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





 
 ADMINISTRATION'S PLAN TO DELAY IMPLEMENTATION OF THE BALANCED BUDGET 
                              ACT OF 1997

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON HEALTH

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 16, 1998

                               __________

                           Serial No. 105-106

                               __________

         Printed for the use of the Committee on Ways and Means

                      U.S. GOVERNMENT PRINTING OFFICE
63-454                        WASHINGTON : 2000              





                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
                     A.L. Singleton, Chief of Staff
                  Janice Mays, Minority Chief Counsel
                                 ------                                

                         Subcommittee on Health

                   BILL THOMAS, California, Chairman
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
JOHN E. ENSIGN, Nevada               GERALD D. KLECZKA, Wisconsin
JON CHRISTENSEN, Nebraska            JOHN LEWIS, Georgia
PHILIP M. CRANE, Illinois            XAVIER BECERRA, California
AMO HOUGHTON, New York
SAM JOHNSON, Texas

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process in 
further refined.
                            C O N T E N T S

                              ----------                              
                                                                   Page
Advisory of June 26, 1998, announcing the hearing................     2

                               WITNESSES

Health Care Financing Administration, Hon. Nancy-Ann Min DeParle, 
  Administrator..................................................    21
U.S. General Accounting Office, William J. Scanlon, Ph.D., 
  Director, Health Financing and Systems Issues, Health, 
  Education, and Human Services Division.........................    93
                                 ------                                
American Health Care Association, and Integrated Health Services, 
  Mary K. Ousley.................................................   156
American Hospital Association, and Sentara Health System, David 
  L. Bernd.......................................................   183
Blue Cross and Blue Shield Association, and Blue Cross and Blue 
  Shield of Florida, Bruce Davidson..............................   119
Collins, Hon. Susan M., a United States Senator from the State of 
  Maine..........................................................     7
Federation of American Health Systems, and Lutheran Hospital of 
  Indiana, Thomas Miller.........................................   172
Pappas, Hon. Michael, a Representative in Congress from the State 
  of New Jersey..................................................    13
Visiting Nurse Associations of America, and Visiting Nurse 
  Service of New York, Carol Raphael.............................   140

                       SUBMISSIONS FOR THE RECORD

American Association of Health Plans, statement..................   207
American College of Physicians-American Society of Internal 
  Medicine, statement............................................   214
American Occupational Therapy Association, Inc., Bethesda, MD, 
  statement......................................................   216
AmSurg Corp., Nashville, TN, Ken P. McDonald, letter.............   219
California Association for Health Services at Home, Sacramento, 
  CA, Kathleen Sullivan, and Joseph H. Hafkenschiel, letter......   222
Cook, Hon. Merrill, a Representative in Congress from the State 
  of Utah, statement.............................................   225
Cornerstone Health Management, Dallas, TX, Marilyn Humphreys, 
  letter.........................................................   226
Franklin, Michael, Society for Radiation Oncology Administrators, 
  Oak Brook, IL, letter..........................................   270
Hafkenschiel, Joseph H., California Association for Health 
  Services at Home, Sacramento, CA, letter.......................   222
Health Industry Distributors Association, Alexandria, VA, 
  statement......................................................   228
Humphreys, Marilyn, Cornerstone Health Management, Dallas, TX, 
  letter.........................................................   226
Kent County Visiting Nurse Association, Warwick, RI, Lisa M. 
  Scott, statement...............................................   231
Mahoney, Diane, National Association of Health Underwriters, 
  statement......................................................   253
McDonald, Ken P., AmSurg Corp., Nashville, TN, letter............   219
McKusick, Kenneth A., Society of Nuclear Medicine, Reston, VA, 
  letter and attachments.........................................   271
Morris, Susan, National Association for the Support of Long Term 
  Care, Alexandria, VA, statement and attachments................   244
National Association for Home Care, statement....................   234
National Association for the Support of Long Term Care, 
  Alexandria, VA, Susan Morris, statement and attachments........   244
National Association of Health Underwriters, Diane Mahoney, 
  statement......................................................   253
PPS Work Group, statement and attachments........................   259
Richard, Steven, Sun Home Health Services, Inc., Northumberland, 
  PA, letter and attachment......................................   276
Saxton, Hon. Jim, a Representative in Congress from the State of 
  New Jersey, statement..........................................   265
Scott, Lisa M., Kent County Visiting Nurse Association, Warwick, 
  RI, statement..................................................   231
Smith, Hon. Christopher H., a Representative in Congress from the 
  State of New Jersey, statement.................................   267
Society for Radiation Oncology Administrators, Oak Brook, IL, 
  Michael Franklin, letter.......................................   270
Society of Nuclear Medicine, Reston, VA, Kenneth A. McKusick, 
  letter and attachments.........................................   271
Sullivan, Kathleen, California Association for Health Services at 
  Home, Sacramento, CA, letter...................................   222
Sun Home Health Services, Inc., Northumberland, PA, Steven 
  Richard, letter and attachment.................................   276
Watts, Hon. J.C., Jr., a Representative in Congress from the 
  State of Oklahoma, statement...................................   279
Weygand, Hon. Robert A., a Representative in Congress from the 
  State of Rhode Island, statement and attachment................   282


 ADMINISTRATION'S PLAN TO DELAY IMPLEMENTATION OF THE BALANCED BUDGET 
                              ACT OF 1997

                              ----------                              


                        THURSDAY, JULY 16, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                    Subcommittee on Health,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 11:12 a.m., in 
room 1100, Longworth House Office Building, Hon. Bill Thomas 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]
    [GRAPHIC] [TIFF OMITTED] T3454A.001
    
    [GRAPHIC] [TIFF OMITTED] T3454A.002
    
    Chairman Thomas. On August 5, 1997, President Clinton 
signed in to law a bipartisan congressional plan that saved 
Medicare from imminent bankruptcy. As the anniversary of the 
bill signing approaches, the Department of Health and Human 
Services seems unable to implement key portions of our Medicare 
plan, even though the administration assisted in writing it.
    Health and Human Services has recently announced the 
following actions: They have decided to curtail a nationwide 
educational campaign required by law to educate seniors on how 
the new Medicare options will operate. They admit that one 
priority on which everyone agrees--fixing the high level of co-
insurance that seniors now pay for hospital outpatient 
services--will not be implemented for some time.
    They've acknowledged that changes--again required by law--
in the way hospital outpatient departments and home health 
agencies are paid will not be implemented on time, even though 
the Department requested these changes and has been working on 
these new payment systems for years.
    Because of implementation delays, the home health 
prospective payment system will not be implemented on October 
1, 1999. Therefore, this will likely force Congress to take 
some corrective action to address problems in the interim 
payment system for home health care, and as a matter of fact, 
we have a Member of the House and a Member of the Senate to 
address that as our first panel today.
    Health and Human Services says that the Year 2000 computer 
problems will delay implementation of the new laws of other 
Medicare provisions, despite the fact that Congress was assured 
years ago that HHS, especially HCFA, was developing a new 
computer system, known as the Medicare Transaction System, to 
handle the problem. Millions of dollars were spent and the 
project did not produce, I believe, a single line of computer 
code.
    In short, key portions of our bipartisan Medicare agreement 
are being unilaterally unraveled. As a result of these 
decisions by the administration, we decided to convene this 
hearing to examine the implementation, or the failure thereof, 
of last summer's agreement. The purpose of this hearing should 
be to start the process of making sure Medicare delivers for 
the people it serves, and does not operate as a tool to deliver 
someone's political agenda or aspirations.
    The Department's decision to suspend the educational 
campaign for seniors, and to a troubling extent the failure to 
consult in a timely manner with Congress on implementation 
problems, presents, I believe, a very serious challenge to the 
credibility of the administration. I find it interesting that 
at the same time the administration is pushing a patient bill 
of rights, and the first item is a patient's right to 
information, we're basically saying that we're going to be 
limiting seniors' access to similar information about the new 
Medicare+Choice program.
    Nevertheless, the White House has announced a number of 
other new health initiatives. So far, the administration 
clearly has time and resources for its own priorities, while it 
neglects initiatives already enacted into law, especially a 
program like the Medicare+Choice program, which encourages 
private health plans to develop broader benefit packages for 
seniors, rather than relying on the old centralized price 
controls of the current system.
    Despite spending more than $210 billion last year for 34 
million seniors, about $6,000 a beneficiary, Medicare still 
does not cover long-term care or most prescription drugs in its 
basic package. Obviously, the Medicare Commission is meeting 
and attempting to address this, among other problems with the 
Medicare program.
    During the course of this hearing, I'm interested in 
learning the administration's answers to a series of questions, 
among them, for example: If the administration intends not to 
honor the current law's effective dates as to outpatient 
departments, nursing home consolidated billing, and other key 
provisions, what is the legal authority that the Department 
would rely on for such action? And if the Department intends to 
offer legislation requesting congressional acquiescence on 
these implementation delays, when do you expect to send such 
legislation to the committees of jurisdiction? In either case, 
what is the impact of these implementation delays on senior 
spending, the Medicare trust funds, the overall Federal budget? 
We would especially like to receive the analysis of the Health 
Care Financing Administration's chief actuary on the impact of 
these.
    It just seems to me that when you look at everyone 
involved, I want to make sure that HCFA's priority is to be 
beneficiary service in all regards, particularly as it pertains 
to their ability to improve beneficiary's benefits and lower 
their costs.
    In dealing with doctors and hospitals I think it's fair to 
say that doctors and hospitals have seen almost nothing but 
perpetual changes, usually in one direction in terms of 
reimbursement, but continued changes. They face enough 
challenges without HCFA holding payments hostage and 
questioning payment updates. Taxpayers deserve a program that 
runs efficiently, that does not use resources, or lack thereof, 
as arguments for failing to adhere to its core mission in a 
truly administrative and management capacity.
    And just let me say that I believe there are thousands of 
capable and well-meaning civil servants inside HCFA and in the 
Department of Health and Human Services who, to a certain 
extent, are not being allowed to do their jobs perhaps the way 
they think they should be done by virtue of the way this 
administration has played politics with Medicare.
    I find it troubling that the new law of the land may be 
over-ridden, not by a court, but by administrative fiat. The 
Balanced Budget Act is not a political document; it's the 
Nation's law. We all have a responsibility to implement it, and 
I look forward to the information that's going to be provided 
to us.
    At this time I'd recognize my colleague from California, 
the gentleman, Mr. Stark.
    Mr. Stark. Well, thank you Mr. Chairman. I'd like to offer 
the first non-political move and say that I understand that Dr. 
Ganske resigned from the Medicare Commission this morning. I'm 
making myself available to replace him on the Republican side. 
I'll take the pledge for no new taxes, and we can start right 
out and have some real fun. [Laughter.]
    But, thank you for holding this hearing. I join in your 
concern about the delays in the implementation of the Balanced 
Budget Act, even though I didn't vote for it. Frankly, it's 
incomprehensible to me to sort out this 2000 problem and why 
it's gotten so far out of hand. I've introduced the Medicare 
contractor reform legislation to give HCFA more power to get 
results from their contractors. We should pass that legislation 
so HCFA's abilities andresponsibilities are more clearly 
defined in the future. It is clear to me that HCFA will need 
legislation to delay payments to providers. The administration should 
submit that legislation as soon as possible. I'm certainly not a 
computer programmer, and I won't try and second-guess this year 2000 
mess.
    I would like to concentrate on the beneficiary education 
issue and the ``mega-reg'' implementing the Medicare+Choice 
program. I'd say congratulations to the administration for not 
mailing the new Medicare handbook to all the seniors before the 
toll-free phone system is available to answer questions. I 
understand that's partly stalled by Land's End and other mail 
order catalogs who'll be doing all their Christmas business at 
the time the book hits.
    This fall, seniors are going to be swamped with ads and 
salespeople pushing managed care plans. We know from our 
experience with Medigap policies that some of those sales 
pitches will be dishonest and/or disingenuous. It's essential 
that seniors be protected from high pressure sales pitches, the 
kind that caused some seniors to buy a dozen or more Medigap 
policies in the past.
    I've introduced a bill that prohibits cold-calling by 
Medicare Choice plans, and it mirrors a provision in the 
Medicaid law. Until we have a prohibition on cold-calling, I 
urge HCFA to prohibit plans from assisting in the completion of 
the election forms. Their tentative decision to permit form 
completion is sure to lead to horror stories and the abuse of 
vulnerable patients.
    In general, I'd congratulate HCFA on the ``mega-reg'' and 
the many strong consumer protection quality and anti-fraud 
provisions you're applying to the Medicare+Choice plans. There 
are many areas in which I urge stronger action, but in general 
it's a good beginning.
    Specifically, I'm pleased with the shortening of the time 
in which appeals can be answered. The requirement that a health 
baseline be established within 90 days for managed care 
enrollees is a major step forward. You can't be a health 
maintenance organization if you don't know where your patients 
are or the basic health facts about them. Requiring them to 
establish a health baseline within 90 days seems to me to be a 
minimum step that HMDS ought to take to qualify for their 
monthly payments.
    I'm pleased that HCFA has its quality improvement system 
for managed care, and I urge you to keep pressing its speedy 
development. On page 144 of the regulation you say it's 
uncertain whether any minimum performance levels will be 
established for the 1999 contract year. I think it needs to be 
given more attention. I urge you to establish at least several. 
For example, flu or pneumonia vaccination levels ought to be 
easy to establish and enforce. Zero tolerance for the 
accreditation organization's failures to identify non-
compliance of health plans that expose beneficiaries to serious 
risks.
    Finally, your stance on anti-fraud (pages 272 and 81) and 
the requirement that plans establish a compliance program. In 
the past, plans have been paid for enrollees who they 
conveniently forgot to tell HCFA had left the plan. Innumerable 
plans have told HCFA they are providing the right level of 
benefits under the ACR requirements, then when a computer came 
to town, suddenly they were able to offer lots of new benefits 
at zero premiums. On its face, many plans have been filing 
false claims about their appropriate levels of service.
    I urge that in addition to making these payment 
certifications subject to the False Claims Act, that in the 
future any claim about quality of care that is false be clearly 
subject to whistle-blower complaints.
    Again, I look forward to the testimony of our colleagues 
from the House and Senate this morning, and I'll look forward 
to hearing the administration's testimony later. Thank you, Mr. 
Chairman.
    Chairman Thomas. Thank you very much. As usual, any member 
who wishes to express themselves in an opening statement can do 
so in a written statement.
    And at this time I would ask our colleagues, the United 
States Senator from Maine, the Honorable Susan Collins, and our 
colleague from New Jersey, Michael Pappas--and I know there is 
a degree of time pressure on the Senator. Your written 
statement will be made a part of the record, and you can 
address us in any way you see fit. I know the primary focus 
will be on a concern that all of us have, which is part of the 
changes in the Balanced Budget Act, which is now law, and that 
is dealing with home health care payments.

 STATEMENT OF THE HONORABLE SUSAN M. COLLINS, A UNITED STATES 
                SENATOR FROM THE STATE OF MAINE

    Senator Collins. Thank you very much, Mr. Chairman.
    Mr. Chairman, Congressman Stark, Members of the Committee, 
I thank you very much for allowing me to be here to present 
testimony to you this morning, and I want to commend you, Mr. 
Chairman, for holding this hearing to examine recent policy 
decisions by the Department of Health and Human Services to 
delay implementation of critically important provisions of the 
Balanced Budget Act.
    As the Chairman has suggested, in the interest of time, I 
will ask that my statement be included in full, and I will 
concentrate primarily on my concern about the home health care 
interim payment system.
    I am particularly alarmed, Mr. Chairman, that the 
administration has fallen behind in its implementation of the 
prospective payment system for home care. HCFA administrator 
Nancy-Ann Min DeParle did call me earlier this week, as she had 
promised at a hearing before the Senate Aging Committee earlier 
this year, to let me know that the Y2K problems with the 
Agency's computers have diverted resources and forced a delay 
in implementation. I do understand these problems. I very much 
appreciate her courtesy in calling me, but her call did not 
ease my underlying concern.
    America's home health agencies provide invaluable services 
that have enabled a growing number of our most frail and 
vulnerable older Americans to avoid hospital and nursing home 
care and stay and get care right where they want to be--in 
their own homes.
    However, critics of the system have long pointed out that 
Medicare's historic cost-based payment for home health care has 
inherent incentives for home care agencies to provide more and 
more services, which has in turn driven up costs. Therefore, 
there was widespread support for the Balanced Budget Act 
provision calling for the implementation of a prospective 
payment system for home care by October 1, 1999. Until then, 
home health agencies would be paid according to the new interim 
payment system.
    Unfortunately, delaying the implementation of the 
prospective payment system, as HCFA has proposed, will only 
perpetuate the serious problems that we are currently 
experiencing with the interim payment system that is currently 
terribly flawed. I'm very concerned that the interim payment 
system inadvertently penalizes cost-effective and efficient 
home care agencies by basing 75 percent of their per patient 
payment limits on their Fiscal 1994 average cost per patient.
    This system, Mr. Chairman, members of the committee, 
effectively rewards those agencies that have provided themost 
visits at the highest cost and spent the most Medicare dollars in 1994. 
The result is that it penalizes the low-cost, more efficient providers. 
I simply do not believe that is what Congress or the administration 
intended.
    Home health agencies in the Northeast are among those that 
have been hardest hit by the formula change. As the Wall Street 
Journal observed earlier this year, ``If New England had just 
been a little greedier, its home health agencies would now be a 
lot better off. Ironically, the region is getting clobbered by 
a system because of its tradition of non-profit community 
service and efficiency.''
    Moreover, there is simply no logic to the variance in 
payment levels. The average per patient cap in Tennessee is 
expected to be almost $2,000 higher than Connecticut's. The 
average cap for Louisiana is expected to be about $2,600 more 
than the cap for the State of Maine, my home State, without any 
evidence that the patients in these States are sicker or that 
the nurses and other home health care personnel in this region 
cost more.
    The system also gives a competitive advantage to high-cost 
agencies over their lower-cost neighbors, even within the same 
State or region. This is true even when you can find no 
difference in the population of patients that they are serving. 
And finally, the system may force low-cost agencies to simply 
stop accepting patients with more serious health care needs.
    Over the recess, Mr. Chairman, I visited two agencies in my 
State of Maine, one in Lewiston, Maine and one in my hometown 
of Caribou. One of these agencies told me of their fear that 
they would simply have to close their doors if the system is 
not reformed. That troubles me greatly because they're 
providing dearly needed, much needed services to very frail 
elderly people in rural parts of my State.
    To rectify this problem, I've introduced Senate bill 1993, 
the Medicare Home Health Equity Act, which currently has 22 
Senate co-sponsors from both sides of the aisle. This 
legislation, which is very similar to the House bill introduced 
by my colleague, Congressman Michael Pappas, who is here with 
me today, will level the playing field and make certain that 
home health agencies that have been prudent and careful in 
their use of Medicare resources are not unfairly penalized.
    The legislation will also ensure that home health agencies 
within the same region are reimbursed similarly for treating 
similar patients. I think that's a goal that we can all 
embrace. Instead of allowing the experience of high-cost 
agencies to serve as the basis for the new cost limits, my 
legislation would set a new per beneficiary limit based on a 
blend of national and regional average cost per patient.
    Moreover, by eliminating the agency's specific data from 
the formula, the Medicare Home Health Equity Act will move us 
more quickly to the national and regional rates, which will be 
the cornerstone of the future prospective payment system, and 
it will do so in a way that I believe is budget neutral. I 
realize that in light of recent developments we will have to 
look at that issue and look at the specific formula changes.
    But, Mr. Chairman, members of the committee, the need to 
fix the current interim payment system becomes all the more 
compelling if HCFA is unable to meet its October 1, 1999 
deadline for implementing the prospective payment system. 
Moreover, the problem is exacerbated by the fact that the 
Medicare home health expenditures are to be reduced by an 
additional 15 percent on October 1, regardless of whether HCFA 
has developed a prospective payment system.
    Cost-efficient agencies in Maine and elsewhere are already 
beginning to lay off staff, reduce hours, and some may actually 
be forced to close their doors because the reimbursement levels 
under this interim system fall so short of their actual 
operating costs.
    Of course, Mr. Chairman, the real losers in this situation 
are our senior citizens. Cuts of this magnitude simply cannot 
be sustained without ultimately affecting patient care, and I 
know that is an outcome that no one on this committee wishes to 
see occur.
    Again, Mr. Chairman, thank you very much for your 
leadership in this area and for the opportunity to testify. I 
look forward to working with you and my colleague, Congressman 
Pappas, to get a solution to this very real problem. Thank you 
very much.
    [The prepared statement follows:]
    [GRAPHIC] [TIFF OMITTED] T3454A.003
    
    [GRAPHIC] [TIFF OMITTED] T3454A.004
    
    [GRAPHIC] [TIFF OMITTED] T3454A.005
    
    Chairman Thomas. Thank you very much, Senator Collins. And 
now it's my pleasure to recognize the gentleman from New 
Jersey, someone who has been a leader in attempting to offer 
solutions that would mitigate the problems associated with the 
interim payment system.
    Michael, your written testimony will be made a part of the 
record, and if you could summarize it for us briefly, we would 
appreciate it.

