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

    OVERSIGHT OF THE YEAR 2000 PROBLEM: THE Y2K STATUS OF THE DEPARTMENT OF
                           HEALTH AND HUMAN SERVICES

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

                                    HEARING

                                   before the

                     SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
                          INFORMATION, AND TECHNOLOGY

                                     of the

                                  COMMITTEE ON
                               GOVERNMENT REFORM

                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                   __________

                               FEBRUARY 26, 1999

                                   __________

                               Serial No. 106-45

                                   __________

           Printed for the use of the Committee on Government Reform

         Available via the World Wide Web: http://www.house.gov/reform

                                     ______

                          U.S. GOVERNMENT PRINTING OFFICE
    60-933 CC                     WASHINGTON : 1999

                         COMMITTEE ON GOVERNMENT REFORM

                         DAN BURTON, Indiana, Chairman
    BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
    CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
    CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
    ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
    JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
    STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
    JOHN L. MICA, Florida                GARY A. CONDIT, California
    THOMAS M. DAVIS, Virginia            PATSY T. MINK, Hawaii
    DAVID M. McINTOSH, Indiana           CAROLYN B. MALONEY, New York
    MARK E. SOUDER, Indiana              ELEANOR HOLMES NORTON, Washington,
    JOE SCARBOROUGH, Florida                 DC
    STEVEN C. LaTOURETTE, Ohio           CHAKA FATTAH, Pennsylvania
    MARSHALL ``MARK'' SANFORD, South     ELIJAH E. CUMMINGS, Maryland
        Carolina                         DENNIS J. KUCINICH, Ohio
    BOB BARR, Georgia                    ROD R. BLAGOJEVICH, Illinois
    DAN MILLER, Florida                  DANNY K. DAVIS, Illinois
    ASA HUTCHINSON, Arkansas             JOHN F. TIERNEY, Massachusetts
    LEE TERRY, Nebraska                  JIM TURNER, Texas
    JUDY BIGGERT, Illinois               THOMAS H. ALLEN, Maine
    GREG WALDEN, Oregon                  HAROLD E. FORD, Jr., Tennessee
    DOUG OSE, California                             ------
    PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont
    JOHN T. DOOLITTLE, California            (Independent)
    HELEN CHENOWETH, Idaho

                          Kevin Binger, Staff Director
                     Daniel R. Moll, Deputy Staff Director
               David A. Kass, Deputy Counsel and Parliamentarian
                          Carla J. Martin, Chief Clerk
                     Phil Schiliro, Minority Staff Director
                                     ------

       Subcommittee on Government Management, Information, and Technology

                       STEPHEN HORN, California, Chairman
    JUDY BIGGERT, Illinois               JIM TURNER, Texas
    THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
    GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
    DOUG OSE, California                 PATSY T. MINK, Hawaii
    PAUL RYAN, Wisconsin                 CAROLYN B. MALONEY, New York

                                   Ex Officio

    DAN BURTON, Indiana                  HENRY A. WAXMAN, California
              J. Russell George, Staff Director and Chief Counsel
                    Bonnie Heald, Professional Staff Member
                              Mason Alinger, Clerk
                         Michelle Ash, Minority Counsel
                         Faith Weiss, Minority Counsel

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on February 26, 1999................................     1
    Statement of:
        DeParle, Nancy-Ann, Administrator, Health Care Financing
          Administration; and John J. Callahan, Chief Information
          Officer, Department of Health and Human Services...........    54
        Willemssen, Joel C., Director, Civil Agencies Information
          Systems, General Accounting Office.........................     5
    Letters, statements, etc., submitted for the record by:
        Callahan, John J., Chief Information Officer, Department of
          Health and Human Services:
            Chronology of reengineered payment management system.....   100
            HHS's total Y2K costs....................................   102
            Information concerning cost of payment management system.   108
            Information concerning cost of secondary system..........   109
            Information concerning the original payment management
              system.................................................   109
            Information concerning total revenue.....................   109
            Prepared statement of....................................    76
        DeParle, Nancy-Ann, Administrator, Health Care Financing
          Administration:
            Letter dated January 12, 1999............................   103
            Prepared statement of....................................    57
        Willemssen, Joel C., Director, Civil Agencies Information
          Systems, General Accounting Office:
            Information concerning HHS's payment management system...    48
            Prepared statement of....................................     7

    OVERSIGHT OF THE YEAR 2000 PROBLEM: THE Y2K STATUS OF THE DEPARTMENT OF
                           HEALTH AND HUMAN SERVICES

                                  ----------

                           FRIDAY, FEBRUARY 26, 1999

                      House of Representatives,
    Subcommittee on Government Management, Information,
                                        and Technology,
                                Committee on Government Reform,
                                                        Washington, DC.
        The subcommittee met, pursuant to notice, at 9 a.m., in
    room 2154, Rayburn House Office Building, Hon. Stephen Horn
    (chairman of the subcommittee) presiding.
        Present: Representatives Horn, Morella, Biggert, and
    Turner.
        Also present: Representive Gordon.
        Staff present: J. Russell George, staff director and chief
    counsel; Matt Ryan, senior policy director; Bonnie Heald,
    director of information, and professional staff member; Mason
    Alinger, clerk; Paul Wicker, Kacey Baker, and Richard Lukas,
    interns; Michelle Ash and Faith Weiss, minority counsels; Ellen
    Rayner, minority chief clerk; and Jean Gosa and Earley Green,
    minority staff assistants.
        Mr. Horn. The Subcommittee on Government Management,
    Information, and Technology will come to order.
        There are only 308 days left to reassure American citizens
    that the computer systems, those that are critical to our
    lives, are year 2000 compliant. Unfortunately, even today, many
    private organizations and governmental entities are only now
    recognizing the potential severity of this problem. Some are
    just starting to fix their systems, leaving little, if any,
    time for one of the most important aspects of this effort--
    adequate testing.
        The problem is real, the consequences serious, and the
    deadline is unmovable.
        The House Subcommittee on Government Management,
    Information, and Technology has focused on the potential
    problem since early 1996. On Monday, our subcommittee issued
    its seventh report card, which showed considerable improvement
    throughout the Federal Government. However, much work still
    remains. We will continue to steadfastly monitor the Federal
    Government's year 2000 readiness and sternly prod those
    departments and agencies that lag behind.
        Today we will hear about the status of year 2000 technology
    initiatives at the Department of Health and Human Services
    [HHS], and one of its key components, the Health Care Financing
    Administration, otherwise known as HCFA.
        Since November, and as shown in our most recent report
    card, HHS has reported substantial improvement in making its
    mission critical systems year 2000 compliant. Currently, HHS
    reports that about 83 percent of its mission critical systems
    are compliant, due in large part to HCFA's reported increase in
    mission critical system compliance. We look forward this
    morning to learning how HHS righted itself in grappling with
    its year 2000 issues.
        In addition, we will hear from the General Accounting
    Office, Congress' auditing arm on program and money, which has
    been doing outstanding work for this subcommittee over the last
    3 years on this issue.
        The Department of Health and Human Services provides vital
    services to the American public, ranging from health care and
    food safety to AIDS research. In addition, the Health Care
    Financing Administration approves more than $300 billion
    annually in medical bills for over 72 million of America's most
    vulnerable citizens, the elderly, the poor and the sick. But
    will these payments continue on January 1st? How year 2000
    ready is HCFA and how ready are the numerous health care
    contractors and providers involved in Medicare?
        Finally, how prepared are the States for providing Medicaid
    services to the nearly 35 million people who otherwise could
    not afford to seek medical help. No Federal entity is an island
    unto itself and no Federal entity can be complacent regardless
    of its Y2K status until its partner organizations, in this case
    the doctors, hospitals and the State and local governments, are
    also adequately prepared for the new millennium. HHS is also
    responsible for processing about $170 billion a year in Federal
    grants through its large payment management system. This
    centralized system processes most Federal assistance grants,
    including block grants, to over 20,000 recipient accounts. For
    example, this system processes 98 percent, or about $95
    billion, of the Federal Government's share of Medicaid grants.
    The big concern for us in Congress is that this critically
    important system is not yet year 2000 compliant.
        I look forward to delving into these and other highly
    important issues this morning. I welcome today's witnesses and
    look forward to their testimony.
        We have a total of three witnesses for this hearing and we
    are going to start with panel one, being Joel Willemssen, the
    Director of Civil Agencies, Information Systems, General
    Accounting Office. Panel two will then come up, John J.
    Callahan, the Chief Information Officer for the Department of
    Health and Human Services, and Nancy-Ann DeParle, Administrator
    of HCFA.
        I would now like to yield to Mr. Gordon, the ranking member
    on the Committee on Technology of the House Committee on
    Science. The gentleman from Tennessee.
        Mr. Gordon. Thank you, Mr. Chairman. I have a constituent
    at home by the name of Barbara Mandrell. She had a song a few
    years ago entitled, ``I Was Country Before Country Was Cool''
    and let me just say that Steve Horn has been singing the
    problem of Y2K long before it was cool, and we owe you a debt
    of gratitude in raising this awareness in our country. I was
    with the EU last week and I was dismayed when we talked with
    many of their parliamentarians that for some reason they think
    that this problem is going to go away. I want to thank you for
    putting this country on notice, and I think your report cards
    help us all to better focus.
        Mr. Horn. I now yield for an opening statement to a new
    Member from Illinois, the vice chairman of the Subcommittee on
    Government Management, Information, and Technology, Mrs.
    Biggert.
        Mrs. Biggert. Thank you, Chairman Horn. You always start on
    time to the very minute, and we always appreciate that. This
    certainly is an important issue and I look forward to the
    testimony. I think that--how many days do we have now, about
    310?
        Mr. Horn. 308.
        Mrs. Biggert. So the year 2000 is not going to wait and I
    look forward to these hearings. And I think that the more
    hearings that we have, the more education that we have on this
    issue, the more that we raise the consciousness of the American
    people and the importance for all industry, government, local
    government and Federal Government and State government, to
    really assure us that we are going to be ready for the year
    2000.
        Thank you.
        Mr. Horn. Thank you. And we now have as our first witness
    and I think you all know the routine. All of the subcommittees
    of the Government Reform Committee swear in all witnesses, and
    we will start with you, Mr. Willemssen.
        [Witness sworn.]
        Mr. Horn. The clerk will note that the witness affirmed and
    we will begin with this overview and then ask panel two to join
    us and have their testimony, and then it will be essentially a
    dialog of the committee and the witnesses.
        Let me just withhold, the distinguished ranking member from
    Texas, Mr. Turner, is here. Do you have an opening statement?
    He is always a constructive member of this committee.
        Mr. Turner. Thank you, Mr. Chairman. I want to thank you,
    first of all, for holding this hearing, both you and Chairwoman
    Morella have been active in leadership in this area.
        We are here to discuss the efforts of the Department of
    Health and Human Services to resolve the year 2000 problem. In
    September 1998, the General Accounting Office reported that
    HCFA and its contractors were behind schedule in testing,
    repairing, and implementing the systems that support Medicare.
    At that time, the GAO concluded that it was highly unlikely
    that the Medicare systems would be compliant in time to ensure
    uninterrupted delivery of benefits and services.
        Even as recently as February of this year we have learned
    that only 54 of the 78 contractor systems were compliant and 5
    of these 24 noncompliant systems were more than 2 months behind
    schedule. We have additionally learned that while HCFA's
    contractors have made progress, seven are at risk of missing
    the federally imposed March 31st deadline.
        In addition, HCFA has been in the process of determining
    whether to update its current payment management system or to
    use a new system. The payment management system processes about
    $170 billion annually or about 75 percent of all Federal grant
    and aid programs, and HCFA has chosen to update and maintain
    this system through the year 2000. Given the time spent in
    making this determination, Y2K efforts to test this system did
    not begin until later than expected, and HCFA will be
    conducting tests next month.
        Further, the ability of HCFA's computers to communicate
    with non-Federal computers is a very serious concern. HCFA
    communicates with hospitals, physicians, State governments, and
    its own contractors on a daily basis, and if problems arise in
    these non-Federal systems, the communication efforts of HCFA
    will be adversely impacted.
        Another area of concern is the area of medical equipment.
    It bears mentioning that the Food and Drug Administration has a
    number of Y2K concerns relating to medical equipment, and as of
    January 12th, only 1,438 of the 1,932 targeted manufacturers
    had submitted Y2K data on their biomedical equipment to the
    Federal Y2K Biomedical Equipment Clearinghouse.
        What this means to the American people is that there are
    still a number of products about which there is not sufficient
    information to know its Y2K status. A further concern is the
    fact that the majority of manufacturers are not affirmatively
    notifying users that potential problems may exist in their
    equipment.
        One solution will be to require the manufacturers to notify
    the device users, including hospitals and nursing homes, of
    other potential Y2K problems. Still further, there is concern
    that many consumers may attempt to hoard prescription drugs at
    the turn of the century, and given the brief shelf life of some
    prescription medications, the FDA must create contingency plans
    for potential drug shortages.
        Before we move into January 2000, it will certainly be
    necessary to find a solution to the problem of shortages of
    prescription drugs. One of HHS's largest problems is the
    readiness of State governments which administer the various HHS
    programs. As you know, States administer Federal benefits
    pursuant to Medicare, child care, food stamps, and other
    government programs. The recipients of these benefits are often
    the elderly or the disabled who will have limited financial
    resources or single mothers struggling to make ends meet.
        That is why I know that HHS will take the issues of State
    readiness very seriously, and I am encouraged to hear that HCFA
    is taking steps to identify and work with those States that
    have been identified as being the furthest behind. State
    readiness for Y2K is a critical concern and one that HCFA
    should be following closely.
        Also appearing most susceptible to disruptions are the
    inner city municipal hospitals and the rural health care
    providers. Given their geographic locations, rural providers
    often do not have the resources of larger institutions, and I
    am particularly interested in hearing what HCFA is doing to
    ensure that the Y2K concerns of our rural health care providers
    are being adequately addressed.
        I come from a rural district, and I know that rural
    hospitals and rural health care providers need to be confident
    that HCFA will reimburse them for their services in a timely
    manner. HCFA has assured us if a claim gets into the processing
    system, it will get paid. However, Medicare claims are
    submitted to HCFA contractors either through independent
    billing agents or directly by providers. A claim is only
    considered in HCFA's system once it is received by the
    contractor, and I would like to hear more today about how we
    can ensure that these billing agents and these independent
    providers, such as rural hospitals, will be compliant so that
    the providers can be certain that they will be paid.
        I realize there is much in the system that is out of the
    direct control of HCFA, but I think it is HCFA's responsibility
    to be sure that those independent contractors are adequately
    preparing for Y2K.
        Mr. Chairman, thank you again for having this hearing. This
    is probably one of the most critical hearings that we have had
    and with an agency that you and I both know has probably had
    more problems than most of the agencies that we have had before
    this committee.
        Mr. Horn. I thank the gentleman from Texas and since I grew
    up in rural America on a farm, I share your views. Thank you.
        Now, Mr. Willemssen. I think all of the members of the
    committee know this gentleman. He has done a splendid job in
    his role with his team over at the General Accounting Office as
    Director of Civil Agencies Information Systems, and when we
    have held hearings throughout the country, Mr. Willemssen has
    been there with the opening statement and we welcome you today.

