[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
    Y2K AND THE MEDICARE PROVIDERS: INNOCULATING AGAINST THE Y2K BUG

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

                             JOINT HEARING

                               before the

                 SUBCOMMITTEE ON HEALTH AND ENVIRONMENT

                                and the

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 of the

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 27, 1999

                               __________

                           Serial No. 106-20

                               __________

            Printed for the use of the Committee on Commerce


                                


                      U.S. GOVERNMENT PRINTING OFFICE
 56-606CC                    WASHINGTON : 1999
------------------------------------------------------------------------------
                   For sale by the U.S. Government Printing Office
 Superintendent of Documents, Congressional Sales Office, Washington, DC 20402



                         COMMITTEE ON COMMERCE

                     TOM BLILEY, Virginia, Chairman

W.J. ``BILLY'' TAUZIN, Louisiana     JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio               HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida           EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas                    RALPH M. HALL, Texas
FRED UPTON, Michigan                 RICK BOUCHER, Virginia
CLIFF STEARNS, Florida               EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio                FRANK PALLONE, Jr., New Jersey
  Vice Chairman                      SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania     BART GORDON, Tennessee
CHRISTOPHER COX, California          PETER DEUTSCH, Florida
NATHAN DEAL, Georgia                 BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma              ANNA G. ESHOO, California
RICHARD BURR, North Carolina         RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California         BART STUPAK, Michigan
ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
GREG GANSKE, Iowa                    THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia             ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma              GENE GREEN, Texas
RICK LAZIO, New York                 KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming               TED STRICKLAND, Ohio
JAMES E. ROGAN, California           DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois               THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico           BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona             LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING, 
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland

                   James E. Derderian, Chief of Staff
                   James D. Barnette, General Counsel
      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

                 Subcommittee on Health and Environment

                  MICHAEL BILIRAKIS, Florida, Chairman

FRED UPTON, Michigan                 SHERROD BROWN, Ohio
CLIFF STEARNS, Florida               HENRY A. WAXMAN, California
JAMES C. GREENWOOD, Pennsylvania     FRANK PALLONE, Jr., New Jersey
NATHAN DEAL, Georgia                 PETER DEUTSCH, Florida
RICHARD BURR, North Carolina         BART STUPAK, Michigan
BRIAN P. BILBRAY, California         GENE GREEN, Texas
ED WHITFIELD, Kentucky               TED STRICKLAND, Ohio
GREG GANSKE, Iowa                    DIANA DeGETTE, Colorado
CHARLIE NORWOOD, Georgia             THOMAS M. BARRETT, Wisconsin
TOM A. COBURN, Oklahoma              LOIS CAPPS, California
  Vice Chairman                      RALPH M. HALL, Texas
RICK LAZIO, New York                 EDOLPHUS TOWNS, New York
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN B. SHADEGG, Arizona             JOHN D. DINGELL, Michigan,
CHARLES W. ``CHIP'' PICKERING,         (Ex Officio)
Mississippi
ED BRYANT, Tennessee
TOM BLILEY, Virginia,
  (Ex Officio)

                                  (ii)


              Subcommittee on Oversight and Investigations

                     FRED UPTON, Michigan, Chairman

JOE BARTON, Texas                    RON KLINK, Pennsylvania
CHRISTOPHER COX, California          HENRY A. WAXMAN, California
RICHARD BURR, North Carolina         BART STUPAK, Michigan
  Vice Chairman                      GENE GREEN, Texas
BRIAN P. BILBRAY, California         KAREN McCARTHY, Missouri
ED WHITFIELD, Kentucky               TED STRICKLAND, Ohio
GREG GANSKE, Iowa                    DIANA DeGETTE, Colorado
ROY BLUNT, Missouri                  JOHN D. DINGELL, Michigan,
ED BRYANT, Tennessee                   (Ex Officio)
TOM BLILEY, Virginia,
  (Ex Officio)

                                 (iii)



                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Corlin, Richard F., Speaker of the House of Delegates, 
      American Medical Association...............................    65
    DeParle, Hon. Nancy-Ann Min, Administrator, Health Care 
      Financing Administration, Department of Health and Human 
      Services...................................................    11
    Grob, George, Deputy Inspector General, Department of Health 
      and Human Services.........................................    31
    Mackin, Annette L., Chief Financial Officer, VNS of Rochester 
      and Monroe Counties, Inc., National Association for Home 
      Care.......................................................    61
    Margolis, Ronald, Chief Information Officer, University of 
      New Mexico Hospital, American Hospital Association.........    54
    Willemssen, Joel C., Director, Civil Agencies Information 
      Systems, Accounting and Information Management Division, 
      General Accounting Office..................................    17
Material submitted for the record by:
    DeParle, Hon. Nancy-Ann Min, Administrator, Health Care 
      Financing Administration, Department of Health and Human 
      Services, letter dated June 28, 1999 to Hon. Michael 
      Bilirakis, enclosing material for the record...............    85

                                  (v)



      Y2K AND MEDICARE PROVIDERS: INOCULATING AGAINST THE Y2K BUG

                              ----------                              


                        TUESDAY, April 27, 1999

              House of Representatives,    
                         Committee on Commerce,    
                Subcommittees on Health and Environment    
                          and Oversight and Investigations,
                                                    Washington, DC.
    The subcommittees met, pursuant to notice, at 1 p.m., in 
room 2123, Rayburn House Office Building, Hon. Michael 
Bilirakis (chairman) presiding.
    Members present Subcommittee on Health and Environment: 
Representatives Bilirakis, Upton, Burr, Whitfield, Norwood, 
Coburn, Bryant, Brown, DeGette, Barrett, Capps and Eshoo.
    Members present Subcommittee on Oversight and 
Investigations: Representatives Upton, Burr, Whitfield, Bryant, 
Klink, Green, and DeGette.
    Staff present: Lori Wall, majority counsel; John Manthei, 
majority counsel; Pat Morrisey, majority counsel; Mike Flood, 
legislative clerk; and Chris Knauer, minority professional 
staff member.
    Mr. Upton. It's 1 o'clock. Thank you all for coming. Today, 
the Subcommittee on Oversight Investigations and the 
Subcommittee on Health and the Environment--and I must 
apologize for the lateness of the Chairman of the Subcommittee 
of Health, Mr. Bilirakis. His plane is a little delayed. It 
should be landing right about now, in fact.
    We are holding a joint hearing on the issue of Medicare 
provider readiness in becoming Year 2000 ready or, as we all 
know, Y2K compliant. Over the past several months, the 
Committee on Commerce has undertaken an extensive review of the 
progress that the Health Care Financing Administration, its 
Medicare contractors and its hospitals, nursing homes, doctors 
and other providers have made in becoming Y2K complaint.
    The chairman of this committee as well as the ranking 
member sent letters to the Health Care Financing Administration 
on the issue of Year 2000 readiness. In addition, letters were 
sent by the chairman of this committee to several health care 
associations that represent Medicare contractors and providers 
inquiring about their outreach efforts in helping their members 
become Y2K compliant.
    Today our hearing will focus on the status of our Medicare 
providers. We will examine what we know, but more importantly, 
what we still do not know about how ready our Medicare 
providers are for Y2K. Specifically, this hearing will address 
the readiness of their billing and financial systems. This 
issue is critical. If provid-

ers are not able to send bills in a Year 2000 format, they will 
not be able to get reimbursed from Medicare.
    Without reimbursement for a period of time, there is a 
possibility that a provider would have to close its doors. This 
could cause a great deal of anguish for providers as well as 
many beneficiaries who rely on that care.
    For some time now, the GAO has been monitoring the progress 
of HCFA and its Medicare contractors in becoming Y2K compliant. 
This issue has been followed extremely closely by the Oversight 
Subcommittee and others.
    Today, I would like to look at the other side of the 
equation and find out where our Medicare providers are in terms 
of preparedness for Y2K. Today, there are some 1 million 
Medicare providers who treat patients day in and day out. Each 
one of those providers has a responsibility to its patients to 
make sure that its system is ready when we ring in the new 
century.
    The responsibility is a very important one, because it 
affects 38 million Medicare beneficiaries. I appreciate the 
willingness of several health care associations who represent 
the vast majority of Medicare providers to testify here today. 
Your insight into where members of your associations are with 
respect to Y2K is very valuable. However, I want to caution 
everyone. I'm afraid that what we do know about the readiness 
of our Medicare providers is less than what we think.
    I've studied the various surveys that have been conducted 
on Medicare providers readiness. I'm concerned that these 
surveys may not present an accurate picture of where our 
Medicare providers are in terms of Y2K compliance. Therefore, 
today along with Chairman Bilirakis and Chairman Bliley and 
ranking members Dingell, Klink, and Brown will ask the GAO to 
examine the issue. The purpose of this is request is to gain a 
better understanding of where Medicare providers are in terms 
of Y2K.
    With respect to the progress of HCFA, I commend the 
progress that they have made to date in addressing the Year 
2000 issue. However, there is still a long road ahead. The 
critical test that still awaits HCFA and its Medicare 
contractors will begin in summer when they will start to retest 
their systems. This retesting process will need to be rigorous 
and thorough to ensure against mission critical failures in the 
Medicare claims processing systems in the Year 2000.
    With that in mind, HCFA will need to make sure that 
contingency plans are comprehensive enough to manage any 
critical failures that may, in fact, occur. We all need to 
remain committed to make sure that as we begin the new 
millennium, our Medicare beneficiaries will get the medical 
care and treatment they need.
    I welcome all of our panels here to testify. And with that, 
I recognize the ranking member of the Subcommittee on Oversight 
and Investigations, Mr. Klink.
    [The prepared statement of Hon. Fred Upton follows:]
   Prepared Statement of Hon. Fred Upton, Chairman, Subcommittee on 
                      Oversight and Investigations
    Today, the Subcommittee on Oversight and Investigations and the 
Subcommittee on Health and the Environment are holding a joint hearing 
on the issue of Medicare provider readiness in becoming Year 2000 
ready, or Y2K compliant. Over the past several months, the Committee on 
Commerce has undertaken an extensive review of the progress the Health 
Care Financing Administration, or HCFA, its Medicare contractors and 
its hospitals, nursing, doctors and other providers have made in 
becoming Y2K compliant. The Chairman of this Committee as well as the 
Ranking Member sent letters to the Health Care Financing Administration 
on the issue of Year 2000 readiness. In addition, letters were sent by 
the Chairman of this Committee to several health care associations that 
represent Medicare contractors and providers inquiring about their 
outreach efforts in helping their members become Y2K compliant.
    Today, our hearing will focus on the status of our Medicare 
providers. We will examine what we know, but more importantly, what we 
still do not know about how prepared our Medicare providers are for 
Y2K. Specifically, this hearing will address the readiness of their 
billing and financial systems. This issue is critical--if providers are 
not able to send bills in a Year 2000 format, they will not be able to 
get reimbursed from Medicare. Without reimbursement for a period of 
time, there is the possibility that a provider would have to close its 
doors. This could cause a great deal of anguish for providers as well 
as many beneficiaries who rely on their care.
    For some time now, the General Accounting Office, or GA0, has been 
monitoring the progress of HCFA and its Medicare contractors in 
becoming Y2K compliant. This issue has been followed extremely closely 
by the Oversight Subcommittee and others. Today, I would like to look 
at the other side of the equation and find out where our Medicare 
providers are in terms of preparedness for Y2K.
    Today, there are over one million Medicare providers who treat 
patients day in and day out. Each one of those providers has a 
responsibility to its patients to make sure its system is ready when we 
ring in the new century. This responsibility is an important one 
because it affects thirty-eight (38) million Medicare beneficiaries.
    I appreciate the willingness of several health care associations 
who represent the vast majority of Medicare providers to testify here 
today. Your insight into where members of your associations are with 
respect to Y2K compliance is very valuable. However, I want to caution 
everyone here. I am afraid that what we do know about the readiness of 
our Medicare providers is less than we think.
    I have studied the various surveys that have been conducted on 
Medicare provider readiness. I am concerned that these surveys may not 
present an accurate picture of where our Medicare providers are in 
terms of Y2K compliance.
    Therefore, today I, along with Chairman Bilirakis, Chairman Bliley 
and Ranking Members Dingell, Klink and Brown, will ask GA0 to do some 
additional work on the issue of Medicare Y2K provider readiness. The 
purpose of this request is to gain a better understanding of where 
Medicare providers are in terms of Y2K compliance efforts.
    With respect to the progress of the Health Care Financing 
Administration or HCFA, I commend the progress they have made to date 
in addressing Year 2000 issues. However, there is still a long road 
ahead. The critical test that still awaits HCFA and its Medicare 
contractors will begin this summer when they will start to re-test 
their systems. This re-testing process will need to be rigorous and 
thorough to ensure against mission critical failures in the Medicare 
claims processing systems in the year 2000. With that in mind, HCFA 
will need to make sure that contingency plans are comprehensive enough 
to manage any mission critical failures that may occur. We all need to 
remain committed to making sure that as we begin the new millennium, 
our Medicare beneficiaries will get the medical care and treatment they 
need.
    I would like to welcome all of our panels here today to testify. 
Thank you all for coming and appearing before us today.

    Mr. Klink. Thank you, Mr. Chairman. And I really want to 
thank you for having this, what I consider a very important 
hearing. The Y2K issue has been of concern to Congress and this 
committee for some time now. Mostly, however, this effort has 
been focused on the government side of the problem. But if 
we're to get serious about focusing our health care and 
Medicare billing, light must also be shed on areas beyond just 
the government and must include the private providers.
    And I thank the chairman for having the insight to 
recognize this fact and for using this hearing to focus on both 
sides of the problem. I will remind the committee that to 
execute a single Medi-

care reimbursement requires many steps, and it relies on many 
computer systems that are susceptible to the Y2K bug.
    To begin with, a provider must be able to reconcile what it 
is owed by the Federal Government. If the provider's internal 
computer billing system isn't Y2K compatible, it may not be 
able to accurately determine what it is owed. Assuming that a 
provider's internal billing system is able to function, its 
bill may be sent through a third-party billing agency who must 
also have a Y2K compatible system.
    Next, the billing agent will directly send the billing 
information to one of its many fiscal intermediaries that the 
government has used to process those claims. Those FIs have a 
wide range of internal computer operations, and they also must 
be Y2K compatible. Finally, once the bill is reconciled and 
paid, information is ultimately sent to HCFA, which has its own 
internal computer system that must also be Y2K compatible.
    Nonetheless, our present position regarding Y2K readiness 
in this chain of Medicare providers, processors, and payers is 
at best shaky. The positive news, thanks to the effort of HHS, 
the OIG, the GAO, and HCFA itself, is that we now have 
significant information about the government side of the Y2K 
problem, including what needs to be tested and fixed. In fact, 
it appears that HCFA has dedicated serious resources to the Y2K 
problem and has made significant progress.
    Nonetheless, there may be bad news, because information on 
the provider side of the problem is seriously lacking. In fact, 
while we've received mountains of data from HCFA on its Y2K 
efforts, we have only the faintest information about the 
efforts of hospitals, nursing homes, individual doctors, 
equipment suppliers, home health agencies, and other providers.
    Most of the information that we do have on the provider 
community is based only on a few surveys which at best provide 
limited information. That we are using only the most 
rudimentary of instruments to collect the data about provider 
Y2K readiness troubles me on its face. But even more disturbing 
is that for the little information we have obtained, it is not 
clear if such information is positive or even reliable.
    The American Hospital Association, for example, did a 
simple 2-page survey. It found that, while most of its 
hospitals report that they will be Y2K ready by the end of the 
year, less than 13 percent say they are presently compliant. 
But what does that really mean, and how do we ultimately make 
use of that information? If only 12 to 13 percent of the 
hospitals are now Y2K compliant, can we really expect them to 
get their act together in the 8 short months that are 
remaining?
    Further, what are the real details about what is wrong with 
the hospitals that are not reporting they are presently Y2K 
compliant? If only 13 percent now are reporting they are Y2K 
compliant, what specifically is wrong with the other 87 
percent? What progress is or is not being made? For example, do 
those not reporting current Y2K readiness have a clear 
technical understanding of what needs to be done, and, if so, 
do they have the resources to do it?
    The information on doctors is also very troubling. My good 
friends from the American Medical Association, an association 
of more than 300,000 members, also tried to learn the state of 
readiness about their members. They sent surveys to nearly 
7,000 of their 300,000 members. Alarmingly, the AMA had a 
response rate of only about 6 percent. That means they never 
heard from 94 percent of the 7,000 of the 300,000 that are 
members.
    What does that mean? Why didn't they respond? Does this 
mean that the doctors are fully prepared for the Year 2000, or 
does it mean exactly the opposite? I don't know. But I do know 
that I'm more than a bit uncomfortable making assumptions about 
the 94 percent who didn't respond. So I don't want to single 
out our friends at AMA or AHA for the rather disconcerting 
results they received in their surveys. At least they were 
willing to come to this hearing, and at least they have been 
willing to talk to us about the challenges they are facing.
    I realize in the grand scheme of many of the problems 
facing many providers, the Y2K problem may not seem terribly 
important. Nevertheless, without correcting the problem at the 
provider level, we may be running a significant risk that the 
government won't be able to make the necessary Medicare 
reimbursements. If this occurs, this can and will put providers 
at significant class-flow risks which could put the 
beneficiaries at risk. This is unacceptable.
    We must do more now to correct not only what the government 
and its own state of Y2K readiness is but also the readiness of 
the provider community. This requires that for each provider 
group we must learn what the Y2K issues that are presently 
affecting their operations. Two, what is required to fix those 
problems, and what will happen to the reimbursement stream if 
those problems are not addressed?
    Mr. Chairman, while there are many other health-related Y2K 
questions, I want to thank you personally for having this 
hearing today as a first step in your willingness to focus, not 
on just the government side of the problem, but, as 
importantly, on the provider, the private provider side.
    And finally, I want to thank both you and your personal 
staff and the committee staff for how you've worked with our 
side on this issue. We've had some differencess in the past, 
and we've talked about those publicly. I would like to thank 
you just as publicly for being professional and thorough and 
thank you and your staff for doing that.
    And with that I yield back.
    [The prepared statement of Hon. Ron Klink follows:]
Prepared Statement of Hon. Ron Klink, a Representative in Congress from 
                       the State of Pennsylvania
    Thank you Mr. Chairman, and thank you for having this important 
hearing.
    Mr. Chairman, the Y2K issue has been a concern for Congress and 
this Committee for some time now. Mostly, however, this effort has 
focused on the government side of the problem.
    But if one is serious about focusing on healthcare, and Medicare 
billing, light must also be shined on areas beyond just government and 
include private providers. I thank the chairman for having the insight 
to recognize this fact, and for using this hearing to focus on both 
sides.
    I will remind the Committee that to execute a single Medicare 
reimbursement requires many steps and relies on many computer systems 
susceptible to the Y2K bug. To begin with, a provider must be able to 
reconcile what it's owed by the federal government. If the provider's 
internal computer billing system isn't Y2K compatible, it may not be 
able to accurately determine what it's owed. Assuming a provider's 
internal billing system is able to function, it's bill may be sent 
through a third-party billing agent who must also have a Y2K-compatible 
system. Next, the billing agent (provider directly) will send the 
billing information to one of the many fiscal intermediaries (FIs) that 
the government uses to process claims. These FI's have a range of 
internal computer operations that must be Y2K compatible. Finally, once 
the bill is reconciled and paid, information is ultimately sent to 
HCFA, which has its own internal computer systems that must by Y2K 
compatible.
    Nonetheless, our present position regarding Y2K readiness in this 
chain of Medicare providers, processors, and payers is shaky. The 
positive news--thanks to the efforts of the HHS' OIG, the GAO, and HCFA 
itself--is that we now have significant information about the 
government side of the Y2K problem including what needs to be tested 
and fixed. In fact, it appears that HCFA has dedicated serious 
resources to the Y2K problem and has made significant progress.
    Nevertheless, there may be bad news because information on the 
provider-side of the problem is seriously lacking. In fact, while we've 
received mountains of data from HCFA on its Y2K effort, we have only 
the vaguest of information about the efforts of hospitals, nursing 
homes, individual doctors, equipment suppliers, home health agencies 
and other providers. Most of the information we do have on the provider 
community is based on a few surveys which at best provide limited 
information. That we are using only the most rudimentary of instruments 
to collect data about provider Y2K readiness troubles me on its face. 
But even more disturbing is that for the little information we have 
obtained, it is not clear if such information is positive or even 
reliable.
    The American Hospital Association (AHA), for example, did a simple 
two-page survey. It found that while most of its hospitals report they 
will be Y2K ready by the end of the year, less than 13 percent say they 
are presently compliant. But what does that really mean, and how do we 
ultimately make use of that information? If only 12 to 13 percent of 
the hospitals are now Y2K compliant, can we really expect them to get 
their act together in the short eight months remaining? Further, what 
are the real details about what is wrong with the hospitals that are 
not reporting they are presently Y2K compliant? If only 13 percent now 
report they are Y2K compliant, what specifically is wrong with the 
other 87 percent? What progress is or is not being made? For example, 
do those not reporting current Y2K readiness have a clear technical 
understanding of what needs to be done, and if so, do they have the 
resources to do it?
    The information on doctors is also troubling. My good friends from 
the American Medical Association (AMA)--an association with more than 
300,000 members--also tried to learn the state of readiness about their 
own members. They sent surveys to nearly 7,000 of their 300,000 
members. Alarmingly, the AMA had a response rate of only about 6 
percent. That means they never heard from about 94 percent of the 
intended sample. What does that mean? Why didn't they respond? Does 
this mean that the doctors are fully prepared for the Year 2000, or 
does it mean the opposite. I don't know, but I do know that I am more 
than a bit uncomfortable making assumptions about the 94% percent that 
did not respond.
    Mr. Chairman, I don't want to single out our friends from either 
the AMA or the AHA for the rather disconcerting results they received 
in their surveys. At least they were willing to come to this hearing 
and talk about what challenges they are facing.
    I realize that in the grand scheme of the many problems facing many 
providers, the Y2K problem may not seem terribly important. 
Nevertheless, without correcting the problems at the provider level, we 
may be running a significant risk that the government won't be able to 
make the necessary Medicare reimbursements. If this occurs, this can 
and will put providers at significant cash-flow risk, which could 
ultimately put beneficiaries at risk. This is unacceptable. We must do 
more now to correct not only what the government and its own state of 
Y2K readiness is, but also the readiness of the provider community. 
This requires that for each provider group, we must learn (1) what Y2K 
issues are presently affecting their operations; (2) what is required 
to fix those problem (and whether resources exist to do so), and (3) 
what will happen to the reimbursement stream if those problems are not 
addressed.
    Mr. Chairman, while there are many other health related Y2K 
questions--I want to thank you for having this hearing today as a first 
step and for your willingness to focus on not just the government side 
of this problem, but as importantly, on the private provider side. 
Finally, I would like to thank both your personal staff and your 
Committee staff for how they have worked with our side on this issue. 
They have been both professional and thorough, and I thank them for 
that.
    With that, I yield back.

    Mr. Upton. Thank you, Mr. Klink.
    Mr. Burr.
    Mr. Burr. I also want to thank the chairman for his 
willingness to hold these hearings and to take this opportunity 
to welcome both panels, especially Nancy-Ann DeParle. It's good 
to have you back and also apologize to the committee and the 
panels. Because of a prior conflict, I have to go over on the 
other side of the Capitol, not looking too forward to it, but I 
do have to do it.
    And, Mr. Chairman, at this time, I would ask unanimous 
consent that the record remain open so that members would have 
an opportunity in writing to send questions to these panels and 
to receive those answers for the record.
    Mr. Upton. Without objection, all members will have the 
chance to put in an opening statement. And we will, in fact, 
leave the record open so that members will be able to ask 
questions in writing for those that are not able to appear or 
as a follow-up.
    Mr. Burr. I thank the Chair. I also again thank the panel. 
And I yield back.
    Mr. Upton. Thank you, Mr. Burr.
    Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. Thank you for holding 
this hearing today. I would like to especially thank 
Administrator Nancy-Ann DeParle and others on the two panels 
for joining us today. In the health care arena, Y2K 
compatibility resonates not only as a economic issue but as a 
health care quality and consumer safety issue. Accommodating 
the transition is an imperative for both the public and private 
sectors, since each plays a major role in the financing and 
delivery of health care.
    And the Medicare program is an important focal point for 
Y2K preparations. Successful transition depends on the 
individual and collective efforts of HCFA, its 70 fiscal 
intermediaries and Part B carriers, and, as Mr. Klink and 
others has said, some 1 million health care providers. The 
benefits of the successful transition spread further to the 
program's 36 million beneficiaries and the Nation's 125 million 
taxpayers.
    Readiness in regard to the Y2K transition is a somewhat 
nebulous target. One of the tricks to gaining a better 
understanding of how we will fair come January 1, 2000, is 
making sure that the questions and the answers raised here 
refer to the same systems, the same stakeholders, and the same 
set of potential outcomes. Perhaps the most difficult question 
we can begin to tackle today is what are we missing? Is the 
private sector data sufficient to paint a realistic picture of 
their Y2K readiness? Are there areas of health care we are 
overlooking, facets, perhaps, of HCFA's role that may still be 
compromised by systems' problems.
    I hope we can come away today, Mr. Chairman, from today's 
hearing with a better understanding of where we are and where 
we need to go to prevent needless problems from cropping up 
next year. Thank you, Mr. Chairman.
    Mr. Upton. Dr. Coburn.
    Mr. Coburn. I have no opening statement.
    Mr. Upton. Mr. Whitfield.
    Mr. Whitfield. Mr. Chairman, I filed my opening statement 
with the record.
    Mr. Upton. Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman. I'm very glad that 
we're having this hearing today to talk about Y2K readiness of 
medical providers. I understand that the primary direction of 
the hearing today is on billing issues. But I think that we 
need to look beyond that. I want to congratulate Administrator 
DeParle on the efforts that she's made within HCFA for Y2K 
readiness overall. I think that the agency has made great 
strides.
    And also I want to congratulate you on the elimination of 
waste and abuse or at least working toward that end, from the 
Medicare payment process. I'm concerned, as I say, about the 
implications of the Y2K problem on the billing process. But I'm 
also concerned, for example, that the machinery in the 
intensive care unit at Denver General Hospital will fail on 
January 1 or that the ambulance communication dispatch units 
will crash, because of the lack of Y2K readiness.
    If those mechanisms fail within our hospital system, 
medical providers are going to have a much larger problem than 
worrying if their computers work for billing systems. 
Yesterday, for example, the House Diabetes Caucus, of which I'm 
the cochair with Congressman Nethercutt, hosted an 
informational briefing to correct the misinformation 
surrounding the pharmaceutical industry's preparations for Y2K.
    It's essential for the pharmaceutical industry to inform 
the public that they've addressed Y2K concerns to avoid the 
hoarding of medicines. But I know that's a very real concern 
within the industry as well. How can they manufacture enough 
medicine, insulin, for example, if people don't believe them, 
and think that there is not going to be enough of a supply of 
insulin or any other kind of pharmaceutical.
    I hope both committees today will come away from today's 
hearing with more information about Medicare providers' Y2K 
compliance in as many areas as possible, not just billing. And 
if we can't get to those other areas, I would hope, Mr. 
Chairman, we would be able to hold further hearings, because I 
think that the soundness of our medical delivery system is 
going to be one of the most key components with Y2K compliance.
    And with that, Mr. Chairman, I think I've made my point, 
and I would yield back.
    [The prepared statement of Hon. Diana DeGette follows:]
Prepared Statement of Hon. Diana DeGette, a Representative in Congress 
                       from the State of Colorado
    Thank you Mr. Chairman. I am pleased that we are holding this joint 
hearing today to discuss and investigate the Y2K readiness of medical 
providers. Certainly the preparedness of hospitals and other health 
care providers is one of, if not the most important concerns as we face 
the Y2K bug.
    Both the Subcommittee on Health and Environment and the 
Subcommittee on Oversight and Investigations have been diligent in our 
efforts to eliminate fraud, waste and abuse from the Medicare system. 
The Y2K bug could eliminate years of efforts to combat efforts to 
eradicate waste in Medicare and could wreak havoc on the Medicare Trust 
Fund. The billing concerns alone merit our meticulous examination of 
providers' preparedness. This is one case where the Federal Government 
is leading the way--HCFA is well on its way to Y2K compliance--and we 
must prod the private sector to catch up.
    The elimination of waste and abuse from the Medicare payment 
process is an area of concern. I urge both Committees to carefully 
examine Medicare providers Y2K readiness in terms of patient care. I am 
also concerned that the machinery in the Intensive Care ward will fail 
on January 1st or that communications in ambulance dispatch units will 
crash. Should these mechanisms fail, medical providers will have a 
crisis on their hands that is far more grave than faulty billing 
records.
    Yesterday, the House Diabetes Caucus, of which I am Co-Chair, 
hosted an informational hearing to correct the misinformation 
surrounding the pharmaceutical industry's preparations for Y2K. It is 
essential for the pharmaceutical industry to inform the public that 
they have addressed Y2K concerns to avoid hoarding of medicines. 
Because information is a critical component of successfully addressing 
Y2K, I am concerned that the information we do have on Medicare 
providers' Y2K compliance varies and is often contradictory. I hope 
both Committees will come away from today's hearing with more 
information about Medicare providers' Y2K compliance. Once the 
information is there, we will have a clear concept of where the holes 
exist and what problems need to be addressed by the 70 Medicare 
contractors and over one million physicians, hospitals, medical 
suppliers and home health agencies that serve Medicare beneficiaries.
    I look forward to today's testimony and hope this is the first in a 
series of hearings on the effects of Y2K on the health care industry 
and patient care.

    Mr. Upton. Thank you. I would just like to tell the 
gentlelady that we do intend to have a number of hearings, not 
only in the health care field, but others as well, on Y2K 
compliance. We look forward to your participation.
    Mr. Upton. Mr. Green.
    Mr. Green. Thank you. Like my colleague, I would like to 
congratulate HCFA for what they've done so far, and just a 
little parochial interest, I notice 2000 Action Week 
conferences in 12 cities in the plan and your testimony. I 
would encourage you to look at Houston, for one, just because 
of the medical center and the need there. And so if you could 
just have the staff look at that so--because we don't always go 
to Dallas from Houston. Thank you.
    Ms. DeParle. Yes, sir.
    Mr. Upton. Ms. Capps.
    Mrs. Capps. I will submit my statement for the record. But 
I also want to thank the Chair for holding this hearing. And I 
want to thank you for being here to address such an important 
topic. Seniors are waiting to make sure their issues are going 
to be addressed by the readiness of a number of agencies coming 
together. And I'm appreciative of the efforts that you're 
taking on a massive task ahead.
    I'm shocked to see the results of HHS, AMA, and hospitals' 
associations surveys and--rather the lack of results. And we've 
been hearing a little bit of this in our districts too, how 
well prepared are some of our facilities for meeting the needs 
on January 1. And I'm looking forward to hearing how you would 
be addressing this. Thank you.
    Mr. Upton. Ms. Eshoo.
    Ms. Eshoo. Thank you, Mr. Chairman, for having this joint 
hearing. I think it's a very important one. The word readiness 
is almost always been applied to our armed forces in the 
military. But readiness has taken on a new connotation as we 
try to prepare ourselves for the new century and what that 
means with all of our competing systems. So I'm looking forward 
to hearing the testimony today and how ready we indeed are. And 
I will also have some questions. But I thank those that are 
here to answer our questions to testify and also to the 
leadership of our committee for putting this together. It's a 
timely hearing to have.
    I yield back.
    [Additional statement submitted for the record follows:]
 Prepared Statement of Hon. Tom Bliley, Chairman, Committee on Commerce
    Several months ago, this Committee began an in-depth look at the 
health care industry and its efforts to become ready for the Year 2000. 
Letters were sent to the Health Care Financing Administration and 
health care associations representing Medicare contractors and Medicare 
providers asking them about their progress in becoming Year 2000 ready, 
or Y2K compliant.
    Over the past year, this Committee has received regular updates on 
the progress the Department of Health and Human Services, specifically 
the Health Care Financing Administration, has made in addressing their 
Y2K problems. Today, we will hear how Medicare providers are coping 
with Y2K.
    The Medicare program has over one million Medicare providers who 
serve thirty-eight million Medicare beneficiaries. Each and every day, 
our nation's seniors rely on the Medicare system for their health care 
needs. These Medicare providers consist of doctors, hospitals, nursing 
homes, home health agencies and others who are responsible for treating 
our seniors.
    What we know about their readiness to prepare for the Year 2000 is 
less than what we don't know. I am concerned for the health and well 
being of America's seniors and disabled persons who rely on HCFA, its 
contractors and providers for medical care. Any disruption in benefits 
can be an issue of life or death for many seniors and disabled 
individuals. If claims are unable to be processed due to lack of Y2K 
compliance, our nation's health care system will be put at risk. 
Second, I am concerned that if either HCFA, its contractors, or its 
providers are not Y2K compliant, the opportunities for waste, fraud and 
abuse will increase significantly, thus putting the fiscal solvency of 
Medicare at great risk.
    Medical care to our nation's seniors must not go uninterrupted as 
we enter the new millennium. Our Medicare providers have a duty to make 
sure their information systems, medical equipment and clinical records 
are able to function as we enter the year 2000. This hearing should be 
a wake-up call to our health care providers to make sure they are ready 
for the new millennium. We need to know more and that is why I applaud 
the chairmen of these two subcommittees for holding this hearing today.
    I would like to welcome all of our panels here today. Thank you all 
for coming and testifying before us today.

    Mr. Upton. Well, thank you. We're delighted to have the 
three witnesses that we have--and Nancy-Ann DeParle, 
administrator of HCFA, Joel Willemssen from the General 
Accounting Office, as well as George Grob from the Department 
of Health and Human Services. This has been a long-standing 
tradition and practice in this subcommittee, as you know, to 
testify under oath.
    And my first question is do you have any reason to need 
counsel this afternoon? Figuring not, would you stand and raise 
your right hand.
    [Witnesses sworn.]
    Thank you. You're now under oath. And we will start with 
the very Honorable Nancy-Ann DeParle.
    Ms. DeParle. Thank you, Mr. Chairman.
    Mr. Upton. Let me just note for all the witnesses, if you 
will try to limit your remarks to 5 minutes. Your whole 
statement will be made a part of the record, but if you could 
try to limit to 5 minutes, that would be terrific. And thank 
you very much for submitting your testimony in advance.

