HCFA Management: Agency Faces Multiple Challenges in Managing Its
Transition to the 21st Century (Testimony, 02/11/1999, GAO/T-HEHS-99-58).
The Health Care Financing Administration (HCFA) pays for health care
coverage for nearly a quarter of the population. Two programs that HCFA
administers -- Medicare and Medicaid -- cost taxpayers about $370
billion in fiscal year 1998. Over the years, GAO has reported on
problems in HCFA's management that have weakened the fiscal integrity of
HCFA programs, leading to increased monetary loss from fraud, abuse, and
erroneous payments. GAO has included Medicare on its list of government
programs that are especially vulnerable to waste, fraud, abuse, and
mismanagement. (See GAO/OCG-99-7, Jan. 1999.) Medicare's long-term
financial condition is now one of the nation's most pressing problems.
Recent legislation gave HCFA substantial new authorities and
responsibilities for reforming Medicare in order to extent the solvency
of Medicare's Hospital Insurance Trust Fund beyond 2008. The legislation
also established the Bipartisan Commission on the Future of Medicare to
develop more long-term solutions for further ensuring Medicare'
integrity and solvency. This testimony updates GAO's assessment of
HCFA's progress in implementing these new authorities and administering
its programs. Specifically, GAO reviews HCFA's progress in (1)
addressing its most immediate priorities and (2) strengthening its
internal management to effectively discharge its major implementation
and oversight responsibilities.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-HEHS-99-58
TITLE: HCFA Management: Agency Faces Multiple Challenges in
Managing Its Transition to the 21st Century
DATE: 02/11/1999
SUBJECT: Systems conversions
Health care programs
Health insurance
Internal controls
Human resources utilization
Strategic planning
Total quality management
Claims processing
Financial management
IDENTIFIER: Y2K
Medicare Hospital Insurance Trust Fund
Medicare Integrity Program
Children's Health Insurance Program
HCFA Medicare Transaction System
Medicare Program
Medicare Choice Program
National Medicare Education Program
Medicaid Program
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GAO/T-HEHS-99-58
Cover
================================================================ COVER
Before the Subcommittee on Health, Committee on Ways and Means, House
of Representatives
For Release on Delivery
Expected at 2:30 p.m.
Thursday, February 11, 1999
HCFA MANAGEMENT - AGENCY FACES
MULTIPLE CHALLENGES IN MANAGING
ITS TRANSITION TO THE 21ST CENTURY
Statement of William J. Scanlon, Director
Health Financing and Public Health Issues
Health, Education, and Human Services Division
GAO/T-HEHS-99-58
GAO/HEHS-99-58T
(101782)
Abbreviations
=============================================================== ABBREV
BBA - Balanced Budget Act of 1997
HCFA - Health Care Financing Administration
HHS - Department of Health and Human Services
HIPAA - Health Insurance Portability and Accountability Act of 1996
OIG - Office of Inspector General
PPS - prospective payment system
SNF - skilled nursing facility
Y2K - Year 2000 computer systems problem
HCFA MANAGEMENT: AGENCY FACES
MULTIPLE CHALLENGES IN MANAGING
ITS TRANSITION TO THE 21ST CENTURY
============================================================ Chapter 0
Mr. Chairman and Members of the Subcommittee:
We are pleased to be here today to discuss the Health Care Financing
Administration's (HCFA) ability to meet its new and growing
responsibilities. HCFA pays for health care coverage for nearly a
quarter of the population. Two of the programs HCFA administers cost
federal and state taxpayers about $370 billion in fiscal year
1998--$193 billion for Medicare and $177 billion for Medicaid--and
represent an ever growing proportion of the federal budget--currently
about 18 percent. Because of the size and complexity of its
programs, we have been reviewing HCFA's operations since the agency
was created more than 20 years ago. Over the years, we have reported
on problems in HCFA's management that weakened the fiscal integrity
of these programs--leading to increased monetary loss from fraud,
abuse, and erroneous payments. We have also reported on management
problems that have led to poor- quality care provided to vulnerable
beneficiaries. In 1990, we developed a list of agencies and programs
that were �high risk� because of their vulnerability to waste, fraud,
abuse, and mismanagement. We included Medicare on our original list,
and it remains on the list to this day.
The long-term financial condition of Medicare is now one of the
nation's most pressing problems. Recent legislation gave HCFA
substantial new authorities and responsibilities for reforming
Medicare in order to extend the solvency of Medicare's Hospital
Insurance Trust Fund beyond 2008. This legislation also established
the Bipartisan Commission on the Future of Medicare to develop more
long-term solutions for further ensuring Medicare's integrity and
solvency. Because of your concern about HCFA's preparedness to
implement these new authorities and administer its programs, you
asked us to review HCFA's management capacity and to testify before
this Subcommittee last January. You asked us to report today on our
updated assessment of HCFA's progress--focusing on the agency's
ability to meet its increasing workload in the short term.
Specifically, you asked us to review HCFA's progress in (1)
addressing its most immediate priorities and (2) strengthening its
internal management to effectively discharge its major implementation
and oversight responsibilities.
We relied on our substantial body of past and ongoing work to assess
HCFA's performance in meeting its current responsibilities.\1 We
supplemented this work by interviewing 28 agency managers and
officials, including the Administrator and Deputy Administrator. In
addition, we conducted small focus groups attended by 46 senior and
midlevel managers and 20 staff, and reviewed agency documents.