STATEMENT OF THE HONORABLE MICHAEL PAPPAS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pappas. Thank you, Mr. Chairman, Congressman Stark, and 
Members of the Subcommittee.
    I first became acquainted with home health care agencies 
years ago when I was a county elected official in my home 
county in New Jersey. I was in charge of Human and Social 
Services, and I was impressed and continue to be impressed with 
the dedication of these agencies, many of which are non-profit, 
and the kind of work that they do in providing very important 
services to those that are in need of specialized care.
    The cost benefit is pretty evident in that it can delay 
people from having to be institutionalized or hospitalized, and 
I think that's why so many people, like yourselves and us, want 
to try to see a solution to what Senator Collins has really 
framed very well. I can only emphasize and reiterate everything 
that she has said, but as I was one of the Members that voted 
for the Balanced Budget agreement, I certainly never intended 
to see this to be the case, and I'm glad to be, hopefully, part 
of the solution.
    Over the winter recess, a home health care agency 
approached me and first made me aware of this dilemma, which is 
when we got to work on it and became aware of Senator Collins' 
efforts and the concerns by you, Mr. Chairman, and members of 
this committee and subcommittee, and I am very pleased with 
this hearing today and appreciate the opportunity to speak.
    The situation, certainly in my State, is not unique. We 
could speak of Maine and probably most, if not all, of our 
States. Efficient agencies would be hurt by what has been 
presented as the solution in the form of an IPS, and I don't 
think that any of us want to see efficient agencies hurt, and 
therefore those that are being served possibly being denied or 
seeing their level of service decreased to the point of them 
maybe having to be institutionalized, which, again, in the 
other pocket, more funds would have to be spent to care for 
them.
    In late March I introduced H.R. 3567, along with three 
original co-sponsors, one of them being Congressman Coyne, who 
is a member of this committee. And I'm very pleased that as of 
today we have 94 co-sponsors, both Members of the majority and 
the minority, as well as the independent people from all 
ideologic spectrums, all regions of the Nation, and that is 
really a culmination of so many other Members' efforts to see 
this very important problem addressed.
    Almost 180 Members of the House have co-sponsored either my 
bill or other bills that have been introduced. Well over 200 
Members of Congress, in the form of co-
sponsorships,sponsorships or signing ``Dear Colleague'' letters, have 
expressed their concern about the Balanced Budget agreement's effect 
upon this and IPS. But we were trying to put together a bill, we had a 
couple of concerns. We wanted it to be budget neutral, not to 
jeopardize the numbers in the Balanced Budget agreement, but we also 
wanted to reward efficiency and not penalize efficiency in every State 
in these efforts that need to be recognized.
    We've heard about CBO and their ability or inability to 
score. There have been numbers thrown around as to what mine 
would do. Price Waterhouse, who had made an analysis, felt mine 
was budget neutral. We think from very preliminary drafts CBO 
thinks that it might even be better than that--$1.2 billion--
but that's preliminary, and with what concerns that have been 
raised here today, we don't know what number will stick.
    But I'm here today to certainly advocate for my efforts and 
that of Senator Collins. We think that there's a benefit to 
having two bills that are in both Houses that could move 
forward, hopefully quickly, with the level of support that 
they've received, but the most important thing for me is to 
just address the issue. And I certainly want to work with this 
committee and the members of it to move that ball down the 
field, so to speak, and to resolve this.
    And Mr. Chairman, I thank you very much.
    [The prepared statement follows:]
    [GRAPHIC] [TIFF OMITTED] T3454A.006
    
    [GRAPHIC] [TIFF OMITTED] T3454A.007
    
    [GRAPHIC] [TIFF OMITTED] T3454A.008
    
    Chairman Thomas. Thank you, Mike. The concern that I have, 
to try to underscore the magnitude of the problem, is that 
notwithstanding your good effort and the fact that the 
Congressional Budget Office scored your proposal as saving $1.2 
billion--I appreciate your commitment to budget neutrality; you 
did a great job of going in the other direction. The 
information that I've received as of today, based upon clearly 
the reason for this hearing, is that CBO now says that the 
policy, notwithstanding that it would work, can't be 
implemented.
    And so the concern that we have is, if we're going to try 
to solve the interim payment system which both of you and any 
Member who has co-sponsored either piece of legislation could 
clearly outline, and I think all of us are aware of, we don't 
know what it is that we can do that will address this problem 
because of the inability of HCFA to implement programs such as 
those outlined in your bill, which would have otherwise solved 
the problem. So, we're going to have to require probably a 
greater degree of participation voluntarily by HCFA in 
initiating potential solutions, because it wouldn't serve 
anyone's benefit for us to dream up plans, assuming HCFA's 
going to be under its ordinary operating capacity, when they're 
clearly going to indicate to us today that they're not able to 
do it. So it only heightens our concern about finding a 
solution. I believe we have to find one before we adjourn.
    Senator Collins, I appreciate your testimony in which you 
indicated that Ms. DeParle called you to let you know that the 
Y2K problems, quote, ``with their computers have diverted 
resources and forced a delay.'' One of the things we don't do 
well in the House--I hope you do it better in the Senate--is 
for one committee to pay attention to what the other committees 
are doing.
    Our colleague from California, chairman of the Oversight--
Subcommittee on Human Resources, Government Reform and 
Oversight Committee, Congressman Horn, has been holding a 
series of hearings on the issue of Y2K. We're clearly here 
today dealing with HCFA, but the argument, as you indicated, is 
the Y2K problem. Congressman Horn has been focusing for more 
than a year on the entire Federal Government, including the 
Congress.
    And I just think it might be enlightening to you because 
you may not be aware of it, that on May 16, 1997, in front of 
that subcommittee was Bruce Vladek, who is the former 
Administrator of HCFA. And in discussing whether HCFA was ready 
to deal with the Y2K problems--now this is May 1997 when we 
were in the middle of negotiating the contents of the Balanced 
Budget Act, with the administration actively participating and, 
as I said, initiating proposals to be part of that plan--
Administrator Vladek, in response to the GAO statement, said, 
quote--the GAO statement was that HCFA is not closely 
monitoring these critical activities of the Year 2000 
compliance. He said, quote, ``This particular assertion I 
frankly find kind of puzzling. Once we have MTS''--and, of 
course, that's the program that has now been totally scrapped 
with a cost of millions and millions of dollars--``we will have 
one set of software under the Government's ownership and the 
Government's control.'' We now know that was pie-in-the-sky and 
it isn't going to work.
    So he went on then to say, ``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 accomplished these changes.''
    He went on to say, ``We're talking about the actual re-
writing of something like 20 million lines of software code. We 
will get this done. We will find things wrong during the 
testing process, but we will find that out in late 1998 or 
early 1999, not on December 31.''
    In response to a set of written questions--which I'm quite 
sure members, because they're not going to be able to stay the 
whole time, will submit to HCFA, as is normally done--in a 
response dated August 22, 1997, Mr. Vladek said--again 
repeating, ``There are 20 million lines of code which were 
identified by HCFA as requiring modification for the Medicare 
standard systems. Where are you in the process of dealing with 
those 20 million lines of code?'' Mr. Vladek said, 
``Approximately 8 million lines of code have already been re-
written, and the additional 12 million lines are expected to be 
completed by December 1998.''
    This being late July, they're pretty much done. The cost of 
re-writing a single line of code has been estimated to be 
$1.10, and the funds for this project have been allocated in 
the Fiscal Year 1996 to 1998 budgets. So as we were 
anticipating the needs and concerns of this Department, along 
with other departments and agencies, the Administrator of the 
Agency indicated there was no problem--the funds were available 
and they were well along in addressing their concerns.
    Now, that will be part of the discussion that we will have 
with the Administrator, Ms. DeParle, to get a clearer 
understanding. If this in fact is not true, what is true? Where 
are they? What resources do they have? And what is going to be 
the result in the failure to implement the law as it's 
currently written?
    Your concerns are a major portion of it, but, frankly, it 
just goes across the board. So I really appreciate your initial 
willingness to try to offer a solution which would have worked 
had we been able to say HCFA could implement it. The 
Congressional Budget Office now says, notwithstanding that, 
they cannot score it because HCFA says they can't make it work. 
This will be a problem which we will resolve together and, 
hopefully, with the cooperation of the administration and HCFA 
to tell us what they can do to answer the interim payment 
problem.
    Do any of my colleagues want to--the gentleman from 
Maryland, Mr. Cardin.
    Mr. Cardin. Thank you, Mr. Chairman. I'll be very brief.
    First, let me thank both of our colleagues for being here. 
I'm one of the 200 that have joined in either legislation or 
letters urging this committee and Congress to pass corrective 
legislation for home health services. I think we need to do 
that, and I share many of the concerns that our chairman has 
raised, but I think it is important to point out that the IPS 
that we provided last year in the Balanced Budget Act is not 
working.
    And regardless of whether there is a PPS system in place on 
the due date or not, the IPS that's in place now will cause and 
is causing a devastating impact in the State of Maryland and 
around the Nation, so we need to take corrective action on the 
IPS. We can change the mix. We can try to do it in a way that's 
budget neutral, and that's what we'rehopefully going to be able 
to come out with.
    But, Mr. Chairman, I must tell you, there are many agencies 
that are going to have a very devastating impact unless we can 
find a more creative way to deal with some of the more 
difficult circumstances in our community because our colleagues 
are exactly right. Those programs that were the most efficient, 
those programs that went out and dealt with difficult patients, 
difficult assignments, and did it in a most cost-effective way 
are the programs that are most at jeopardy, and that makes no 
sense whatsoever.
    We, in passing the IPS, I don't think anticipated the 
problems that were going to be caused, and, I agree, we didn't 
intend to do what was done, but the law requires that type of 
action. And, yes, it would be a lot easier if we knew that the 
prospective payment system will be implemented on time, but as 
was pointed out by Senator Collins, the law also provides for 
another 15 percent cut next year, and we're heading in a very 
disastrous area.
    And I would hope that we'll be looking at creative ways to 
correct the situation and not just placing all of the 
responsibility on HCFA in implementing a new system under the 
PPS to solve this problem, because I do think we have to deal 
with these problems now and come up with a solution now that 
will keep these services available to our seniors. They're 
very, very important programs. They're keeping our seniors 
healthy in our community, rather than being in more expensive 
institutional settings. That's saving money, makes sense, and 
we should work together with HCFA to come up with a correction 
to what we did last year, and I thank the chairman.
    Chairman Thomas. I thank the gentleman for his comments, 
and I couldn't agree with him more. The problem gets even more 
difficult as you analyze it carefully, because the 15 percent 
reduction is scheduled under law to go into effect whether or 
not the prospective payment structure is in place, which it 
will not be. The interim payment system has to be addressed, 
and it has to be changed before this Congress adjourns.
    The difficulty is the usual process won't work, because we 
have a perfectly decent solution, and there are others that 
will be offered, but if the answer from CBO is that they now 
cannot tell us what will happen because HCFA says they aren't 
going to be able to implement any changes within a period of 
time, it makes it absolutely imperative that the administration 
not say they won't initiate a change, but that we sit down 
today--no later than tomorrow--and begin working out what is 
do-able and which addresses those fundamental problems.
    No one intended the current situation. It is intolerable 
and it needs to be changed, but the circumstances under which 
those changes need to be worked out is extremely difficult 
given the testimony and the posture that we'll soon hear from 
the Administrator. We're not trying to drag this out in terms 
of the difficulties, but we do need to underscore, we do need 
to keep the public and the providers and the beneficiaries 
informed of what it is we are able to do and not able to do, 
and that is the fundamental intent of this hearing.
    And I know the Senator from Maine has a voting problem, 
which has just been created partially on our side, and the 
gentleman from California wants to be recognized.
    Senator Collins. Mr. Chairman, could I ask to be excused? I 
do have a vote on right now, and I'd be happy to answer any 
questions in writing or call any member, but I do apologize. 
I'm going to miss the vote.
    Chairman Thomas. Thank you very much.
    Senator Collins. My apologies.
    Chairman Thomas. Go tend to one of your primary functions. 
Thank you very much.
    Mr. Stark. Mr. Chairman, I just wanted to mention for the 
record, and for Senator Collins and Congressman Pappas, that 
several of us signed a letter to the Administrator of HCFA 
asking that in the cases where some of the home health agencies 
are being back-charged for overpayments in Fiscal Year 1998, 
that HCFA allow those payments to be made over a period of 
time, periodically, or to put them on an installment plan or at 
least their credit card, which may help ease that burden in 
some cases. I would urge Congressman Pappas and other members 
of our committee to urge the Administrator to see if she could 
be lenient in collecting the money that is due for 
overpayments. I think it will be of some small assistance.
    Chairman Thomas. And that is precisely the reason for the 
hearing. We will continue to find additional concerns that we 
have to face.
    If my colleagues have no additional questions, I want to 
thank the gentleman from New Jersey back to the drawing board. 
We look forward to the new plans.
    Obviously, the Administrator is next on our witness list, 
and my belief is that it's probably going to be easiest for us, 
rather than to start you and then interrupt you, Nancy, just to 
say that the subcommittee will be in recess.
    Do you want to try to vote on a rolling basis?
    Can you do it in 10 minutes? Okay; the subcommittee will 
now hear from the Administrator of the Health Care Financing 
Administration. Your written testimony will, of course, be made 
a part of the record, and we would appreciate hearing from you 
within the timeframe allowed for purposes of getting your 
testimony in and then going to vote. Thank you for being with 
us. It's good to see you again.

       STATEMENT OF THE HONORABLE NANCY-ANN MIN DePARLE, 
      ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION

    Ms. DeParle. Thank you. Mr. Chairman, Congressman Stark and 
members of the committee, thank you for inviting me here today 
to discuss our implementation of the Balanced Budget Act. Your 
leadership was critical in passing this landmark legislation, 
which makes significant changes to Medicare and is an essential 
step forward.
    But with big changes come big challenges that we're working 
hard to meet. We are making solid, steady progress in 
implementing the more than 300 individual Balanced Budget Act 
provisions affecting our programs, and we have a strategy to 
meet the challenge of informing beneficiaries about the many 
changes they need to understand.
    We are also making substantial progress in addressing the 
enormous and difficult Year 2000 problem. We must ensure that 
Medicare will be there to provide coverage for beneficiaries 
and payments to providers on January 1, 2000, just as it has 
for the last 33 years. That is and must be my number one 
priority. It involves renovating all computer and information 
systems and a deadline that nothing and no one can change.
    Each computer system used by Medicare, its contractors, 
State Medicaid programs, and 1.6 million providers must be 
thoroughly reviewed, renovated, and tested to correct the 
glitches that could cause problems on January 1, 2000. Our 
contractors must renovate some 50 million lines of code. This 
is a major challenge, and it's one that I'm confident that we 
can meet, but to do so Year 2000 work must take precedence over 
other projects that require systems changes, including, as 
we've discussed this morning, some Balanced Budget Act 
provisions.
    This includes projects that are complex, such as the home 
health and hospital outpatient department prospective payment 
systems that we were scheduled to implement in 1999. But it 
also includes some less complex changes such as routine 
provider payment updates that would occur in a critical window 
between October 1, 1999 and April 1, 2000. The updates, which 
would otherwise be a routine matter, could create an unstable 
environment when Year 2000 activity and risk will be greatest.
    I want to emphasize, though, that we want to work with the 
Congress and providers to evaluate what our options are and 
ensure that any delays and provider updates do not create a 
hardship, and we will work with this committee to evaluate the 
legislative changes that may be needed.
    I also want to emphasize, Mr. Chairman, that the vast 
majority of Balanced Budget Act provisions are not affected by 
the Year 2000, including the Medicare+Choice program.We've 
already implemented almost 200 of the roughly 300 provisions in the law 
affecting Medicare. We are pushing forward with regulations to 
implement the Balanced Budget Act. In fact, in a few days I hope we'll 
be sending to the Federal Register the regulations concerning the 
outpatient department PPS, even though it is affected on the 
implementation side by the Y2K.
    If Year 2000 computer system renovations are completed 
ahead of schedule, I will make every effort to make sure that 
the delayed provisions are back on schedule, but at this time 
it appears that we must postpone them to focus resources and 
free systems for essential Year 2000 work.
    Implementation of the Medicare+Choice program is not being 
delayed. However, as you have mentioned this morning, we have 
changed our initial plans for the Medicare+Choice information 
campaign to take the time to more fully focus test our approach 
in the field and make adjustments if necessary. We believe this 
will increase the likelihood that the changes and that the new 
choices in Medicare will be understood and well-received by 
beneficiaries.
    We have an eight-point Medicare education plan that 
includes beneficiary mailings, toll-free telephone services, 
Internet information, a national train-the-trainer program that 
just began this week to train people in the field, a national 
publicity campaign, State and community outreach, enhanced 
counseling from State health insurance advisory programs, and 
beneficiary feedback and assessment.
    Instead of mailing new Medicare handbooks to all 39 million 
Medicare beneficiaries this fall, which was my original plan, 
we will first test the whole system in five States encompassing 
some 5 million beneficiaries. Outside these five States, we 
will send beneficiaries a bulletin with basic Medicare+Choice 
data and other Medicare information. We'll provide them with a 
toll-free number to call to receive health plan comparison 
information and additional information about medical savings 
accounts. We will carefully evaluate our efforts in the five 
test States so that we can improve them for the full-scale 
nationwide campaign that the Balanced Budget Act requires next 
year.
    Mr. Chairman, this is the largest, most complex, and 
ambitious education effort in the history of Medicare. We want 
to work with the Congress, with providers, with beneficiaries 
and their families, and with seniors groups around the country 
to make the national Medicare education program the best it can 
be. We appreciate the help that you and your staffs have 
provided us so far and look forward to working with you further 
to make sure that our campaign is consistent with what you 
intended, as well as that it meets our beneficiaries' needs.
    I look forward to continuing to work with this committee as 
we continue efforts to implement the Balanced Budget Act and to 
address the Year 2000 challenge, and I'll be happy to answer 
any questions you may have.
    [The prepared statement and attachments follow:]
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    Chairman Thomas. I thank you very much, Ms. DeParle. We 
will be interested in pursuing some questions when we come back 
from recess. We do have a 5-minute vote following this one. I 
hope members can be back here by 12:15 p.m., 12:20 p.m. at the 
latest.
    The subcommittee stands in recess.
    [Recess.]
    Chairman Thomas. Thank you very much.
    Ms. DeParle, I would like to ask you a series of relatively 
general questions, and I know my colleagues may have some 
specific questions about specific programs. And we're all 
anxious to try to understand as much as we can about the full 
impact of the consequences of what no one doubts is real, but, 
frankly, still a little perplexed about how we wound up in this 
context, especially based upon the information of a year ago 
that it was already paid for, that it was a problem that was 
well in hand, and that GAO should not be upset or was 
misleading in indicating we didn't have a handle on it. 
Apparently--no matter how much it pains me--GAO may have been 
more accurate than the HCFA Administrator.
    But the things that we need to know, going back to my 
opening statement about the concerns of beneficiaries, given 
the promise of this program, which was a bipartisan initial 
effort to restructure Medicare. And now the latest 
information--that even on a interim payment system for home 
health care, the Congressional Budget Office can't score it 
because it contains programmatic changes that HCFA probably 
can't implement, given the policy that we now are beginning to 
fully appreciate that you are desirous of putting in place. My 
assumption is that it will require legislation.
    But what I really want is to see if you can to this 
subcommittee commit that no claim will be delayed due to the 
problems that you've identified in the Year 2000 reprogramming. 
Can you now make that statement, that no claim will be delayed, 
or are you not able to make that statement?
    Ms. DeParle. Mr. Chairman, I will commit to you that I'm 
doing everything possible to ensure that no claim will be 
delayed.
    Chairman Thomas. But you can't make the commitment that no 
claim will not be delayed. That's fine; I understand that. We 
just need to know the context in which you are working.
    I know you do not want to be before us with the testimony 
that you gave us; you would much rather be in a different 
circumstance. And I just think it's going to be necessary, if 
you would, to provide us with the other functions that HCFA 
considered postponing or other alternative actions that you may 
have contemplated taking, because my assumption is this wasn't 
the first thing that you arrived at, and I do need to be able 
to at least provide my colleagues with some assurance that that 
was the case, if indeed that was the case.
    [The following was subsequently received:]

    HCFA's Office of the Actuary projects that the anticipated 
delays in implementing certain BBA provisions due to Y2K 
activities will increase Medicare expenditures by approximately 
$150 million (or 0.01%) over five years. As you know, after a 
reconciliation bill is enacted, the actual effect of the 
provisions may differ from the savings estimated when the law 
was passed. There may be changes in the implementation of other 
BBA provisions that could have a financial impact on the 
program. These impacts are not reflected in the estimate of 
Y2K-related delays.