TESTIMONY OF HON. NANCY-ANN MIN DEPARLE, ADMINISTRATOR, HEALTH 
 CARE FINANCING ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN 
    SERVICES; JOEL C. WILLEMSSEN, DIRECTOR, CIVIL AGENCIES 
  INFORMATION SYSTEMS, ACCOUNTING AND INFORMATION MANAGEMENT 
 DIVISION, GENERAL ACCOUNTING OFFICE; AND GEORGE GROB, DEPUTY 
   INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN SERVICES

    Ms. DeParle. Thank you, Mr. Chairman, and Representative 
Klink and distinguished members of the subcommittee, both 
subcommittees. Thank you for inviting me here to discuss my 
number one priority, which is the Year 2000 computer challenge.
    The Health Care Financing Administration continues to make 
solid progress in meeting our responsibility to make our 
internal and external systems compliant and to develop 
contingency plans to ensure payments in the event of unforeseen 
problems.
    As of today, all 75 of our external claims processing 
contractors in the Medicare program have certified that they 
have renovated and future-date tested their systems as we 
instructed them to. Seventy-three of the 75 met this deadline 
by March 31, and all of our mission and non-mission critical 
internal systems, including the systems that process managed 
care payments and do enrollment, are now compliant and have 
been tested.
    Providers also have Y2K challenges and responsibilities. 
And I know that's one of the focuses that this committee has 
today. And as you know, Mr. Chairman, as we discussed, HCFA 
doesn't have the authority or the resources to step in and 
personally fix all the provider computer systems. Providers 
themselves have to make sure that their systems are Y2K 
compliant, not just so they can get paid, but to ensure 
continued high quality care for their patients.
    One of the problems that we've had in the health care 
industry is that it is so diverse and so diffuse. So we, at the 
Health Care Financing Administration, have gone directly to the 
providers. We have undertaken unprecedented outreach efforts to 
help providers know what they must do to meet their 
responsibilities. In fact, we sent a letter in January to 1.3 
million health care providers outlining the Year 2000 challenge 
and including a checklist for what they need to do to get their 
systems ready.
    We also have a Website, a 1-800 number, a speakers bureau, 
and experts prepared to share the insights we have gained in 
our own Y2K efforts. And, Representative Green, you invited us 
to come to Houston. I want you to know that we have people 
ready to go with you, if you want, to your hospitals and other 
providers. And to all the members, we've offered to send people 
out to your districts, if that would help, to meet directly 
with providers. We're looking for opportunities to do that.
    We're sponsoring conferences and learning sessions 
throughout the country. Colleagues at the Small Business 
Administration and FDA, and other agencies, have been 
participating with us in those--and we're meeting regularly 
with the provider trade groups. We are also targeting groups 
for special attention based on the results of some of the 
surveys that we've received, including the most recent survey 
that the Inspector General has done.
    The good news is that I think provider organizations are 
increasing their efforts to measure and promote Y2K compliance 
among their members. But as you said, Mr. Chairman, there are a 
lot of unknowns here based on the surveys. And I'm going on 
what I do know.
    So based on information about the percentage of Medicare 
fee-for-service providers that met our April 5 deadline for 
submitting Y2K compliant claims, I feel relatively optimistic 
about providers' ability to be ready on the billing or 
financial side. Just based on the fact that upwards of 99.98 
percent, I think, of the Part B providers or submitters are 
submitting appropriate claims. And it's upwards of 93 percent 
on the Part A side.
    But I do have more questions. I think there is a question 
mark about provider's readiness in terms of equipment and 
patient care. And as you know, under John Koskinen's 
leadership, the Department of Health and Human Services, along 
with the Veterans Administration and Department of Defense, are 
aggressively working with providers on those issues.
    We at HCFA still have a great deal of testing and retesting 
to do over the next 8 months. We've come a long way. But as you 
said, Mr. Chairman, we still have a long way to go. We're in 
the process also of validating our contingency plans based on 
making sure that we can continue all of our business processes.
    I want to acknowledge that we've had a lot of help with our 
Y2K effort. We have benefited greatly from the advice of our 
independent validation and verification contractor, AverStar, 
as well as advice from the HHS Inspector General and the 
General Accounting Office. And I want to thank personally June 
Gibbs Brown from the IG's office and Joel Willemssen from the 
General Accounting Office, because they have played a role, not 
just as critics, but as people who are trying to help us get to 
a solution; and that is something that I have benefited greatly 
from. I thank them.
    And, Mr. Chairman, I also want to thank the members of the 
committee. We would not have made the progress that we've made 
this year without the support and the funding that you and 
others in Congress have provided to us. And I want to thank you 
for that.
    The GAO recently advised us that our testing regimen for 
the remainder of the year should be more rigorous, that we need 
to be more precise with the contractors about what we expect 
and more exacting about the documentation we get from them on 
testing.
    That is a difficult challenge because we are modifying 
systems and have been throughout the year in order to comply 
with changes in the Balanced Budget Act and other changes in 
the law at the same time that we're preparing for Y2K. But I 
want to be clear, I will do whatever it takes to make sure that 
our systems are able to process and pay accurate and timely 
claims.
    Medicare beneficiaries should not worry about a disruption 
in service. There is no higher priority at HCFA than Y2K. We 
will meet our responsibilities, and we will also continue to do 
what we can to help providers meet their responsibilities. 
Thank you.
    [The prepared statement of Hon. Nancy-Ann Min DeParle 
follows:]
Prepared Statement of Hon. Nancy-Ann Min DeParle, Administrator, Health 
                     Care Financing Administration
    Chairman Upton, Chairman Bilirakis, Congressman Klink, Congressman 
Brown, distinguished committee members, thank you for inviting me here 
today to discuss my number one priority--the Year 2000 computer 
challenge. It is a challenge that we at the Health Care Financing 
Administration (HCFA) and the health care providers who serve our 
programs' beneficiaries must meet. I am happy to report today that we 
continue to make remarkable progress. All of HCFA's Year 2000 systems 
issues will be resolved and thoroughly tested and retested before 
January 1, 2000.
    It is equally essential that providers ready their systems for the 
new millennium. Our systems will be able to accurately and timely 
process and pay claims, but providers must be able to generate and 
submit legitimate claims to our contractors. We are, therefore, engaged 
in an unprecedented outreach effort to raise awareness of the need to 
be Year 2000-ready and provide information to health care providers and 
other parts of the health care system where we have little authority 
and control. As a part of our broad provider outreach effort, we have:

 mailed a letter on the importance of the Year 2000 and how to 
        achieve compliance to each of our 1.3 million providers;
 established a website (www.hcfa.gov/y2k) with information and 
        checklists on what providers must do to meet their Year 2000 
        responsibility;
 held Year 2000 Action Week conferences in 12 cities across the 
        nation to raise provider awareness of Year 2000 issues;
 created a speakers bureau with agency staff around the country 
        who are speaking to provider groups about Year 2000 readiness; 
        and
 initiated other efforts to work with provider groups and 
        institutions to help them meet their Year 2000 
        responsibilities.
Background
    Our foremost concern has been, and continues to be, ensuring that 
our more than 70 million Medicare, Medicaid, and Children's Health 
Insurance Program beneficiaries continue to receive the health care 
services they need in the new millennium. We are aggressively 
addressing Year 2000 issues in the systems over which we have 
responsibility. We continue to test and retest our renovated systems. I 
am pleased to announce that we have made extraordinary progress on our 
renovation, testing, and implementation of Year 2000-ready systems.

 All of our internal systems were renovated, tested, certified, 
        and implemented by the government-wide Year 2000 deadline of 
        March 31, 1999. In fact, our 25 mission-critical internal 
        systems were compliant, including end-to-end and future-date 
        testing, three months ahead of that deadline. Among other 
        things, these internal systems:

    --manage the eligibility, enrollment, and premium status of our 39 
            million Medicare beneficiaries;
    --make payments to approximately 386 managed care plans on behalf 
            of over six million beneficiaries; and
    --operate HCFA's accounts receivable and payable operations.
 As of last week, 73 of 75 mission-critical claim processing 
        systems, operated by private insurance contractors that process 
        Medicare claims and pay bills, were certified as compliant, 
        including end-to-end and future-date testing. Since last week 
        the remaining two contractors have furnished documentation of 
        certification, and we are evaluating that information now.
    The process by which we analyzed and certified these claims 
processing systems has received much attention, appropriately, from the 
Congress, the GAO, and the provider community. I would like to take a 
moment to explain the process we used for declaring a system to be 
compliant. As you are aware, we required that all mission-critical 
systems be renovated, tested, and implemented by the federal 
government's March 31, 1999 deadline. Seventy of the systems were 
actually self-certified as compliant by the contractors at the end of 
1998, but we accepted only 54 of those certifications--those with 
qualifications that we deemed to be minor--at that time. And we asked 
the contractors to address and resolve those qualifications. We then 
required that all contractors, including those that we had previously 
certified as compliant with qualifications, to complete their Year 2000 
readiness work by March 31, 1999, and submit written reports on the 
status of their systems by April 5, 1999.
    We thoroughly reviewed all of the certifications and accompanying 
qualifications, if any, that we received by April 5, 1999. We 
supplemented our analysis of the paperwork with evidence gathered by 
our own on-site review teams. We provided all the certifications and 
accompanying qualifications to our independent verification and 
validation (IV&V) expert, AverStar, and, in conjunction with them, then 
made an assessment of each system. Also, as a part of our ongoing 
collaboration with the Department of Health and Human Services Office 
of the Inspector General (OIG) and the General Accounting Office (GAO), 
we provided these oversight bodies all of the certification and 
qualification information and reviewed our analysis and conclusions 
with them. Because of the rigor and thoroughness of our testing and 
reviews, I am quite confident that our systems will be able to process 
and pay claims timely and appropriately at the turn of the millennium.
    Our progress on remediation and testing has been so successful that 
we would like to attempt to carry out the Fiscal Year 2000 and Calendar 
Year 2000 provider payment updates as close to their statutory schedule 
as possible. We had previously announced to the Congress and provider 
community that we might have to delay these updates. In consultation 
with our IV&V contractor, we recently determined that the updates to 
hospitals, skilled nursing facilities, home health agencies, and other 
Part A providers can be implemented on schedule on October 1, 1999 
without jeopardizing our Year 2000 readiness. Our IV&V contractor 
describes these changes at that time as ``low impact.'' However, 
because of the potential for system disruptions, we cannot make changes 
to the International Classification of Disease, 9th Revision, Clinical 
Modifications (ICD-9-CM) coding for fiscal 2000.
    We also hope to implement the updates to physicians and other Part 
B providers and suppliers starting January 17, applying them 
retroactively to all claims for services on or after January 1. Our 
IV&V contractor describes this as the ``optimal solution'' because it 
avoids a payment freeze while providing a reasonable amount of time for 
cleaning up any Year 2000-related problems identified in early January 
before the systems changes would be made. Of course, our top priority 
will remain the readiness of our systems, but as long as our Year 2000 
efforts continue on track, we will try our best to meet our statutory 
obligations and implement these updates on schedule.
    All of our remediated claims processing systems are implemented and 
paying claims today. And we have given providers the opportunity to 
test with those systems to determine whether their claims, including 
future-dated claims, can be successfully accepted and processed. Our 
test results have been encouraging, thus far. For example, a major 
national hospital network has future-date tested successfully with nine 
claims processing contractors. We do not know of any other payers that 
are giving providers the opportunity to test the submission of future-
dated claims.
    Such provider testing gives us a better indication of how many 
providers have actually done the necessary renovations to make their 
billing systems compliant. As such, we will continue to closely monitor 
these provider tests, as well as track the number of providers and 
other claims submitters who test simulated future-date claims with the 
claims processors. This will help us refine and target our future 
outreach efforts to providers who may not be making adequate progress 
in meeting their Year 2000 responsibility. Of course, providers receive 
payment from sources other than Medicare. We hope that our outreach 
efforts will prompt providers to ensure that other payers also are 
meeting their Year 2000 obligations.
    Being able to submit claims and get paid is, however, only one 
reason why health care providers must meet their Year 2000 
responsibility. Computer system problems could impact quality of care 
and patient safety. Patient management systems, clinical information 
systems, medical devices, such as defibrillators and infusion pumps, 
and even elevators and security systems all must be checked, renovated, 
and tested to make sure they are ready so that providers can give 
quality care.
    We are concerned that some providers will not meet the Year 2000 
challenge on time. Health care sector monitoring by us, the OIG and 
others, indicates that some providers are substantially behind in their 
remediation efforts and could well fail. Providers have the primary 
responsibility to ready their own systems for the Year 2000 in a timely 
manner to meet the millennium challenge successfully. We do not have 
the authority, ability, or resources to step in and fix systems for 
others. We are providing assistance to the extent that we are able, but 
in some cases that likely will not be enough. This matter is of urgent 
concern, and literally grows in importance with each passing day.
Provider Outreach Activities.
    From our own efforts, we know first hand the difficulties inherent 
in achieving Year 2000 compliance, and we are eager to share with 
providers and their billing agents the lessons we have learned along 
the way. Therefore, as I have mentioned above, last year we initiated a 
vigorous outreach campaign to raise awareness of this critical issue 
and to encourage providers to take the steps necessary for ensuring 
their own millennium compliance.

 We are leading the health care sector of the President's 
        Council on Year 2000 Conversion. We chair twice-monthly 
        meetings in coordination with a number of provider trade 
        associations and our public sector health partners, like the 
        Food and Drug Administration, the Defense Department, the 
        Department of Veterans Affairs, and the Labor Department, among 
        others, to share insights, raise millennium awareness, and 
        encourage all providers to become Year 2000 compliant.
 This past January, in an unprecedented step, we sent a letter 
        to each of our more than 1.3 million Medicare and Medicaid 
        providers stressing the importance of Year 2000 readiness, 
        including the need to assess readiness, test systems, as well 
        as develop contingency plans for unanticipated failures. We 
        also provided an inventory checklist of office equipment and 
        supplies they need to assess for Year 2000 compliance. A copy 
        of this letter was printed in the Federal Register and 
        distributed to every Member of Congress.
 We established a website dedicated to the Year 2000 
        (www.hcfa.gov/y2k) advising providers how to identify mission-
        critical hardware and software and assess its readiness; test 
        systems and their interfaces; and develop contingency plans 
        should unexpected problems arise. The website also includes 
        links to other pertinent sites, such as the Food and Drug 
        Administration's website on medical device readiness. The site 
        registered nearly 25,000 visits last month.
 Last month, we set up a Year 2000 toll-free phone line, 1-800-
        958-HCFA (1-800-958-4232) where callers can receive up-to-date 
        answers to Year 2000 questions that relate to medical supplies, 
        their facilities and business operations, as well as referrals 
        for more specific billing-related information. The hotline also 
        will update callers on HCFA's Year 2000 policies and provide 
        general ``how to'' assistance to help callers prepare their own 
        computer systems for the millennium.
 In March, we hosted Year 2000 Action Week seminars in 
        Washington, D.C. and eleven other cities, including Baltimore; 
        Boston; New York; Philadelphia; Atlanta; Chicago; Dallas; 
        Kansas City; Denver; San Francisco; and Seattle. These 
        conferences provided attendees with detailed information about 
        what doctors' offices, hospitals, equipment suppliers, 
        pharmacies, and other health care providers and their billing 
        agents need to do to be Year 2000-ready.
 Two weeks ago, we began a series of provider educational 
        conferences which will take place over the next three months in 
        twelve cities across the country. We have already held 
        conferences in Kansas City and Atlanta. Tomorrow, we will hold 
        a conference in Cleveland. In May, we will visit Hartford, Salt 
        Lake City, Los Angeles, Fargo, and Minneapolis. And in June, we 
        will be in Tampa, Phoenix, and Portland, Oregon. These one-day 
        conferences are offered free-of-charge and feature readiness 
        strategies, as well as information about biomedical equipment 
        and pharmaceutical risks. The seminars have been well-received 
        by providers. Over 175 providers attended our conference in 
        Kansas City and Atlanta drew over 200 participants. I invite 
        any of the members of these subcommittees to participate in 
        these events and my staff would be pleased to work with your 
        staff to make arrangements.
 We are developing smaller, more individualized Year 2000 
        educational sessions targeted towards rural providers, in 
        consultation with rural provider associations.
 And agency staff across the country have been actively 
        involved in sponsoring and participating in conferences, 
        symposiums, and other outreach programs through our speakers 
        bureau. They have made literally hundreds of presentations on 
        Year 2000 issues to providers and others around the nation.
    We have been working to address the Year 2000 readiness of managed 
care plans. Our primary objective--to ensure that our own internal 
mission critical systems for paying managed care plans are compliant--
is done. At the same time, we have been proactive in our efforts to 
raise managed care plans' awareness of the importance of being Year 
2000-ready. We have established a Year 2000 managed care workgroup that 
is focusing its efforts in three critical areas: readiness education 
and information; certification; and contingency planning. Similar to 
our efforts to reach the provider community at large, we have sent 
managed care plans letters providing guidance on Year 2000 readiness; 
posted updated information on our Year 2000 website; and conducted 
several national conferences geared specifically towards managed care. 
In addition, we meet regularly with managed care industry groups and 
trade associations to discuss and resolve Year 2000 issues. We know 
that our partners, including the American Association of Health Plans 
(AAHP) and the Health Insurance Association of America (HIAA) have been 
actively involved in outreach to their members.
    Importantly, we required all Medicare managed care organizations to 
submit certifications to us about their Year 2000 readiness by April 
15, 1999. We are quickly working to obtain an initial sense of the 
certifications submitted under the managed care data request. We also 
are requiring them to provide contingency plans by July 15, 1999. Also, 
earlier this year, we contracted with an IV&V expert, SRA, Inc., to 
help us assess health plan readiness. We currently are establishing 
criteria for identifying managed care organizations that will receive 
on-site reviews and are planning reviews at all national Medicare plans 
and those with more than 50,000 Medicare enrollees. We share the OIG's 
concern over the readiness of small plans and will include a number of 
these smaller plans in our review efforts. By September 1999, we should 
have a more accurate assessment of overall plan readiness. We will work 
closely with and monitor those plans at greatest risk and are 
developing contingency plans should problems arise in this area.
    I was pleased to learn that some provider associations, including 
the American Medical Association and the American Hospital Association, 
have begun to assess the Year 2000 readiness of their membership and to 
step-up their educational efforts on the critical nature of this 
problem. This is an essential undertaking. Quite simply, Year 2000 
compliance cannot be a one-way street. All providers must meet the Year 
2000 challenge head on, or risk not being able to receive prompt 
payment from Medicare, Medicaid, or virtually any other insurer, as 
well as risk serious compromise to patient care and safety.
    We also welcome Congress' help in making all providers aware of the 
need to become Year 2000-ready and appreciate your ongoing attention to 
this critical issue. You can help in identifying additional 
opportunities to publicize the Year 2000 message and we encourage you 
to stress the importance of this issue whenever you meet with 
providers.
Achieving Year 2000 Readiness.
    One of the first steps providers should take to achieve millennium 
readiness, and perhaps the easiest, is changing Medicare claims to the 
Year 2000-compliant format allowing for 8-digit date fields. We 
required that all providers and their billing agents submit Year 2000-
compliant claims by no later than April 5, 1999. To ease the transition 
to the new format, our claims processing contractors made compliant 
billing software available to all providers and submitters for free or 
at minimal cost.
    Our electronic claims monitoring indicates that, as of last week, 
more than 99.98 percent of Part B claims submitters (either physicians, 
suppliers, or their billing agents) and over 93 percent of Part A 
submitters (hospitals, other institutions, or their billing agents) 
that submit claims electronically are using the 8-digit fields. Most of 
those not yet using the new format are in the process of testing their 
format changes. We will continue to work closely with providers and 
health industry trade groups to reach our goal of 100 percent 
compliance.
    While the ability to submit 8-digit date claims is an important 
step toward Year 2000 readiness, it is only a first step. The ability 
of a provider to submit a claim with 4-digit years does not mean its 
office computer or practice management software will function into the 
millennium. If the systems do not function, a provider may not even be 
able to obtain the information needed to generate a paper claim. 
Providing quality care to beneficiaries goes well beyond billing and 
claims processing. It depends upon doctors, hospitals, and other 
service providers ensuring that their medical equipment will work and 
their offices remain open. It also depends upon pharmaceutical and 
medical supply chains continuing to operate uninterrupted.
    Providers also need to make sure they are able to submit claims to 
their State Medicaid systems, and in turn, the State systems must also 
be ready. We are conducting on-site visits, with the assistance of an 
expert IV&V contractor, in every State to review Year 2000 readiness 
and provide advice where necessary. To date, we have visited all 50 
States and the District of Columbia. GAO staff have accompanied us on 
some of these visits. Our preliminary surveys are consistent with 
earlier work by the GAO that suggests some States may not be ready on 
time. We and our IV&V team will revisit approximately 35 states between 
May and the end of August to follow-up on earlier visits and to 
continue to monitor progress. Again, we do not have the ability, 
authority, or resources to step in and fix State systems, and can 
provide only limited assistance. We are sharing whatever survey 
information we gather directly with the States, to provide them, at a 
minimum, with an independent appraisal of their Year 2000 issues and 
progress. It is the responsibility of each State to determine the 
appropriate steps it must take to meet its Year 2000 responsibility and 
the needs of its beneficiaries.
Contingency Planning.
    Regardless of success in renovating and testing systems for Year 
2000 readiness, both we and providers must have business continuity and 
contingency plans prepared in case unanticipated problems arise. We 
have undertaken an extensive effort to develop these plans for all our 
mission-critical business processes, as should providers. Our 
priorities are to ensure that we can:

 continue prompt and accurate payments to providers, suppliers, 
        and others;
 safeguard the Medicare Trust Funds by preventing and 
        recovering inappropriate payments;
 protect quality of care; and
 sustain beneficiary entitlement and enrollment.
    For HCFA, contingency planning is an agency-wide effort with active 
participation of all of our senior executives. We are closely following 
the GAO's advice on contingency planning outlined in their August 1998 
guidance, Year 2000 Business Continuity and Contingency Planning and in 
their September 1998 report, Medicare Computer Systems--Year 2000 
Challenges Put Benefits and Services in Jeopardy. We have developed and 
are now validating our contingency plans. This validation phase of our 
effort will run through the end of June. We intend, however, to provide 
the Office of Management and Budget with a status of our business 
continuity and contingency planning on June 15, 1999, as all Federal 
agencies are doing. Each contingency plan has a designated Emergency 
Response Team responsible for executing the various contingency plans, 
if necessary. During the validation phase, these teams will run 
practice exercises and rehearse plans in a simulated environment.
    It is important to note that contingency planning is not a static 
process. We will continue to rehearse and refine our plans throughout 
the coming year and up until December 31, 1999. We will make changes, 
if necessary, as we learn more about the readiness status of those with 
whom we interact, such as providers, pharmaceutical and medical 
equipment suppliers, and States, among others.
    Our contingency plans will, of course, factor in the possibility of 
provider failure. I hope the subcommittees will appreciate the delicate 
balance that exists between our top two contingency planning goals of 
paying providers promptly and preventing payment errors. Let me stress 
that I firmly believe that no contingency plan should cause providers 
who fail to prepare for the Year 2000 to be rewarded for their lack of 
attention, effort, or due diligence. It is quite clear that it would 
not fulfill our fiduciary responsibilities to pay monies from the 
Medicare Trust Funds in the absence of appropriate evidence that a 
covered service was delivered to a beneficiary.
Conclusion.
    We have made remarkable progress in meeting the Year 2000 
challenge, as have many providers. However, we remain seriously 
concerned with the progress of some providers in meeting their own Year 
2000 challenges. We are committed to raising awareness and providing as 
much assistance as we can, but in some cases that may not be enough. We 
all share a common goal of having our systems and programs function and 
care for our programs' beneficiaries continue throughout the millennium 
transition. I thank you for your attention to this essential issue, and 
I am happy to answer any questions you may have.

    Mr. Upton. Thank you very much.
    Mr. Willemssen.

                TESTIMONY OF JOEL C. WILLEMSSEN

    Mr. Willemssen. Thank you, Mr. Chairman, Mr. Ranking 
Member, Chairman Bilirakis. Thank you for inviting us to 
testify today. As requested, I will briefly summarize our 
statement on Medicare and on the health sector overall. 
Regarding Medicare, HCFA has continued to make progress in its 
efforts to become Y2K compliant. For example, HCFA is more 
effectively identifying and managing risks, further defining 
its testing procedures and enhancing its testing oversight, 
developing business continuity and contingency plans and 
continuing its outreach efforts with providers.
    Despite this progress, HCFA still faces a considerable 
amount of work and risks. For example, systems will have to 
undergo a significant amount of change between now and July. 
HCFA plans to conduct final tests of these change systems 
between July and November and then recertify systems as 
compliant.
    To date HCFA's testing of its external systems has not been 
rigorous enough. HCFA's contractor has reported concerns with 
test documentation, readiness, and coverage. The agency also 
still lags in developing an integrated schedule that has 
milestones for testing of all systems.
    HCFA's late start and the limited time remaining has also 
led to planned concurrent testing that is overlapping testing. 
HCFA also still lacks a detailed end-to-end test plan 
explaining how multiple systems will be tested to make sure 
that they can work together.
    HCFA has several other areas that it needs to work on in 
the time remaining, including getting all of its data exchanges 
compliant, testing, business continuity and contingency plans, 
implementing provider payment updates, transitioning workloads 
of contractors leaving the program, and overseeing managed-care 
organizations' Y2K efforts.
    Looking beyond Medicare and at the health sector overall, 
available data that's out there indicates that there's much 
work remaining.
    According to the report of the President's Council on Year 
2000 Conversion issued last week, the health care sector has 
not made adequate progress in addressing Y2K. In response to 
the council chairman's request, the amount of readiness 
information on this sector has increased recently. However, the 
picture is still incomplete, because many have not responded to 
surveys.
    One crucial area for providers and for the health sector 
overall is that of biomedical equipment. For this type of 
equipment, progress has been made in obtaining Y2K compliance 
information for manufacturers. Specifically, FDA has 
established a biomedical equipment clearinghouse that provides 
the public with such information.
    Less progress has been made in reviewing biomedical 
equipment results. Last year we recommended that HHS take steps 
to review manufacturers' compliance test results for critical 
care and life support biomedical equipment to give added 
assurance that such equipment was indeed compliant. The 
response to our recommendation has been disappointing.
    HHS said that submitting compliance certifications was 
sufficient. In contrast to that position, some hospitals in the 
private sector believe that testing biomedical equipment is 
necessary to show that they have exercised due diligence in the 
protection of patient health and safety. In fact, hospital 
officials have told us that their testing has identified some 
noncompliant equipment that manufacturers had certified as 
compliant.
    Pharmaceuticals represent another health-related area with 
growing recognition of Y2K risks. Pharmaceutical trade 
associations have performed recent surveys of their memberships 
and based on those surveys believe there should be an 
uninterrupted flow of medicines. However, the association 
surveys do not provide detailed information on the information 
on the Y2K readiness of specific manufacturers.
    In an effort to assure the public that Y2K is being 
addressed, last evening, the Food and Drug Administration 
informed us that it is now sending surveys to drug 
manufacturers requesting specific compliance information.
    That concludes a summary of my statement. I would be 
pleased to address any questions at the conclusion of Mr. 
Grob's statement.
    [The prepared statement of Joel C. Willemssen follows:]
  Prepared Statement of Joel C. Willemssen, Director, Civil Agencies 
 Information Systems, Accounting and Information Management Division, 
                                  GAO
    Messrs. Chairmen and Members of the Subcommittees: We appreciate 
the opportunity to join in today's hearing and share information on the 
readiness of automated systems that support the nation's delivery of 
health benefits and services to function reliably without interruption 
through the turn of the century. This includes the ability of Medicare 
and Medicaid to pay for services to millions of Americans and the 
overall readiness of the health care sector, including such key 
elements as biomedical equipment used in the delivery of health 
services. Successful Year 2000--or Y2K--conversion is critical to these 
efforts.
    We reported in February that while some progress by the Department 
of Health and Human Services' (HHS) Health Care Financing 
Administration (HCFA)--and its contractors--had been made in addressing 
the numerous recommendations we made last year 1 to improve 
key HCFA management practices associated with its Y2K program, many 
significant challenges remained.2 At the time, we also 
reported that while some progress had been achieved, many states' 
Medicaid systems were at risk, and much work remained.3
---------------------------------------------------------------------------
    \1\ Medicare Computer Systems: Year 2000 Challenges Put Benefits 
and Services in Jeopardy (GAO/AIMD-98-284, September 28, 1998).
    \2\ Year 2000 Computing Crisis: Medicare and the Delivery of Health 
Services Are at Risk (GAO/T-AIMD-99-89, February 24, 1999).
    \3\ Year 2000 Computing Crisis: Readiness of State Automated 
Systems That Support Federal Human Services Programs (GAO/T-AIMD-99-91, 
February 24, 1999).
---------------------------------------------------------------------------
    Beyond Medicare and Medicaid, the information available on the 
national level concerning Y2K readiness throughout the health care 
sector--including providers, insurers, manufacturers, and suppliers--
indicates much work remains in renovating, testing, and implementing 
compliant systems. Also, as we recently testified, while information on 
the compliance status of biomedical equipment is available through a 
clearinghouse maintained by the Food and Drug Administration (FDA), the 
test results for this equipment are not reviewed.4 Finally, 
information on the Y2K readiness of pharmaceutical and medical-surgical 
manufacturers is incomplete.
---------------------------------------------------------------------------
    \4\ See Year 2000 Computing Crisis: Action Needed to Ensure 
Continued Delivery of Veterans Benefits and Health Care Services (GAO/
AIMD-99-136, April 15, 1999).
---------------------------------------------------------------------------
    hcfa's ability to process medicare claims into the next century
    As the nation's largest health care insurer, Medicare expects to 
process over a billion claims and pay $288 billion in benefits annually 
by 2000. The consequences, then, of its systems' not being Y2K 
compliant could be enormous. We originally highlighted this concern in 
May 1997 and made several recommendations for improvement.5 
Our report of last September warned that although HCFA had made 
improvements in its Y2K management, the agency and its contractors were 
severely behind schedule in making their computers that process 
Medicare claims Y2K compliant. In February, we testified that although 
HCFA had been responsive to our recommendations and that its top 
management was actively engaged in its Y2K program, its reported 
progress was highly overstated. We testified that none of HCFA's 54 
external mission-critical systems reported compliant by HHS as of 
December 31, 1998, was Y2K ready, based on serious qualifications 
identified by the independent verification and validation (IV&V) 
contractor. Further, we reported that HCFA continued to face serious 
Y2K challenges. Specifically, HCFA