In summary, HCFA is facing an unprecedented set of challenges. The
Balanced Budget Act of 1997 (BBA) and the Health Insurance
Portability and Accountability Act of 1996 (HIPAA) were designed,
with considerable input from the administration, to strengthen HCFA's
ability to prevent fraud and abuse and constrain spending growth in
the Medicare program. These laws added substantial new authorities
and programmatic responsibilities to HCFA's ongoing management of
Medicare and Medicaid. In response to these mandates and program
responsibilities, HCFA's accomplishments have been impressive.
However, measured against the magnitude of challenges it faces,
HCFA's progress seems more modest. The immediacy and resource
demands associated with meeting the Year 2000 computer system
challenges--coupled with HCFA's late start in addressing them--have
put a tremendous burden on the agency this past year and have
affected the timing and quality of its work on many other projects.
For example, it has delayed needed systems modernization and computer
changes that implement new payment systems intended to slow program
cost growth. It has also slowed efforts to improve the oversight of
ongoing operations, such as financial management and Medicare
fee-for-service claims administration, which desperately need
attention. Even where HCFA has made progress--such as in
implementing a number of the mandated HIPAA and BBA requirements--we
believe that more work, and many refinements, are still needed.
HCFA must meet these challenges with an aging workforce. In fact,
almost one quarter of its staff--most with managerial and technical
experience--will be eligible to retire in the next 5 years. HCFA has
taken a number of steps internally to capitalize on its staff's
strengths to deal with a rapidly changing health care marketplace and
growing responsibilities. For example, HCFA has developed a
strategic plan that better articulates its future direction, has
progressed in its customer-focused reorganization by moving staff to
their new organizational units, and has hired more staff with needed
skills. On the other hand, in focus groups we conducted, HCFA
managers and staff discussed issues that continue to hamper effective
agency operations. For example, HCFA's reorganization slowed the
agency's decision-making process so that even travel funds were not
allocated until well into the middle of the fiscal year. Managers
also stated that the performance and awards systems neither motivate
staff nor hold staff accountable for achieving program results.
To further strengthen HCFA's ability to effectively manage its
employees and programs, the administration has proposed new
authorities for contracting and new flexibility in hiring in the
President's budget for fiscal year 2000. It also proposes new
mechanisms to enhance agency accountability, with biannual reports to
the Congress and an advisory board to help the agency streamline
internal and program management. HCFA senior officials have taken
concrete steps to improve agency management this year but will need
to maintain the momentum over the next several years to overcome the
agency's current and future challenges. This will be especially
difficult in an agency that for years has been plagued by external
pressures and management problems.
--------------------
\1 See Related GAO Products at the end of this statement.
BACKGROUND
---------------------------------------------------------- Chapter 0:1
HCFA, an agency within the Department of Health and Human Services
(HHS), is responsible for administering much of the federal
government's multibillion-dollar investment in health care--primarily
the Medicare and Medicaid programs. Rapid increases in Medicare
program costs, coupled with increasing concern about fraud and abuse
in the program, led the Congress to enact legislation--HIPAA and the
BBA--to strengthen Medicare. HIPAA established the Medicare
Integrity Program, which ensures increased funding for Medicare
program safeguard efforts and authorizes HCFA to hire specialized
antifraud contractors. The BBA made the most significant changes to
Medicare in decades, designed to reduce the growth of Medicare
spending. The law requires HCFA to implement new payment
methodologies, expand managed care options, and strengthen program
integrity activities. At the same time, these laws also added
entirely new responsibilities--such as oversight of private health
insurance and implementation of a new state children's health
insurance program--to HCFA's historic mission to administer Medicare
and Medicaid.
Medicare is the nation's largest health insurance program, covering
about 39 million elderly and disabled beneficiaries at a cost of more
than $193 billion. Most of these beneficiaries receive health care
on a fee-for-service basis, in which providers are reimbursed for
each covered service they deliver to beneficiaries. HCFA contracts
with about 60 insurance companies to process the high volume of
fee-for-service claims--numbering about 900 million in fiscal year
1997--submitted by about a million health care providers for payment.
Medicare's managed care program, the other principal component,
covers the growing number of beneficiaries who have chosen to enroll
in prepaid health plans, where a single monthly payment covers any
needed services. About 6.8 million people--about 17 percent of all
Medicare beneficiaries--were enrolled in more than 450 managed care
plans as of December 1, 1998.
Medicaid, a $177 billion federal and state grant-in-aid entitlement
program administered by states, finances health care for about 36
million low-income families and blind, disabled, and elderly people.
At the state level, Medicaid operates as a health insurance program
covering acute-care services for most recipients, financing long-term
medical care and social services for elderly and disabled people, and
funding programs for people with developmental disabilities and
mental illnesses. In addition, the BBA created the state-operated
Children's Health Insurance Program, which provides federal grants to
states to provide basic health insurance coverage for low-income,
uninsured children. Through this program, states have a choice of
either expanding their Medicaid programs or developing a separate
program to insure children.
Under HIPAA, HCFA also has a completely new responsibility for
ensuring that private health insurance plans comply with federal
standards. In five states that did not pass legislation conforming
to key provisions of HIPAA, HCFA has direct responsibility for
enforcing HIPAA standards for individual and group insurance plans.
In addition, HIPAA, along with the BBA, provides HCFA more
opportunities to improve its fraud and abuse identification and
prevention programs in Medicare.
HCFA had about 4,100 staff as of October 1998. About 65 percent were
located in the central office and the remainder worked in the
agency's 10 regional offices. In addition to its workforce, HCFA
oversees Medicare claims administration contractors who employed an
estimated 22,000 people in fiscal year 1997.
