Our chairman is among the best in Congress, 
and we can deal with problems if you spot them to us early. It 
becomes more problematic the longer you wait.
    Mr. Vladeck. I hear that loud and clear, and I appreciate 
it.
    Mr. Sessions. Thank you, sir.
    Mr. Vladeck. I appreciate it very much.
    Mr. Horn. Well, what Mr. Sessions has said is very well 
said, and I thank him for his generosity. In a previous 
incarnation, 32 years ago, when I was the assistant to the 
Republican Whip of the Senate, Senator Kuchel of California, I 
happened to be on the Medicare drafting team and worked closely 
with Wilbur Cohen, who was the inspiration for all this. And 
you have one of the toughest jobs in Government, but one of the 
most important, because what Medicare has done is make this a 
far different Nation than it would have been without Medicare. 
Just think of what we could not have done and accomplished 
without Medicare basically.
    Mr. Vladeck. We have a strong sense of responsibility about 
that, and we really do appreciate the involvement of the 
subcommittee in helping us through some of these things. We 
will provide you with the supplementary material you have 
requested, and we will be regularly in touch about the MTS 
issue in general and about the Y2K issue specifically, and we 
appreciate it very much.
    Mr. Horn. Well, we thank you very much for coming and 
appreciate what you and your staff have done in the 
presentation.
    We will now go to the third panel. Mr. Zaks and Mr. Burton.
    Gentlemen, if you will raise your right hands?
    [Witnesses sworn.]
    Mr. Horn. The clerk will note both witnesses have affirmed, 
and on our agenda here, first, you, Mr. Zaks.
    First, Irving Zaks, vice president and general manager of 
the information systems division of GTE. I come from an area 
where GTE served, and we are very glad to have you here.

STATEMENTS OF IRVING ZAKS, VICE PRESIDENT AND GENERAL MANAGER, 
   INFORMATION SYSTEMS DIVISION, GTE; AND BRUCE BURTON, VICE 
         PRESIDENT, INTERMETRICS SYSTEMS SERVICES CORP.

    Mr. Zaks. Thank you, Mr. Chairman. I have a statement, 
which, with your permission, I will submit in its entirety for 
the record.
    Mr. Horn. Right. At this point it is inserted in full, and 
if you would like to summarize your statement, we will 
appreciate that.
    Mr. Zaks. Thank you.
    Mr. Chairman and other members of the subcommittees, thank 
you for inviting me to appear before you today. As you know, 
GTE is a system design contractor to the Health Care Financing 
Administration on the MTS program. In my position as vice 
president, I am responsible for all Medicare Transaction System 
program activities at GTE. We are pleased and proud to be part 
of the MTS development team.
    I believe you invited me here today because you wish to 
realistically assess the MTS program's present status and learn 
from our experiences to date. So I will begin by saying that, 
yes, the MTS program has had many significant challenges, and 
GTE has not been perfect in helping HCFA overcome some of them. 
There are several factors which account for the present 
condition of the program. Those factors must be considered as 
you review the program's progress and influence its future.
    First, consider that MTS is one of the most complex system 
development programs ever undertaken by Government or the 
private sector. The 14 Part A and Part B claims processing 
systems being replaced were conceived and developed when the 
science of computer programming was in its infancy. The systems 
were developed independently from one another. They operate on 
different hardware platforms, and they are poorly documented.
    Second, our inability to accurately predict the complexity 
of those systems during our proposal development activities for 
this program led us to underestimate the level of effort and 
time required to develop the new system. As our understanding 
of the requirements generation activity matured, the time and 
cost required to complete it has increased, and the resulting 
schedule has extended.
    Third, as you are aware, interpretations of the rules that 
govern Medicare claims vary from State to State. Establishing a 
set of common interpretations that apply nationwide and then 
identifying exceptions to those rules, which the new MTS system 
must also accommodate, has been and continues to be a major 
challenge. This is probably the most significant cost-growth 
factor, solidifying a common set of interpretations as a 
baseline requirement set from which to proceed with the design. 
This has been a much slower process than anticipated.
    These three factors are the primary causes for the cost 
growth and schedule slippage that other witnesses have 
described today. Despite these challenges, we have made much 
progress in conceiving, designing, planning and implementing 
major portions of the system. The first component, release 1, 
is scheduled for delivery in June 1998. Release 1 will be a 
significant achievement. Not only will it enable HCFA to 
improve service to Medicare beneficiaries, release 1 will 
incorporate security features to protect the privacy of 
beneficiary records, and it will provide a platform upon which 
HCFA can build future functionality.