       STATEMENT OF JOEL C. WILLEMSSEN, DIRECTOR, CIVIL AGENCIES
             INFORMATION SYSTEMS, GENERAL ACCOUNTING OFFICE

        Mr. Willemssen. Thank you, Mr. Chairman. I will briefly
    summarize the readiness of HHS to address the Y2K issue, and in
    particular focus on HCFA and Medicare, and then on the Payment
    Management System.
        First regarding HCFA and Medicare Y2K, we originally
    reported our concerns with this nearly 2 years ago and at that
    time the level of HCFA management attention on Y2K was minimal.
    Instead much of the agency's system focus was on a failed
    effort known as the Medicare Transaction System which was
    intended to replace existing part A and part B core computing
    systems.
        As we have previously testified, this effort was terminated
    after about $80 million was spent and not one line of software
    had been delivered. It is important to keep that history in
    mind as we now look at the large challenge that HCFA faces in
    addressing Y2K.
        We reported last fall that with its very late start on Y2K,
    HCFA faced the prospect of having too much to do in too little
    time. Many of the basic Y2K management practices that we would
    have expected to have seen were not there. Our conclusions and
    recommendations to the Administrator reflected our concern
    about the high level of risk facing HCFA. HCFA has been
    responsive to our recommendations and the Administrator is to
    be commended for making Y2K the agency's top priority and
    directing a number of actions to more effectively direct the
    project. Among these many actions has been an important
    commitment to business continuity and contingency planning to
    ensure that in the event of system failures, beneficiaries will
    still receive care and providers will be paid. Despite its
    progress, we still have serious concerns with where HCFA is
    with Medicare and Y2K.
        First, HCFA's reported external systems progress on Y2K is
    highly overstated. HCFA and HHS recently reported that 54
    contractor systems were compliant as of December 31st. In fact
    none of these 54 should have been considered compliant. All had
    important exceptions, some of them very significant.
        According to HCFA officials they reported these systems as
    compliant because the qualifications were minor problems that
    should not take much time to address. This is at variance with
    the report of HCFA's independent verification and validation
    contractor on about February 16th. At that time the contractor
    found the qualifications to be critical, most requiring a major
    to moderate level of effort to resolve.
        Among the other issues that HCFA needs to address: One,
    HCFA still lacks an integrated schedule that lays out a
    critical path for the most important tasks that have to be
    done.
        Two, HCFA has thousands of data exchanges that remain to be
    remediated and tested.
        Three, HCFA faces a tremendous amount of testing for the
    remainder of this year, testing both at a system level, for
    changes to resolve the existing qualifications, as well as
    other legislatively mandated changes that will go into effect.
    All of that testing will ultimately determine whether HCFA's
    systems are indeed compliant. Given the magnitude of the
    challenge that HCFA faces, it is absolutely critical that the
    Administrator sustain her commitment to complete and test
    business continuity and contingency plans so that if system
    failures occur, HCFA will be positioned with backup plans.
        Next, let me turn briefly to HHS's Payment Management
    System and the Program Support Center. As noted, a key activity
    for this center is providing grant payments totaling over $165
    billion annually to about 20,000 recipient organizations. The
    payment management system is instrumental to making sure those
    payments are made. However, the system is not yet Y2K compliant
    and it is unclear at this point when it will be. In 1995 there
    was an effort begun to replace the existing system with a new
    state-of-the-art system that was expected to be Y2K compliant
    and operational by October 1997. However, since its inception,
    that planned system replacement has encountered problems and as
    a result is still not operational. We understand that the
    Program Support Center has contracted with a company to conduct
    an analysis of whether to rely on the replacement system as the
    year 2000 solution or rely on their existing system and
    remediate and test that. Regardless of the outcome of that
    analysis, and I believe that HHS may be providing the results
    today, there will be a tremendous amount of work remaining to
    make sure, whether the existing system or replacement system is
    the solution, that is indeed Y2K compliant. That concludes a
    summary of my statement. I would be pleased to address any
    questions that you have.
        [The prepared statement of Mr. Willemssen follows:]

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        Mr. Horn. I thank the gentleman. I note that the chairman
    of the Subcommittee on Technology of the House Committee on
    Science has joined us and before we begin the questioning, if
    the gentlewoman from Maryland would like to make an opening
    statement.
        Mrs. Morella. Thank you, Mr. Chairman. You invited me to
    participate in this hearing and I appreciate it very much. It
    is part of our ongoing series of meetings that we have had, and
    briefings, to make sure that all agencies recognize the urgency
    and the time limits on correcting the year 2000 computer
    problem, computer glitch, mother of all computer glitches.
    Certainly my hope is that given what we understand from the
    General Accounting Office about the serious difficulties that
    HCFA is experiencing with Y2K that we can spur the agency to
    undertake the dramatic actions that are needed to ensure that
    the population who receive over $170 billion annually of
    Medicare and Medicaid assistance, that their elderly, disabled
    and indigent benefits continue uninterrupted.
        Last September GAO reported that ``HCFA and its contractors
    were severely behind schedule in the repairing, testing, in the
    implementing of its mission critical systems that support
    Medicare.'' And the General Accounting Office also noted that
    ``due to the complexity and magnitude of the problem and HCFA's
    late start, its progress in repairing mission critical Medicare
    systems is far behind schedule.''
        I know that HCFA disputes some of the General Accounting
    Office's conclusions. I know that both HHS and HCFA have
    demonstrated a great deal of progress in this last quarter, so
    I look forward to continuing the dialog and hearing our other
    witnesses and questioning Mr. Willemssen.
        Thank you very much, Mr. Chairman.
        Mr. Horn. I thank the gentlewoman. We will begin with the
    questioning for 5 minutes alternating between the majority and
    minority side. There are not too many questions to ask the
    General Accounting Office. We will then move to panel two and
    have Mr. Willemssen rejoin the panel at the end and have some
    more questioning.
        Let me yield the chairman's time to the vice chairman of
    the committee, Mrs. Biggert, the gentlewoman from Illinois.
        Mrs. Biggert. Thank you, Mr. Chairman.
        Mr. Willemssen, in the Department's quarterly report to the
    Office of Management and Budget, the Health Care Financing
    Administration [HCFA], reported that 54 of its 78 external
    mission critical systems were year 2000 compliant. However, in
    your testimony you said that none of these 54 external mission
    critical systems are completely compliant because they have
    important qualifications or exceptions associated with them. Do
    you think that these qualifications are important and if so,
    why?
        Mr. Willemssen. Yes, we do think the qualifications are
    important. The essence of making systems Y2K compliant is in
    part making sure that they are forward date tested so that
    dates such as January 1, 2000, February 29, 2000 will indeed
    work as intended and therefore within that testing it is
    important that those kinds of issues have been fully resolved.
    At this point they have not. Also, as of December 31st, the
    evidence we saw was that all of these 54 had important
    qualifications requiring some amount of effort in order to
    resolve. If indeed they involved minor effort, I would have
    expected that they would have been fully resolved and tested
    over the last 2 months. In fact they have not. They continue to
    be outstanding. So although some resolution has taken place,
    they still all need to be tested. HCFA is making excellent
    progress but not as much progress as is reflected in those
    statistics.
        Mrs. Biggert. In your opinion then would you say that HCFA
    is trying to gain the system, trying to improve its grade by
    overstating the Y2K compliance?
        Mr. Willemssen. I would say that HCFA is under tremendous
    pressure to do the best job possible on Y2K. The Administrator
    has made it the top priority. There are a lot of people at HCFA
    working very hard, as are many contractors. I guess it is
    subject to interpretation what they saw with the February 16th
    independent verifi-cation and validation contractor's report
    that they could possibly consider the system substantially
    compliant, and therefore close enough, let's call that
    compliant.
        We differ with that view. We thought those exceptions were
    significant enough that those systems should not be considered
    compliant at that point in time.
        Mrs. Biggert. Thank you. Then turning to the Health and
    Human Services Payment Management System which processes about
    $170 billion a year in Federal grant payments, of concern is
    that HHS has been trying to develop a new Payment Management
    System since 1995, as you mentioned, but with little success,
    but it is also still renovating the current system to try to
    make it Y2K compliant. Is the current system year 2000
    compliant now?
        Mr. Willemssen. No. We have not seen the test results for
    the existing system demonstrating that it is indeed compliant,
    and I believe HHS will be talking about that a little bit today
    about whether they are going to rely on the existing system or
    the replacement system. But the evidence that we have seen is
    that no, that it is not compliant at this point in time.
        Mrs. Biggert. How about by March 31, 1999 which is the
    President's deadline?
        Mr. Willemssen. In discussions over the last few days with
    some of the key officials within HHS, at least one official
    maintained that he thought it would be compliant by March 31st.
    I believe HHS may be amending that in testimony today to
    possibly being a few months later.
        Mrs. Biggert. Since--how about the new system, will it be
    ready by March 31st then? If it is, what are they going to do
    with the old system?
        Mr. Willemssen. This is an issue that several agencies have
    encountered. The difference with HHS is that this is a bit late
    to be encountering this, and in some cases agencies decide on a
    dual track approach. That is, let's continue with the
    replacement system but with the risk involved with that
    replacement system of being delivered so late, we need to go
    into the existing system just in case and remediate and test
    that one so in the event the replacement does not get in in
    time, we have this one to fall back on. We would not disagree
    with that kind of approach overall.
        Mrs. Biggert. OK. How much then is the Department spending
    to develop the new system and to fix the existing system to
    make it Y2K compliant?
        Mr. Willemssen. We do not have up-to-date information on
    the cost that we have gathered over the last couple of days,
    but we can supply the information for the record.
        Mr. Horn. We will insert that at this point in the record.
        [The information referred to follows:]
        [GRAPHIC] [TIFF OMITTED]60993.039