HCFA HAS MADE SOME PROGRESS
ADDRESSING ITS HIGHEST
PRIORITIES, BUT MANY PROBLEMS
REMAIN
---------------------------------------------------------- Chapter 0:2
Last year, we told you that substantial program growth and greater
responsibilities appeared to be outstripping HCFA's capacity to
manage its existing workload. Today, the message is a more
complicated one. HCFA has made great strides in addressing many of
its immediate priorities--including readying critical computer
systems for the year 2000 and implementing many provisions of HIPAA
and the BBA. But the number and complexity of the BBA's requirements
and the urgency of systems changes, coupled with a backlog of
decades-old problems associated with HCFA's routine operations, make
it clear that much more needs to be accomplished.
HCFA MADE A CONCERTED EFFORT
ON Y2K, BUT CRITICAL TASKS
ARE INCOMPLETE
-------------------------------------------------------- Chapter 0:2.1
Over the past year, HCFA has made a concerted effort to deal with its
most pressing priority--the Year 2000 computer systems
problem--commonly referred to as Y2K.\2 If uncorrected, Y2K problems
could cause computer systems that run HCFA's programs to shut down or
malfunction, resulting in serious disruptions to payments to Medicare
providers and services to Medicare beneficiaries. Addressing Y2K is
a formidable task for HCFA, because the Medicare program uses 6
standard claims processing systems, about 60 private contractors, and
financial institutions nationwide to process about 900 million
Medicare claims each year for about 1 million hospitals, physicians,
and medical equipment suppliers.
In September 1998, we reported that time was running out for HCFA to
modify Medicare systems to handle Y2K.\3 HCFA was severely behind
schedule in repairing and testing its systems and in developing
contingency plans to handle system failures. Until 1997, HCFA was
attempting to develop the Medicare Transaction System--which would be
Y2K compliant--to replace its existing Medicare claims processing
systems. But the project was halted because of design problems and
cost overruns. This left HCFA with multiple, noncompliant Medicare
claims processing systems that needed modernization. Compounding
this difficult task was HCFA's failure to adequately direct and
monitor its Y2K project. We recommended changes to better manage its
Y2K efforts, and HCFA agreed to implement our recommendations as soon
as possible.
HCFA recently reported to HHS that as of December 31, 1998, it had
completed renovating 5 of the 6 standard systems used by its
contractors to pay claims and all 25 of its mission-critical internal
systems. We are now monitoring HCFA's progress in implementing the
recommendations in our September 1998 report, and we are reviewing
the agency's progress in addressing the critical areas of Y2K testing
and business continuity and contingency planning. We will testify on
these issues to the Congress in the next few weeks. Furthermore,
although HCFA is not directly responsible for state Medicaid
enrollment and payment systems, agency officials said they are
concerned that some state systems may fail. To help prevent this,
the agency has begun to work with states on their Y2K problems.
HCFA's progress on the Y2K front is tempered by one unfortunate
reality: some of the systems HCFA is expending so much energy and
resources to modify to achieve Y2K compliance are obsolete and will
need to be replaced soon after the year 2000. Y2K presented an
immediate problem with an inflexible end point, which has forced HCFA
to shelve its efforts to consolidate its Medicare claims processing
systems and modernize other systems. After the termination of the
Medicare Transaction System, HCFA decided to consolidate the number
of systems that pay claims to reduce systems maintenance costs and
streamline efforts to implement required systems changes. But
systems consolidation could not go forward while HCFA and its
contractors were renovating and testing their systems for Y2K
readiness. As a result, it is spending millions to renovate certain
systems for Y2K readiness that it plans to stop using soon after
2000.
--------------------
\2 This problem stems from the use in many computer systems of a
two-digit dating system for indicating the year. With this
abbreviated format, the year 2000 is indistinguishable from 1900.
\3 Medicare Computer Systems: Year 2000 Challenges Put Benefits and
Services in Jeopardy (GAO/AIMD-98-284, Sept. 28, 1998).
HCFA HAS MADE SOME PROGRESS
BUT IS STILL STRUGGLING WITH
HIPAA AND BBA IMPLEMENTATION
-------------------------------------------------------- Chapter 0:2.2
HCFA has completed many major tasks this past year and has
implemented significant portions of HIPAA and the BBA, but progress
remains slow. For example, HCFA has taken steps to allocate HIPAA
funding and to implement authorities to combat waste and abuse in the
Medicare program. HIPAA provided additional funds for HCFA's
Medicare claims processing contractors to use to detect fraudulent
and abusive billing practices. The claims administration contractors
use these funds to hire and retain staff knowledgeable in conducting
provider audits, claims reviews, and payment data analyses, among
other activities. HCFA promptly issued the contractors' fiscal year
1999 budget allocations, unlike the situation in fiscal year 1998,
when HCFA did not provide this funding to the contractors until a
third of the year had passed.
As part of HIPAA, the Congress also gave HCFA the authority to
contract with specialists to perform payment safeguard activities.
HCFA is now reviewing the submissions it received in response to its
September 1998 solicitation for bids to become a program safeguard
contractor. Such a contract could be awarded by May 1999, but the
scope will be limited and will not provide many of the benefits
initially envisioned from using a specialty contractor.
As part of its work on BBA-mandated Medicare+Choice,\4 HCFA issued
interim final regulations for health maintenance organizations and
other types of managed care organizations (for example, preferred
provider organizations and provider-sponsored organizations) to
participate and took several steps toward implementing the new
National Medicare Education Program last year. The regulations,
published in June 1998, represented a massive undertaking
accomplished within a very short time period. In rushing to reach
the deadline, however, some of the provisions were developed without
full consideration of their impact on managed care organizations.
