Medicare Transaction System: Serious Managerial and Technical Weaknesses
Threaten Modernization (Testimony, 05/16/97, GAO/T-AIMD-97-91).
GAO discussed the status and prognosis for success of the Health Care
Financing Administration's (HCFA) Medicare Transaction System (MTS),
focusing on HCFA's: (1) actions to date in its development of a system
that can handle Medicare claims processing into the next century; (2)
management of the interim claims-processing environment in which it must
operate until conversion to MTS or another system has been completed;
(3) managing the development of MTS as an investment; and (4) use of
sound systems development practices.
GAO noted that: (1) in an attempt to achieve some savings before MTS is
fully operational, HCFA is now undertaking several actions to prepare
for the interim operating environment while simultaneously continuing
its development of the final system; (2) one interim step involved
selecting one system from the initial 9 systems to process claims for
Medicare part A and another for part B; (3) a second planned step
entailed cutting the number of processing sites to about 20 nationwide;
(4) HCFA then planned to move data processing from these 20 consolidated
sites to 2 planned MTS processing sites in mid-1998; (5) during this
interim period, HCFA is also relying on its contractors to revise their
systems to accommodate year-2000 processing; (6) HCFA announced that
following a recent management review, it was redirecting its software
development contractor to focus solely on MTS' managed care module; (7)
while reaffirming its faith in MTS as the best information technology to
take Medicare into the next century, HCFA officials said that they will
use this time to examine alternative methods for achieving their MTS
goals; (8) HCFA has approached managing the environment in which it will
operate for the next 3 years without adequate planning; (9) at a
minimum, a schedule and estimate of resources required for transition to
the interim environment, details defining contractor responsibilities,
and an approach for tackling the potentially complex year-2000 issue are
needed to guide HCFA's activities; (10) in such a risky environment, it
is especially important that HCFA develop specific performance measures
against which the interim systems can be assessed; (11) GAO also sees
unnecessary risk in HCFA's reliance on its Medicare contractors to
address the year-2000 issue; (12) the timing of HCFA's transition
strategy makes the claims-processing contractors' task even more
challenging; (13) according to HCFA's estimate, MTS will not be fully
operational, at the earliest, for at least 3 years; (14) during that
period, hundreds of billions of dollars will have been spent on Medicare
claims; (15) HCFA's decision to establish two MTS claims-processing
sites and a data operations and analysis center was made with inadequate
analyses and consistent senior-level involvement in major decisions is
still lacking; (16) HCFA is not ensuring that sound systems-development
practices are followed; (17) HCFA has not developed plans critical to s*
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-AIMD-97-91
TITLE: Medicare Transaction System: Serious Managerial and
Technical Weaknesses Threaten Modernization
DATE: 05/16/97
SUBJECT: Claims processing
Systems conversions
Systems design
Cost effectiveness analysis
Concurrency
Information resources management
Strategic information systems planning
Medical information systems
Health care programs
Requirements definition
IDENTIFIER: HCFA Medicare Transaction System
Medicare Program
**************************************************************************
* This file contains an ASCII representation of the text of a GAO *
* report. Delineations within the text indicating chapter titles, *
* headings, and bullets are preserved. Major divisions and subdivisions *
* of the text, such as Chapters, Sections, and Appendixes, are *
* identified by double and single lines. The numbers on the right end *
* of these lines indicate the position of each of the subsections in the *
* document outline. These numbers do NOT correspond with the page *
* numbers of the printed product. *
* *
* No attempt has been made to display graphic images, although figure *
* captions are reproduced. Tables are included, but may not resemble *
* those in the printed version. *
* *
* A printed copy of this report may be obtained from the GAO Document *
* Distribution Facility by calling (202) 512-6000, by faxing your *
* request to (301) 258-4066, or by writing to P.O. Box 6015, *
* Gaithersburg, MD 20884-6015. We are unable to accept electronic orders *
* for printed documents at this time. *
**************************************************************************
Cover
================================================================ COVER
Before the Subcommittees on Human Resources and on Government
Management, Information and Technology, Committee on Government
Reform and Oversight,
House of Representatives
For Release on Delivery
Expected at
11:30 a.m.