        Mrs. Biggert. Thank you.
        Mr. Horn. I defer the questioning to Mr. Turner, the
    ranking member of this subcommittee.
        Mr. Turner. Thank you, Mr. Chairman.
        I would like to inquire a little bit into--HCFA has a
    unique problem in that it deals with a lot of folks that it
    doesn't have direct control over, such as its contractors and
    the States. What is the hammer in terms of legal control that
    HCFA has over its independent contractors to be sure that they
    get their systems in compliance, or are we just hoping that
    they will?
        Mr. Willemssen. I think it is an excellent point that you
    raise. It is one of the unique challenges that HCFA faces that
    many other organizations don't, in that they have to apply
    tremendous pressure on the contractors to get these systems
    compliant.
        One of the excellent steps that they have taken is hiring
    the independent verification and validation contractor to go in
    and help them make sure that the systems are compliant, and I
    think that contractor has shown some definite value over the
    last few months.
        But I think the legal issues, I won't pretend to know them
    inside and out, but there are apparently some legal impediments
    that the Administrator may be more attuned to speak toward. I
    know the administration has put forward some contractor reform
    legislation that it believes will in part assist them in that
    area.
        Mr. Turner. So we really don't know if a contractor who is
    supposed to be sending out these payments to all of these
    providers, if they are not ready on January 1st and their
    systems go down, we don't really know if the Federal Government
    and HCFA can hold them legally responsible for those
    noncompliant acts or whether we can hold them liable for
    damages? Do we even know what we can do if a contractor does
    not get in a situation where they are compliant?
        Mr. Willemssen. With that legal question I would prefer to
    defer to the Administrator since I do not know the legal
    intricacies that well in terms of what the Federal Government
    can and cannot do.
        Mr. Turner. Another similar issue is the one that you
    described regarding the new system that was going to handle the
    payment management system, the computer that apparently was
    acquired and put in place or attempted to be put in place I
    believe you said in 1997. Now they have decided well, that is
    not Y2K compliant so we are going to stay with the old system
    through 2000. Who provided that system, and do we know if there
    were representations made at the time to HCFA that was going to
    be Y2K compliant?
        Mr. Willemssen. The documentation that we got from HHS
    indicated that Y2K would not be an issue once the new system
    went in. Among the problems--I don't have the contractor names
    at my disposal--but among the issues that came up is HHS
    decided to go with another contractor after the initial
    contractor because of some of the problems that they were
    experiencing and the initial contractor not being able to meet
    the schedule. So for implementation of the system, HHS went
    with a second contractor to do that.
        Mr. Turner. To put in the new system?
        Mr. Willemssen. Yes, to implement that new system.
        Mr. Turner. Do we know if that contractor represented that
    that system they were providing to HCFA was going to be Y2K
    compliant?
        Mr. Willemssen. We can look--once we get the documents from
    HHS, we can look at the contractual language to see if indeed
    the standard Y2K compliance language was in there. The timing
    of that would be--it may or may not have been. We will look at
    that for you, though. There was some standard governmentwide
    Y2K compliance language that was pulled together over a year
    ago now, so it would be interesting in terms of that particular
    contract to see if that language has been put in or potentially
    an amendment put into the contract subsequent to its initial
    award.
        Mr. Turner. I would certainly hope as late a date as 1997,
    1998, when all of this occurred, that that language would have
    been in there.
        Mr. Willemssen. 1997, from a governmentwide perspective
    generally speaking that language may not have existed. It was
    still being debated during most of that year.
        Mr. Turner. We are having a lot of hearings on Y2K
    liability, and I think sometimes as we discuss that subject we
    fail to remember that the Federal Government itself may be a
    potential plaintiff making claims against contractors who have
    failed in a legal duty to provide systems that are Y2K
    compliant.
        If you looked at HCFA's serious problems from the
    perspective of those contractors, when we say that there are
    serious noncompliance problems, give us an example of something
    you found that you are calling a serious noncompliant problem?
        Mr. Willemssen. One thing in looking at the seriousness of
    the issue is the tremendous complexity of the entire claims
    processing process and it involves so many players with so many
    individual systems and so many data exchanges that you have to
    look at it as a building block type of approach. Each of those
    individual components we first have to get compliant. And once
    we have ascended that mountain, then we have to look at it from
    an end to end process involving multiple systems and data flows
    and making sure that that process end to end is compliant, and
    that is one of the primary reasons for our concern about the
    high risk at HCFA. It is not that they are not doing what they
    can, it is that there is a relatively limited amount of time
    left to get it all done.
        Mr. Turner. Thank you, Mr. Chairman.
        Mr. Horn. Thank you. I now yield 5 minutes to the
    gentlewoman from Maryland for questioning.
        Mrs. Morella. Thank you, Mr. Chairman.
        We rely very heavily on the General Accounting Office and
    we thank you very much for doing the kind of reporting and the
    investigative work that helps us move forward. I can't think of
    anything more important than Medicare and Medicaid and then the
    whole medical field when it comes to compliance of Y2K.
        I am kind of--I had a concern very much about those many
    contractors who are out there and how you pull it together. But
    I am also concerned as I look at the testimony or the statement
    that came, the GAO report, that deals with Medicaid
    specifically, the fact that HCFA distributed a survey to all of
    the States to ascertain their background on Y2K compliance, and
    they then decided they would rely on because they didn't feel
    that this was accurate enough or complete enough, rely on
    onsite contractor visits to ascertain accurate Medicaid systems
    status. They then go on to say that some States appeared to
    make progress in the 6 months since the survey that had been
    made, but many of the others--four States made progress, three
    States remained the same. This says something about the
    monitoring and a whole question about what more needs to be
    done, how do we get a handle on this because again of the end
    to end and the many connections that have to be made for total
    compliance and reliability. I ask you--would you like to
    comment on it?
        Mr. Willemssen. Yes. Medicaid systems overall are of great
    concern. When we issued our report last year on State human
    services systems, the compliance rate that we saw for Medicaid
    systems nationwide was only about 16 percent of all of those
    Medicaid systems self reported to us by States. So that
    definitely was of concern.
        HCFA has taken some excellent steps since then. Part of
    that being hiring a contractor to go out and do on-site visits
    to see if the States are making the progress that they need to.
    HCFA's intent is to go to all States and then for those States
    deemed at risk, to have followup visits.
        We think those are excellent steps that need to be taken,
    but overall Medicaid has a long ways to go. These are not
    simple systems that are going to need to be made compliant.
    HCFA is taking some aggressive steps to try to assist, and
    again they are to be commended for doing that.
        Mrs. Morella. So basically what HCFA has done is hired
    contractors to go----
        Mr. Willemssen. To see how the States are doing.
        Mrs. Morella. Do you feel that HCFA is going to be able to
    meet that March 31st deadline for compliance before the end-to-
    end testing begins, in all candor?
        Mr. Willemssen. I doubt that they will be able to make the
    March 31st deadline from the perspective that we would see all
    those systems renovated and tested and certified compliant. I
    don't think that they will be able to make the March 31st
    deadline.
        Mrs. Morella. What do you think the consequences will be
    and what do you think we should do about it?
        Mr. Willemssen. The consequences of that are that the
    additional--as you mentioned the end to end testing, the period
    for that will get squeezed tighter; and, therefore, the
    thoroughness and depth of that testing will not be as much.
    HCFA has made an excellent commitment toward the need to put
    together contingency plans so that they have backup.
        Mrs. Morella. I would assume that contingency plans are
    already there and have been worked on. Am I assuming too much?
    Do they not have contingency plans?
        Mr. Willemssen. They are aggressively working on those
    plans currently.
        Mrs. Morella. Which means that they do not have them yet?
        Mr. Willemssen. Their timetable I believe is to have them
    done and tested I believe by approximately the end of June, so
    that will give them some time. From a governmentwide
    perspective, that is not out of the realm of what the deadline
    should be for doing that. That is pretty good.
        Mrs. Morella. Do you see something more that Congress can
    do to encourage, forge, require? What else can we do? These are
    systems that so many people statistically, as we have
    mentioned, are affected by?
        Mr. Willemssen. One, it is important to continue to have
    this kind of oversight on a critical program such as this to
    keep up to date on what kind of progress and impediments there
    are for Medicare.
        Second, I think you should also ask the question of HCFA,
    what do you need from us? What is getting in your way? Whether
    it is some of the legal issues that we discussed earlier, that
    contractor reform is necessary because we can't get the
    contractors to do what we tell them if indeed that is the case.
    I think that is a very useful question to ask of HCFA also.
        Mrs. Morella. Thank you, Mr. Willemssen. My time is up.
        Mr. Horn. Thank you very much. I now yield to the ranking
    member of the House Science Subcommittee on Technology, Mr.
    Gordon of Tennessee.
        Mr. Gordon. Thank you, Mr. Chairman.
        Welcome, Mr. Willemssen. I want to thank you and the
    General Accounting Office for the important role that you have
    played in the oversight and watchdog of all of these agencies.
    As I think you just mentioned, the more oversight, the more we
    can talk about this and bring it out, the better off we are.
        Let me ask you, do you feel that Congress has provided
    adequate funds or enough funds for HCFA to maximize their
    effort to correct this problem?
        Mr. Willemssen. I am not aware at HCFA or actually any
    other agency where they have made requests for funds for Y2K
    and those requests have been denied.
        So again an extremely useful question to ask of HCFA, do
    you need more resources, more funds because at many of the
    hearings that I have testified at, that is a common question
    asked of many agencies. If you need more resources, please tell
    us and we will do what we can.
        As you know, last year the Congress passed a $3.35 billion
    emergency fund so that agencies such as HCFA and others could
    tap into that fund if indeed they needed those additional
    resources.
        Mr. Gordon. Thank you. I will ask that question later.
        Let me ask you also, Chairman Horn's report card I think
    has been helpful in trying to raise awareness of the problem.
    If you had your own report card and you were grading the focus
    and the attention that HCFA is placing on this problem, what
    grade would you give?
        Mr. Willemssen. If we were grading in terms of the current
    focus of what HCFA is placing on this problem, given that the
    Administrator has named it her No. 1 priority and given that
    many of her staff are working on it, it is hard to give less
    than a top grade given where the priority stands within HCFA
    and given the kind of progress they have made since our
    September report.
        Mr. Gordon. Thank you, Mr. Chairman.
        Mr. Horn. We are now going to bring forward the second
    panel. We are going to swear them in and then Mr. Gordon will
    have the honor of introducing the members.
        [Witnesses sworn.]
        Mr. Horn. The clerk will note that both witnesses have
    affirmed the oath, and I yield to Mr. Gordon to introduce the
    panel.
        Mr. Gordon. Thank you, Mr. Chairman. We have all sat
    through a number of hearings with well-informed witnesses, but
    you don't really know them, I don't think that their testimony
    is as real sometimes, so I want you to get to know these two
    folks a little bit better.
        First, John Callahan. Dr. John Callahan and I first met
    almost 20 years ago when he served as a very Yankee chief of
    staff to a very southern Senator and even with that impediment
    he did a very good job partly because there are a lot of
    lawyers around here, but not too many doctors or PhDs.
        Mr. Horn. Will the gentleman yield. When I hear that I am
    reminded of the great line of William White, who covered the
    Senate for the New York Times, who said, ``The Senate is the
    South's revenge on the North for having lost the Civil War.''
        Mr. Gordon. Well, John did a good job there. And then he
    went over to Assistant Secretary in HHS. When there became an
    opening at Social Security, they needed somebody to fill in,
    and John went over and did a very competent job of being the
    acting Director of Social Security; and now he has become at
    HHS an Assistant Secretary and John, I am glad you are here.
        And Nancy-Ann DeParle is a good friend from home, an old
    friend from home. And let me tell you about Nancy-Ann. She grew
    up with her mother in Rockwood, TN, and Rockwood is just about
    as tough as the name sounds. Nancy-Ann was fortunate enough to
    get a scholarship to go to the University of Tennessee and I
    think UT feels it was a good investment because Nancy-Ann
    became the first woman student body president of their 20,000-
    plus campus in its almost 200-year history, and became a Rhodes
    Scholar and went on to Yale, graduated with honors from law
    school and turned down offers all around the country to come
    home, and I am glad she did.
        After she got home and she was trying to pay off some
    bills, our Governor asked her to be his commissioner for human
    services, and Nancy-Ann really didn't have any background in
    the health care area, but she knew how to get things done. So
    she became the youngest and the shortest member of Governor
    Border's cabinet, instituted a number of new information
    systems that tremendously reduced the error rate in food stamps
    and the welfare program, went back to the private sector and
    then Leon Panetta gave her a call and said we hope you will
    come to OMB to head up our health care area. She did, did a
    very good job and then was appointed the Director of HCFA.
        And it was interesting at the time she got that appointment
    Chairman Morella and I had our first hearing on the Y2K
    problem, and so I wrote Nancy and said we just had this
    hearing, and I think there is a potential for a real problem
    and you ought to check HCFA and see what is being done.
        She called me later, somewhat frustrated that virtually
    nothing had been done. I don't think there is a conversation
    that we have had since then that we haven't discussed her
    focus. And with all of them, the new responsibilities that
    Congress has placed on HCFA, Nancy-Ann has made this her first
    priority. I know that daily she works at it and worries about
    it and tries to get a handle on it.
        I am glad that she is here to give us her experiences, and
    I have to say that really Nancy-Ann to me epitomizes all that
    is best about the American dream in this country.
        Mr. Horn. We thank you for that delightful introduction and
    we thank the witnesses for being with us. However you would
    like to proceed, please do.