For example, the regulations required that managed care plans assess
the health status of all new Medicare members within 90 days of
enrollment, but this requirement would include existing plan members
for whom the plan may already have comprehensive information.
Similarly, the regulations require each managed care organization's
chief executive officer to certify that the encounter data provided
to HCFA are 100-percent accurate. To managed care plans, such a
standard seems unreasonable because these data are generated from
many sources not directly under their control, including contracting
physicians, hospitals, and other providers. In addition, managed
care plans are concerned that other requirements cannot realistically
be accomplished in the required time frames, may be duplicative of
existing accreditation and reporting requirements, and could create
disincentives to work on more difficult quality improvement projects.
HCFA has agreed to reconsider a number of items and is planning to
change the standard for data accuracy so that plans' chief executive
officers will certify to the best of their knowledge that the data
provided to HCFA are accurate.
For the new National Medicare Education Program, HCFA established an
eight-point plan for educating beneficiaries about their new managed
care options; implemented an Internet site for providing comparative
managed care plan information; and has begun phasing in its toll-free
call center and its mail-out of a revised Medicare handbook to
beneficiaries in five states, which foreshadowed the nationwide mail
campaign planned for this fall. The effort to produce Medicare
handbooks was more complicated than the agency originally expected.
Of the 15 comparative handbooks mailed to beneficiaries in different
geographic areas, 12 were inaccurate because HCFA published them
before managed care plans finalized their Medicare participation
decisions. The Congress' efforts to encourage the growth of Medicare
managed care could be thwarted if plans refuse to participate and if
beneficiaries are confused, instead of enlightened, about their many
health care choices.
HCFA officials acknowledge they were slow to realize that the
complexity and magnitude of the Y2K problem would stall
implementation of key BBA requirements. The BBA mandated the design
and implementation of new payment methods called prospective payment
systems (PPS), which pay providers--regardless of their costs--fixed,
predetermined amounts that vary according to patient need. To meet
BBA targets, HCFA has to design and implement four PPS systems:
-- a skilled nursing facility (SNF) PPS by July 1, 1998;
-- a home health agency PPS by October 1, 1999, which was delayed
by later legislation until October 1, 2000;
-- a hospital outpatient PPS by calendar year 1999; and
-- an inpatient rehabilitation PPS by fiscal year 2001.
The SNF PPS was implemented on July 1, 1998. However, to prevent
additional complications during system renovation and testing for
Y2K, the agency has missed deadlines to make systems changes needed
for beginning the hospital outpatient and home health agency
prospective payment systems. These delays could affect both
budgetary savings and Medicare beneficiaries themselves. The
Congressional Budget Office had estimated that new payment methods
for home health and outpatient services would save Medicare about $23
billion between fiscal years 1998 and 2002. In addition, the
hospital outpatient PPS would have reduced the amounts elderly
patients pay for such services. HHS estimated that between January
1999 and April 2000, senior citizens will have to pay an extra $570
million in higher copayments over what they would have paid if the
hospital outpatient PPS had been implemented on time. While many
Medicare beneficiaries have some sort of third-party coverage for
costs that Medicare does not cover--referred to as �Medigap�
policies--they are likely to be indirectly affected because premiums
for Medigap policies are increasing in line with rising Medicare
costs.
Although HCFA officials were tracking both BBA and Y2K
implementation, top agency officials did not inform the Congress
until July 1998 that the agency would be delayed in instituting the
new payment methods. HCFA officials attributed their late awareness
of this problem to communications breakdowns at three levels. First,
they believe operations and policy staff at headquarters responsible
for designing the program changes were not consulting with each other
and with others who were responsible for implementing them in the
field. Second, they stated that top agency officials did not
immediately find out what lower-level HCFA managers knew--how long it
would take to implement complex BBA changes and how that could
complicate Y2K testing of the systems. Finally, officials believe
that there was inadequate consultation with Medicare contractors
responsible for making the actual programming changes to their
systems.
While some parts of the BBA implementation were put on hold, HCFA
moved quickly to implement a new SNF PPS.\5 However, we believe that
the SNF PPS has design flaws, and coupled with a lack of adequate
planned oversight, this may diminish the anticipated reduction in
Medicare costs that prospective payment was supposed to create.
Savings depend on developing an appropriate daily payment (per diem)
rate to reflect patients' needs. The new daily payment rate is based
on the average daily cost of providing all Medicare-covered skilled
nursing services, adjusted to take into account the patient's
condition and expected care needs. We are concerned that the new SNF
PPS' design preserves the opportunity for providers to increase their
compensation by supplying potentially unnecessary services, since the
amounts paid still depend heavily on the number of therapy and other
services patients receive. Furthermore, HCFA has not planned
sufficient oversight to prevent fraud and abuse. For SNFs, a
facility's own assessment of its patients will determine whether a
patient is eligible for Medicare coverage and how much will be paid.
When Texas implemented a similar payment method for Medicaid, its
on-site reviewers found that nursing homes' assessments were often
inflated. Despite Texas' experience, HCFA does not currently have
plans to monitor facilities' assessments to ensure they are
appropriate and accurate. Nor has it ensured that the Medicare
contractors--who pay the facilities' claims--will have timely
information on patients to determine whether the rate to be paid is
appropriate.