Friday,
May 16, 1997
MEDICARE TRANSACTION SYSTEM -
SERIOUS MANAGERIAL AND TECHNICAL
WEAKNESSES THREATEN MODERNIZATION
Statement of Joel C. Willemssen
Director, Information Resources Management
Accounting and Information Management Division
GAO/T-AIMD-97-91
GAO/AIMD-97-91T
(511220)
Abbreviations
=============================================================== ABBREV
HCFA - Health Care Financing Administration
HHS - Department of Health and Human Services
MTS - Medicare Transaction System
OMB - Office of Management and Budget
============================================================ Chapter 0
Messrs. Chairmen and Members of the Subcommittees:
We are pleased to join you today in examining the status and
prognosis for success of the Health Care Financing Administration's
(HCFA) Medicare Transaction System (MTS), being designed to bring
Medicare claims processing into the next century. Developing this
system is not an easy task. Attempting to replace nine separate
automated information systems with a single, unified system is
clearly a very complex endeavor.
The goals of MTS include improved customer service; reduced operating
expenses; more effective control over claims processing; better
oversight of contractors; substantial administrative savings; better
protection of program funds against waste, fraud, and abuse; and the
ability to accommodate managed care and other alternative payment
methodologies. One specific, basic improvement that MTS is expected
to provide over the current environment is the need to modify only
one system when changes, such as those following enactment of
legislation, affect Medicare payments. At present, each system must
be individually changed--an expensive, time-consuming process.
Both we and the Congress have had long-standing concerns about the
development of MTS.\1 Today, we are issuing a report that discusses
our analysis of HCFA's progress in managing the development of this
system.\2 Eighteen months ago we similarly testified on early
symptoms of unnecessary risk to this project, and in 1994 we reported
on its benefits and acquisition risks.\3 The fact remains that
despite much hard work and some progress, critical weaknesses--both
managerial and technical--continue to exist. These weaknesses call
into serious question whether MTS, without significant change, will
be able to perform as required. Further, as we will illustrate,
costs have been escalating sharply; even if performance is as
expected, we would have to ask: Is it worth the estimated $1 billion
price? Could similar system functions be acquired at significantly
lower cost? We believe that more can and must be done if HCFA is to
obtain the type of system it needs. Our report includes 20 major
recommendations to help HCFA enhance the likelihood of acquiring the
kind of system it must have in a cost-effective manner.
My statement today will discuss the actions HCFA has taken to date,
and where these steps leave the agency in its development of a system
that can handle Medicare claims processing into the next century. I
will then cover the three related major areas that we believe need
the most attention. The first area involves HCFA's management of the
interim claims-processing environment in which it must operate until
conversion to MTS or another system has been completed; this includes
addressing adaptations required by the century change that is only
959 days away.\4 The second area of concern relates to managing the
development of MTS as an investment. This means using cost-benefit
analyses and other tools to continually track and assess whether
funds spent on MTS will contribute to a return on this investment, as
measured not only monetarily but against the system's own goals as
well. Finally, sound systems-development practices are critical in
order to reduce risk and help ensure quality, timeliness, and cost
containment. We continue to see major gaps in HCFA's application of
sound systems-development practices--practices that are essential to
assisting management in controlling the development of systems
requirements and software.
--------------------
\1 A list of reports and testimony related to MTS appears at the end
of this statement.
\2 Medicare Transaction System: Success Depends Upon Correcting
Critical Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 16,
1997).
\3 Medicare Transaction System: Strengthened Management and Sound
Development Approach Critical to Success (GAO/T-AIMD-96-12, Nov. 16,
1995) and Medicare: New Claims Processing System Benefits and
Acquisition Risks (GAO/HEHS/AIMD-94-79, Jan. 25, 1994).
\4 In brief, this entails expanding the date field or rewriting
program code to differentiate between 1900 and 2000; many systems
today use only two digits for the year, such that "00" could be read
as either 1900 or 2000. For an explanation of the expected impact of
the year-2000 change on computer systems, see Year 2000 Computing
Crisis: Strong Leadership Today Needed To Prevent Future Disruption
of Government Services (GAO/T-AIMD-97-51, Feb. 24, 1997).