    It is true that everyone involved in the MTS program wishes 
that more progress had been made to this point, but in my 
opinion, the investment made to date, the work and the 
accomplishments which are behind us on the MTS program, are 
well worth the savings that will be realized when the system is 
completed.
    As industry and Government's understanding and the use of 
technology improves, we will envision better ways of delivering 
service to the citizens of this country. There will be more 
instances like this one where we will be forced to pause, 
rethink and reconceive projects based on what we discover in 
the systems being replaced. We, industry and Government, will 
get better at it every time, but there are certain learning 
experiences that cannot be avoided. I truly believe that the 
requirements generation process of this program has been one of 
them.
    Mr. Chairman and members of the committee, thank you for 
your time and consideration. I will be happy to answer any 
questions you may have at this time.
    [The prepared statement of Mr. Zaks follows:]
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    Mr. Horn. Thank you very much for your statement, and we 
now turn to Dr. Bruce Burton, the vice president of the 
Intermetrics System Services Corp. Welcome.
    Mr. Burton. Thank you. Mr. Chairman and members of the 
subcommittee, I am pleased to participate in this joint 
subcommittee hearing today to discuss----
    Mr. Horn. You might want to get that microphone a little 
closer to you and bring it down a little. Those are awful 
microphones, and neither of your companies had anything to do 
with them, I am sure.
    Mr. Burton. I can assure you.
    We are submitting the statement summarizing our role as the 
independent verification and validation contractor in support 
of the Health Care Financing Administration's development of 
the MTS. I am also prepared to answer any questions from the 
background regarding our efforts.
    In order to provide you some background on Intermetrics, we 
are a 28-year-old software company with over 500 software 
systems professional, with approximately $55 million in annual 
revenues. We are headquartered in Burlington, MA, and we have 
11 operating offices throughout the United States located near 
major customers, including approximately 150 personnel in the 
Washington metropolitan area.
    For over 25 years, Intermetrics has provided IV&V services 
to major customers, and in addition to HCFA, our current 
customers for IV&V services include NASA for IV&V of the space 
shuttle, space station, critical ground systems and robotics 
spacecraft; Immigration and Naturalization Service; the U.S. 
Army; and more recently, the U.S. Postal Service.
    In addition, Intermetrics provides year 2000 verification 
and validation support in the financial services arena. Our 
work on the MTS IV&V contract emphasizes MTS software life 
cycle product evaluation and MTS technical support. The IV&V 
contract deliverables include a monthly progress report of the 
IV&V effort, the MTS contract reports to HCFA through the HCFA 
IV&V project officer who is responsible as the technical 
monitor of the contract. To facilitate communication, senior 
management from Intermetrics frequently meets with senior 
management at HCFA.
    Going on to our view of the MTS project. Intermetrics began 
its IV&V of the MTS contract approximately 3 months after 
contract award to the MTS design contractor. One of the IV&V's 
early findings was the risk inherent in the design contractor's 
decision to abandon the analysis approach that was described in 
the original proposal and to replace that analysis approach 
with processes that eventually resulted in inefficient 
production of system requirements, and these requirements had 
been of an uneven quality.
    After a set of top-level system requirements were 
developed, IV&V advised the HCFA MTS management staff to move 
toward a multiple release strategy and to prioritize the 
releases. This was adopted by HCFA, and it's reflected in the 
design contractor's contract in mid-1996. IV&V recommended that 
HCFA focus the design contractor on the early MTS releases, 
institute an MTS program management matrix program, and 
initiate a contingency planning process. HCFA, in collaboration 
with the design contractor, decided to move ahead with the 
parallel release strategy in concert with adopting IV&V's risk 
management techniques of the metrics-based oversight program 
and contingency planning.
    Based on the design contractor's schedule and cost 
performances identified by the metrics program, HCFA issued a 
90-day stop-work order to the design contractor on April 4. 
During this 90-day period, HCFA with IV&V input, as well as 
others, will reassess the design contractor's future role and 
evaluate MTS development alternatives and select a preferred 
solution. IV&V agrees with HCFA's actions.
