57

information technology investment decisions.* Developed in cooperation with
GAO, this guidance calls for agencies to implement management practices to select,
control, and evaluate information technology investments throughout their life

cycles,

MTS DISPLAYS EARLY SYMPTOMS OF UNNECESSARY RISK

HCFA has not yet instituted a set of well-defined investment control processes to
measure the quality of development efforts and monitor progress and problems.
This situation has contributed to a series of problems related to requirements-
definition, schedule, and costs; these problems raise concerns that MTS may suffer
the same fate as many other complex systems--extensive delays, large cost

increases, and the inability to achieve potential benefits.

First, HCFA has not sufficiently followed sound practices in defining MTS project

requirements. As a result, HCFA has twice redirected the approach and, 2 years

ting Information Technology Investments: _A Pra ide, version 1.0,
Office of Management and Budget (Office of Information and Regulatory Affairs,
Information Policy and Technology Branch), Document 6-00046, November 1995.

8


121

The GAO contacted GMIS in 1994 to learn what cost containment technologies the
private sector used that could be made applicable to public sector programs such as Medicare.
The GAO thereafter entered into an agreement with GMIS and three other private sector
companies with similar claims editing technology to review previously paid Medicare claims.
GMIS received from GAO over 500,000 paid claims that were then reprocessed using
ClaimCheck. The GAO carefully reviewed ClaimCheck’s output and eliminated any findings that
it believed were in conflict with established Medicare payment policies and guidelines. Further,
the GAO eliminated any of ClaimCheck’s edits that they believed could be perceived as being
controversial to the provider community, despite the widespread existing use of those edits
throughout the health insurance industry. The GAO took the most conservative approach
possible in analyzing the extent of claim overpayment problems in the Medicare program. None
of our private sector customers have ever taken such a restrictive approach in either their pre-
implementation analysis of ClaimCheck or in their actual use of this technology. As a result, in

my opinion, the savings quoted by the GAO in their study are vastly understated,

GMIS has developed a number of systems incorporating medical rules and protocols.
One, Provider Insight, is used to retrospectively analyze health care claims to detect those
providers whose practices are variant from their peers. GMIS’ panels of physicians consultants
have created rules that enable the grouping of claim records into logical Episodes of Care. An
Episode of Care represents all services utilized by one or more providers to treat the single
occurrence of a disease or injury to a single beneficiary. In this way, Provider Insight is able to

compare provider medical practices to determine which providers may be over utilizing resources,


23

tively participate. We are working together with private insurers
and payers and the hardware and software industries on a set of
uniform standards for health information data and health informa-
tion data transmission in an electronic environment.

As the world has changed, this has become a of the broader
initiatives in the administration under the Vice President’s leader-
ship to look at a national policy on the information superhighway,
and has been integrated into that broader look at the future infor-
mation infrastructure.

There’s actually considerable interest on the part of many private
insurers and payers, and the provider groups. AMA has taken the
leadership on outpatient forms in developing this standardization.

As you know, some of your colleagues in both Houses have been
working with us on some of the issues of privacy and confidential-
ity that have to be addressed in this system. We need to get on top
of those issues before we can really get to those standardized sys-
tems.

Mr. Horn. On the latter Roint, we will get to that in the next
few months. As you might know, hearings were held when Mr.
Condit was chairman of the equivalent subcommittee in the last
Congress, I think some very useful documents and legislation were
developed by that subcommittee.

The Inspector General of HHS mentioned to me a few months

that $8 billion had been collected last year in Medicare/Medic-
aid fraud and abuse. Is most of that collected by your people or the
Inspector General? How does that work?

Mr. VLADECK. Well, we are always arguing with all of the ac-
countants in Government about how to do that. That $8 billion in-
cluded both collection and identifiable expenses averted because we
were able to change procedures or practices that were encouraging
particular kinds of abusive behavior. Most of the actual cash collec.
tions come in through settlements of legal cases brought either by
the Inspector General or by the Department of Justice.

The averted expenses, which are payments not made because we
have prevented something, tend to be on our side of the ledger.