THE MEDICARE TRANSACTION SYSTEM
---------------------------------------------------------- Chapter 0:1
Medicare is an enormous program, and it will only get bigger. As the
nation's largest health insurer, it serves some 38 million Americans
by providing health insurance to those aged 65 and over and to many
of the nation's disabled. It now disburses over $200 billion in
health care benefits every year. With an aging population and a
rapidly expanding workload, this figure is expected to reach $288
billion by 2000, at which time the Medicare program expects to be
processing one billion claims annually.
The Medicare program is divided into to areas--part A and part B.
Part A encompasses in-patient services, with claims paid to
hospitals, skilled nursing facilities, hospices, home health
agencies, and rehabilitation centers. Part B comprises outpatient
services, with claims paid to physicians, laboratories, equipment
suppliers, and other outpatient providers and practitioners.
Claims processing for the Medicare program is handled at some 45
sites throughout the country by about 70 private companies under
contract with HCFA. Contractors handling part A services, called
intermediaries,\5 have been using three different computer systems to
process claims; those handling part B, called carriers, use six
different systems.\6
In order to handle the anticipated increases in volume and improve
the efficiency and effectiveness of Medicare operations, HCFA is
developing one unified computer system to replace today's operating
environment. In January 1994, HCFA awarded a contract to a software
developer to design, develop, and implement a new, government-owned,
automated claims-processing information system, to be called the
Medicare Transaction System, or MTS.
--------------------
\5 Intermediaries also process some part B claims.
\6 One of the three part A systems was recently converted, leaving a
total of eight--two part A systems and six part B.
HCFA ACTIONS TO DATE
---------------------------------------------------------- Chapter 0:2
As part of my presentation today, I would like to discuss three
charts that should help illustrate our major points. Copies of these
charts appear at the end of my statement. In an attempt to achieve
some savings before MTS is fully operational, HCFA is now undertaking
several actions to prepare for the interim operating environment,
while simultaneously continuing its development of the final system.
As our first chart indicates, one interim step involved selecting one
system from the initial nine systems to process claims for Medicare
part A, and another for part B. The part A and part B systems have
been selected and conversion has begun. A second, planned step
entailed cutting the number of processing sites by over half, to
about 20 nationwide. HCFA then planned to move data processing from
these 20 consolidated sites to two planned MTS processing sites in
mid-1998. During this interim period, HCFA is also relying on its
contractors to revise their systems to accommodate year-2000
processing. Throughout this process HCFA's software development
contractor was to be conducting activities to develop the MTS
software.
These software development plans are now, however, on hold for 90
days. On April 4, 1997, HCFA announced that following a recent
management review, it was redirecting its software development
contractor to focus solely on the managed care module of MTS--the
first of six planned releases. While reaffirming its faith in MTS as
the best information technology to take Medicare into the next
century, HCFA officials said that they will use this time to examine
alternative methods for achieving their MTS goals.
INTERIM ENVIRONMENT AND YEAR
2000 PRESENT SERIOUS CHALLENGES
---------------------------------------------------------- Chapter 0:3
The first main problem area involves HCFA's interim operating
environment--before MTS--and the challenges of the coming change of
century. HCFA has approached managing the environment in which it
will operate for the next 3 years without adequate planning. To
successfully handle the claims workload, consolidate existing
processing sites, address year 2000-related issues, and convert from
the original nine systems to two, careful and detailed planning is
necessary. This has not been done. While HCFA is already beginning
to convert its systems and consolidate its sites, few plans exist to
guide these activities. What sorts of plans are needed? At minimum,
a schedule and estimate of resources required for transition to the
interim environment, details defining contractor responsibilities,
and an approach for tackling the potentially complex year-2000 issue.
To simultaneously convert systems for the interim environment while
at the same time managing ongoing development of MTS is risky enough;
this risk is further magnified by HCFA's lack of experience in
undertaking such a complex project. In such an environment, we
believe it is especially important that HCFA develop specific
performance measures against which the interim systems can be
assessed. Performance measures could show that the "interim" systems
may be all that is needed, or could be used to help management make
refinements to its modernization effort as it unfolds.