    In conclusion, the MTS project is complex, and it will 
require substantial management attention always to keep it on 
track. While IV&V acknowledges that the MTS will not achieve 
its initial schedule or cost objectives, we believe that HCFA 
is exercising good management judgment in focusing the design 
contractor on the first MTS release and reviewing their 
alternative MTS development options.
    Finally, IV&V is optimistic. We believe that the original 
MTS goals can be successfully achieved through HCFA evaluation 
and selection of alternatives during this 90-day period. This 
implementation of a revised plan will most likely be on a 
different schedule and cost, but we also believe that the 
benefit of a good return on this investment can be achieved.
    Mr. Horn. Thank you very much.
    [The prepared statement of Mr. Burton follows:]
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    Mr. Horn. Let me begin, if I might, with questions for you, 
Dr. Burton. At what point did Intermetrics realize that the 
project may have been poorly defined, and what recommendations 
did you make?
    Mr. Burton. Well, we did see that early on in the first 
year or two of the program, that some of the infrastructure 
that typically is in place in programs like this was not 
currently available, and we initiated efforts with HCFA to 
start working on that infrastructure.
    Mr. Horn. Let me ask you, Mr. Zaks, have you been with this 
project from the beginning?
    Mr. Zaks. Not from the very beginning. I came on in October 
1995.
    Mr. Horn. Dr. Burton, to whom were those reports given?
    Mr. Burton. Those reports were given to the technical 
monitor of the project.
    Mr. Horn. And that was an official of the Health Care 
Financing Administration?
    Mr. Burton. Right. That would be the technical monitor.
    Mr. Horn. Who was it at that time?
    Mr. Burton. At that time, that was Mr. Larry Pratt.
    Mr. Horn. And what was your feeling; did you do these 
quarterly, or was there a set contractual requirement as to 
when you reported, or how did that work?
    Mr. Burton. We report on a monthly basis, and they were 
included as part of that monthly report.
    Mr. Horn. What is the single most important factor, do you 
think, that will assure the success of the MTS project?
    Mr. Burton. I really believe that it will be in a thorough 
assessment of the options going forward, combined with a good 
set of sort of development processes that will be associated 
with that selected alternative.
    Mr. Horn. The reverse: What is the single most significant 
factor that can contribute to the failure of the project?
    Mr. Burton. I think that the single issue that could most 
contribute to the failure of the project would be to not 
formally accept the requirements, the system requirements, and 
then baseline those and put them under some form of 
requirements management.
    Mr. Horn. What is your evaluation of the leadership of this 
project over the period with which you have dealt with it?
    Mr. Burton. One, let me make a caveat here, is that as part 
of IV&V, it is generally our responsibility to evaluate the 
products that are associated with the development contractor. 
My own assessment of the leadership that is associated with the 
HCFA management on the project is that they were inexperienced, 
but that they understood that, and so they weren't afraid to 
ask for help. So they have help from IV&V, and I know they have 
sought help as well as they have come to grips with the 
complexity of the project from other sources as well.
    Mr. Horn. Was Intermetrics involved in the evaluation 
process and the resulting decision to place a stop-work order 
on the GTE contract, and what recommendations did you make?
    Mr. Burton. Absolutely. We made a series of 
recommendations, and those were implemented in short order by 
HCFA.
    Mr. Horn. Now, is Intermetrics also involved in the current 
Health Care Financing Administration re-evaluation of the GTE 
contract as they explore other options?
    Mr. Burton. Yes, we are.
    Mr. Horn. What is your role in that?
    Mr. Burton. Right now what we have done is that we have 
helped HCFA come up with some of the different alternatives in 
going forward. Our role will include working with HCFA to 
select the optimal path.
    Mr. Horn. In terms of Intermetrics opinion, what factors do 
you and your staff think contributed to the slippage in the 
deliverable schedule, and the cost overruns associated with 
GTE's work on the MTS project?
    Mr. Burton. Well, I think it was a combination of the 
system being more complex than people had earlier anticipated, 
combined with the concurrency of the work. So when you look at 
it, when people had multirelease strategy, where they had 
multiple things being done at the same time, that also is 
impacted by the current difficulty of getting qualified IT 
personnel--there is a tremendous crunch for those kinds of 
people--have all combined to contribute to the schedule and 
cost difficulties of the program.
    Mr. Horn. Did you see any portions of this project, either 
initially, as it was designed, if there was that design, or 
partway through as they got to be more familiar with some of 
the problems that would face them, did you see any relationship 
to the type of material that already exists in some of the 
private commercial sectors, and did you feel that should have 
been adopted rather than maybe reinvent the wheel?