The last major BBA implementation challenge we want to highlight is
the Children's Health Insurance Program--the largest health care
investment in children since Medicaid was created in 1965. Although
states are given broad flexibility in tailoring programs to meet
their own circumstances, HCFA is responsible for approving each
state's plan, providing technical assistance to the states, and
ensuring that programs meet statutory requirements designed to
guarantee meaningful health coverage. HCFA has initiated (1) a
comprehensive effort with the states, private companies, advocacy
organizations, the Health Resources and Services Administration, and
others to promote this initiative and (2) an outreach effort to find
those children who are eligible for health insurance under the
Children's Health Insurance Program or Medicaid but are not enrolled.
Since passage of the act, HCFA has approved 46 state plans, after
providing extensive guidance and interim instructions to states. We
are currently studying HCFA's and the states' efforts to implement
the Children's Health Insurance Program and will report on the
results later this year.
--------------------
\4 Medicare+Choice widens beneficiary and health plan participation
in Medicare managed care by (1) guaranteeing plans a minimum payment
level, intended to encourage plans to locate in areas they had
previously not served; (2) expanding the types of plans eligible to
contract with Medicare to include--in addition to health maintenance
organizations--preferred provider organizations and
provider-sponsored organizations; and (3) informing beneficiaries of
the plan choices in their area through a national information
campaign.
\5 The prior payment method reimbursed providers on the basis of
their costs, with capital costs and ancillary services virtually
unlimited. Because providing more services generally triggered
higher payments, facilities had no incentive to provide only
necessary services or to improve efficiency. Prospective payment is
intended to slow spending growth by paying providers fixed,
predetermined amounts that vary according to patient need, regardless
of providers' actual costs.
HCFA'S HANDLING OF ONGOING
RESPONSIBILITIES FOR
FINANCIAL MANAGEMENT AND
ROUTINE OVERSIGHT RAISES
SERIOUS CONCERNS
-------------------------------------------------------- Chapter 0:2.3
Over the last several years, HCFA has been lax in managing critical
ongoing program responsibilities, such as financial
management--particularly by Medicare claims administration
contractors--and oversight of nursing home compliance. For example,
our work on high-risk programs such as Medicare highlighted the need
for major federal financial management reforms, which the Congress
initially enacted in the 1990 Chief Financial Officers Act and later
expanded in the 1994 Government Management Reform Act. Under this
legislation, the 24 major departments and agencies such as HCFA must
now produce annual financial statements subject to independent audit,
beginning with those for fiscal year 1996.
Since 1996, in conjunction with its audit of HCFA's financial
statements, the HHS Office of Inspector General (OIG) has estimated
the error rate for improper payments made by Medicare claims
administration contractors. For fiscal year 1998, the OIG estimated
that about 7 percent of Medicare fee-for-service payments for
claims--$12.6 billion--did not comply with Medicare laws and
regulations. This represents an improvement over fiscal year 1997,
when the OIG estimated that Medicare contractors made $20.3 billion
in improper payments--about 11 percent of all claims. However, the
difference from 1997 to 1998 was almost entirely attributable to
better documentation provided to the auditors, rather than to a
substantive reduction in improper payments in categories such as
"lack of medical necessity," "incorrect coding," and "noncovered
services."
HCFA has made progress in strengthening its financial oversight.
Nevertheless, serious weaknesses remain for both Medicare and
Medicaid. Many of the financial weaknesses in Medicare relate to its
oversight of Medicare claims administration contractors, which
process over $700 million in Medicare fee-for-service claims each
working day. In its audit of HCFA's 1997 financial statements, HHS'
OIG found material weaknesses in managerial control over contractor
operations, and, as a result, HCFA may not be collecting millions of
dollars in overpayments from providers. The fiscal year 1997 audit
identified one contractor transitioning out of the program that
reported transferring $266 million in accounts receivable to other
contractors, but neither HCFA nor the auditors could determine
whether these receivables had been transferred onto the new
contractors' books. HCFA depends on contractors' financial reports
to provide information for its financial statement because HCFA lacks
an integrated accounting system that can capture financial
information at the contractor level. Moreover, the OIG found
indications that HCFA's central and regional office oversight of
operational and financial management controls was inadequate to
ensure that contractor-provided financial information was consistent
and accurate.
Similarly, the OIG found that security for contractor and HCFA
information systems was inadequate, imperiling the confidentiality of
Medicare beneficiary personal and medical data. While HCFA had
corrected some weaknesses found during the audit for fiscal year
1996, it was still possible for an unauthorized user to gain access
to HCFA's database and modify sensitive beneficiary files. HCFA has
recognized the need to protect the security of its information
systems and, starting in 1997, began revising security policy and
guidance, and implementing corrective action plans. Because of the
need to focus on Y2K modifications, however, HCFA probably will not
address many of these weaknesses in the near term.
Medicaid financial management also is in need of reform. The OIG's
1997 audit revealed that HCFA had limited information on the federal
portion of Medicaid accounts receivable and payable. In fiscal year
1997, HCFA relied on survey information from the states to estimate
the amounts to record in the financial statements, and because the
survey data were so limited, the OIG could not verify their accuracy.
In addition, the audit noted that HCFA regional offices were not
providing sufficient oversight of states' Medicaid claims processing
and reporting, including states' efforts to deter fraud and abuse and
collect overpayments.
HCFA's oversight of the quality of care Medicare and Medicaid
beneficiaries receive also needs improvement. HCFA is responsible
for defining requirements for certain providers, such as nursing
homes and home health agencies, to participate in the Medicare and
Medicaid programs and certify that their enforcement is adequate to
protect the health and safety of Medicare and Medicaid beneficiaries.
HCFA contracts with state agencies to review nursing homes and home
health agencies for their adherence to these federal requirements.