We also see unnecessary risk in HCFA's reliance on its Medicare
contractors to address the year-2000 issue. Information systems
worldwide--including those that process Medicare claims--could
malfunction or produce incorrect data simply because they have not
been designed to handle dates beyond 1999. Failure to adjust systems
for 2000 and beyond could cause payment delays, as well as losses due
to bypassed system controls that flag claims that should be paid by a
beneficiary's other insurer. Since "00" could be read as 1900
instead of 2000, all date-dependent calculations would be affected;
this would have an obvious impact on the computed age of a
beneficiary and, therefore, on his or her eligibility. For example,
an individual born in 1920 might have been receiving benefits since
turning 65 in 1985. Such benefits could, however, cease in 2000 if
the computer system, reading 2000 as 1900, saw the individual as
negative 20 years old--not even born yet.
The timing of HCFA's transition strategy makes the claims-processing
contractors' task--assessing, planning, and implementing whatever
changes are necessary--even more of a challenge. For example, the
contractor for the single system selected to process part B claims
will have to handle the conversion of the five other, existing part B
systems--while modifying the chosen system to be year-2000 compliant.
Yet HCFA officials have not closely monitored these critical
activities, or demanded certification from contractors that their
systems will be made year 2000-compliant. A further complication is
that these contractors may not have much incentive to make these
adaptations properly because HCFA intends to eliminate them once MTS
has been fully implemented. Officials are "surveying" contractors on
the year-2000 issue, however, and have requested estimates of when
the systems will be made compliant.
To help HCFA effectively manage its interim Medicare processing
environment, our report recommends that the Secretary of the
Department of Health and Human Services (HHS) direct that the HCFA
Administrator
prepare plans that detail the steps involved in making the
transition to the single part A and part B systems, define how
systems will be converted to address potential year-2000
problems, and delineate the steps necessary for thorough systems
testing before conversion;
establish a means of assessing performance in the critical early
stages of the transition, and apply any lessons learned to
planning for MTS; and
help ensure reliable operation of systems through the year 2000 by
identifying management and oversight responsibilities, assessing
the timing and likely severity of impact if adaptations are not
adequate, developing contingency plans, and reporting progress
regularly to HHS.
MTS IS NOT BEING MANAGED AS AN
INVESTMENT
---------------------------------------------------------- Chapter 0:4
Our second major area of concern involves investment management. One
cannot make informed technology investment decisions without a valid
cost-benefit analysis, knowledge of available alternatives, and an
evaluation of how proposed technology benefits will contribute to
improved mission performance. Carrying out these assessments is more
than simply a best practice; it is required by law. As you know,
last year's Clinger-Cohen Act seeks to maximize the return on
investments in information systems by instituting sound capital
investment decision-making.
Under Clinger-Cohen, agencies must design and implement a process for
maximizing the value and assessing and managing the risks of
information technology acquisitions. Further, this process is to be
integrated with the processes for making budgetary, financial, and
program management decisions, and include criteria to be applied in
considering whether to undertake a particular information systems
investment.
Specifically, the process should provide for (1) identifying
information systems investments that would result in shared benefits
or reduced costs for other government agencies, (2) identifying
quantifiable measurements of benefits and risks of proposed
investments, and (3) the means for senior management to obtain
information on the progress of information systems investments. None
of this has yet been done effectively for MTS.
HCFA's estimates of MTS benefits are based primarily on unsupported
assumptions. For example, officials said that much of the
anticipated programmatic savings would result from automated edits to
identify unnecessary medical services and abusive billing that could
result in excessive payments. They acknowledge, however, that since
they have not yet identified the edits to be included in MTS,
resulting savings could differ substantially from the estimates.
Another incorrect assumption is that without MTS, costs per claim
would continually increase between 1993 and 2002. Yet actual
contractor cost reports for 1994 through 1996 show a drop of about 10
percent.
Our second chart illustrates the escalation of MTS costs; the figure
on the left is an estimate, using HCFA data, of total program costs
through complete implementation, while the one on the right is
software-development contract costs only. I want to make clear that
the dates on these figures refer to when the estimates were made.
Both figures do show recent steep increases. In total, estimated MTS
costs have jumped 7-fold in 5 years, from $151 million in 1992 to
about $1 billion today. I should point out that the $1 billion
figure includes costs for the transition to the interim environment
and to acquire MTS operating sites. Many aspects of the overall
development effort remain vague; for example, requirements still have
not been defined. Absent this, estimates of total
software-development costs are, of necessity, extremely rough at
best.