    \5\ Medicare Transaction System: Success Depends Upon Correcting 
Critical Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 16, 
1997).
---------------------------------------------------------------------------
 lacked an overall schedule and critical path to identify and 
        rank Y2K tasks to help ensure that they could be completed in a 
        timely manner;
 needed a formal risk management process to highlight potential 
        technical and managerial weaknesses that could impair project 
        success;
 continued to have thousands of electronic data exchanges that 
        were not Y2K compliant;
 faced a significant amount of testing in 1999, especially 
        since changes will continue to be made to its mission-critical 
        systems to make them compliant; and
 needed to sustain its efforts to complete and test business 
        continuity and contingency plans to ensure that Medicare claims 
        will be processed next year.
    The Office of Management and Budget (OMB) also continues to be 
concerned about HCFA's progress. In its March 18, 1999, summary of Y2K 
progress reports of all agencies for the reporting quarter ending 
February 12, 1999, it concluded that HCFA remains a serious concern due 
to external systems testing, implementation schedules, and the 
qualified compliance of a number of external mission-critical systems. 
OMB further stated that although Medicare contractors had been making 
an intensive effort to complete validation and implementation by the 
governmentwide deadline of March 31, 1999, some external contractors 
may not succeed. Due in large part to HCFA's status, OMB designated HHS 
as a tier 1 agency on its three-tiered rating scale, meaning it had 
made insufficient progress in addressing the Y2K problem.
HCFA's Actions To Achieve Compliance and Bolster Outreach Efforts to 
        Medicare Providers
    HCFA has been responsive to our recommendations. To more 
effectively identify and manage risks, HCFA is relying on multiple 
sources of information, including test reports, reports from its IV&V 
contractors, and weekly status reports from its recently established 
contractor oversight teams. In addition, HCFA has stationed staff at 
critical contractor sites to assess the data being reported and to 
identify problems.
    HCFA also is more effectively managing its electronic data 
exchanges. It issued instructions to its contractors (fiscal 
intermediaries and carriers) to inform providers and suppliers that 
they had to begin submitting Medicare claims in Y2K-compliant data 
exchange format by April 5 of this year. HCFA now reports that 93 
percent of the fiscal intermediaries and 99 percent of the carriers are 
complying. HCFA also established new instructions for contractors to 
report on data exchanges, and created a new database to track status.
    HCFA continues to further define its testing procedures. It 
required that existing qualifications be addressed and tested by March 
31, 1999. It also issued instructions--on January 11, 1999--for all 
contractors to recertify their systems from July 1 to November 1, 1999. 
To more clearly define this testing, HCFA issued additional 
recertification and end-to-end testing guidance on March 10, 1999.
    HCFA has also begun to use several Y2K-analysis tools to measure 
testing thoroughness, and its IV&V contractor is assessing test 
adequacy of the external systems (e.g., test coverage and 
documentation). In addition to the IV&V contractors' efforts, HCFA has 
engaged a separate contractor to conduct independent tests on some of 
its mission-critical systems. HCFA further plans to perform end-to-end 
testing with its Y2K-compliant test sites. These end-to-end tests are 
to include all internal systems and contractor systems; however, they 
will not include testing with banks and providers.
    Another area in which HCFA has demonstrated progress is developing 
business continuity and contingency plans to ensure that, no matter 
what, beneficiaries will receive care and providers will be paid. HCFA 
established cross-organizational workgroups to develop contingency 
plans for the following core business functions: health plan and 
provider payment, eligibility and enrollment issues, program integrity, 
managed care, quality of care, litigation, and telecommunications. 
HCFA's fourth and final iteration of this plan was issued on April 1, 
1999, and the plan is expected to be tested by June 30.
    HCFA has continued to strengthen its outreach efforts to the 
providers of Medicare services. On January 12, 1999, the Administrator 
sent individual letters to over 1.3 million Medicare providers in the 
United States, alerting them to take prompt Y2K action on their 
information and billing systems. Three days later, the Administrator 
sent a letter to Congress, with assurances that HCFA is making progress 
and stressing that physicians, hospitals, and other providers must also 
meet the Y2K challenge. HCFA also offered to provide speakers in local 
congressional districts, is holding a series of conferences throughout 
the country, and has established a toll-free information hotline.
Reported Status of HCFA's Mission-Critical Systems
    HCFA operates and maintains 25 internal mission-critical systems; 
it also relies on 75 external mission-critical systems operated by 
contractors throughout the country who process Medicare claims. These 
external systems include six standard processing systems and the 
``Common Working File.'' Each contractor relies on one of these 
standard systems to process its claims, and adds its own front-end and 
back-end processing systems. The Common Working File is a set of 
databases located at nine sites that works with internal and external 
systems to authorize claims payments and determine beneficiary 
eligibility.
    In HHS' latest Y2K quarterly progress report to OMB, dated February 
10, it reported that as of December 31, 1998, all 25 of HCFA's internal 
mission-critical systems were reported to be compliant, as were 54 of 
the external systems. Yet as we testified in February, none of these 54 
systems was Y2K ready because all had important associated 
qualifications (exceptions), some of them significant.6 HCFA 
issued a memorandum in early January requesting Medicare carriers and 
fiscal intermediaries to resolve these qualifications by March 31, the 
federal target date for Y2K compliance. HCFA reported to us on April 
19, 1999, that most of these qualifications have been resolved and that 
73 of 75 external systems are now compliant (the total number of 
external mission-critical systems decreased from 78 to 75 because three 
contractors plan to leave the Medicare program before the end of the 
year).
---------------------------------------------------------------------------
    \6\ GAO/T-AIMD-99-89, February 24, 1999.
---------------------------------------------------------------------------
    HCFA's IV&V contractor's analysis of the qualifications was 
consistent with what HCFA reported to us. Specifically, the IV&V 
contractor's analysis of the 53 external systems concluded that 19 had 
no remaining qualifications, 33 had qualifications it deemed ``low 
impact'' (i.e., could be addressed within the next 3 months or would 
have a minor impact on the site's ability to meet Medicare 
requirements), and 1 had qualifications deemed critical. The IV&V 
contractor recommended that all qualifications be resolved by June 28, 
1999, so that HCFA's final testing of its mission-critical systems 
could begin on July 1, 1999, with no open qualifications.
Despite Reported Compliance, HCFA's Mission-Critical Systems Still 
        Require Additional Y2K Renovation and Testing
    The HCFA mission-critical systems that have been characterized as 
Y2K compliant are not, however, the final systems that will be 
processing Medicare claims on January 1, 2000. These systems will 
undergo a significant amount of change between now and July 1, 1999, 
for both Y2K and other reasons. These changes will require a complete 
retest to ensure that the systems have not been contaminated by the 
changes and that they still are indeed Y2K compliant.
    Specifically, these changes will address (1) outstanding 
qualifications, (2) additional Y2K changes, (3) a critical software 
release of the Common Working File, and (4) legislative 
mandates.7 In addition to the changes required to address 
outstanding qualifications, changes are also occurring because of other 
compliance issues not listed as qualifications. For example, three 
standard system maintainers are currently updating their systems 
because the earlier renovation was performed with noncompliant 
compilers.8 Each of these three upgrades is scheduled to be 
completed by July 1999. In addition, analyses using tools that 
determine the Y2K readiness of software code are uncovering additional 
Y2K programming errors. For example, 28 programming errors were 
recently identified using a Y2K tool on the Florida standard system. 
These errors are to be corrected and tested by June 1999. According to 
HCFA officials, such errors were uncovered based on an inspection of 
only about one seventh of the software code associated with the Florida 
standard system. If time permits, HCFA is considering using this Y2K 
tool on 100 percent of the code on all of the standard systems.
---------------------------------------------------------------------------
    \7\ These legislative mandates include software changes required to 
implement new policies for the Balanced Budget Act of 1997, such as 
hospice updates and Medicare+Choice.
    \8\ A compiler is a computer program that converts human-readable 
source code into a sequence of machine instructions that the computer 
can run.
---------------------------------------------------------------------------
    In addition to these Y2K-related changes, HCFA is planning a major 
software release of the Common Working File in late June, and 
legislatively mandated changes are to occur through June. HCFA plans to 
conduct final tests of its systems between July 1 and November 1, 1999, 
then recertify all mission-critical systems as compliant without 
qualification or exception. These final tests will ultimately determine 
whether HCFA's mission-critical systems are Y2K compliant. The late 
1999 time frames associated with this testing represent a high degree 
of risk.
Other Critical Risks and Challenges Remain
    Testing is a critical area in which HCFA faces significant 
challenges. Complete and thorough testing is essential to providing 
reasonable assurance that new or modified systems will process dates 
correctly and will not jeopardize an organization's ability to perform 
core business operations. Because the Y2K problem is so pervasive, 
potentially affecting an organization's systems software, applications 
software, databases, hardware, firmware, embedded processors, 
telecommunications, and interfaces, the requisite testing can be 
extensive and expensive. Experience is showing that Y2K testing is 
consuming between 50 and 70 percent of a Y2K project's time and 
resources. According to our guide, to be done effectively, testing 
should be planned and conducted in a structured and disciplined 
fashion.9
---------------------------------------------------------------------------
    \9\ Year 2000 Computing Crisis: A Testing Guide (GAO/AIMD-10.1.21, 
November 1998).
---------------------------------------------------------------------------
    To date, HCFA's testing of its external systems has not been 
rigorous. HCFA's IV&V contractor has reported concerns with test 
documentation, readiness, and coverage associated with HCFA's external 
mission-critical systems. Specifically, the IV&V contractor reported 
that the quality of test documentation has been found to be incomplete 
and inadequate during a significant number of site visits. In addition, 
the results of using a Y2K tool to assess renovation quality and test 
readiness on each of the standard systems revealed that both indicators 
are primarily rated in the low to medium ranges, meaning that errors 
exist that could cause Y2K-related system failures.
    The IV&V contractor also reported that HCFA's contractors have no 
satisfactory mechanism for determining the quality of test coverage 
(e.g., systems functionality, HCFA-mandated dates, interface coverage) 
associated with the self-certification testing. Because of this, HCFA 
issued instructions on April 9, 1999, that required contractors to 
submit information on the functionality covered by their test cases. 
Until test coverage is determined and testing is fully executed, the 
quality of the testing conducted will remain unknown.
    In addition, two standard system maintainers did not test with the 
Common Working File, rather, they used a system that simulates the 
functions performed by the Common Working File. Testing with a system 
that simulates the Common Working File is less than ideal since the 
simulated system is not identical to the actual system. HCFA has 
acknowledged this and plans to have these two standard system 
maintainers test with the Common Working File during the 
recertification testing.
    Further, testing has not been completed in the optimal sequence to 
ensure compliance of all systems. Since each contractor relies on one 
of the six standard systems to process its claims, ideally each of 
these six standard systems should have been completely tested before 
the contractors tested their front-end and back-end processing systems 
with their respective standard systems. However, only the Florida 
standard system maintainer completed future-date testing before the 
system was provided to its 29 contractors. Thus, more than half of the 
contractors tested with standard systems that had not completed Y2K 
testing. Managing multiple testing baselines and ensuring that 
corrections to one system's testing errors does not lead to problems in 
another system is a major challenge.
    In September 1998 we recommended that HCFA rank its remaining Y2K 
work on the basis of a schedule that includes milestones for renovation 
and testing of all systems, and that it include time for end-to-end 
testing and development and testing of business continuity and 
contingency plans.10 Such a schedule is extremely important 
because of the number of systems, their complexity, and 
interdependencies among them. However, HCFA still lacks an integrated 
schedule. The complexity and required sequencing of the 75 external and 
25 internal systems associated with the recertification requires an 
integrated testing schedule to avoid scheduling constraints. For 
example, the Common Working File and standard systems should be tested 
initially so that the contractors can test with fully compliant 
systems. Without an integrated schedule, HCFA cannot effectively 
prioritize remaining work or ensure that all Y2K testing will be 
completed on time.
---------------------------------------------------------------------------
    \10\ GAO/AIMD-98-284, September 28, 1998.
---------------------------------------------------------------------------
    HCFA's late start and the limited time remaining raises risks that 
the recertification testing will likewise not be as rigorous as 
necessary. Two areas already have us concerned--testing overlap and a 
decrease in the number of future dates that will be tested. HCFA 
officials told us that contractors will begin to test with the Common 
Working File before it is completely Y2K-tested. Ideally, these tests 
should be done sequentially so that each contractor can test with a 
fully Y2K-tested Common Working File. Also, although HCFA's 
recertification will test four future dates, two more than the self-
certification testing, this total is fewer than what HCFA had 
originally planned. Initially, HCFA planned to test with nine future 
dates.
    In addition to such individual systems testing, HCFA must also test 
its systems end-to-end to verify that defined sets of interrelated 
systems, which collectively support an organizational core business 
function, will work as intended. As mentioned, HCFA plans to perform 
this end-to-end testing with its Y2K-test sites. These tests are to 
include all internal systems and contractor systems, but will not 
include testing with banks and providers. HCFA has required its 
contractors to future-date test with providers and financial 
institutions. Even excluding banks and providers, end-to-end testing of 
HCFA's internal and external systems is a massive undertaking that will 
need to be effectively planned and carried out. HCFA has not yet, 
however, developed a detailed end-to-end test plan that explains how 
these tests will be conducted or that provides a detailed schedule for 
conducting them.
    A final aspect of testing concerns the independent testing 
contractor. HCFA expects this testing to be completed by August 31. 
This contractor currently plans to test eight internal systems and the 
six external standard systems. Originally, all 25 internal mission-
critical systems were to be tested. In addition, because of the 
changing nature of the Medicare systems and the limited remaining time, 
the independent testing will be conducted with systems that were 
available January 1999, not with the exact systems that will be 
operating on January 1, 2000.
    HCFA also faces risks because it has thousands of data exchanges 
that are not yet compliant. HCFA's systems--both internal and 
external--exchange data, both among themselves and with the CWF, other 
federal agencies, banks, and providers. Accordingly, it is important 
that HCFA ensure that Y2K-related errors will not be introduced into 
the Medicare program through these data exchanges. HCFA's total number 
of data exchanges dropped significantly since February 10, 1999. The 
number of internal data exchanges declined from 7,968 to 3,209, while 
the number of external data exchanges dropped from 255,383 to 141,866. 
HCFA officials attributed this decrease to ``performing a major cleanup 
of the data.'' As of April 9, 1999, HCFA reported that only four of its 
3,209 internal data exchanges were still not compliant, and that over 
3,000 of its 141,866 external data exchanges were not compliant. To 
ensure that HCFA's internal and external systems are capable of 
exchanging data between themselves as well as with other federal 
agencies, banks, and providers, it is essential that HCFA take steps to 
resolve the remaining noncompliance of these data exchanges.
    Given the magnitude of HCFA's Y2K problem and the many challenges 
that continue to face it, the development of contingency plans to 
ensure continuity of critical operations and business processes is 
absolutely critical. Therefore, HCFA must sustain its efforts to 
complete and test its agencywide business continuity and contingency 
plans by June 30. Another challenge for HCFA is monitoring the progress 
of the 62 separate business continuity and contingency plans that will 
be submitted by its contractors. We will continue to monitor progress 
in this area.
    Other issues that further complicate HCFA's Y2K challenge are 
planned October 1, 1999, and January 1, 2000, provider payment updates; 
the known and unknown contractor transitions that are to take place 
before January 1, 2000; and the unknown status of the managed care 
organizations serving Medicare beneficiaries. We have requested 
detailed information on the specific changes that the October 1 and 
January 1 updates will require to determine the amount of testing that 
will be necessary after these changes are made. HCFA already is faced 
with too much to test in too little time, and these updates further 
contribute to already monumental testing challenges.
    As reported in HHS' quarterly submission to OMB, HCFA is concerned 
about the possibility of Medicare contractors, fiscal intermediaries, 
and carriers leaving the program and notifying HCFA of this after June. 
If this were to occur, the workload would have to be transferred to 
another contractor whose Y2K-compliance status may not be known. 
According to both contractor and HCFA officials, it requires 6-12 
months to transfer the claims processing workload from one contractor 
to another. At present, HCFA is transitioning the work of the three 
contractors that are leaving the program.
    HCFA required the 386 managed care organizations currently serving 
6.6 million Medicare beneficiaries to certify their systems as Y2K 
compliant by April 15. As of April 21, 1999, HCFA had received 
certifications from 315 of the organizations. Similar to fee-for-
service contractors, 271 of the 315 certifications contained 
qualifications. We plan to review these certifications as part of our 
ongoing work for the Senate Special Committee on Aging to determine 
whether the managed care organizations' systems are Y2K compliant and 
whether a formal recertification would have to be performed later this 
year.
                      medicaid systems are at risk
    Similar to Medicare, the systems supporting the Medicaid program 
also face Y2K challenges and risk. In fiscal year 1997, Medicaid--a 
joint federal-state program supported by HCFA and administered by the 
states--provided about $160 billion to millions of recipients. Medicaid 
provides health coverage for 36 million low-income people, including 
over 17 million children. Its beneficiaries also include elderly, 
blind, and disabled individuals.
    In surveying states' Y2K status last summer,11 we found 
that many systems were at risk and much work remained to ensure the 
continuation of services. The states' reported compliance rate for 
Medicaid systems was only about 16 percent, and 18 states reported that 
they had completed renovating one quarter or fewer of their Medicaid 
claims processing systems. These 18 states had Medicaid expenditures of 
about $40 billion in fiscal year 1997--one quarter of total Medicaid 
expenditures nationwide, covering about 9.5 million recipients.
---------------------------------------------------------------------------
    \11\ Year 2000 Computing Crisis: Readiness of State Automation 
Systems to Support Federal Welfare Programs (GAO/AIMD-99-28, November 
6, 1998). We sent a survey to the 50 states, the District of Columbia, 
and three territories (Guam, Puerto Rico, and the Virgin Islands). All 
but one of the 54 entities surveyed responded.
---------------------------------------------------------------------------
    In response, HCFA administered two state self-reported surveys and 
conducted several on-site visits and found that overall state Medicaid 
systems status had improved little. To obtain more reliable Y2K state 
Medicaid status information, HCFA also hired a contractor to conduct 
independent verification and validation of states' systems.
    HCFA reported in HHS' February 1999 quarterly report to OMB that 
based on seven site visits, some of the dates that states had reported 
to us in July/August 1998 had already slipped, underscoring the need 
for on-site visits to secure more accurate information. In addition, 
according to HCFA, while four states appeared to have made some 
progress in the 6 months since our survey, three states' status 
remained the same. Further, HCFA found that one state's Medicaid 
eligibility system was not as far along as the state had reported in 
our survey. To assist states with their effort, HCFA's IV&V contractor 
plans to make on-site visits to all 50 states and the District of 
Columbia by the end of this April. For states considered at risk, HCFA 
will conduct second site visits between May and September 1999 and, if 
necessary, third visits between October and December 1999. The later 
visits will emphasize contingency planning to help the states ensure 
continuity of program operations in the event of systems failures.
       y2k readiness of the health care sector: much work remains
    At this point, I would like to broaden our discussion to the Y2K-
readiness status of the health care sector, including biomedical 
equipment 12 and pharmaceutical and medical-surgical 
products used in the delivery of health care. While it is undeniably 
important that Medicare and Medicaid systems be compliant so that the 
claims of health care providers and beneficiaries can be paid, it is 
also critical that the services and products associated with health 
care delivery itself be Y2K compliant. However, with just over 8 months 
until the turn of the century, the level of progress to date is not 
reassuring.
---------------------------------------------------------------------------
    \12\ Biomedical equipment refers to both medical devices regulated 
by the Food and Drug Administration (FDA), and scientific and research 
instruments, which are not subject to FDA regulation.
---------------------------------------------------------------------------
    Virtually everything in today's hospital is automated--from the 
scheduling of procedures such as surgery, to the ordering of medication 
such as insulin for a diabetic patient, to the use of portable devices 
as diverse as heart defibrillators and thermometers. It, therefore, 
becomes increasingly important for health care providers such as 
doctors and hospitals to assess their health information systems, 
facility systems (such as heating, ventilating, and air conditioning 
equipment), and biomedical equipment to ensure their continued 
operation on January 1, 2000. Similarly, pharmaceutical manufacturers 
and suppliers that rely heavily on computer systems for the manufacture 
and distribution of drugs must assess their processes for compliance. 
Given the large degree of interdependence among components of the 
health sector--providers, suppliers, insurance carriers, and patients/
consumers--the availability and sharing of Y2K readiness information is 
vital to safe, efficient, and effective health care delivery.
    In response to an October 1998 request from the Chair of the 
President's Council on Year 2000 Conversion, several federal agencies 
and professional health care associations surveyed key components of 
the health care sector. Accordingly, the amount of readiness 
information on this sector has increased in recent months. The survey 
results, however, indicate that much work still remains in renovating, 
testing, and implementing compliant systems. Further, readiness 
information on the health sector is still incomplete because a 
significant number of sector members did not respond to the surveys.
    According to a survey that the American Hospital Association (AHA) 
sent to 2,000 of its members in February 1999, much work remains. For 
example, based on the 583 responses received as of March 1, 1999, the 
hospitals reported that only about 6 percent of the medical devices, 13 
percent of information systems, and 24 percent of physical plant/
infrastructure are compliant. However, most hospitals indicated that 
they expect to be compliant by the end of the year.13
---------------------------------------------------------------------------
    \13\ Compliance refers to the hospitals' information systems, 
medical devices, and physical plant/infrastructure.
---------------------------------------------------------------------------
    The American Medical Association's (AMA) survey to 7,000 physicians 
showed that approximately 47 percent of the 522 physicians that 
responded by mail or telephone indicated that they do not have a good 
understanding of Y2K conversion, and have practices that are not Y2K 
ready. Almost all of these physicians reported that they would be ready 
by the end of the year. The survey disclosed no difference between the 
Y2K preparedness of large physician groups and solo or small physician 
groups (10 physicians or fewer). However, AMA stated that caution 
should be taken in interpreting the survey results due to the low 
response rate.
    According to responses received to a December 1998 survey sent by 
HHS' Office of the Inspector General to a sample of 5,000 Medicare 
providers--1,000 each to hospitals, nursing homes, durable medical 
device manufacturers, physicians, and home health agencies--except for 
hospitals, providers reported making limited progress in assessing 
their biomedical equipment for Y2K compliance. All providers reported 
making limited progress in testing data exchanges between their 
computers and external vendors, and developing emergency backup plans 
in case of computer failures. Further, many Medicare providers did not 
respond to this survey. For example, the response rates for medical 
device manufacturers, physicians, and home health agencies were less 
than 30 percent.
    A survey sent by the Association of State and Territorial Health 
Officials and the Centers for Disease Control and Prevention (CDC) to 
57 state and territorial health officials in December 1998 showed that 
two thirds of the 29 respondents did not have contingency plans. CDC is 
also concerned about the lack of readiness information on local public 
health agencies.
    Finally, according to the second quarterly report by the 
President's Council on Year 2000 Conversion, the health care sector has 
not made adequate progress in addressing the Y2K problem.14 
The report stated that while recent surveys indicate that health care 
providers have a high level of confidence that they will complete much 
of the work on mission-critical systems before the end of the year, the 
actual number of systems made compliant to date is relatively low in 
areas from recordkeeping to infrastructure. The report noted that 
recordkeeping systems are ``of great concern'' because they play an 
essential role in processing payment claims to insurance companies and 
government health agencies.
---------------------------------------------------------------------------
    \14\ The President's Council on Year 2000 Conversion: Second 
Summary of Assessment Information, April 21, 1999.
---------------------------------------------------------------------------
Biomedical Equipment: Status Information Available for Many Items, But 
        Test Results Not Reviewed
    The question of whether medical devices such as magnetic resonance 
imaging (MRI) systems, x-ray machines, pacemakers, and cardiac monitors 
can be counted on to work reliably on and after January 1, 2000, is 
critical to medical care delivery. To the extent that biomedical 
equipment uses embedded computer chips, it is vulnerable to the Y2K 
problem.
    Such vulnerability carries with it possible safety risks. This 
could range from the more benign--such as incorrect formatting of a 
printout--to the most serious--such as incorrect operation of equipment 
with the potential to adversely affect the patient. The degree of risk 
depends in large part on the role the equipment plays in a patient's 
care.
    Responsibility for oversight and regulation of medical devices, 
including the impact of the Y2K problem, lies with FDA. Last September 
we testified that FDA, like the Veterans Health Administration (VHA)--a 
key federal health care provider--was trying to determine the Y2K 
compliance status of biomedical equipment.15 FDA's goal was 
to provide a comprehensive, centralized source of information on the 
Y2K compliance status of biomedical equipment used in the United States 
and to make this information publicly available on a web site. However, 
at the time, FDA had a disappointing response rate from manufacturers 
to its letter requesting compliance information. And, while FDA made 
this information available to the public, it was not detailed enough to 
be useful. Specifically, FDA's list of compliant equipment lacked 
information relating to the particular make and model of the equipment.
---------------------------------------------------------------------------
    \15\ Year 2000 Computing Crisis: Leadership Needed to Collect and 
Disseminate Critical Biomedical Equipment Information (GAO/T-AIMD-98-
310, September 24, 1998).
---------------------------------------------------------------------------
    To provide more detailed information on the compliance status of 
biomedical equipment, as well as to integrate more detailed compliance 
information gathered by VHA, we recommended that VA and HHS jointly 
develop a single data clearinghouse that provides such information to 
all users. We said development of the clearinghouse should involve 
representatives from the health care industry, such as the Department 
of Defense's Health Affairs and the Health Industry Manufacturers 
Association. In addition, we recommended that the clearinghouse contain 
such information as (1) the compliance status of all biomedical 
equipment by make and model, and (2) the identity of manufacturers that 
are no longer in business. We also recommended that VHA and FDA 
determine what actions should be taken regarding biomedical equipment 
manufacturers that have not provided compliance information.
    In response to our recommendation, FDA--in conjunction with VHA--
has established the Federal Year 2000 Biomedical Equipment 
Clearinghouse. With the assistance of VHA, the Department of Defense, 
and the Health Industry Manufacturers Association, FDA has made 
progress in obtaining compliance-status information from manufacturers. 
For example, according to FDA, 4,251 biomedical equipment manufacturers 
had submitted data to the clearinghouse as of April 5, 1999. As shown 
in figure 1, about 54 percent of the manufacturers reported having 
products that do not employ a date, while about 16 percent reported 
having date-related problems such as incorrect display of date/time. 
FDA is still awaiting responses from 399 manufacturers. 

[GRAPHIC] [TIFF OMITTED] T6606.001

Note: Total number of manufacturers = 4,251.
Source: FDA.

    FDA has also expanded the information in the clearinghouse. For 
example, users can now find information on manufacturers that have 
merged with or have been bought out by other firms.
    In collaboration with the National Patient Safety 
Partnership,16 FDA is in the process of obtaining more 
detailed information from manufacturers on noncompliant products, such 
as make and model and descriptions of the impact of the Y2K problem on 
products left uncorrected. For example, FDA sent a March 29, 1999, 
letter requesting that medical device manufacturers submit to the 
clearinghouse a complete list of individual product models that are Y2K 
compliant.
---------------------------------------------------------------------------
    \16\ The National Patient Safety Partnership is a coalition of 
public and private health care providers, including VA, the American 
Medical Association, the American Hospital Association, the American 
Nurses Association, and the Joint Commission on Accreditation of 
Healthcare Organizations.
---------------------------------------------------------------------------
    We reported last September that VHA and FDA relied on manufacturers 
to validate, test, and certify that equipment is Y2K 
compliant.17 We also reported that there was no assurance 
that the manufacturers adequately addressed the Y2K problem for 
noncompliant equipment, because FDA did not require medical device 
manufacturers to submit test results to it certifying compliance. 
Accordingly, we recommended that VA and HHS take prudent steps to 
jointly review manufacturers' compliance test results for critical 
care/life support biomedical equipment. We were especially concerned 
that VA and FDA review test results for equipment previously determined 
to be noncompliant but now deemed by manufacturers to be compliant, or 
equipment for which concerns about compliance remain. We also 
recommended that VA and HHS determine what legislative, regulatory, or 
other changes were necessary to obtain assurances that the 
manufacturers' equipment was compliant, including the need to perform 
independent verification and validation of the manufacturers' 
certifications.
---------------------------------------------------------------------------
    \17\ GAO/AIMD-98-240, September 18, 1998.
---------------------------------------------------------------------------
    At the time, VA stated that it had no legislative or regulatory 
authority to implement the recommendation to review test results from 
manufacturers. In its response, HHS stated that it did not concur with 
our recommendation to review test results supporting medical device 
equipment manufacturers' certifications that their equipment is 
compliant. It said that the submission of appropriate certifications of 
compliance was sufficient to ensure that the certifying manufacturers' 
equipment was compliant. HHS also stated that it did not have the 
resources to undertake such a review, yet we are not aware of HHS' 
requesting resources from the Congress for this purpose.
    More recently, VHA's Chief Biomedical Engineer told us that VHA 
medical facilities are not requesting test results for critical care/
life support biomedical equipment; they also are not currently 
reviewing the test results available on manufacturers' web sites. He 
said that VHA's priority is determining the compliance status of its 
biomedical equipment inventory and replacing noncompliant equipment. 
The director of FDA's Division of Electronics and Computer Science 
likewise said FDA sees no need to question manufacturers' 
certifications.
    In contrast to VHA's and FDA's positions, some hospitals in the 
private sector believe that testing biomedical equipment is necessary 
to prove that they have exercised due diligence in the protection of 
patient health and safety. Officials at three hospitals told us that 
their biomedical engineers established their own test programs for 
biomedical equipment, and in many cases contacted the manufacturers for 
their test protocols. Several of these engineers informed us that their 
testing identified some noncompliant equipment that the manufacturers 
had previously certified as compliant. According to these engineers, to 
date, the equipment found to be noncompliant all had display problems 
and was not critical care/life support equipment. We were told that 
equipment found to be incorrectly certified as compliant included a 
cardiac catheterization unit, a pulse oxymeter, medical imaging 
equipment, and ultrasound equipment.
    VHA, FDA, and the Emergency Care Research Institute 18 
continue to believe that manufacturers are best qualified to analyze 
embedded systems or software to determine Y2K compliance. They further 
believe that manufacturers are the ones with full access to all design 
and operating parameters contained in the internal software or embedded 
chips in the equipment. VHA believes that such testing can potentially 
cause irreparable damage to expensive health care equipment, causing it 
to lock up or otherwise cease functioning. Further, a number of 
manufacturers also have recommended that users not conduct verification 
and validation testing.
---------------------------------------------------------------------------
    \18\ An international, nonprofit health services research agency. 
This organization believes that superficial testing of biomedical 
equipment by users may provide false assurances, as well as create 
legal liability exposure for health care institutions.
---------------------------------------------------------------------------
    We continue to believe that, rather than relying solely on 
manufacturers' certifications, organizations such as VHA or FDA can 
provide users of biomedical equipment with a greater level of 
confidence that the equipment is Y2K compliant through independent 
reviews of manufacturers' compliance test results. The question of 
whether to independently verify and validate biomedical equipment that 
manufacturers have certified as compliant is one that must be addressed 
jointly by medical facilities' clinical staff, biomedical engineers, 
and corporate management. The overriding criterion should be ensuring 
patient health and safety.
Y2K-Readiness Information on Pharmaceutical and Medical-Surgical 
        Manufacturers Is Incomplete
    Another question critical to the delivery of health care is knowing 
whether there will be sufficient supplies of pharmaceutical and 
medical-surgical products available for consumers at the turn of the 
century. As the largest centrally directed civilian health care system 
in the United States, VHA has taken a leadership role in the federal 
government in determining whether manufacturers supplying these 
products are Y2K-ready. This information is essential to VHA's medical 
operations because of its ``just-in-time'' 19 inventory 
policy. Accordingly, VHA must know whether its manufacturers' 
processes, which are highly automated, 20 are at risk, as 
well as whether the rest of the supply chain will function properly.
---------------------------------------------------------------------------
    \19\ This term refers to maintaining a limited inventory on hand.
    \20\ Pharmaceutical manufacturers rely on automated systems for 
production, packaging, and distribution of their products, as well as 
for ordering raw materials and supplies.
---------------------------------------------------------------------------
    To determine the Y2K readiness of its suppliers, VA's National 
Acquisition Center (NAC) 21 sent a survey on January 8, 
1999, to 384 pharmaceutical firms and 459 medical-surgical firms with 
which it does business. The survey contained questions on the firms' 
overall Y2K status and inquired about actions taken to assess, 
inventory, and plan for any perceived impact that the century turnover 
would have on their ability to operate at normal levels. In addition, 
the firms were requested to provide status information on progress made 
to become Y2K compliant and a reliable estimated date when compliance 
will be achieved for business processes such as (1) ordering and 
receipt of raw materials, (2) mixing and processing product, (3) 
completing final product processing, (4) packaging and labeling 
product, and (5) distributing finished product to distributors/
wholesalers and end customers.
---------------------------------------------------------------------------
    \21\ This organization is responsible for supporting VHA's health 
care delivery system by providing an acquisition program for items such 
as medical, dental, and surgical supplies and equipment; 
pharmaceuticals; and chemicals. The NAC is part of VA's Office of 
Acquisition and Materiel Management.
---------------------------------------------------------------------------
    According to NAC officials, of the 455 firms that responded to the 
survey as of March 31, 1999, about 55 percent completed all or part of 
the survey. The remainder provided either general information on their 
Y2K readiness status or literature 22 on their efforts. As 
shown in table 1, more than half of the pharmaceutical firms surveyed 
responded (52 percent), with just less than one third (32 percent) of 
those respondents reporting that they are compliant. The table also 
shows that 54 percent of the medical-surgical firms surveyed responded, 
with about two thirds of them (166) reporting that they are Y2K 
compliant.
---------------------------------------------------------------------------
    \22\ This includes annual and quarterly financial reports required 
by the Securities and Exchange Commission for companies listed on the 
New York Stock Exchange.

    Table 1: Status of Companies Surveyed by VHA as of March 31, 1999
------------------------------------------------------------------------
                                                       Pharma-  Medical-
                      Responses                       ceutical  surgical
------------------------------------------------------------------------
Y2K compliant.......................................        65       166
Will be compliant by 1/1/2000 or earlier*...........        90        70
Provided no compliant date..........................        50        14
  Total number of responses.........................       205       250
Non-responses.......................................       179       209
  Total number of firms surveyed....................       384       459
------------------------------------------------------------------------
*Estimated compliance status ranged from 3/31/99 through 1/1/2000; about
  71 percent of pharmaceutical firms and 80 percent of medical-surgical
  firms estimated they will be compliant by 7/31/99. One firm responded
  that it will be compliant by 1/1/2000.
Source: VA. We did not independently verify these data.

    On March 17, 1999, NAC sent a second letter to its pharmaceutical 
and medical-surgical firms, informing them of VA's plans to make Y2K 
readiness information previously provided to VA available to the public 
through a web site (www.va.gov/oa&mm/nac/y2k). VA made the survey 
results available on its web site on April 13, 1999. The letter also 
requested that manufacturers that had not previously responded provide 
information on their readiness. NAC's Executive Director said that he 
would personally contact any major VA supplier that does not respond.
    On a broader level, VHA has taken a leadership role in obtaining 
and sharing information on the Y2K readiness of the pharmaceutical 
industry. Specifically, VHA chairs the Year 2000 Pharmaceuticals 
Acquisitions and Distributions Subcommittee, which reports to the Chair 
of the President's Council on Year 2000 Conversion. The purpose of this 
subcommittee is to bring together federal and pharmaceutical 
representatives to address issues concerning supply and distribution as 
it relates to the year 2000. The subcommittee consists of FDA; federal 
health care providers; and industry trade associations such as the 
Pharmaceutical Research and Manufacturers of America (PhRMA), Generic 
Pharmaceutical Industry Association, the National Association of Chain 
Drug Stores, and the National Wholesale Druggists' Association; and 
consumer advocates.
    In response to the Chair's request for Y2K-readiness information on 
the pharmaceutical industry, several of these trade associations, 
representing both brand name and generic pharmaceutical manufacturers, 
have surveyed their members on this issue. Table 2 summarizes the 
survey results available to date.

  Table 2: Summary of Y2K-Readiness Survey Results From Pharmaceutical
                              Manufacturers
------------------------------------------------------------------------
                                 Number of
   Industry Trade Association     Members   Number of      Summary of
                                  Surveyed  Responses       Results
------------------------------------------------------------------------
Pharmaceutical Research and             25     \1\ 24  All respondents
 Manufacturers of America                               have Y2K plans
 (PhRMA).                                               and are
                                                        developing
                                                        contingency
                                                        plans to ensure
                                                        continuous
                                                        supply of
                                                        medicines to
                                                        patients.
                                                        Respondents
                                                        expect to
                                                        collectively
                                                        spend $1.75
                                                        billion to
                                                        address Y2K
                                                        problem. Most
                                                        repair work is
                                                        expected to be
                                                        completed in
                                                        early to mid-
                                                        1999.
Generic Pharmaceutical Industry     \2\ 16         14  All respondents
 Association (GPIA).                                    have Y2K plans
                                                        and individually
                                                        expect to spend
                                                        no more than
                                                        $1.5 million on
                                                        Y2K problem.
                                                        Most repair work
                                                        is expected to
                                                        be completed in
                                                        June or July
                                                        1999.
National Association of                 12          7  Most respondents
 Pharmaceutical Manufacturers                           have Y2K plans.
 (NAPM).
Association of Military             \3\ 41         41  All respondents
 Surgeons of the U.S. (AMSUS).                          have Y2K plans.
                                                        Respondents are
                                                        spending from $2
                                                        million--$70
                                                        million on Y2K
                                                        problem. All
                                                        repair work is
                                                        expected to be
                                                        completed by
                                                        June 30, 1999.
------------------------------------------------------------------------
\1\ These members comprise more than 90 percent of the industry capacity
  represented by PhRMA, which represents more than 95 percent of the
  research-based pharmaceutical manufacturers in the United States.
\2\ This number only represents those members that are generic
  pharmaceutical manufacturers.
\3\ Of the members surveyed, 24 are also members of PhRMA and 22 of
  these participated in the PhRMA survey.
Source: Associations listed. We did not independently verify these data.

    In addition, the National Wholesale Druggists' Association sent a 
survey to 240 of its associate members that are pharmaceutical 
manufacturers requesting information on patient stockpiling of 
pharmaceutical products. Three quarters of the 77 members responding as 
of November 1998 said they could currently fill orders which will 
provide patients with a 3-month supply. Less than 20 percent of the 
respondents said they could provide a 1-year supply. Finally, in 
January 1999, the National Association of Chain Drug Stores sent a 
survey to over 130 of its members and received responses from about 25 
percent. These respondents indicated that they will finish Y2K 
renovations by September 30, 1999, and two third of the respondents 
have developed contingency plans.
    Based on their survey results, these industry trade associations 
believe that computer systems and software application problems will 
not substantially impede the ability of the supply chain to maintain an 
uninterrupted flow of medicines. However, in contrast to VHA's survey, 
the associations' surveys were provided in summary format and did not 
contain detailed information on the Y2K readiness of specific 
manufacturers or members of the supply chain. This information is 
necessary if consumers are to have confidence that there will be a 
sufficient supply of medications on hand at the turn of the century.
FDA's Y2K Efforts for Pharmaceutical and Biological Products Industries 
        Focused Initially on Awareness
    FDA's oversight and regulatory responsibility for pharmaceutical 
and biological products 23 is to ensure that they are safe 
and effective for their intended uses. Because of its concern about the 
Y2K impact on manufacturers of these products, FDA has taken several 
actions to raise the Y2K awareness of the pharmaceutical and biological 
products industries. In addition, it is thinking about conducting a 
survey to determine the industry's Y2K readiness.
---------------------------------------------------------------------------
    \23\ Biological products include vaccines, blood, and blood 
products.
---------------------------------------------------------------------------
    One of FDA's actions to raise industry awareness was the January 
1998 issuance of industry guidance by the Center for Biologics 
Evaluation and Research (CBER) on the Y2K impact of computer systems 
and software applications used in the manufacture of blood products. In 
addition, as shown in table 3, FDA has issued several letters to 
pharmaceutical and biological trade associations and sole-source drug 
manufacturers.

                               Table 3: FDA Letters to Manufacturers Regarding Y2K
----------------------------------------------------------------------------------------------------------------
                 Date                         FDA Source               Recipient                 Purpose
----------------------------------------------------------------------------------------------------------------
October 1998.........................  Center for Drug          Pharmaceutical           To relay to members
                                        Evaluation and           manufacturer trade       FDA's expectation that
                                        Research.                associations.            the pharmaceutical
                                                                                          industry would (1)
                                                                                          make resolution of Y2K
                                                                                          a high priority, (2)
                                                                                          ensure that production
                                                                                          systems were fixed and
                                                                                          tested prior to
                                                                                          January 1, 2000, and
                                                                                          (3) urge manufacturers
                                                                                          to develop Y2K
                                                                                          contingency plans.
October 1998.........................  Center for Biologics     Biologics manufacturer   Same as above.
                                        Evaluation and           trade associations.
                                        Research.
January 1999.........................  Center for Drug          Sole-source drug         Same as above. Also (1)
                                        Evaluation and           manufacturers.           noted that the impact
                                        Research.                                         of Y2K on
                                                                                          pharmaceutical safety,
                                                                                          efficacy, and
                                                                                          availability merits
                                                                                          special attention for
                                                                                          firms who are the sole
                                                                                          manufacturers of drug
                                                                                          components, bulk
                                                                                          ingredients, and
                                                                                          finished products; and
                                                                                          (2) stated that
                                                                                          pharmaceutical
                                                                                          industry suppliers
                                                                                          must have Y2K-
                                                                                          compliant systems to
                                                                                          protect against
                                                                                          disruption in the flow
                                                                                          of product components,
                                                                                          packaging materials,
                                                                                          and equipment to
                                                                                          pharmaceutical
                                                                                          manufacturers.
----------------------------------------------------------------------------------------------------------------
Source: FDA.

    Further, on February 11, 1999, FDA's director of emergency and 
investigation operations sent a memorandum on FDA's interim inspection 
policy for the Y2K issue to the directors of FDA's field 
investigations. The policy emphasizes FDA's Y2K awareness efforts for 
manufacturers. It states that FDA inspectors are to (1) inform firms of 
FDA's Y2K web page (URL http://www.fda.gov/cdrh/yr2000/year2000.html); 
(2) provide firms with copies of the appropriate FDA Y2K awareness 
letter; (3) explain that Y2K problems could potentially affect aspects 
of the firms' operations, including some areas not regulated by FDA, 
and that FDA anticipates that firms will take prudent steps to ensure 
that they are not adversely affected by Y2K; and (4) provide firms with 
a copy of FDA's compliance policy guide ``Year 2000 (Y2K) Computer 
Compliance.''
    In addition, FDA and PhRMA jointly held a government/industry forum 
on the Y2K preparedness of the pharmaceutical and biotech industries on 
February 22, 1999. The objectives of this forum were to (1) share 
information on Y2K programs conducted by health care providers, 
pharmaceutical companies, FDA, and other federal agencies; (2) provide 
a vehicle for networking; and (3) raise awareness.
    On March 29, 1999, FDA revised its February 11, 1999, interim 
inspection policy. The revision states that field inspectors are now to 
inquire about manufacturers' efforts to ensure that their computer-
controlled or date-sensitive manufacturing processes and distribution 
systems are Y2K compliant. Inspectors are to include this information 
in their reports, along with a determination of activities that firms 
have completed or started to ensure that they will be Y2K compliant.
    Further, FDA inspectors may review documentation in cases in which 
firms have made changes to their regulated computerized production or 
process control systems to address Y2K issues. The purpose of this 
review is to ensure that the changes were made in accordance with 
firms' procedures and applicable regulations. If inspectors determine 
that a firm has not taken steps to ensure Y2K compliance, they are to 
notify their district managers and the responsible FDA center.
    FDA's interim policy describes steps inspectors are to take in 
reviewing manufacturers' Y2K compliance. However, FDA stated that the 
primary focus of its inspections for the remainder of 1999 will be to 
ensure that products sold in the United States are safe and effective 
for their intended use and comply with federal statutes and 
regulations, including current ``good manufacturing practice'' 
requirements (GMP).24 FDA officials explained that the 
agency does not have sufficient resources to perform both regulatory 
oversight of the manufacturers and in-depth evaluations of firms' Y2K 
compliance activities.
---------------------------------------------------------------------------
    \24\ These include federal standards for ensuring that products are 
high in quality and produced under sanitary conditions (21 CFR parts 
210, 211).
---------------------------------------------------------------------------
    Nevertheless, according to the March 29, 1999, memorandum, field 
inspectors are to note, in the administrative remarks section of their 
inspection reports, any concerns they may have with a firm's Y2K 
readiness. These reports are to be reviewed by FDA district managers. 
According to FDA, if a Y2K-related concern affects the identity, 
strength, quality, purity, and potency, as well as safety, 
effectiveness, or reliability of a drug product, the district manager 
can discuss this issue with FDA's Office of Regulatory Affairs and 
determine a course of action, including product correction or removal.
    Like VHA, FDA is interested in the impact of Y2K readiness of 
pharmaceutical and biological products on the availability of products 
for health care facilities and individual patients. FDA's Acting Deputy 
Commissioner for Policy informed us on March 24, 1999, that the agency 
is thinking about surveying pharmaceutical and biological products 
manufacturers, distributors, product repackagers, and others in the 
drug dispensing chain, on their Y2K readiness and contingency planning. 
In anticipation of a possible survey, the agency published a notice in 
the March 22, 1999, Federal Register, regarding this matter. The Acting 
Deputy Commissioner said that potential survey questions on contingency 
planning would include steps the manufacturers are taking to ensure an 
adequate supply of bulk manufacturing materials from overseas 
suppliers. This is a key issue because, as we reported in March 1998, 
25 according to FDA, as much as 80 percent of the bulk 
pharmaceutical chemicals used by U.S. manufacturers to produce 
prescription drugs is imported.
---------------------------------------------------------------------------
    \25\ Food and Drug Administration: Improvements Needed in the 
Foreign Drug Inspection Program (GAO/HEHS-98-21, March 17, 1998).
---------------------------------------------------------------------------
    In summary, HCFA and its contractors have made progress in 
addressing Medicare Y2K issues that we have raised. However, until HCFA 
completes its planned recertification between July and November, the 
final status of the agency's Y2K compliance will be unknown. Given the 
considerable amount of remaining work that HCFA faces, it is crucial 
that development and testing of HCFA's business continuity and 
contingency plans move forward rapidly to avoid the interruption of 
Medicare claims processing next year. Also, because many states' 
Medicaid systems are at risk, business continuity and contingency plans 
will become increasingly critical for these states in an effort to 
ensure continued timely and accurate delivery of benefits to needy 
Americans.
    Regarding the health sector overall, while additional readiness 
information is available, much work remains in renovating, testing, and 
implementing compliant systems. Aggressive action is needed in 
obtaining information on the Y2K readiness of hospitals, physicians, 
Medicare providers, and public health agencies. Until this information 
is obtained and publicized, consumers will remain in doubt as to the 
Y2K readiness of key health care components. In addition, while 
compliance status information is available for biomedical equipment 
through the FDA clearinghouse, FDA has not reviewed test results 
supporting manufacturers' certifications; this would provide the 
American public with a higher level of confidence that biomedical 
equipment will work as intended. The public also needs readiness 
information on specific pharmaceutical manufacturers to address 
concerns about the stockpiling of drugs and medications.
    Messrs. Chairmen, this concludes my statement. I would be pleased 
to respond to any questions that you or other members of the 
Subcommittees may have at this time.

    Mr. Upton. A bonus. I think you're the first witness this 
year that has completed his time or her time when the green 
light has been on.
    Mr. Grob.