      STATEMENTS OF NANCY-ANN DEPARLE, ADMINISTRATOR, HEALTH CARE
         FINANCING ADMINISTRATION; AND JOHN J. CALLAHAN, CHIEF
      INFORMATION OFFICER, DEPARTMENT OF HEALTH AND HUMAN SERVICES

        Ms. DeParle. Thank you, Chairman Horn, Congressman Turner,
    and distinguished committee members. We appreciate the
    opportunity to be here today to talk about the progress of the
    Health Care Financing Administration in meeting the year 2000
    challenge. I have with me Dr. Gary Christoph who I brought in
    from Los Alamos National Laboratory a year ago to lead our
    information technology efforts.
        We have a great deal to do, Mr. Chairman, but we are making
    good progress and we will be ready well before January 1, 2000.
    Our main job is financing the health care for Medicare
    beneficiaries. We can assure that our claims processing and
    payment systems work and that doctors and hospital bills will
    get paid, but continuity of care depends on much more. Doctors,
    hospitals and other providers must ensure that they are also
    ready. We are therefore engaging in an unprecedented outreach
    effort to help our partners reach their responsibilities.
        Just 2 months ago I personally wrote each and every one of
    the 1.3 million health care providers in the country who work
    in the Medicare program to make sure that they were aware of
    this problem and to give them information about what they
    needed to do to be fixing it, and we will also be doing special
    outreach to critical access providers and Medicare sole
    providers to make sure that they are ready.
        We have aggressively attacked our part of the problem, and
    I have to say to Congressman Gordon, it seems like it has been
    about 10 years since we had that conversation, but you are
    exactly right. It is my No. 1 priority. We have to continue to
    retest systems and refine contingency plans, but I do think
    that we have come a long way since I became Administrator.
        To get to this point, we had to make some difficult
    decisions, including delaying implementation of some of the
    Balanced Budget Act provisions and I want to thank the
    committee for your leadership and support in helping us make
    those decisions. We did reach a significant milestone in
    December when we reported that all 25 internal mission critical
    systems are now compliant, and those include the systems,
    Congresswoman Biggert, that pay Medicaid claims and managed
    care claims. They are the systems under our direct control.
    And, Mr. Chairman, you and I had a conversation about the
    complexity of this, and you remembered from your experience on
    the Senate side how Medicare was set up with all of the
    different contractors around the country, and that has been a
    big part of our problem, as has been noted this morning.
        One of the first things that I did when I got to HCFA was
    sit down with Joel Willemssen and Gene Dodaro from GAO to ask
    them what I needed to do, and they made a couple of
    recommendations. One was to amend the contracts that we have
    with our contractors to require them to be compliant by the end
    of December of last year. That turned out to be more difficult
    than it sounds. The contractors initially said no, they were
    not going to sign it. They testified to the Ways and Means
    Committee that they didn't think that I had the authority to
    require that, and, in fact, under the contracts that Medicare
    has that are different than any other government contracts,
    there have been questions about the authority that the
    Secretary and I have to hold them compliant for things like
    this. But we did in fact succeed in getting a contract
    amendment. And by the end of December 31, 1998 we had certified
    that 78 of the external mission critical systems had been
    renovated, in other words the 50 million lines of code had been
    repaired, and 54 had been self-certified as compliant. That
    meant that they had completed three levels of testing by
    December 31, 1998.
        Let me stress that self-certification does not mean that
    our work is finished. It does mean that the software has been
    renovated and tested and that those systems were able to
    process and pay claims with future dates.
        We have greatly appreciated, and I have personally
    benefited greatly from, the diligence of GAO in advising us on
    this project. But as you heard this morning, there is a
    difference of opinion between us and our colleagues at GAO on
    the exact nature and extent of the qualifications that we
    received with the self-certifications from the contractors.
        And I want to note that there has been some discussion of
    our December submission and I brought with me just the pages
    that relate to this, from a letter to you in early February
    that contained 4 or 5 pages of what the qualifications were on
    the 24 contractors that we did not accept. The GAO believes
    that all of the qualifications should have been removed before
    certifications were accepted. We believe that the
    qualifications that we allowed were minor and don't go to the
    heart of the claims processing, and as I said, we outlined each
    and every contractor that we thought had a problem that was
    significant enough that we were not going to accept their
    certification.
        I directed our staff to be very conservative. With all
    respect to you, Mr. Chairman, I care about your grade, but I
    care much more about making sure that the systems are renovated
    and tested properly and there is no disruption in services. I
    was not looking to increase my grade. I was looking to be as
    conservative as we could be. We went on-site at all of these
    places. We didn't just look at the paper qualifications. And we
    believe that these contractors have made the kind of progress
    that we needed to note to you at that time.
        We are continuing to closely monitor this situation and we
    have established a war room in our Baltimore headquarters. We
    have special teams of people who have been asked to leave their
    homes and work at these contractors so that I know, frankly, on
    day-to-day basis what is actually happening on the ground. And
    we are developing comprehensive business continuity and
    contingency plans in case any unforeseen problems arise. We are
    through our third draft of our proposed plan, and we plan to
    have that done in June.
        The GAO and our IV&V contractor have identified essential
    work that remains for all of our systems to be millennium-
    ready, and we agree with the GAO that one of the most critical
    tasks is testing our many data exchanges to make sure that all
    of our interdependent systems function together properly.
        We also have to continue end to end testing from the point
    of claim submission to the point of sending a payment
    instruction to a bank and printing a notice to a beneficiary.
    And we have to continue working with providers, and this is the
    area where Congress can help us the most.
        After I wrote a letter to each and every one of the
    providers, I also sent every Member of Congress a copy of that
    letter and asked for you to help us. We have speakers available
    to go out to your districts and meet with providers. We will do
    whatever will help. We are also meeting with providers here and
    with the trade associations, and we want to get out across the
    country.
        The good news is that we have given providers a deadline by
    when they have to submit compliant claims, and many of them are
    already doing so. About 98 percent of the submitters who submit
    on the part B side are submitting compliant claims right now.
    And on the part A side, from December to January, it increased
    by about 30 percent. We are at 58 percent there.
        So that is the good news, but we also are going beyond
    current industry practice on testing and everything else. We
    are now instructing our contractors across the country to begin
    testing with those providers around the country who want to
    submit future date claims to test that.
        We hope that will build provider confidence. If they want
    to test claims, they can do so. For especially critical
    systems, we are going another level beyond the GAO's guidance
    by having the independent contractor perform independent tests
    in isolated future date environments.
        We also have to finish, test and refine our contingency
    plans and we are doing that in accordance with the GAO's
    advice.
        In short, Mr. Chairman, we have much more to do and we
    fully expect that there may be bumps in the road, but I want to
    assure you that we are committed to doing everything we have to
    do. This is our No. 1 priority. All of this would have been a
    lot harder without your leadership, Mr. Chairman, and without
    Congress' support, and I want to thank you for that as well as
    for the hard work that our colleagues at GAO continue to do on
    our behalf, and I am happy to answer your questions.
        [The prepared statement of Ms. DeParle follows:]

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        Mr. Horn. I will turn to Mr. Callahan.
        Mr. Callahan. Thank you, Chairman Horn, Congressman Turner,
    and other distinguished members of the subcommittee.
        I am pleased to appear before you today to testify about
    the Department's efforts to make its payment management system
    Y2K compliant. I am also accompanied today by Dr. Neil
    Stillman, who is the Deputy CIO of the Department, and Jeanette
    Clay, who is the Chief Information Officer for the Program
    Support Center.
        I would like to echo Nancy-Ann DeParle's statement about
    the committee. Clearly sometimes even though these sessions may
    appear to be a bit painful, clearly when we reach January 1,
    2000 and we succeed, in no small measure a good deal of the
    credit will go to you personally and to the members of your
    committee for asking us to be as diligent as we can be on the
    Y2K effort.
        The payment management system, which is the subject of the
    hearing today, is run by the Program Support Center of the
    Department, not by HCFA; it is run by the Program Support
    Center. This serves 20,000 grantees across the Nation and it is
    a historically sound and successful grants payment system.
    Indeed, in its more than 30 years of operation, it has only
    been down for one-half day during the blizzard of 1996.
        I will say this, since not many people know about the
    payment management system. It serves 20,000 grantees. It makes
    260,000 payments a year or about 1,000 payments a day. $165
    billion a year goes through that system, and what happens in
    this system is States, for example, with regard to their grants
    which go through the system, draw down grants daily and most of
    the other grantees draw down their grant allocations every 2
    weeks. In essence, it is a just in time grant payment system.
    This system, as it currently operates, saves the Federal
    Government $60 million a year as a result of adhering to the
    Cash Management Improvement Act.
        But as with any businesslike process, the Department of
    Health and Human Services is committed to making continuous
    improvements in the payment management system. That is why we
    engaged beginning in 1994 in the process of developing as a
    business solution the fourth major system development of this
    system since its inception in 1969. Yet in this particular case
    of reengineering, obviously we have to be fully cognizant of
    the need to make a new payments management system Y2K
    compliant.
        Therefore, in November 1998 we followed a parallel track of
    remediating the older legacy code, the current payment
    management system, to be year 2000 compliant as a contingency
    while at the same time continuing on a business solution to
    develop a fourth generation rebuild of the payment management
    system.
        Obviously given the decision at that time to look into
    following a dual track, we obtained the expert advice of the
    Avistar Corp. to assess the risk of completing the new system
    development, the fourth system rebuild of testing, the testing
    and implementation of the current system, the remediation of
    the legacy code with an eye toward achieving a low risk Y2K
    compliant payment management product in the shortest possible
    time. The report has been delivered to us by the Avistar Corp.
    this week. We will provide this to the committee in its
    entirety.
        Based on that recent report that we have received from the
    Avistar Corp., we plan to proceed immediately with the testing
    and implementation of the renovated legacy based payment
    management system. We expect this system to be Y2K compliant;
    that is, renovated, remediated, tested and implemented by June
    1999.
        At the same time, and this again comes from the
    recommendation of the Avistar report, outside of this
    development effort, and not to complicate this decision, we
    will devote additional staff and resources to achieve the goal
    of having in place hopefully before the end of the calendar
    year a fourth generation Y2K reengineered PMS system. But I
    will emphasize to the committee we will not follow that second
    track and in any way that would jeopardize getting at the
    fastest possible date a Y2K compliant payment management
    system.
        We would hope to achieve obviously the best possible
    outcome of having two Y2K compliant payment management systems
    that could be available for operation in the year 2000 and at
    some point when we have a fully operational Y2K reengineered
    payment management system, we will operate that in place of the
    current system.
        With regard to contingency planning, the Program Support
    Center, as is the case with all of our agencies, including
    HCFA, have supplied--at least I think most of them are up to
    their second drafts of their business continuity in their
    contingency plans, and we will be testing and implementing
    those contingency plans throughout the year. We believe that
    the contingency plan that is put forward to us is imminently
    practicable on the part of the Program Support Center and that
    the plans will ensure that the 20,000 grantees that we now
    service across the government, including HHS, will receive the
    Federal funds that they are due for their prior year and fiscal
    year 2000 appropriations.
        We pledge to you on behalf of the Secretary, the Deputy
    Secretary and myself and the Program Support Center that our
    customers, our grant customers, will be paid in full and on
    time. You have our word on that.
        Thank you, and I would be happy to answer any questions
    that you may wish to pose to me.
        [The prepared statement of Mr. Callahan follows:]