Mr. Horn. Let me ask you now specifically about this project.
There seems to be a strategic decision on the part of HCFA to take
control of the claims processing away from the claims processing
contractors. Instead of requiring these contractors to upgrade the
capacity of their automated systems to meet higher standards
using an open systems environment that could accommodate a
number of different systems, as I understand it, HCFA has decided
to develop its own automated system forcing the existing systems
to be scrapped.

Is HCFA’s intention to take more control from the claims proc-
essing contractors as one of your primary purposes for pushing
MTS? And I would like you to elaborate on the reasons for HCFA’s
strategic decision to change the prior successful policy, as I under-
stand it, of relying on a diversity of automated systems.

Mr. VLADECK. Well, I don’t want to argue with the presumption
about how successful the existing policy has been, but I would say
we feel very strongly that there should be a national, a single na-
tional claims processing and information system for the Medicare
Program, which is, after all, a national program. We do not believe


152

QUESTION:

(regarding coverage of new technology) If the decision was made, that this is an accepted
practice, to what degree would the Health Care Financing Administration retroactively make
payments on those bills? Transcript, page 177.]

ANSWER:

Medicare coverage policies usually have a prospective effective date and are administered in
a way that enables them to apply to all claims submitted on or after a certain date. For
example, our recent regulation concerning the payment status of certain investigational
devices had a prospective effective date and would apply to device claims submitted on or
after that date. Claims for devices submitted before that date would be evaluated under
existing policy at the time the claims were submitted. ‘These policies are contained in
program instructions and are know to the providers.

Depending upon the issues, however, our policy applicability may differ. Sometimes a policy
clarification may apply to all new claims as well as all claims for which appeals are made
after the date the policy is issued. We frequently use this approach when a policy
clarification is issued as a result of confusion over the circumstances of coverage. In such
‘cases, it makes sense to apply the new policy to claims that are in the appeals process. Often,
the providers raising these questions are then able to appeal the disputed claims and an
equitable resolution is reached.


147

quately planned but that we will get to later. It seems to me there
has got to be a focus on the primary mission of the agency.

What worries me, when I see everybody’s uncle represented, is
what happened in several administrations I can think of, is that so
many people want to use, “the system,” whatever it was, for meet-
ing their prime needs, that somebody has to make some tough deci-
sions and say, wait a minute, what’s our basic mission? Where are
our customers? They are the taxpayers and the senior citizens that
are expecting timely services, as well as the providers.

And I just wondered, to what degree is the focus there on the
customer outside the agency and not simply the customer inside
the agency who might want a few bells and whistles added?

Ms. Watton. That’s an excellent point. Fortunately, Adminis-
trator Vladeck had us do a strategic plan a year ago, and what we
figured out as an agency is the primary customer is the beneficiary.
The reason I am here is because of the Medicare beneficiary, and
the main purpose of the system is to serve the beneficiary.

So in planning new requirements for Medicare, one of the first
things we did was to get out and have focus groups with bene-
ficiaries and ask them what was working in the Medicare system
today; what was not; what other needs they have. So we have been
able to keep that focus on the system as it will serve the bene-
ficiary. It’s very important.

Mr. Horn. Were these gro ups held in different regions of the
country so you got sort of a feel?

Ms. WALTON. Yes.

Mr. Horn. We have heard testimony that apparently practices do
differ in some of these regions, and I am sure you see that.

Ms. WALTON. Yes. That’s absolutely right. One coast to the other.
There was one in California, there was one in New York, and they
were across the Nation, yes, sir.

Mr. Horn. It seems to me the key to this is, if the agency sorts
out what it is they think their mission is and then the rest of this
is simply implementation. The basic hard decisions have to be
made on where is the organization headed and who do we work
with and so forth.

Now, with what is going on in the Congress, in terms of keeping
traditional Medicare as one option but providing choice for people
on several other options, be it the HMO, health maintenance orga-
nization option, the provider support organizations, Medisave,
whatever, is there a planning group now that is monitoring that
and thinking through, what are we going to do when that becomes
laws

Ms. WALTON. Yes, sir. A lot of the new requirements are around
managed care and new choices, and we have built for maximum
flexibility. It’s one of the advantages of going for the open architec-
ture and t the flexible module. You think you have thought of every-
thing, but if there is anything we have always said about Medicare,
something is going to change. And I think that will continue. So
the modular approach is just key.