                    TESTIMONY OF GEORGE GROB

    Mr. Grob. Good morning, Mr. Chairman and members of the 
subcommittee. Thank you for this opportunity today to discuss 
Medicare health providers' readiness for the Year 2000. In a 
nutshell, health care providers got off to a late start and 
they're behind the power curve. Recent events indicate a 
productive spurt of activity, but a concerted, disciplined 
effort will be needed for them to be ready on January 1 in the 
Year 2000.
    In order to gauge the readiness of health care providers, 
we designed two preliminary surveys which address several key 
areas, including Y2K awareness, computer systems readiness, 
contingency planning, and vendor cooperation. These surveys 
were developed with the assistance of HCFA and of many of the 
health care provider organizations, some of whom will speak in 
the next panel. And we appreciate their help and support in the 
survey.
    And in late December 1998, we sent anonymous surveys to a 
random sample of 5,000 providers representing hospitals, 
nursing facilities, home health agencies, durable medical 
equipment suppliers, and physicians. Response rates range from 
a high of 49 percent for hospitals to a low of 22 percent for 
the physicians. In January we sent a similar survey to 407 
Medicare+Choice managed care organizations. We received 
responses from 76 percent of them.
    We cannot make any statements about people who did not 
respond to our survey. Overall, we found that in January 1999 
about half of the fee-for-service providers reported that their 
computer systems were Y2K ready. You can see this on the charts 
over here, about half of them with respect to their billing 
systems and with respect to their medical records. Okay?
    And most providers who were not ready, believed they will 
be ready. And--Mike, if you show the next two charts--you will 
see much higher numbers of people who think they will be ready, 
almost pushing 90 or 100 percent if you add the two numbers 
together.
    However, our survey indicated that many providers have not 
taken the steps necessary to justify their optimism. And if I 
can make reference to Mr. Klink's remarks about the 
unreliability of information from people from whom we have not 
received information, I could add, that even from those from 
whom we did receive information, we have indications of 
potential problems. Less than two-thirds had renovated or 
replaced their computer systems. Many had not tested their new 
or renovated systems. Less than 1 in 5 had tested data exchange 
with their vendors. For most, the readiness of biomedical 
equipment continues to be a great unknown. And only one-fourth 
to one-half had developed contingency plans.
    The responses from our Medicare managed-care organizations 
were similar, but half of them had tested their systems and 
two-thirds had developed contingency plans.
    What may be a better indicator of providers' progress is 
not what they said in our survey, but how they are currently 
submitting claims. Since the release of our survey, HCFA 
established April 5, 1999, as the deadline for submitting 8-
digit dates on electronic claims. After this date, claims that 
are not in the required 8-digit format would be returned.
    This requirement was stressed in a January letter to all 
Medicare providers as well as published on the Website in 
numerous provider association newsletters. It appears that 
health care providers have stepped up their effort to submit 
claims that are Y2K compliant. On April 14, the Department 
reported that more than 99 percent of Part B claims and 90 
percent of Part A claims were sent to HCFA with newly required 
8-digit dates.
    While this preliminary information is promising, because of 
our findings, we are concerned that some providers have yet to 
perform the necessary steps to ensure that all of their systems 
will be ready on time. Unlike most public agencies, where there 
is a constant measurement and evaluation of Y2K progress, 
health care providers are under no requirements for renovation 
schedules, end-to-end testing of systems, independent 
verification of compliance efforts, et cetera.
    Neither HCFA nor any of the provider associations, such as 
the physician and hospital associations, have the authority to 
compel individual health care providers to act. With the 
exception of HCFA's April 5 deadline for 8-digit claim 
submissions, there are no readiness timelines or schedules 
which providers must follow. In essence, there is nobody ``in 
charge'' of the providers with regard to the Year 2000 
readiness.
    The primary responsibility lies with the providers 
themselves. We hope the provider community, both individual 
providers and their national associations, will rise to the 
challenge. However, it is also important that the Department 
monitor the progress and assist them by making Y2K information 
readily available. HCFA has done a lot of this recently, and 
that's encouraging. But everyone must do his part to have any 
hope of making it.
    I will be pleased to answer any questions you may have.
    Mr. Upton. Or her part.
    Mr. Grob. Or her part.
    [The prepared statement of George Grob follows:]
    Prepared Statement of George Grob, Deputy Inspector General for 
  Evaluation and Inspections, Department of Health and Human Services
    Good morning, Mr. Chairman and members of the Subcommittee. I am 
George Grob, Deputy Inspector General for Evaluation and Inspections, 
Department of Health and Human Services. I am here today to discuss 
Medicare health care providers' readiness for the Year 2000.
                               background
    The Y2K problem impacts health care systems in several ways. For 
instance, medical records systems need to be updated to ensure 
providers are able to access patient histories. Biomedical devices such 
as defibrillators and infusion pumps must be checked to ensure they 
will continue to operate properly. Furthermore, both government and 
provider computer systems must be able to process claims after December 
31, 1999 to ensure that providers get paid for services rendered.
    As all of you know, the Health Care Financing Administration (HCFA) 
has made Y2K readiness its top priority. Recognizing the seriousness of 
this challenge, the Office of Inspector General is taking numerous 
steps to monitor Y2K progress. For example, we continuously evaluate 
the status of HCFA contractors' and other Medicare computer systems. 
Meanwhile, we have also collected information from Medicare health care 
providers regarding their readiness for Y2K. It is the latter 
initiative that I wish to discuss with you today.
    In order to gauge the readiness of health care providers, we 
designed two surveys which addressed several key areas, including Y2K 
awareness, computer system readiness, contingency planning, and vendor 
cooperation. The surveys were developed with assistance from HCFA and 
several provider associations, including the American Association of 
Homes and Services for the Aging, the American Health Care Association, 
the American Hospital Association, the American Medical Association, 
the Health Industry Distributors Association, the National Association 
for Home Care, the National Association for Medical Equipment 
Suppliers, the Health Insurance Association of America, and the 
American Association of Health Plans.
    In late December 1998, we sent anonymous surveys to a random sample 
of 5,000 providers representing five provider groups: acute-care 
hospitals, nursing facilities, home health agencies, durable medical 
equipment (DME) suppliers, and physicians. Response rates ranged from a 
high of 49 percent for hospitals to a low of 22 percent for physicians. 
In January, we sent a similar survey to 407 Medicare + Choice managed 
care organizations. We had responses from 310, or 76 percent of those 
surveyed. Our findings are based solely on the providers who responded 
to our survey. We cannot make any statements about the Y2K-readiness of 
those providers who did not respond.
                            survey findings
    Overall, we found that as of January 1999, about half of fee-for-
service providers reported that their computer systems were Y2K-ready; 
and most providers who were not ready believed they will be Y2K-ready 
by December 31, 1999. However, our survey indicated that many providers 
had not taken the steps necessary to justify their optimism. For 
instance, of the fee-for-service providers responding to our survey:

 Less than two-thirds had renovated or replaced their computer 
        systems.
 Many had not tested their new or renovated systems.
 Less than 1 in 5 had tested data exchange with their vendors.
 For most, the readiness of biomedical equipment continues to 
        be a ``great unknown.''
 Only one-fourth to one-half had developed contingency plans.
    The responses of managed care organizations were similar, although 
half of the plans have tested their systems and about two-thirds have 
developed contingency plans.
                          recent developments
    What may be a better indicator of providers' progress is not what 
they said in our survey, but how they are currently submitting claims. 
Since the release of our survey, HCFA established April 5, 1999 as the 
deadline for submitting eight-digit dates on electronic claims. After 
this date, claims that are not in the required eight-digit format would 
be returned. This requirement was stressed in a January letter to all 
Medicare providers, as well as published on HCFA's web site and 
numerous provider association newsletters. Therefore, by monitoring 
providers' adherence to the new claim requirements, we can evaluate the 
progress providers have made in getting their billing systems ready for 
the new millennium. While the ability of a provider to submit claims in 
an eight-digit format does not mean that all of its systems are ready, 
it does serve as an indication that the provider has taken a critical 
step toward full Y2K compliance.
    It appears that the health care providers have stepped up their 
efforts to submit claims that are Y2K compliant. On April 14, 1999, the 
Department reported that more than 99 percent of Part B claims and 90 
percent of Part A claims were sent to HCFA with the newly-required 
eight-digit date. This is a significant increase from December 1998 
when Medicare carriers reported that approximately 96 percent of 
Medicare Part B bill submitters and only 33 percent of Part A 
submitters that bill electronically were doing so in a compliant eight-
digit date manner. We are monitoring the situation closely.
                           remaining concerns
    While this preliminary information is promising, because of our 
findings, we are concerned that some providers have yet to perform the 
necessary steps to ensure that all their systems will be ready on time. 
Unlike most public agencies, where there is constant measurement and 
evaluation of Y2K progress, health care providers are under no 
requirements for renovation schedules, end-to-end testing of systems, 
independent verification of compliance efforts, etc. Neither HCFA nor 
any of the provider associations, such as physician or hospital 
associations, have the authority to compel individual health care 
providers to act. With the exception of HCFA's April 5th deadline for 
eight-digit claim submission, there are no readiness timelines or 
schedules which providers must follow.
    The HCFA is in a somewhat stronger position with Medicare + Choice 
managed care organizations since it contracts directly with them to 
provide care to Medicare beneficiaries. The agency is requiring these 
organizations to certify that they understand HCFA's Y2K compliant 
definition and have tested all of their data systems/interfaces to 
ensure Y2K compliance. The HCFA is also requiring them to have a 
contingency plan in place in the event that internal systems or key 
external business partners fail. However, HCFA does not have the 
authority to require all health care providers to meet similarly 
specific requirements.
    At this time, we have no additional updated information about the 
readiness of providers' medical record systems or biomedical equipment.
    We believe the primary responsibility for ensuring Y2K readiness 
lies with providers themselves. We hope the provider community--both 
individual providers and their national associations--will rise to the 
challenge. However, with no one ``in charge'' of the providers, it is 
important that the Department monitor the progress of the providers, 
and assist them by making Y2K information readily available.
    This concludes my testimony. Thank you, Mr. Chairman, for the 
opportunity to discuss Medicare providers' readiness for the Year 2000. 
I would be happy to answer any questions you may have.

    Mr. Upton. Well, thank you. I certainly always appreciate 
your testimony and your hard work in trying to comply with what 
is going to be going on at the end of the year. And I would 
have to say about a year ago not a lot of Americans knew what 
Y2K meant. And there has been a quick realization in terms of 
what it will mean to all of us.
    And I know that for me, I visited one of my large hospital 
operations 2 weeks ago back in Michigan--this is a hospital 
chain that services about 170,000 folks throughout the county 
that I live in--and one of the questions that I asked the 
administrators and a number of people that were on the tour, 
literally for the entire afternoon, was how much was it going 
to cost the hospital for compliance. And they sort of scratched 
their head and they said, well, probably about $250,000.
    At least that is where we are today--and in terms of what I 
hear from your statement this afternoon, despite the late 
start, it seems that you feel, and the survey that was done 
with the hospitals, my own sense is that we're probably going 
to meet the deadline for the billing and the payments, because 
of the hard work, particularly that's been done the last couple 
of months. Would that be your gut reaction as well, from all 
three?
    Ms. DeParle. As I said, that's my feeling. Again, there are 
so many unknowns here. So I'm going on what we know. And as I 
said, we know that a very high percentage of claims submitters 
are submitting claims to us that are compliant that have the 8-
digit fields. So I believe, yes, that they've gotten the 
message there and that on that side of it they will be 
compliant. I think the greater unknowns to me are in the 
patient care and equipment side of things.
    Mr. Upton. Well, that's what I wanted to get to. And we had 
a chance to talk a little bit earlier this morning when you 
came by, and, you know, I remember looking at the kidney 
dialysis unit with about 25 patients that were there and 
literally there around the clock. People get appointments for 
the 3- or 4-hour program while they're on these machines and 
literally every other day three times a week.
    And, Mr. Willemssen, you indicated in your testimony that 
particularly on the biomedical equipment that the response was 
disappointing; the test results didn't know exactly where they 
were. I think you had had some communication with HHS in terms 
of what their knowledge was. And, you know, whether it be that 
or a CAT scan or any of these other megadollar pieces of 
equipment that so many Americans rely on, that could, in fact, 
be a real problem.
    In other words, the billing operation, the providers are 
going to be taken care of. But the real question about care for 
the patient coming in with the equipment is, in fact, a real--
could be a real problem. Is that your sense?
    Mr. Willemssen. Yes. And I would point out, FDA has made 
good progress in terms of posting information on the compliance 
that manufacturers are certifying to. But it has not made as 
much progress in looking independently at test results for 
those critical-care and life support items.
    Mr. Upton. Now, you all at the GAO did contact HHS, right, 
in terms of what they were doing?
    Mr. Willemssen. Oh, yes.
    Mr. Upton. And you found that response to be?
    Mr. Willemssen. HHS's response was quite disappointing. In 
fact, the response we got to our recommendation was we don't 
have the resources to do this. However, we were unaware that 
any such request for resources was ever put forward to the 
Congress.
    Mr. Upton. Mr. Grob, do you have any comment on that?
    Mr. Grob. We haven't independently looked at that 
particular issue.
    Mr. Upton. You haven't.
    Mr. Grob. We have not at that issue. We are a--we have----
    Mr. Upton. Can you pull the mike just a little closer.
    Mr. Grob. I'm sorry. We have in our audits noted the 
problem with the equipment. In fact, in our survey less than 
one-third of the people who responded to our survey and, again, 
the response rate wasn't what we wanted it to be, only one-
third of them said they were aware of the Y2K readiness of the 
biomedical equipment that they used.
    Mr. Upton. So is there any--do you contemplate any action 
going back to those that didn't respond at all?
    Mr. Grob. We can't make people respond to our surveys. It 
has to be a voluntary response on an item like that. In fact, 
we even made our serveys anonymous so people wouldn't be afraid 
to answer questions from the Inspector General's Office. And we 
felt the response rate would be higher.
    Mr. Upton. Is that anonymous going in the door or anonymous 
coming back to you?
    Mr. Grob. Either way. They knew that it was an Inspector 
General survey, but we had set it up in such a way that they 
knew that we wouldn't know who answered. And after much 
discussion, we believed that we would get a much higher 
response rate if we did it that way. And, in fact, our surveys 
have the highest response rates of any surveys that have been 
conducted on this, even though they still range from about 25 
to 50 percent.
    Mr. Upton. Okay. Mr. Klink.
    Mr. Klink. It's hard to know where to begin, to be honest 
with you. It's such a large issue. Let me start first off, Ms. 
DeParle, your comment about--you're optimistic that the 
hospitals are getting--let's deal with the hospitals for the 
time being. If we can believe the survey, which I want to get 
into how accurate that may be later on, but if we can believe 
it just for the time being, how do you get from around 13 
percent now to somewhere in, you know, the 85, 90, 95 percent 
in the next 8 months? How are you convinced that we're headed 
in the right direction?
    Ms. DeParle. Well, first of all, I'm not relying on the 
surveys, because I do think there are a lot of unknowns, as you 
pointed out, Representative Klink, on those, although the IG 
survey, which is the most recent data and had the best response 
rate, better than the RX2000 survey that I looked at before and 
the Gartner Group, seems to show a higher percentage of 
hospitals are compliant.
    And I even thought, going into it, there might be some 
difference between rural and urban. So, we asked the IG to 
oversample rural providers. And it turns out that there doesn't 
seem to be much difference. It seems to relate more to bed 
size. So putting that in one place and then looking, as I said, 
at sort of the ``proof is in the pudding,'' and what I'm 
looking at is the providers that are submitting compliant 
claims to get paid by Medicare. And since we required them to 
be compliant by April 5 of this year, upwards of 93 percent of 
Part A claims submitters are submitting compliant claims. That 
says something different to me.
    Let me be clear, it does not say that they've done 
everything in their hospital that they need to do to be Year 
2000 compliant. What it says is they're able to submit a bill 
to us in a compliant format. And that gives me the basis for 
saying I'm relatively optimistic.
    But I would agree with you and with the other panelists 
that there are still unknowns here.
    Mr. Klink. Mr. Willemssen, do you agree with what the 
administrator just characterized?
    Mr. Willemssen. I would definitely agree that there are 
many unknowns. I would also mention two other points----
    Mr. Klink. Do you share her optimism? Let me ask you that.
    Mr. Willemssen. I'm by nature more of a pessimistic sort. 
What I would also point out is if you look at the health sector 
compared to many other sectors in our country on Y2K readiness, 
the health sector does not fare well. It is generally not in 
good shape, again not because of what we know, but because of 
what we don't know.
    One other item I would point out for consideration in the 8 
months remaining until January 2000 is in some of the other 
sectors an approach that is occasionally proven effective is to 
actually publicize those respondents who did respond to a 
survey instrument, and then it becomes clear who hasn't 
responded. And it tends to put, in some cases, some peer 
pressure on those nonrespondents to, indeed, also respond to 
surveys. So it's something that may be of consideration within 
the health sector, too, that has been used effectively 
elsewhere.
    Mr. Klink. Let's step back a second, Mr. Willemssen. How 
effective is a survey instrument in making these 
determinations, in your estimation?
    Mr. Willemssen. Well, on the one hand, a survey instrument 
gives you information that you previously didn't have. So it's 
better than nothing. Unfortunately, it is self-reported data, 
self-reported data that for the most part has not been verified 
and validated by an outside party.
    That goes hand in hand also with the low response rates 
that have frequently been realized. It is a difficult venture 
to try to get as much useful information. Among the things that 
can be done is asking questions and surveys about what kind of 
independent ver-

ification and validation efforts the respondent has that can 
give further proof of their statements of compliance. So there 
are some vehicles around that, but it is a difficult challenge.
    Mr. Klink. Not only that, Mr. Willemssen, are you asking 
them to fill out the survey and give you their best guess? But 
I notice that some of the surveys--again I'm not picking on 
these groups because they attempted to do something at least--
but it even tells them that they need to verify whether or not 
they understand what Y2K is all about. Are there some--just 
kind of give me your idea--and I see the red light is on--what 
are the primary weaknesses of a survey that attempts to figure 
out where providers are in relationship to the Y2K readiness?
    Mr. Willemssen. A key weakness is those providers 
themselves don't have necessarily the needed information at 
hand to know whether their practice, so to speak, is compliant; 
whether it's related to biomedical equipment, pharmaceuticals, 
or various commercial off-the-shelf items provided by vendors. 
That kind of information is not always available. So it is a 
challenge in some cases to accurately respond.
    Mr. Klink. Mr. Grob, could you just give a quick follow-up 
to that? Do you agree?
    Mr. Grob. May I--a few comments, first of all. I think what 
everyone has been saying about the surveys is true: what you 
see is what you get. These are questions with answers not 
validated. But some perspective is useful here. These surveys 
were done at a time when nothing was known. The response rates 
are relatively high compared to all other surveys that were 
done.
    We saw the surveys that we did as sort of an awareness 
campaign. Even sending out the surveys was enough to sort of 
turn on the awareness to the subject. Another thing we tried to 
do with our surveys was model them after the disciplined 
approach which the Health Care Financing Administration has to 
follow and which GAO has recommended; so we hope that our 
surveys could be used by the providers as a self-test that they 
could administer to themselves. They could turn them in to us 
and we had our samples, but we also encouraged the various 
providers to take it and see, because it will take you through 
the steps that you need in order to get ready. So we thought 
they could be educational as well.
    And one other thing, if I could mention about the thing 
that Ms. DeParle said, our survey results showed in January 
that half the providers, only half of them, thought that they 
would be ready to submit 8-digit bills within 6 months of 
January. Only half of them thought they would be able to. But 
here it is only 3 or 4 months later and virtually all of them 
are submitting this bill. So the uncertainty about the surveys 
runs both ways. And what I would say is that there has been a 
lot of activity in the last few months as a result of the 
growing awareness that would give us more confidence than we 
had at the time that the surveys were taken.
    So those are some thoughts. I'll have more, perhaps, when 
the light comes on again.
    Mr. Upton. Thank you.
    Dr. Coburn.
    Mr. Coburn. Thank you. I guess my only real question is, 
Does everybody out there know there's a problem? You know, what 
have we done to test to know that they know there's a problem?
    Ms. DeParle. What we've done is--and when you ask a 
question like that, I have a feeling you may have a view on it, 
since you're a health care provider yourself. But what we've 
done is to go directly to every provider, and as you know 
better than anybody, we, HCFA, don't generally do that. We go 
through the carriers and intermediaries and they deal with 
providers.
    This time I sent a letter directly to 1.3 million providers 
that work in the Medicare program telling them about Y2K, what 
it is and with a checklist of what they needed to get done. And 
we had a survey group--I think it was RX2000 again--go behind 
that. And they reported back to me that it had a--I want to say 
about a 40 percent retention rate, which they said was very 
high for something like that; that a lot of people might have 
thrown away. The providers remembered having received the 
letter and remembered that there was an issue that they needed 
to do something about.
    So that's--I guess I believe that the chairman was right 
that a year ago a lot of them wouldn't know what we were 
talking about. And I have found when I talk to providers that 
now they all know. They groan when I bring it up, and they all 
say they will be glad when we're at the point when we don't 
have to talk about it again. So I guess I do think now, Dr. 
Coburn, that most of them do know about it.
    Mr. Coburn. Can we imply from the response rate--was it 
April 5 mandated deadline?
    Ms. DeParle. Yes.
    Mr. Coburn. That the knowledge associated with just the 
dating, can we extrapolate that to say that has application at 
the other areas where Y2K is a problem?
    Ms. DeParle. No, sir, I wouldn't do that, for two reasons. 
One is, as you know, I don't know how your practice is run, but 
many providers use claims submitters, billing services. And, in 
fact, some doctors have told me, ``Oh, I got your letter and I 
gave it to my billing service; it's their responsibility.'' 
Well, that's partly true, and it's partly not true. Yes, the 
billing service has to translate whatever the doctor gives them 
to make sure that it can be paid by Medicare, but that may not 
say whether Dr. Coburn's office is really ready, either on the 
billing side to generate a bill or on the equipment and patient 
care side.
    So that's why I've been cautious about kind of limiting my 
response to saying I feel more confident today based on the 
April 5 response that they will be ready on the billing side to 
submit a compliant claim. But I can't say that about biomedical 
equipment or about patient care. And I would--again you're the 
one with the experience as a provider, but I suspect that a lot 
of providers delegate that responsibility.
    Mr. Grob. I can shed some light on the awareness, because 
I'm looking at our survey form here--and the first question 
that we asked our respondents was about their awareness. Most 
of them said they were aware of it; they were quite aware of 
the impact. They had given thought on it. They were concerned 
about the impact that it would have in their care. These are in 
the high 90's, even 99 percent. But as soon as we asked them if 
they had done certain things, they said, no, or maybe, or some. 
And it's interesting that you get that.
    If we were getting self-serving answers to all of the 
questions, you could suspect it. But we're getting what seemed 
to be pretty frank answers to the questions that we were 
asking. So when they say, yes, they're aware and they've done 
some initial planning, I think we can believe that now. I'm 
reading the answers from the hospitals where we got a 49 
percent response rate--not great, but still not bad in this 
field.
    As you go through the questions, the percentages get lower 
as you go through the process. So my sense of it is that there 
in January, they were at the beginning of the process--
awareness and assessment--and then it was falling off.
    Mr. Coburn. Do you know the other thing to bear in mind in 
this is you've got to be ready for Year 2000, but a lot of 
small practices are going to spend a lot of money, and a lot of 
them are waiting to spend that money till the very last moment 
that they have to spend it. So I think that gives us some 
insurance. Our group just spent $60,000 upgrading computers and 
programs for five doctors, which is ludicrous, because of this.
    The other question I have is, is there anything we can do 
on the equipment side to put the onus on the manufacturer? I 
was just sitting here during your testimony thinking about all 
the pieces of equipment that I have in my practice, from an EKG 
machine, to a fetal nonstress monitor, to laboratory equipment. 
That all has internal dating.
    Is there a possibility that we can require a notification 
for manufacturers as to the Y2K certification by model number 
so we don't have to move advanced dates and think we've got it 
and not got it?
    Mr. Willemssen. That kind of information is now available 
in the FDA data base for specific types of biomedical equipment 
items, and they are moving to obtain all of that, the 
particular make and model numbers which the Department of 
Veterans Affairs has had for many of those devices for some 
time. So there have been good strides in that area.
    That kind of data is publicly available on FDA's Website, 
again, in terms of what the vendors are saying, what is 
compliant and what is not.
    Mr. Coburn. Okay. Thank you.
    Mr. Upton. Thank you. Mr. Brown.
    Mr. Brown. Thank you, Mr. Chairman. First, I have some 
questions from the gentlelady from California, Ms. Eshoo, that 
she would like answered both to--put to both panels. If I could 
enter those in the record and ask unanimous consent that----
    Mr. Upton. No problem. All members will have the chance to 
put questions into the record.
    Mr. Brown. Thank you. Administrator DeParle, walk us 
through the implications of what occurs if a provider isn't 
ready, if a provider has serious Y2K problems with regard to 
that provider being able to accurately assemble a bill stating 
what is owed by the government. What happens to that provider? 
Walk us through that, if you would.
    Ms. DeParle. Well, we are in the process right now of 
validating contingency plans for lots of different scenarios. 
But as I have said a number of times, we are starting from the 
assumption that providers have to be able to submit a valid 
claim. We believe that it would be a mistake to suggest that 
they can just sit back and not worry about this problem, 
because it's a problem that we all have and providers need to 
make sure their systems are ready.
    Having said that, we will, as I said, be addressing in our 
contingency plans, areas like the one that you've brought up. 
There is also, of course, the option, and this happens 
nowadays, sometimes providers have a problem, and as long as 
providers have documentation, they could submit a paper claim. 
However, you can imagine with almost a billion claims a year 
our contractors would not be in a position to process a high 
percentage of paper claims.
    So that is why we think the number one thing we have to do 
to get ready is to make sure that providers are doing the 
remediation and the testing they need to do to be able to 
submit compliant claims; and that's why I regarded the April 5 
deadline as so important. And I regard the fact that providers 
are submitting, for the most part, compliant claims to be a 
good sign of progress there.
    Mr. Brown. Thank you, Mr. Chairman. That's all I have.
    Mr. Upton. Mr. Bilirakis.
    Mr. Bilirakis. Thank you, Mr. Chairman. Mr. Chairman, I ask 
unanimous consent my opening statement be made a part of the 
record.
    Mr. Upton. Without objection.
    [The prepared statement of Hon. Michael Bilirakis follows:]
Prepared Statement of Hon. Michael Bilirakis, Chairman, Subcommittee on 
                         Health and Environment
    Thank you Chairman Upton. I am pleased to co-chair this hearing 
today with you on how Medicare providers are preparing for the Year 
2000 date problem, commonly known as Y2K. If left unfixed, this 
``computer glitch'' could have a devastating impact on the ability of 
any physician, hospital or health care organization to provide medical 
services to patients.
    By now, we have all heard about some of the potential horror 
stories: supply shortages of critical drugs, malfunctions of EKG 
machines and other lifesaving devises, or inaccessible medical records 
during a life or death situation due to a computer malfunction. The 
list goes on and on.
    This hearing will also focus on another particularly troublesome 
Y2K problem: will providers be able to submit claims in a Y2K compliant 
form in order to obtain reimbursement from HCFA.
    I believe that even a short-term disruption in provider 
reimbursement may have severe ramifications for patients. We must avoid 
a situation where home health agencies, nursing homes and other health 
care providers operating under tight financial margins are forced to 
close their doors because Medicare didn't pay them for their services. 
America's seniors simply cannot afford to lose access to care because 
our nation's health care providers didn't take appropriate steps to 
become Y2K compliant.
    Y2K problems facing both the government and providers are enormous. 
However, both HCFA and Medicare contractors are making some progress 
toward achieving their compliance goals. Many providers, by contrast, 
appear ill-prepared to meet their Y2K challenges by the end of this 
year.
    A recent survey by the Inspector General of HHS found that only 
half of physicians, hospitals and nursing homes billing systems are Y2K 
compliant. Fewer than 20% of providers have even tested how their 
computers' interact with outside vendors. Many organizations lack a 
contingency plan to process claims and guaranteed patient care should 
their computers malfunction. The health care industry could be more 
adversely affected by the Y2K bug than almost any other sector, yet it 
has not taken the necessary steps towards addressing its problems.
    Our first panel has three witnesses who will testify about HCFA, 
Medicare contractor and provider readiness for the Y2K bug. We 
especially thank Nancy-Ann Min DeParle, Administrator of HCFA for being 
with us today. Ms. DeParle, we would like an update on HCFA's efforts 
on becoming Y2K compliant. We would also like to know how HCFA will 
direct all medical providers to be Y2K compliant by December 31, 1999.
    Our second panel of experts are representatives from our nation's 
largest health care associations. Witnesses will discuss their 
organization's outreach efforts and will provide the Committee with 
recommendations the federal government may take so that patients' 
access to care is not compromised.
    I want to welcome all of our witnesses. I appreciate everyone 
taking the time out of their busy schedules to join us and I look 
forward to hearing your testimony.

    Mr. Bilirakis. I apologize for being late, but the airplane 
did not cooperate. We have an awful lot of that these days. In 
fact, this particular flight is being canceled based on the new 
schedule coming out in a week or so, so that is going to make 
things that much more difficult.
    Madam Administrator, Mr. Willemssen, and Mr. Grob, first of 
all, welcome. And I know that you're besieged by this problem, 
not only besieged in terms of trying to solve it but besieged 
by virtue of Congress constantly holding hearings and that sort 
of thing.
    The equipment manufacturers were invited to testify today 
and didn't want to do so. You know, I guess everybody says 
leave us alone; we're trying to solve the problem. I don't 
know.
    But, you know, I take a look at the chart--and by the way I 
might add that paperwork is important. The software is 
important. Obviously, reimbursements to providers are darn 
important, but they're not life and death issues. What's life 
and death is the equipment, for crying out loud. And I guess 
those charts show provider readiness, I suppose for the most 
part, but DMEs are on there, on the paperwork, I don't know.
    But even based on the optimistic responses and, you know, I 
guess a response--and Mr. Grob made a comment that he was--they 
seem to be candid responses, honest responses which I'm very 
glad to hear. But I mean, 70 percent, 75 percent, I mean that's 
better than the actual figure today. But still that means 25, 
30 percent are not going to be ready.
    Mr. Grob. That's not quite true. But I won't be able to 
ease your concerns completely. That's 75 percent, say, of those 
who said they were not ready. So if half of them said they were 
ready and then three quarters of the remainder said they would 
be, then that's going to tease the total number up a bit.
    Mr. Bilirakis. Whatever that percentage then ultimately 
comes out to be half of whatever it is?
    Mr. Grob. Yes. But your point is still well taken. You're 
talking about maybe between 80 and the high 90's who think they 
will be ready, even if they haven't taken all of the steps that 
would be required to do so.
    Mr. Bilirakis. You know, we run into an awful lot of 
strange things in life and strange things in this job and, you 
know, based on things that we learn and whatnot. But what 
really blows my mind is that everybody has known that the Year 
2000 was coming for crying out loud. You know, we put people on 
the moon. We've done so many great things.
    And yet it seems like we fell asleep at the switch, and a 
lot of you, Madam Administrator, others have taken over in 
recent times, and so we can't certainly blame you for that. But 
the real world is that it looks like we aren't going to be 100 
percent ready, and when it comes I think to--when it comes to 
equipment, medical equipment, anything less than 100 percent is 
just not acceptable, because it means life or death.
    So what should we do? What should we do? What can we do? 
What can we as a Congress do maybe to help out here? How about 
the--there's some--equipment manufacturers have shown an 
interest. They've shown an awareness. They've shown some 
progress, and there are others, based on your testimony, 
haven't. I mean, what the heck can we do? We've got to be 
ready, as far as those chips are concerned, as far as those 
computers are concerned. Go ahead.
    Mr. Willemssen. If I may answer that in terms of biomedical 
equipment, among the things that you can do is call FDA up here 
and ask them about critical-care and life support items; why do 
you not want to independently look at the test results to make 
sure that those items are indeed compliant?
    Contrasting that approach, you may want to invite some 
hospitals up who have actually gone and independently tested 
some of those items and found that they are not compliant.
    I think that kind of approach can further publicize the 
issue, publicize the critical health nature of the issue, and 
hopefully get further action.
    Mr. Bilirakis. But, Mr. Willemssen, the thing about it is 
here it is practically May. We don't really have that much time 
to go.
    Mr. Willemssen. That's correct.
    Mr. Bilirakis. And you're right in terms of improving the 
improvement or improving the progress, if you will. But it 
still looks like by the Year 2000 we're not going to be ready. 
We're not going to be 100 percent or we may be 90 percent 
ready, 85 percent, 95 percent or something of that nature.
    In the meantime, because of the life or death issues--and 
I'm referring mostly to the equipment here. And I do have one 
question to the administrator that I would like to present, 
maybe for the record; and maybe you can respond in writing, 
because my time is up.
    But in the meantime, what do we do about the fact that 
there's going to be medical equipment out there with life or 
death repercussions and they are not ready?
    Mr. Willemssen. As part of that, I would narrow it down to 
critical-care and or life support equipment, because there are 
so many pieces of different biomedical equipment. Let's focus 
on those most important critical-care and or life support 
items.
    And I would say that the Federal Government needs to make 
sure that those items have been independently checked. And I 
think there's time in the remaining 8 months to do that and to 
publicize the results so that providers are aware of whether an 
item that is critical care and or life support and that has 
been deemed noncompliant so they have an opportunity to take 
action, that is, either replacing the item or putting an 
upgrade in.
    Mr. Bilirakis. My time is up. And I'm not going to take any 
more advantage. But I guess I think in terms of that great big 
word penalty or maybe the people who should be made aware or 
should be aware and who are not cooperating out to be should in 
some way or other be penalized, but maybe that's another 
subject that we ought to talk about.
    Thank you, Mr. Chairman.
    Mr. Upton. Thank you, Mr. Chairman. Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman. I'm wondering if you 
can comment particularly, Ms. DeParle, and Mr. Grob, on whether 
or not you think certain provider categories like doctors, 
hospitals, nursing homes, groups like that are more vulnerable 
to not being Year 2000 compliant than other groups? What I want 
to know is, are we concerned--are we more concerned of 
hospitals as a category that aren't Y2K compliant versus 
nursing homes, or is there any differentiation there?
    Ms. DeParle. I guess I will take a shot at it. I would say 
on the equipment side--I'm concerned about all of them. But 
based on the survey that the Inspector General did and 
primarily on the responses to the survey, because they were 
lower in some areas, I have asked my staff to focus on skilled 
nursing facilities and on home health agencies as our next 
level of targeted outreach, that those areas seem to me not to 
be responding in as high a percentage as the hospitals and that 
we needed to do more targeted outreach to them.
    And, particularly, with respect to nursing homes, as you 
know, in addition to the Medicare beneficiaries who use nursing 
homes, we have a substantial Medicaid population who is 
residing there. And I would be very concerned both from a 
billing, financial perspective and a patient care perspective 
if the nursing homes were not ready.
    So we've made that judgment. Again, as everyone here has 
emphasized, it's based on the data that we have. There are a 
lot of unknowns here, but that is my sense of it.
    Mr. Grob. I really have to speculate. And it's a mixture 
across the board. We've given a lot of thought of this 
ourselves, and we came up with not a very definitive answer. It 
runs something like this: the more sophisticated providers, 
such as hospitals who have many feeder information systems, 
much more equipment, more elaborate facilities, have the 
biggest problem, but they seem to be the ones that are 
concentrating most on it.
    And those that have the simpler problems of submitting 
simple bills, I will say an office visit bill, a medical record 
that could be a paper record that could easily be handled, say 
physicians would be the best example of that, they would 
probably have the smallest problem. But on the other hand, they 
don't seem to be focusing as much on it, at least were not 
focusing on it. But I don't know which of those factors end up 
with the result that you worry the most about.
    Ms. DeGette. I appreciate your candor. Let me follow up, 
because I know that HCFA has threatened to withhold Medicare 
reimbursements from entities that are not fully Year 2000 
compliant. And I think that's probably a significant deterrent 
to the big hospitals and some of the others who have the 
capability and the sophistication to deal with this.
    But what happens if some of these other people who are 
providing very important patient care, nursing homes to the 
elderly and others. You know, you don't want to sit here and 
say I'm sure today we're not going to take away your 
reimbursement.
    But what reassurances do you have to give these folks that 
if they get their act together, you're still going to----
    Ms. DeParle. Well, what I've been saying is, all of our 
contingency plans are based on the assumption that providers 
will be able to submit compliant claims. And as I mentioned 
earlier, I think it's very important that that message be sent. 
And from what we can tell, as Mr. Grob suggested, providers are 
listening. And, again, the ``proof is in the pudding.'' But I 
judge that by their having met our April 5 deadline.
    In fact, some percentage of the ones that didn't meet the 
deadline, we believe we know who they are, and we've been 
dealing with the trade associations on that. We think some of 
them that did not meet the deadline are no longer Medicare 
providers, so we think it's a very small percentage.
    Ms. DeGette. But groups like nursing homes and these folks 
who are not reporting in, as you say, you really don't have a 
clear idea as to whether or not they're compliant. And I think 
if you're going to be withholding--potentially withholding 
reimbursements to them, something more needs to be done to 
reach out and make them compliant or make sure that you help 
them get compliant.
    Ms. DeParle. Well, I may have confused things a little bit. 
When I say I felt like we didn't have as good information on 
them, I meant I was referring to the Inspector General's 
survey. And they were, as I recall, less responsive than 
hospitals and some of the other organized care facilities were. 
But when it comes to our submission of compliant claims and 
meeting the April 5 deadline, I don't have any evidence to 
suggest that skilled nursing facilities or home health agencies 
missed the deadline in any higher percentages than anyone else.
    But just anecdotally, my sense is that is a place we need 
to focus. Again, partly just looking at the risk. The risk 
feels higher to me there, especially with the kind of 
vulnerable beneficiaries that you have who are residing, for 
example, in a skilled nursing facility.
    Again, what we have said is that if a provider submits a 
valid compliant claim to us, to one of our carriers or 
intermediaries, we will be able to pay it; and we're developing 
contingency plans in the event that for some reason one of our 
contractors was not ready.
    And as I said this afternoon, we have a lot of work to get 
done between now and the end of the year to make sure we're 
ready, but I believe we will be ready to pay a claim that a 
provider can submit to us.
    Ms. DeGette. Thank you, Mr. Chairman.
    Mr. Upton. Thank you. Dr. Norwood.
    Mr. Norwood. Thank you, Mr. Chairman. I'm led to believe 
that if you all do everything that you can do by December 31, 
that on January 1, there would be some surprises with the Y2K 
problem. In other words, some of this actually can't be worked 
out until we physically get to the date. Am I right in the area 
there?
    Ms. DeParle. I think that's right. I find those surprises 
every day. But I think that certainly then there will be----
    Mr. Norwood. But in this particular case, we can pretty 
well be assured that there will be some surprises January 1, 2 
and 3, for which perhaps we can go right in and correct the 
problems then after we physically get to the date, but you 
cannot in any way correct them until you get to the date, 
because you're not sure what they're going to be.
    Under those circumstances, I would like to understand why 
your contractors then could not be ready to utilize paper at 
least the first month?
    Ms. DeParle. I don't mean to suggest that the contractors 
will not be ready to accept some paper claims, Dr. Norwood. The 
concern is that with almost a billion claims being processed, 
it would send the wrong message if I were to say to you, 
everyone in Georgia can submit a paper claim because the 
contractor for Georgia could accept them. I don't believe the 
contractors could accept that volume of paper claims.
    So those kinds of scenarios are certainly among the things 
we're looking at in our contingency planning and our goal is to 
be ready so that that there are no surprises----
    Mr. Norwood. But we already agreed there are going to be 
some?
    Ms. DeParle. There probably will be, but it won't be the 
things we will be thinking about today. It might be something 
that we hadn't even thought of. But if you operate on that 
basis, we cannot accommodate 900 million paper claims. And so 
we have to do everything we can, and I think this committee and 
the Congress needs to help us to do everything that we can to 
make sure that we mitigate the risk. That's how we will be 
prepared to deal with surprises.
    Even if you agree that surprises are going to occur, you 
minimize the number of those and the nature of them if you have 
mitigated the risk. And a big factor in risk mitigation is 
making sure that providers are ready.
    Mr. Norwood. I would agree with you. And I certainly agree 
with you that we don't want to send the message out that all 
during January of 2000 don't worry about it, just send in a 
paper claim. I don't want to send that message either. However, 
it might be useful for everybody concerned to understand that 
we are sort of going to expect the contractors to be able to 
handle some of this, as a contingency too; that we don't want 
to encourage it. We hope nobody needs it.
    But part of the responsibility on the Y2K problem is your 
subcontractors, and we need to have some assurances that they 
don't draw a line in there and say, well, too bad you can't 
work out the problems on your computer and we will see you next 
year.
    Ms. DeParle. It won't be done that way, Dr. Norwood. What 
we are talking about is contingency planning. The contractors 
have to develop plans that we accept and the contingency 
planning at HCFA will be done at the highest levels by HCFA, 
not by individual contractors. And we have also----
    Mr. Norwood. I would like the things that you accept to be 
things that I would accept.
    Ms. DeParle. Sir?
    Mr. Norwood. I would like for you to say to me some of the 
things that you're willing to expect from your contractors and 
would accept are some of the things that I might be willing to 
accept as well.
    Let me ask each of you briefly to read the tea leaves for 
me. I ask you this question based on your hard work, based on 
your experience, your knowledge, expertise in this area. How do 
you think each of you--how do you think January will look? What 
do you really think is going to happen?
    Ms. DeParle. Do I go first?
    Mr. Norwood. We don't hold you to it. I'm asking you to 
read the tea leaves. I'm saying it up front. I know this is not 
scientific, but you do have lots of information. You do have a 
lot of feel for this. How does this feel to you?
    Ms. DeParle. I am feeling more and more confident. I 
believe there may be some limited problems that would be a week 
or so in duration, not a major catastrophe where we can't pay 
claims. I'm focusing on my piece of the problem and on that I 
feel confident that our contractors will be ready to pay 
claims.
    And, again, on the provider side, based on the dramatic 
increase in activity and understanding that I've seen over the 
past 6 months or so--and I think it's consistent with what Mr. 
Grob said about the IG's analysis--I believe providers will, 
for the most part, be ready.
    Mr. Willemssen. I would say it's probable that there will 
be some system-based disruptions. That's why it's especially 
important that HCFA continue its excellent efforts in the 
business continuity and contingency planning area because in 
the event that those system disruptions do occur, then HCFA 
will be ready with those contingency plans.
    The other thing I would add is I know that the time is 
getting late, and we're in April; but we still have 8 months to 
do something that will impact what happens in January 2000.
    Mr. Norwood. So it's just probable that there will be--Mr. 
Chairman, I know my time is expired. It's just probable that 
there will be interruptions?
    Mr. Willemssen. I think it's probable there will be 
disruptions, because there are so many systems; there's so many 
data exchanges, so many data flows, that even in an ideal 
world, you can't guarantee perfection. And that's why the need 
for contingency plans.
    Mr. Norwood. Well, I would agree with you. I think it's 
absolutely assured there will be some problems. I don't see how 
it's avoidable.
    Mr. Grob. My prediction. I predict that in the Medicare 
arena the billing will probably be okay. And I think that the 
medical records will probably be okay. I'm less optimistic 
about the equipment. And my reason is that for the billing and 
the medical records, I see in place various activities that are 
addressing that quite systematically with schedules, where I 
don't see the same schedules and systematic addressing of the 
equipment.
    Now beyond that--disruptions that might occur as a result 
of electrical systems, transportation systems, communications 
systems--I'm not prepared to even begin to guess at that at 
all.
    Mr. Norwood. I thank the chairman.
    Mr. Upton. Mr. Grob, I know you're a Cub fan too. That's 
why you're just an optimist, right?
    Mr. Grob. I can't help it. Probably in the long run, it's 
the wrong line of work as a result.
    Mr. Upton. I have--you know, as I think about the questions 
by my colleagues and your answers and in reading through your 
testimony, I have really sort of three questions. And I know, 
Ms. DeParle, you talked a little bit earlier about maybe 
there's a way we can get access to the lists of those 
providers, at least in our own districts of those that both 
responded and those that did not.
    Is that possible to do for the members of the subcommittee?
    Ms. DeParle. We do have--we do know which providers are 
submitting compliant claims. And, in fact, as we discussed 
earlier, we have made those lists available to the trade 
associations so they can help us contact the providers and 
claims submitters directly. So, yes, we can work with you on 
that.
    Mr. Upton. Yes. I think that would be valuable for all the 
members of the subcommittee. And I sure would like to see the 
ones in my district as I know many of them, if not all.
    The second question that I have, again, it sort of goes 
back to those that did respond. There's really no way to find 
some independent verification. It's just like if you had to 
take paper claims for Georgia, all of a sudden 900 million--you 
can't do it, and you're talking about, you know, tens of 
thousands of different providers. There's no way you can have a 
Whirlpool repairman go visit every one of those households and 
figure out who is doing the job and who is not. Whirlpool is in 
my district, not Maytag.
    Ms. DeParle. There's one thing we can do, Mr. Chairman; and 
I've been remiss in not mentioning this. Our contractors are 
doing testing with a number of providers. And, for example, I 
was down in Florida last week with the Federation of American 
Health Systems, the proprietary hospitals--I don't know if one 
of those is in your district or not--but one of the large 
national chains told me that they have tested against our 
contractors, and I think seven different contractors, in a 
number of different States, and everything worked.
    And, in fact, what they told me was that they were so glad 
that Medicare was doing that testing, because there are other 
insurance companies that were not allowing them to test. So one 
thing I can say to you is that we can do this testing; we've 
made providers aware of that. That would help providers to feel 
more confident right there.
    Mr. Upton. You know, Ms. DeGette asked a question a little 
bit earlier--I think it was Ms. DeGette--about having further 
hearings, particularly, and I would like to have one with both 
FDA and the device manufacturers to come up and tell us what 
they're doing. But I related to a small plant tour that I had a 
couple weeks ago. I visited a steel plant. And as we walked 
into this plant that was decades and decades old, literally on 
every piece of machinery there, there was a little sticker as 
to whether it had been checked out or not.
    And I think that it would be a valuable exercise to see at 
least some encouragement, if not perhaps a mandate, for device 
manufacturers of real critical care to have some say or some 
relay of in-