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        Mr. Horn. Thank you. We are going to ask Mr. Willemssen to
    rejoin the panel. And we will begin the questioning, and the
    General Accounting Office is free to comment on all the
    questions and answers as we go through this. We appreciate the
    testimony both of you have given. It clears up some of the
    matters.
        Let me start the questioning, if I might, and yield myself
    5 minutes of time here. First, I would like to ask the
    Administrator, in your testimony you state that 17 of the 54
    compliant systems are highly compliant and the other 34 require
    a moderate level of effort to resolve any remaining issues. Is
    that correct?
        Ms. DeParle. Yes, sir, that's based on our IV&V
    contractor's assessment. And then yesterday our staff on the
    government management group personally met with your staff.
        Mr. Horn. Now, your staff stated yesterday that all 54
    compliant systems required only minimal effort to complete the
    remaining issues. And I guess the question is, what's the
    definition of compliant? How do we know when we are complete
    here? What kind of testing has gone on?
        Ms. DeParle. Well, what we mean when we talk about
    compliance is that all mission critical--I guess it has four
    steps, all mission critical, local source code, software and
    hardware used to support the system were renovated and Y2K
    compliant. Second, that the individual contractor had completed
    unit testing, integrated testing, system testing and end-to-end
    testing on the front ends and the shared system software
    interfaces.
        Third, that the entire system had been future date tested
    using a combination of future dates simulation and in a
    separate future date tested environment. That's the so-called
    hard IPL. And they have to have completed and reviewed output
    from claims cycles during hard IPLs for at least two future
    dates for the recertification in July. We are going to require
    them to test more future dates, but for this initial
    certification it was just two.
        In fact, Mr. Chairman, there were a couple who turned in
    certifications to us, and when we checked on-site they hadn't
    done those tests, so we took them out.
        And, finally, they have to ensure that all mission critical
    business functions would be Y2K compliant by verifying and,
    where appropriate, testing the readiness of all mission
    critical hardware, software, commercial off-the-shelf software
    facilities and vendors used to support such functions.
        And that last area is one area I would like to just point
    to, because one of the differences between us and GAO is that
    there are some contractors who had some COTS software,
    commercial off-the-shelf software, that was not tested and was
    not Y2K compliant. But in their qualifications to me, which I
    held up a while ago what we had sent to the committee, the
    contractor identified that. And we checked it to see whether or
    not it was mission critical; and if it wasn't we went ahead and
    accepted their certification.
        Now, by this July, when all of that other testing is done,
    everything is going to have to work, no ifs, ands or buts. But
    we felt that was a minor qualification at this point. And I
    think--Mr. Willemssen and I have discussed this, and I think
    from the GAO's perspective, they think all that should have
    been done in December. So I think that's the issue.
        Mr. Horn. Well, on that very point, you've given a
    definition of compliant and the Office of Management and Budget
    on behalf of the President also has a definition, and the
    General Accounting Office has a definition. And I guess I would
    ask, Mr. Willemssen, as you listen to this discussion, are they
    compliant in terms of OMB standards and GAO standards?
        Mr. Willemssen. Well, what HHS has put in their report, the
    quarterly report to OMB, is that they would provide a
    description of the progress on their systems being consistent
    with the CIO counsel's best practices guide and GAO's
    assessment guide. So from a criteria perspective, given that
    statement, we used our guide as a measure of whether those
    systems were compliant.
        The Administrator is correct, much of that computer date
    testing was done. Having it done and then resolving the
    problems resulting from that testing are two different matters.
    We expect the resolution of problems emanating from testing to
    also be done prior to deeming a system compliant. In many cases
    that has not yet been done.
        And I will again repeat, if these issues were considered
    minor as of December 31st, then one would expect 2 months
    later, February 26th, that those issues would have been
    resolved. We haven't seen evidence that they have been resolved
    and tested so that those systems can be deemed compliant at
    this point in time.
        Mr. Horn. Well, let me ask the Administrator. Are you aware
    of the lag there, despite the fact that those look like minor
    bits of the glitch and not major?
        Ms. DeParle. Yes, sir, I am. And in fact, Mr. Willemssen
    and his colleagues spent a couple of hours with us on Monday
    going through all of this to make sure we understood it, and on
    those specific examples that he cites, I don't know if it's in
    this testimony, but it's one that he discussed. The Florida
    shared system, which is one of our biggest systems, there were
    a couple of issues in their report that in fact they have
    corrected--they corrected as of January 29th. Those were
    qualifications that they identified to us and then they
    corrected and we do have evidence of that. So, I asked Dr.
    Christoph about this yesterday, just to be sure, and he advises
    me that these things have been corrected.
        Mr. Horn. Thank you. Since we have a visiting Subcommittee
    on Technology, I'm going to yield to the chair of that
    subcommittee, and then to Mr. Turner on our committee and then
    to Mr. Gordon on that committee. So the gentlewoman from
    Maryland, who is chairman of the Subcommittee on Technology.
        Mrs. Morella. Thank you. Thank you, Mr. Chairman. The
    question I want to ask has to do with personnel, since so much
    of Y2K compliance relies on people. I mean it's so intensive in
    terms of labor. And since there are really so few who may know
    COBOL and may know that system, et cetera, could you give me a
    candid analysis of how personnel fits into the compliance
    strategy? And I'm asking you, do you have trouble with
    recruiting people?
        Have you had to rely more than you've ever thought on
    contractors and subcontractors because of that? Are you losing
    some people who may have seniority or expertise? I know this is
    a tough question with many implications, but I would really
    like your candid assessment of it.
        Mr. Callahan. Congresswoman Morella, let me make a brief
    comment and defer to HCFA Administrator DeParle. You're
    absolutely correct that the human resource dimension is the
    critical element of getting this Y2K compliant problem solved.
    It is a difficult problem. Certainly the people that are
    working on it in the agencies, whether that be at HCFA or
    Program Support Center, support and deserve our commendation
    for the long hours that they are putting in and the efforts
    they are making.
        The Department of Health and Human Services was the first
    agency to go to the Office of Personnel Management and ask for
    an amendment to the law to rehire annuitants that were familiar
    with the Y2K problem that had worked at these agencies and
    could come back and help us in this effort without losing their
    annuity. As you know, given your experience, if you rehire
    they--we've hired approximately 54 reemployed annuitants. HCFA
    has taken the lead. I think they have over 50 of those, and the
    Program Support Center has brought back a person.
        So we took the initiative as a department to go out and
    seek those qualified employees to come back and help us, and
    they have.
        Ms. DeParle. I would say, though, just to add a little bit
    to this, from speaking to our contractors around the country,
    the 60 contractors who operate these 78 systems that we've been
    talking about this morning, they have had difficulty as well in
    hiring and retaining the kind of personnel that is needed.
        And it is something that I think as we get closer and
    closer to the deadline, one of the concerns I have when we talk
    about what the challenges are out there, not even just for our
    contractors, because they've known about this for a year, and
    they've been working, but for some of the providers like the
    ones Congressman Turner talked about, if they haven't already
    started, they're going to have trouble finding people who can
    do this work. And that's something I've been concerned about.
        Mrs. Morella. Have you been losing people because of the
    lure of higher salaries in the private sector?
        Ms. DeParle. Hardly a week goes by that I don't have one of
    my senior people in the information services area approached,
    and I suspect Mr. Willemssen has the same experience, because
    they do have such valuable expertise. We have been lucky in
    that our folks feel very committed to this project and seeing
    it through and are patriotic about it, I think.
        Mrs. Morella. Has any of the work been sent offshore?
        Ms. DeParle. Well, HCFA has a long history of public/
    private partnerships from the inception of the Medicare
    program. For 34 years, we have worked through contractors.
    There are only 4,000 people working in Baltimore, there are
    25,000 people working at these contractors. So we've always had
    an imbalance, if you will, with most of our work in this area
    really being done offsite.
        So, we were already using contractors, and I think as Mr.
    Willemssen pointed out, there's a sense, on this particular
    project, that contractors are helpful, because they can come in
    and look over your shoulder, and that's what the IV&V
    contractor, that GAO advised us to get, has been doing.
        Mrs. Morella. Is there anything we can do to help with
    regard to contractors?
        Ms. DeParle. Yes.
        Mrs. Morella. I would imagine the data exchange law that
    passed would have been of some assistance in terms of freeing
    up some of the chilling effect of just sharing information?
        Ms. DeParle. I think it helped. And as I mentioned before,
    one of the first things I did was ask contractors to sign an
    amendment to their contract requiring them to be compliant. And
    I was rebuffed pretty strongly for about 6 months. And then
    after Congress passed the law, they became more willing to do
    it. Because one of their concerns had been what if the power
    systems fail or what if things beyond our control failed, and
    you helped with that.
        I should note, too, Congresswoman, you asked me about work
    offshore, and we don't have anyone working offshore.
        Mrs. Morella. No, the contractors may and do, whatever, but
    you don't.
        Mr. Willemssen, would you like to comment on that whole
    concept of personnel?
        Mr. Willemssen. A couple points I will make. First is to
    echo what Dr. Callahan said is one of the best things that the
    executive branch did was OPM allowing retired retirees to come
    back without a reduction in their annuity. That's something we
    have supported for some time. That was an excellent move. Many
    agencies, including HHS, have taken advantage of that. Second,
    in a report we did last year in the personnel area, we did see
    quite a bit of anecdotal evidence throughout the government
    that, indeed, there were people leaving for higher salaries.
        There wasn't any systemic analysis done, but clearly it was
    an issue that was coming up. Third, as we move into 1999 the
    issue will become less about finding people who can fix the
    code, so to speak, and more about people who have an excellent
    understanding of end-to-end testing and contingency planning,
    and I think those kinds of resources will increasingly be in
    short supply.
        Mrs. Morella. I want to thank you all and thank you for
    working together. I think this is critically important, and I
    hope that you will continue to see us as an important part of
    working together with you. Thank you.
        Thank you, Mr. Chairman.
        Mr. Horn. I thank the gentlewoman, and I now yield to the
    ranking member on the Government Management, Information, and
    Technology Subcommittee, Mr. Turner of Texas.
        Mr. Turner. Thank you, Mr. Chairman. Administrator DeParle,
    I want to ask you first to kind of go back with me a little
    bit. I know that much of the work that you've done trying to
    become Y2K compliant has been very, very costly.
        From your perspective, has the agency been provided
    sufficient funds to put you in the position to be Y2K
    compliant?
        Ms. DeParle. Yes, sir. And I want to thank the members of
    the committee who have supported us and the Secretary, last
    year when we realized after getting the IV&V contractor that we
    had 50 million lines of code to renovate, instead of what they
    originally thought, which was 20 million. We needed some money
    fast. And the Secretary did something that was very difficult.
    She basically tapped funding from other agencies in the
    Department to come up with $40 million, so that we could have
    right then and go ahead and get the contractors to hire people
    to do this work.
        It would have been harder if we had had to wait for the
    emergency supplemental to get that done. And so there's been
    complete support for this throughout the administration and
    from the Congress.
        Mr. Turner. Inasmuch as you've had sufficient funds to
    pursue Y2K compliance, what are the reasons then for the delay
    in the implementation of the Balanced Budget Act?
        Ms. DeParle. Well, it's a matter of the complexity of some
    of the changes that were made in the Balanced Budget Act. We've
    implemented, I think, almost 200 of the more than 300
    provisions that were in the Balanced Budget Act. But there are
    a few provisions that are extremely complicated, like
    developing new payment methodologies for home health agencies
    and for rehabilitation hospitals and for outpatient departments
    of hospitals. Our IV&V contractor, AverStar, came to me last
    April or May, I think it was, and made the strong
    recommendation that we stop that work, that we not proceed with
    trying to make those changes, because it's one thing to make
    them on paper, in the law, up here and for us to write the
    regulation and the policy.
        But when you have to start implementing those changes into
    the software--and you had these contractors who were trying to
    renovate and test the 50 million lines of code at the same time
    that they're trying to implement complicated software changes--
    our IV&V contractor told me in no uncertain terms that that
    would not be a prudent thing to do. So we had to stop that
    work. We're going to resume it as soon as it is feasible after
    January 1, 2000. And I hope we will be close to being on track.
    But I felt I had no choice, because this had to be the No. 1
    priority.
        Mr. Turner. Well, as you know, there's been quite a few
    hardships created, particularly in the home health area in
    recent months, and it seems to me that what you're telling us
    is that it was your concern about the ability of some of the
    contractors to perform both tasks; that is, to be able to
    implement the new requirements of the Balanced Budget Act and
    to be Y2K compliant, that caused you to make that decision.
        Ms. DeParle. That's right. And at the point in time that we
    were--and I think you've heard from our colleagues at the GAO
    about the--from the chairman himself. There's nothing that can
    change this deadline of January 1, 2000. And even with more
    money, we couldn't necessarily be sure that we were going to
    get the work done at the level and the quality that it needed
    to be done. So, I was faced with a choice of do I want to be
    sure that we're paying claims January 1, 2000, or do I want to
    get these extra things done.
        And that was a hard choice. But as I said, I felt I had no
    choice. I had to be sure we were going to have our systems
    ready.
        Mr. Turner. Did the law itself impose deadlines upon you
    that you, in effect, did not comply with or was this within the
    discretion of the agency?
        Ms. DeParle. The law itself imposed deadlines in two or
    three areas. In the home health area, the Congress, once we had
    informed the authorizing committees, last summer made some
    changes in the home health interim payment system to try to
    correct some of the problems that had occurred from that and
    also extended the deadline. The original deadline was October
    1, 1999 to implement this new prospective payment system.
        And, in fact, before we even started on it, as you may
    recall, there was some doubt about whether it could be
    implemented so quickly and the Congress included in the law an
    automatic 15 percent reduction for the home health agencies in
    the event that we did not implement. And so last summer, what
    the Congress did, was decide to change that. And they extended
    for another year the implementation. It's now October 1, 2000,
    and we're on track to meet that.
        Mr. Turner. I might ask, Mr. Willemssen, if you had any
    oversight over that particular decision, and did you concur
    with the decision that was made?
        Mr. Willemssen. I would want to emphasize one point that
    the Administrator made, any time that additional changes are
    made to the software, if indeed that system has been deemed
    compliant, HCFA and the contractor will have to go back in and
    retest and recertify that the changes that were made have not
    changed the system in such a way that it was now not year 2000
    compliant. So that adds an incredible extra amount of effort
    beyond what would otherwise have to be done.
        Mr. Turner. My time is about to expire. Thank you, Mr.
    Chairman.
        Mr. Horn. The gentleman from Tennessee, Mr. Gordon.
        Mr. Gordon. Thank you, Mr. Chairman. One of the common
    denominators that I see between Federal agencies and the
    private sector in the Y2K problem is no matter how well the
    agency or a corporation might get their act together, they're
    still somewhat hostage to vendors and providers. So I guess,
    Administrator DeParle, no matter how good a job that you might
    do with your agency, you know, how much at risk are you with
    these vendors and providers, and what can be done, and where
    does that stand?
        Ms. DeParle. Well, with vendors that we deal with in
    Baltimore, we will make sure that they're either Y2K compliant
    or that we have a contingency plan in place to get around them.
    But the area that I'm most concerned about now, as we begin to
    see daylight on finishing our work and getting that done with
    the contractors, is what about all of these providers.
        And as I said, we took the unprecedented step of writing a
    letter directly to all of them. We do not usually do that.
    Normally, the contractors deal with the providers, because
    that's where the claims come in. We do not deal with them
    directly. But we have been trying to be much more aggressive
    than we ordinarily would, because I'm worried some of them will
    wait until the last minute and try to make these changes and
    they will not be able to do it.
        Even if I'm sitting there and my contractors are ready to
    pay claims, they will not be able to generate a claim. I think,
    as I said earlier, the good news is that based on what we know
    so far, we set a deadline. We started telling them a year and a
    half ago that they had to be able to submit claims in an eight
    digit format so there would be four digits for the year, so
    those would be compliant, and we have extended the deadline a
    couple times. The deadline is now April of this year.
        And there's been some complaining, but from what we're
    seeing, the compliance is really jumping up. So I'm hoping that
    is a good sign that providers will be ready. But I continue to
    share Congressman Turner's concern that there are going to be
    providers out there whose awareness is not what it should be
    and that they're not going to be ready. And from the standpoint
    of our beneficiaries that is what concerns me.
        Mr. Gordon. You know, any time you deal with a complex
    problem, you have to have priorities. And I think that it's
    wise as it--within this problem to establish, as has been, so-
    called critical or noncritical missions. And we mostly talked
    about the critical missions. Tell me a little bit about the