    Mr. Burton. We have, in specific instances, on an informal 
basis, have worked with GTE wherever we could see that perhaps 
something could be done with COT Software to let them know 
about that. I can't remember any specific instances where it 
was raised as a major issue, though, on the program.
    Mr. Horn. Why were certain risk factors deleted from your 
reports to the Health Care Financing Administration before 
these risks had been fully addressed by the Health Care 
Financing Administration? Why did you delete those risk 
factors?
    Mr. Burton. I am actually uncertain about that.
    Mr. Horn. Well, was this done at the beginning level of the 
report, the technical staff down below, or was it done at 
higher levels or what?
    Mr. Burton. OK. Let me confer here with one of my co-
workers if I could?
    Mr. Horn. Sure. Please do. Take your time.
    Mr. Burton. I don't know specifically which issue that you 
are referring to.
    Mr. Horn. Let me give you one. As I understand it, in May 
1995, Intermetrics identified the lack of a software 
development plan as a risk and later removed it from the 
monthly report.
    Mr. Burton. Right. I think that that was based on an 
examination of GTE processes and development practices, and 
what we were shown was a variety of document and processes that 
they did have. So while they did not have a single software 
development plan, they did have documented practices they were 
using on the project.
    Mr. Horn. If you could go back and do some of the things 
over, what would you do?
    Mr. Burton. Well, I do concur with my colleagues at the 
GAO, where they said that perhaps it might make sense to split 
the contract initially up and separate the requirements 
generation from the development of the system.
    Mr. Horn. I don't know if you were in the room when I said 
earlier, we have been through the FAA experience, $4 billion 
down the drain, first year in Congress in 1993, and I have held 
hearings on some of the aspects of it. We have the $4 billion 
of the Internal Revenue Service down the drain, and I have 
asked the question, can't we learn some of the problems at the 
$4 million mark or the $40 million mark or the $400 million 
mark? Do we really have to go to $4 billion? Now, I am hoping 
this one doesn't get to the $4 billion point where we don't 
know what we are doing.
    So what has Intermetrics been involved in analyzing some of 
the other projects, and are there any others that have had the 
difficulty this one has had? GAO does a fine job of telling us 
what the best practices are, and I have always felt, whether 
you are talking in science or social science, we ought to give 
rewards for the people who write books on failures because that 
is the way we advance. Yet, few people want to write books on 
failures, unless it is a huge financial success when you are 
destroying somebody or whatever; but, we can learn a lot from 
failure. So what has Intermetrics learned over the years in 
terms of your collective memory that would be helpful in this 
situation?
    Mr. Burton. Well, one of the things that we have learned in 
this kind of an effort is how important it is to be vigorous 
about good risk management; that is, that the systems are 
uniformly more complicated than we expect when we get into 
them. There are a million ways that things can go wrong, and 
being constantly vigilant about that and having good plans for 
dealing with those and contingencies for dealing with those 
just seems to be a recurring factor in different systems, in 
fact, most of the major system development efforts that we see. 
There is not anything that is uncommon in the work we see 
either on the Government side or, in fact, on the commercial 
side. Many of the same difficulties we see, we see in 
commercial companies as well.
    Mr. Horn. Have you been involved with either the FAA or the 
IRS contract in anyway?
    Mr. Burton. Yes. Intermetrics worked with the Volpe 
National Transportation System to do a special assessment on 
the AAs.
    Mr. Horn. For the FAA?
    Mr. Burton. For the FAA.
    Mr. Horn. Where are we on that, by the way? I lost track. I 
am off the Aviation Subcommittee now.
    Mr. Burton. I think they completely restructured the 
program and are now going at it through a different approach.
    Mr. Horn. But we still haven't delivered anything to the 
field, have we?
    Mr. Burton. I am actually uncertain about that.
    Mr. Horn. I just wondered because last time I was in the 
tower at Los Angeles International, they were still using Post-
It notes on the windows, and since I have flown out of there a 
few hundred times, I would always like to know the Post-It is 
stuck in the right place. And they don't make a mistake with 
it, but it would be nice to have some screens that you could 
count on.
    Let me ask you a few questions, Mr. Zaks. At what point did 
GTE realize they would be unable to complete the requirements 
of the original contract of the initial amount of $19 million?