formation to those folks using that. It's almost like a 
warranty as to whether or not they need--whether it's in 
compliance or not. As I think about Dr. Coburn's practice, a 5-
member operation, different small practices around the country, 
without some information, without some checklist, they really 
are lost. And it's almost like starting all over again.
    What would your comment be on that, Mr. Grob?
    Mr. Grob. It seems to be----
    Mr. Upton. Is there anything in place to see some type of 
requirement or some expert that can come in and help providers 
large and small?
    Mr. Grob. I don't think there's answers to that. I think 
the GAO has described what is the case, which is there's an 
attempt to jack up considerably the information sharing and to 
make it public. So that if you look on FDA's Website, you also 
have the equivalent of that for those who get to information 
that way, because manufacturers are writing in, declaring about 
their equipment, you know, and providing, I guess, numbers to 
call where people can find information about the equipment.
    What's been pervading this hearing is interesting from this 
point of view: it has an HCFA orientation to it, although the 
FDA issue arises as well. But----
    Mr. Upton. You have that empty chair next to you right 
there.
    Mr. Grob. The empty chair, okay. But in no case do we have 
anyone who is in charge of that. Medicare at most is probably 
half the medical care--I don't know what the percentage is 
these days. And all the things that HCFA has been doing has 
almost been on behalf of the entire industry because all of its 
testing and all of its standards will spill over into the rest 
of the industry.
    But that's not the case with the Food and Drug 
Administration. Where HCFA has been successful, in addition to 
its testing and its rigorous schedules and its GAO and OIG 
oversight--the additional success, for example, with the 
billing--has been the increase in knowledge, the increase in 
expectations, and the knowledge of the consequences of it not 
happening.
    So to some extent, jacking up the public knowledge of 
what's going on, as you suggested earlier, might be, without 
any other authority, the most immediate effective thing that 
can be done. However, I have to categorize everything I just 
said as speculation on my part. We haven't done a formal study 
of this particular aspect of the problem, but have given some 
thought of the overall mechanisms that are available to push 
this on a little bit.
    Mr. Willemssen. If I might add, Mr. Chairman, much of the 
information on equipment items from a vendor perspective is 
available currently via the FDA Website. It's a matter of 
further publicizing that availability. And, again, if I may 
repeat, making sure that for critical care and life support 
items that there's some independent check on their compliance 
status.
    Mr. Upton. All right. In fact, I think I'm going to ask Dr. 
Coburn when I see him next, I wonder if his practice, in fact, 
checked before they spent the money that they did to replace 
it. Mr. Klink.
    Mr. Klink. To the administrator. On the panel after you, 
one of the witnesses, Annette L. Mackin, chief financial 
officer VNS of Rochester and Monroe County in New York--and 
part of her testi-

mony, I want to read to you a line to you and I want you to 
react to it, if you would. She said: ``The NAHC's main concern 
is that HCFA will fail to take into consideration unique 
challenges facing home health care and hospice providers and 
becoming Y2K compliant. Failure to reimburse claims would be a 
death now for providers who are already struggling with lower 
reimbursement rates and increased regulatory burdens. HCFA by 
withholding reimbursements on claims that are not Y2K ready 
will unfairly and adversely impact those smaller providers who 
cannot survive interruptions in payment.'' And it goes on and 
on.
    How do we get to that position? Isn't it possible for them 
to just do things the old-fashion way, that is, sit down with a 
piece of paper and send out a bill, or, in fact, have we become 
so dependent on computers that that is an impossibility today?
    Ms. DeParle. No, it's not an impossibility. And as I said, 
we are--among our contingency plans we're looking at things 
like what if providers had to submit paper claims. But that's 
not how I hear that testimony that you just read. What some 
providers, Mr. Klink, have wanted is for us to say that even if 
they can't submit a claim or show any documentation that we're 
going to put money out the door.
    And I think this committee knows of my concern about 
program integrity. I know of your concern. I talked to most of 
you individually about your concerns about waste, fraud, and 
abuse in the Medicare program. So I think it would be a mistake 
to suggest to providers at this point, when there are 8 months 
to go, ``don't worry about it; you're not going to have to 
worry about submitting a valid claim.''
    The first step is for our providers to get ready for the 
Year 2000. I believe they can do it. And, second, if there are 
providers who for some reason can't submit a computer-generated 
claim, as I said, we have contingency plans in place. But I 
don't want to suggest that it's going to be easier, that we 
want them all to sit back and not do what they need to do.
    Mr. Klink. How realistic is it to believe if they have to 
go back to billing the old fashioned paper way, that the error 
rate, in fact, would go up significantly?
    Ms. DeParle. Oh, I don't know that I can speculate about 
what would happen with the error rate. But I can tell you that 
given our resources, if it were a large number of providers who 
had not made the changes they need to make to their computer 
systems to be able to submit a valid claim, we would not be 
able to pay them in a timely manner.
    So what I have said is all of this effort over the last 18 
months that we have put forward, making this our number one 
priority, was to make sure that our claims processing systems 
were ready, so that if a provider can submit a valid claim, we 
will be able to pay it.
    Mr. Klink. My concern, and I don't want to get off into the 
weeds here because we've got a limited amount of time, but you 
testified before about how many of them you thought would 
comply by being able to do the 8-digit format.
    My question is, what systems are there behind that claim 
form that actually put all of that information together to make 
sure that, yeah, you used an 8-digit format, but how do you 
know the accuracy of everything that's being done once we think 
we're Y2K compliant?
    Ms. DeParle. We don't know for a fact the accuracy of 
everything that's being done, and that's one of the things 
we're going to focus on over the next few months. As I said, 
based on that and based on the Inspector General's survey 
results, I believe that home health agencies and skilled 
nursing facilities need some special outreach to make sure that 
they are, in fact, prepared to submit valid claims.
    Mr. Klink. See, that's where I'm confused. And I don't mean 
to be difficult. I want to get to the bottom of this. On one 
hand, you're optimistic that they are getting their billing 
systems together; on the other hand, we don't know what's going 
into all the information that's coming into the claims that are 
being filed with HCFA. And we have no idea whether the error 
rate will go up or go down.
    And I guess, you know, the tone of my voice is only out of 
my own frustration, because I can't--I mean, I can't get a 
handle on this either. But I sure as heck know that those 
Members of Congress, not just the ones sitting here, but our 
friends, are going to be hearing from our hospitals and 
providers back home once claims are not being paid in a timely 
fashion; and there's a threat that the doors are going to be 
closed and services are going to be shut down, then everybody 
will be paying attention. We got 8 months to really get our 
arms around there.
    Mr. Willemssen, if we really wish to understand what is 
going on with regard to these provider groups, what do we 
really need to do beyond these survey instruments to kind of 
get at the underlying roots of the problems that we're faced 
with?
    Mr. Willemssen. Well, one, I would say HCFA should continue 
its very strong outreach efforts. I think the administrator has 
talked about some of the things that she's done over the last 
several months. I think to continue that is especially 
important, so that from the perspective of awareness that that 
awareness level continues to escalate.
    Second, I believe it's important to start considering 
publicizing information on exactly who is providing readiness 
information on Y2K and who is not. This can possibly spur 
others to act accordingly. And as I mentioned earlier, this has 
been a successful mechanism in other sectors that we may want 
the administrator and others to consider applying to this 
particular sector.
    Mr. Klink. Mr. Chairman, you've been very patient today. 
And, again, I want to thank you. I don't know that we've much 
more than begun to scratch the surface. I know that in 
elections and politics we do polling to tell us where we are, 
how popular we are, what issues, but we actually sample--and I 
used to be in the TV business, and we had these firms that made 
very good money going out and sampling what people were 
listening to, what they were viewing.
    I don't know if we can do the same thing by choosing 
certain provider groups and going in and doing a full audit, 
have the auditors actually go in and take so many rural 
hospitals and so many urban hospitals and so many in the 
Midwest and however scientifically they do this. But I really 
am concerned that this is going to be an issue come the first 
of the year that all of our colleagues are going to be 
interested.
    I will make you a deal. I would like to be able to come to 
Michigan and sit--if we can conduct a field hearing, if we can 
get cooperation of our witnesses to come there, and I would 
invite you to come to Pennsylvania. I think that we need to get 
to take a look at what some of our local hospitals are doing, 
and we can do that armed with the information as to which 
hospitals and which providers in your district have actually 
filled in the survey and which have not, and we can do the same 
thing in my area.
    It might give us a little better handle on where these 
survey instruments are accurate and where they are not. If we 
can see specifically where some of our providers are in 
becoming Y2K compliant. And I certainly would welcome the 
opportunity to come into your district as well.
    Mr. Upton. I think that's a good idea. I'll look at my 
Cubs-Pittsburgh schedule here in my wallet and see what we 
might be able to do. Mr. Bilirakis.
    Mr. Bilirakis. Mr. Chairman, I've said that we all should 
be concerned and not belittle our concern with the 
reimbursements to the providers and whatnot, Okay? And we have 
representatives from providers in the next panel; we will hear 
from them. So I don't mean to belittle all of those.
    But I guess is there a provider out there--is there a 
single provider out there no matter how big or how small who 
does not know that there's a Y2K potential problem and that 
something has got to be done? I think that there probably isn't 
a single provider out there. And I--if they're not ready by the 
first of the year, they're just not going to be reimbursed on 
time, is that correct, Madam Administrator?
    Ms. DeParle. What we've said is that providers need to be 
able to submit a valid claim.
    Mr. Bilirakis. All right. If they're not, if they're not 
valid, then there is going to be a delay in reimbursements; is 
that right?
    Ms. DeParle. That's probably right.
    Mr. Bilirakis. They're going to be penalized, and the 
penalty is serious. And my own son is one of those providers, 
et cetera, et cetera. I'm not trying to belittle that. It's a 
paperwork thing when we're talking about equipment?
    Ms. DeParle. It's a paperwork and a program integrity 
issue.
    Mr. Bilirakis. It's a lot of those things. It affects the 
patients, too, when the providers are not happy, because 
they're not reimbursed on time; she's not reimbursed on time 
and all of that. So we know that that's serious. And I don't 
mean to belittle it. But, you know, we know that there's 
equipment out there, critical, EKG monitoring equipment, other 
type of monitoring equipment, all sorts of things of that 
nature that there isn't that business where they're not going 
to get reimbursed, a patient dies.
    I guess I should know the answer to this, but I know it's 
an FDA situation----
    Ms. DeParle. Yes, sir, I agree with you. And I said, I 
think, before you were able to get here today, that I'm dealing 
with the financing side of it. That's an important side of 
health care as you well know. But I agree with you that patient 
care and safety of pa-

tients is the most important thing. And that is the thing that 
I think that all of us have agreed is the biggest question 
mark.
    Mr. Bilirakis. All right. I'm a medical equipment 
manufacturer provider, okay; and I'm not a big guy. I'm a 
little guy. I'm not--I don't want the press to pick up that I 
have that as a side. But if I were and I'm a little guy, can 
I--I mean, do I have--I have the power without too much of 
expense to get this thing done in time? Mr. Willemssen?
    Mr. Willemssen. You would have the means to find out 
information in all likelihood on the equipment you're using and 
what the vendor or the manufacturer of that equipment is saying 
about its Y2K compliance status.
    Mr. Bilirakis. All right. So if I----
    Mr. Willemssen. That kind of information is, for the most 
part, readily available via the FDA Website, which the VA site 
has supplied a lot of information to so that the FDA Website 
has a lot of rich data.
    Mr. Bilirakis. All right. So should there be some kind of a 
timeline insofar as I'm concerned or if I haven't shown enough 
interest in terms of progress and that sort of thing that I 
maybe lose that contract or I lose that right to furnish the 
durable medical equipment, which again stands for life and 
death?
    Mr. Willemssen. Yes. I think that's a very good point you 
raise. What has happened, for example, at the Department of 
Veterans Affairs is that they notify all of their medical 
facilities of particular pieces of equipment that have been 
deemed noncompliant, and they direct all of those facilities to 
get that equipment out of their inventories and replace it as 
soon as possible. And I think that is a model that can be used 
by other medical facilities across the country.
    Mr. Bilirakis. Do you know if we know whether FDA--they're 
not here to respond for themselves--do you know if FDA is 
showing any kind of inclination that they're doing anything 
similar?
    Mr. Willemssen. I think it is charitable to say FDA has 
been predominantly reactive on this issue rather than 
proactive.
    Mr. Bilirakis. Before my time is up, Ms. DeParle--Nancy, in 
your testimony, you discuss the difficulties of implementing 
system changes so close to the end of the year. We know how 
very difficult that will be.
    Is it, therefore, your position that if Congress passes any 
legislative changes to provider reimbursement during 1999 that 
the law's effective dates should not be triggered until 
sometime next year, let's say the springtime of the Year 2000?
    Ms. DeParle. In general, yes, sir. We have, as you know, 
had a big challenge in trying to implement the Balanced Budget 
Act on top of making all of these Y2K changes. And we've had 
to, in fact, delay some provisions. And there is a distinction, 
I will just suggest to you, there are some changes that are 
easier to make than others.
    If you were to enact a new prospective payment system, I 
would plead with you not to require us to do anything on that 
until well into the next year. If it's a simple change in a 
price, what our systems experts called a pricer, that is easier 
to do. But my colleague, Mr. Willemssen, tells me every time we 
talk that any change we make introduces risk.
    I don't have the luxury of operating a fixed system, 
because we've got new beneficiaries coming on every day.
    Mr. Bilirakis. That effective date can vary depending on 
how major the change might be; is that right? It doesn't 
necessarily have to be one date?
    Ms. DeParle. That's right. We would want to work with you 
on that. And I appreciate your acknowledging the difficulty 
that we have.
    Mr. Bilirakis. Thank you. Thank you very much, Mr. 
Chairman.
    Mr. Upton. Thank you. Panel, we very much appreciate your 
time well spent with us this afternoon. And we wish you a 
terrific week, and we look forward to seeing you in the future; 
and we've not been disappointed by your performance. And you 
are now formally excused.
    Ms. DeParle. Thank you.
    Mr. Willemssen. Thank you, Mr. Chairman.
    Mr. Grob. Thank you.
    Mr. Upton. The next panel, panel 2, we have Mr. Ron 
Margolis, chief information officer of the University of New 
Mexico Hospital, representing the American Hospital 
Association. Mrs. Annette Mackin, CFO of Rochester and Monroe 
Counties, National Association for Home Care, New York. And Dr. 
Richard Corlin, Speaker of the House of Delegates from the 
American Medical Association here in Washington.
    Again, I appreciate you all submitting your testimony in 
advance. We had a chance to take a look at it. And as you know, 
as was the first panel, we have a long history of testifying 
under oath before this subcommittee.
    And do any of you need to have a lawyer or have private 
counsel? Would you then rise, raise your right hand?
    [Witnesses sworn.]
    Mr. Upton. Thank you. You are now under oath. Your 
testimony is submitted for the record in its entirety. And we 
would like to limit your presentation to 5 minutes.
    And we will start with Mr. Margolis. Thank you.

   TESTIMONY OF RONALD MARGOLIS, CHIEF INFORMATION OFFICER, 
     UNIVERSITY OF NEW MEXICO HOSPITAL, AMERICAN HOSPITAL 
ASSOCIATION; ANNETTE L. MACKIN, CHIEF FINANCIAL OFFICER, VNS OF 
 ROCHESTER AND MONROE COUNTIES, INC., NATIONAL ASSOCIATION FOR 
   HOME CARE; AND RICHARD F. CORLIN, SPEAKER OF THE HOUSE OF 
            DELEGATES, AMERICAN MEDICAL ASSOCIATION

    Mr. Margolis. Thank you, Mr. Chairman, for the opportunity 
to come before you today to discuss and clarify hospital 
readiness to the best of my ability.
    Mr. Chairman----
    Mr. Upton. Can you bring the mike just a little bit closer.
    Mr. Margolis. Good. I feel like a disc jockey. Mr. 
Chairman, I am Ron Margolis, chief information officer at the 
University of New Mexico Hospital in Albuquerque. I'm here on 
behalf of the American Hospital Association, 5,000 hospitals, 
health systems, networks, and other connected-related providers 
of care.
    The AHA and its members are committed to ensuring the 
smooth delivery of high quality health care is not disrupted by 
potential Year 2000 problems. A very recent February survey of 
AHA members found that the majority expect to be Y2K compliant 
by January 1. Almost all expect to be sufficiently prepared so 
that the critical operations will not be affected; that 
ambulance communication systems, for example, will not fail; 
that patient monitoring systems will be fully operational; and 
that billing and reimbursement systems will be working 
properly.
    On the topic of this hearing, information systems, we found 
similar results: 12.9 percent of hospitals said their 
information systems were already Y2K compliant. Another 85 
percent expected their information systems to be ready by year 
end or expected no operational problems. Less than 1 percent, 
.5 to be exact, expected noncompliance with possibly adverse 
effects.
    Of course, hospitals and health systems are establishing 
contingency plans in case of disruption. Hospitals are in the 
business of dealing with the unexpected, floods, hurricanes, 
other potentially disastrous events that unfortunately are a 
fact of daily life. It is incumbent upon hospitals to also 
prepare to the potential Y2K disruption of any essential 
services. And our survey indicates that members are doing just 
that.
    They are directing their efforts both internally across 
their facilities and externally within their communities. This 
includes working with such entities as utility companies, 
emergency medical service suppliers, and other health care 
providers.
    Contingency planning is not something that must be done 
only by hospitals. On average, hospitals and health systems 
receive roughly half of their revenues from Medicare and 
Medicaid. If that much revenue were to be cutoff, hospitals 
could not survive and, of course, patient care would be 
jeopardized. That's why it is imperative that the Health Care 
Financing Administration establish a fail safe contingency plan 
itself that anticipates and addresses how to respond in case 
payment mechanisms, either on the provider side or on the 
government side or in some intermediary connection such as the 
phone system, failed. We have offered to work with HCFA and we 
look forward to hearing from the agency on the details of its 
contingency planning.
    We believe that a system of advanced payments based on past 
payment levels is one way to ensure that beneficiaries continue 
to receive the care they need by assuring that hospitals have 
the resources they need to care for Medicare and Medicaid 
patients.
    Also, the Medicare Payment Advisory Commission has included 
its hospital perspective payment system update recommendation 
for fiscal Year 2000 and additional .5 percent to cover the 
hospital's costs of becoming Y2K compliant. We ask Congress to 
increase the congressionally mandated hospital update factor by 
this .5 percent to reflect this MedPAC recommendation.
    At the University of New Mexico hospitals, we're working 
very hard to ensure that our information systems are ready for 
Y2K. Critical systems include information systems for patient 
care, medical devices, medical records, billing, and others all 
served by emergency and backup power. External contingencies 
such as a power outage or a phone transmission loss or a 
failure of HCFA to be able to respond to claims submitted.
    Our power supplies, for example, are represented by two 
levels of fail-safe. The major computers which do the patient 
information systems, which are responsible for electronic 
medical records, and which support the network that connects 
patient monitoring devices are on what's called uninterruptable 
power, which is basically a large battery backup system which 
provides upwards of 3\1/2\ hours of continued service should 
there be a power outage.
    In addition, we have just completed the testing and 
installation of a major diesel fuel generator system, which 
keeps that system charged.
    May I have an extra couple of minutes? I'm sorry to run 
overtime.
    Phone systems, we have overnight backups of previous day's 
activities, which allows us to recreate at any point in time 
any failure in data that may have occurred, so we can go back 5 
days or 5 years and recreate what happened. The system can be 
restarted, recreated from the data base so that, for example, 
on January 3, if we found that our January 1 bills were not 
received properly, we could go back and recreate them in 
various formats. We also could accumulate bills for several 
days, or several weeks for that matter, should HCFA or a phone 
system failure preclude us from sending the bills in on time.
    Our internal information systems, we're in the process 
right now of completing end-to-end testing of computer systems. 
What is required for this is parallel testing using live data 
with January 1 dates and thereafter, leap year dates and 
thereafter, the other critical dates that will occur very 
shortly after the beginning of January 1.
    For us self-sufficiency is not just in-house, but also it 
includes the general community, county of Albuquerque, 
including the emergency, police, fire and other hospitals, as 
well as referring hospitals and transportation services.
    Mr. Chairman, the Year 2000 issue will affect every aspect 
of American life. Few, if any of us, are as important as are 
the health care community. Americans hospitals and health 
systems and the AHA are partners in the effort to prepare for 
the year 2000.
    We encourage Congress and our Federal agencies to work with 
us as well. In this project of highest priority, together we 
can ensure a smooth and healthy transition into the new 
millennium. Thank you.
    [The prepared statement of Ronald Margolis follows:]
    Prepared Statement of Ronald Margolis on Behalf of the American 
                          Hospital Association
    Mr. Chairman, I am Ronald Margolis, chief information officer at 
University of New Mexico Hospitals in Albuquerque, New Mexico. I am 
here on behalf of the American Hospital Association's (AHA) nearly 
5,000 hospitals, health systems, networks, and other providers of care.
    The AHA and its members are committed to taking the steps necessary 
to prevent potential Year 2000 problems from interrupting the smooth 
delivery of high-quality health care. We appreciate this opportunity to 
update you on our efforts, to outline the role that the AHA has taken 
in aiding the health care field, and to highlight some areas in which 
the government and its agencies can help as they play their critical 
roles in this historic effort.
                       progress on y2k compliance
    The majority of the nation's hospitals expect to be completely 
``Y2K compliant'' by January 1, 2000, based on the results of a 
nationally representative survey we conducted. Of the balance, almost 
all expect to be sufficiently prepared that critical operations will 
not be affected. The survey occurred in February 1999, and asked 
hospitals about their Y2K readiness by the end of this year in three 
areas: information systems, medical devices and infrastructure/physical 
plant.
    Our Y2K readiness survey indicates that almost all of the nation's 
hospitals expect to be prepared to meet the Y2K challenge. Respondents 
represented not-for-profit and investor-owned hospitals in urban and 
rural areas. Following are highlights.
Information Systems
    Information systems include financial, billing, human resources, 
clinical, inventory control, and other systems.

 12.9% of hospitals said their information systems were 
        compliant when they responded in February 1999
 Another 84.7% of hospitals either expected their information 
        systems to be Y2K compliant by year end or expected no problems 
        in their operations
 0.5% expected non-compliance with possible adverse effects
Medical Devices
 5.7% of hospitals said their devices were compliant when they 
        responded in February
 Another 90.4% of hospitals expected their devices to be Y2K 
        compliant by year end or expected no problems in their 
        operations
 0.5% expected non-compliance with possible adverse effects
Physical Plant/Infrastructure
    Physical plant/infrastructure includes such areas as heating and 
cooling, environmental control systems, telecommunications, and 
security systems.

 23.8% of hospitals were compliant when they responded in 
        February 1999
 Another 71.7% expected to be Y2K compliant by year end or 
        expected no problems in their operations
 0.4% expected non-compliance with possible adverse effects
    In the survey, less than one percent of hospitals predicted 
possible ``adverse effects'' in their critical operations as a result 
of the change to the Year 2000.
    The AHA survey comes on the heels of a report issued last month by 
the Health and Human Services' Office of Inspector General (OIG) that 
also indicates high confidence in hospital Y2K readiness by the end of 
the year. The OIG report reaffirms what we've been hearing from our 
hospitals on their Y2K efforts. The fact that hospitals represented the 
largest percentage of responses to the OIG report shows their 
willingness to be forthcoming in their Y2K preparation.
    Our confidence in the accuracy of our polling methods is shared by 
the Medicare Payment Advisory Commission (MedPAC), the federal body 
that advises Congress on issues affecting the Medicare program. MedPAC 
relies on other AHA member surveys when the commission deals with 
Medicare payment issues.
    Part of hospitals' Y2K preparation is to meet HCFA's requirement 
that Medicare bills be submitted in an 8-digit format--two slots each 
for the month and date, and four slots for the year. HCFA found that, 
as of mid-April, 90 percent of Part A bills, from organizations such as 
hospitals, skilled nursing facilities and home health agencies, were 
submitting Y2K compliant claims. Since this marks a more than 30 
percent increase from the 58 percent compliance HCFA cited just two 
months ago in congressional testimony, we have every reason to believe 
that the percentage will approach 100 percent very soon.
    The AHA survey results also respond to questions and statements 
suggesting that rural hospitals, contrary to what has been widely 
reported anecdotally, are keeping pace. According to the rural 
hospitals that responded to our February survey, 93 percent said their 
information systems were either totally compliant or were moving toward 
compliance without major difficulty; 92 percent said their medical 
devices were either totally Y2K compliant or were moving toward 
compliance without major difficulty; and 96 percent said their physical 
plants were either totally Y2K compliant or were moving toward 
compliance without major difficulty.
    These findings are in line with the OIG's survey, which also found 
no statistically meaningful differences in Y2K readiness between rural 
hospitals and other categories of hospitals.
    And the Healthcare Year 2000 Readiness Assessment #2, prepared for 
HCFA by the Rx2000 Solutions Institute and released in January, 
identified hospitals as the healthcare sector that is ``among the most 
aggressive towards meeting its Year 2000 deadlines.''
    Taken together, all of this--the AHA survey, the OIG survey, HCFA's 
information about billing compliance, statements by key government 
representatives, and the Rx2000 survey--points toward the same 
conclusion: hospitals expect to be ready to meet the Y2K challenge.
                          contingency planning
    America's hospitals and health systems are in the business of 
dealing with the unexpected. They are used to mobilizing quickly in the 
face of floods, hurricanes and potentially disastrous events that are 
an unfortunate fact of life. There is no reason to believe that they 
will not also be ready for the Year 2000.
    The AHA believes that the best approach for hospitals to manage 
potential disruptions on January 1 is to anticipate them. Specifically, 
it is incumbent upon hospitals to prepare now to respond to the 
potential loss or disruption of any essential hospital processes or 
services, and our survey indicates that our members are doing just 
that. They are directing their efforts both internally across 
hospitals' facilities, and externally within communities. This includes 
working with such entities as utility companies, emergency medical 
services, and other health care providers.
    According to the AHA's survey, 66 percent of hospitals have 
initiated contact with utilities in their area; 44 percent have 
initiated contact with other hospitals; 38 percent have initiated 
contact with fire and police authorities; 36 percent have initiated 
contact with ambulance services; and 35 percent have initiated contact 
with their local governments.
    The AHA, along with state, regional and metropolitan hospital and 
health system associations, is working hard to make sure that America's 
hospitals and health systems are informed about, educated on, and 
assisted with Year 2000 contingency planning. We recently distributed 
to every AHA member a briefing on hospital contingency planning. This 
briefing emphasizes the interdependent nature of health care, and 
stresses the need for hospitals to plan in advance, with their key 
partners, how they will handle potential Y2K-induced losses or 
disruptions.
    This executive briefing was followed up early last month by ``how-
to'' materials for hospital contingency planning, including a business 
continuity planning guide.
    In addition, the AHA will be working with the Federal Emergency 
Management Administration to coordinate emergency preparedness efforts 
at a national level with contingency planning taking place at 
individual hospitals in local communities. We plan to bring together 
representatives of major health systems and health care manufacturing 
and supply companies to discuss how we can provide guidance to the 
health care field on issues related to Y2K preparedness and concerns 
about health care equipment and pharmaceutical and medical supply 
stockpiling.
HCFA's contingency plan
    On average, hospitals and health systems receive roughly half of 
their revenues from government programs like Medicare and Medicaid. If 
that much revenue were to be suddenly cut off, hospitals could not 
survive, and patient care could be jeopardized. Hospitals would not be 
able to pay vendors. They would not be able to purchase food, supplies, 
laundry services, maintain medical equipment--in short, they would not 
be able to do the job their communities expect of them. All this would 
occur even as hospitals and health systems faced the substantial costs 
of addressing their own Year 2000 system needs--costs that are not 
recognized in the calculation of current Medicare payment updates.
    We applaud HCFA's announcement that the Fiscal Year 2000 PPS update 
will no longer have to be delayed while the agency prepares its 
computer systems for Y2K. We congratulate the agency's personnel for 
tackling the problem in such a way that it apparently will no longer 
require nearly $300 million in payment updates to be held back from the 
hospitals that need them. However, at the same time we are concerned 
that HCFA has not announced that it has an adequate contingency plan in 
place.
    HCFA also must make sure its contractors--including Medicare+Choice 
plans--take steps to ensure that their performance will not be 
interrupted by Year 2000 problems caused by the millennium bug. HCFA 
should continue to make readily available its work plan, and progress 
reports, for bringing the contractors and Medicare+Choice plans into 
compliance and monitor their efforts. Letting providers know what 
changes may be required of them is also important. This would allow 
providers, contractors and plans to prepare simultaneously and ensure 
that their systems are compatible.
    Even if HCFA and its contractors express confidence that their 
payment mechanisms will not be affected by the millennium bug, 
unforeseen problems could crop up. Therefore, it is imperative that 
HCFA establish a fail-safe contingency plan that anticipates and 
addresses how to respond in case payment mechanisms, either on the 
provider side or on HCFA's side, are disrupted at the turn of the 
century. We have offered to work with HCFA to ensure that these 
concerns about the Year 2000 are adequately addressed. However, HCFA 
has not yet shared with us any details of their contingency planning.
    Medicare beneficiaries' health care needs will remain constant, 
regardless of how well payment systems are prepared for Year 2000 
problems. If carrier and fiscal intermediary payment systems are 
clogged up by the millennium bug, hospitals' ability to continue 
providing high-quality health care could be severely affected. A system 
of advance payments, based on past payment levels, is one way to ensure 
that beneficiaries continue to receive the care they need, by assuring 
that hospitals have the resources necessary to care for Medicare 
patients. Congress should require HCFA to commit to such advance 
payments, or to other alternatives that would ensure continuity in case 
of a Y2K failure.
    It is important to note that Medicare is not the only payer for 
hospital services. Similar payment delays could occur if private health 
insurers and, in the case of Medicaid, individual states, have not 
addressed their own Year 2000 problems. HCFA has the authority and 
leverage to prevent this from happening, and we urge the agency to 
exercise that authority.
              the supply chain--more information is needed
    More than 60 percent of the hospitals responding to the AHA's Y2K 
readiness survey cited lack of information from suppliers as the number 
one barrier to achieving total Y2K compliance. The AHA is working with 
the Food and Drug Administration (FDA) to ensure that hospitals obtain 
the compliance information they need on medical devices and equipment. 
The AHA is also now focusing on a broad range of other suppliers to get 
the vendor information its members need, from medical device 
manufacturers to pharmaceutical and other medical supply companies.
    Experts in the field are advising health care organizations to 
employ a risk management methodology to identify their most critical 
supply issues, focusing on those that are critical to patient health. 
Hospitals must know how their suppliers and manufacturers plan to deal 
with potential disruptions to the flow of medical and surgical 
supplies, or the raw materials necessary to produce those supplies.
    Prudent contingency planning will require an exchange of 
information between suppliers and providers. In the absence of reliable 
information, hoarding and stockpiling may occur, creating the very 
supply chain disruptions that everyone should be working to avoid.
               the role of the aha and other associations
    Mr. Chairman, all of the activities I've described above are part 
of an overall effort by the AHA and its state associations to help 
hospitals and health systems in their Y2K preparation. This effort 
includes:

 Developing a members-only Y2K section of AHA's Web site with 
        up-to-date news and resources to help manage the Y2K computer 
        challenge;
 Using a toll-free 800 number to provide Y2K information to 
        members on educational opportunities, peer and consultant 
        referrals and speaker recommendations, and other customized 
        resources;
 Creating the ``Y2K: Mission Critical'' executive briefing, a 
        notebook for hospitals that outlines the Y2K problem and offers 
        information on how to deal with it;
 Using AHA's publications to provide members with the latest 
        information, including ``The Clock's Ticking'' column, devoted 
        entirely to Y2K, in AHA's weekly newspaper;
 Developing the members-only ``Y2K Communications Action Kit,'' 
        a resource with tools to help communicate a hospital's Y2K 
        progress with the public;
 Distributing a contingency planning workbook, which contains 
        templates to help hospitals create internal and external back 
        up plans for their facility with their community partners; and
 Working with state hospital associations to sponsor Security 
        Third Millennium (SIIIM), an Internet-based tool that helps 
        health care providers get information that can help minimize 
        malfunction or failure of biomedical devices and equipment on 
        January 1, 2000.
Protecting Public Confidence, Staying Abreast of Progress
    We believe it is critical that the communities we serve understand 
what hospitals are doing to prevent any disruption to the provision of 
health care services. The AHA, in collaboration with our state, 
regional and metropolitan associations and other key strategic 
partners, is working hard to stress to our member hospitals the 
importance of managing the Y2K issue from a public confidence 
perspective. We have made available tools to counsel hospitals and 
health systems about how to talk with the public about Y2K and health 
care. A Y2K Communications Action Kit was developed that was 
distributed in early March to all of our members. Our members were 
encouraged to adapt the materials in the kits for use in their 
communities. The kit includes samples of how to communicate to various 
audiences about the Y2K issue.
    We are continuing our efforts to make sure that hospitals and 
health systems have the latest information on what their colleagues and 
other organizations are doing to address the Y2K problem. And we are 
helping them learn about potential solutions.
    Our State Issues Forum, which tracks state-level legislative and 
advocacy activities, is hosting biweekly conference calls dedicated 
entirely to the Year 2000 issue. On these calls, state hospital 
association and AHA staff share information. A special AHA task force 
on the Year 2000 problem has been drawing up timelines for action to 
make sure our members get the latest information and know where to turn 
for help.
    Articles are appearing regularly in AHA News, our national 
newspaper, in Hospitals and Health Networks, our national magazine for 
hospital CEOs, in Trustee, our national magazine for volunteer hospital 
leadership, and in several other national publications that are 
published by various AHA membership societies. Several of these 
societies, such as the American Society for Healthcare Engineering, the 
American Society for Healthcare Risk Management, and the Association 
for Healthcare Resource and Materials Management, are deeply involved 
in helping their members attack the millennium bug in their hospitals.
                        the costs of compliance
    What are the costs of Y2K compliance expected to be? An earlier AHA 
survey researching this issue points to a huge financial investment by 
hospitals and health systems. The bottom line is that America's 
hospitals and health systems expect to spend somewhere around $8 
billion to become Y2K compliant.
    Smaller hospitals, those with fewer than 100 beds, will spend close 
to $1 billion on Y2K fixes, or an average of $435,000 each. Hospitals 
with between 100 and 300 beds will spend $2.5 billion, an average of 
$1.2 million each. Hospitals with 300-500 beds will spend nearly $2 
billion, or $3.4 million each. The largest amount of spending, $2.2 
billion, will occur at hospitals that have more than 500 beds.
    Much of the $8 billion that hospitals expect to spend on Y2K 
compliance will be spent this year. This presents an immense challenge, 
because that spending comes on top of significantly declining Medicare 
reimbursement in the Balanced Budget Act of 1997. The Balanced Budget 
Act reduced payments to hospitals by $44.1 billion over five years.
                          the role of congress
    As I have described, health care providers and the associations 
that represent them are devoting significant time, resources and energy 
to preventing potential Year 2000 problems from affecting patient 
safety. It is essential that we all look for ways to help prepare 
America's health care system for the turn of the century, and Congress 
can play an important role. Your attention to this issue, through 
hearings such as this, reflects your understanding of the gravity of 
the situation.
    One major step toward Y2K compliance occurred when Congress passed 
its ``Good Samaritan'' legislation. By shielding from liability the 
sharing of information among businesses that provide it in good faith, 
this law encourages all parties--providers, suppliers, manufacturers, 
and more--to work together.
    We ask you to help America's health care system avoid Year 2000 
problems by taking several other steps:

 Congress should provide the FDA with any additional authority 
        or resources it needs to ensure the necessary information is 
        disclosed by medical device manufacturers, and to serve a 
        ``rumor control'' function regarding devices.
 Congress should insist that HCFA use its authority to make 
        advance payments under Medicare. These payments, based on past 
        payment levels, should be implemented to ensure adequate cash 
        flow for providers in case carrier and fiscal intermediary 
        payment systems fail, or other disruptions to the normal 
        operation of payments systems should occur due to the date 
        change.
 Last week John Koskinen, chairman of the President's Council 
        on Year 2000 Conversion, mentioned the possibility of creating 
        a contingency fund from which states (in the case of Medicaid, 
        for example) or hospitals could draw monies needed to continue 
        operating in case of a Y2K disruption. We support that 
        principle, and would be glad to be a part of any discussions 
        concerning how such a fund should be set up.
 MedPAC has included in its hospital prospective payment system 
        update recommendation for fiscal year 2000 an additional 0.5 
        percent to cover hospitals' costs of becoming Y2K compliant. We 
        ask Congress to increase the congressionally mandated hospital 
        update factor by 0.5 percent to reflect this MedPAC 
        recommendation.
                               conclusion
    Mr. Chairman, the Year 2000 issue will affect every aspect of 
American life, but few, if any, are as important as health care. 
America's hospitals and health systems, their state associations, and 
the AHA are partners in the effort to prepare for the Year 2000. We 
encourage Congress and our federal agencies to work with us as well. 
Together, we can ensure a smooth--and healthy--transition into the new 
millennium.

    Mr. Upton. Thank you.
    Ms. Mackin.

                 TESTIMONY OF ANNETTE L. MACKIN

    Ms. Mackin. Thank you, Mr. Chairman. Thank you for the 
opportunity to present testimony today on issues related to Y2K 
compliance and Medicare home health providers. My name is 
Annette Mackin, and I am the chief financial officer and the 
chief information officer of the Visiting Nurse Service of 
Rochester in Rochester, New York. I also serve on the board of 
directors of the National Association for Home Care.
    Mr. Upton. One second. If you can pull the mike a little 
closer, too, a little closer. There you go.
    Ms. Mackin. I will do it this way, how is that? When you 
get old, you have to have the bifocals.
    Mr. Upton. It's the people in the back of the room, too.
    Ms. Mackin. I serve on the board of directors of the 
National Association for Home Care, and I chair the government 
affairs committee. NAHC is the largest national organization 
representing home health care providers, hospices and home care 
agencies. Among NAHC members are every type of home care 
agencies, including the not-for-profit agencies like the 
Visiting Nurse Associations, for-profit chains, hospital-based 
agencies and freestanding agencies.
    The VNS of Rochester has over 950 employees, an annual 
operating budget of $43 million and serves over 11,000 clients 
in the Rochester and Monroe County and New York area. In 1998, 
the VNS received $14.3 million in Medicare revenues.
    The VNS began its Y2K compliance efforts in 1997. A 
multidisciplinary team developed an exhaustive inventory of all 
potential date-sensitive internal and external equipment 
software and services impacting the agency's normal operations. 
Each item on the inventory was then evaluated for compliance 
through vendor contacts and Internet searches.
    Our efforts were supplemented by efforts of the National 
Association for Home Care, who conducted an all-out effort 
including our home care and--educating our home care and 
hospice members on Y2K compliance. This has been a top priority 
since all home care claims received by our fiscal 
intermediaries on or after April 5 must be Y2K-compliant or 
they will be returned as unprocessable. Failure to receive 
reimbursement for services could quickly lead to additional 
severe cash-flow problems for agencies and could ultimately 
compromise patient care and access to care.
    NAHC is concerned that despite the best efforts of the home 
care community and HCFA, some home care agencies and hospices 
may still not be prepared for the millennium. Many of these 
providers, which will most likely be freestanding agencies in 
rural and remote areas, may lack the resources to participate 
in State and national association training or have access to 
information on Y2K. It is also very likely that smaller 
agencies do not have the technical people on staff to address 
Y2K issues.
    Home care agencies' efforts to comply with the Y2K 
requirements should be evaluated in light of the agencies' 
resources, both dollars and staff, and their access to 
information.
    In addition to lowering home care reimbursement rates by 
approximately 30 percent through the establishment of the 
interim payment system, the Balanced Budget Act of 1997 led to 
an imposition of--a myriad of new regulatory burdens on home 
care agencies. Such new requirements included sequential 
billing, the OASIS patient assessment data collection and 
transmission and increased medical review. Home care agencies 
have expended huge sums of money to comply with these new 
regulations. And despite 1998 changes to the current Medicare 
home health payment systems, virtually all agencies are 
reimbursed less than their actual operating costs of providing 
care. Moreover, maintaining regulatory compliance has siphoned 
funds away from necessary patient care and has left virtually 
zero dollars for overhead expenses such as new computer 
hardware, software and technical consulting, much less having 
dollars to continue memberships in State or national 
associations that provide so much valuable information, 
particularly around Y2K compliance.
    It appears that HCFA has placed the lion's share of the 
burden of not only providing information, but of assuring 
compliance, on the associations that represent home care and 
hospice providers. NAHC has taken responsibility for educating 
its members, but cannot reach providers who do not belong to an 
association. HCFA has stated that provider failure to comply 
with Y2K for any reason will mean that the provider will not be 
paid for services rendered to Medicare beneficiaries. HCFA, 
however, has failed to reveal its own contingency plans in the 
event that their systems fail. How can HCFA expect providers to 
comply when it has given no assurances to providers that it has 
its own house in order and will be able to meet its payment 
obligations?
    HCFA has the capability to identify and communicate with 
all Medicare-certified home health and hospice providers. Home 
care associations don't have these capabilities, nor do they 
have the resources to conduct ongoing outreach efforts. NAHC is 
currently struggling with its efforts to contact hundreds of 
home care providers, members and nonmembers, who are believed 
to be out of compliance with Y2K requirements. HCFA should 
utilize the informa-

tion it has to target those providers most at risk for not 
becoming compliant.
    Once targeted, HCFA can then engage in a more active 
information campaign for those at-risk agencies who are not 
members of any trade association and may not have the 
capabilities to obtain on-line information. Moreover, HCFA can 
work more closely with State and national associations to help 
get those who fly below the radar screen. HCFA has free 
software available to help providers, but many providers are 
not aware that such software exists.
    In conclusion, NAHC urges HCFA to take a more flexible 
approach when processing claims from providers that are not 
Y2K-compliant. NAHC is hopeful that HCFA will take into account 
where good faith efforts have been made by providers in 
becoming compliant or where providers have failed to be 
compliant because of factors outside of their control. In such 
cases HCFA should engage in outreach and help the provider 
achieve compliance as opposed to imposing financial penalties 
that could jeopardize the future of the agency, as well as 
access to and quality of patient care. Thank you.
    [The prepared statement of Anette L. Mackin follows:]
    Prepared Statement of Annette Mackin on Behalf of the National 
                       Association for Home Care
    Mr. Chairman, thank you for the opportunity to present testimony 
today on issues related to Y2K compliance and Medicare home health 
providers. My name is Annette Mackin. I am the Chief Financial Officer 
of the Visiting Nurse Service (VNS) of Rochester and Monroe County, 
Inc. I also serve on the Board of Directors of the National Association 
for Home Care (NAHC) and chair the Government Affairs Committee.
    NAHC is the largest national organization representing home health 
care providers, hospices, and home care aide organizations. Among 
NAHC's members are every type of home care agency, including: non-
profit agencies like the Visiting Nurse Associations, for-profit 
chains, hospital-based agencies and freestanding agencies.
    My testimony today will focus on the difficulties and costs 
associated with getting a home care provider Y2K compliant. I will also 
outline NAHC's efforts to educate the home care community as a whole on 
Y2K issues. My testimony concludes with several suggestions that the 
Health Care Financing Administration (HCFA) can adopt to ensure that 
all Medicare home health and hospice providers are Y2K ready so that 
beneficiary safety and access to quality home care services is not 
compromised.
         y2k efforts of vns of rochester & monroe county, inc.
    The VNS of Rochester & Monroe County, Inc., has over 950 employees, 
an annual operating budget of $43 million, and serves over 11,000 
clients in the Rochester, New York, area. In 1998, the VNS received 
$14.3 million in Medicare revenues.
    The VNS began its Y2K compliance efforts in 1997. A 
multidisciplinary team developed an exhaustive inventory of all 
potential date-sensitive internal and external equipment, software, and 
services impacting the agency's normal operations. Each item on the 
inventory was then evaluated for compliance through vendor contacts and 
Internet searches.
    Several critical internal systems were found to be noncompliant and 
resulted in significant financial expenditures to bring them into 
compliance. For example, the agency revenue, billing and statistical 
system was updated at a cost of $200,000 and the telephone and voice 
mail systems were updated at a cost of $150,000. Virtually all other 
software applications, such as payroll, human resource management, e-
mail, and accounting, required updating to Y2K-compliant versions at 
costs averaging approximately $5,000 per application.
    We are currently testing all client servers and personal computers 
to ensure that the hardware as well as the software is compliant. 
Additional expenditures may be required to bring some of the older 
equipment into compliance.
    The next step in the process is the development of contingency 
plans to ensure that patients receive care and the agency can operate 
if major internal and/or external systems fail for any period of time.
                  nahc's efforts to educate providers
    NAHC has conducted an all-out effort in educating our home care and 
hospice members on Y2K compliance. This has been a top priority since 
home health claims received by fiscal intermediaries (FIs) on or after 
April 5, 1999, that are not Y2K compliant will be ``returned as 
unprocessable.'' Failure to receive reimbursement for services could 
quickly lead to additional severe cash flow problems for agencies and 
could, ultimately, compromise patient care and access.
    Since July 1998, NAHC has provided outreach to members through its 
weekly newsletter, member e-mail listserv and website. NAHC has 
suggested strategic planning and preparation and has provided 
information to assist home care and hospice providers in following 
through on Y2K readiness efforts. NAHC has provided the addresses of 
numerous websites where NAHC members can obtain more information on Y2K 
compliance, including the websites established by HCFA, the Food and 
Drug Administration (FDA) and others. HCFA has released program 
instructions to its carriers and fiscal intermediaries, and NAHC has 
passed the information contained in these transmittals to the home care 
and hospice community in a timely fashion.
    NAHC has also held several educational programs and has featured 
the millennium compliance issue at industry conferences. For example, 
Kenneth Kleinberg, a leading expert in Y2K information technology 
issues from the Gartner Group, was a keynote speaker at NAHC's recent 
policy conference. During his talk to over 500 home care and hospice 
providers, he outlined the millennium readiness of the health care 
sector. In a smaller session, Kleinberg, HCFA's Joe Brosecker, and I 
provided more detailed guidance specific to home care to conference 
attendees. Further educational sessions are planned for NAHC's annual 
meeting to be held in October.
    NAHC is developing a Y2K Failure Contingency Planning Workbook for 
home care and hospice providers. The workbook will contain checklists 
and sample contingency plans to provide home care providers with 
concrete guidelines to follow to be assured Y2K compliance. NAHC is 
hopeful that use of this notebook will further ensure home care 
compliance with Y2K.
    NAHC is concerned that, despite the best efforts of the home care 
community and HCFA, some home care agencies and hospices may still not 
be prepared for the millennium. Many of these providers, which will 
most likely be freestanding agencies in rural or remote areas, may lack 
the resources to participate in state or national association training 
or to access information on Y2K compliance. Home care agencies' efforts 
to comply with Y2K requirements should be viewed in light of the 
agencies' resources and access to information.
              home health difficulties with y2k compliance
    In addition to lowering home care reimbursement rates by 
approximately 30% through the establishment of an interim payment 
system (IPS), the Balanced Budget Act of 1997 (BBA '97) led to 
imposition of a myriad of new regulatory burdens on home care agencies. 
Such new requirements included sequential billing, OASIS patient 
assessment data collection and transmission and increased medical 
review. Home care agencies have expended huge sums to comply with these 
new regulations. Despite 1998 changes to the current Medicare home 
health payment system, virtually all agencies are reimbursed less than 
their actual costs of providing care. Moreover, maintaining regulatory 
compliance has siphoned funds away from necessary patient care and has 
left little for overhead expenses such as new computer hardware, 
software, and technical consulting, much less dollars for continuing 
memberships in state or national associations that alert agencies and 
make efforts to help them with Y2K compliance.
    These regulatory burdens have also slowed down claims processing, 
drastically reducing cash flow to agencies. The vast majority of home 
care agencies are small businesses with little in the way of tangible 
assets. These small, ``mom and pop'' providers cannot operate if cash 
flow is significantly interrupted. NAHC's main concern is that HCFA 
will fail to take into consideration unique challenges facing home care 
and hospice providers in becoming Y2K compliant. Failure to reimburse 
claims will be the death knell for providers who are already struggling 
with lower reimbursement rates and increased regulatory burdens.
    HCFA, by withholding reimbursement on claims that are not Y2K 
ready, will unfairly and adversely impact those smaller providers who 
cannot survive interruptions in payment. The smaller agencies are also 
the ones that will have the most difficulty becoming Y2K compliant and 
yet will have the most to lose if their reimbursement is halted.
    HCFA has led many to believe that the cost of becoming Y2K ready is 
minimal, offering web-based resources addressing various aspects of the 
year 2000 challenge. Yet, many home care and hospice providers do not 
have access to the Internet and, therefore, this avenue of information 
is closed off to those less sophisticated providers. A NAHC survey of 
home care providers in July 1998 indicated that only one-quarter had 
computer systems sufficiently sophisticated to collect and transmit 
OASIS patient assessment data. This finding provides some indication of 
agencies' likelihood of having Internet access.
    Providers of home care and hospice services face unique challenges 
that are not faced by providers in other environments, such as 
hospitals or nursing homes. The patients they serve are homebound and 
may experience more severe consequences as a result of Y2K 
noncompliance, not only in health care, but in all aspects of their 
lives. Home caregivers must educate their patients to ensure that the 
home environment is millennium compliant on December 31, 1999. An 
agency can have contingency plans for everything, but if the patient 
does not have access to needed medications and medical equipment or, if 
their power or water source fails, the patient could face a tragic 
situation.
                            recommendations
    It appears that HCFA has placed the lion's share of the burden of 
not only providing information, but of assuring compliance, on the 
associations that represent home care and hospice providers. NAHC has 
taken responsibility for educating its members but cannot reach 
providers who do not belong to an association. HCFA has stated that 
provider failure to comply with Y2K, for any reason, will mean that the 
provider will not be paid for services rendered to Medicare 
beneficiaries. HCFA, however, has failed to reveal its own contingency 
plans in the event that systems fail. How can HCFA expect providers to 
comply when it has given no assurances to providers that it has its own 
house in order?
    HCFA has the capability to identify and communicate with all 
Medicare certified home health and hospice providers. Home care 
associations don't have these capabilities, nor do they have the 
resources to conduct ongoing outreach efforts. NAHC is currently 
struggling with its efforts to contact hundreds of home care providers 
(NAHC members and non-members) who are believed to be out of compliance 
with Y2K requirements. HCFA should utilize the information it has to 
target those providers most ``at-risk'' for not becoming Y2K compliant. 
Once targeted, HCFA can then engage in a more active information 
campaign for those at-risk agencies who are not members of any trade 
association and may not have the capabilities to obtain on-line 
information. Moreover, HCFA can work more closely with state and 
national associations to help get to those who ``fly below the radar 
screen.'' HCFA has free software available to help providers but many 
providers are not aware that such software exists.
    In conclusion, NAHC urges HCFA to take a more flexible approach 
when processing claims from providers that are not Y2K compliant. NAHC 
is hopeful that HCFA will take into account good faith efforts made by 
providers in becoming compliant, or that providers who failed to be 
compliant because of factors outside of their control. In such cases, 
HCFA should engage in outreach and help the provider achieve compliance 
as opposed to using a heavy hand that could jeopardize the future of 
the agency as well as access to and quality of patient care.

    Mr. Upton. Thank you.
    Dr. Corlin.

                 TESTIMONY OF RICHARD F. CORLIN

    Mr. Corlin. Thank you, Mr. Chairman. My name is Dr. Richard 
Corlin. I'm Speaker of the House of the Delegates of the 
American Medical Association and a practicing 
gastroenterologist. I want to thank you for inviting me to 
testify today.
    The Year 2000 problem will affect virtually all aspects of 
the medical profession. Most all physicians use computers in 
our practices for scheduling, reimbursement, and increasingly 
for more clinical functions, such as logging in patient 
histories. We and our patients also rely on medical equipment 
with embedded microchips. The AMA realizes that with this 
reliance comes the risk of malfunction due to the Y2K bug.
    We have consistently been directing our efforts toward 
assisting physicians to achieve compliance and have been 
focusing on three areas: cooperation, education, and 
communication. The AMA has been promoting cooperation through 
our involvement in the National Patient Safety Foundation. The 
AMA launched a foundation with the support of other health care 
organizations and safety experts.
    In addition, we helped to form a public-private partnership 
with the National Patient Safety Partnership, which was 
convened by the Department of Veterans Affairs. This 
partnership has shown particular leadership in the Y2K problem.
    For more than a year, the AMA has also been educating 
physicians and medical students with two of its publications, 
AMNews and the Journal of the American Medical Association. We 
have been raising physicians' level of awareness of the year 
2000 problem with numerous articles on a variety of Y2K 
subjects.
    Nearly a year ago, the AMA also launched a national 
campaign with the Federation of Medical Societies focusing on 
both education and communication. As part of this campaign, the 
AMA has been holding regional seminars across the country to 
talk about the Y2K problem, encourage physicians to make Y2K 
assessments, identify and correct problems and establish 
contingency plans.
    We have made available to hundreds of thousands of 
physicians a solution manual entitled ``The Year 2000 Problem: 
Guidelines for Protecting Your Patients and Practice,'' which 
each of your offices have been given a copy of. This booklet 
talks about Y2K compliance requirements, how to obtain 
information about medical devices, self-assessment programs, 
contingency plans and a lot more. It also identifies a host of 
other resources for physicians to obtain help in becoming Y2K-
compliant.
    An AMA subsidiary, AMA Solutions, Incorporated, has also 
been working extensively with physician group practices, 
hospitals and medical societies and has assisted them in 
hosting Y2K presentations.
    To better assess physicians' readiness, the AMA is 
presently conducting a series of Y2K surveys. With these 
surveys, we hope to identify those segments of the medical 
profession most in need of additional assistance. Although the 
results of our first survey were inconclusive due to the low 
response rate, the results did suggest that around three-
quarters of the physicians responding have conducted a Y2K 
inventory of their practices. Seventy-one percent of the 
respondents have also developed a strategy for dealing with 
potential Y2K problems. Our most promising finding was that of 
those physicians who report that their practices were not yet 
Y2K-compliant, almost all, 94 percent, indicated that their 
practices will be compliant by the end of the year. We 
anticipate that our next survey, which we will conduct in the 
near future, will confirm many of these findings.
    To foster greater communication among physicians about the 
Y2K problem, the AMA last year established a special section on 
Y2K on its award-winning Website. It provides regularly updated 
information about the millennium bug, enabling physicians to 
assist each other in solving their Y2K problems.
    What more can be done? First, we cannot allow ourselves to 
become complacent. The AMA acknowledges that the year 2000 
problem still poses a risk for patient care and may adversely 
affect physicians' administrative responsibilities.
    This month we are also asking State, county and specialty 
medical societies to join us in our educational facilities.
    Second, physicians and other patient advocates continue to 
call on medical device manufacturers to disclose immediately 
whether their products will malfunction. Only they have the 
information; and that applies to software manufacturers as 
well.
    Third, as we obtain information, we need to reassure 
patients that medical devices will continue to work safely. We 
do not want a lack of information to cause patients to panic. 
The patient has to be our No. 1 concern in all of our Y2K 
efforts.
    Thank you very much, once again, for inviting me to testify 
today.
    [The prepared statement of Richard F. Corlin follows:]
   Prepared Statement of Richard F. Corlin on Behalf of the American 
                          Medical Association
    Mr. Chairman and members of the Committee, my name is Richard F. 
Corlin, MD. I am the Speaker of the House of Delegates of the American 
Medical Association (AMA). I am also a practicing gastroenterologist 
from Santa Monica, California. On behalf of the three hundred thousand 
physician and medical student members of the AMA, I appreciate the 
opportunity to discuss the impact of the federal government's efforts 
to address the year 2000 problem, the anticipated impact on patients 
and physicians and the AMA's efforts to assist physicians in dealing 
with this problem.
Introduction
    As most all of us know, many computer systems, software and 
embedded microchips cannot properly process date information or date 
data. As programmed, these devices and software can only read the last 
two digits of the ``year'' data field. Consequently, when data requires 
the entry of a date in the year 2000 or later, these systems, devices 
and software are incapable of correctly processing the data. This 
inability to properly process year 2000 date data is commonly referred 
to as the ``Y2K problem'' or the ``Y2K bug.''
    By the nature of its work, the medical industry relies heavily on 
technology, on computer systems--both hardware and software, as well as 
medical devices that have embedded microchips. A survey conducted last 
year by the AMA found that almost 90% of the nation's physicians are 
using computers in their practices, and 40% are using them to log 
patient histories.1 These numbers appear to be growing as 
physicians seek to increase efficiency and effectiveness in their 
practices and when treating their patients. Physicians' dependence on 
technology consequently creates some vulnerability to the Y2K bug.
---------------------------------------------------------------------------
    \1\ ``Doctors Fear Patients Will Suffer Ills of the Millennium Bug; 
Many Are Concerned That Y2K Problem Could Erroneously Mix Medical 
Data--Botching Prescriptions and Test Results,'' Los Angeles Times, 
Jan. 5, 1999, p. A5.
---------------------------------------------------------------------------
Current Level of Preparedness
    Assessing the status of the year 2000 problem has been difficult 
not only because the inventory of the information systems and equipment 
that will be affected is far from complete, but also because the 
consequences of noncompliance for each system remain unclear. 
Additionally, the health care industry is extremely fragmented and 
consistently requires complex information transactions.2 
Nevertheless, if the studies are correct, malfunctions in noncompliant 
systems will occur and equipment failures can surely be anticipated.
---------------------------------------------------------------------------
    \2\ Violino, B., ``Health Care Not Y2K-Ready--Survey Says Companies 
Underestimate Need for Planning; Big Players Join Forces,'' Information 
Week, January 11, 1999.
---------------------------------------------------------------------------
    After conducting a series of 10 congressional hearings, the Senate 
Special Committee on the Year 2000 Problem (the ``Special Committee'') 
recently reported that the healthcare industry continues to lag behind 
other industries in addressing the Y2K problem.3 According 
to its findings, the vast majority of physicians have yet to address 
the Y2K issue. The report attributed some of the industry's most 
significant problems to its highly decentralized health claims 
processing system, the anticipated domino effect, the lack of adequate 
parallel testing, the dearth of contingency plans, and the ongoing lack 
of cooperation from biomedical device manufacturers.4
---------------------------------------------------------------------------
    \3\ ``Investigating the Impact of the Year 2000 Problem,'' U.S. 
Senate Special Committee on the Year 2000 Technology Problem, February 
25, 1999, p. 45.
    \4\ Id. at 45-48.
---------------------------------------------------------------------------
    The Special Committee's findings appear to reaffirm previous 
studies by various research and advisory groups. The Odin Group, a 
health care information technology research and advisory group, for 
instance, found from a survey of 250 health care managers that many 
health care companies by the second half of last year still had not 
developed Y2K contingency plans.5 The GartnerGroup has 
similarly concluded, based on its surveys and studies, that the year 
2000 problem's ``effect on health care will be particularly traumatic . 
. . [l]ives and health will be at increased risk. Medical devices may 
cease to function.'' 6 In its report, it noted that most 
hospitals have a few thousand medical devices with microcontroller 
chips, and larger hospital networks and integrated delivery systems 
have tens of thousands of devices.
---------------------------------------------------------------------------
    \5\ ``Health Care Not Y2K-Ready--Survey Says Companies 
Underestimate Need For Planning; Big Players Join Forces,'' 
InformationWeek, January 11, 1999.
    \6\ GartnerGroup, Kenneth A. Kleinberg, ``Healthcare Worldwide Year 
2000 Status,'' July 1998 Conference Presentation, p. 2 (hereinafter, 
GartnerGroup).
---------------------------------------------------------------------------
    Based on early testing, the GartnerGroup also found that although 
only 0.5-2.5 percent of medical devices have a year 2000 problem, 
approximately 5 percent of health care organizations will not locate 
all the noncompliant devices in time.7 It determined further 
that most of these organizations do not have the resources or the 
expertise to test these devices properly and will have to rely on the 
device manufacturers for assistance.8
---------------------------------------------------------------------------
    \7\ Id. at p. 8.
    \8\ Id.
---------------------------------------------------------------------------
    Despite the rather bleak outlook, other surveys offer some 
favorable information. Rx2000 Solutions Institute, a non-profit 
organization established to address Y2K issues in the health care 
industry, reports that recent data show that while Y2K progress among 
health care providers is lagging behind other industries, an increasing 
number of providers are beginning to address the issue. Rx2000 reports 
further that greater numbers of physicians and other health care 
providers have documented Y2K plans; currently, 76% of health care 
providers have plans for addressing the Y2K problem. Moreover, 
increasing numbers of physicians and other health care providers have 
set aside funds for Y2K remediation efforts and have begun exploring 
the Y2K status of their business partners.
    Results from the AMA's March 1999 survey, while inconclusive due to 
the relatively low response rate, nevertheless appear to confirm 
Rx2000's findings. Approximately three-quarters (76%) of the physicians 
who responded have conducted an inventory of their practices to 
determine whether they are Y2K dependent, and 71% of the respondents 
have developed a strategy for dealing with potential Y2K information 
systems problems. Very important, of the physicians who reported that 
their practices were not currently Y2K ready (53%), almost all--94%--
indicated that their practices will be Y2K compliant by December 31, 
1999.
    With less than 250 days left, the medical industry continues to 
diligently prepare for the new millennium. While the Special Committee 
reported that the health care industry significantly lags behind most 
other industries, it also emphasized that Americans, and patients in 
particular, have no reason to panic. In response to reports that many 
Americans are preparing for the worst, Senator Dodd stated ``We''re 
discouraging people from going out and stockpiling.'' After the 
hearings, Senator Bennett, the Committee's Chairman, stated that ``I 
don't believe the health care industry's lack of preparedness will 
necessarily mean loss of life, but it could seriously impact care for 
millions.''
A Collaborative Effort
    Patient Care--Assessing the current level of risk attributable 
specifically to the year 2000 problem within the patient care setting 
remains problematic. We do know, however, that the risk is real and 
present. If certain imbedded microchips, for instance, were to 
malfunction due to a Y2K problem, monitors relying on those microchips 
could fail to sound alarms when patients' hearts stopped beating. 
Similarly, respirators could deliver ``unscheduled breaths'' to 
respirator-dependent patients. Digital displays could incorrectly 
attribute the names of some patients to medical data from other 
patients. These scenarios are not hypothetical or based on conjecture. 
Software problems have caused each one of these medical devices to 
malfunction with potentially fatal consequences.9
---------------------------------------------------------------------------
    \9\ Anthes, Gary H., ``Killer Apps; People are Being Killed and 
Injured by Software and Embedded Systems,'' Computerworld, July 7, 
1997.
---------------------------------------------------------------------------
    The risk to patient safety is real. Since 1986, the FDA has 
received more than 450 reports identifying software defects--not 
related to the year 2000--in medical devices. Consider one instance--
when software error caused a radiation machine to deliver excessive 
doses to six cancer patients; for three of them the software error was 
fatal.10 We can anticipate that, left unresolved, medical 
device software malfunctions due to the millennium bug would be 
prevalent and could be serious.
---------------------------------------------------------------------------
    \10\ Id.
---------------------------------------------------------------------------
    The AMA continues to strongly recommend that medical device 
manufacturers immediately disclose to the public whether their products 
are Y2K compliant. Physicians and other health care providers do not 
have the expertise or resources to determine reliably whether the 
medical equipment they possess will function properly in the year 2000. 
Only the manufacturers have the necessary in-depth knowledge of the 
devices they have sold.
    Nevertheless, medical device manufacturers have not always been 
willing to assist end-users in determining whether their products are 
year 2000 compliant. Last year, the Acting Commissioner of the FDA, Dr. 
Michael A. Friedman, testified before the U.S. Senate Special Committee 
on the Year 2000 Problem that the FDA estimated that only approximately 
500 of the 2,700 manufacturers of potentially problematic equipment had 
even responded to inquiries for information. Even when vendors did 
respond, their responses frequently were not helpful. The Department of 
Veterans Affairs reported last year that of more than 1,600 medical 
device manufacturers it had previously contacted, 233 manufacturers did 
not even reply and another 187 vendors said they were not responsible 
for alterations because they had merged, were purchased by another 
company, or were no longer in business. One hundred two companies 
reported a total of 673 models that were not compliant but should be 
repaired or updated this year.11
---------------------------------------------------------------------------
    \11\ Morrissey, John, and Weissenstein, Eric, ``What's Bugging 
Providers,'' Modern Healthcare, July 13, 1998, p. 14. See also, July 
23, 1998 Hearing Statement of Dr. Kenneth W. Kizer, Undersecretary for 
Health Department of Veterans Affairs, before the U.S. Senate Special 
Committee on the Year 2000 Technology Problem.
---------------------------------------------------------------------------
    After a series of U.S. Senate hearings, the Special Committee 
reported that ``[e]very major medical organization testified that they 
were experiencing significant problems with biomedical device 
manufacturers. In many cases, manufacturers were unable or unwilling to 
comment on their product's ability to function after the millennium 
change.'' Moreover, it stated that only after informing device 
manufacturers that the Congress would enact legislation requiring 
mandatory disclosure if the manufacturers did not voluntarily 
disclosing compliance information, did the manufacturers begin 
providing compliance data to the Food and Drug Administration (FDA). We 
continue to urge Congress to assist physicians and other health care 
providers in obtaining necessary compliance information for medical 
devices.
Administrative
    Many physicians and medical centers are also increasingly relying 
on information systems for conducting medical transactions, such as 
communicating referrals and electronically transmitting prescriptions, 
as well as maintaining medical records. Many physician and medical 
center networks have even begun creating large clinical data 
repositories and master person indices to maintain, consolidate and 
manipulate clinical information, to increase efficiency and ultimately 
to improve patient care. If these information systems malfunction, 
critical data may be lost, or worse--unintentionally and incorrectly 
modified. Even an inability to access critical data when needed can 
seriously jeopardize patient safety.
    Other administrative aspects of the Y2K problem involve Medicare 
coding and billing transactions. In January 1999, HCFA instructed both 
carriers and fiscal intermediaries to inform health care providers, 
including physicians, and suppliers that claims received on or after 
April 5, 1999, which were not Y2K compliant would be rejected and 
returned as unprocessable. We have heard virtually nothing about HCFA 
encountering any significant problems with ``unprocessable'' claims due 
to Y2K noncompliance.
    We understand why HCFA has issued this ultimatum. We genuinely 
hope, however, that HCFA, to the extent possible, will assist 
physicians and other health care professionals who have been unable to 
achieve full Y2K compliance. Physicians are genuinely trying to comply 
with HCFA's Y2K directives. In fact, HCFA has already represented that 
98% of the electronic bills being submitted by physicians and other 
Medicare Part B providers already meet HCFA's Y2K filing criteria.
    The AMA was pleased to hear recently that more 90% of the 
Department of Health and Human Services (HHS) critical systems are 
currently Y2K compliant. We note though that in late February 1999, a 
representative of the U.S. General Accounting Office (GAO) testified 
that the GAO had found that HCFA had considerably overstated its 
present level of Y2K compliance. In fact, ``all 54 external systems 
that were reported as compliant had important associated qualifications 
(exceptions), so of them very significant. Such qualifications included 
a major standard system that failed to recognize `00' as a valid years, 
as well as 2000 as a leap years; it also included systems that were not 
fully future-date tested.'' 12 The GAO further cautioned 
that HCFA needs to ensure that Y2K-related errors are not introduced 
into the Medicare program through data exchanges. According to the GAO, 
HCFA had reported as of February 10, 1999, that over 6,000 of its 7,968 
internal data exchanges were still not compliant, and more than 37,000 
of its nearly 255,000 external data exchanges were not 
compliant.13 The GAO strongly recommended that HCFA perform 
detailed end-to-end testing, and test its agency-wide business 
continuity and contingency plans. The public consequently remains 
concerned that the federal government may not achieve full Y2K 
compliance before critical deadlines.
---------------------------------------------------------------------------
    \12\ February 26, 1999, Written Testimony of Joel C. Willemssen, 
Director, Civil Agencies Information Systems Accounting And Information 
Management Division U.S. General Accounting Office, The House 
Government Reform And Oversight Committee Government Management, 
Information And Technology Subcommittee, Year 2000 Computing Crisis: 
Readiness Status of The Department of Health And Human Services.
    \13\ Id.
---------------------------------------------------------------------------
    We believe that HCFA should lead by example, while fully 
cooperating with physicians and other health care provides in parallel 
and end-to-end testing that will ensure that the entire claims 
submission process will be fully functional before January 2000. Such 
testing would also allow for further systems refinements, if necessary. 
We understand and concur with HCFA, when it states that it does ``not 
have the authority, ability, or resources to step in and fix systems 
for others, such as States or providers.'' 14 The AMA 
believes though that the Y2K problem demands collaboration among and 
the full cooperation of all parties involved, including HCFA.
---------------------------------------------------------------------------
    \14\ February 24, 1999, Written Testimony of Nancy Ann Min DeParle, 
Administrator of the Health Care Finance Administration, The House Ways 
And Means Committee, Year 2000 Conversion Efforts And Implications For 
Beneficiaries And Taxpayers.
---------------------------------------------------------------------------
Reimbursement and Implementation of BBA
    To remedy its own problems, HCFA has stated that it will 
concentrate on fixing its internal computers and systems. As a result, 
it has decided not to implement some changes required under the 
Balanced Budget Act (BBA) of 1997, and it plans to postpone physicians' 
payment updates from January 1, 2000, to about April 1, 2000.
    HCFA has indicated to the AMA that the delay in making the payment 
updates is not being done to save money for the Medicare Trust Funds. 
In addition, the agency has said that the eventual payment updates will 
be conducted in such a way as to fairly reimburse physicians for the 
payment update they should have received. In other words, the updates 
will be adjusted so that total expenditures in the year 2000 on 
physician services are no different than if the updates had occurred on 
January 1.
    We are pleased that HCFA has indicated a willingness to work with 
us on this issue. But we have grave concerns about the agency's ability 
to devise a solution that is equitable and acceptable to all 
physicians.
    Also, as it turns out, the year 2000 is a critical year for 
physicians because several important BBA changes are scheduled to be 
made in the resource-based relative value scale (RBRVS) that Medicare 
uses to determine physician payments. This relative value scale is 
comprised of three components: work, practice expense, and malpractice 
expense. Two of the three--practice expense and malpractice--are due to 
undergo Congressionally-mandated modifications in the year 2000.
    In general, the practice expense changes will have different 
effects on the various specialties. Malpractice changes, to some modest 
degree, would offset the practice expense redistributions. To now delay 
one or both of these changes will have different consequences for 
different medical specialties and could put HCFA at the eye of a storm 
that might have been avoided with proper preparation.
    To make matters worse, we are also concerned that delays in 
Medicare's reimbursement updates could have consequences far beyond the 
Medicare program. Many private insurers and state Medicaid agencies 
base their fee-for-service payment systems on Medicare's RBRVS. Delays 
in reimbursement updates caused by HCFA may very well lead other non-
Federal payers to follow Medicare's lead, resulting in a much broader 
than expected impact on physicians.
AMA's Efforts--A Chronology
    AMA policy directs the AMA to study the Y2K problem and its 
possible adverse effects on patient care and physicians, and to educate 
and assist physicians in becoming Y2K compliant.
    Diligently pursuing its policy, the AMA has devoted considerable 
resources to assist physicians and other health care providers in 
learning about and correcting this problem. As a precursor to its Y2K 
remediation efforts, the AMA in early 1996 began forming the National 
Patient Safety Foundation or ``NPSF.'' Our goal was to build a 
proactive initiative to prevent avoidable injuries to patients in the 
health care system. In developing the NPSF, the AMA realized that 
physicians, acting alone, cannot always assure complete patient safety. 
In fact, the entire community of providers is accountable to our 
patients, and we all have a responsibility to work together to fashion 
a systems approach to identifying and managing risk. It was this 
realization that prompted the AMA to launch the NPSF as a separate 
organization, which in turn partnered with other health care 
organizations, health care leaders, research experts and consumer 
groups from throughout the health care sector.
    One of these partnerships is the National Patient Safety 
Partnership (NPSP), which is a voluntary public-private partnership 
dedicated to reducing preventable adverse medical events and convened 
by the Department of Veterans Affairs. Other NPSP members include the 
American Hospital Association, the Joint Commission on Accreditation of 
Healthcare Organizations, the American Nurses Association, the 
Association of American Medical Colleges, the Institute for Healthcare 
Improvement, and the National Patient Safety Foundation at the AMA. The 
NPSP has made a concerted effort to increase awareness of the year 2000 
hazards that patients relying on certain medical devices could face at 
the turn of the century.
    For more than a year, the AMA has also been educating physicians 
and medical students through two of its publications, AMNews and the 
Journal of the American Medical Association (JAMA). AMNews, which is a 
national news magazine widely distributed to physicians and medical 
students, has regularly featured articles over the last fourteen months 
discussing the Y2K problem, patient safety concerns, reimbursement 
issues, Y2K legislation, and other related concerns. Some of these 
articles will focus on the top ten Y2K issues for physicians. Beginning 
this month, the AMA will also be placing ads in AMNews in a further 
effort to bring physicians' attention to the Y2K issue.
    The AMA, through these publications, has been raising the level of 
consciousness among physicians of the potential risks associated with 
the year 2000 for their practices and patients, and identifying avenues 
for resolving some of the anticipated problems.
    The AMA has also developed a national campaign entitled ``Moving 
Medicine Into the New Millennium: Meeting the Year 2000 Challenge,'' 
which incorporates a variety of educational seminars, assessment 
surveys, promotional information, and ongoing communication activities 
designed to help physicians understand and address the numerous complex 
issues related to the Y2K problem. In June 1998, the AMA launched this 
campaign by assembling State, County and Medical Specialty executives 
from around the country for an informational seminar, presenting an 
overview of the Y2K problem and its potential impact on the medical 
profession.
    In August 1998, AMA staff met with attendees of the American 
Association of Medical Society Executive (AAMSE) annual meeting to 
discuss, answer questions regarding, and in general raise the level of 
physician awareness of the year 2000 problem. During this meeting, the 
AMA also sought ways to work collaboratively with AAMSE to further 
education physicians and effectively address the Y2K problem.
    As a follow-up to this meeting, the AMA held a ``Federation 
Seminar'' in Michigan, where AMA staff met with the executives of the 
State and County medical societies (the ``Federation'') to coordinate 
efforts to assist physicians in identifying and resolving Y2K practice 
problem areas. The AMA actively participated in another Federation 
Seminar at the Minnesota Medical Society's Annual Meeting in October 
1998.
    Another seminar series the AMA is sponsoring is the ``Advanced 
Regional Response Seminars'' program. We have been holding these 
seminars in various regions of the country and providing specific, 
case-study information along with practical recommendations for the 
participants. The seminars provide tips and recommendations for dealing 
with vendors and explain various methods for obtaining beneficial re-