    noncritical missions. You know, what are some of the things
    that may not get done because you can only do so much, and what
    impact are you going to have?
        Ms. DeParle. Well, for example, I mentioned that in
    December we finished renovating and testing all of our 25
    mission-critical internal systems, the ones that we operate in
    Baltimore. And those include systems like the one that makes
    Medicaid payments to the States and the one that makes managed
    care payments to managed care organizations for Medicare. It
    did not include some other systems that we are in the process
    of renovating now, and I believe we're going to make the March
    deadline on those. But there are things like surveys that we do
    of beneficiaries and other sorts of software that we maintain
    to keep data on beneficiaries.
        Those things would be of a lower priority as we move toward
    what are our essential missions. And that's sort of how we've
    done our contingency planning, focusing on what are our
    essential missions. For example, what has to happen on day one
    to keep our business functioning. There will be things such as
    beneficiary education and things like that, that might not
    happen if we are in a contingency mode for some reason.
        Mr. Gordon. OK, thank you.
        Mr. Horn. Now, I yield 5 minutes to the vice chairman of
    the Subcommittee on Government Management, Information, and
    Technology, Mrs. Biggert of Illinois.
        Mrs. Biggert. Thank you, Mr. Chairman. Ms. DeParle, it
    seems like you've got an awful lot to accomplish here, and you
    have made this your top priority and are working very hard to
    accomplish it.
        Are you still able to do business as usual and really, you
    know, continue with what you are working on, such as Medicare,
    Medicaid plus program and things like that? Do you have enough
    personnel to continue on your regular scope of business?
        Ms. DeParle. Well, there's no question that we're
    stretched. And for example, on the ones that you raised and on
    the many other things that we're doing, the other Medicaid
    tasks, Medicare, beneficiary education, we're probably not
    doing as much on those as we would have been. It is not because
    those staff are working in information systems and making the
    renovations or overseeing that, but because we've had to deploy
    staff to go out to contractors and oversee their work.
        And we have a lot of staff working right now, I think maybe
    almost 100 people of our 4,000 are working virtually full-time,
    on contingency planning because we have to get that done by
    March. So I think it has probably slowed down progress in other
    areas.
        You heard the questions that Congressman Turner asked me
    about the Balanced Budget Act. When you make something your top
    priority, it means that you're probably diverting attention
    from other things. I think we're getting our essential missions
    accomplished despite that. But there's no question that Y2K has
    been something that we had to put our full focus on. And
    certainly in the information systems area, which is one of this
    committee's interests, Dr. Christoph I brought from the Los
    Alamos National Laboratory to help us develop a new information
    technology infrastructure, which is something that we need.
        That isn't what he's been doing. He has spent his full time
    working on managing this Y2K project, because this is what we
    had to get done.
        Mrs. Biggert. Thank you. Then you, in your testimony,
    talked about the States, as well as providers, but the State as
    the provider, and said you don't really have the authority to
    demand that they are compliant. But you're working with them.
    Are there any--well, are you working with the States really to
    educate them on this as a top priority, and what else can be
    done to ensure then that the State systems will not fail?
        Ms. DeParle. Well, we are working with the States, and we
    started that well over a year ago by sending them the GAO's
    guidelines on what they should be doing. But last summer, I
    became concerned about where the States were, because we were
    getting self-reported data from them that didn't give me
    confidence that they were all sufficiently on top of it. The
    GAO was also looking at it and was getting similar data that
    they reported to the Congress in November.
        So we ended up hiring an IV&V contractor to go out to the
    States to investigate how they were doing. There are two main
    systems that they operate that are critical to Medicaid. One is
    their eligibility system, and the other is their--what's called
    their MMIS, their Medicaid Management Information System. And
    we have sent independent contractors out to--I think we've been
    to 16 States now, and it will be 20 by the end of the month and
    by April we will have been to all 50 States--to just
    investigate how they're doing.
        We're working directly with them, sending them the results
    in the same way that GAO would send us the results, giving them
    an opportunity to comment, but we're going to aggressively
    identify the problems there. We're also asking to see their
    contingency plans.
        And by the way, we pay for this. You should know that
    Congress, through the Medicaid program will pay for States'
    remediation efforts, 75 percent, as well as if they had wanted
    to hire IV&V contractors, you would have paid for that. And we
    urged them to do it. Most of them weren't doing it, which is
    why we decided to do it ourselves.
        Mrs. Biggert. Are there other working groups, like say as
    groups of hospitals, are you getting together with them to
    discuss the problems?
        Ms. DeParle. Yes. We're meeting on a biweekly basis with
    all the different trade associations in town that deal with
    health, and I've met personally with the State Medicaid
    directors, with the hospitals, with the managed care plans.
    We've had hundreds of meetings with them about this.
        Mrs. Biggert. Is that a definite structure that's set up
    and when did that start to occur?
        Ms. DeParle. It started, I want to say, in earnest in late
    spring or summer of last year--the outreach effort--and has
    been continuing, as I said, on a biweekly basis since then.
        Mr. Callahan. I might add, if I could on that, John
    Koskinen, who is the President's special advisor in year 2000,
    has asked all the various Federal agencies to share various
    sector groups. The health--the overall health and the human
    services sector group is shared by the Deputy Secretary in our
    department, Kevin Thurm, and as Nancy Ann has mentioned, we do
    have periodic meetings with the health care sector, not just
    hospitals, but, for example, at a recent meeting with the
    pharmaceutical association, the drug stores, the Veterans
    Administration, et cetera. So we're actively reaching out to
    them to get their best information possible as to the Y2K
    situation.
        Mrs. Biggert. Just one last question. GAO talked about
    every time there's a change or someone is not in compliance
    then it has to be retested and reworked. What time do you
    envision that you would be able to test every system and if it
    works, and if it doesn't, will you still have enough time to
    rework it? Is that like October?
        Ms. DeParle. We plan to complete our end-to-end testing by
    the end of October. And in July, we're going to freeze all of
    our systems, in other words, not make any other changes that
    would require another whole round of testing. But he's exactly
    right, that's been one of the complications of what we do,
    because so much of what we do involves making updates and
    changes and that kind of thing. And if you're doing that, it
    interferes with the work you need to do to make sure everything
    is compliant.
        Mrs. Biggert. Thank you very much. Thank you, Mr. Chairman.
        Mr. Horn. Thank you. We will now start on round two of 5
    minutes apiece. I would like to just clarify what's compliant
    and what isn't.
        Mr. Secretary, as I look at what the whole department
    submitted, they said there was a dramatic 34 percent increase
    this quarter. And I'm just curious, I think it was made up of
    96 critical mission systems, as I recall, and then the question
    would be, is the Medicare 54 part of the 96?
        Mr. Callahan. Yes, I believe it is, sir.
        Mr. Horn. OK. Then the question gets down, Mr. Willemssen,
    do you think their view of compliance and the General
    Accounting Office's view of compliance, do you think we're on
    the same wavelength or is there a discrepancy here?
        Mr. Willemssen. We definitely have a discrepancy on those
    54 systems.
        Mr. Horn. And what do you think has to be done to make them
    come into compliance?
        Mr. Willemssen. We not only have to go in and change the
    software to deal with the problems that have been identified,
    but you also then have to test that those changes have fixed
    the problems that were previously identified. And that--we
    haven't seen that evidence for those 54 yet.
        Mr. Horn. Any reaction of both the Administrator and the
    Secretary?
        Ms. DeParle. Well, I think part of what Mr. Willemssen is
    talking about is, as auditors, the GAO relies on the paper
    trail, and they looked at the self certifications that we got
    at the end of December, and they were looking at the paper
    trail. The qualifications that were given to us were worded
    quite broadly. They were written by lawyers. That shouldn't
    surprise me, since I'm the one who started this by saying I
    wanted a contract amendment. But what I think the GAO wants to
    see is paper evidence again that they can rely on to say that
    those things have happened, and I think we should get the GAO
    that.
        Mr. Horn. Well, as you know, the basis for judgment both by
    the executive branch and the legislative branch is the fact
    that we deal with self-reported data, and that's why we try to
    clarify when we get into one of these things as to the degree
    of progress a particular department is making, such as Health
    and Human Services. We want to figure out what's backing those
    numbers, and is there an agreement on definitions so we're all
    singing from the same hymn book and that we don't have
    dissidents, we have harmony, and that's why we're fishing to
    see if, indeed, we really have had more systems comply in this
    last round that we've reported on last week. And I take it you
    agree that there's still a lot of work to be done to make them
    really compliant?
        Ms. DeParle. Well, actually on a couple of systems that the
    GAO has expressed concerns about, and I mentioned the one in
    Florida. We believe we've given them the documentation that
    should have satisfied them.
        And just to follow your point, Mr. Chairman, I also don't
    want to rely just on paper, because I learned very quickly that
    wasn't good enough, and that's why I asked a number of our
    employees to leave their home base to go to Little Rock, AR and
    Richmond, VA and places where they don't live, to be onsite
    with these contractors to make sure what the contractors were
    telling us was what was happening.
        So we have more thorough information than anyone else does
    about this. But having said that, you know Mr. Willemssen has
    been very helpful to us, and I trust his assessment of this.
    And I want to make sure that--I don't have any interest in
    relying on something that isn't accurate. So I want to make
    sure that the GAO is satisfied.
        Mr. Horn. Well, may I suggest that both the General
    Accounting Office and your agency, HCFA, agree on a pattern of
    testing just to solve this problem and make sure everybody is
    talking the same language?
        I want to move on now, Mr. Callahan, to an area in which
    you are involved. Very few of the departments merged the Chief
    Information Officer role with the Assistant Secretary for
    Management. How did that happen in HHS?
        Mr. Callahan. Mr. Chairman, you and I have had some
    previous discussions on this. We are a very centralized--we
    have a very centralized management system at headquarters in
    HHS. For example, I am the Assistant Secretary of Management
    and Budget, Chief Information Officer. I'm also the Chief
    Financial Officer. There are days when I probably wish I could
    shed some of those responsibilities.
        Mr. Horn. But don't you need somebody else to work 18 hours
    a day, 7 days a week?
        Mr. Callahan. Let me say this, I don't do it all myself
    obviously, but we have able Deputies, Deputy CIO Dr. Stillman,
    et cetera. But the key point here is we are able to move very,
    very quickly on behalf of the Secretary and the Deputy
    Secretary to make those decisions, I think, which help the Y2K
    situation. For example, in the area that Administrator DeParle
    mentioned last year, HCFA indicated that they needed an
    additional $40 million on an urgent basis. Because I'm the
    Assistant Secretary of Management and Budget and work with the
    Secretary and execute the authority we have to transfer up to 1
    percent of our appropriations among accounts, we were able to
    execute that and do it in record time so that in essence we met
    that deadline. I dare say that other departments would not have
    been able to do it as quickly or as effectively as we did. So
    there are benefits in centralization.
        Mr. Horn. Well, there's also when we could get two other
    fine people like you working on various aspects, both the
    financial and the information side, it seemed to me we would
    make a little more progress, because this is just a heavy job,
    you all know that.
        Mr. Callahan. Yes, sir.
        Mr. Horn. And Treasury did the same thing, and Treasury has
    got major problems I think because of that, where they didn't
    have a new business and focus of energy in an area to
    straighten it up. I will get back to a few other questions
    later. But let me now yield to Mrs. Morella, the gentlewoman
    from Maryland.
        Mrs. Morella. Thank you. You know, one of the concerns with
    regard to this computer glitch is how the public is going to
    react. I mean attitude, whether it's going to be panic, whether
    it's going to be a laissez-faire concept that we don't have to
    worry about anything. I always say it's between Chicken Little
    and Pollyanna, in terms of where we should be. But how are you
    communicating with the public to assuage concerns that people
    may have--and that I think will be exacerbated as we get closer
    to the date and you're hearing more and more about Y2K. I mean
    Steve and I were involved in this 3 years ago as we started,
    but only now are people beginning to realize, you know, Mark
    Gordon and others, are beginning to realize that this is a
    situation where we can't have a continuing resolution.
        Do you have a responsibility to communicate, to establish
    information lines, again, to assuage concerns that your
    recipients, whether it's agencies, States, individuals, are
    experiencing or will experience?
        Mr. Callahan. Congresswoman Morella, we absolutely have
    that responsibility, and we have that responsibility in the
    context, as you know, of working with John Koskinen under the
    President's Y2K Conversion Council. He has made it clear that
    one part of his efforts in terms of advising the President and
    the general public is to give periodic reports to the President
    and the general public about our Y2K readiness and our ability
    to meet the Y2K situation.
        As Administrator DeParle mentioned, she's worked--she sent
    out nearly 1.25 million letters to the providers, hospitals,
    doctors, et cetera, who have to on their own, as you know, they
    have to work hard to meet their side of the Y2K question. We
    intend to obviously offer this committee and the public as much
    information as we can as to the situation with regard to Y2K
    readiness. So you're absolutely right. We have that
    responsibility, and we will exercise that.
        Mrs. Morella. Would any of you like to comment on it?
        Ms. DeParle. Just one more comment. Another thing we've
    been doing more recently in this health care sector group that
    I mentioned that's working together with the various hospital,
    doctor and other groups, rural providers and others, on
    outreach is our first level of reaching out to the actual
    providers themselves, to make sure they're ready, because
    that's the best risk mitigation strategy you can have is to
    make sure they're ready.
        But we do think the next step is to work together to
    reassure the public, and we think that's something that we
    should do as an agency and as a department with the providers.
    So, for example, we've been working with the drug companies on
    how we will reassure the public on those issues and the Deputy
    Secretary of the department is leading that effort. We're
    working with the hospitals on how we will reassure the public
    about their readiness. So that's sort of the next step of this.
        Mr. Willemssen. If I may make two points, one general and
    one a little bit more specific. The general point is the best
    way to combat public panic is with hard data, and the Federal
    Government is obviously in the lead on that and has been for
    some time. Federal agencies can provide data on where they're
    at, and they will have organizations such as GAO coming in and
    looking at where they're at, and making assessments of that. So
    I think to the extent that we can put the data out there, that
    will help combat the fear.
        Second, and a little bit more specific to HCFA, a hearing
    like this obviously airs that HCFA has some issues and some
    challenges ahead and that there is a high possibility that
    there will be some system failures. But to the extent that HCFA
    can demonstrate through the remainder of this year that the
    excellent efforts it will have done in the contingency planning
    area, it can then say even if we do have some system failures,
    don't worry, because we have some backup plans in place to make
    sure that providers are paid and services are still provided.
        Mrs. Morella. I see a role for public service
    announcements, maybe some other kind of simple mailer to people
    to just say we are working on it, we will be all right. We will
    have perhaps, at most, some inconveniences, but we want you to
    know that blah, blah, blah, because I'm hearing more and more
    from people, will my Social Security check be out there. We
    say, oh, yes, they started in 1989 and they're doing very well
    and then you get into the other areas.
        They also want to know what should they ask, you know,
    particularly in the medical field. I just think all of us,
    whether it's done through agency by agency, I think there
    should be a strategy for communicating with the public.
        Mr. Callahan. I do know, as I'm sure you're aware, that the
    FTC, for example, has omnibus Y2K consumer Website where----
        Mrs. Morella. Yes.
        Mr. Callahan [continuing]. If you as a consumer want to
    know about your microwave, or whatever it is you want to know
    about, you can get into that, and they will try to provide you
    the best answers as possible. As does SBA, for example, with
    small businesses.
        Mrs. Morella. They have their Website, I know. And the
    other day I was at an event for Red Cross. Red Cross has a
    wonderful little pamphlet for consumers, for constituents, what
    should you ask, what should you know, what is Y2K, done very
    simply, nothing complicated. But it gives a feeling that we
    know something about it and we will have a part to play and
    ultimately people are working on it, it will be OK.
        Thank you all very much. Thank you, Mr. Chairman.
        Mr. Horn. Thank you. Now I yield 5 minutes to questioning
    to the ranking member of the Government Management,
    Information, and Technology Subcommittee, Mr. Turner of Texas.
        Mr. Turner. Dr. Callahan, you mentioned that you're having
    to operate both computer systems for the payment management
    systems for the year 2000. The old system has been updated and
    you still got the new system you're bringing on line.
        Mr. Callahan. I might correct that. Let me--I don't want to
    interrupt, but that's not quite precise, but I will----
        Mr. Turner. Go ahead, if I misstated it.
        Mr. Callahan. Actually the reengineered payment management
    system, which is the one that we want to put in place of the
    existing system, is not operational. This was brought about as
    a business decision starting in 1994. A basic decision was made
    that we should have a new payment management system, and we
    will provide you a chronology of what's happened with regard to
    that system.
        [The information referred to follows:]