Mr. Horn. Yes. Well, that is good and I congratulate you and the
administrator for doing that, because once Congress passes a law,
people say where is it? And we all know that it is very difficult to
be geared up—


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, Jr., Pennsylvania, Chairman

BENJAMIN A. GILMAN, New York CARDISS COLLINS, Iinois
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
ILEANA ROS-LEHTINEN, Florida JOHN M. SPRATT, JR., South Carolina
WILLIAM H, ZELIFF, Jr., New Hampshire © LOUISE McINTOSH SLAUGHTER, New
JOHN M. McHUGH, New York York
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida GARY A. CONDIT, California
PETER BLUTE, Massachusetts COLLIN C. PETERSON, innesota
THOMAS M. DAVIS, Virginia KAREN L. THURMAN, Florida
DAVID M. McINTOSH, Indiana CAROLYN B. MALONEY, New York
JON D. FOX, Pennsylvania THOMAS M. BARRETT, Wisconsin
RANDY TATE, Washington GENE TAYLOR, Mississippi
DICK CHRYSLER, Michigan BARBARA-ROSE COLLINS, Michigan
GIL GUTKNECHT, Minnesota ELEANOR HOLMES NORTON, District of
MARK E. SOUDER, Indiana Columbia
WILLIAM J. MARTINI, New Jersey JAMES P. MORAN, Virginia
JOE SCARBOROUGH, Florida GENE GREEN, Texas
JOHN B. SHADEGG, Arizona CARRIE P. MEEK, Florida
MICHAEL PATRICK FLANAGAN, Illinois CHAKA FATTAH, Pennsylvania
CHARLES F. BASS, New Hampshire BILL BREWSTER, Oklahoma
STEVEN C. LaTOURETTE, Ohio TIM HOLDEN, Pennsylvania
MARSHALL “MARK” SANFORD, South —

Carolina BERNARD SANDERS, Vermont
ROBERT L. EHRLICH, JR., Maryland (Independent)

JAMES L. CLARKE, Staff Director
Kevin Sapo, General Counsel
JupitH McCoy, Chief Clerk
Bub Myers, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman
MICHAEL PATRICK FLANAGAN, Illinois CAROLYN B. MALONEY, New York

PETER BLUTE, Massachusetts MAJOR R. OWENS, New York
THOMAS M. DAVIS, Virginia JOHN M. SPRATT, JR., South Carolina
JON D. FOX, Pennsylvania PAUL E. KANJORSKI, Pennsylvania
RANDY TATE, Washington COLLIN C. PETERSON, Minnesota
JOE SCARBOROUGH, Florida TIM HOLDEN, Pennsylvania

CHARLES F. BASS, New Hampshire
Ex OFFICIO

WILLIAM F. CLINGER, JR., Pennsylvania CARDISS COLLINS, Illinois
J. RUSSELL GEORGE, Staff Director
MARK UNCAPHER, Professional Staff Member
ANDREW G, RICHARDSON, Clerk
DaviD McMILLEN, Minority Professional Staff

aD


17

Thomas R. Owens
Chairman, President & Chief Executive Officer

Good afternoon. My name is Tom Owens. I am the Chairman, President, and Chief
Executive Officer of GMIS Incorporated, a developer of expert systems software used by health
insurers and payers. I am accompanied today by Dr. John T. Kelly, M.D., GMIS’ Chief Medical
Officer. Dr. Kelly was formerly the Director, Office of Quality and Utilization Management, at

the American Medical Association.

GMIS develops software used in a variety of contexts by the health payer industry.
Traditional indemnity insurers, Blue Cross Blue Shield plans, managed care organizations,
government programs including Medicaid, CHAMPUS, CHAMPVA, and the Department of
Justice, a variety of third party administrators and, increasingly, health care providers, utilize

GMIS’ systems to manage and process the myriad of medical data they receive daily.

GMIS’ products are used to ensure:

. that the codes used to describe medical procedures and the diagnoses associated

with them are accurate and make clinical sense so that claims may be paid

correctly;

* that the accumulation of data compiled by health payers may be properly

warehoused and analyzed from medical, financial, and statistical viewpoints; and

+ that risky or overused procedures are only performed when appropriate.