Our work has shown that HCFA's policies and oversight have been
insufficient to ensure quality of care for nursing home residents or
home health patients, and serious problems have resulted. One in
nine nursing homes in the country were cited in both of the last two
inspections for harming residents or putting residents' health and
safety in immediate jeopardy--but such homes often faced no federal
sanctions. In response, HCFA began taking actions to improve state
inspection practices, revise state oversight activities, and
strengthen enforcement for nursing homes. HCFA has also added
requirements that home health agencies demonstrate experience and
expertise in home care by serving a minimum number of patients before
initially certifying them as Medicare providers. However, these
steps may not go far enough to protect vulnerable beneficiaries. We
are now reviewing HCFA's oversight of state nursing home complaint
investigations and inspections and will report to the Congress on
these issues this year.
HCFA HAS MADE CHANGES TO
ENHANCE ITS MANAGEMENT
CAPACITY, BUT PROBLEMS PERSIST
---------------------------------------------------------- Chapter 0:3
Because its mission has been rapidly growing and changing, HCFA
officials have worked hard to strengthen the agency's management
capabilities. Despite these efforts, problems remain that hamper
effective agency operations. While HCFA has developed a new focus on
planning, including publishing a strategic plan, it does not require
units to develop detailed plans to carry out day-to-day operations.
The agency has completed its reorganization, but the resulting
structure has contributed to various communication and coordination
problems. Last year, HCFA lacked sufficient trained staff with the
skills to effectively implement its top priorities. It hired more
staff with needed skills in 1998, but it has not completed a
long-term strategic approach to meet its future human resource needs.
HCFA staff and managers are also concerned that its performance and
award systems are not well linked to accomplishing its mission and
that many managers are overburdened and lack managerial skills.
These types of problems are found in other agencies, but HCFA still
must be diligent in addressing them. The President's budget for
fiscal year 2000 proposes a reform initiative for HCFA that is
designed to increase its flexibility in the human resources area and
to increase the agency's accountability.
TACTICAL PLANNING IS LIMITED
-------------------------------------------------------- Chapter 0:3.1
In December 1998, HCFA published its strategic plan, which focused on
the organization as a whole and communicated the agency's vision,
mission, and broad approaches to realizing that vision. This plan
was developed to help HHS respond to requirements in the Government
Performance and Results Act of 1993. In its strategic plan, HCFA
clearly states that serving beneficiaries is its primary mission and,
in doing so, the agency must be a prudent purchaser of health care.
In addition to its overarching strategic plan, HCFA has also produced
draft strategic plans for such significant areas as information
technology and program integrity.
Strategic plans are an important first step; to be useful, however,
they must be implemented. Tactical plans, which identify specific,
measurable, desired outcomes; time frames; and assignments of
responsibilities for task completion, are critical. Last year, we
reported that HCFA was not planning its activities on a tactical
level. Although tactical planning has been used in some specific
instances during the past year, such as to help track implementation
of BBA requirements, HCFA has still not institutionalized this level
of planning in its day-to-day operations.
In our interviews and focus groups, a pervasive theme was the need to
work in a crisis mode, made worse by a lack of planning. For
example, a staff member stated that she was being pulled from one
�hot project� to another--which caused her to lose efficiency because
she barely managed to master one subject before she was tasked with
another. A manager told us that since the reorganization, little
planning has taken place in his division, making even simple tasks
harder. He said, as an example, that the divisions did not know how
much travel money was available until the middle of the fiscal year
and that routine trips had to be written up as emergencies to get
approval. We heard similar concerns from managers and staff working
on data systems and coverage policy.
REORGANIZATION HAS CREATED
COORDINATION PROBLEMS
-------------------------------------------------------- Chapter 0:3.2
HCFA's July 1997 reorganization established a totally new structure
designed to better focus the agency as a �beneficiary-centered
purchaser� of health care. The reorganization created new centers
that were intended to respond directly to HCFA's customers--the
Center for Beneficiary Services, the Center for Health Plans and
Providers, and the Center for Medicaid and State Operations--and to
provide additional resources to Medicare's growing managed care
program.
In our January 1998 testimony, we noted that the agency's staff had
not yet moved to the actual location of their new organizational
units, which tended to exacerbate problems with internal
communication and coordination. Almost a year after the
reorganization, between June and August 1998, HCFA completed the
physical relocations, placing staff within their new organizational
units. Relocation was a major undertaking because HCFA had made
dramatic shifts of groups and people. An estimated 80 percent of
HCFA central office staff, along with their computers, files, and
shared office equipment, were relocated during the move. Managers
told us that the physical move was implemented well, minimized work
disruptions, and enhanced HCFA's operational efficiencies.
The 1997 reorganization set out to eliminate HCFA's �stovepipes� by
placing policy and operations staff together in specific
customer-focused centers to enable them to work more closely
together. We found that HCFA is still in the process of learning how
to make its new organization work. Several managers said that they
believe the quality of decision-making will be enhanced because input
from many individuals and groups is required. But other managers and
staff reported substantial internal and external communication
problems as a result of the reorganization. For example, they said
that the organization's decision-making process has become slow and
cumbersome because it is more difficult to identify the key
decisionmakers and find meeting times that can fit their busy
schedules. We also were told that even identifying appropriate
points of contact is sometimes difficult because new organizational
titles are confusing. Finally, some managers and staff were
concerned that when accountability for issues was shared by more than
one center or office, tasks could �fall through the cracks� unless
responsibilities were more clearly defined. Agency officials
recognize that coordination is a problem and that there is sometimes
a lack of accountability for decision-making. In response, they
indicated that they are establishing teams on priority projects where
key participants are identified and accountability for project
completion is placed on one person.