source information. Seminar participants receive a Y2K solutions 
manual, entitled The Year 2000 Problem: Guidelines for Protecting Your 
Patients and Practice. This seventy-five page manual, which we have 
made available to hundreds of thousands of physicians across the 
country, offers a host of different solutions to Y2K problems that 
physicians will likely face. It raises physicians' awareness of the 
problem, year 2000 operational implications for physicians' practices, 
and identifies numerous resources to address the issue.
    In addition to these seminars, an AMA subsidiary, AMA Solutions, 
Inc., has been enlisting the cooperation of physician group practices, 
hospitals and Federation members across the country to host Y2K 
presentations. We have already scheduled seminars on May 18 with the 
Indiana State Medical Association, on May 25 in Barberton, Ohio, and 
tentatively on May 26 with the Pennsylvania Medical Society. We will 
use The Year 2000 manual as the text for the classes.
    The AMA last year opened a web site (URL: www.ama-assn.org/not-mo/
y2k/index.htm) to provide the physician community additional assistance 
to better address the Y2K problem. The site serves as a central 
communications clearinghouse, providing up-to-date information about 
the millennium bug, as well as a special interactive section that 
permits physicians to post questions and recommended solutions for 
their specific Y2K problems. Last month we also included on this site 
an equipment inventory checklist for physicians to use to help assess 
their level of compliance. Additionally, the site includes a Tip of the 
Week that systematically provides practical compliance tips, as well as 
information about Y2K testing, up-to-date seminar information, toll-
free Y2K help lines and more. To facilitate access to other Y2K 
information, the site also incorporates links to other sites that 
provide helpful resource information.
    The AMA is currently conducting a series of surveys to measure the 
medical profession's state of readiness, assess where problems exist, 
and identify what resources would best reduce any risk. The AMA already 
has already conducted its first survey, and intends to use the 
information we have obtained to identify which segments of the medical 
profession are most in need of assistance. Through additional timely 
surveys, we will appropriately tailor our efforts to the specific needs 
of physicians and their patients. The information will also allow us to 
more effectively assist our constituent organizations in responding to 
the precise needs of other physicians across the country.
    During its 1999 Annual Meeting, the AMA will be featuring a Y2K 
exhibit, to draw physicians' attention to the AMA website and the AMA 
Year 2000 manual. We will also be offering suggestions on how they can 
assess their readiness, answering their questions, and encouraging them 
to develop detailed contingency plans. We intend to set up this exhibit 
also at the Medical Group Management Association regional meetings in 
June and July.
    In an effort to offer leadership to the Federation, the AMA has 
been communicating with State, County and Specialty medical societies 
across the country, explaining the Y2K problem and urging them to alert 
physicians. We have offered our assistance to these societies and 
requested that they inform us of their efforts to assist physicians in 
becoming Y2K compliant.
    To ensure that the AMA itself is Y2K compliant, in 1996 we began 
reviewing our own computer systems and identifying areas on which to 
focus our compliance efforts. We established a timeline and have been 
consistently meeting our goals. In 1998, we established an Internal 
Steering Committee, composed of a diverse group of individuals from the 
entire organization. The committee seeks to ensure that all technology 
used by the Association is Y2K compliant. It also periodically reports 
to the Board of Trustees on the status of the AMA's Y2K compliance, so 
the Board may fulfill its fiduciary duties.
The Challenge
    We suggest that both the public and private sectors encourage and 
facilitate health care practitioners in becoming more familiar with 
year 2000 issues and taking action to mitigate their risks. Greater 
efforts must be made in educating physicians, other health care 
providers and health care consumers about the issues concerning the 
year 2000, and how they can develop Y2K remediation plans, properly 
test their systems and devices, and accurately assess their exposure. 
We recognize and applaud the efforts of this Committee, the Congress, 
and the Administration in all of your efforts to draw attention to the 
Y2K problem and the medical community's concerns.
    We also recommend that communities and institutions learn from 
other communities and institutions that have successfully and at least 
partially solved the problem. Federal, state and local agencies as well 
as accrediting bodies that routinely address public health issues and 
disaster preparedness are likely leaders in this area. At the physician 
level, this means that public health physicians, including those in the 
military, organized medical staff, and medical directors, will need to 
be actively involved for a number of reasons. State medical societies 
can help take a leadership role in coordinating such assessments.
    We also must stress that medical device and software manufacturers 
need to publicly disclose year 2000 compliance information regarding 
products that are currently in use. Any delay in communicating this 
information may further jeopardize practitioners' efforts at ensuring 
compliance. A strategy needs to be developed to more effectively 
motivate all manufacturers to promptly provide compliance status 
reports. Additionally, all compliance information should be accurate, 
complete, sufficiently detailed and readily understandable to 
physicians. We suggest that the Congress and the federal government 
continue to enlist the active participation of the FDA or other 
government agencies in mandating appropriate reporting procedures for 
vendors. We applaud the Department of Veteran Affairs, the FDA, and 
others who maintain Y2K web sites on medical devices and offer other 
resources, which have already helped physicians to make initial 
assessments about their own equipment.
    We also have to build redundancies and contingencies into the 
remediation efforts as part of the risk management process. Much 
attention has been focused on the vulnerability of medical devices to 
the Y2K bug, but the problem does not end there. Patient injuries can 
be caused as well by a hospital elevator that stops functioning 
properly. Or the failure of a heating/ventilation/air conditioning 
system. Or a power outage. The full panoply of systems that may break 
down as our perception of the scope of risk expands may not be as 
easily delineated as the potential problems with medical devices. 
Building in back-up systems as a fail-safe for these unknown or more 
diffuse risks is, therefore, absolutely crucial.
    To the extent that physicians--particularly those in small 
practices, and other health care providers, do not have the required 
capital to remedy their Y2K problems, we welcome the Small Business 
Administration's (SBA) efforts to ensure that loans are made available 
on a restricted basis for businesses to correct Y2K problems. We 
understand that local lenders will begin offering the loans on May 3, 
with the SBA guaranteeing up to 90% of the loan amounts. We have been 
informed that these loans can be processed within two weeks and the 
rates are up to 2.75% above prime. Undoubtedly, this program will 
benefit many physicians and other health care providers, assisting them 
in becoming Y2K compliant. We welcome this initiative and appreciate 
Congress's initiative in creating the loan guarantee program.
    As a final point, we need to determine a strategy to notify 
patients in a responsible and professional way. If it is determined 
that certain medical devices may have a problem about which patients 
need to be notified, this needs to be anticipated and planned. 
Conversely, to the extent we can reassure patients that devices are 
compliant, this should be done. Registries for implantable devices or 
diagnosis- or procedure-coding databases may exist, for example, which 
could help identify patients who have received certain kinds of 
technologies that need to be upgraded and/or replaced or that are 
compliant. This information should be utilized as much as possible to 
help physicians identify patients and communicate with them.
    As we approach the year 2000 and determine those segments of the 
medical industry which we are confident will weather the Y2K problem 
well, we will all need to reassure the public. We need to recognize 
that a significant remaining concern is the possibility that the public 
will overreact to potential Y2K-related problems. The pharmaceutical 
industry, for instance, is already anticipating extensive stockpiling 
of medications by individuals and health care facilities. In addition 
to continuing the remediation efforts, part of our challenge remains to 
reassure patients that medical treatment can be effectively and safely 
provided through the transition into the next millennium.
Conclusion
    We appreciate the Committee's interest in addressing the problems 
posed by the year 2000, and particularly, those problems that relate to 
physicians. Because of the broad scope of the millennium problem and 
physicians' reliance on information technology, we realize that the 
medical community has significant exposure. The Y2K problem will affect 
patient care, practice administration, and Medicare/Medicaid 
reimbursement. The AMA, along with the Congress and other 
organizations, seeks to better educate the health care community about 
Y2K issues, and assist health care practitioners in remedying, or at 
least reducing the impact of, the problem. The public and private 
sectors must cooperate in these endeavors, while encouraging the 
dissemination of Y2K information.

    Mr. Upton. Well, thank you, all of you. And as you were 
here for the first panel, I think you saw us reach into--from 
beyond the billing with HCFA really to the care and the life-
and-death issues of the patients.
    And I have a number of questions myself. Dr. Corlin, you 
talked about all of the steps that the AMA has done 
particularly in sending the surveys out and looking for 
compliance and making docs aware of the situation. Too bad our 
three docs on the subcommittee--we have a bill on the House 
floor, so I think Dr. Coburn, Dr. Ganske and Dr. Norwood may 
have gone over to speak on the House floor on an important 
issue to a lot of us, particularly in rural areas, a satellite 
TV issue. And I hope we get there a little bit later this 
afternoon as well.
    But in any event, you heard Dr. Coburn talk about the costs 
to his five-member operation in Oklahoma. And I am going to be 
meeting with my docs in Michigan in about 2 weeks, and I'm 
going to be asking them how they are complying with Y2K.
    I guess what is disturbing to me, despite all of the good 
work by the AMA to reach out and to alert folks, in terms of 
some of the problems, and obviously we've seen a big 
educational issue over the last few years, that still you only 
received, I think in the testimony some of the information that 
came before me, only about a 6 percent response.
    Mr. Corlin. Eight percent.
    Mr. Upton. Eight percent. All right. I will give you 10 if 
you need it. But you know it's still pretty pathetic.
    Mr. Corlin. Yes, it is.
    Mr. Upton. And you talk about, you know, of the studies of 
those that responded, it seemed to be pretty good. But, you 
know, 90 percent, better than that, didn't even take the time 
to respond.
    Mr. Corlin. I share your concern, Mr. Upton, very much. So 
I think part of the reason is that physicians and physicians' 
offices get inundated with so many requests for certification 
and surveys and other information, that it just got lost--gets 
lost in the shuffle. That is an explanation. An explanation is 
different from an excuse.
    One of the things we're going to do is repeat the survey. 
And I think with the additional----
    Mr. Upton. You need someone else to write it, you know.
    Mr. Corlin. I think with the additional educational efforts 
that have gone on in the past 90 days--and also I can tell you 
coming up at the June annual meeting of the House of Delegates, 
since I run that meeting, we are going to have a very strong 
presentation to the delegates who are there and use them as a 
network to get out to the other physicians.
    There are a few things I think we need to talk about 
though. First of all, the issue of are patients going to be 
directly damaged and put in harm's way by what's going on, or 
is this going to be a problem for the physician; and 
reimbursement, which, while it's a problem, it certainly is a 
problem of the lower order of magnitude.
    Many of the medical devices that are crucial for patient 
care, monitors, respirators and so on, can be checked now 
relatively easily. They have time clocks on them that are not 
integral to the operation of the machine, but are simply time 
marks. Many of those can be wound ahead to December 31, 1999, 
and run for 48 hours and see what happens. Many of those will 
be compliant. Probably the majority of those will continue to 
operate normally only printing out on the bottom of the strip, 
perhaps, the wrong date. That, while it may be a problem, it is 
not serious. We need to verify it is nothing more than that.
    Part of the difficulty we have is that some of the software 
manufacturers, Microsoft among them, have refused to certify 
their software as Y2K-compliant, and certainly when it comes to 
obtaining those operating bills, no physician office has that 
information. Nathan Myhrvold, who is the chief technician at 
Microsoft, who has been referred to by many as the brightest 
person in the world on this issue, has made the comment in the 
end analysis nobody can really know for sure, we just have to 
wait and see. That's not terribly reassuring to me with regard 
to that.
    With regard to the issue of billing systems, I take the 
greatest assurance from some of Nancy-Ann Min DeParle 
testimony, who said that 99.98 percent of the electronic claims 
currently being submitted are submitted in a Y2K-compliant 
manner; 80 percent of the claims are currently coming in 
electronically. So while that's not the be-all and end-all of 
our system, it means there is a far greater degree of either 
preparation or simply older systems being more compliant than 
we realized that exists in physicians' offices.
    Mr. Upton. Thank you.
    Mr. Klink.
    Mr. Klink. Also, Dr. Corlin, in quoting Nancy-Ann Min 
DeParle, while it was being provided to HCFA in an 8-digit 
billing format, she was unable to tell me how the information 
was gathered, and what kind of sources were behind it and what 
the error rate was or project what the error rate would be. So 
we really don't know where we're going.
    Mr. Corlin. We do not know where we're going with those 
that are not compliant. But if her testimony, as I heard it, 
was that 99.98 percent of the electronic claims currently 
coming in are Y2K compliant----
    Mr. Klink. That's not what she--at least--I want to go back 
and revisit her testimony, because when I pushed her on the 
issue, I said it's coming in--she said it's coming in the 8-
digit billing format. And I said, okay, what about the systems 
that are behind that billing format pulling the information 
together, how accurate is that information? And my recollection 
was--and we will check the record--that she wasn't sure about 
that, nor of the error rate.
    So let's get beyond that, because we will have to check and 
see whether your recollection is right or mine. I still want to 
get back to the survey, Dr. Corlin. You sent out 7,000 surveys 
to your 300,000 members on Y2K. And I have the survey in front 
of me. It's rather simple, it's only two pages long, relatively 
simple, check the box. Why do you think you only got a 6 
percent or an 8 percent or 10 percent, if the chairman will 
give you the 10 percent, of the sampled members responding to 
the survey?
    Mr. Corlin. I thank the chairman, but it is only 8. I think 
I like the extra 2 also, but it's only 8.
    As I said, Mr. Klink, I think the reason is there is a 
massive overabundance of surveying and certification and work 
that goes to physicians' offices, and, unfortunately, things 
that do not require responses often don't get them.
    I can tell you, as an example from my particular office, I 
have a six-person gastroenterology group. We get, let's see, 26 
times 6 is 156--we get 156 recertification requests just from 
managed care organizations in our office every year. We are 
totally swamped by that requirement to do so.
    Mr. Klink. Let me ask you a question. How many--because my 
time is going to run out here. How many of these surveys do 
they get that come from the AMA? Do you send them a lot? And 
certainly if they get a survey from the AMA, I would guess that 
they would take it seriously. Or my question is, is there not a 
sense of urgency by the doctors that belong to the AMA that 
this Y2K is a problem?
    Mr. Corlin. There is a sense of concern. I wouldn't know 
about--I can't say that there's a sense of urgency. We are 
going to repeat the survey. And earlier today, just prior to 
this hearing, we spoke with some of the representatives of HCFA 
about a way of perhaps jointly having HCFA and the AMA do the 
surveys to gather information over both signatures.
    Mr. Klink. So you think a survey instrument is the best way 
you can go about gathering the information?
    Mr. Corlin. I don't want to say that it's necessarily the 
best. I think the survey instrument is a good instrument, and 
particularly if we get a large enough sample with a large 
number return, it will be statistically significant. The 
suggestion we made or that HCFA considered doing a joint survey 
with us and that the survey be physically attached to 
reimbursement check and directed principally to the person who 
received the check to gather the information, rather than the 
physician in the practice, because, quite frankly, that person 
in the billing office may be more knowledgeable about the 
information than the physician is, even if his or her own 
office.
    Mr. Klink. As time is moving on, you're going to be given--
I mean, year 2000 is quickly approaching, 8 months and 
counting, and during that time, you still have to be concerned 
about what--how your doctors are going to deal with this. And 
you indicate that about 41 percent of your members have 
contingency plans in place if the systems should fail. Can you 
tell me the nature of those plans that are in place?
    Mr. Corlin. I can tell you what is not in place, which is 
only a part answer, but this relates back to a question that 
was asked earlier. We were not absolutely under any 
circumstances advocating that physicians as a contingency 
revert back to paper claims submission. That is a major 
regression. It is a potential escape that we don't think is 
appropriate, and we are intensifying our efforts, both directly 
and indirectly, with physicians to increase those percentages 
to get them compliant well before December 31 so that they can 
continue to submit their claims electronically.
    Mr. Klink. Dr. Corlin, let me get back to my question. If 
you're not going back to your paper, which was your answer, and 
you are not Y2K-compliant to bill by computer, what are we 
going to do?
    Mr. Corlin. We were attempting to educate the physicians 
both directly and networking with others, including the Patient 
Safety Foundation, which I indicated earlier we're having a 
meeting in 2 days in Los Angeles about that. We spoke earlier, 
as I indicated, to try to do something cooperatively with HCFA.
    We believe this is a problem that has got to be dealt with 
by educating physicians to get compliant in a timely manner. 
There's a massive incentive on the physician's part to become 
compliant; i.e., 50 percent of their money coming into their 
office depends on it.
    We think our educational efforts, combined with the 
incentive that's in place, will help to a very high degree. 
Will it be 100 percent? Of course not. No system that anybody 
could ever envision will be 100 percent effective. But we think 
it will be close enough by the end of the year that we can be 
comfortable saying we've done the best job that we can.
    Mr. Klink. Well, the best job we can sometimes can be a 
failing grade.
    Let me ask you, are there going to be any physical audits, 
where someone--beyond the survey instrument, is there going to 
be any survey audits? If so, how many? How will you determine 
how many you're going to have to do?
    Mr. Corlin. Mr. Klink, the AMA does not have the legal 
authority to go into any physician's office and do a physical 
audit.
    Mr. Klink. HCFA does; do they not?
    Mr. Corlin. That's up to HCFA.
    Mr. Klink. You said you're going to work with HCFA. That's 
why I'm wondering.
    Mr. Corlin. We're going to work with HCFA.
    Mr. Klink. It's like pulling teeth now. In your work with 
HCFA, are there any plans, Dr. Corlin, for there to be any 
actual physical audits, or are we going to just do the best we 
can by the end of the year and accept it at the end of the 
year, we've done as good as we can and que sera sera? That's 
the question I would like you to answer.
    Mr. Corlin. Mr. Klink, I am not in the dentist's chair, nor 
am I demanding you to pull teeth. I am trying to be open and 
responsive as I can. We will work with HCFA. We have made some 
suggestions to them. Whatever HCFA comes back to us with 
further suggestions, we are more than willing to sit down and 
work with them. I can't tell you now that I will agree to a 
suggestion that I don't know what it is.
    I can tell you that the AMA shares your concern with the 
seriousness of this problem, and we will work with HCFA or any 
other responsible body as vigorously as we can with any methods 
that we believe will be appropriate to get this problem solved.
    Mr. Klink. Mr. Chairman, here's--and I understand that the 
red light is on. Here's the problem that I have. We are going 
to be hearing from a lot of doctors, both those that are 
members of the AMA and those that are not; providers, may 
belong to the AHA, may not; may belong to other organizations 
and may not, and here we are 8 months ahead of time. And if we 
do not know and cannot get from these--the people who represent 
them exactly where we're going to verify this information, it 
puts us in a horrible position.
    And sure enough, if HCFA is, come at the beginning of next 
year, not making the reimbursements to these providers in a 
timely fashion because they're not Y2K-compliant and the 
billing is not work-

ing, and we don't know--and I will tell you, Dr. Corlin, still 
from my questioning of you, and I didn't even get the other two 
witnesses, I still don't know what you're going to do for those 
people that aren't compliant.
    You said you're not going to paper, you're going to go to 
education. But I still--I don't know. And so when the 
providers, whether they're doctors or whether they're hospitals 
start screaming to their Congressmen at the beginning of the 
year, I don't know what I'm going to tell them. I don't know 
where in the world we can go on this.
    Mr. Corlin. Mr. Klink--may I respond, Mr. Chairman?
    Mr. Upton. Yes.
    Mr. Corlin. Mr. Klink, I would suggest if under those 
circumstances any medical provider complains to you after the 
first of the year that they're not being paid, I would offer to 
you that you might want to first ask them a few questions; did 
they read--if they're a physician, did they read AMNews, did 
they read the news that the AMA sent them, did they read the 
material that HCFA sent them, weren't they aware of the fact 
that the problem had to be corrected, and why didn't they take 
those steps within their own office to correct it?
    We can't hold a gun to people's heads and force them to 
become compliant with a system that, on the one hand their 
ethical responsibility, on the other hand their sense of 
personal desire to make some money out of their practice 
indicates they should want to do.
    Mr. Klink. My belief, Dr. Corlin, is if they didn't have 
the time to fill in this 2-page survey, they probably didn't 
have time to read all of those materials either. That's what 
they will tell me.
    Mr. Corlin. Well, sometimes the people have to live with 
the results of their own individual behaviors.
    Mr. Klink. You're a member, sir.
    Mr. Upton. Mr. Bilirakis.
    Mr. Bilirakis. Dr. Corlin, approximately how many of the 
medical doctors out there are members of the AMA?
    Mr. Corlin. Excuse me?
    Mr. Bilirakis. Approximately how many of the medical 
doctors out there are members of the AMA?
    Mr. Corlin. About 300,000, between physicians and medical 
students.
    Mr. Bilirakis. Percentage, I'm sorry, percent.
    Mr. Corlin. Mid-30's.
    Mr. Bilirakis. Mid-30's.
    Mr. Corlin. Yes.
    Mr. Bilirakis. So between 60 and 70 percent of the doctors 
are not members of the AMA?
    Mr. Corlin. That's correct.
    Mr. Bilirakis. All right. So all of your efforts, that 
booklet, which you have graciously also furnished to us, that 
goes out to your AMA members?
    Mr. Corlin. Well, it is made available on our Website to 
any physician. AMNews, which is our weekly tabloid-size 
periodical, goes to most--not every, but it goes to most 
physicians throughout the country, whether they're members or 
not.
    Mr. Bilirakis. I see. But there are plenty physicians out 
there, I guess, that would not have had any direct contact with 
the AMA through survey or through the booklet or anything of 
that nature regarding this particular subject?
    Mr. Corlin. That is possible.
    Mr. Bilirakis. That is possible. That's probable.
    Mr. Corlin. Yes.
    Mr. Bilirakis. Okay. Mr. Margolis, you've indicated that 
you have--you feel that the American Hospital Association 
doesn't see any problems as far as its hospitals are concerned 
regarding Y2K. I think you used the figures like 95 to 99 
percent or something like that, right?
    Mr. Margolis. That's correct. They said they would be 
compliant by December 31.
    Mr. Bilirakis. Ms. Mackin, you indicated that there would 
be problems, and then you also expressed concerns that HCFA, of 
course, doesn't cover all of home health care, only the 
Medicare portion.
    Ms. Mackin. But in most cases, the billing systems are 
universal. So if we're in compliance for Medicare, we would be 
in compliance for the rest of the payers.
    Mr. Bilirakis. Yeah, Okay.
    And, Mr. Grob, I guess it was from the other panel, 
indicated that HCFA indirectly and HCFA during its work for 
Medicare is also helping on Medicare. And we're very pleased 
with that.
    Ms. Mackin. Yes.
    Mr. Bilirakis. But you expressed concerns that HCFA was not 
making--I'm not putting words in your mouth, but paraphrasing--
not making available to home health care agencies adequate 
information regarding Y2K?
    Ms. Mackin. Well, we made a lot of references to using 
Websites to download information, but there are significant 
number of agencies, particularly the very small and rural and 
remote areas, who don't have Website access because they 
haven't had the funds to invest, or they haven't felt the 
necessity to do that. So the kinds of information that those 
individuals have may be quite limited.
    Mr. Bilirakis. Are they all members of NAHC?
    Ms. Mackin. Some; some aren't. So, again, the accessibility 
of the information is limited.
    Mr. Bilirakis. Do you think there's some out there--forgive 
me for interrupting you. Do you think there's some of them out 
there, many of them out there, who are not aware of the 
potential of the Y2K problem?
    Ms. Mackin. I think that just about everyone is aware of 
the Y2K issue, but having the expertise or the wherewithal to 
know what to do about it may not be as pervasive. Many of these 
agencies are small agencies run by a nurse. They have 
essentially--you know, their staff consists of caregivers, but 
not too many of the support-type individuals, so they don't 
have access to that level.
    Mr. Bilirakis. Okay. Well, it's always pleasing to know 
that there are people like yourselves who are patient enough to 
wait your turn, but you sat there throughout the entire first 
panel, and so you heard me and you've heard others, Ms. DeGette 
and others, emphasize the--not belittling the billing area, but 
emphasize the DME, the durable medical equipment. Mr. Margolis 
and Dr. Corlin particularly, can you speak to that?
    Mr. Margolis. Medical equipment?
    Mr. Bilirakis. Yes, sir.
    Mr. Margolis. The medical equipment area in our hospital 
speaks very specifically--it comprises about 9,000 pieces of 
equipment from patient monitoring to defib devices, all of 
which contain computer microchips.
    Mr. Bilirakis. Would you say that it's an indication of 
most hospitals out there?
    Mr. Margolis. Yes, I think so.
    Mr. Bilirakis. Some more so.
    Mr. Margolis. A 400-bed hospital would probably have 8- to 
10,000 devices. These devices are--we have a clinical 
engineering department among whose responsibility is to 
determine whether or not they're Y2K-compliant. We use 
resources both from the manufacturers, where they are--where 
they communicate with us through a letter of direct contact; 
resources that the AHA has put on line on the Web that we can 
check directly by model and serial number; and resources from 
the manufacturer's site.
    In many cases, there is confusion in this area in that 
manufacturers have not always been forthcoming or specific on 
specific series of devices or model numbers. And in some cases, 
they've used different internal chip component sets in the same 
model number over the years of production, so there's no way 
that one can rely 100 percent. So we've taken the approach of 
patient safety being that highest priority.
    And for devices which cannot be proven to be Y2K-compliant, 
we will staff accordingly so the patient is not dependent upon 
that device, nor is the nursing or the physician's staff 
dependent on the data collection of that device. By that I mean 
the device may have to be stopped and restarted at midnight, or 
the device may have to be taken out of service.
    Mr. Bilirakis. Would you do that; you say device start, 
stop, stop and restart it at midnight, would you--when would 
you emphasize the fact that that device is maybe not Y2K, you 
know, compliant, it hasn't met the Y2K situation? You are going 
to wait until December 31, or is there a time line before that?
    Mr. Margolis. No. As a matter of fact, in our inventorying 
process right now, we're identifying those devices by a way of 
a sticker. Someone mentioned that in an earlier panel, I 
believe. The sticker goes on as Y2K-inventoried when we 
actually recognize where that device is assigned and located. 
And after its determined, if it's determined, to be compliant, 
another sticker goes atop of that that says ``Y2K-compliant.'' 
So it will feel substantially comfortable in using that device.
    Now, for devices that are not compliant, another indication 
goes on as well as the fact that it's identified in the 
inventory of devices, and it will be either taken out of 
service, locked away in a closet in another unit, something 
like that, or if it is a critical device of which we have no 
others, it will be watched closely. There will be a nurse or a 
resident in attendance. In many cases, the device will simply 
stop, and it will have to be restocked.
    Mr. Bilirakis. Do you feel what you tell us in terms of the 
safeguards that you're taking at your hospital, it would be 
indicative of American Hospital Association hospitals around 
the country?
    Mr. Margolis. Yes, absolutely.
    Mr. Bilirakis. You're satisfied with that?
    Mr. Margolis. Those pieces of equipment are critical in the 
operation of a hospital, but not critical in the well-being of 
a patient so that it is a labor-reduction, productivity-
improvement device.
    Mr. Bilirakis. But the scenario that you gave us, you feel 
confident will exist in all hospitals in the country?
    Mr. Margolis. Right. That is the recommendation of the 
American Hospital Association, so I feel that all hospitals 
will be following that template.
    Mr. Bilirakis. Dr. Corlin, very quickly, are you concerned 
with the durable medical equipment problem?
    Mr. Corlin. Yes, I am. I am concerned because of the 
comments that Mr. Margolis is making. And clearly the hospitals 
have far greater resources than physician's offices. We are 
educating our physician's offices; and we are trying to say, if 
there is a question, take advantage of the hospital's 
capability. A lot of the equipment can be brought over to the 
hospital and have it tested if you cannot get direct 
information from the manufacturers.
    We are also concerned that some equipment that prints out 
4-digit year codes may be providing a false sense of security. 
The ``19'' may simply be a hard-embedded instruction to the 
printer and may not be a functional part of a real 4-digit 
computer year code.
    The final area of concern is the area of the offsite 
equipment, which impacts on direct medical equipment. 
Elevators, for example, if we have an outpatient surgery center 
on the fourth floor and I need a 911 call in a hurry and the 
elevator stops functioning properly, that patient is in real 
trouble if the paramedic is down on the first floor and cannot 
get up there.
    Telephone systems, not just the telephone company being 
available but many of the phone systems, now have a local 
computer system either in the office or in the basement of the 
building. Anyone that usually works through one of the new 
systems that people buy, they may have a chip in them. They 
have got to be checked. Backup generators, a whole variety of 
things that impact on something at the bedside that may not be 
directly at the bedside. These can have just as disastrous an 
effect if they are not watched properly.
    Mr. Bilirakis. Ms. Mackin.
    Ms. Mackin. The Visiting Nurse Service, affiliated with the 
University of Rochester Medical Center and Strahn Memorial 
Hospital, which is a 740-some odd bed acute care hospital, we 
have participated with them in their Y2K efforts as well; and a 
number of things that they are doing parallel what Mr. Margolis 
is saying as well.
    Mr. Bilirakis. You know, I asked the question about the 
concerns with HCFA not making available to your home health 
care agencies adequate information to help them?
    Ms. Mackin. I believe the national association has.
    Mr. Bilirakis. The gentleman behind you is nodding his 
head, yes.
    Thank you, Mr. Chairman. I appreciate your indulgence.
    Mr. Upton. Thank you, Mr. Bilirakis.
    Dr. Corlin, I have been in the Congress 12 years, and I 
have been on this House subcommittee for I think 7 years, and, 
consequently, I feel that I have a very good relationship with 
my health community in Michigan. I represent the Kalamazoo, St. 
Joe, Benton Harbor area and know the Michigan folks very well 
up in Lansing. And there are some major providers, and I speak 
to their groups fairly frequently. They come here, and I know 
them in a pretty good way, in lots of ways.
    There were some that went on our little bus trip 2 weeks 
ago to one of my major hospitals that really services my home 
county. And some of the AMA folks were there, some of the local 
physicians were there, and they made the point that they needed 
to make sure that this system worked because they would not be 
in business, knowing the delays already in place between 
getting reimbursement with Medicare--they haven't thought about 
Medicaid yet. But, at least with Medicare, they would not be in 
business if they were not compliant and if things did not work.
    And I know when I meet with a good number of them in the 
second week in May, my guess is that, based on your national 
statistics, probably not very many responded to the relatively 
simple questionnaire that you sent out, and I am going to razz 
them for you if you don't do it for yourself in 2 days.
    My guess is that, in the long run, they will be compliant 
because they know that they need that cash-flow for the folks 
that work in their operation and need to pay their bills. They 
have been squabbling for a long time about how long it takes to 
get reimbursed, and they can't take--even some of the long-
time-established ones, they cannot take much longer of a delay 
in getting reimbursement from HCFA.
    Mr. Corlin. I agree with you a hundred percent. I think 
that any physician who expresses a concern about the issue now 
and acts in the most reasonably appropriate way in the broadest 
definition of that will be compliant because they will have had 
their operating system in their office adjusted. Whether it 
takes as much as Mr. Coburn said or not, I think they will 
comply.
    I think the only physicians--and I hope that this is a 
minuscule number who may not be compliant are those who simply 
ignore it or say it is not going to be a problem, and that is 
not a realistic attitude. We are doing everything that we can 
to see that as many physicians as possible realize that this is 
a real problem. It needs to be addressed, and the solution may 
be a costly one or it may be a minimal one, depending upon what 
you have in your office and how you operate now.
    I agree with you a hundred percent, and I do believe that 
every physician who spoke to you who said that they have their 
concerns and they are aware of the situation, they are going to 
be ready.
    Mr. Upton. Mr. Margolis, I was impressed with your 
testimony, and that is perhaps why AHA asked you to come 
testify before us. I have not been to New Mexico really before, 
and as you went through your checklist of things that you all 
did at the University Hospital, I sort of put it in context of 
Michigan, so I have sort of a sense of how big it is and 
certainly how important it is to the citizens of New Mexico.
    And I am just wondering, as you went through your checklist 
to get ready with the equipment and the stickers and phones and 
power and all of the different things, did you start from 
scratch on this? Were there AHA workshops that helped walk you 
through all of the different hurdles that you had to face?
    Mr. Margolis. We started about 15 months ago. It was prior 
to some of the AHA resources that are now available. We used 
not only AHA but resources within our community, the police, 
fire department and mayor's office, because the University of 
New Mexico Hospital, located in a geographically diverse State, 
much like your own, Mr. Chairman, is the only trauma 1 center 
in the State, and even in nearby regions in Colorado and 
Arizona. So we have a vast repertoire or documentation of 
emergency response and contingency plans.
    I think we are served by more than a dozen helicopter 
services so cases are flown in from far beyond the metropolitan 
geographical area. So we worked with those organizations to 
ensure that we had systems in place to respond to them, and 
that is what brought about our early contingency planning.
    But, as was pointed out earlier in the last panel, 
hospitals are accustomed to having contingency plans because 
one never can predict a train wreck or an equally disastrous 
accident in human terms. In Y2K you can predict the accident 
about to happen, but we don't know to what extent it is going 
to happen because there are a lot of elements of the system 
that need to be anticipated. We did a lot of the groundwork 
ourselves, but we borrowed heavily from other web sites. RX 
2000 is a big one today. I would be glad to get you that list.
    With the electronic advantages of the Internet comes major 
advantages to any organization, particularly a hospital. You 
can share through your professional associations, the American 
Hospital Association and through other Internet resources what 
other pioneering organizations are doing, not saying that we 
are a pioneering organization, but we are trying to develop a 
standard, particularly with urban and rural size hospitals 
which is across all hospitals within the Hospital Association. 
That is, they are all looking at the same templates at this 
point in time.
    Mr. Upton. Did you have any help from the FDA or the device 
manufacturers in terms of outreach to you or were you the first 
called in? How did that relationship work?
    Mr. Margolis. I think we are outreaching to them. They have 
been a little hesitant in responding.
    The FDA commissioner 4 months ago was head of the Health 
Sciences Department, University of New Mexico, and so we have a 
little closer connection and understand many of the 
frustrations that the FDA is having because, again, they are 
looking for voluntary responses--substantially voluntary 
response from the device manufacturers, and many of them are 
smaller companies. Unfortunately, many are large companies with 
a reputation to protect, like GE or Siemens or other large, 
well-known companies.
    Mr. Upton. Stryker, my district.
    Well, I thank you.
    Mr. Chairman, do you have any other questions?
    Mr. Bilirakis. Mr. Chairman, thank you for that.
    I guess, Dr. Corlin and Ms. Mackin and Mr. Margolis, I have 
asked you if you are concerned with the computer equipment 
problem. If you were in our position and could do something, 
whatever it might be, regarding the potential real bad problems 
regarding medical equipment, what would you do, just very 
quickly? Don't take advantage of the chairman's indulgence 
here, but what would you do?
    Mr. Corlin. I would get general information and specific 
information.
    The general information I would want to get is, if a given 
piece of equipment fails because of Y2K, is it going to stop 
working or is it going to continue to work but on the strip it 
puts out have the wrong date on the bottom? If, for instance--
and I don't know which way it is going to go; I use this as an 
example--a cardiac monitor on a patient in an intensive care 
unit, if the time clock on the monitor--and I do not know how 
the time clock works. If it is an integral part of the 
functioning of the equipment and it fails, it may not act as a 
monitor and set off an alarm if the patient has an arrythmia. 
If the time clock is simply an event marker on the strip that 
gets printed out, it will continue to function properly and 
just print out that an arrythmia occurred on January 3, 1900, 
rather than January 3, 2000.
    The first thing I would find out is which is the category 
of failure that each piece of equipment would go into, and I 
would consider what are the most valuable ways and most 
effective ways that all of those pieces of equipment that had 
the type 1 failure, which is the serious failure, can be 
assured to be off line or changed to be brought into compliance 
by December 31.
    Mr. Bilirakis. So FDA would be able to give us all of this 
information?
    Mr. Corlin. What I would want to do under those 
circumstances is very, very quickly convene a panel, a meeting 
of FDA with real end users of the equipment so they can--the 
FDA can have the advantage of the real-world experience of the 
users and then develop the criteria having that input, yes.
    Mr. Bilirakis. Thank you.
    Anything to add, Ms. Mackin?
    Ms. Mackin. Mr. Willemssen's comments earlier were right on 
the money in terms of narrowing it down to the critical and the 
life support equipment and then making sure that they have been 
tested and all of the results are available to everyone.
    I think one thing we should keep in mind is that life 
support equipment is not just in the hospitals. There are 
patients at home who are on life support, and that is another 
venue where we need to----
    Mr. Bilirakis. Right. That is probably of even more 
concern, because the hospitals seem to be on top of it.
    Ms. Mackin. Who is responsible for that patient's home 
environment? Is it the home health agency? Is it HCFA or the 
community? We need to address that.
    But after the critical equipment is identified, then we 
really need strong contingency planning so we know what to do 
because, as was said earlier, you can plan and plan but 
something will go awry, and we need to have the plans in place. 
It happens in our world now. When the sequential billing was 
implemented in the Florida shared system, it was a debacle. And 
if we are looking----
    Mr. Bilirakis. You didn't have to bring that up. We know. 
It is not funny. I am sorry, I don't mean to be making light of 
it.
    Ms. Mackin. It is a fact of life. There will be problems.
    Mr. Bilirakis. Mr. Margolis?
    Mr. Margolis. I would just comment quickly, if a mechanism 
could be put in place that would require a timely response by 
the equipment manufacturers, rather than leaving the hospital 
or end user sort of in the dark or in some sort of in-between 
spot of not knowing for certain--because much of this equipment 
cannot be tested. We have tried that within our own hospital 
and some of the equipment fails and is then locked up and 
cannot be used again until it is returned to the manufacturer. 
And so we have concluded that it will not work after January 1, 
but we have lost the use of it for the next 8 months.
    Mr. Bilirakis. Thank you. Thank you very much, all three of 
you; and on behalf of myself and the health subcommittee 
particularly, we appreciate your being here. You have been very 
helpful, Mr. Chairman.
    Mr. Upton. I appreciate your testimony today, and it has 
been very helpful to us as we look at this very important 
issue. You have helped set the stage for a future hearing. We 
look forward to working with you in a meaningful way and 
certainly in the years ahead.
    Dr. Corlin, we welcome you to your new spot. I read with 
interest your remarks a week ago about Mr. Campbell's bill and 
appreciated reading that.
    You are excused. Thank you very much for being with us this 
afternoon.
    [Whereupon, at 3:42 p.m., the joint subcommittees were 
adjourned.]
    [Additional material submitted for the record follows:]