66

Mr. Horn. Well, we thank you for that very cogent statement
and those excellent suggestions. They will be followed up by the
subcommittees and the full committee in a joint effort, as I think
you have made some very good suggestions for monitoring progress.

I now yield to my colleague and fellow subcommittee chairman,
the gentleman from Connecticut, Mr. Shays for the questioning.

Mr. SHAys. I thank the gentleman.

I want to start out with a basic concept. Why has it been so dif-
ficult for HCFA to know what they send hospitals, why they send
it and why is it so difficult for to us resurrect, even after the fact,
what they have sent and why?

Mr. REILLY. Well, a question that broad, Mr. Chairman, I would
have to start by saying the volume they are dealing with is just in-
credible. You are dealing with hundreds of millions of claims a
year; part are the outpatient claims and part are the inpatient.

The inpatient claims, I have looked at them, are so complicated
that unless you worked in a hospital, I don’t know how you would
understand them. I think the very nature of medicine and the prac-
tice of medicine in a hospital setting is very complicated and nu-
merous technologies involved, and I think that the sheer problem
of dealing with all these on a piece of paper I think is very hard.

On the outpatient side, I think there are ways that we have dealt
with the issue in other GAO reports, that can be handled. But from
what I heard from Mr. Vladeck here, essentially they are dealing
with a legacy system that goes back 30 years. And as he said, it
was essentially based on the old technology and it has not been up-
dated to do the things that we have all become accustomed to doing
when we had PC’s and see the kind of detailed information that we
gan get out of those kind of systems. The system today just doesn’t

lo that.

Mr. Suavys. I realize this example may be almost absurd, but it
will at least let you know what I am trying to wrestle with. When
I was first elected I had a year to decide whether I wanted to
change my computer system and cause tremendous dislocation, not
knowing if I would get reelected. I had the choice of making some
incremental changes and then worry about it if I was reelected. I
made a decision that I would undertake this major change. And so
fortunately, after I was reelected, I was able to take the benefit.

Is part of the problem that when we look at anything like with
social security or HCFA, that whoever makes a decision now, the
benefits are going to basically benefit the next administration rath-
er than their own? And so then do we just try to focus in on the
short-run?

Mr. REILLY. I think that is inherent in any organization, public
or private, but I don’t really think that that is the problem. I do
not get that impression from Mr. Vladeck. We have been—we have
worked with them now for a couple of years.

Mr. Suays. It is not my style just to focus on one administration.

Mr. REILLY. We have had our problems.

Mr. Suays. My point I want to make with you, this should have
happened years ago. We should have been moving more quickly. So
I am not focusing in on this administration. There are enough
things we could criticize in any administration—I am just trying to
understand this.


150

Mr. Horn. Because the other questions would be: How many of
these systems do you have documentation for? If you or GTE do not
have a license or documentation, how would you be able to incor-
porate the best features of each system into the MTS? That is
where we are leading here.

Ms. WALTON. Well, obviously, GTE has documentation for the
part B system that they currently operate, and for the ones that
are public domain, we do have documentation.

The best features are usually more conceptual than meeting the
actual documentation. I think even if there were a best feature in
a proprietary system, it certainly would be understandable enough
to be able to migrate to a new platform. That would be doable.

Mr. Horn. Is that the same as reverse engineering, a current
term of art? What are we thinking about?

Ms. WALTON. I am not up-to-date on those current terms.

Mr. Horn. We hear about the best features bit. We hear a lot
of that out of NPR and so forth and that is sort of the current man-
agement jargon. But I just wonder, where is the line between re-
verse engineering and copyright infringement?

Ms. WaLTon. I was listening to that discussion from the last
group. I actually think there has been a lot of honoring the propri-
etary systems in the Medicare Program. I don’t think that EDS is
running around accusing anybody of stealing their part B system.
I don’t think anyone is running around—GTE is not doing that. I
have not seen that problem in our program, where they think we
have taken it or they think any of their business competitors have
done so. It’s not to say it couldn’t creep up there somewhere, but
it’s not been a problem for us, to date.