HCFA's reorganization and emerging role as a health care purchaser
and beneficiary advocate have also led to changes in the way HCFA
communicates with those outside the agency. Some changes, such as
those brought on by the Medicare+Choice program and the availability
of Medicare and Medicaid information on the Internet, have increased
interaction with providers, provider groups, and beneficiaries,
according to several HCFA employees. Some staff we spoke with
expressed concern about this increased workload and their inability
to readily refer people to appropriate HCFA entities because the new
organizational lines of responsibility are still unclear. Also, we
found that although the Internet means that HCFA is �open 24 hours a
day� and can communicate differently through this new medium, neither
senior staff nor agency plans have fully addressed the impact of the
Internet on HCFA's workload and how managers might need to reallocate
responsibilities.
MAINTAINING EXPERIENCED AND
APPROPRIATE STAFF WILL
CONTINUE TO BE A LONG-TERM
NEED
-------------------------------------------------------- Chapter 0:3.3
Last year, we reported that HCFA lacked sufficient staff with needed
skills to effectively implement top-priority tasks. Today, managers
are somewhat less concerned about staffing shortages because, during
the year, HCFA hired more than 400 new employees--a net gain of more
than 250 after accounting for attrition. Of the new staff, a little
over one-half were hired as GS-7s through GS-12s and about one-third
were health insurance specialists. Senior agency officials told us
that the new staff, with skills in areas such as managed care,
private insurance, and market research, should help HCFA meet its new
and growing responsibilities.
We believe that HCFA's focus on attracting new employees needs to be
long term and continuous because it will continue to lose staff whose
expertise must be replaced or supplemented. Over the next 5 years,
almost a quarter of HCFA's staff--who make up a large part of the
agency's management and technical expertise--will be eligible to
retire. In addition, managers say HCFA will need staff with �real
world� expertise in private industry, including those who know how to
purchase care competitively. While HCFA has not fully assessed its
long-term human resource needs, senior officials told us that the
agency is taking initial steps toward developing a long-term plan for
investing in its human resources. HCFA currently has a draft human
resources plan that covers the years 1999 through 2003.
PERFORMANCE SYSTEM, AWARDS
PROGRAM, AND FLEXIBLE WORK
HOURS AFFECT AGENCY
PRODUCTIVITY
-------------------------------------------------------- Chapter 0:3.4
HCFA managers and staff discussed a variety of factors that hamper
agency operations and limit effective management. Although we
believe that HCFA is not unique in experiencing these problems,
mitigating them could improve agency performance. These include a
pass/fail performance rating system where virtually all staff pass,
an awards program that does not necessarily reward superior
performance, and flexible work schedules and locations that limit
staff availability. Participants in our focus groups believed that
HCFA's performance appraisal system for nonexecutive staff does not
allow managers to meaningfully assess and report on staff performance
because virtually everyone receives a passing grade. Staff believed
that the pass/fail system is demoralizing to hard workers because no
adverse action is taken for unsatisfactory performance. Similarly,
according to managers and staff, the performance appraisal system
does not give staff a sense of satisfaction when they perform well
because it fails to recognize outstanding efforts. Some cited the
prior performance system as preferable because exceptional performers
could benefit by receiving more rapid pay increases.
The Administrator found that the performance appraisal system for
executives was also not useful in holding managers accountable and
made changes this year to better differentiate senior managers'
performance. The executive appraisal system has changed to a system
with five levels of performance. Each executive manager has a
performance agreement that is linked to performance goals for his or
her set of responsibilities.
Many managers and staff members also told us that the current awards
program is not working. Although the program is intended to motivate
staff, the opinions we gathered suggest that it may have just the
opposite effect. Each unit establishes its own panel that makes
award decisions and controls award amounts. Panels consist of an
equal number of union-appointed and management-appointed
representatives. Each panel sets its own criteria for making awards
and determining the portion of its awards budget to give to managers
for "on-the-spot" awards, which are awarded directly to staff for
performance on specific projects throughout the year. Managers told
us that they would like to be able to distinguish among the
accomplishments of staff members and reward them accordingly, but
both managers and staff perceive the awards process as lacking equity
and integrity. Any staff member can nominate another for an award,
and we were told that staff members sometimes nominate themselves and
friends nominate each other. Managers also told us that sometimes
almost all nominees in a unit receive awards because panels find it
difficult to distinguish among nominees' performance. One manager
who served as a panel member said that during the last fiscal year,
about 250 employees were nominated for an award in his center--about
two-thirds of all that center's employees. He said that only five of
the nominees did not get an award. Last fiscal year, panels awarded
about $678,000 to about 2,200 employees in grades 1 through 15--an
average of about $300 per awardee. Managers also directly awarded
about $213,000 through on-the-spot awards that can range from $50 to
$250.
While staff were highly critical of the performance appraisal and
awards processes, they approved of the flexibility to set their own
work hours and work locations. HCFA's personnel rules provide for
flextime--in which employees may arrive at work at different times
each day within core periods or work longer hours in a day and earn
time off--and flexiplace--which allows employees to work at
alternative locations. Under these rules, however, staff who work in
the office only 4 days a week may be off when their managers need
them to be in the office. Managers also told us that more time can
be taken up with administrative matters as a result of more flexible
work arrangements. They said that managing staff is more
complicated, noting that planning the work, managing resources, and
scheduling meetings is difficult, for instance, when all of the staff
are only required to be in the office during a core period from
Tuesday through Thursday--3 days a week. Employees need special
approval to begin flexiplace, and a senior manager told us that they
are now only approving about half of such applications.