        [GRAPHIC] [TIFF OMITTED]60993.068

        Mr. Callahan. It was our intention--we had hoped that that
    new system would be fully in place by December 1998 and Y2K
    compliant. Obviously, it was built to be Y2K compliant. But it
    was scheduled to be in place and operational by December 1998
    and then we would be able to replace the current system.
        During the latter part of 1998, as we were looking at it,
    we understood that there may be slippages. So we then in
    November 1998 with our current system--that's the system that
    operates, it's ongoing today and it does all of these things
    that I mentioned earlier--we said we have to go back and look
    at its code and remediate its legacy code to be Y2K compliant.
        We did that in November; the code has been fully
    remediated, the code itself and the current operating system is
    Y2K compliant. But it has to go through further testing and
    certification through an independent contractor. At that time
    we also contracted with the Avistar Corp. and said, look, this
    is where we are, we've got to remediate it, we want to do two
    things. We want to be Y2K compliant as fast as possible, and
    then, second, we want to have for the future as a business case
    a better payment management system.
        They looked at where we were, both on the remediation of
    the legacy code system and this new reengineered payment
    management system, and gave us the report which basically says
    what you should do is, first of all, devote all of your current
    efforts between now, and they estimate June and they have a
    detailed timeline, et cetera, to make sure that the current
    system which you've remediated, the legacy code system, will be
    fully Y2K compliant.
        However, at the same time or after, as you finish that up,
    you should not forego developing a new reengineered system.
    They felt that the code that we had developed in that, not all
    were hardware, not all were conversions, et cetera, that it was
    a good business case to continue to proceed with. But they
    said, you can't do that at the same time you're doing all of
    this repair to the current system. But they said don't give up
    on the business case, but put it second.
        That's exactly what we intend to do, so that we will have a
    Y2K compliant system by June, the current system, and then
    hopefully, if everything works out right, we will have a second
    system that will be Y2K compliant. But, obviously, we would not
    move into that second system until, unless and until, it can be
    proven that there will be no disruption in service.
        And, again, we think the report that Avistar gave us was an
    excellent roadmap. It will be provided to GAO. It's candid. It
    says this is where you've been, and this is where you should
    go, and we intend to follow that as a roadmap and again we will
    provide it to the committee, and we will hold ourselves to the
    milestones that are provided in this independent report.
        Mr. Turner. I only raised it because it seems to me to be a
    very obvious example of how costly Y2K compliance has become,
    because you never would have tried to remediate the legacy
    system had we not been faced with Y2K.
        Mr. Callahan. Absolutely.
        Mr. Turner. It might be interesting if you could share with
    us, if you have an estimate, of how much Y2K is going to end up
    costing the Department of Health and Human Services.
        [The information referred to follows:]

        [GRAPHIC] [TIFF OMITTED]60993.069

        Mr. Callahan. I can get you all the detailed fiscal
    information for the record.
        Mr. Horn. We will put that in the record at this point.
        Mr. Callahan. Last year's emergency appropriation for Y2K
    was $3.2 billion, the Department request under that emergency
    supplemental $285.3 million. We have received those requests,
    and indeed we received another $93 million fairly recently
    which HCFA has requested for its second installment of
    emergency money.
        So at this point, we are approximately for 1999 around $372
    million, with obviously the lion's share of that being
    allocated to HCFA for its work on its internal and external
    systems. That is the top priority of the Department.
        Mr. Turner. One final question I want to ask Ms. DeParle. I
    know that you have made efforts to notify the providers, and
    you have sent out over 1 million letters to the providers. In
    fact, I don't know, Mr. Chairman, if we have that in the record
    or not.
        Mr. Horn. Two million.
        Mr. Turner. It might be nice to place that letter in the
    record.
        Mr. Horn. Without objection.
        Ms. DeParle. It also went out to every Member of Congress.
        [The information referred to follows:]
        [GRAPHIC] [TIFF OMITTED]60993.070