    Chairman Thomas. I would very much like to have--and this 
subcommittee would--your guarantee that the beneficiaries will 
not be harmed by the failure to manage the computer system.
    The one thing that I guess I'm most concerned about--and if 
you would just spend 30 seconds or so, and if you need to 
elaborate in writing, I would--because the current national law 
includes a limitation on beneficiary co-insurance liability for 
outpatient services. For so long there was a charade going on 
about how much was to be paid, and, frankly, beneficiaries were 
paying a far greater share, and it was all ultimately 
acknowledged and we put in place a changed process.
    If, in fact, we freeze it now, since it's now known that in 
fact that process was not a fair and equitable one, are we 
saying that we're going to sustain that for a while longer? 
Because that clearly means that it's now clearly understood 
that beneficiaries are paying a greater share than probably 
they should. My guess is that's going to stay in place.
    Ms. DeParle. Yes, sir. As you said, I'm not happy to be 
here today talking about this, and of all the things to have to 
delay, that change which we worked so hard together with you to 
put into place. It is very disappointing to me that we're going 
to have to delay it. But, yes, sir; I think that is right.
    Chairman Thomas. And of course my concern is that you have 
completed the mega-regs--so-called mega-regs--on the 
Medicare+Choice, which means the timeline goes forward for 
plans to be able, under those regs, to offer it. Are those 
deadlines planning to be met?
    Ms. DeParle. Yes, sir.
    Chairman Thomas. Which obviously creates the concern--and 
the gentleman from California placed it in his perspective of 
concern--that plans will be out in the marketplace actively 
marketing product at a time that HCFA has indicated that the 
aggressive, full-court press educational program will not be 
going forward, that it will be narrowed to five States 
initially--and I think folks should focus not on the number of 
five, but on the percent of Medicare beneficiaries covered by 
those five States--in an attempt to try to move it in equal 
segments of the Medicare population.
    But how are we expecting beneficiaries not within those 
States that are going to be aggressively educated to be able to 
make decisions? What is it that you're planning on doing for 
those folks?
    Ms. DeParle. Well, as I said, we have an eight-point 
Medicare education program that's displayed over there on the 
poster. In the five States where we're going to be doing the 
full system all at once, there are 5 million beneficiaries, and 
we chose those States based on high, low, and medium 
penetration of HMO's, and then we'll keep moving around the 
country. But for everyone this fall, all beneficiaries will get 
a bulletin that we're currently in the process of focus group 
testing--and then we want to consult with your committee staff 
about it. It will notify them about the new changes. It will 
offer them a toll-free number that they can call that will just 
give them----
    Chairman Thomas. Let me ask you a question about that 
notification, because I know the President just this week 
instructed HCFA to mail to 100 percent of the Medicare 
beneficiaries, I believe--and correct me if any of my statement 
is wrong--a notice about the ability to subsidize a portion of 
the premium if you are a qualified Medicare beneficiary, which 
affects maybe 10 percent of the Medicare population. Is that 
going to be a separate mailing?
    Ms. DeParle. No, sir. I think what he was talking about is 
that he has asked us to do a better job of notifying 
beneficiaries about their potential eligibility for this. Our 
plans are to do that in two ways. One is we will include a 
sentence in the bulletin that I was talking about that will go 
out to all beneficiaries, and the other is, through the Social 
Security system, which is, after all, how most beneficiaries 
sign up for this. We plan to put a notice on the premium 
payment statements that go out every year.
    Chairman Thomas. Okay.
    Ms. DeParle. So it won't be a separate mailing.
    Chairman Thomas. All right. Now one of the things that I 
know--our colleague from Connecticut provided me with what was 
an example of how the Connecticut notification process worked 
with seniors. When we were out in Minneapolis-St. Paul for the 
Medicare Commission, we received a booklet--and there was some 
advertising to defray costs--but the point of any of this 
material--and I've got it, and I think you're probably familiar 
with it, but we'd like to show it to you. Here it is. This is 
the booklet, and it does provide, you know, as you go through 
it, a pretty adequate comparison on a chart.
    [The booklet is being retained in the Committee files.]
    And I know the Senators were concerned about a chart in the 
legislation which lets you make comparisons----
    Ms. DeParle. Yes.
    Chairman Thomas [continuing]. And the gentlewoman's New 
England, very frugal approach to giving options, but, 
nevertheless, providing, you know, a full choice. And this is 
going on without any national, or at least minimal national 
role. Is that correct?
    Ms. DeParle. Well, not quite, sir. We are providing through 
the Medicare.gov Internet site that plan comparison 
information. And in addition, the bulletin that I mentioned 
that we are sending out to all beneficiaries will have a number 
that they can call to get a printout of the plan comparison for 
their area if they want to order it through the mail. So we 
will be able to provide it to them that way.
    I was with Congresswoman Johnson last week in Connecticut 
and I also saw the materials, and they were provided by one of 
the State health insurance advisory programs, also called 
ICA's--the one for Connecticut. They are one of the pieces of 
our information campaign. We will be helping them to make that 
information available as well.
    Chairman Thomas. On the Quimby notification, is this 
something that you had planned? Was it not something you had 
planned? Is there a cost involved to it beyond what you had 
planned?
    Ms. DeParle. No. It is something we had planned. The draft 
of the Medicare handbook that I believe you saw had a section 
in it about it, and we had planned to notify beneficiaries 
about it through that process.
    Chairman Thomas. So the President's announcement was 
basically staged for the purpose of making it appear as though 
this was something he was concerned about and highlighting it 
as a separate item, but in fact it's something you were 
planning on doing all along. You know what I'm trying to say. I 
can try to soften it. But you see it's very difficult when 
you're telling us you're not going forward with programs, and 
we see a Rose Garden shot of the President announcing yet 
another new initiative by the administration which appears to 
require resources, either redirected or dedicated that hadn't 
been planned, to achieve a particular goal, when we look at 
programs that are statutory not going forward.
    And a number of my colleagues have almost required me to 
ask you--it's going to be necessary for us to know in what 
context the cost of these numbers of initiatives--and I know 
the President has indicated an initiative with HIPPA to go 
forward in analyzing the oversight responsibilities to ensure 
that plans are satisfying their requirements under the law. Was 
this something that was planned as well, and he just announced 
it in a way that it looked like it was something special? Or 
was it in fact a new assignment? Do you know what I'm talking 
about?
    Ms. DeParle. Yes; and you and I have discussed this and I 
understand your concern. What I want to emphasize to you is 
that my commitment and my priority is to implement the Balanced 
Budget Act, and I agree with you, Mr. Chairman, that that is 
not a political law. It is, in fact, a major step forward for 
the Medicare program and in fact for other programs that we 
administer, and I can assure you that myfull attention is being 
devoted to that.
    Chairman Thomas. Well, the appearance is is that it's not, 
and that's the problem that we've got to deal with. And rather 
than try to ask you a series of Y2K questions--I guess I've 
given in to that phraseology--you heard the testimony of the 
previous Administrator. It frankly either was not grounded in 
fact, or something serious has happened between May 1997 and 
today about the resources available to HCFA to carry out the 
job and, in fact, the job itself and the timetable associated 
with carrying out that job.
    Do you want to make any statement at all in regard to Mr. 
Vladek's testimony--that it was 20 million lines of code, 8 
million had been done by the time the August 1997 letter was 
written, with 12 million remaining, December 1998 was going to 
finish it, and the funding was available from 1996 to 1998, so 
that no one should be concerned about the Y2K question?
    Ms. DeParle. Yes, I would like to comment on that. I've 
read the testimony myself, and if you read the testimony 
closely, right after the part that you quoted there is a 
discussion of GAO's recommendations to us which included hiring 
an independent verification and validation contractor to go out 
to our contractors and to look, frankly, inside HCFA to make 
sure that we were doing the kind of planning and that it was 
really all there to move forward on the Year 2000. We did that 
last fall, and that contractor went out and visited all of our 
sites around the country that process Medicare claims and 
discovered that the assessments that had originally been done 
were not in the right ball park, that really we're talking 
about renovating more like 50 million lines of code.
    I can tell you that on the internal code that we have to 
renovate, we're well along the way towards testing. We still 
have a lot of work to do, and this is a problem that I think 
was found to be a lot more difficult than had been thought. The 
GAO has been very helpful in that regard. They made, at that 
hearing that you're talking about, some recommendations. One of 
the first things I did last fall was sit down with Joel 
Willemssen and Gene DeDaro of GAO, who gave me a number of 
suggestions, many of which I've moved forward to implement. And 
I apologize for the fact that this problem has turned out to be 
a lot bigger than I think anyone thought.
    Chairman Thomas. No; I know how difficult it is for you. 
Maybe resent is too strong a word, but I know the concern that 
you have, and the fact that you have to appear before us to 
discuss this, but it's a fact of life. And my concern is, to 
what extent is this a failure to solve a management problem in 
the overall context? My question is, how are you doing on 
keeping your focus on core responsibilities?
    I think you've answered the non-legislative initiative 
focus, that it isn't that much. But I wish the press would put 
it in the context in which it is delivered, then--that is, 
they're going to do it anyway, but I thought the Rose Garden 
would be a better place to announce it and maybe we can get a 
bigger spin out of it.
    I am concerned about resources being focused for that 
purpose, and it goes back to some of the concerns that we had--
all of us did--as we discussed putting this package together, 
where HCFA changes from a billpayer--now we're worried about 
paying the bills because you're so computerized--to a kind of a 
consumer-oriented education program. How is the skill mix among 
HCFA employees, in part a concern about not being able to meet 
the deadlines? Is that part of the concern?
    And then, lastly, because I just want you to go ahead and 
talk about it awhile, is the vulnerability of HCFA. We had the 
MTS problem; for the record, I'd like you to tell me how much 
money was spent on that. Did we gain anything at all of 
positive leverage going into Y2K, or did you just have to drop 
that? And to the extent you were trying to put your eggs in 
that basket, did that perhaps give you a problem coming out the 
other side?
    And then deal, finally, with the $23 billion that has been 
found to be waste, fraud, and abuse. I think it's better to say 
inappropriate payment or inability to determine appropriate 
payment. If you're fixing the Y2K problem, are we going to be 
able to address the problem associated with the GAO study on 
our inability to account for that? Is that a bonus that we'll 
get, perhaps, out of waiting beyond the current statutory time 
for putting programs in effect? And I'll just give you a minute 
or two to react to that.
    Ms. DeParle. Well, I think there's no question that the 
Year 2000 problem has caused a focus and a coordination at the 
Health Care Financing Administration that perhaps wasn't there 
before. It has forced us to sit down and--for instance, you 
asked me about decisions made on the various systems that had 
to be delayed. When the independent verification and validation 
contractor first said to me--and the language they used was, 
``You must stop parallel development,'' which in their parlance 
means stop telling the contractors to do all these changes at 
the same time you're telling them to renovate the code.
    And what we had to do was sit down as a group--the policy 
people, the information systems people, the whole group of us--
and decide what it was possible to get done. You had to balance 
the risk that you wouldn't be paying claims at all against our 
strong desire to get all of the changes in the Balanced Budget 
Act implemented, and I think it has forced a management focus 
that probably wasn't there in the past. So, yes, sir; I would 
like to think that is an advantage of this.
    Chairman Thomas. Let me interrupt you briefly on that point 
and just to explain that I know--and GAO was going to do this--
we're going to go through the number of items that are 
currently on-line from--that's a quantitative analysis. At some 
point you had to look at the magnitude of programs, and I am a 
bit concerned that it was probably--obviously, from Congress' 
point of view--way too unilateral in terms of the decisions.
    I would have appreciated, and I think my colleagues would 
have appreciated, given the manner in which this legislation 
was put together and passed, an earlier awareness, a 
prioritization, perhaps, shared with some of us, and an earlier 
notification so we could have begun some of the changes that 
are necessary. And that does concern me, about an unwillingness 
to share earlier if you did know about it and a prioritization 
of programs so that, given the very brief time left in the 
legislative process, we're not going to have to--which we are 
now--ram through something on the interim payment system for 
home health care and whatever else we find out we need to do. 
That does concern me.
    Ms. DeParle. Yes, sir, and it concerns me, too, and I 
regret that. When I first heard about this, I did mention to 
you that I thought there was going to be a problem coming. I 
regret that you had to get the details from a leaked 
memorandum. My plan had been to come up and discuss it with you 
and your members of this committee, as well as other Members of 
the Congress, and I didn't get to do that at the time I would 
have wanted to, so I'm sorry for that.
    Chairman Thomas. Thank you. And I am concerned that the 
last item was the $23 billion of inappropriate payment. Are we 
going to get a bonus? Do you think that what you're doing on 
the Y2K is going to be of some measurable assistance in pinning 
down what it is and how it works that allows the GAO or the OIG 
to say there's $23 billion of inappropriate payments?
    Ms. DeParle. Well, let me say this. The efforts that we're 
making and that this year got us a qualified statement from the 
Inspector General on our financial statements will not stop, 
and I don't expect them to be interfered with at all by the 
Year 2000 efforts. We are putting a major focus on getting our 
house in order from an accounting perspective and bringing the 
claims error rate down, and that is one of my top priorities.
    Chairman Thomas. The gentleman from California--thank you 
very much.
    Mr. Stark. Thank you, Mr. Chairman. Could you just quantify 
for me this Year 2000 thing? On a percentage basis, how much of 
the Year 2000, quote, ``problem'' is a problem of changing 
Government-operated computer systems, and how muchof it is a 
problem of the contractors--the beltway bandits who are doing new 
implementation work and working for the intermediaries who don't have 
enough personnel to do their own work? I'm not sure I can identify what 
the problem is.
    Do we have Federal computers that need a lot of 
reprogramming, or is it the fact that the intermediaries, the 
people you contract with, can't hire enough people because the 
people are all busy doing Year 2000 work elsewhere?
    Ms. DeParle. Well, both our internal systems and our 
external systems need work. We've identified around 25 mission-
critical systems that are internal to HCFA.
    Mr. Stark. Just tell me, is it 25 percent internal and 75 
percent external, or 50/50? Give me an idea.
    Ms. DeParle. It's about 25/75 and----
    Mr. Stark. So the major part of the problem is with outside 
contractors just having enough personnel to do the job. You 
can't hire any outside computer experts? You can't find them?
    Ms. DeParle. Yes, and they're working hard to try to find 
the people, and I want to thank the Congress for providing us 
with the resources to do that.
    Mr. Stark. Okay. Now, speaking of providing you with the 
resources to do that, there's some testimony that's been 
submitted for the record only. I can't ask them the question, 
so I'll ask you. This American Association of Health Plans, 
they're bleeding in their testimony to the fact that they've 
paid their $85 million, or whatever it is, to HCFA for this 
implementation of the education component of the new 
Medicare+Choice program. They say that last year HMO's and 
their enrollees represented 14 percent of the program, and they 
shouldered 100 percent of the cost of the Medicare+Choice 
information program at about $95 million, right?
    Ms. DeParle. Yes, sir.
    Mr. Stark. Now my calculations would say that they also 
avoided 14 percent of the graduate medical education burden, 
and they also avoided about 14 percent of the disproportionate 
share burden. Each of those would be about $1 billion. So, 
basically, for $2 billion that they didn't contribute--that all 
the other providers have to pay--they are complaining about 
$100 million. Is that a reasonable balance to their argument? 
Shouldn't they have paid into graduate medical education and 
the disproportionate share costs as well?
    Ms. DeParle. Well, as you know, one of the policies in the 
Balanced Budget Act was to divert the graduate medical 
education payments so they go directly to the teaching 
hospitals, and we're in the process of implementing that.
    Mr. Stark. But, I'm saying that their vocal complaints 
about coming up with $100 million when they've saved billions 
not paying their fair share into the system, not to mention 
uncompensated care and other costs that they avoided needs to 
be considered in that light. I just wanted to make sure that we 
get their testimony on the record and that we straightened out 
the accuracy of their perceived problem.
    I'm always interested in Golden Rule and all these other 
great American patriots. I understand you had a meeting 
yesterday. Did you invite all the insurance companies in the 
world to come and evidence their interest in Medicare savings 
accounts?
    Ms. DeParle. We invited everyone that we had heard from, 
and we asked Members to let us know, too, of companies----
    Mr. Stark. How many showed up?
    Ms. DeParle [continuing]. That might be interested in 
offering a demonstration.
    Mr. Stark. How many showed up?
    Ms. DeParle. I believe that representatives of about 11 
different possible plans came to our meeting.
    Mr. Stark. And did any of them say they were going to offer 
MSA's, outside of Golden Rule, who ought to be disqualified on 
ethical grounds?
    Ms. DeParle. I don't think anyone has made a firm 
commitment yet. They asked a lot of questions about the payment 
schedule and all of that, so----
    Mr. Stark. You want to bet me on how many are going to 
offer them? Do you want to make a guess?
    Ms. DeParle. I'm not a betting person.
    Mr. Stark. OK. [Laughter.]
    Are you going to have some regulations on the 
pharmaceutical managed care benefits in terms of requiring them 
to disclose to beneficiaries where they limit pharmaceutical 
options or where there are incentives for the physician or the 
plan to substitute one drug for another? This is a very popular 
benefit that is being sold as an inducement. I think that 
without further regulation the beneficiaries could be 
disadvantaged. Are you considering regulations that would 
require a more honest, or more detailed, description of the 
types of problems beneficiaries could run into? Have you any?
    Ms. DeParle. Well, it's not in the Medicare+Choice 
regulation, but I believe the kind of thing you're talking 
about should be reflected in the adjusted community rate. Now 
if you're asking to make that available to seniors, I don't 
think----
    Mr. Stark. I want Senator Dole to know that Viagra isn't 
going to be covered or is going to be covered in his plan. So, 
before he signs up he knows what they're going to pay for or 
not going to pay for, or that they're going to substitute 
aspirin as a generic alternative. I think those kinds of 
disclosures would be important and ought to be required. You 
can't put them in your managed care regulations?
    Ms. DeParle. Well, the regulation is already out, but we 
will be happy to work with you, Mr. Stark.
    Mr. Stark. Okay. Excuse me, but the chairman probably isn't 
going to indulge me much longer here.
    Chairman Thomas. No, no. Go ahead.
    Mr. Stark. Go ahead? All right.
    The Balanced Budget Amendment got us enough money to extend 
the trust fund another 10 years. We extended the Medicare trust 
fund, and Chairman Thomas is trying to make it solvent for all 
time and hopefully you're going to recruit me to help him. But, 
we did hear that if we saved the budget surplus, the $650 
billion estimate, it would take the Medicare trust fund out to 
2020.
    Now we've got a higher budget estimate, maybe another $1 
trillion in surplus, that would probably take Medicare past the 
date of the bipartisan Commission's target of 2030. If we saved 
all of the CBO surplus for Medicare, how long would we extend 
the trust fund? Would you guess? Do you know, or would you find 
out and submit to us how long the Part A trust fund would be 
protected? In other words, we don't have to make any changes in 
Medicare. We could just keep going and paying the good 
providers and providing the benefits, if we save the surplus 
and didn't spend it in other ways.
    Ms. DeParle. I'd be happy to ask our actuaries and provide 
you with an answer.
    [The following was subsequently received:]

    The HCFA actuary estimates that applying the Federal budget 
surplus, as estimated by CBO, to the Medicare Trust Fund 
through 2008 would extend its solvency through 2033.