MANAGERS AND STAFF EXPRESS
CONCERNS ABOUT MANAGEMENT
CAPACITY AND TRAINING
-------------------------------------------------------- Chapter 0:3.5
Some managers and staff discussed their concerns about supervisors'
span of control and the lack of adequate training. They said that
they believe some managers are responsible for supervising too many
employees and do not have enough time to work with people who could
benefit from on-the-job training. They also stated that some
managers are not skilled at managing people, which they attribute
largely to HCFA's tradition of promoting staff with excellent
technical skills to the managerial level, and not rewarding them for
developing their staff. Some also cited the lack of training
provided to managers to improve their supervisory skills.
Many managers and staff agreed that HCFA does not provide enough
training opportunities to help them do their work. We were told that
new staff get little orientation to the agency's organization,
programs, goals, and mission. Focus group participants added that
limited training and travel funds prevented them from attending
seminars and receiving training. Each HCFA staff member received an
average of 8 hours of training last year. New staff, who generally
were hired within the last year, averaged even fewer hours.
HCFA's senior management has identified management and other training
as an area where HCFA must improve. The agency is developing a
�model management initiative,� which focuses on matching a manager's
competencies with the specific skills that a manager needs for a
given position. If approved by the Administrator, this model will be
tested in the Office of the Chief of Operations. Then, if the
initiative proves effective, it will be implemented in other parts of
HCFA. HCFA is identifying better approaches to providing technical
training and has doubled its training budget for next year--from
about $800,000 in fiscal year 1998 to about $1.6 million in 1999.
HCFA HAS NEW PROPOSALS TO
STRENGTHEN MANAGEMENT
-------------------------------------------------------- Chapter 0:3.6
To strengthen HCFA's ability to meet growing responsibilities, the
President's fiscal year 2000 budget proposes several reform
initiatives. The budget seeks more personnel and pay flexibility to
allow HCFA to recruit high-level staff with specific, needed skills,
such as physicians and executives with managed care plan operational
experience. Coupled with such flexibility, HCFA is seeking authority
to selectively offer buy-outs to some staff members. In addition,
HCFA is seeking new authority that would allow it to contract
competitively for its Medicare claims administration contractors. To
improve agency performance, HCFA is proposing to add an advisory
board of corporate executives and management experts for advice on
improving its business practices. Finally, HCFA wants to increase
its accountability to the Congress by providing biannual reports on
its progress.
CONCLUSIONS
---------------------------------------------------------- Chapter 0:4
As HCFA moves into the 21\st century, its challenges will continue to
become more numerous and complex. Once it has finished preparing for
Y2K, HCFA must face tasks it has had to put aside or has not fully
addressed. Several immediate challenges lie ahead. HCFA must finish
and then refine program changes to fully realize the benefits
expected from the BBA. It also needs to renovate antiquated, and
streamline redundant, computer systems. Furthermore, it needs to
strengthen its financial management and efforts to preserve program
integrity.
Added to these responsibilities will be potential additional
challenges associated with any restructuring of Medicare that follows
the deliberations of the Bipartisan Commission on the Future of
Medicare. Even if no major changes are introduced, HCFA's continuing
challenges are taxing--strong leadership and management will be
required to meet them. More effective planning, new staff with
needed skills, and better accountability could help HCFA address
these challenges and better ensure quality health care for the
elderly, poor, and disabled. A true measure of HCFA's success will
be its ability to maintain current momentum as it enters the 21\st
century.
-------------------------------------------------------- Chapter 0:4.1
Mr. Chairman, this concludes my statement. I will be happy to
answer any questions you or other Members of the Subcommittee may
have.
RELATED GAO PRODUCTS
Major Management Challenges and Program Risks: Department of Health
and Human Services (GAO/OCG-99-7, Jan. 1999).
High-Risk Series: An Update (GAO/HR-99-1, Jan. 1999).
Medicare Computer Systems: Year 2000 Challenges Put Benefits and
Services in Jeopardy (GAO/AIMD-98-284, Sept. 28, 1998).
California Nursing Homes: Care Problems Persist Despite Federal and
State Oversight (GAO/HEHS-98-202, July 27, 1998).
Balanced Budget Act: Implementation of Key Medicare Mandates Must
Evolve to Fulfill Congressional Objectives (GAO/T-HEHS-98-214, July
16, 1998).
Medicare: HCFA's Use of Anti-Fraud-and-Abuse Funding and Authorities
(GAO/HEHS-98-160, June 1, 1998).
Medicare Managed Care: Information Standards Would Help
Beneficiaries Make More Informed Health Plan Choices
(GAO/T-HEHS-98-162, May 6, 1998).
Financial Audit: 1997 Consolidated Financial Statements of the
United States Government (GAO/AIMD-98-127, Mar. 31, 1998).
Medicaid: Demographics of Nonenrolled Children Suggest State
Outreach Strategies (GAO/HEHS-98-93, Mar. 20, 1998).
Medicare: HCFA Faces Multiple Challenges to Prepare for the 21st
Century (GAO/T-HEHS-98-85, Jan. 29, 1998).
Medicare Home Health Agencies: Certification Process Ineffective in
Excluding Problem Agencies (GAO/HEHS-98-29, Dec. 16, 1997).
Medicare: Effective Implementation of New Legislation Is Key to
Reducing Fraud and Abuse (GAO/HEHS-98-59R, Dec. 3, 1997).
Medicare Home Health: Success of Balanced Budget Act Cost Controls
Depends on Effective and Timely Implementation (GAO/T-HEHS-98-41,
Oct. 29, 1997).
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