        [GRAPHIC] [TIFF OMITTED]60993.071

        Mr. Horn. Let me say, if I might, to my colleague, if you
    want a Member of Congress to read it, put on it ``personal and
    confidential'' and it will go in. Otherwise it is in the box of
    junk mail. I am one of the rare ones that reads all of that
    stuff every 2 weeks.
        Ms. DeParle. It came out in early January, so I was hoping
    maybe during the recess there would be a little more time to
    look at things. I was hoping some of you might use that
    information in your newsletters that I know you send to
    district folks.
        Mr. Turner. I see my time has expired. One subject I wanted
    to touch upon briefly, I wanted to get your assessment of the
    risk that we face in the biomedical equipment area. I know you
    have made some efforts to try to get the biomedical equipment
    manufacturers to notify all the providers regarding Y2K
    problems. But how do you personally assess that risk? That is
    one that greatly concerns me, particularly being from a rural
    area, where we have a lot of old equipment in rural hospitals.
    What is your assessment and what do you think you can still do
    to minimize that?
        Ms. DeParle. I have focused on the claims processing and
    payment systems. That is what the Health Care Financing
    Administration does. I think Dr. Callahan can give you a better
    answer on that.
        Mr. Callahan. The Federal Food and Drug Administration is
    the agency within the Department that has to take that task on
    you are so concerned about. I do know they have been requested
    by the full committee for a variety of questions and answers
    related to the biomedical situation that those will be
    forthcoming, I believe in the next day or so, and we would like
    to provide those to you for the record.
        Let me say in general, however, the FDA has moved
    aggressively, along with other partners in the government, the
    Veterans Administration and others, to put up on a Website the
    Y2K compliance aspects of biomedical devices.
        But in addition, what is also important, Congressman
    Turner, as you know, is that each hospital and health care
    provider that has biomedical equipment has to go in and do an
    inventory of that equipment. They have to know what equipment
    they have on hand.
        For example, the Indian Health Service, under the
    jurisdiction of the Department, has completed its total
    inventory, as I understand it, of all the biomedical equipment
    that they have in their hospitals. They are matching that
    information against the FDA Website and working, again, with an
    independent contractor to determine what of that biomedical
    equipment is not Y2K compliant, and then they are moving
    immediately to buy or replace that biomedical equipment.
        I just mention this, because this gets back to the point
    that Administrator DeParle mentioned. It is absolutely
    essential that the hospitals and the clinics and our community
    health centers, and again our Indian Health Service, for
    example, get out there and do this work themselves.
        We cannot, the Federal Government, cannot go in and do an
    inventory for them. They have to do it. Once they do it, we
    feel we will have sufficient information against which they can
    assess their biomedical situation.
        Second, they have to get with their vendors too. They have
    to say I have this biomedical equipment, get on the phone with
    the vendors and ask is this Y2K compliant. I would ask them to
    test it. So it is a big job, and we have a central role to play
    in it, but it is also important for the providers to do their
    work.
        Mr. Turner. Thank you.
        Mr. Horn. Now I yield 5 minutes to the vice chairman of the
    Subcommittee on Government Management, Information, and
    Technology, Mrs. Biggert of Illinois.
        Mrs. Biggert. Thank you, Mr. Chairman.
        Ms. DeParle, do you think that there is any concern on the
    part of providers that liability issues are impacting their
    progress, or either whether they are going to work harder to
    comply or whether just not to do anything, and that they might
    not have the same liability? Is this an issue? Are they
    concerned about liability because of failures of the programs?
        Ms. DeParle. Well, we have been mainly relying on outside
    assessments that have been done of provider readiness. There is
    a group called RX 2000 that we commissioned to do a study. The
    Inspector General at our Department has also done a targeted
    study of Medicare providers that I think she will be releasing
    shortly.
        I don't know if that issue has come to the forefront as
    much as I do have some anecdotal evidence that some providers
    have been concerned. As I mentioned to the chairman, it was an
    issue for me personally about our contractors when I first said
    I wanted the contractors to sign a contract amendment.
        There is a lot of concern, there has been a lot of concern
    about liability. I hear it from, for example, managed care
    plans that I have talked to, that they are concerned about--we
    have asked them to sign a contract amendment certifying they
    are going to be ready to pay managed care payments. Some of
    them are concerned about it.
        I think that the work that this committee and the Congress
    have done in trying to alleviate some of those concerns has
    helped, but I think it is still an issue out there.
        Mrs. Biggert. Thank you. I might ask Mr. Callahan too, as
    far as the payment management system, are there implications
    with the contractor departments. You do all this for all the
    different Federal agencies like the Department of Labor and
    NASA. Are there implications for them as well as if there are
    payments within your payment management system?
        Mr. Callahan. Again, a couple of points. We are very
    confident that, given the information I have mentioned to you
    earlier, we will be fully compliant with the legacy payment
    management system in June of this year. At the same time, we
    will also, as we have, we will provide you with the contingency
    plans that will ensure that all the grantees, whether they are
    in our own Department or out in the States or localities, will
    receive their money on time.
        There may be an issue, for example, on a contingency plan,
    as I mentioned to you earlier since the payment management
    system is just in time payment, if you will. It helps prevent a
    float. That is, we don't give money to the States that they
    don't spend that we could have earned interest on.
        But obviously, if we get to a point where we have to have
    some contingency plans and maybe deliver payments in less than
    just in time, we may have to suggest waiving some of the
    provisions of the Cash Management Act. But I think we will know
    exactly once the 2000 appropriations are passed exactly what
    all these agencies will need by way of grants, and we will make
    sure that they get those grants.
        Mrs. Biggert. Thank you. Mr. Willemssen, do you see this as
    a growing concern?
        Mr. Willemssen. Yes. It has been a growing concern. It is a
    concern that was attempted to be addressed with the Readiness
    Disclosure Act that was passed late last year. I think this
    spring there will have to be a reassessment of the success of
    that act, and if indeed it has allowed more disclosure of
    information. One thing we will be particularly looking at is
    Mr. Koskinen's early April report on the readiness of all the
    key sectors in our country. To the extent that we begin to see
    much more detailed rich data on the readiness of those sectors,
    I think that can be used as a measure of the success of that
    act. To the extent we do not see that, then I think there will
    need to be a reassessment of whether additional legislative
    action is necessary.
        Mrs. Biggert. Thank you. Thank you, Mr. Chairman.
        Mr. Horn. Thank you. I want to go to a very broad question,
    and I need to know who is the senior one in chronology in the
    Department. Mr. Secretary, when did you join HHS?
        Mr. Callahan. I joined in May 1995 and was confirmed in
    August 1995.
        Mr. Horn. Well, you are all innocent, but I am going to put
    the question anyhow. Social Security realized there was a real
    problem with the year 2000 back in 1989. When we were drafting
    Medicare, Social Security was the model which was used to draft
    Medicare. The Secretary was involved, the Commissioner of
    Social Security. Social Security in the sixties was regarded as
    the best managed agency in Washington, DC. I think it still has
    a lot of that reputation.
        But I am curious if maybe you just know anecdotally, when
    Social Security, which was then under HHS, started doing this,
    why wasn't there somebody in Medicare, and this is long before
    the current Administrator's tenure, but why didn't somebody say
    gee, we ought to do that too?
        Mr. Callahan. Well, I can't answer that question directly
    and fully, but let me offer one observation. Social Security
    and HCFA are really two different organizations, as you know.
        Mr. Horn. Right.
        Mr. Callahan. Social Security, to their credit, retains a
    large direct service delivery structure through their offices,
    they retain probably one of the best information technology
    work forces inside their agency. I had the pleasure of working
    with them. They are first rate people, and there is a critical
    mass of information technology people that enables them to get
    the good marks that you give them.
        HCFA, on the other hand, has to rely, as Administrator
    DeParle has said, on contractors to do a lot of their work.
    This was something that was established in legislation, and, as
    you know, we have had discussions about the relationship
    between HCFA and its contractors. So I would just say they were
    two different organizations.
        I would also offer the observation that Social Security had
    the structure and critical mass of people to succeed at a
    quicker rate on this, no matter when the decision was made,
    than possibly the Health Care Financing Administration, with no
    disrespect to the current Administrator or previous
    Administrators.
        Mr. Horn. Let me just try to focus in now, just to get in
    one place in the record the legacy payment management system.
    As I understand it, in November 1998 you said you would think
    the code was all remediated by that time, and I think you said
    they would be year 2000 compliant by June 1999.
        I guess I would ask the question of how much did the
    original system, which is still there until assured of the
    secondary system, reengineered though it might be to see that
    that is compliant, what are we talking about in dollars?
        Mr. Callahan. We have spent, it is my understanding, to
    remediate the code on the legacy-based system, that we have
    spent $850,000 on that remediation. We have now, on the basis
    of that, the Avistar report, which we are giving to the
    committee today, indicates with that code, that remediated code
    in place, they have given us the milestones and the particulars
    to go through the remaining processes to make sure it is
    certified and implemented, and they estimate that it will take
    until June for us to do that.
        Mr. Horn. So the total cost, how about the total cost of
    the payment management system?
        Mr. Callahan. The other system, the reengineered payment
    system that we want to eventually get to----
        Mr. Horn. Well, are you saying that the total cost of the
    original system that you are still working with, you are saying
    that is $850,000? It sounds a little low to me.
        Mr. Callahan. That system has been in operation for a long
    period of time.
        Mr. Horn. What, 10 years?
        Mr. Callahan. I am not exactly sure, but probably at least
    10 years, or at least a large number of years. So there has
    been no structural work on that other than it operates on a
    day-to-day basis. But when we get to the situation of having
    the concern that the reengineered payment management system
    would not make the Y2K deadline, we went back and looked at
    that legacy code and had it remediated, and that has been
    remediated. That cost us $850,000 to do that.
        Mr. Horn. OK. But that is not the original cost of the
    system.
        Mr. Callahan. No. The original cost of that system, I will
    have to get that information for the record.
        [The information referred to follows:]

        The PMS system was developed over a five year period from
    1979-1984 at a cost of approximately $8 million.
        The exact cost to have the factory remediate the legacy
    code was $594,323.

        Mr. Horn. If you could. What I am going to leave open is
    the questions we asked about this now and since you just gave
    us the document today, questions that we will send down to you
    and we will put without objection, the whole bunch at the end
    of the hearing. But we will have it in one place.
        So now that we have got the secondary system that you are
    going to move to when you can be assured that it is compliant,
    what is the estimated cost on that?
        Mr. Callahan. We will supply that for the record, but to
    date we have spent $6.7 million on that since 1994.
        [The information referred to follows:]

        The estimated cost to have the system deployable is $10
    million (in round numbers) and includes the $6.7 million
    already expended.

        Mr. Horn. Since 1994. That is the secondary system.
        Mr. Callahan. Yes.
        Mr. Horn. OK. Now, was your original payment management
    system approved by the appropriate authorization committee and
    appropriations subcommittee?
        Mr. Callahan. I will have to get that information for the
    record.
        [The information referred to follows:]

        PMS was not the ``original'' grants payment system in HHS.
    It was a third-generation system preceded by the Departmental
    Federal Assistance Financing System (DFAFS) and the NIH Grants
    Payment System (GPS). The GPS originated in the sixties and
    operated with funds appropriated for normal administrative
    activities. Therefore, there was no formal request of special
    appropriated funds for a ``new'' system. The funds for the PMS
    upgrade were included in our budget requests and were
    appropriated accordingly.

        Mr. Horn. I take it you billed your customers to try to
    cover the cost?
        Mr. Callahan. Yes.
        Mr. Horn. What kind of money are we talking about?
        Mr. Callahan. You mean our annual inflow?
        Mr. Horn. What is your annual revenue for serving people in
    the rest, the executive branch?
        Mr. Callahan. I will get that for the record, the actual
    dollar, but I will tell you the fees for this are extremely
    low, because in essence we provide not only the just in time
    service, but we reconcile the accounts so there is no Cash
    Management Improvement Act problems. That is, the agency
    doesn't have to pay interest to the States or vice versa.
        [The information referred to follows:]

        The total revenue for FY98 was $9,076,927.

        Mr. Horn. There is $170 million a year flowing through that
    system, is that correct?
        Mr. Callahan. $165, I think it is, or $170. I will get the
    precise amount.
        [The information referred to follows:]

        The precise number is $165,710,740,000 or 166 billion.

        Mr. Horn. OK. Have you kept those records? Is that part of
    your accounting system?
        Mr. Callahan. Yes.
        Mr. Horn. Now, how different is it or how similar is it to
    the Financial Management Service within the Department of the
    Treasury and the center in New Orleans of the Department of
    Agriculture that some other departments use?
        Mr. Callahan. Vis-a-vis the Treasury system, it has
    additional functionalities, the current system and the future
    system have functionalities like Cash Management Improvement
    Act capabilities that the Treasury system does not have. There
    are other agencies right now that, for example, the Department
    of Education has its own grant payment management system. The
    Council of Chief Financial Officers has in response to State
    officials who don't like all these different grant payment
    systems working, recommended that only two systems be used, the
    Treasury ASAP system and the HHS payment management system. So
    we have gone out and worked with each of the agencies. They
    will be making their choices over time.
        So at some point down the line, it appears that there will
    be only two payment management systems run by the Federal
    Government, the Treasury system and our system.
        Mr. Horn. Now, the Treasury system runs the Social Security
    checks, is that not correct?
        Mr. Callahan. Social Security----
        Mr. Horn. Financial Management Service.
        Mr. Callahan. Yes, that goes to the Financial Management
    Service. I am not sure that is ASAP, which is their grant
    payment system. I have to check on that.
        Mr. Horn. I am just curious. So each Cabinet Secretary has
    a right to make a choice as to where they will get the best
    service?
        Mr. Callahan. Yes.
        Mr. Horn. Is some of that related to the actual cost?
        Mr. Callahan. Yes.
        Mr. Horn. Are you the cheapest deal in town?
        Mr. Callahan. We think we are the best deal in town.
        Mr. Horn. I know you think you are the best. The most
    reasonable rate that you charge.
        Mr. Callahan. Right.
        Mr. Horn. Well, we are interested in that, just to make
    sure it is on line. We are interested in the compliant bit, and
    I think if you can all agree on what is the appropriate test,
    we will know in the next round if something really was
    remediated.
        Mr. Callahan. Yes, sir.
        Mr. Horn. Let me just make a few comments. We have had some
    very fine testimony this morning that has clarified a number of
    things for us. The fact is, millions of American citizens rely
    on Health and Human Services and your very critical services.
    We all know that Medicare is just one of the key things in this
    society. When you think back what this country would be like if
    we hadn't had Medicare established in 1965, you would realize
    that this is one of the major laws of the 20th century.
        We are going to continue to monitor the Department's
    progress to develop the new system on the legacy system, and we
    will maybe have a future hearing on all of those types of
    operations in the executive branch.
        However, I remain concerned about the Health Care Financing
    Administration's external mission critical systems that were
    recently reported as being 2000 compliant. I am assuming GAO
    and you will get agreement on this by the next round, because
    to me ``compliant'' means compliant, not compliant with
    qualifications.
        But I thank you both from the Department for your
    testimony, and I thank the General Accounting Office and all of
    your associates for your testimony. I think we are making
    progress as a result of the cooperation we have had within the
    executive branch and with GAO. I think this morning, however,
    we still have a lot to do, and that from some of the questions
    Mrs. Morella asked it is really a thing that both the
    legislative branch and executive branch have to do, which is
    get the word out to the people, so we don't have a lot of
    corner cutters and book writers that are trying to scare the
    living daylights out of the American public.
        This is a solvable problem. You have shown, even though you
    have come to this late, but you certainly turned a lot of that
    agency around in terms of getting the remediation underway, and
    we appreciate that. That good word needs to go out. The more TV
    shows, radio shows, Q and A you can answer, and I know that is
    tough, that is very important, because every little bit helps.
        If there are no further questions from any of my
    colleagues, with that, this hearing is adjourned.
        The staff list I will put in the record. Just for the
    record, J. Russell George, the staff director and chief
    counsel; Matt Ryan, to my left, senior policy director; Bonnie
    Heald, director of information; Mason Alinger, clerk; Paul
    Wicker, Kacey Baker and Richard Lukas, interns; Michelle Ash,
    minority counsel; Faith Weiss, minority professional staff
    member and counsel; Earley Green, minority staff ssistant; and
    then the court reporters, Doreen Dotzler, Cindy Sebo and Bob
    Cochran, who is faithfully writing down to the last second.
        Thank you, Bob.
        [Whereupon, at 11:10 a.m., the subcommittee was adjourned.]

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