    Mr. Stark. Thank you, Mr. Chairman.
    Chairman Thomas. Well, that is our concern, paying the good 
providers and my concern is that the window that's discussed 
might even be a quarter or extend to four months in the year 
2000 of not paying providers, since we're so computer oriented. 
My assumption is you do not want to shift to a pay per payment 
structure, and that's just one additional question. The 
gentlewoman from Connecticut I know wishes to inquire.
    One of the more high profile computer types in the 
administration is the Vice President, who has an ongoing 
initiative called the Re-inventing Government initiative. My 
understanding is that HCFA submitted a response or a report to 
the Reinventing Government operation of the Vice President. Is 
that correct?
    Ms. DeParle. Well, I don't know about a report. I recently 
met with the person who's in charge of that over there to talk 
about that. What they wanted to know was about our Government 
Performance and Results Act objective and how we were doing on 
meeting them; things like reducing diabetes, things like that.
    Chairman Thomas. Would that bring up the year 2000 
question?
    Ms. DeParle. We did have a discussion of it, yes.
    Chairman Thomas. Do you have it in writing?
    Ms. DeParle. I can get you the paper that I used to talk 
from.
    Chairman Thomas. How long was it?
    Ms. DeParle. I didn't talk to him about--I didn't have a 
written thing about the year 2000.
    Chairman Thomas. No, but how long was the paper in 
discussing HCFA reinventing Government?
    Ms. DeParle. It was mainly charts with the GPRA objectives 
and where we were with meeting them. It was a few pages.
    Chairman Thomas. A few pages. So, it wasn't a major 
presentation. I mean, it wouldn't do much good for the 
subcommittee to look at it to see what's going on in terms of 
innovation and redirection.
    Ms. DeParle. I think this might be a different kind of 
report than what you're thinking of, because they have 
designated HCFA as one of the reinvention laboratories, but 
what we were supposed to do was to identify objectives--
outcomes, objectives for our programs; things like increasing 
the number of children who are enrolled in Medicaid and the 
Children's Health Program, and what I did was just walk through 
where we were with each one of those. I'd be happy to provide 
it to you.
    Chairman Thomas. That's another administration high profile 
initiative. They're reinventing Government, and, obviously, 
HCFA would be, in my opinion, in the center of a number of key 
individual programs where reinvention of Government would be 
critical, but if the report was just a couple of pages, that 
probably doesn't focus on what we want to focus on.
    The gentlewoman from Connecticut.
    Mrs. Johnson of Connecticut. Thank you, Mr. Chairman, and 
welcome, Administrator DeParle. First of all, I just want to 
open by saying, I appreciate your accomplishments in getting 
the agency focused on the year 2000 problem. It is very 
impressive to me how focus matters, and your work to actually 
look and see whether the plan that had been made was being 
implemented has brought focus and, therefore, an effective 
action to the service of the agency and to the service of all 
of us, and I appreciate that. I think the example that both you 
and Commissioner Rosotti have set, really being able as 
administrators to focus on key issues, is very refreshing and 
certainly all the people of America are going to benefit from 
your excellent leadership on this issue.
    I have been particularly concerned, as you well know, since 
I believe focus matters, in focusing on the problems that the 
home health industry faces as we make significant changes in 
how we pay for home health services in order to address some of 
the fraud and abuse problems that we know exist in that sector. 
Our rationale was very good. Our execution is poor for a lot of 
reasons, not the least of which is the availability of 
appropriate and accurate information. Be that as it may, 
regardless of the causes, the decision to delay the PPS system 
is going to have catastrophic effects in my region, because the 
interim payment system is going to be so catastrophic. I 
appreciate the time you have given to this. I appreciate your 
understanding of how New England is going to be disadvantaged. 
I know the testimony of my colleague from the Senate, Senator 
Collins, and Mr. Pappas did not break any new ground for you. I 
appreciate your coming up and hearing it directly from my 
agency people, because, indeed, they were eloquent, but I need 
to ask a few questions to see if we can get some of the issues 
straightened out and moved forward.
    First of all, have you notified the fiscal intermediaries 
about the change in date for implementation of the surety 
bonds?
    Ms. DeParle. Yes, I believe we have.
    Mrs. Johnson of Connecticut. Well, they seem to feel that 
they haven't received the level of official notice they need. 
There was a two-week period in which the notice was to come. 
The period ended last Friday, and at least the intermediaries 
in my State have not received notification. Consequently, they 
are not able to relieve the small agencies of this obligation.
    Ms. DeParle. Let me look into that immediately. As you 
know, there are six of those intermediaries, and I think I 
could pick up the phone and call them myself if I need to. They 
should know by now that they don't have to be requiring that, 
and, in fact, as you know, in our meeting, all of your agencies 
had already gotten surety bonds.
    Mrs. Johnson of Connecticut. Right. So, but if you could 
make sure that that notification is there, so that they don't 
keep running into this, sort of, odd barrier.
    And then the second thing that I would like you to consider 
is announcing or in formal writing indicating that you do not 
intend to use the resources of those surety bonds to cover any 
liability and that you would urge the companies that offered 
them to simply extend their useful life, because they aren't 
going to be called on until the effective date of the 
regulation. This is very important, because I know you don't 
have the legal authority for us to be able to allow 
consideration of the costs of these bonds, but, perhaps, if it 
was very clear that you weren't going to use--to reach into 
those bonds for liability purposes, we could get the private 
sector to think through extension and help us accommodate the 
cost more effectively or more fairly, I should say. This would 
provide a certain modicum of relief to agencies that have, in 
fact, played by the rules, and one of the problems, always, in 
deferring implementation dates is that there's a lot of 
ramifications, and the people who are hurt the most are the 
people who have tried to comply, and since the New England 
agencies are going to be so heavily damaged by our proposal 
anyway, they have also put the money into the surety bond, and 
I think we have an obligation to try to do that, and I know you 
share that. So, I just put those two suggestions on the table.
    Then, I want to raise the issue about the dramatic changes 
in home health spending that have occurred since we passed this 
bill, and I would like to ask for your help in looking at how 
we can use those dramatic changes and expenditures to rewrite 
the 15 percent cut that goes into effect automatically as we 
move along, so it won't go into effect if we make the savings.
    And, secondly, how we can use that dramatic cut in spending 
and really beyond, I think, our wildest imaginations to find a 
solution to the interim payment system since now it's going to 
be in place for such a long time. For example, maybe we could 
simply change the 1994 date. That would help a lot, if we had a 
more recent cost date. We're into 1998; we're going to be in 
1999; we're going to be in the year 2000. So, since the system 
is saving more than anticipated, I think we have to look at 
mechanisms as simple as that change in date, because I would 
hope that your freeze on computer changes due to the year 2000 
would not extend to that level of simple action. My 
understanding is that there is adifference between your ability 
to accommodate that kind of change and your ability to accommodate more 
complicated changes.
    Ms. DeParle. Yes, and I want to work with the chairman and 
with the committee on alternative proposals, and we've been 
working on some ourselves. I do want to mention, though, that 
the base year is a critical thing from a system standpoint. The 
base year is one of the things that is very difficult to 
change, but some of the other ideas that you and I have 
discussed are things that could operationally be done, and I 
want to work with you on that.
    Mrs. Johnson of Connecticut. Well, the reason the base year 
has come to my mind is because it's at least simple, and 
computer-wise, this is easy to implement.
    Ms. DeParle. I agree, Congresswoman--it seems like it 
should be, but my understanding is that changing the base year 
is not simple from the standpoint of doing this formula.
    Mrs. Johnson of Connecticut. Okay, then the other thing I 
did want to just get to briefly is this issue of the 
information. If there's one thing that I've been saying at 
every senior citizens' center I have been in since we've passed 
this bill was that the Government would provide you with the 
kind of information like we have always provided you on 
Medicare insurance plans, and we would guarantee that it would 
be simple, intelligible, and accurate, and you would be able to 
make a decision that was in your interest.
    Now, I appreciate the decision that you've made, but I 
think there is so much more we could do. For instance, if 
you're going to send them some kind of two-page letter, why 
don't you from every area include the information that the area 
agencies have already developed. I mean, you print it on both 
sides, and it's five pages. If you're going to put the money 
into postage, why don't we in every State at least send them 
that much; that this is interim because it took a while for the 
regulations to be written; it took a while for the plans to get 
in, and by next year the plans will be more solid and then we 
will send you a formal handbook--which I think makes absolutely 
good sense anyway. But we have good information in Connecticut. 
I can't believe every State doesn't have good information. 
They're just not getting it. So, in addition to this 
information, the same organization, the Area on Aging, using 
Federal money from your office, also have an excellent handbook 
about how do you decide whether managed care is for you or not? 
What are the questions you should ask? How do you go about 
thinking about that? And, frankly, I think a mailing in a brown 
envelope that provided these things would be well worth the 
cost and much more important than funding some of the publicity 
efforts that you're planning to make. I mean, I know those are 
important, but, after all, we aren't reaching the whole 
population; we're reaching the seniors.
    The other thing I would suggest is that you include it in a 
social security mailing. Why can't it go with whatever Social 
Security sends out regularly? So, let's look as a Government 
across lines and get at least the information we have out, 
because I can tell you that seniors desperately need it. Has 
there been any cross-agency information----
    Ms. DeParle. There definitely has. We are working closely 
with Social Security, and we are working with the Area Agencies 
on Aging such as the one that we met up in Connecticut, and 
every beneficiary who wants comparison information will be able 
to get it. The difference is that the full handbook with all of 
that information tailored to each area wouldn't be going this 
fall. For next year, the first open enrollment period it will 
be there.
    Mrs. Johnson of Connecticut. But I would ask you 
specifically to change your plans about this letter that's 
going to go out to the States where you're not going to send 
the booklet, and, instead, mail the material we have with an 
explanation that this is just a rough cut or whatever you want 
to say. Honestly, I don't think a letter of the generic type 
that you're describing is useful when we already have such good 
information that you could reproduce and send. So, I would urge 
you to reconsider that plan.
    I also am concerned about your plans to train trainers. I 
have talked a lot recently with who's available to help seniors 
understand this, and I think we're really nuts to follow the 
kind of process that we have in the past as useful as that may 
be as an auxiliary, but we really need now to provide an 
educational--to pay people who are in the business of health 
benefits to be able to explain this and present this 
impartially, and I think, really, we ought to be looking to the 
independent agents and bringing them in, and our money would be 
far better spent that way than the millions that we're going to 
put out there for other groups who are not professional at this 
business and may not be objective; that worries me a lot. I see 
a lot of biased stuff out there. So, I would ask that you look 
at the independent agents and look at some way of using them. 
They do this professionally. Furthermore, a lot of this for 
seniors also has implications for their estate planning or 
they're thinking about their future, and you could also, then, 
get information out there about long-term care options which 
even for a healthy 65 or 70-year old is still a viable option. 
So, I'm very concerned about it. As long as we're going to 
delay, let's try to do a better job than we might have been 
able to do if we hadn't had to delay.
    So, there are a couple of other issues that I'd like to 
raise, but those are the top of my list. Thanks.
    Ms. DeParle. Thank you.
    Chairman Thomas. And let me before I recognize the 
gentleman from Nevada indicate that the concerns that we have 
in terms of the way in which this program is being presented--
and I know that we have discussed this--but, for example, 
someone who is a spokesperson for the Department, Mr. Michael 
Hash, in front of the Senate Special Committee on Aging on May 
6th--and I didn't want to take it out of context, but I wanted 
to look at the full context of the statement that was made, and 
you were kind enough to provide the transcript with me--and it 
concerns me that attitude and approach of conveying these 
options has been almost consistently in a hedged or negative 
environment. At least the materials that we've looked at has 
been a neutral environment where you simply run a chart and 
maybe that's one of reasons the Senate put such emphasis on 
having a chart because it's harder to spin a chart. For 
example, he says to the Senate subcommittee--``They--meaning 
the seniors--need to know that their ability to obtain private 
supplemental Medicare insurance, if they return to the fee-for-
service program after just enrolling from a managed care plan 
may not be on the same basis as their original opportunity to 
get those private supplemental plans without the existing 
conditions and without other limitations.
    Whether it's in the context of the full blown Medicare Plus 
Program in which there's a full opportunity to go back to their 
original program or whether it's even in the interim in which 
they have a period of trying a Medicare Plus Choice in which 
they're guaranteed to go back to their previous with no 
preexisting condition. This is from someone who is supposed to 
be on the team explaining the program. Now, either he doesn't 
understand what was put into law or there's an attempt to 
create an informational pitch that now you've got this, but, 
remember, you may be out there in the cold. There may be 
preexisting conditions which won't allow you to go back to the 
previous plan when you and I know we worked to make sure that 
there was an initial opportunity with no fear or danger of a 
lost position at all in trying this program. These are the 
kinds of things that create the impression that we're not all 
working together.
    Ms. DeParle. Well, I understand your concerns there, and, 
as you say, we actually made improvements in that particular 
situation in the Balanced Budget Act.
    Chairman Thomas. But nowhere did I find a qualifier in his 
explanation of the program. In fact, repeatedly over pages--and 
I'm going to put it in the record--there was a negative 
connotation that there is a downside to anyone making a choice. 
There's nothing wrong with presenting clear options in a way 
that you can look at them. I was looking for somebody saying, 
``But you know you could get a paidprescription this way. Or 
you know that you could get some additional services traditional 
Medicare doesn't offer.'' I mean, I saw no ability to put any positive 
spin on this but rather a continual repeat of the downside of the 
option of Medicare+Choice, and, as you know, in the booklet that was 
going out, virtually every page was a reminder that you can stay in the 
current program and then a repeat of the dangers that may be present in 
trying to make an option, and I understand the concerns that somebody 
might have, but the concerns that the gentlewoman from Connecticut and 
a number of us have is that this material be presented in at least a 
neutral fashion, and I think so far there's quite a bit of evidence on 
the record both printed and stated that indicates that not everybody 
believes, maybe, that that's the way it ought to be, and maybe it's not 
intentional; maybe it's just living in the old environment and not 
learning the new, but isn't that part of the management problem of the 
reculturalization of HCFA?
    Ms. DeParle. Yes.
    Chairman Thomas. And if you can't do it, we'll find 
somebody to do it.
    Ms. DeParle. Well, Mr. Chairman, I think that this is the 
biggest, most ambitious educational campaign that we've ever 
attempted, and I think that we're going to have to work 
together to make it the best it can be. I believe we can do 
that, and I agree with you that our role is to be neutral.
    Chairman Thomas. My problem is that testimony as recently 
as May 6th in no way, I believe, in an objective analysis could 
be believed to be neutral. The gentleman from Nevada.
    Mr. Ensign. Thank you, Mr. Chairman. I have a couple of 
different questions related to BBA and its implementation. The 
first one has to do with the medical nutrition therapy study 
that's being done by the National Academy of Sciences. In the 
Balanced Budget Act, we had directed that that would be a 
stand-alone study; that the National Academy of Sciences would 
determine what the benefits of nutrition therapy are and 
whether it's going to cost or save money. From what I'm 
hearing, the National Academy of Sciences wants to include the 
monies from the BBA in one of the studies that they're already 
conducting. I just wanted to ask you what the status is on that 
and whether or not medical nutrition therapy is going to be a 
stand-alone study.
    Ms. DeParle. My recollection, Congressman, is that the 
National Academy was conducting the study, and I thought it was 
a stand-alone study. I think that we were going to provide them 
some resources to do it. Our office of research has been 
working with them on----
    Mr. Ensign. Can you make sure that it's going to be a 
stand-alone study, because that's one of the concerns that we 
have been getting feedback about; that it's not going to be a 
stand-alone study. So, since you're on the record today, can I 
get your assurance that it will be a stand-alone study?
    Ms. DeParle. If I understand you correct, sir, yes, I think 
you can, and I will look into it and get back to you.
    Mr. Ensign. Okay, I'd appreciate that.
    [The following was subsequently received:]

    The BBA did not require a separate study on nutrition 
therapy alone; rather, it required a study on several 
prevention-related topics including nutrition therapy. 
Specifically, Section 4108 of the BBA directed the Secretary to 
request the National Academy of Sciences (in conjunction with 
the U.S. Preventive Services Task Force, as appropriate) to 
analyze the expansion or modification of preventive or other 
benefits provided to Medicare beneficiaries. The study will 
consider both the short and long term benefits of such 
expansion or modification, and the costs to the Medicare 
program. The Secretary is to report to Congress on the study's 
findings within two years of the BBA's enactment. The BBA 
requires that the study consider Medicare coverage of at least 
the following benefits: (1) nutrition therapy, including 
enteral and parenteral nutrition and provision of services by 
registered dieticians; (2) skin cancer screening; (3) dental 
care; (4) routine patient care costs for beneficiaries enrolled 
in approved clinical trials; and (5) elimination of the time 
limit on coverage of immunosuppressive drugs for transplant 
patients. The study is being conducted by the Institute of 
Medicine (IOM), the health branch of the National Academy of 
Sciences. HCFA's contract with IOM for the study is currently 
under development.

    Mr. Ensign. The second question has to do with the $1,500 
cap on outpatient rehabilitation services. From what I 
understand, implementation of the cap could be a problem with 
all of the Y2K computer problems, the Y2K problems and all 
that. Some of the providers are concerned, or at least have 
expressed concern to me, that if there are Y2K problems, they 
are going to be penalized because of the $1,500 therapy cap--in 
other words, it will be difficult track. What provisions are 
being made for the $1,500 cap?
    Ms. DeParle. It's my understanding, Congressman, that the 
$1,500 cap was just a function of the Balanced Budget Act, and 
I don't believe that there should be any problems related to 
the year 2000 on that, but I just left, before I came up here, 
a meeting with 100 different provider groups to talk through 
some of the year 2000 issues, and if this is one of them, we'd 
certainly be happy to work with them on it.
    Mr. Ensign. Well, if you have one provider who doesn't have 
their computer problems worked out and you have another that 
does, so there's no sharing of the information through HCFA, 
are they in violation? Would they get into fraud problems? Some 
of the providers are afraid that there would be a fraud problem 
at this point. So, is the $1,500 cap going to be in place year 
2000?
    Ms. DeParle. Yes, it's my understanding that it will be.
    [The following was subsequently received:]

    No. The $1,500 cap on outpatient physical therapy will be 
delayed by Year 2000 problems. This provision was a part of the 
proposed physician fee schedule regulation that we recently 
published, but there are systems barriers to implementing the 
cap.

    Mr. Ensign. Okay. Also, I want to make a comment about what 
you had addressed earlier and that was talked about earlier 
related to the President's proposals. You don't think that 
those proposals are taking away a lot of resources; that it's a 
fairly minimal amount. Just from my own experience being in 
management--and I was not the top but I was in upper-level 
management--I can tell you as a person in that position similar 
to the position you have been in, that when the CEO, in this 
case, the President, says something, that everybody jumps. In 
other words, if he puts down an initiative and there are a lot 
of resources, there is nothing else in people's minds except 
making sure that his wishes are carried out. That's normal in 
any company and in this case because he's kind of the big 
cheese of all of the administrative functions, if the President 
says something, everybody jumps. So, I would not minimize the 
amount of work that's probably being done to make sure that his 
initiatives are carried out. I know you're in a difficult 
position, really, to comment on this, but it is something that 
I think the President--as a warning to the President, that he 
should be careful of, just like any CEO or just like a Member 
of Congress. I have to be careful of what I say to my staff as 
a casual comment, because they'll put a lot of resources into 
something I didn't intend for them to put resources into, and 
the President needs to be very careful on what he says in the 
same regard.
    Ms. DeParle. Well, with all respect to the President, I 
think if you ask my staff what they're more conscious of on a 
day-to-day basis it is my Balanced Budget Act implementation 
chart and where are we on this reg or that reg? I think they're 
very--I'm not sure they're jumping around--but I think they're 
very conscious of that being the priority, and the Medicare 
Education Program being the priority, and combating fraud, 
waste, and abuse being a priority and dealing with this year 
2000 problem.
    Mr. Ensign. Speaking of the fraud, waste, and abuse; if we 
had hypothetically--if we had a private company that was a 
provider and they failed to reimburse--let's say, one of the 
insurance providers, one of the managed care companies--and 
they had failed to reimburse three or four months--similar to 
what HCFA may do if they have problems with their updates. 
Would it be considered fraud for that provider? In other words, 
the Department of Justice has been fairly heavy-handed in its 
calling honest mistakes fraud. I mean, we've been hearing a lot 
about that in the news and getting a lot of feedback from, I 
think, a lot of Members of Congress'offices about the heavy-
handedness right now of the Department of Justice between what it calls 
fraud and what are really honest mistakes. I guess, if they had a Y2K 
problem and it was three or four months, could that be interpreted as 
fraud?
    Ms. DeParle. No, I don't think it could, but I think it is 
something that we all have to be concerned about. I know of at 
least one instance where a managed care plan had a situation 
like that, and we were looking into it, because you start to 
get concerned about whether beneficiaries are going to get 
services. That's why I want to work with the Congress to make 
sure that we deal with this problem while we still have a year 
and a half to work on it instead of waiting until the last 
minute.
    Mr. Ensign. And could you address the whole fraud and abuse 
issue? Mainly the fraud. From HCFA's perspective, do you think 
that the Department of Justice has been fairly going after 
fraud? Do you think that it's including honest mistakes in 
fraud or do you think that it has been an even-handed affair?
    Ms. DeParle. Well, it's really hard for me to comment on 
what they've been doing. I can tell you that I think law 
enforcement has been an important participant in our efforts to 
make sure that Medicare gets what it pays for, and I can cite a 
number of examples where that has been very important, not only 
in stopping some pretty bad situations from occurring but also 
in deterring that conduct in the future.
    I want to give you my perspective, though. From where I 
sit, administering this program, which includes your taxpayer 
dollars, I want to make sure that it's well managed and that we 
get what we pay for. If we overpay a provider, we should get 
the money back; I think everyone understands that. But I don't 
want to punish people who make honest billing mistakes, and 
I've met with medical societies around the country to try to 
make sure they understand that. The example I use is one that I 
got from reading one of the medical journals about a Beverly 
Hills doctor who charged Medicare for 1,600 people who were 
either in prison or deceased. That's just not right. That's the 
kind of thing that we have to stop, and the Justice Department 
has been an effective partner in working with us to do it, but 
if someone makes an honest billing mistake, no, sir, I don't 
think that's the kind of thing that we should be spending 
resources and energy on going after.
    Mr. Ensign. Thank you, Mr. Chairman, for allowing me to 
question. I would just like to reiterate, I hope that that is 
more consistently done, because, yes, everybody wants to 
eliminate fraud from the system; they want to be good stewards 
of the taxpayer dollar, but at the same time, we don't want to 
turn just honest bookkeeping errors into fines and criminal 
offenses. Thank you, Mr. Chairman.
    [Questions from Congressman Ensign submitted to Ms. DeParle 
and her responses follow:]
[GRAPHIC] [TIFF OMITTED] T3454A.036