    Mr. Zaks. I would say, Mr. Chairman, that about 18 months 
into the contract, it was obvious with a lot of the moneys 
having been spent still in requirements analysis, and 
requirements themselves having grown substantially, that once 
we got the design and test, we would be in a position where 
additional funding would have to be made available.
    Mr. Horn. And just for the record, was GTE ever involved in 
the FAA or the IRS situation?
    Mr. Zaks. No, Mr. Chairman.
    Mr. Horn. Where would you rank this particular contract 
among the many contracts of a similar nature that GTE has 
handled? What was your biggest one before this?
    Mr. Zaks. Well, we have had several scores of large 
software developments, and, as with every contractor, you have 
your successes, and you have those that you would rather not 
talk about.
    The difference between those and this one, I think, is 
simply the inability to get your arms around either the 
documentation or the code to sit and use the traditional 
analysis tools or possibly new analysis tools, to really 
solidify the requirements, so comparisons are difficult to 
make.
    I don't know much about the details of the FAA problem. I 
think the IRS problems were very similar, that the code was 
just unavailable and unavailable to actually analyze.
    Mr. Horn. Well, sometimes, as you know, the problem comes 
with the agency involved where they haven't thought through 
their systems in a logical way, which is what one translates 
into software. Now, was any of that a problem, or were you 
given a fairly logical system that made some sense?
    Mr. Zaks. I think in fairness, there certainly was a system 
out there that was doing the job. The tools, if they were 
available, or the documentation to have given a contract the 
warrant, and I think that HCFA did the best they could in 
letting in RFP, that they felt was going to permit the 
development of this system.
    And I guess I would like to add, Mr. Chairman, with the 
requirements analysis process that we have finally, if you 
will, agreed to, and we did have a couple of false starts, I 
think we have made significant progress at the time of the stop 
work. We are certainly well along the way on release 2 
requirements. I cannot blame HCFA at all for having taken the 
action they did, but I don't think it has been wasted. A lot of 
the moneys we have expended to date is really trying to figure 
out a process to deal with this lack of hard assets that you 
can really analyze.
    Mr. Horn. Well, I will ask you the same question I asked 
Dr. Burton. In essence, when did you realize, and if you had to 
go back, would you do something different than what you did? We 
all learn from these things. What do you wish you had done 
earlier; is there something that stands out that you can help 
others down the line that will go through this same process?
    Mr. Zaks. I think, you know, hindsight being 20/20.
    Mr. Horn. Well, if we don't do it, we won't advance the 
rest of the operation.
    Mr. Zaks. I think that the major difficulty that both, I 
think, GTE, HCFA or any IV&V contractor shared was really a 
need to get out and make decisions on these business rules. We 
have heard a lot about the business rules. We should have 
gotten the best we could, get them really in a disciplined 
fashion to go through them. And one of the things that some of 
the commercial houses do, they don't count their failures, but 
they certainly count their successes, is get third parties to 
arbitrate, people who have no interest, all right, to just 
arbitrate what the requirements ought to be and arbitrate that 
process. So it is something that certainly ought to be 
evaluated, and there are a lot of commercial, you know, 
industry has been doing that for some time. The statistics on 
the failures versus the successes obviously is unknown.
    Mr. Horn. Does a lot of this get down to on-the-job 
management and making the decisions that say, hey, we have got 
to cut it off right here? And we might be a generation behind 
as a result of that decision, but we might be two generations 
ahead if we don't do this, because time keeps moving along and 
we don't play catch-up. Sometimes we try to do that catch-up or 
make an end run on skipping a beat somewhere that leads us into 
these morasses, if you will, which is usually funded by money, 
that go nowhere.
    So I am just curious about, in a technical world, what you 
are dealing with there. We have room management that can pull 
together a lot of these very bright people that have a lot of 
wonderful ideas. But, somebody has got to make a decision and 
say, OK, we are going to go this way now, and I am sorry, but 
we can't take the last 20 ideas on this subject, we have one we 
can run with that will solve the problem.
    Mr. Zaks. I think that certainly would have helped us get 
through a requirements generation phase. The caution there is 
that the mistakes that would be made, and there would be some, 
would have to be caught during an extensive test program. But 
getting 80 percent of the requirements down in a finite period 
of time would certainly be a bit of damage.