Mr. Horn. In their complete written testimony, GMIS raises
their concern about the intellectual property protection of their pro-
prietary software. Given the Health Care Financing Administra-
tion’s intention to reverse engineer software, if they are, should not
health care software companies be cautious in doing business with
the Health Care Financing Administration out of fear of copyright
infringement? You are saying you don’t think it is a problem; is
that correct?

Ms. WALTON. I was saying it had not been—to date, it has not
been. The GMIS system has a special wrinkle to it because part of
their software is tied to medical policy, and previously, because we
are a public program, we have felt it’s important to not only under-
stand what the medical policy was, but to make sure the physician
community was aware of it. So they are more nervous about this.

And this is a new issue for us to deal with in looking at the off-
the-shelf software, because we have previously tried to be as open
with the physician community as possible. You do not want provid-
ers or Medicare beneficiaries getting surprise denials. We need
clarity about the coverage and the expectations in a public pro-
gram. So that is a new challenge for us to deal with that.

Mr. Horn. Speaking of surprise denials, what is the internal
mechanism of the Health Care Financing Administration to make
those decisions that involve medical practice that might be chang-
ing, technology that might have come in? How does your system
work to deal with it? Is it a question of somebody trying something


17

Mr. Horn. We'll also put in the statement of the Honorable Con-
stance A. Morella, grouping it up with where the statements are
at the beginning of the hearing.

Thank you.

Mr. Green.

Mr. GREEN. Thank you, Mr. Chairman.

I thank my colleague from New York for yielding to me.

I have a couple of questions and then I am looking at the GAO
report from May 1995, on Medicare claims, commercial technology
could save billions lost to abuse and revenue. Particularly in the
results in brief on page 2 where HCFA’s—you are saying is enhanc-
ing its ability to cut code manipulation.

However, MTS shows its efforts will not match commercial capa-
bilities or savings. The GAO’s criticism is that HCFA’s MTS will
not achieve that level of efficiency as a commercial product would.
And is that criticism—do you account for the fact that HCFA has
the 50 different States, as she has answered to my colleague from
Connecticut, or what can we do now, even though it is pretty far
down the line to do that to make sure the MTS system can provide
what is on the commercial market now?

Mr. REILLY. Well, we will be followed by vendors that provide
these commercial off-the-shelf systems, so I think they can tell you
much more specifically than I can, exactly what they can do. But
as part of our responsibility on auditing the MTS contract, we will
certainly be looking very closely to see how this is going to be in-
corporated into the design. I mean, the abuse of billing that our re-
port dealt with, we have been told is going to be a part of MTS and
we would expect that to be the case.

Mr. GREEN. So you have been told that the criticisms in May
1995, will be worked into correct your concerns?

Mr. REILLY. HCFA has a temporary fix, as they call it, by some
work that they have had by a contractor, not a commercial off-the-
shelf system, but a fix to deal with some of the problems in
unbundling, that we mentioned. We do not think the fix is as com-
prehensive we know the commercial off-the-shelf products were

ecause we have tested four of them and they almost—while they
have a range of capabilities, the numbers come out pretty close in
all cases, when you test the advantages of miscoding.

Mr. GREEN. We Tecognize we obviously have to do something bet-
ter and I think HCFA knows and all of us that serve are frustrated
because of the complaints we receive about problems, and MTS is
supposed to solve that.

Is this an example, as we have seen earlier in Government pro-
curement, where there may have been something better off the
shelf and yet we are designing a product? The best example we
have heard is the hammers that cost hundreds of dollars. You can
go buy one at your hardware store for $20. We had to design that

undreds-of-dollar hammer as compared to what we could have
bought commercially. Is this an example on a bigger scale than
that?

Mr. REILLY. I think we have got two things working here. One,
a very old system going back to the sixties literally, and that meant
in those days you had an entirely different kind of technology, and
we are told by the IV and V contractor that the current systems


13

BRUCE C. VLADECK

ADMINISTRATOR

HEALTH CARE FINANCING omnes

1 am pleased to be here today to discuss the Medicare Transaction System (MTS) and how it will
provide an information management system for Medicare and its beneficiaries in the 21st century.
The MTS will give Medicare beneficiaries and providers the information they need to deal with a
changing Medicare program and with increasingly complex health care delivery systems.