[GRAPHIC] [TIFF OMITTED] T3454A.037

[GRAPHIC] [TIFF OMITTED] T3454A.038

    Chairman Thomas. I think that's absolutely true, but when 
we're discussing a potential three-month window and the 
response was no, it probably wouldn't be fraud if you don't 
make your billing or payments, the time value of money in the 
context of sometimes the size of the dollar amounts that move 
back and forth. I think you're going to have to watch fairly 
carefully, because if this becomes an excuse for delaying, 
there are dollars in resources and the taxpayers deserve fair 
return on their dollar in a timely fashion, and that does 
concern me to a degree.
    The gentleman from California wanted to be recognized.
    Mr. Stark. Nancy, later we'll hear from a Visiting Nurses' 
Association with a suggestion of going to a 75 percent national 
rate, 25 percent regional rate. It's my understanding that that 
might solve some problems but also impact adversely those 
associations who are currently providing what are almost 
outlier benefits to very sick people. When you tinker with 
these mixes, whether it's national or association or regional, 
you get some unintended consequences. I'm sure the chairman is 
hearing as many complaints as I am. Do you have, or do you 
intend to have, some kind of a change that we'll be hearing 
about before Congress adjourns in October? I know we're going 
to hear from people later today, but I just wanted to ask you 
what suggestions you might offer to us or what help we could 
give you? What do you suggest?
    Ms. DeParle. We have been working on some ideas. We've been 
providing technical assistance to members of the committee and 
have been working on some ideas ourselves. As I think the 
chairman noted earlier, we're constrained, because of this year 
2000 problem, operationally in what we can do. The base year is 
an issue. It's very difficult to change that operationally. 
Changing around the percentages as you just suggested, that can 
be done, but, as you also pointed out, it can create other 
problems.
    This is very complicated. Last week when I was with Mrs. 
Johnson up in Connecticut, I met a man who has run a home 
health agency dealing specifically with a mentally ill 
population, and its costs have been very high, higher than--the 
others in the room were $2,000, $3,000; this guy was at $8,000. 
So, if we move away from what the Balanced Budget Act did which 
was to put a great weight on agency-specific costs, a number of 
the people in that room in Connecticut, their reimbursements 
would have been better. This particular guy, who they all said 
was providing a very needed service, would do worse, and that's 
the problem with these formulas, but we want to work with the 
Congress, and I expect we'll be having discussions soon.
    Mr. Stark. Is there something as simple as making some kind 
of an adjustment and then having some kind of an outlier 
provision? Or, does that jam up your computers? I don't want to 
prejudice any groups.
    Ms. DeParle. From a policy perspective, outliers make a lot 
of sense, and we've been struggling with how we could do it 
operationally based on the data that we have, and we want to 
work with the committee on that.
    Mr. Stark. Okay. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Thomas. No, thank you. I just want to underscore 
before I call the gentleman from Nebraska, the frustration that 
we now face when we don't know what you can do, and it was 
indicated here a simple base year adjustment which might be of 
some assistance is going to be very difficult to do. One of the 
options that had been examined in discussions with the industry 
was to deal--and the Senate had looked at it--was to deal with 
a copay arrangement. Frankly, we're going to leave no option 
unexamined, but we need your initiation and a quick reaction to 
ideas that we come up with so that we can come up with a 
solution that you can make work in the time frame that we have 
left. I'm very concerned of our ability to respond 
legislatively, and I think all of us feel we have to respond 
prior to adjournment.
    Ms. DeParle. Yes, sir.
    Chairman Thomas. We can't play the usual games that we play 
given the conditions under which you've indicated you're going 
to be able to participate in the decision process.
    The gentleman from Nebraska.
    Mr. Christensen. Thank you, Mr. Chairman. Nancy, I do want 
to tell you, it's been more pleasurable having you before us 
than your predecessor, and a lot of the things that have----
    Ms. DeParle. I think I should say the same, I guess, I 
don't know.
    Mr. Christensen. A lot of the things that have been said 
are not your doing, but now you are stuck in this position, and 
I've just got some preliminary questions. And the first is, is 
there any truth that your department is still working off of 85 
IBM mainframe computers or is that not true?
    Ms. DeParle. I suspect it is still true.
    Mr. Christensen. Okay. So, you are working--HCFA is working 
off of 1985 IBM mainframe computers?
    Ms. DeParle. I should check, Congressman, and get back to 
you for the record about the exact model, but I suspect we have 
some old equipment.
    [The following was subsequently received:]

    The 1985 IBM processors have been replaced with a 1996 IBM 
9021-942 and a 1997 IBM 9672-R64.

    Mr. Christensen. My office is working off of 1996 Apples, 
and we're slow and way behind. So, I guess, one thing I'd like 
to see is--has the department put any kind of bid out for where 
you're going to be systems-wide in the next 10 years? 
Obviously, we have major problems over the next 12 months, but 
have you done anything as far as looking forward as far as your 
2010 and where we need to be systems-wide; where we need to be 
with our programs, our software, our hardware? Is there any 
kind of bid process out there at this point?
    Ms. DeParle. There is not a bid process. As the chairman 
mentioned, in the late eighties, HCFA began working on 
something that was called the Medicare Transaction System which 
was going to be a total revamping of its computer systems. Last 
year, we stopped that effort. We did get as far as getting the 
requirements out of it, but it didn't move nearly as fast as 
people thought, and it didn't appear to be designed to get 
where we need to go.
    Mr. Christensen. I think we've come to understand that that 
was $50 million or so, roughly----
    Ms. DeParle. It's around $50 million.
    Mr. Christensen [continuing]. That has been, basically, 
down the drain.
    Ms. DeParle. Well, we did get requirements out of it, but 
we did not get a new computer system to process our claims.
    Where we are now is last year we brought in a new chief 
information officer who has been working on a vision for a new 
infrastructure. It is not a big bang approach like the Medicare 
Transaction System. It will not be one big computer system. It 
makes incremental changes over time, and what I'd like to do is 
offer you and other members of the committee a briefing on it, 
but, as you say, my chief information officer and his staff are 
spending 150 percent of their time on this immediate problem. 
There are no bids out on the post-year 2000 infrastructure, 
and, frankly, before we even got to that stage I would want the 
Members of Congress as well as others in the administration who 
need to see this to see it, understand it, and give me your 
suggestions and advice on it.
    Mr. Christensen. Could we go back to the chief information 
officer? When you came on board, you've inherited a real mess, 
but, also, in any private enterprise when a new manager or 
president or CEO comes on board, he cleans house. Have you 
cleaned house? Have you let anybody go that was responsible for 
the systems; that was responsible for making this serious 
adding problem in terms of 20 million lines of code compared to 
50 million lines of code? Have you let anybody go in those 
areas of responsibility?
    Ms. DeParle. No, I haven't, but I did, as you mentioned, I 
brought in a new chief information officer from New Mexico, 
from Los Alamos.
    Mr. Christensen. Should you let someone go? Should heads 
roll? I mean, this is pretty grave here. We're talking about 
taxpayer dollars here. I mean, I know that you are--you talk 
about bureaucracies of all bureaucracies, HCFA is it. I think 
in light of the fact that you are the head of the agency, that 
you should do all you can within your power to make some 
changes. You may be there for a year, two years, six months, 
but for the next person that comes in there, you would be doing 
the American taxpayer a big favor, but you would be doing a 
number of other people that are looking for some efficiencies 
if you were to take a leadership position in this area and make 
some things happen.
    Ms. DeParle. Well, I am taking a leadership position. I 
view this as my responsibility. The chief information officer 
is reporting directly to me, and I am managing that part of the 
operation.
    Mr. Christensen. Okay, I want to encourage you in the other 
area as well.
    Let me get to another question: during the testimony of the 
Senate Aging Committee, Deputy Mike Hash, he talked about some 
different agencies, different programs, that were going to be 
getting some money, about $9 million--Mr. Chairman, may I 
continue another minute or two?--and I wanted to go over with 
you that $9 million and exactly who it was going to be going to 
if you had any knowledge of that area? During his testimony, he 
talked about 23 partners on a coordinating committee, 15 
organizations on a task force, 28 organizations helping as 
educational affiliates--and this kind of follows along the line 
of Ms. Johnson's query about the independent organizations, 
hoping that you would move towards that area. Are these the 
groups that he talked about that are getting some of this $9 
million or all the $9 million in this area of outreach 
programs?
    Ms. DeParle. Primarily, sir, I believe the people who will 
be getting money are what are called the State Health Insurance 
Advisory Programs that used to be known as the Information 
Counseling and Assistance Programs that provide one-on-one 
counseling to Medicare beneficiaries, and I believe that's 
primarily what he was talking about. He may have also been 
referring to some of the State aging offices that will be 
getting some funding from this.
    Mr. Christensen. Well, I just want to, for the record, 
Nancy, most of these organizations in here seem to be of the 
type that I saw in commercials or paying for commercials 
against a lot of my fellow Members of Congress in 1994 and 
1996. The AFL-CIO, the AARP, the Medicare Rights Center, the 
National Council of Senior Citizens, which is an arm of the 
AFL-CIO, the Visiting Nurses' Association, the American Nurses' 
Association. I could go on and on, but I think this would lend 
some credibility to the question that Nancy was asking about, 
we need to have more of an independent agency that's out there 
disseminating information and educating the seniors on Medicare 
Plus and most of the money that I see earmarked in this $9.9 
million is going to rather suspect organizations with very 
left-leaning credentials, and I'd like to see a little bit more 
equalization if we're going to be spending money in this area. 
I'm sorry I'm out of time, but maybe you want to respond?
    Ms. DeParle. I would like to look into that and get back to 
you.
    Mr. Christensen. Thank you.
    [The following was subsequently received:]

    There are 80 partner organizations in the National Medicare 
Education Program. This is not a partisan effort; any 
organization can participate. Organizations as diverse as the 
AARP, AAHP, HIAA, and the U.S. Office of Personnel Management 
are all participating in this effort to educate their members 
who are Medicare beneficiaries. These partners do not receive 
any funding from HCFA. Funding dedicated to this part of our 
National Medicare Education Campaign is spent on printed 
materials and the costs of delivering the materials to our 
partner organizations.

    Chairman Thomas. I believe Members want to go through and 
ask some additional questions, and we do have Members who are 
not Members of the Subcommittee, and I will try to accommodate 
you.
    Briefly--and this has been a discussion privately, and I do 
want to get it on the record. I want to indicate a degree of 
concern, because, frankly, it's coming up now with other 
members--your point number eight in terms of beneficiary 
feedback and assessment, I was recently sent, on June 24th, a 
packet from the chairman of the Veterans' Affairs Committee, 
Bob Stump, which contained a survey from one of his 
constituents, and it was to evaluate the quality of the 
Medicare health plan, and there was a cover letter from you: 
``Dear, Medicare beneficiary, As a Medicare beneficiary, you 
deserve the highest quality medical care, et cetera, and would 
you please fill out the questionnaire?'' It's the questionnaire 
with a number of seniors on the front in individual photos. The 
concern that was expressed by the constituent--and I know this 
is difficult, and is going to be an ongoing concern, and it's 
why we need to review the material that we send out very, very 
carefully--there was a question which was highlighted in the 
questionnaire which was, ``These questions are about how you 
feel and things that have been with you during the past four 
weeks--these questions are about how you feel and how things 
have been with you during the past four weeks. For each 
question, please give the one answer that comes closest to the 
way you have been feeling. How much of the time during the past 
four weeks, A, did you feel full of pep? B, have you been a 
very nervous person? C, have you felt so down in the dumps that 
nothing could cheer you up? D, have you felt calm and peaceful? 
E, did you have a lot of energy?'' Obviously, these are so 
subjective, and I know that sometimes you can, from a 
subjective choice, come up with--I mean, the choices were ``all 
of the time, most of the time--as you might expect--a good bit 
of the time, some of the time, a little of the time, none of 
the time. Have you felt downhearted and blue?'' This is over a 
four-week period, so if anybody's like me, I've already 
recorded four different attitudes. ``Do you feel worn out? Have 
you been a happy person? Do you feel tired?'' Now that's 
differentiating from feeling worn out.
    The problem is that when you get these kinds of things 
sent, I'm sure there is a clear analysis in an objective way 
that, perhaps, is available to this, but this is what people 
are going to be getting in terms of beneficiary feedback. This 
is what they focus on, and they're trying to say, because we're 
not going to be able to go out with an education program that 
will give them the full benefit of it, but we're going to be 
doing follow up, because, frankly, this is not based narrowly 
on the Medicare + Choice. This is based on the current Medicare 
risk contracts that are out there in terms of managed care. We 
know we're not doing these same kinds of things with fee-for-
service, because, in part, you can't do them, but no one, I 
believe, has tried to create some kind of measuring tool there.
    All of the focus is on the 15 percent of the program. The 
85 percent of the program where the dollar is being spent, 
nobody ever does a follow up to ask you if you've been cheerful 
over the last four weeks. So, I just have a concern that if 
this is what people are seeing and it's coming to members 
already and this is--I want to underscore--this is not on the 
Medicare Plus Choice--this is on, I believe--if I'm correct--on 
the ongoing current evaluation of the current managed care 
program, 15 percent of the program is what we're faced with.
    Ms. DeParle. I think it went out in January, and, Mr. 
Chairman, I totally agree with you that we need to be focusing 
on the fee-for-service side of the program, and we are working 
on developing a measurement of satisfaction there too.
    Chairman Thomas. But if these are measurements of 
satisfaction, they are so subjective, unless, of course--I'm 
willing to listen to whoever designed this matrix--that they 
are going to get valuable information out of it. I know 
sometimes when you ask similar questions you mark to see if 
they answer it the same way.
    Ms. DeParle. I'd like to get you the information. I don't 
remember which academic institution it was that worked with us 
and the Agency for Health Care Policy Research in designing it, 
and some of the questions--part of it is that it's designed at 
a fourth-grade reading level, and there are all sorts of things 
like that, but I'd like to get you some background on it, and I 
totally agree with you that we should be also measuring 
satisfaction and results on the fee-for-service side.
    [The following was subsequently received:]

    The Health of Seniors survey was designed in collaboration 
with the National Committee for Quality Assurance (NCQA). It 
was developed as the first HEDIS health status outcome measure 
and adopted by NCQA's Committee on Performance Measurement for 
inclusion in the HEDIS 3.0 for Medicare. The Health of Seniors 
Survey is designed to measure how well managed care plans are 
taking care of Medicare beneficiaries. It measures both 
physical and mental health functioning. The questions cited are 
components of a well-tested scale which validly measures an 
individual's mental health status. It asks people whether they 
feel tired and blue because some would never say they are 
depressed due to the social stigma attached to mental illness. 
The questions come from an instrument known as the Short Form 
36 (SF-36). Early versions of the tool were used by RAND as 
part of the landmark Health Insurance Experiment research. For 
over nearly twenty years a team of researchers led by John Ware 
at the Health Institute, New England Medical Center/Tuffs 
University has tested, improved and validated the instrument. 
This survey is used as a measure of the health status of the 
general population and in patients with specific disease 
conditions (i.e. diabetes, hip fracture, etc.) both in the 
United States and internationally. The most well known test of 
the SF-36 in the general U.S. population is the Medical 
Outcomes Study. Results of this work have been published in the 
Journal of the American Medical Association (JAMA), a highly 
regarded, peer reviewed journal.

    [An attachment is being retained in the Committee files.]
    Chairman Thomas. What we're hearing at the same time is 
that we didn't give you enough money; you only had $95 million; 
$95 million with a full 48-State roll-out; you're only doing 5 
States at a time, but the problem is we don't have enough 
money. It is very difficult to sustain a drive which I'm 
committed to get you enough money when these things keep 
popping up. That's a concern, and that gets back, in part, to 
that original question about management; about culture; about 
the way you approach your testimony in front of Senate 
committees, material coming in. I'm very concerned about our 
ability to get a fundamental seed change in the Health Care 
Financing Administration of a consumer-oriented education 
program.
    Does the gentlewoman from Connecticut wish to inquire 
briefly?
    Mrs. Johnson of Connecticut. I just have to say the 
questionnaire that the chairman just used, it's truly an 
outrage. I hope you will provide the committee with the 
rationale as to why this went out and what it's supposed to 
accomplish and how it will help us? For an agency that can't 
afford to send out the basic information that would really help 
seniors; those are the questions I'm getting. I mean, this is 
what makes people really angry about Government, and I'm just 
glad it wasn't one of my constituents who came up to me and 
showed me that questionnaire.
    I mean, first of all, what business is it of ours if people 
feel tired? I don't know a senior that isn't going to answer 
yes to that question, and what does it have to do with managed 
care; with Medicare choices; with fee-for-service medicine or 
not? So, I'll tell you, I'm looking for that rationale, because 
if we don't have money enough to educate our seniors about the 
choices that they--I've got seniors in my district living on 
$7,000 a year and struggling to make some little payment so 
they get some Medigap insurance. Those folks need and deserve 
to know that there are plans in the market now that will cover 
their copayments; cover them, help them out. So, anyway, I 
really want the committee to get the rationale for that, 
because that strikes me off the top of my head as indefensible.
    I also do want to say that Mike Hash's testimony is 
inaccurate, inaccurate. We spent a very long time making sure 
that in every single State any Medicare recipient who went from 
fee-for-service to managed care--first of all, under the bill, 
for the first three months, they have the absolute right to go 
back to exactly the same Medigap program they were in, but down 
the road apiece in every single State, there is at least one 
and usually at least two Medigap policies that have no 
preexisting conditions, exclusions, and have open enrollment. 
So, in fact, if they don't like their managed care program and 
they want togo back to Medicare, they do have an open 
enrollment, no discrimination for preexisting conditions option. It may 
not be exactly the plan they wanted, but when you look at the variation 
of Medigap plans, they all cover certain basics. So, I really regret--
when you read the whole thing of Mike's testimony, it is very negative. 
It doesn't make a clear differentiation between when the program is 
fully implemented and what the choices of being on. This is why this is 
going to be hard.
    You're right, this is the biggest educational challenge 
we've ever undertaken, and we've got a long way to go, but we 
have to really be much more careful about not scaring the 
seniors and giving them the information they need.
    Let me just conclude with the two things that I wanted to 
bring up. You know, one of the problems in implementing this 
whole new program and particularly the reimbursement rate is 
that we are back to a one-size-fits-all policy; that's the 
nature of Medicare. But in these new reimbursement systems, the 
vulnerability of small agencies is far greater than in the old 
payment system, and so we see that in the efficient small home 
health systems. But I would tell you that I'm going to be 
contacting you about the Little Sisters of Mercy Nursing Homes 
that have one or two or three Medicare patients; less than 5 
percent of their whole load, and they're having to--they're 
facing just an accounting challenge that is, frankly, absurd, 
and they couldn't be servicing more than a tiny percent, and 
I--just as you have deferred some of the new billing changes in 
the nursing home area--which, frankly, I don't regret; I think 
we're going to need some experience before we get into that--I 
think we've got to look at implementing even what we're going 
to do with the bigger ones; maybe exempt the little tiny ones 
until we get the system straightened out and see what we really 
need, because we're going to do--in sector after sector--we're 
going to put out of business the most kindly; the ones 
supported by the local church; the most human providers, and 
what we're going to get is a system of chain nursing homes. I 
don't want that to be the outcome of reform. So, I'll send you 
more information on that.
    And the last thing that I want to just mention that I'm 
going to bring up to you is that your ambulatory surgical 
center reimbursements that you're going to use in developing 
the outpatient reimbursements are based on very old data, 1993 
data. So, and the odd thing is the discriminatory impact it has 
on women services v. men services, because prostate testing and 
things like that, some of those things are more recent, it's a 
reasonable reimbursement. There was no 1993 data. In some of 
the other areas, the more modern technology, the modern 
diagnostic approach, we don't have realistic reimbursements 
under your system because the data wasn't there. So, we need to 
look at how do we assure state-of-the-art access to high 
quality health care, and I'll give you some specifics on that, 
because it's just recently come to my attention.
    But I'll tell you, this is a mine field, and we all need to 
work together to make sure that the little guys get addressed 
that; that change gets addressed, and that we do make good on 
our promise to improve the quality of Medicare for our seniors. 
Thanks.
    Ms. DeParle. Thank you.
    Chairman Thomas. The gentleman from Louisiana wishes to 
inquire.
    Mr. McCrery. Thank you, Mr. Chairman. Ms. DeParle, on your 
website, medicare.gov, a person can go to a site that explains 
the provisions of plans that are available in their area.
    Ms. DeParle. Yes, sir. Medicare Compare is what it's 
called.
    Mr. McCrery. Right. I was struck by the fact that the first 
real item of information regarding these plans on your website 
is whether the plan is a profit or a non-profit plan. Why is 
that on there? What does that have to do with information 
that's about the plan to the potential patient?
    Ms. DeParle. I noticed the same thing, and I asked the same 
question. In focus group testing of this site last year, that 
was one thing that seniors wanted to know. They wanted to know 
whether the plan was for profit or not. It surprised me, 
because it wouldn't occur to me to ask that, but that was one 
thing that came back in the focus groups.
    Mr. McCrery. Did you discover in your focus groups why they 
wanted to know that?
    Ms. DeParle. I can probably get you some more information 
about that. I don't remember specifically what--I think they 
felt it was some sort of proxy for something, but, obviously, 
some of them are in for-profit ones, and some are in not-for-
profit, and I don't know the exact details of it, but I'd like 
to get back to you on it.
    Mr. McCrery. Yes, I don't see the value in that for a 
number of reasons, but I wish you would get back to me on the 
rationale for including that.
    [The following was subsequently received:]

    Beneficiaries in focus groups expressed a strong interest 
in knowing whether health plans are for-profit because they 
perceive that for-profit plans are more cost conscious, and 
that non-profit plans focus more on patients.