              Department of Health & Human Services
                       Health Care Financing Administration
                                                      June 28, 1999
The Honorable Michael Bilirakis, Chairman
Commerce Subcommittee on Health and Environment
2125 Rayburn House Office Building
Washington, D.C. 20515
    Dear Chairman Bilirakis: Thank you for inviting me to testify at 
the April 27, 1999, joint subcommittee hearing on Year 2000 (Y2K) 
provider readiness. I appreciated the opportunity to update you on the 
progress we at the Health Care Financing Administration (HCFA) have 
made to ready our own systems for the millennium and our ongoing 
efforts to educate our health care partners on their obligations to 
become Y2K-ready. I also appreciate your efforts, through the hearing 
and other means, to urge health care providers to meet their Y2K 
obligations. I know you share our concern, which is to ensure that our 
more than 70 million Medicare, Medicaid, and Children's Health 
Insurance Program beneficiaries continue to receive the health care 
services they need in the new millennium.
    I am writing to update you, for the record, on our progress and to 
amplify some of the points I addressed at the hearing. I have also 
enclosed an edited transcript of the hearing and answers for the record 
to questions submitted to us by Congressman Buff.
    As you are aware, all of our internal systems and all of our 
contractors' claims processing systems have been renovated, tested, 
certified, and implemented. Because of the complexity of the Medicare 
program and the numerous small changes that need to be made to systems 
between now and this Fall, we will continue to check and retest our 
systems and will be recertifying as to their readiness this Autumn. We 
are listening to the suggestions of our Independent Verification and 
Validation (IV&V) expert and the General Accounting Office (GAO) to 
make our further testing efforts even more robust. I am pleased about 
our progress, confident in the readiness of our systems, and committed 
to do whatever it takes to make sure our systems are able to process 
and pay accurate and timely claims at the turn of the millennium.
    When I testified, there were still a number of providers or claims 
submitters that were not yet using the appropriate 8-digit date format 
to submit claims to us. I am pleased to report that the handful of 
noncompliant Part A claims submitters are testing their new formats 
with us now and we expect to report 100 percent compliance for Part A 
and Part B claims submitters very shortly.
    As I explained in my written testimony, and at the hearing during 
an exchange with Congressman Coburn, the ability to submit 8-digit date 
claims is, only a first step toward Y2K readiness. It does not 
necessarily mean that a provider's entire billing system is Y2K 
compliant, or that its office computer or practice management software 
will function into the millennium. While I am encouraged that the vast 
majority of providers responded responsibly to our April 5 deadline, 
and can satisfy our claims input requirements, the obligation remains 
on providers to make sure that any and all software used in their 
practices has been made compliant and has been future-date tested. And, 
as emphasized at the hearing, it is critically important that health 
care providers, manufacturers, and suppliers thoroughly and 
satisfactorily check all equipment and devices that go to the heart of 
quality care and patient safety for Y2K readiness.
    Importantly, HCFA is giving providers the opportunity to test with 
our claims processing contractors' systems to determine whether 
provider claims, including future-dated claims, can be successfully 
generated and submitted by the providers and accepted and processed by 
the contractors. This kind of testing can show providers whether their 
billing systems can successfully generate appropriate claims and it 
assures providers that data exchanges with HCFA do work. It helps us 
refine and target our future outreach efforts to providers who may not 
be making adequate progress in meeting their Y2K responsibility. We are 
strongly urging providers to take advantage of this testing 
opportunity. Of course, health care providers receive payment from 
insurance sources other than Medicare. Providers need to work with 
their other payers to verify that those payers are as ready as HCFA is 
to pay claims at the turn of the millennium.
    HCFA has, appropriately, gone well beyond our immediate claims 
processing and financing concerns to engage the provider community to 
address the totality of the Y2K problem. Our outreach effort is strong 
and the provider readiness survey results highlighted at the hearing, 
as well as subsequent studies, help us to focus our outreach efforts on 
provider sectors of greatest concern. For example, a recent survey by 
the HHS Inspector General yielded troubling results about the readiness 
of managed care organizations. We are working hard to raise managed 
care plans' awareness of the importance of being Y2K-ready and have 
meaningful contingency plans. We are meeting regularly with managed 
care industry groups. We required all Medicare managed care 
organizations to submit certifications about their Year 2000 readiness. 
We and our IV&V expert will be performing onsite reviews of the plans 
that seem to be the least prepared. And, we are requiring managed care 
organizations to provide contingency plans to us by July 15, 1999.
    I want to assure you we will not let down our efforts to reach out 
to the provider community. As you know, I recently sent a second letter 
to every Medicare provider and I will continue to personally reach out 
to providers. We hope the Congress will continue to send a strong 
message to providers and health plans as well.
    Finally, I am glad the hearing highlighted the importance of 
contingency planning. HCFA recently completed the latest draft of our 
contingency plan and my staff will be holding confidential briefings 
with your staff soon to discuss some of the details. The contingency 
plan is designed to guide HCFA's actions in the event of an 
unanticipated failure of HCFA's systems. We are also working with our 
partners--our claims processing contractors, managed care 
organizations, and States--to ensure they have valid contingency plans 
in place in the event they experience systems failure.
    I assure you that HCFA's contingency plan provides mechanisms to 
make sure that providers' claims will get processed and paid even if 
parts of HCFA's systems experience unanticipated failure. In addition, 
you can be sure we will have in place at the turn of the millennium, as 
we do today, financial and audit controls to help protect the integrity 
of the Medicare Trust Funds. Finally, as I emphasized at the hearing, 
we firmly believe that no contingency plan should cause providers who 
fail to prepare for Y2K to be rewarded for their lack of attention, 
effort, or due diligence. Being able to submit a valid claim is the 
minimal requirement that is necessary to ensure that a provider can 
operate in the Year 2000 environment and is actually furnishing covered 
services. That is why I have made it very clear that HCFA has no 
contingency plan to make estimated payments to providers that cannot 
submit a bill. Providers simply must have their own contingency plans 
in place to ensure that they can get accurate and timely claims to 
Medicare. We remain ready and willing to do all we can to help them 
succeed.
    In conclusion, I have reason to be confident about HCFA's readiness 
but know we still have much work to do. We will continue to do all we 
can to ready those systems that are under our control and we will 
continue to rely on the counsel of our Inspector General, the GAO, and 
the Congress throughout this endeavor. Providers still have much work 
to do to prepare their office systems and equipment for the millennium 
and we are working hard to get the message out to them. We will do all 
we can to work with the provider community, our sister agencies in 
federal and State governments, and the Congress to address the Y2K 
problem.
    Please do not hesitate to contact me if you have any questions. 
Again, thank you for holding an important and timely hearing on this 
important topic and HCFA's number one priority.
            Sincerely,
                                      Nancy-Ann Min DeParle
                                                      Administrator
Enclosures
cc: The Honorable Fred Upton, Chairman
   The Honorable Ron Klink, Ranking Member
   The Honorable Sherrod Brown, Ranking Member
   The Honorable Richard Burr
   Joel Willemssen, General Accounting Office (without enclosures)
   George Grob, HHS-Office of the Inspector General (without 
enclosures)
   Richard J. Davidson, American Hospital Association (without 
enclosures)
   Nancy W. Dickey, M.D., American Medical Association (without 
enclosures)
   Val J. Halamandaris, National Association for Home Care (without 
enclosures)
     Questions for the Record Submitted by Congressman Richard Burr
    Question 1. How many Medicare contractors are there nationwide?
    Response: The Medicare program currently has 38 fiscal 
intermediaries and 22 carriers. Four fiscal intermediaries (Anthem, 
serving Connecticut; Hawaii Medical Services; Blue Cross of Minnesota; 
and Trigon, serving Virginia and West Virginia) are in the process of 
leaving the Medicare program. Their workloads will be transferred to 
other fiscal intermediaries by this summer, reducing the above counts.
    Question 2. My understanding of your billing practices is that when 
a Medicare bill is submitted, it goes to either a fiscal intermediary 
(FI) if it is a hospital or a Carrier if it is a doctor's bill for 
front end processing. Basic entry data is done by that ``first layer'' 
Medicare contractor and then sent to a standard maintainer for 
verification that the claim is for an actual Medicare beneficiary, that 
the codes are correct, and that Medicare covers the billed procedure. 
This appears to be the ``second layer'' of work Medicare contractors 
do. Finally, the ``third layer'' of billing or back end processing is 
typically done by the original FI or Carrier. This is where the medical 
necessity determination is made and the bill is ultimately paid.
    Have I outlined the correct billing framework? If I have not, 
please adjust my description.
    Response: Medicare claims flow from the physician, supplier, or 
other provider, or their billing agent to one of our claims processing 
contractors. The contractor's front-end software performs the initial 
claims processing functions, such as date stamping and procedure code 
verification. The claim then goes through the standard system software 
for processing. This software verifies medical necessity and makes 
other determinations necessary to conclude whether the claim should be 
paid or denied. (There are presently six standard systems, which are 
maintained by other contractors--the standard system maintainers.) The 
claim is then sent to the Common Working File (CWF) software where 
determinations are made about eligibility, additional sources of 
insurance, and deductible status, among other things. The CWF then 
makes the final determination to pay or deny the claim. Finally, if the 
claim is payable, it is sent through the contractor's back-end 
processes. These processes include the transactions that pay the claim 
such as providing information to other payers for electronic funds 
transfers and check writing.
    Question 3. How many Medicare contractors cited in Question 1 are 
front end and/or back end processors (please delineate those 
contractors which do not perform both functions) and how many are 
standard maintainers?
    Response: All fiscal intermediaries and carriers are responsible 
for the front and back-end processing of Medicare transactions. The 
standard systems are maintained by certain Medicare fiscal 
intermediaries and carriers and other data processing contractors. The 
Medicare contractors that also act as standard systems maintainers are: 
Blue Cross and Blue Shield of Arkansas (APASS system--Part A); United 
Health Care (HPBSS system--Part B); and Blue Cross and Blue Shield of 
Florida (Fiscal Intermediary Standard System--Part A). The data 
processing contractors that act as maintainers are: VIPS (VMS system--
Part B); GTE (GTEMS system--Part B); and EDS (MCS system--Part B). Each 
of the Medicare contractors that process claims have their own front-
end and back-end systems that they are responsible for maintaining.
    Question 4. How many Y2K compliant front end and/or back end 
processors are connected to a standard maintainer which is not Y2K 
compliant?
    Response: As of April 23, 1999, all six standard systems and the 
CWF, having completed our rigorous testing, were deemed Y2K-compliant. 
Therefore, no front and/or back-end processors are connected to a non-
compliant standard system maintainer.
    Question 5. Does North Carolina fall into the circumstance 
described in Question 4?
    Response: No.
    Question 6. GAO has significant doubts about the quality and 
thoroughness of HCFA's testing methods. What is HCFA doing to correct 
and improve those methods?
    Response: GAO raised several concerns in its recent testimony about 
our upcoming recertification testing efforts. Although we are convinced 
that our testing process has been rigorous and represents the most 
thorough testing ever performed on our systems, we are addressing each 
of the GAO's concerns. A description of the GAO's concerns and the 
activities we are undertaking to address them, are as follows:

 Recertification test coverage should be better defined.--We 
        are strengthening our test coverage requirements based on the 
        recommendations of the GAO and our independent verification and 
        validation contractor (IV&V), AverStar, so that our contractors 
        will have improved mechanisms for determining the breadth of 
        test coverage (systems functionality, HCFA-mandated dates, and 
        interface coverage). Specifically, we are requiring a 
        comprehensive end-to-end testing regimen, completion of 
        rigorous test traceability matrices, as well as the application 
        of test case and code coverage tools to contractor systems, and 
        an auditable quality assurance process. We have used a test 
        tool, Ready 2000, and are competing a contract for additional 
        testing tools. In addition, we have hired a separate 
        contractor, SETA, to conduct independent tests of our external 
        standard systems. These tools and reviews will provide further 
        assurance of the readiness of our external systems.
 The sequencing of recertification testing must ensure that CWF 
        and standard systems maintainers complete testing prior to FIs 
        and carriers.--We are requiring the CWF and the standard 
        systems maintainers to complete their functional testing before 
        their systems are released to the contractors and to complete 
        future-date testing before the claims processing contractors 
        finish their testing. We acknowledge that this is not the ideal 
        sequence for ensuring the compliance of all systems. However, 
        we must proceed in this manner because the ideal sequence would 
        have required a software freeze beginning in April--a nine-
        month freeze on any change to Medicare. We believe that our 
        current test sequence approach provides a realistic balance 
        between the requirement to meet our programmatic obligations 
        and the need to provide appropriate assurance of Y2K 
        compliance. We note that all of these systems, which are 
        presently paying Medicare claims, have all completed extensive 
        testing, including future date, integrated, and end-to-end 
        testing. The retesting and recertification process is expected 
        to validate that we have not introduced any new Y2K date 
        handling errors in making mandated systems changes that affect 
        only a small portion of the system code.
 IV&V should certify the compliance of all external systems.--
        We have expanded the scope of AverStar's work. They will 
        provide certification of compliance for all contractors, 
        including maintainers, during recertification.
 An integrated test schedule should be developed.--We are 
        developing a test schedule that will clearly illustrate the 
        sequence of testing times and events for each component of the 
        internal process, the external process, the CWF, the standard 
        systems maintainers, and the fiscal intermediaries and 
        carriers. Part of this schedule is still under development by 
        our carriers and fiscal intermediaries. Our goal is to complete 
        the schedule in June.
    Question 7. I am very concerned about the Y2K readiness of medical 
devices and information systems. What can we do to ensure that 
hospitals and providers have checked and, if necessary, fixed their 
equipment?
    Response: In our outreach efforts to providers, we have 
consistently stressed the important need for providers to ensure the 
Y2K readiness of all medical devices, as well as clinical and patient 
management systems. We refer providers to the Food and Drug 
Administration's (FDA) website to obtain needed information on the 
readiness of medical devices and have established links to the FDA's 
site on our own website. Callers to our toll-free provider Y2K phone 
line also are referred to the FDA site when questions about medical 
devices arise. In addition, we have sponsored a variety of Y2K 
educational conferences across the country and have arranged to have a 
representative from either the FDA or the Department of Veterans 
Affairs address the topic of medical device readiness. Finally, we have 
referenced the importance of medical device readiness as well as the 
FDA website address in the Y2K-related letters we have sent to all 
providers.
    Question 8. You have tested HCFA's computer codes for Y2K 
compliance, but you do not know what program functions those codes 
cover. A recent article in the Washington Post (Federal Page, April 26, 
1999) mentioned that you requested contractors to send you a list of 
the tested functions. When is the deadline for contractors' responses? 
Have you received any of those responses? What are you going to do if 
they do not respond?
    Response: Each contractor was required to provide us with a test 
traceability matrix, a crosswalk of test cases to program business 
functions, detailing their plan for testing all of their business 
functions and all of the required test dates. We currently are in the 
process of reviewing these matrices which we have received from nearly 
all of our contractors. Development of a test traceability matrix is an 
iterative process between HCFA and the contractors. The contractors 
have worked closely with us to ensure that their test coverage is more 
than adequate. We do not expect any contractors to fail to respond to 
our request and will continue to work closely with them to ensure a 
rigorous recertification process.
    Question 9. How many different compliance test does HCFA have to 
run in the coming months to determine Y2K compliance? How many times 
has HCFA had to retest systems? Is systems retesting part of an overall 
strategy to address Y2K, or part of a strategy to address inadequacies 
in the structures of previous tests?
    Response: Y2K compliance testing is integral to our overall Y2K 
strategy. We plan to continue to test and retest all our internal and 
external systems throughout this year and up until January 1, 2000. We 
are following the GAO's recommended guidance on compliance testing. For 
initial systems certification, each Medicare contractor was required to 
renovate their systems and perform several levels of testing. These 
tests included:

 Systems Testing--the initial level of functional unit testing 
        of the individual components of the system.
 Integration Testing--the level where components of the system 
        are tested with each other.
 End-to-end Testing--tests all levels, components, and 
        functions involved in Medicare transactions from the submission 
        of a claim to the claims processing contractor to the CWF 
        processing and back to the contractor to the servicing banks to 
        generation of provider payment notices and the printing of 
        Medicare Summary Notices/Explanations of Medicare Benefits 
        (MSN/EOMB).
    These tests were performed with current and future dates. The 
recertification process is necessary to ensure that changes to our 
systems made after the initial certification have not compromised the 
system's overall Y2K compliance status. To provide the highest level of 
assurance that all systems will function properly in the new 
millennium, we are requiring Medicare claim processing contractors to 
retest their systems beginning with system level testing through end-
to-end testing. This additional testing will begin in July, when all 
Medicare coding changes to our systems are complete and our systems are 
frozen. This testing will continue through the end of October. We will 
then require all contractors to recertify their systems by November 1, 
1999. We believe that the structure of the earlier tests is sound; 
nevertheless, we continue to incorporate new test cases, both to 
improve our test suite and to test any new functionality or changes we 
have added to the programs.
    Question 10. Is there an institutional hesitance to address Y2K 
problems at HCFA? If so, where does it come from? Has HCFA identified 
any problem areas within its organizational structure to deal with Y2K?
    Response: No, there is absolutely no institutional hesitance to 
address Y2K at HCFA. In fact, HCFA employees who are involved in the 
Y2K effort take their jobs and responsibilities in addressing this 
challenge seriously. In October 1997, after a nationwide search, HCFA 
hired Dr. Gary Christoph as our first Chief Information Officer and 
Director of our Office of Information Services. Dr. Christoph is 
responsible for managing HCFA's Y2K compliancy efforts, our enterprise 
information and Medicare claims processing systems, as well as the 
modernization of our overall information systems architecture.
    Y2K compliancy is our number one priority and is an Agency-wide 
effort. We have closely evaluated employees' skills and workload and 
redirected their work, where appropriate, toward the Y2K effort. In 
many cases, this required postponing other necessary, but less urgent, 
systems development work. For example, we have created a Y2K ``War 
Room'' in our Baltimore headquarters where employee work is dedicated 
solely to tracking Y2K efforts on a daily basis not only within our own 
agency, but also with our partners. We also have established contractor 
oversight teams specifically responsible for closely monitoring and 
managing Y2K work for all contractors involved in processing Medicare 
claims. These oversight teams include employees who are on-site 
overseeing and helping contractors across the country. These teams 
provide timely information on the contractors to the War Room. We also 
have rehired a number of retired HCFA employees to work exclusively on 
Y2K, thus providing us with immediate access to a pool of skilled 
workers without costly retraining or lengthy recruiting processes.
    Finally, HCFA is leading the Health Care Sector of the President's 
Council on Y2K Conversion, led by John Koskinen, the President's 
special advisor on Y2K. This effort includes working closely with 
provider trade associations and public sector health partners to raise 
awareness of the millennium issue and encourage all providers to become 
Y2K compliant.
    Question 11. Can HCFA meet the June 30 OMB compliance deadline?
    Response: Question omitted per Representative Burr's Staff Member, 
Christopher Joyner.
    Question 12. Would HCFA agree that informing the health care 
community about the potential problems facing the community is a 
function of the agency? Has it done so on Y2K issues? Can you please 
describe those efforts?
    Response: We wholeheartedly agree that informing the health care 
community about the Y2K challenge is an important function of our 
agency. While we do not have the resources, ability, or authority to 
step in and fix providers' systems for them, we have nevertheless 
engaged in an unprecedented outreach effort to raise awareness of this 
critical issue and to encourage providers to take the steps necessary 
for ensuring their own millennium compliance.
    From our own efforts, we know first hand the difficulties inherent 
in achieving Y2K compliance, and we are eager to share with providers 
the lessons we have learned. As a part of our outreach effort, we are 
leading the health care sector of the President's Council on Y2K 
Conversion. We chair twice-monthly meetings in coordination with a 
number of provider trade associations and our public sector health 
partners to share insights, raise millennium awareness, and encourage 
all providers to become Y2K compliant.
    Also, this past January, we sent a letter to each of our more than 
1.3 million Medicare and Medicaid providers stressing the importance of 
Y2K readiness and providing an inventory checklist of office equipment 
and supplies providers need to assess for Y2K compliance. We sent a 
second letter to providers during the last week in May. We have 
established a website dedicated to the Y2K (www.hcfa.gov/y2k) advising 
providers how to identify mission-critical hardware and software and 
assess their readiness; test systems and their interfaces; and develop 
contingency plans should unexpected problems arise. The website also 
includes links to other pertinent sites, such as the FDA's website on 
medical device readiness.
    In March, we set up a Y2K toll-free phone line, 1-800-958-HCFA (1-
800-958-4232) where callers can receive up-to-date answers to Y2K 
questions that relate to medical supplies, their facilities and 
business operations, as well as referrals for more specific billing-
related information. The hotline also updates callers on HCFA's Y2K 
policies and provides general ``how to'' assistance.
    Also in March, we hosted Y2K Action Week seminars in twelve 
different cities across the country, providing attendees with detailed 
information about what health care providers need to do to be Y2K-
ready. And in mid-April, we began a series of provider educational 
conferences which will take place over the next three months in twelve 
cities. These one-day conferences are offered free-of-charge and 
feature readiness strategies, as well as information about biomedical 
equipment and pharmaceutical risks.
    I recently held a telephone conference call with more than 75 
representatives from national, state, and local medical societies to 
apprise them of HCFA's Y2K readiness and to encourage them to take 
responsibility to ready themselves for Y2K.
    HCFA employees across the country have been actively involved in 
sponsoring and participating in conferences, symposiums, and other 
outreach programs through our speakers bureau. They have made literally 
hundreds of presentations on Y2K issues to providers and others around 
the nation.
    Our outreach activities will continue throughout the year. As time 
to remediate grows shorter, we will shift our focus from Y2K awareness 
to alerting providers to the need for contingency and business 
continuity planning.
    Question 13. What steps has HCFA taken to address the concerns of 
outreach to rural health care providers? How is this outreach being 
conducted?
    Response: We recognize the unique needs and challenges facing rural 
health care providers in addressing the Y2K challenge. We are 
developing smaller, more individualized Y2K educational sessions 
targeted toward rural providers, in consultation with several rural 
provider associations. So far, we have held conferences in Montana, 
North Dakota, South Dakota, and Minnesota. We held one of our major 
educational conferences in Fargo, North Dakota in late May which 
attracted more than 140 providers. We also have participated in several 
national conferences sponsored by the major rural health associations 
in Washington, D.C., San Diego, and Denver.
    In addition, we have entered into an interagency agreement with the 
Health Resources Services Administration (HRSA), Office of Rural Health 
Policy. Working in conjunction with HRSA and the National Association 
of Rural Health Clinics we have planned outreach conferences to be held 
over the next two months in Arkansas, South Dakota, Vermont, and a 
fourth rural location yet to be determined. We also have scheduled 
provider outreach conferences in North Carolina, Oregon, and Tennessee 
that we hope will attract rural providers. We have invited a 
representative of the Small Business Administration (SBA) to each of 
these conferences to share information about SBA programs that may be 
available to help rural providers fix or replace non-compliant systems 
and medical devices. Finally, we meet periodically with representatives 
of rural health trade associations to ensure that our outreach efforts 
are meeting the needs of rural providers.
    Question 14. Has concern in the private sector over liability 
issues related to Y2K affected HCFA's ability to work with providers 
and the community as a whole in addressing Y2K problems?
    Response: We do not have concrete evidence that liability issues 
related to Y2K are affecting our ability to work with providers in 
addressing Y2K problems. There are, however, two areas where liability 
may be having some impact on how forthcoming our provider partners have 
been in responding to requests for information from us and others. 
Relatively few providers have responded to surveys and assessments from 
the Department of Health and Human Services Inspector General and 
others, such as the American Hospital Association, the American Medical 
Association, and Rx2000, an organization created to address Y2K 
awareness in the health care industry. We also have had difficulty 
collecting information about provider readiness from billing service 
providers and software vendors. We suspect that liability concerns may 
be contributing to their reluctance to respond as well.
    Question 15. What progress has HCFA made on its Contingency 
Planning since the beginning of March?
    Response: We are closely following the GAO's advice on contingency 
planning outlined in their August 1998 guidance, Year 2000 Business 
Continuity and Contingency Planning and in their September 1998 report, 
Medicare Computer Systems--Year 2000 Challenges Put Benefits and 
Services in Jeopardy.
    We have developed and are now validating our contingency plans. 
This validation phase of our effort will run through the end of June. 
On June 15, 1999, we provided the Office of Management and Budget with 
a draft of our business continuity and contingency plans. Each of our 
contingency plans has a designated Emergency Response Team responsible 
for executing the various plans, if necessary. During the validation 
phase, these teams will run practice exercises and rehearse plans in a 
simulated environment.
    It is important to note that contingency planning is not a static 
process. We will continue to rehearse and refine our plans throughout 
the coming year and up until December 31, 1999. We will make changes, 
if necessary, as we learn more about the readiness status of those with 
whom we interact, such as providers, pharmaceutical and medical 
equipment suppliers, and States, among others.
    As part of our emphasis on the contingency planning efforts of our 
partners, we are conducting a review of Medicare Carrier and Fiscal 
Intermediary contingency plans. In October 1998, we instructed the 
Medicare contractors to undertake a contingency planning program. On 
April 8, 1999, we began examining those contingency plans emphasizing 
the reasonableness and completeness of the plans. We will provide 
guidance and assistance to those organizations that appear to have not 
adequately staffed and completed their contingency planning. In 
addition, we are re-

quiring all Medicare managed care organizations to have contingency 
plans and submit them to us by July 15, 1999.
    Finally, we have increased our review and assistance to State 
Medicaid Agencies to ensure the continuity of Medicaid payments and 
continued access to care for beneficiaries. We have provided State 
agencies with advice on preparing business continuity and contingency 
plans and have requested that Agencies submit their plans to us. We 
currently are reviewing these plans to gain an understanding of States' 
particular plans to ensure the continuity of their health care programs 
in the unlikely event of systems failures. In addition, we have 
contracted with a Medicaid-related IV&V expert to assess the status of 
the States. Site visits are now underway. We also are working on a 
contract to provide technical assistance to States on contingency 
planning.
    Question 16. Since the bulk of payments that many rural health care 
providers receive are from government-insured patients, it will be 
extremely difficult for these providers to continue to operate without 
a contingency payment mechanism in place should Y2K disruptions occur. 
Does HCFA have any plans for a contingency payment mechanism should 
disruptions occur?
    Response: We are currently in the process of developing our own 
contingency plans to ensure we are able to process and pay any claim 
submitted. We are more concerned that providers may not have addressed 
their Y2K issues and may not be able to generate a claim.
    I hope you can appreciate the delicate balance that exists between 
our top two contingency planning goals of paying providers promptly and 
preventing payment errors. By its very nature, HCFA's contingency plan 
highlights the vulnerabilities in Medicare's systems that could occur 
in the event of Y2K failure. Portions of the plan could serve as a 
blueprint for fraudulent activity. I can assure you that HCFA's 
contingency plans provide mechanisms to ensure that providers' claims 
will be processed and paid even if HCFA's systems experience 
unanticipated failure. We also will have financial and audit controls 
in place at the turn of the millennium, as we do today, to help protect 
the integrity of the Medicare Trust Funds.
    I firmly believe that no contingency plan should cause providers 
who fail to prepare for Y2K to be rewarded for their lack of attention, 
effort, or due diligence. Being able to submit a valid claim is the 
minimal requirement that is necessary to ensure that a provider can 
operate in the Y2K environment and is actually furnishing covered 
services. It is quite clear that it would not fulfill our fiduciary 
responsibilities to pay monies from the Medicare Trust Funds in the 
absence of appropriate evidence that a covered service was delivered to 
a beneficiary. HCFA has no contingency plan to make estimated payments 
to providers that cannot submit a bill.
    The best risk mitigation strategy is, of course, for providers to 
ready their computers and systems well in advance of January 1, 2000. 
To assist all providers in achieving Y2K compliance, we have engaged in 
an unprecedented outreach effort, including mailings to all Medicare 
and Medicaid providers, a Y2K website and toll-free line, and numerous 
educational conferences, among other things. In addition, our Medicare 
contractors have made millennium compliant billing software available 
to all providers for free, or at minimal cost. This software allows 
providers to submit Y2K compliant claims to the contractors, so long as 
the software is used in conjunction with compliant computers. We also 
have given providers the opportunity to test the submission of future-
dated claims with our claim processing contractors, so they can be 
certain their systems are ready, and we have encouraged them to do so.