There are alternatives to spending of this magnitude, and we
believe--especially given the recent escalation of costs--that HCFA
has a responsibility to explore them. Two years ago we urged HCFA to
investigate commercial, off-the-shelf software to help detect billing
anomalies; we understand that this research is continuing. We
believe that combined with administrative savings accruing from the
consolidation of systems, commercial software could allow HCFA to
realize substantial savings now. According to HCFA's estimate, MTS
will not be fully operational, at the earliest, for at least 3 years.
During that period, hundreds of billions of dollars will have been
spent on Medicare claims.
As part of the complete MTS system, HCFA plans to establish two MTS
claims-processing sites and a data operations and analysis center.
This decision was made with inadequate analysis in terms of decision
criteria, alternatives analysis, and technical risk analysis. The
decision to have two processing sites was made on the basis of
data-storage and disaster-recovery considerations only. Given the
importance of these steps, our report recommends that the Secretary
of HHS withhold funding for the MTS operating site contracts until an
approach has been selected that is based on these crucial analyses.
Managing a project as an investment also requires strong managerial
oversight; this has not been the case with MTS. Consistent
senior-level involvement in major decisions is still lacking. Many
of the critical MTS investment decisions have been made without the
involvement of HCFA's executive decision-making body, the MTS
management board. HCFA is, however, making positive changes; it has
designated a chief information officer and has established an
investment review board.
To help HCFA minimize unnecessary spending while developing and
implementing MTS, our report recommends that the Secretary of HHS
direct that the HCFA Administrator justify continuation of MTS with
valid cost-benefit and alternatives analyses that include goals for
reaching programmatic savings and that link estimated savings to
specific Medicare claims-processing improvements--and take
appropriate action on the basis of these analyses.
Our report also recommends that the Secretary of HHS assist HCFA by
providing oversight in accordance with legislative provisions in the
Clinger-Cohen, Paperwork Reduction, and Federal Acquisition and
Streamlining Acts. This should include monitoring by HHS' chief
information officer. The report further recommends that in
accordance with Clinger-Cohen, the Office of Management and Budget
(OMB) utilize its enforcement authority to ensure HCFA's compliance
with the act, including the cost-justification provision.
NOT FOLLOWING SOUND
SYSTEMS-DEVELOPMENT PRACTICES
THREATENS QUALITY, TIMELINESS,
AND COST CONTAINMENT
---------------------------------------------------------- Chapter 0:5
The third major problem we see is that HCFA is not ensuring that
sound systems-development practices are followed. Because of this,
the agency has decreased the chances of controlling the development
of systems requirements and software. HCFA has not developed plans
critical to systems success, has not managed its schedule well, and
has not adequately monitored its contractor's software-development
strategy. Further, because of faulty assumptions on the part of the
contractor, estimates of software-development costs are not reliable.
Consequently, the risk that such estimates could rise before the
project is completed is very real. Finally, HCFA has not implemented
a concerted program to minimize risk.
Attention to these steps is common to organizations that succeed in
acquiring well-performing automated information systems. Not
managing in this way significantly increases the threat to overall
system quality, timely completion, and reasonable cost expenditures.
Our final chart today shows what can happen when such guidelines are
not followed. This illustrates how the number of systems
requirements changed over time for the first five contract releases
of MTS. The lack of symmetry illustrates the enormous volatility in
how many and what types of systems requirements are seen as necessary
as development progresses--and this after several years of attempting
to define what the system will actually do.
Deficiencies in several critical systems-development processes
provide early warning of weaknesses in the management capability of
HCFA itself and of its contractors. These factors all increase risk.
Critical risks that remain unmitigated include (1) missing or
inadequate plans for three important components of systems
development--requirements management, configuration management, and
systems integration, (2) the compression of MTS' development
schedule, and (3) the lack of valuable metrics, which are measures of
software quality and performance. Taken together, the number and
significance of these unmitigated risks, along with several others,
raises the question of whether MTS can become the management tool
that HCFA expects.
An aspect of the MTS schedule that we see as troubling is that
individual systems-development phases now overlap to a dangerous
degree. Systems are typically constructed in five phases: analysis,
design, development, testing and validation, and implementation.