    Mr. McCrery. It would seem to me to bias the choice even 
though the cost to the patient might be lower for a for-profit 
plan than in a not-for-profit plan. So, I question the 
soundness of that decision even in light of focus groups in 
which people said that's something they would like to know. I 
just don't know that it adds any value to their decision-making 
process.
    John Ensign had to leave, but he asked me to ask you a 
question which I will do for him, and it concerns the hospital 
wage index. Evidently, HCFA was supposed to make an adjustment 
to the hospital wage index based on labor costs, regional or 
local labor costs, and include it in the Fiscal Year 1999 PPS 
rule, but for some reason the adjustment was left out; it was 
not included in the rule. Do you know anything about that? Can 
you expand on that a little bit for us?
    Ms. DeParle. The rule hasn't come out yet. We're trying to 
get it finalized by the 1st of August, and I am aware that a 
problem has arisen. I learned about this in a meeting with the 
American Hospital Association that there are some--and this is 
one of those things that affects different regions of the 
country differently, and we are working with them to see what 
can be done about it.
    Mr. McCrery. Okay. Thank you, Mr. Chairman.
    Chairman Thomas. Thank you. Briefly, some Members who are 
not members of the subcommittee, first, someone who is a member 
of the Full Ways and Means Committee, the gentleman from Ohio, 
Mr. Portman, wishes to inquire briefly.
    Mr. Portman. Thank you, Mr. Chairman, and thank you for 
allowing me to be here today. My question is related, 
indirectly, to the subject today of expanding Medicare Plus 
options and getting that message out to recipients. Ms. 
DeParle, I've already written you about this topic, and I think 
you're familiar with it, but it has to do with the situation 
where roughly 22,000 seniors have lost their coverage in rural 
counties in Ohio; 22 counties were affected. My own district is 
affected. I have 2 counties--Brown County and Warren County--
that are part of the 22. Anthem Blue Cross and Blue Shield had 
a Senior Advantage Medicare HMO Program that was quite 
attractive to many of my constituents. What's particularly 
disturbing to me is that based on what my constituents tell me, 
a lot of folks were aggressively marketed, by Anthem just prior 
to its dropping. In fact, even more disturbing, is that some of 
have said that Anthem continued to market the program after it 
had made its decision to pull out of these markets, and the two 
counties I represent as well as many of the other 22, there are 
no alternatives. There are no other HMO products out there for 
Medicare recipients. Many, of course, left their supplemental 
plans to join the HMO and are nowconcerned as to whether they 
can get back into their Medicare supplemental plans on favorable terms.
    So, it's a major concern, and I guess my questions to you 
are two-fold: first, whether HCFA can do anything--and I've, 
again, sent you a letter in this regard, and I've not heard 
back yet--but with regard to facilitating other HMOs going into 
these rural areas, particularly where there's no other option 
of a HMO product.
    Ms. DeParle. Yes, and you did mention two of the counties 
where I think there isn't another option, and I appreciate your 
bringing this to my attention, and the chairman also mentioned 
it to me. We are working with some other companies that have 
expressed a desire to go into Ohio and to some of the counties 
to try to make sure we quickly get them approved if that's 
possible.
    Unfortunately--and we've looked into, at your request, the 
issue of the marketing to beneficiaries right when they knew 
they were going to move out of the Medicare market. Under the 
current law and regulations, it appears that what they did was 
all right. I must tell you, I don't like it from the 
standpoint----
    Mr. Portman. Because HCFA had approved the plan, and once 
the plan is approved they would have the ability to leave those 
counties whenever it was in their interest to do so.
    Ms. DeParle. Under the law, they can leave, and there are 
some marketing standards, and we're in the process now of 
looking at updating our marketing standards, but the existing 
standards say that if they know they're going to go out of the 
business there, they have to quit marketing by October of the 
year when the following year they would be out of business. 
It's not October yet--so, technically, they've already told the 
beneficiaries, but I agree with you----
    Mr. Portman. Because it's in place until the end of the 
year.
    Ms. DeParle. Sir?
    Mr. Portman. Because the program is in place until the end 
of the year.
    Ms. DeParle. That's right, but if it were my parent or 
grandmother there who had been marketed to, I wouldn't have 
been happy about it, and I think we'd like to work with you on 
that.
    Mr. Portman. The other question I guess I would have is to 
the extent HCFA does approve these plans, do you look at the 
feasibility of the plans? What Anthem has told me is that 
reimbursement's a big issue which is my second question really, 
and the other issue is that there were not adequate health care 
facilities, clinics, and so on, so that health care costs were, 
indeed, higher in these rural areas than they were in the urban 
areas where, ironically, the reimbursement rate was higher. 
And, also, that there were other factors that they, perhaps, 
hadn't considered. I guess my question is does HCFA look at 
those factors--the reimbursement rate, the availability of 
health care, the other factors that would affect productivity--
as HCFA approves or disapproves plans?
    Ms. DeParle. Well, certainly, the reimbursement rate is 
something that is set under law, and it's out there for the 
plans to decide whether they want to come in. We review the 
marketing materials; we look at the plan solvency. There are 
changes in all of this as a result of the Balanced Budget Act, 
and we're looking at making some changes in the regulation on 
marketing.
    Mr. Portman. My final question is--I know the balanced 
budget agreement that got through the subcommittee I think made 
major improvements to Medicare and helps in terms of rural 
areas. Should we back up now, given this experience and other 
experiences around the country, and look at that formula. 
Again, Anthem is in business to make money, ultimately, and 
they're telling us that the formula doesn't work; that, in 
fact, ironically, the urban areas get the higher reimbursement 
rate--there's roughly a $64 difference on average in Ohio 
between the rural and urban areas--as lower costs for their 
recipients for this particular HMO product. Should we be 
looking at either a regional or maybe even more aggressively 
look at the national aspect being a bigger part of the formula?
    Ms. DeParle. I certainly think we should continue to look 
at it. I think that it's not clear whether the changes that we 
made last year to try to give the rural areas a floor have had 
the effect that the Congress intended.
    Chairman Thomas. Tell the gentleman it's a problem that 
we're going to be addressing, because I have two counties in my 
district that have more than $100 difference between the 2 of 
them. The plan didn't pull out; the key providers simply 
couldn't get value for it, and there is no plan, it was the 
single one available. His concern is not a unique one. It is, 
unfortunately, under the old system, and the checks that 
created were in the Medicare Cost Plus. It is an area we have 
to address. We are not now providing the opportunity for 
managed care that we had anticipated.
    Mr. Portman. I appreciate the chairman's thoughts on that, 
and I look forward to working with him and with HCFA to try to 
do just that.
    Chairman Thomas. And I did want to recognize that we have 
with us someone who is not a Member of the Subcommittee or the 
Full Committee, the gentleman from Texas, Mr. Lampson. I will 
say that this is technically in recess until 2:15. I want to 
thank you for coming, but the gentleman does wish to inquire, 
and if you'll please act as though the subcommittee is still in 
session, he would like to get the words and maybe have to 
follow up with some written information, and we will be back at 
2:15 at which time we'll hear Bill Scanlon.
    Ms. DeParle. Thank you.
    Chairman Thomas. Well, he'll submit them in writing then? 
The gentleman wishes to submit them in writing.
    [Questions from Congressmen Cardin and Lampson submitted to 
Ms. DeParle and her responses follow:]
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    [Recess.]
    Chairman Thomas. The subcommittee will reconvene. I want to 
thank Dr. Scanlon for, once again, attending to provide us a 
context and a perspective on the subcommittee's deliberations, 
and any written testimony you have will be made a part of the 
record, and you can address us in any way you see fit, doctor.

 STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH, EDUCATION, 
     AND HUMAN SERVICES DIVISION, GENERAL ACCOUNTING OFFICE

    Mr. Scanlon. Thank you very much, Mr. Chairman, and I'm 
very happy to be here today as you discuss HCFA's 
implementation of the more than 200 Medicare provisions 
contained in the Balanced Budget Act. Combined, these changes 
should help to control the growth of expenditures while moving 
the program closer to a model of consumer driven competition 
among health plans that's similar to how other parts of the 
health care system have been evolving.
    You asked me to provide you an overview of how HCFA's 
implementation has progressed since our testimony earlier this 
year and more detailed comments on two key elements that have 
been the subject of extensive GAO work--the information 
campaign associated with Medicare Plus Choice and the new 
payment system for skilled nursing facilities.
    As you've heard, HCFA is making some progress in meeting 
the BBA implementation schedule. We believe the implementation 
of a large number of the mandates with the July 1998 deadline 
including the recent Medicare Plus Choice and SNF PPS rules is 
significant. However, the prospect that many BBA provisions 
will not be implemented on time because of the year 2000 
computer requirements and the content of some of the elements 
already implemented raise some concerns.
    When I appeared before you in January, I indicated our 
review of HCFA's organizational capacity and processes had 
revealed that the agency had adopted a very systematic approach 
to identifying, tracking progress, and fulfilling the 
requirements of the BBA. We were then concerned, however, about 
the multiple challenges besides the BBA which HCFA faced, 
including improving its effectiveness in combating fraud and 
abuse; updating and enhancing its computer systems in the wake 
of the demise of the MTS, and completing a major staff 
reorganization. Now, unfortunately, it seems, collectively, 
these challenges are going to delay portions of the BBA. While 
HCFA indicates that these delays will have minimal impact on 
program savings, some, as you indicated, however, involve 
significant provisions such as prospective payment for hospital 
outpatient services.
    Keeping the BBA implementation efforts on track while 
integrating them with other agency priorities is clearly 
important, but ensuring that those efforts also achieve 
congressional objectives to the fullest extent possible should 
be a primary focus. The Medicare Plus Choice information 
campaign and the skilled nursing facility prospective payment 
illustrate the latter. In implementing Medicare Plus Choice, 
HCFA must give beneficiaries the tools to make informed plan 
choices, a significant new task. Unlike many large employers, 
HCFA has played almost no role in helping beneficiaries to 
evaluate their health plan options. Now, it must assemble 
comparative information about the expanded array of choices and 
find means to disseminate it to beneficiaries. Adequately 
informing beneficiaries about health plan options is likely to 
be a key to the success of Medicare Plus Choice; it will foster 
genuine performance-based competition that can result in 
greater beneficiary satisfaction and increased enrollment.
    Our work on disenrollments from current HMOs has revealed a 
very disturbing fact that some plans can continue to operate 
with 40 percent of their members disenrolling over the course 
of a year. The longer term impact is most likely a greater 
reluctance of some of these disenrollees or others to 
participate in HMOs. HCFA intends to pilot key components of 
the information campaign, namely the toll free number and the 
beneficiary handbook. This cautious approach is, perhaps, 
warranted given its inexperience in such an endeavor.
    Questions have been raised by health plan representatives 
and others about the estimated cost of the campaign. We are 
conducting a review of these costs at your request and that of 
the Senate Finance Committee. Our preliminary work indicates 
that the toll free number is both the most expensive component 
and the most difficult cost to estimate given the lack of 
experience. HCFA does seem to be trying to control the cost of 
the toll free number operation by providing only certain 
information on the phone and using other means for more 
extensive inquiries. We will be comparing HCFA's estimated 
costs to those of similar toll free number operations. However, 
until HCFA actually gains experience, we will have a somewhat 
limited basis to judge precisely either the efficiency or the 
effectiveness of its plans. Ultimately, the design of this and 
other aspects of the information campaign should be determined 
not only by the cost but how effective they are in contributing 
to the intended transformation of the Medicare Program.
    With respect to the new SNF prospective payment system, 
effective 16 days ago, it represents a major step in gaining 
control over rapidly increasing SNF expenditures. However, we 
are concerned that elements of it could compromise the 
anticipated savings. Specifically, we have concerns that the 
system's design offers some opportunities for providers to 
increase their compensation by potentially supplying 
unnecessary services; that it's rates were computed using data 
that likely overstate the reasonable cost of providing care, 
and that the published regulation gives the impression of 
creating a new automatic means of determining eligibility for 
coverage that could both expand the number of beneficiaries and 
days covered.
    Finally, we think there is insufficient planned oversight 
for this system that will increase the potential for all of the 
above factors to reduce expected savings. We do believe, 
though, on the positive side, that some short-term 
modifications to the rule and longer term efforts to refine the 
system could ameliorate our concerns.
    In conclusion, I'd like to reiterate that we find the 
challenges created by the Balanced Budget Act, both in terms of 
the number of the changes and the complexity of some of them, 
very daunting. HCFA's normal workload and internal factors that 
compromise its capacity compound the problem. In this context 
your oversight and assistance in setting priorities and 
selecting among options are essential to the fulfillment of the 
goals underlying the Balanced Budget Act. We will be very happy 
to continue to gather information and conduct analyses to 
assist you in these tasks. Thank you very much, Mr. Chairman.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you, Dr. Scanlon. No one said this 
was going to be easy. We're dealing with a set of data that had 
never really been brought forward in a way that most people 
would have expected. If someone said they were working in an 
area, for example, for 10 years, it's not comfortable dealing 
with interim payments and now having to change in the context 
that we're in.
    What we hope you will continue to do--and in your testimony 
is a good example--of taking a look at something like the 
skilled nursing facility prospective payment system, for 
example--I believe it's on page 13. In which, if you shift just 
a couple of minutes a day--and we're not talking about really 
sophisticated stuff here--but if somebody gives you a rehab 
group definition based on the number of minutes and it's medium 
high, very high, and ultra high, and the difference between 
very high and ultra high is $286 v. $345 and the difference is 
literally 1 minute, I assume most folks are going to find the 1 
minute. How do you go about trying to protect from that kind of 
gaming of a system? Have you looked at that? Do you have any 
initial suggestions as to how it might be done?
    Mr. Scanlon. I think that we need to explore options to 
classify patients using criteria other than the minutes of 
therapy. We recognize that minutes are very easy to measure 
whereas qualitative factors such as the rehabilitation 
potential of an individual and the amount of therapy that may 
be appropriate for that rehabilitation potential are more 
subjective. With informed medical judgment that is 
appropriately reviewed, we may be able to have a better 
classification system that is less gameable.
    At this point, one of the troubling things in this system 
is an attempt to limit the oversight being given to the 
determination of benefits. The system essentially allows a 
classification based on the minimum data set assessment to 
determine whether or not someone receives Medicare coverage. We 
think there is a need for clinical judgment, that take medical 
criteria into account to determine whether or not this person 
is covered for a portion of their stay.
    Chairman Thomas. Well, this is part of the concern I have 
in--for want of a better term--talking about the 
reculturalization of HCFA. Because it's easily measured, 
doesn't necessarily mean it's worth measuring or that it ought 
to be a criteria, and, oftentimes, it's simply turning in paper 
which allows me then to show that things are happening. We just 
don't have the money to do that sort of thing. The ability to 
move a bit more into a subjective definition--quality, 
improvement types of things--do you believe that the law as 
currently written affords sufficient leeway for the 
administration to make those kinds of changesthemselves if they 
were interested in doing so or do you think that would require a 
legislative change?
    Mr. Scanlon. I don't think it would require a legislative 
change. When you look at how the system treats therapies, 
differences are measured in minutes. However, when you look at 
the ability for an individual to care for themselves, the 
activities of daily living, there are subjective judgments 
based upon clinical observation used we are differentiate 
payment. So, clearly HCFA has the authority to establish a case 
mix system that is appropriate for these kinds of individuals 
and the care they're receiving. I think it has the latitude 
under the law to extend that type of subjective clinical 
judgment to therapies as well.
    Chairman Thomas. Good. I, obviously, will be working with 
you on that.
    You heard the earlier discussion, I believe, about the 
concern on the Y2K problem and the window that may be as small 
as three months or as large as five months. I'm concerned that 
there isn't enough creative thinking going on about how to deal 
with that lights out period either, in terms of being creative 
on frontloading with the settling later or some kind of a 
payment agreement which, obviously, doesn't leave people 
hanging or doesn't require institution of paper unless you 
think that may be one of the things that we could do. Because, 
frankly, a three or four-month period for payment and failure 
to do so in that period when you're use to an ongoing regular 
reimbursement claim structure has me worried a little bit, and 
I guess from your professional point of view, does it have you 
worried a little bit, and are you beginning to look at? Do you 
need additional instructions and direction to begin focusing 
on, perhaps, some attempt to find out what the private sector's 
doing--we don't need to reinvent the wheel? But I have very 
little comfort with what I heard today about where we are in 
dealing with this dark period except that we know what we're 
not going to be able to do.
    Mr. Scanlon. The Information Systems Group at GAO has been 
working on the year 2000 problem for a considerable amount of 
time. One of the significant points that they make in that work 
is that it's not just a question of correcting a certain number 
of lines of computer code, whether it's 30 million or 50 
million. It's an issue of also having planned for contingencies 
that if you cannot correct that code or if somebody you're 
dealing with wasn't able to correct their code, you may find 
your normal business processes disrupted. You have need to have 
that a contingency plan in place that provides you with the 
assurance that you're going to be able to operate over that 
three-month disrupted period.
    Joel Williamson from GAO's Information Systems Group has 
testified before about HCFA lagging in development contingency 
plans. As HCFA pursues this now, I think it would be very 
important for us to be involved as well, because we're moving 
from a question that's a computer problem to a question that's 
a Medicare Program policy problem.
    Chairman Thomas. Yes, and gets into that general area of 
management that we talked about.
    Mr. Scanlon. That's correct.
    Chairman Thomas. Okay, thank you very much. I look forward 
to hearing from you again. Let me see if any of my colleagues 
have questions they might want to ask. The gentlewoman from 
Connecticut.
    Mrs. Johnson of Connecticut. I was interested in your 
testimony where you've entitled one section: Care on the Basis 
of Use Rather than Need. Under the old system, providing 
ancillary services in nursing homes, we at least knew what 
services were being provided. What was our capability at that 
time of evaluating need?
    Mr. Scanlon. It was no different than it is today in terms 
of relying on clinical judgment. It's an issue of a clinician 
reviewing the patient's status and feeling through their 
professional knowledge what services might be of benefit. In 
the old system, we did not have any oversight, though, I agree 
with you, in terms of the Medicare Program following up to 
understand whether that professional judgment was something 
program reviewers would agree with and whether they felt that 
it was an appropriate use of the benefit.
    Mrs. Johnson of Connecticut. I think that's exactly my 
point is that it seems to me it would actually have been easier 
to implement a system of oversight when we had the specific 
bills for each action based on need than what we're going to 
have now which is--I mean, theoretically, one of the savings of 
the new system is that it won't be so costly administratively, 
but if we require reporting of every single thing and 
oversight, it will be just as costly.
    Mr. Scanlon. We don't want to make it as costly, of course. 
We acknowledge understand that HCFA was dealing with the state-
of-the-art in terms of research on patient classification when 
they developed this system, but we really need to do is to 
think about how to move this system or the state-of-the-art on 
patient classification to be able to, at one point in time, 
classify somebody in terms of their potential and the services 
that they're likely to benefit from and then use that for 
payment over a period of time. That's not going to involve 
tracking every service and justifying every service. Right now 
what we have is a situation where we've determined payment 
based on minutes which creates a perverse incentive that a few 
minutes can generate significant increases in revenue.
    Mrs. Johnson of Connecticut. I just hope that as we think 
through under the new system how do we assure that the services 
that were delivered were, indeed, the ones that were needed and 
that service wasn't denied?
    Mr. Scanlon. That's going to be a very critical factor as 
well as to ensure that the services that we paid for were 
delivered, because this is a system that is prospective, and we 
want it to be prospective, because that establishes good 
incentives, but, at the same time, we want it to be a system 
that's accountable; that we know that care was delivered 
appropriately when we paid for it.
    Mrs. Johnson of Connecticut. I agree with that. I would 
hope that we would try to build that into the annual review 
process or something like that rather than a lot more paperwork 
and a lot more coding and this and that. So, I think we have to 
think about how we're going to achieve that goal since in the 
past system and since we had an easier task and didn't achieve 
it.
    Mr. Scanlon. I think we fully recognize that with the 
administrative resources available and wanting to be very 
sensitive to the burden that we would impose upon providers, we 
need to find a way to do this in a very targeted and efficient 
manner but in a manner that we find to be effective and that 
gives us great confidence that services have been delivered 
appropriately.
    Mrs. Johnson of Connecticut. Thank you.
    Chairman Thomas. Thank you very much.
    Mr. Scanlon. Thank you.
    Chairman Thomas. And our last panel, if I could ask you to 
come forward, Bruce A. Davidson, who is the senior vice 
president of Blue Cross Blue Shield of Florida, on behalf of 
the National Association; Carol Raphael, president and chief 
executive officer of the Visiting Nurse Service of New York; 
Mary K. Ousley, senior vice president, government and 
regulatory affairs, Integrated Health Services, on behalf of 
the American Health Care Association; Thomas Miller, chief 
executive officer of the Lutheran Hospital of Indiana, on 
behalf of the Federation of American Health Systems, and David 
Bernd, president and chief executive officer of the Sentara 
Health System, Norfolk, Virginia, on behalf of the American 
Hospital Association.
    I just wanted the record to note that as the chairman is 
from California and the ranking member is from California, this 
is an east of the Mississippi panel. My assumption is as much 
for the economy of fair, I'm sure you're going to be able to 
represent that portion of the United States west of the 
Mississippi.
    If you have written testimony, which I know you do, it will 
be made part of the record, and you may address us in any 
fashion you see fit in the time allotted to you, and let's 
start with Mr. Davidson.