    Mr. Horn. Well, we have touched on the next question a 
little, but I am going to ask it anyhow. Given GTE's experience 
and working on other information technology projects in a 
design, planning, implementation role, what is unique about the 
Medicare claims processing system that affects GTE's ability to 
meet the contractual requirements? Is there something unique 
about that system?
    Mr. Zaks. I think, again, the snowballing effect of not 
having requirements on the size of the design, the size of the 
test program, the size of the deployment, I mean, is directly 
related. So unless you can get through a design baseline that 
can size all the requirements, that is really, in this case, 
what I would attribute our troubles to.
    Mr. Horn. I think you are absolutely right on that, and the 
fault comes in the administration of the agency not following 
the guidelines that are both in law, in OMB regulation. I would 
think in certain planning design phases, one should be going 
through to think through these implications so that when a 
contract is awarded, everybody is up to speed on the 
environment one faces. And I don't know if you heard some of 
this discussion or you had a chance to look at the GAO report 
that came out today. That is certainly a point they are trying 
to make in their recommendations to the Secretary of Health and 
Human Services as to what she ought to do to direct the Health 
Care Financing Administration to go back and do a few of these 
basic things they should have done to start with. I don't know 
if that is fair or not fair, but that is why we have hearings.
    Mr. Zaks. I guess a comment, Mr. Chairman, is that I am 
certain if HCFA management recognized the severity of this 
requirement shortfall, they probably would have taken a 
different course. I guess it was Mr. Willemssen this morning 
that talked to a separate requirements contract should have 
been left prior to a design contract. It is very nice to say 
that today, and that probably is something they would have 
chosen, but I think in their defense, they didn't know either 
just how difficult the requirements would be.
    Mr. Horn. Is GTE planning a software capability maturity 
evaluation performance goal on the MTS software development 
team as part of your MTS improvement plan, and if so, when will 
it be done?
    Mr. Zaks. GTE as a matter of course is dedicated and 
committed to achieving SEI level three maturity by the end of 
1998. We have a program that has been in place since 1992. We 
would have no problem with being audited or having a body come 
in and validate that program.
    Mr. Horn. Since GTE did not know the current level of its 
software development capability for the MTS team, what is GTE 
doing to mitigate the risks of being at an undefined level of 
technical capability?
    Mr. Zaks. Let me say, Mr. Chairman, the part of GTE that is 
responsible for designing and developing this code is our GTE 
Data Services Division. They have had a process in place for 
years. They have been following it probably for two decades. If 
we who are familiar with SEI go in and analyze what they are 
and make an assessment, we would probably assess some of their 
KPAs, key process areas, as very close to three, some in the 
two plus range. But in their defense, as a group, and being an 
industrial base primarily, they had a process. They adhere to a 
process every day. They were just unfamiliar with SEI. They are 
familiar with it now, and I would not at all be concerned with 
that group being audited by people coming in.
    Mr. Horn. Can you describe for the committee the Health 
Care Administration management leadership information resources 
that were available to the GTE team within the MTS project so 
that communication about evolving requirements was facilitated, 
what was it like?
    Mr. Zaks. I think that the management team understood, 
certainly made the decisions. I think that along the way we 
were all sort of, I might say, scratching our heads saying that 
the requirements can't continue to be the size they are.
    And so I think that it has taken some time for them to make 
some significant--take some significant actions. We began to 
provide metrics in excruciating detail in the September 
timeframe, the September/October timeframe. If one looks at the 
metrics associated with release 1, where we have gone beyond 
requirements, they are pretty much on track. If one looks at 
release 2, we had the same problem, so I think that is the 
decisiveness that HCFA management showed.
    Mr. Horn. As I understand it, from the General Accounting 
Office's point of view initially, GTE was meeting with a rather 
diffuse group of the Health Care Financing Administration staff 
who really weren't in management positions that would 
facilitate change and decisionmaking. Is that true?
    Mr. Zaks. I would say that for the first 6 to 8 months or 
so, it was difficult to get some decisions out of----
    Mr. Horn. What kind of a group do you deal with now?
    Mr. Zaks. We deal with a more senior group, a group of 
people that really feel empowered to make those decisions, and 
they are doing that. That is why I think----
    Mr. Horn. Without objection, there will be an exhibit 
prepared by staff in the record as to who you met with first 
and who you are meeting with now, just to give a history of 
this situation.
    Mr. Zaks. OK.