When, for example, testing and validation begins before development
has been completed, or implementation begins before the end of
testing, the resulting overlap can clearly cause problems. These
steps were meant to be predominantly sequential because each phase's
success depends, in part, upon adequate progress in the previous
phase. If a contractor advances too far into a succeeding
systems-development phase before sufficient progress has been made in
the previous phases, the risk of technical problems increases
significantly. The current HCFA schedule for MTS shows concurrency
in all five phases between September 1997 and September 1998, and
overlap is also present in the schedules for each planned release,
such as managed care.
To help ensure the success of MTS, our report recommends that the
Secretary of HHS require that the HCFA Administrator, before
proceeding further with MTS development, direct and remain
accountable for
completing and implementing plans that are critical to effective
systems development;
requiring an independent evaluation of the MTS contractor's
software- development capability prior to beginning that phase;
completing a new and integrated MTS program schedule for the entire
initiative, including the interim, and resources and costs for
each task; it should also minimize overlap in the
systems-development phases; and
mitigating critical risks by designating an official accountable
for risk management, and ensuring that this individual
implements a process that will, among other elements, identify
and quantify significant risks, establish time frames for
assessing status and for mitigation, and develop measures for
assessing mitigation effectiveness.
Finally, we believe that closer oversight by both HHS and OMB is
necessary to ensure that MTS or any alternative system is developed
along the lines that we are recommending. In particular, we see HHS
as a critical player in assisting HCFA and in monitoring its actions.
For its part, OMB is authorized under Clinger-Cohen\7 to take
enforcement actions to ensure that HCFA complies with the law's
provisions, including the mandate to justify major information
technology projects with sound, investment-based analyses.
In summary, HCFA is proceeding with a project that has serious
managerial and technical weaknesses. In order to bring Medicare
claims processing into the next century with confidence, we believe
that HCFA must manage as an investment any information technology it
seeks to acquire. This means performing the analyses necessary to
predict the kind of return the investment is likely to provide,
short-term and long-term--in a fiscal as well as technical sense.
HCFA then has an obligation to manage such a challenge through the
use of sound systems-development practices.
We are encouraged that in commenting on a draft of the report being
released today, both HHS and OMB have recognized the problems we have
identified and agreed with all of our recommendations for addressing
them. However, these recommendations must be effectively implemented
in order for a project such as MTS to be successful.
--------------------
\7 Section 5113 (b)(5).
-------------------------------------------------------- Chapter 0:5.1
This concludes my statement. I would be happy to respond to any
questions you or other Members of the Subcommittees may have at this
time.
RELATED GAO PRODUCTS
=========================================================== Appendix I
Medicare Transaction System: Success Depends Upon Correcting
Critical Managerial and Technical Weaknesses (GAO/AIMD-97-78, May 16,
1997).
Year 2000 Computing Crisis: Strong Leadership Today Needed To
Prevent Future Disruption of Government Services (GAO/T-AIMD-97-51,
Feb. 24, 1997).
Medicare: Millions Can be Saved by Screening Claims for Overused
Services (GAO/HEHS-96-49, Jan. 30, 1996).
Medicare Transaction System: Strengthened Management and Sound
Development Approach Critical to Success (GAO/T-AIMD-96-12, Nov. 16,
1995).
Medicare: Antifraud Technology Offers Significant Opportunity To
Reduce Health Care Fraud (GAO/AIMD-95-77, Aug. 11, 1995).
Medicare Claims: Commercial Technology Could Save Billions Lost to
Billing Abuse (GAO/AIMD-95-135, May 5, 1995).
Medicare: New Claims Processing System Benefits and Acquisition
Risks (GAO/HEHS/AIMD-94-79, Jan. 25, 1994).
HCFA STRATEGY FOR TRANSITION TO
MTS
========================================================== Appendix II
(See figure in printed
edition.)
MEDICARE TRANSACTION SYSTEM:
ESCALATING COSTS
========================================================= Appendix III
(See figure in printed
edition.)
VOLATILITY OF MTS REQUIREMENTS
========================================================== Appendix IV
(See figure in printed
edition.)
*** End of document. ***