STATEMENT OF BRUCE DAVIDSON, SENIOR VICE PRESIDENT, BLUE CROSS 
                   AND BLUE SHIELD OF FLORIDA

    Mr. Davidson. Thank you, Mr. Chairman and Members of the 
Subcommittee.
    I am Bruce Davidson, senior vice president of Blue Cross/
Blue Shield of Florida. Thank you for the opportunity to 
testify on behalf of the Blue Cross/Blue Shield Association on 
two important points.
    Let me address first the regulations implementing the 
Medicare+ Choice.
    We are concerned that the recently released mega-reg will 
preclude HMO's from entering into the program, and, in fact, 
increase cost for participating HMO's to the extent that many 
will have to exit the program. Certainly this outcome would not 
produce the range of options for beneficiaries desired by 
Congress.
    It is important to understand that the mega-reg is closely 
tied to a set of performance standards known as the Quality 
Improvement System for Managed Care, or QISMC, that was being 
designed for tightly-managed HMO's. The mega-reg and QISMC will 
require a significant increase in the level of clinical 
intervention and medical management by all health plans. All 
health plans would be required to measure a core set of 
clinical performance indicators, essentially physician clinical 
practices, and demonstrate a minimum level of performance. 
Plans would also be required to demonstrate annual, measurable 
improvements in physician practices.
    Many HMO's are involved in this type of medical management 
already. However, the technology and knowledgeable resources 
are not available to support the level of activity contemplated 
by the mega-reg. Certainly the architecture of PPO's cannot 
support this level of measurement of medical practice patterns 
or clinical management of physicians.
    PPO's meet a different demand of the market than HMO's. 
They offer a broad choice of physicians, ability to use 
physicians outside the network, and lower administrative cost. 
They are very popular products. However, to meet the QISMC 
standards, PPO's would have to assign beneficiaries to primary 
care providers, begin collecting detailed patient medical 
record information, restrict out-of-network coverage, impose 
practice protocols and new payment incentives on physicians, 
and reduce the size of choice of their networks. In short, 
PPO's would have to redesign into a product closely resembling 
tightly managed HMO's.
    We hope that this will not happen. The references in the 
mega-reg notwithstanding, we are encouraged that the preamble 
to the regulations state that HCFA does not intend to adopt a 
one-size-fits-all approach. Also, we have initiated discussions 
with HCFA to assure that broad access PPO's are viable in the 
Medicare+ program. However, at this point, our particular plan 
would not offer a PPO in Florida to Medicare beneficiaries 
because of the nature of the mega-reg.
    Turning to the issue of Y2K compliance and contractor 
reform. A representative group of contractors and senior HCFA 
personnel are working collaboratively to ensure that the claims 
will be paid accurately and timely in the year 2000. My 
contacts with fellow contractor executives indicate that 
everyone is giving Y2K their utmost attention, and we believe 
that it is possible to complete basic testing by the end of 
1998.
    It is important that changes to the Medicare program be 
minimized during the last quarter of 1998 and the first months 
of 1999, which is when we will be doing most of our testing. 
Our technical experts advise us that if other complex 
programming changes are tested simultaneously with Y2K 
programming changes it will be difficult to determine whether 
problems are originating with Y2K programming or the other 
programming changes.
    After Y2K testing is completed and problems are resolved, 
any further changes in 1999 would necessitate retesting and 
should be kept to a minimum.
    In terms of contractor reform, we believe that HCFA 
currently has the authority to terminate a contractor for non-
performance, including non-performance of Y2K responsibilities. 
We have serious concerns about the breadth of proposed 
contractor reform which appears to give HCFA the authority to 
hire, fire, with or without cause, and with or without 
competitive bidding for the replacement. All this without 
having a clear strategy of what is to be achieved with this new 
authority.
    In summary, we advocate a less intrusive approach to the 
regulation of Medicare+Choice plans and a very careful approach 
to the Medicare program change burden while Y2K remediation is 
in progress.
    Mr. Chairman, thank you for the opportunity to express our 
views.
    [The prepared statement follows:]
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    Chairman Thomas. I thank you very much, Mr. Davidson.
    Ms. Raphael.

   STATEMENT OF CAROL RAPHAEL, PRESIDENT AND CHIEF EXECUTIVE 
   OFFICER, VISITING NURSE SERVICE OF NEW YORK; ON BEHALF OF 
             VISITING NURSE ASSOCIATIONS OF AMERICA

    Ms. Raphael. Thank you.
    Mr. Chairman and members of the subcommittee, I am pleased 
to be here today to speak to you. My name is Carol Raphael. I 
am the president and CEO of the Visiting Nurse Service of New 
York which is the largest not-for-profit home-health care 
agency in the Nation. It is also one of the oldest with over 
100 years of experience in providing home care, an important 
option for people who want to leave hospitals as quickly as 
possible, avoid unnecessary institutionalization and remain 
active, independent members of their community.
    My theme today is ``no good deed goes unpunished.'' And 
basically, I want to focus on the Interim Payment System which 
has had a very harsh effect on particular agencies. And who 
might these agencies be? I think they fall into two categories: 
those who did what the Balanced Budget Act tried to accomplish. 
These agencies kept their costs low, controlled their costs 
before there was legislation, and in addition, those agencies 
are most impacted who have experienced increased severity in 
their case mix. And it is ironic that the prospective payment 
system couldn't be implemented because it didn't have a case 
mix adjuster, and now we have a system that, in fact, also 
doesn't have such an adjuster and seems to be taking its course 
of action without it.
    I think that you need to understand what the impact of the 
Interim Payment System has been on the Visiting Nurse 
Association of America and its members. As of now, six VNA's 
have closed including the VNA of southeast Indiana and the VNA 
of Palm Beach. Yesterday, the VNA of Medford, Massachusetts 
shut its doors. Dozens of others are on the brink of closing. 
The VNA of St. Louis will no longer admit any Medicare 
recipients because their reduction under the Interim Payment 
System was 45 percent. Many other VNA's are laying off staff, 
shutting down services; this will affect the access of 
beneficiaries to what has been an essential range of services 
in many communities in this country. And I would like to say 
that, in general, the effect has been a 25 percent reduction in 
reimbursement.
    And I think that I speak for all organizations in this 
Nation who have been cost efficient and have tried to produce 
good care whether they are for profit, not-for-profit, rural, 
urban, large, small, community-based, hospital-based, or public 
health departments. We really believe that it is essential that 
this committee take action this year. We think that it is 
imperative because if action does not occur, you will end up 
seeing a system of health care dismantled thatwill be very 
difficult to rebuild down the road. And we have several steps that we 
think that you should consider taking.
    First of all, I want to recognize the efforts of Senator 
Collins and Congressman Pappas who spoke to you this morning 
because they have really tried to address our issues.
    We believe there are three key things that need to be done. 
Change the formula. And we believe that Congressman Pappas and 
Senator Collins have proposed the most effective blend which is 
75 percent national and 25 percent regional data.
    Secondly, move the base year forward. There is now a huge 
gap between the base year's cost and the cost we're 
experiencing today.
    And thirdly, raise the per-visit limits to 112 percent of 
the mean. We understand that it isn't increased costs-per-
visits that have really driven expenditures in home health 
care. In fact, costs have remained fairly constant over the 
last seven years. And this would help agencies in States like 
California where there is high penetration of managed care and 
where agencies have low costs per case but high costs per 
visits.
    And lastly, we heard confirmed for us this morning that 
HCFA is not going to implement prospective payment by October 
1999. So what we thought was an interim, short-term system is 
no longer an interim, short-term system. And Congress had 
enacted an additional 15 percent cut in the event that PPS does 
not come to pass. We would very much urge you to reconsider 
putting us under the knife even further and making the cuts 
deeper given that PPS is not likely to be implemented.
    So, I think that we want to say that we have addressed what 
we think are key issues: budget neutrality, equity across the 
Nation, and lastly, paving the way to prospective payment. And 
we look forward to working with you, Mr. Chairman, and the 
committee members to try to find a workable and doable solution 
to a very, very serious set of issues.
    Thank you so much.
    [The prepared statement follows:]
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    Chairman Thomas. Thank you very much, and thank you for 
picking up on my comment and throwing a line about California 
in there. I appreciate that.
    Ms. Ousley.

 STATEMENT OF MARY OUSLEY, SENIOR VICE PRESIDENT OF GOVERNMENT 
   AND REGULATORY AFFAIRS FOR INTEGRATED HEALTH SERVICES; ON 
           BEHALF OF AMERICAN HEALTH CARE ASSOCIATION

    Ms. Ousley. Thank you, Chairman Thomas and members of the 
subcommittee for the opportunity to share the views of skilled 
nursing providers.
    My name is Mary Ousley, and I am the senior vice president 
of integrated health services. I also am an independent owner 
of nine facilities in Kentucky, a licensed nursing home 
administrator and registered nurse.
    I am speaking today on behalf of the American Healthcare 
Association.
    I first want to restate our support for the committee's 
work last year in enacting a prospective payment system for 
skilled facilities. And I also wish to commend the Healthcare 
Financing Administration for their willingness to sit down with 
the industry and work through the countless implementation 
issues.
    We have identified three areas where we feel that the 
Balanced Budget Act and the prospective payment system could 
create access problems for America's seniors. Our list is 
short, but the concerns that we have, we think that they are 
critical.
    First, as previously mentioned today, we oppose the $1,500 
annual therapy cap. The Act created two annual caps in two 
categories, one for physical and speech therapy and additional 
for occupational therapy. These caps were imposed without the 
benefit of hearings or adequate data. MedPAC itself has 
indicated in its review of the impact of these caps that of the 
recipients that may be impacted approximately half of them 
would have needs that would be in excess of $1,000. We feel 
that, in fact, these caps are a reduced benefit.
    We support the Ensign-Cardin bill, H.R. 3835. We feel that 
it is a very responsible solution that removes the caps and 
moves forward toward a more appropriate payment methodology 
based on diagnosis.
    Additionally, again, as mentioned today, we are concerned 
about HCFA's ability to track the costs for these $1,500 caps 
in light of the Year 2000 problem.
    Second, we are seeking relief for facilities that are 
disadvantaged by the PPS transition. The facility specific 
portion of the PPS transition rate is based on cost reports 
beginning in 1995. Facilities without Medicare experience 
during 1995 are considered newly participating and are not 
subjected to the transition. However, for facilities that 
increase their acuity level, increase the intensity and level 
of services that they have provided since 1965--1995, excuse 
me--for these facilities, instead of providing a gradual 
progression, as was the intent of Congress, toward the Federal 
rate, the transition actually serves to disadvantage them by 
providing rates during the transition below the Federal rate.
    We have, and we would like to propose two solutions for 
this problem.
    We propose that HCFA broaden the definition of new 
facilities to include a facility that has so dramatically 
changed its level of service during this period of time to be 
deemed newly participating.
    Another option is to permit the fiscal intermediaries to 
allow facilities to merely opt into the Federal rate if they 
can, again, demonstrate that the level of care and services 
provided is so significantly than those provided in 1995.
    We believe that both of these options could be done 
administratively.
    Finally, and we urge--and I think that this is the most 
critical issue that I talk about today--that a policy be put in 
place to allow a budget-neutral pass through of certain 
ancillary services. This actual, we feel, is necessary to 
protect access to care for Medicare's sickest beneficiaries.
    The skills prospective payment system utilizes 
reimbursement categories based on submission of the minimum 
data sets, specific patient information. These categories 
simply do not adequately handle the non-therapy ancillaries.
    I want to share with you just this specific example. The 
Healthcare Financing Administration allocated about $47 per day 
into the rate for non-therapy ancillaries. The actual example: 
a patient is admitted to a nursing facility for care. This 
patient diagnoses included respiratory failure, pulmonary 
disease, depression, sepsis and pneumonia. These are not 
uncommon diagnoses for nursing facilities. This patient has 
tremendous need not only for nursing care, but the non-therapy 
ancillaries to meet their needs.
    A couple--$74 this patient would require for respiratory 
therapy alone, and $170 for pharmacy. The total cost of non-
therapy ancillaries would come to $272. And as I mentioned 
before, the PPS rate allocates only $47. HCFA has acknowledged 
the shortcoming of the RUG-III system, and, in fact, in the 
demonstration States, the non-therapy ancillaries were passed 
through. And we urge that Congress would take the necessary 
action to allow for a budget-neutral, temporary pass through 
until research and data can be completed to appropriately roll 
these into the overall cost.
    We appreciate the opportunity to be here today, and I look 
forward to continuing to work with you on behalf of the 
American Healthcare Association.
    Thank you.
    [The prepared statement follows:]
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    Chairman Thomas. I thank you very much, Mrs. Ousley.
    Mr. Miller.

 STATEMENT OF THOMAS MILLER, CHIEF EXECUTIVE OFFICER, LUTHERAN 
                      HOSPITAL OF INDIANA

    Mr. Miller. Thank you, Mr. Chairman, and members of the 
committee.
    My name is Tom Miller. I am the Chief Executive Officer of 
Lutheran Health System in Fort Wayne, Indiana. I appreciate the 
opportunity to talk to you today concerning the Balanced Budget 
Amendment and its implementation by the Healthcare Finance 
Administration.
    Lutheran is owned by Quorum Health Group, and through its 
affiliates and subsidiaries, Quorum owns 18 hospitals and 
manages approximately 240 non-profit hospitals throughout the 
country. Lutheran is an active member of the Federation of 
American Health Systems, and Mr. Jim Dalton, the president for 
Quorum and Chief Executive Officer is chairman of the 
Federation.
    By background, I would like to let you know that I spent 
the last 17 years in healthcare management. I've had the 
opportunity to run great hospitals in Tennessee, Texas, 
Virginia, and Indiana. I'm sorry that I have not run good 
hospitals in Louisiana and California, but look for the 
opportunity in the future.
    Let me give you a glimpse of Lutheran hospital so that you 
can understand the commitment that our staff has to the seniors 
and the amount of community support that we offer. We have a 
100 year tradition in providing healthcare in the Fort Wayne 
community. Lutheran is part of a two hospital MedServe system 
both with skilled nursing facilities. We have a free-standing 
rehab hospital, a home health agency. We have performed 150 
transplants. We are full-service tertiary care provider, and 
we've had the opportunity to take care of 21,000 inpatients 
this past year and over 250,000 outpatients in our facilities.
    We feel like we have to have a partnership with our largest 
payer, and that is the Federal Government, and that is why we 
are here today. We're trying to build and maintain a healthy 
partnership with the Government and understand your commitment 
and those of the committee as well as those of the Congress as 
well as an important relationship with Administrator DeParle 
and all of HCFA both in the regional office and nationally.
    I can tell you from my seven years in Tennessee that I had 
the opportunity to know Administrator DeParle, and I will tell 
you that she is well thought of amongst the healthcare field 
and through the Federation has done an excellent job in her 
role in HCFA.
    However, running the Agency has a lot of difficult 
challenges, and the collision of the millennium bug and the 
mandates under the Balanced Budget Act against the back drop of 
swift changes all have come together and have made her job 
significantly difficulty. Still, as good as she is, the local 
healthcare people--from a local healthcare viewpoint, we have 
major challenges on our hands.
    Hospitals and health systems like Lutheran are dismayed on 
the current course that HCFA appears to have chartered to 
address these complex issues. We are particularly by the 
Agency's announced plans to delay the hospital update for the 
Fiscal Year 2000.
    You've heard much talk about Y2K and all associated with 
that. As an administrator of a hospital, I will tell you that 
January 1, 2000 our patients will not have a problem with 
computers. Every system will be in place. We cannot afford not 
to be ready. And we expect the same from the Healthcare Finance 
Administration.
    This is not a new problem although it gets a lot of play 
today. It is a problem that has existed for awhile, and the 
delay in the fiscal update that has been discussed is something 
that HCFA has had experience with for the last 15 years. We 
don't necessarily, in the healthcare field, understand why 
these two issues. We'd ask for your help to make sure that the 
interim payments are appropriately paid in many different 
fashions. But, from our standpoint, we believe that these two 
issues perhaps are not related.
    Equally as much as we look at Y2K from the healthcare 
field, we have a hard time understanding how ill-advised 
transfer policy can also be implemented at the same time that 
the Y2K problem exists. And the transfer policies--I know that 
you have heard about them--I can tell you that the provisions 
are going to be an administrative nightmare, and I suspect it 
will be a serious problem and demand on all of HCFA.
    I project to you that the problems that we are having today 
will be magnified sevenfold in five years, and I want to give 
you a very specific example.
    In Virginia, as I was the hospital administrator, I 
received one of the letters from HCFA in regard to the 72 hours 
rule indicating that we needed to make payments related to 
overpayments of patients. The systems related to this were not 
in place when the 72 hour rules were implemented. As we move 
forward with the transfer policy where hospitals are going to 
have to find ways of tracking home-health patients that were 
discharged within three days, the systems are not in place, and 
when asked that we look at a delay related to that transfer 
policy, let's fix the Y2K problems, let's look at opportunities 
that we have to put the systems in place, and seven years down 
the road let's not monitor these and find out that we had a 
huge mistake.
    In regard to home health, we have an agency that treats 600 
new patients each year with 50 employees. Plan delays will 
handicap Lutheran's ability to provide seamless, quality care 
to our seniors. The delay is moving toward a perceptive payment 
for home-health agencies and is particularly troubling for two 
reasons.
    First, it means that the interim-payment system already 
emplaced with devastating consequences for home-health 
providers and the clients they serve will remain in place 
indefinitely.
    Second, at additional 15 percent reduction in payments 
scheduled for September 1999 will take effect with or without 
the implementation of the home-health PPS system.
    I would point out that the interim-payment system already 
is projected to save $10 billion more than what was initially 
sought for in the Balanced Budget Amendment of $16.5 billion 
savings. In that light, it would be unfair and unjust to reduce 
payments another 15 percent under those circumstances.
    One delay in the home-health area of which we applaud the 
Agency involves the deadline for securing surety bonds. 
Recently the Agency responded to the course of congressional 
concerns and agreed to suspend until mid-February as well as 
the GAO oversight role. Notwithstanding this extension, which, 
when it is formally issued, will be the fourth Federal Register 
publication this year. We continue to believe that the Agency 
is going in the wrong direction on the surety bond issues.
    For example, the Agency's insistence on a ceiling of 15 
percent of revenues, its rejection of other equally reliable 
forms of securities such as irrevocable letters of credit, and 
its refusal to combine Medicare and Medicaid bonds strikes us 
as arbitrary and inconsistent with the intent of Congress when 
it established the Balanced Budget Amendment. We hope that the 
Agency will use this opportunity to revisit these fundamental 
policy issues.
    With regard to skilled nursing facilities, our 
understanding is that HCFA intends to proceed as planned with 
the July 1 implementation of the skilled nursing facility PPS 
except for the consolidated billing and requirements under part 
B.
    Our chief concern is that only after several major policy 
twists and turns to HCFA ultimately arrive at the policy that 
is in place today. The difficulty that we have is that 
hospitals and skilled nursing facilities can't properly plan to 
implement these radically new systems. This type of uncertainty 
places hospitals at risk and not just in terms of fiscal 
exposure, but in the current fraud and abuse environment, 
hospitals can't be legally held at risk.
    Mr. Chairman, last year's Balanced Budget Act contained 
unprecedented levels of combined Medicare and Medicaid 
reductions across the provider spectrum that fell especially 
hard on the hospital community. The uncertainty that we have 
faced, however, in trying to determine the best way to comply 
with the host of new policies has made our job of managing 
these reductions much more difficult.
    As noted in the testimony, I fully understand the 
tremendous pressures and the tight deadlines facing HCFA today, 
and I'm not here to attack the Agency. It is clearly at the 
crossroads to change, and in that context, some uncertainty 
even delay is inevitable. But at the same time, as a hospital 
administrator, I must tell you that my compassion is tempered 
by the reality that hospitals, including mine, are at the 
frontier of healthcare and in a regulatory climate that has 
become decidedly more complex over the years. It is virtually 
in an arena.
    Lutheran Hospital delivers competent and quality patient 
care to hundreds of people everyday with thousands of bills and 
annually prepares several incredibly detailed cost reports 
numbering hundreds of pages. Still, we can't afford to make a 
single mistake without risking major, adverse legal and fiscal 
consequences. Put another way, we are held fully accountable 
for every act of commission or omission. In this setting our 
biggest enemy is uncertainty.
    In closing, I would ask that we ask you to try to set a 
course for healthcare. We spend a significant amount of money 
changing and rechanging to meet the needs of HCFA. It appears 
that hospitals and health systems are at the end of the feeding 
chain and that you establish the policies and the laws and that 
HCFA interprets those policies and laws and tries to implement 
them and gives hospitals days, weeks or a few months notice to 
implement these and these hospitals are held totally 
accountable on day one as in the skilled nursing facility 
proposals that are held out for comment--I think they close 
today--that were implemented on July 1.
    We ask for your help in establishing a course and plain be 
reasonable with our hospitals.
    Thank you.
    [The prepared statement follows:]
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    Mr. McCrery [presiding]. Thank you, Mr. Miller.
    Mr. Bernd.