    [The information referred to follows:]
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    Mr. Horn. I am curious what difficulties GTE experienced in 
dealing with and responding to the shifting requirements as the 
design and development process matured.
    Mr. Zaks. I think that the--it wasn't so much the shifting 
requirements as much as it was the different approach that we 
took to it. Initially, we looked at the business rules and we 
tried to get down to some very specific--almost down to data 
element levels. It made it very difficult for HCFA management 
to review, and really, even though at the time they demanded 
that level, you could not take a step back and say, is this 
really the business rule. We were down to the ones and zeros. 
We had some difficulty getting back up to a level where I think 
we could characterize the business rules, and allow HCFA or 
management to then make the decision based on their adequacy.
    Mr. Horn. Do you feel that basically the requirements were 
poorly defined when you began this, and they got better as a 
result of frustration and experience?
    Mr. Zaks. I think the ability to establish the baseline, to 
establish what we consider the as is, one of the present set of 
rules that have to be accommodated post-MTS being turned over 
is where we spent a difficult amount of time. I think people 
within HCFA had a very good vision as to where they wanted to 
go in services, but we needed the baseline to actually have a 
system that we could actually use.
    Mr. Horn. Well, that leads into one of my last questions. 
This is an ultimate question. If Health Care Financing 
Administration staff had frozen its requirements at some point 
in the past, could GTE have done a far better job in producing 
the system?
    Mr. Zaks. Mr. Chairman, there really were no concise set of 
requirements to freeze. Let me see if I can characterize it a 
bit differently. For managed care, one of the issues earlier 
for managed care, it was relatively easy to get through the 
requirements. The reason for that is twofold. A, we had the 
code that we could analyze, and we had the people that were 
available that could very easily sit and as part of the JAD----
    Mr. Horn. Do you want to translate?
    Mr. Zaks. Joint analysis development, where you actually 
sit with your folks and bring that vision to a set of 
requirements that can be implemented. We did that, and we did 
that in a reasonable amount of time, and now we can go off and 
design.
    So it is not that they didn't have a set of--it is not that 
they didn't freeze a set of requirements. I really don't think 
they had a set of requirements to give us. That is what we have 
been generating.
    Mr. Horn. The last question to you is complexity of the 
existing systems. What has been the most challenging aspect of 
the NTA's project for GTE? What do you think has been the most 
challenging?
    Mr. Zaks. I think it is really a matter of getting the as 
is, the fee-for-service requirements down into a set of 
integrated requirements that we can go off and use as a 
baseline to improve.
    Mr. Horn. OK. Let me ask a P.S. Do either one of you want 
to comment on the testimony you have heard from the other one, 
just to close out the record? Do you have any comment to 
Intermetrics and vice versa?
    Mr. Burton. No.
    Mr. Horn. We try to give everybody a fair shot.
    Mr. Zaks. No, I don't believe so.
    Mr. Horn. OK. We thank you very much for your testimony. It 
has been most helpful. And maybe when we pull all these 
experiences together, we will all have learned a lot to save 
the Government more money in how we go about this in the 
future.
    I want to thank a number of people that helped prepare this 
hearing. J. Russell George, the staff director for the 
Government Management, Information, and Technology 
Subcommittee; Larry Halloran, staff director for the Human 
Resources Subcommittee. Put your hand up, Larry. You are going 
to become world famous as a result of this hearing. Mark 
Uncapher on my left, the counsel who prepared the hearing for 
us on the Government Management Subcommittee; and Marcia Sayer, 
professional staff member, Marcia. Thank you all.
    Andrea Miller, our clerk down at the end, who keeps things 
rolling. And our friends over here who have enjoyed this 
hearing, David McMillen, professional staff member; Mark 
Stephenson; and Jean Gosa. Where is Jean? There you are down 
there.
    And if we missed a few there, why, you are going to have to 
work with our staff to fill in the record.
    And Vicky Stallsworth, Tracy Petty and Katrina Wright. They 
are our court reporters.
    So thank you very much, and with that, this session is 
over. Thank you very much.
    [Whereupon, at 2:24 p.m., the subcommittees were 
adjourned.]
    [Note.--The GAO Report entitled, ``Medicare Transaction 
System--Success Depends Upon Correcting Critical Managerial and 
Technical Weaknesses,'' can be found in subcommittee files.]
    [Additional information submitted for the hearing record 
follows:]
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