  STATEMENT OF DAVID L. BERND, PRESIDENT AND CHIEF EXECUTIVE 
OFFICER, SENTARA HEALTH SYSTEM; ON BEHALF OF AMERICAN HOSPITAL 
                          ASSOCIATION

    Mr. Bernd. Thank you, sir.
    Mr. Chairman, I am David L. Bernd, the Chief Executive 
Officer of Sentara Health Systems which is a six-hospital 
system and not-for-profit located in Norfolk, Virginia.
    I am here today as a member of the board of directors of 
the American Hospital Association which represents nearly 5,000 
hospitals, health systems, network providers and other 
providers of care.
    First, Mr. Chairman, I would like to commend your work as 
administrative chairman of the National Bi-Partisan Commission 
on the Future of Medicare. As you know, we cannot continue to 
shore up the trust fund by relying solely on reductions to 
providers.
    Like you, we believe that we must change the basic 
structure of the program. We support your efforts to strengthen 
Medicare for generations to come.
    We are here today to talk about the Balanced Budget Act and 
the Year 2000. Hospitals and health systems agree that Y2K 
demands the immediate attention of everyone in healthcare. We 
applaud HCFA's recognition that Y2K must be dealt with now. 
However, we are disappointed that HCFA plans to do so by 
delaying the Year 2000 payment updates.
    Across the Nation, hospitals are preparing for the date 
change and making a commitment to do whatever is necessary to 
avoid any disruptions in patient care. Sentara, for instance, 
has budgeted $10 million for this effort, and it is 35 percent 
Y2K compliant as of today.
    The hospitals and health systems like mine are also trying 
to cope with the Balanced Budget Act spending reductions. Delay 
in the Year 2000 update adds to the burden. We still must pay 
the bills associated with providing care, and those bills will 
keep coming during HCFA's computer update.
    Even if HCFA is confident that its computers are compliant, 
problems could crop up. It is imperative that HCFA establish a 
fail-safe contingency plan. We would like to work with HCFA to 
create that plan including a provision to pay interest. At the 
same time, if payment systems are impeded by the millennium 
bug, hospitals and patients would be severely affected. A 
system to provide periodic payments based on past payment 
levels can prevent this. We urge Congress to enact legislation 
to authorize such a system.
    HCFA's decision to delay PPS for home-health care also 
concerns us because it extends the interim-payment system 
another year. The IPS freezes historical base payments, as 
we've heard, locking lower cost efficient providers into 
payments that are well below their costs. This penalizes 
efficient agencies like hospital based and visiting nurse 
association providers.
    Moreover, 15 percent automatic reduction is scheduled for 
the Year 2000 whether or not PPS is implemented. This 
reduction, in the absence of PPS on the heels of deep IPS 
reductions hits efficient hospital based and visiting nurse 
association home-health care agencies harder than others. We 
strongly urge Congress to revisit the IPS.
    We also disagree with HCFA's proposed delay with outpatient 
PPS. The existing array of payment systems for outpatient 
services is complex, expensive, and a large administrative 
burden. A simple means of payment would simplify the system and 
could help bring more efficient outpatient care.
    I would also like to cite two issues unrelated to Y2K that 
are part of the Balanced Budget Act.
    First, is transfers. The act changed the definition of 
transfers to include patient sent from acute care hospitals to 
a rehabilitation or skilled nursing facility or a home health 
care agency. Efforts to coordinate patient care are frauded 
because the transfer provision penalizes hospitals for sending 
patients as soon as possible to the healthcare site that best 
meets their needs. In addition, the prospective payment 
assessment commission found that on average, patients who used 
post-acute care stay in the hospital stay in the hospital 
longer than those who do not shining doubt on HCFA's claim that 
hospitals are pushing patients or rushing them into post-acute 
care to receive extra Medicare payments.
    Making the situation worse is HCFA's decision to include 
swing beds. These are acute-care beds in rural hospitals that 
are used for post-acute services. Congress did not intend for 
them to be included in the transfer position as Mr. Thomas 
noted in a letter to HCFA. HCFA's decision was arbitrary and 
must be reconsidered.
    We urge you to support H.R. 2908 and S. 1604, legislation 
to repeal the entire transfer position.
    Finally, we have concerns about the PPS for skilled nursing 
facilities. Our key concern is that the case-mix measure under 
SNF PPS, the resource utilization groups, doesn't reflect the 
resources needed for hospital based SNF patients whose 
conditions are usually more complex than those of patients with 
free-standing SNF's.
    In conclusion, hospitals and health systems know that HCFA 
has a big job ahead of it preparing a complex computer system 
for the Year 2000. We are doing the same job, however, 
hospitals cannot simply shut down their systems to prepare for 
Y2K, nor can they delay the care that has been demanded by them 
daily by the patients and communities that they serve. The 
needs of Medicare beneficiaries will not bedelayed either. That 
is why HCFA must meet its obligations to beneficiaries and hospitals 
and systems that serve them.
    We want to work with HCFA to find a way to continue 
critical payment updates, and we want to help HCFA 
appropriately implement PPS for outpatients and SNF services. 
Y2K is a tremendous challenge, but it is a challenge that all 
of us in healthcare must face together.
    Thank you.
    [The prepared statement follows:]
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    Chairman Thomas [presiding]. Thank you all very much.
    If you were here for the earlier testimony, you know that 
one of the difficulties is that we don't know that it is the 
Y2K and our current problems are significantly related either 
except for the fact that they occupy the same moment in time. 
And that for changes that we think make sense--and frankly 
there are a number of ways to adjust. For example, the interim 
payment, changing the percentage mix and doing some other 
things as well as the Pappas bill and the Collins bill 
indicate, simply aren't going to be executed because of the 
decision by HCFA.
    So, what we need to do, as I indicated to HCFA, is get 
creative in figuring out what it is that we can do. Obviously 
that means that we don't do our first choice, but frankly doing 
something is more critical than getting our first choice 
because we're not going to be able to make some of the 
adjustments that you would think would be relatively obvious. 
For example, as was mentioned by Ms. Raphael on the changing of 
the formula, move the base year, none of that is available to 
us.
    So it is becoming a bit of a challenge as to just exactly 
what it is that we are going to be able to come up with that 
will remedy the discrepancies and can be done by HCFA in the 
time frame we're dealing with. And we're committed to working 
with all parties to make sure that we find whatever that is.
    Let me ask a general question and probably direct it to Mr. 
Davidson, but open to any who can respond. As you might guess, 
the argument from HCFA has been that if we're going to get into 
more of this Medicare+Choice, we need more tools available to 
deal with Medicare contractors. In fact, it has been stated 
that it is virtually, if not impossible, to terminate a 
contract with a contractor.
    Does anyone just off hand know of anyone that has been 
terminated? And if so, are you aware of the--in terms of the 
law, what the mechanics are so we can at least get on the 
record if it is true that they simply don't have the tools to 
deal with contractors up to and including terminating?
    Mr. Davidson. Mr. Chairman, my understanding----
    Chairman Thomas. And I would prefer if you can also react 
to some kind of disciplining within the law short of 
terminating. I'll take either.
    Mr. Davidson. My understanding of the termination abilities 
of HCFA is that they have the authority to non-renew a contract 
upon its anniversary date with or without cause. They also have 
the authority to terminate a contract during its period for 
substantial non-performance. I am not aware that they have ever 
exercised the latter action.
    In terms of disciplining, I am aware that when contractors 
have performance difficulties of one sort or another, 
performance improvement plans and adherence to them is required 
as a condition of continuing the contract.
    Chairman Thomas. Does anyone else want to respond? As I 
have indicated there is an argument that they need greater 
flexibility. In fact, my colleague from California, Mr. Stark, 
has introduced legislation, H.R. 4186, I believe it is--it is 
called the Medicare Contracting Flexibility Act. Are you 
familiar with it?
    Mr. Davidson. I am somewhat familiar with it, sir.
    Chairman Thomas. Well, for example, it allows HCFA to use 
non-insurance companies as Medicare contractors. The Part A 
would be carriers, Part B would be fiscal intermediaries. Any 
reaction to that part of it?
    Mr. Davidson. We don't have a problem with that.
    Chairman Thomas. You don't have a problem with that.
    The second part of it is that it permits providers of 
medical services to choose their Medicare carrier or fiscal 
intermediary.
    Mr. Davidson. We think that there is a strategy that HCFA 
has either explicitly or implicitly started to employ which 
breaks up the contractor functions in a given geographic area 
between so-called ``fraud abuse contractors''--the MIP 
contractors, claims payment contractors, other specialty 
contractors. Our view is that this is not wise having one 
contractor who is responsible for both claim payment and fraud 
abuse activities in a given medical geographic area given 
market is, in our opinion, the most effective way to get good 
administration and good fraud and abuse protection for the 
program.
    And we disagree with HCFA's progress in breaking this up 
the way they are doing.
    Chairman Thomas. Does anyone else want to react briefly?
    Then the other one that I assume that you have some 
reaction to is that Mr. Stark's bill repeals the cost 
reimbursement system giving HCFA greater authority to set 
payment rates.
    Mr. Davidson. We would be very, very much in favor of 
having something besides the cost-reimbursement system for 
payment. I think that it would put HCFA in a position to induce 
contractors to better performance.
    Chairman Thomas. Is there any other reaction?
    Ms. Raphael, just briefly, all of us are concerned about 
the Interim Payment System, and you have given graphic evidence 
of how Visiting Nurses Associations are closing. Let me ask the 
question a slightly different way.
    Forget the intermediate payment system. If we could have 
implemented initially the prospective payment system as it is 
structured, do you think those visiting nurses programs would 
have closed anyway, or do you think that that structure would 
have provided a minimally reasonable amount?
    Ms. Raphael. I think that the Visiting Nurses Associations 
would have fared very well under a prospective payment system 
because that kind of pricing system actually reward efficiency 
and encourages efficiency and that is what we had hoped that 
any revised reform payment system would, in fact, do.
    Chairman Thomas. And without significant change in the 
intermediate payment system, if, in fact, it's going to be 
present for a longer period of time, which is my greater 
concern, we have got to create some kind of an adjustment which 
allows incentives.
    Last question. I don't have an answer to this, and I would 
like to try it out on you to help explain to me why in, for 
example, 1990, the visits on a per-beneficiary using home-
health services was 36 and by 1997 those visits had gone up to 
80. What occurred in roughly the decade of the 1990's? In 1983 
on the data I have--and this is from a MedPAC information 
packet--in 1983 the per-beneficiary number was 28 home visits. 
Over that decade it went to 36. But between 1990 and today it 
has gone from 36 to 80. Since almost half, or about 48.9 
percent are aid visits, does the relationship--and maybe, Mrs. 
Raphael, you might want to begin the comment on it--does the 
relationship between home visits in terms of aids versus other 
skilled or particularneeds, does that reflect a little bit in 
that structure? I have not been able to break it down in terms of the 
number of visits that were strictly for aid or whether they were 
partial.
    Ms. Raphael. I think that the reasons for the increase in 
utilization are multiple. I think that it certainly has to do 
with the fact that there was a court decision which liberalized 
the Medicare benefit. I think that it had to do with changes in 
technology. It had to do with what was happening in the 
hospital sector and with State policies in some cases trying to 
manage the supply of nursing homes as well as other factors in 
Medicaid expenditures in different States.
    But I also do believe that like all insurance programs, if 
you look at the Medicare home-health program, 10 percent of the 
beneficiaries use 43 percent of the resources. And who are 
they? They tend to be people who fall into two categories. 
Either they are very medically complex, (for example, they have 
cancer.) They have a lot of hospitalizations, and they have a 
lot of episodes of home health. Or they tend to be over 85, and 
they have functional impairments. And to some extent, what they 
do need is a more supportive, long-term care benefit. And this 
second group tend to be the ones who are diabetics with 
complications who may have come out of a hospital with 
bedsores, who may be incontinent, and therefore, it is true 
that the ratio of aid visits in those cases is higher than is 
true overall.
    So, I think that you see the results of many forces at work 
here.
    Chairman Thomas. Does anyone else wish to react?
    Mr. Bernd. I think from running an integrated delivery 
system, we have a number of hospitals and a home-healthcare 
agency. The time frame that you talked about, probably the 
average Medicare length of stay in a hospital went down by 50 
percent. And that was on probably providing more efficient 
patient care, but also at the insistence of third-party payers 
and HCFA. It has driven up the use of outpatient services.
    Mr. Miller. And I would agree with that. I think that the 
number of procedures that have been done on the outpatient 
basis, complicated procedures, have grown significantly. A lot 
of patients don't even get into the hospital and are treated on 
the outpatient basis. Our home-health agency sees about 45 
patient on the average today, and I will speculate that our 
average age of the patient that we admit is, during this same 
time frame from 1990 to 1997, is approximately four years 
older.
    Chairman Thomas. Are there additional reactions?
    Thank you. Your answer was excellent. It is fairly obvious 
that there were a number of changes in the system. I believe 
that the primary problem was that they had no place else to go. 
In fact, government, I believe, created the skilled nursing 
facility universe, and the decisions made in other areas drove 
the home healthcare and that the real answer is, create what it 
is that people are trying to get out home healthcare, which is 
a long-term care benefit, and you will see a readjustment in 
terms of the numbers. Of course, a long-term care benefit is 
not now part of that package, and the Medicare Commission is 
looking at that as a significant solution to individuals needs 
in the next century with a more reasonable response on a need 
profile.
    Thank you very much. The gentleman from Louisiana.
    Mr. McCrery. Just one question for Mr. Miller and Mr. 
Bernd.
    As you know, we're going to be considering the HHS spending 
bill here in the House. The White House proposed, as part of 
their budget, funding certain HCFA functions by levying $650 
million in fees on providers, hospitals. The biggest provider 
fee would have been about $395 million worth of charges on 
hospitals and Part A providers.
    What are your thoughts on the administration's proposals 
for implementing user fees to pay for some of HCFA's functions?
    Mr. Miller. I'll give you a quick answer. Take the $650 
million and put it where it needs to be which is taking care of 
patients.
    Mr. Bernd. I think that it is rather difficult to put that 
burden on the healthcare providers. We've talked about the 
issues of decreased payments and what is going to happen with 
Y2K. It is just another tax on the healthcare system.
    Mr. Miller. We have had so many changes and so many 
reductions over the last few years. How much more can hospitals 
afford to fund?
    Mr. McCrery. So, you don't approve of that part of the 
President's budget?
    Mr. Miller. No, sir.
    Mr. Bernd. No.
    Mr. McCrery. Thank you.
    Chairman Thomas. Let me ask one additional question because 
it is out of that broad discussion that we had, and it was 
mentioned. And I want to get as fulsome an answer as I can. And 
it has to do with the caps on the skilled nursing facility 
payments.
    My understanding is that they will be delayed. In part the 
argument is because of the Y2K.
    Ms. Ousley, on page two of your testimony, you state that, 
``a patient suffering from a stroke, a hip fracture, 
Parkinsons, or Alzheimers disease typically needs more than 
$3,000 in therapy.'' If you include all of those in that 
structure--I'm trying to understand why it would be in all of 
those instances that that would be the case. For example, if 
you have a hip fracture--I mean typically, wouldn't they be 
first admitted to an acute care hospital? And then in a post-
acute care structure, they have an opportunity to got to the 
skilled nursing facility for up to 100 days under Part A. They 
can go to a rehab hospital or unit. Obviously, we just 
discussed, they could be sent home, depending on the situation, 
they could be sent home to receive some home care. The Visiting 
Nurses Association could assist them. They might also, on an 
outpatient basis, receive therapy while they are still at home 
or some other kind of a combination of services such as that.
    So, the question would be, in that kind of a context, using 
the one example that you provided, a hip fracture, how likely 
is it that a patient will need more than $3,000 in SNF--a 
skilled nursing facility--therapy services after they have had 
an inpatient, a possible rehab hospital or unit admission, and 
100 days of a skilled nursing facility care covered under Part 
A?
    Ms. Ousley. Well, sir, you are making an assumption that as 
the patient transitions through each one of those levels of 
care that they would be staying under a Part A care, and that 
is not necessarily the case.
    Chairman Thomas. But could it be the case?
    Ms. Ousley. Under--it could be the case, but under most 
circumstances what our review and analysis predicts is that 
there will be about 10 to 15 percent of the patients that would 
not follow that course of therapy, and, in fact, they would be 
the ones that would fall into the area that would need 
additional therapy that would not be covered by the $1,500 cap. 
We think that that would translate into about 750,000 
individuals that would not be able to access the necessary care 
and services that they would need to achieve their rehab 
potential.
    Chairman Thomas. My only concern is that as we were looking 
for alternatives to try to slow down--I gave you an indication 
of the growth of home-healthcare visits over the decade of the 
1990's. And I think that the answers that were provided were 
excellent ones. I think that they happen to represent a good 
rationale for why that occurred in a number of different ways.
    But in trying to examine a growth rate in the therapy 
services, it was very difficult for us to put some kind of a 
demographic factor price on what was occurring on the Part A. 
And on the Part B, when you've got a growth from 151 million to 
827 million within a 5 to 7 year period at an average annual 
growth rate of 41 percent, and that is after they have 
exhausted the 100 SNF days, do you have an ability to explain 
why there was that kind of a growth rate tied to demographic or 
other factors?
    Ms. Ousley. Well, I think that the demographics do come 
into play there, but I also think that, especially in the 
skilled nursing facility during this period of time, we have 
been seeing an intense increase in the acuity level of patients 
that are transferred into the facilities for our care.
    Additionally, in 1990----
    Chairman Thomas. Yes, but isn't it after they have had 100 
days of skilled nursing benefits that this kicks in?
    Ms. Ousley. Pardon?
    Chairman Thomas. Isn't it true that this is after 100 days 
of SNF?
    Ms. Ousley. Sir, the average utilization for----
    Chairman Thomas. I'm trying to understand what you're 
saying. You said that in terms of the acuteness of patients 
coming in. So the acuteness carries through the 100 day SNF 
benefit and then has to be treated with the therapy benefits on 
the other side of the 100 days?
    Ms. Ousley. They--a patient does not necessarily always 
meet the skilled, Part A criteria for a full 100 days. I think 
that the average utilization is about 22 days. So, when the 
patient is out of their Part A, yes, the need for a continuing 
level of service, based on their Part B, absolutely exists. And 
you certainly cannot assume--because most patients do not 
receive that covered 100 days of service.
    Chairman Thomas. It is just that we are looking for ways to 
try to explain significant increases in dollar amounts. Any 
help that you can provide us in alternatives other than simply 
delaying--the kinds of controls unfortunately that are 
available to us are not as sophisticated as we would like, but 
we would love to sophisticate them as rapidly as we can.
    Ms. Ousley. Well, you know, I think that one of the things 
that the Senator--that Ensign's bill that I referred to, it 
does move us toward a PPS-like system for rehab services that 
would be based on diagnosis. I think that that is critical to 
being able to have responsible use of the resources, but also 
to continue to meet the resident's needs.
    Chairman Thomas. Well, I appreciate that, and obviously we 
are working with it. Our problem is, again, that this 
occurrence of two events in time, one a desire to change some 
of the structures that we put in on an interim basis, and 
HCFA's indication that they aren't doing anything for awhile 
makes it very, very difficult to bring about changes. But I can 
assure you that on a bi-partisan basis we will work with you to 
come up with--and I am looking for some really creative ways to 
get around the Y2K argument. And I will tell you that one of 
those that we are looking at, as I mentioned earlier, is the 
potential of a copay which we did not want to deal with 
earlier, but it is something that could provide an adjustment 
on an interim payment since we now have a whole new world that 
we hadn't anticipated. We thought that we were going to be able 
to adjust the formula rates, move the year around, do some 
other things to come up with adjustments that would be 
relatively easy to do through computers. Apparently we are back 
to paper and abacuses trying to figure out how to make this 
system work.
    So, any ideas you have would be greatly appreciated.
    And I do want to thank you, on behalf of the subcommittee, 
for your willingness to testify, and most importantly, for the 
content of your testimony. Thank you very much.
    [Whereupon, at 3:35 p.m., the hearing was adjourned subject 
to the call of the Chair.]
    [Submissions for the record follow:]
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