L INTRODUCTION

HCFA is already a leader in electronic claims processing. For example, in 1994 HCFA processed
74 percent of Medicare claims electronically, compared to just 8 percent for private insurance
companies. We have lowered our unit costs significantly over the years by encouraging electronic
claims submission and standardizing claims formats. Administrative costs for claims processing
are now less than one percent of Medicare benefits

In the early 1990s, facing increasing workloads but limited administrative budgets, we concluded
that we needed to further lower our administrative costs while upgrading service to our
beneficiaries. In addition, the Medicare program is moving more and more into managed care and
will need to support a variety of insurance options from which beneficiaries can choose.

Our answer is the Medicare Transaction System, which will put Medicare on the cutting edge of
information technology.

The MTS is the foundation of an information management strategy that will improve service to
beneficiaries and providers; better manage Medicare program expenditures, upgrade our tools for
combating fraud and abuse; and deal with new health care delivery options for Medicare
beneficiaries

IL. THE MTS WILL IMPROVE CUSTOMER SERVICE.

In developing the MTS, HCFA is striving toward three goals

+ To provide Medicare beneficiaries with superior customer service;

+ To give the Medicare program an information system commensurate with our
responsibilities to our beneficiaries, our partners in the provider community, and our
colleagues in the executive and legislative branches; and

+ To safeguard the Medicare Trust Funds by ensuring payments are made appropriately.

Fulfilling HCFA’s mission of assuring beneficiaries access to quality, affordable health care

depends on top notch customer service, The key to successfull customer service is communication

-- with beneficiaries, their families, the general public, providers, other government agencies, and

the host of partners with whom we work

At present, beneficiaries and providers sometimes have difficulty getting up-to-date information

1


126

radiological procedure which is part of that and there may be an
office visit which is part of it as well, is that described by three dif-
ferent codes, each of which is billed independently, or is there one
code or some other combination of codes that more accurately re-
flect and characterize that service?

And so that’s really the nature of this, because what we want to
do here is to make sure that how the codes and ultimately how the
payment is handled is consistent with the rules that have been es-
tablished.

And because there are so many rules, it’s a finite number but a
large number, and because those rules keep changing and because
the codes keep changing, it’s very difficult for physicians. I can tell
you as a physician myself, it’s impossible to remember all of these.
And so there’s great value in being able to bring together various
experts who will review this, identify the rules and then ultimately
translate that into software that can then be available to every-
body. In effect, what the software does is make experts out of the
entire system. And so there is tremendous value in that.

Just one other part of it in terms of the issue of what happens
to how physicians bill for their services and what the consequences
are. A question that was raised earlier this morning was: How
much of this is, if you want, misunderstanding or ignorance of the
rules and how much of this is abuse and how much of this is out-
right fraud?

Oftentimes, it’s very difficult to sort that out and, frankly, part
of the benefit of this kind of software is it doesn’t need to ulti-
mately make that distinction. What it can do is to make the right
decision, what are the right code combinations; change the codes as
presented so that the payment is fair, without fully coming to grips
with the issue of whether this is simply ignorance, which is what
we believe most of the time is the case, or whether it’s abuse or
whether it’s fraud.

Mr. Horn. Give me a feeling for how a private insurance com-
pany, a large HMO, with national scope, a large hospital system
with maybe 20, 30 hospitals, as well as HCFA, deals with these
changes. Do they have professional advisory committees by dis-
cipline that discuss some of these, advise them?

Is the private sector different in its handling of this, of listening
to people, than HCFA? Or is HCFA ahead of them in listening to
people? How does the process work? You have had a pretty good
vantage point to say that.

Dr. KELLY. I think several points, Mr. Chairman. First of all, be-
fore organizations such as ours were available, every single deliv-
ery system had to have a way of coming to grips with this. So of-
tentimes, the organizations would have a medical director or a
medical policy committee or certain consultants that would help
them and advise them. And then add to it, when claims would
come in, they had to have a process for reviewing them.

Initially, a good bit of that was handled manually. Subsequently,
it was handled in an automated way. Part of the challenge is be-
cause the coding system keeps changing. One of the problems
which those organizations faced was that it took a significant
amount of time and resources to be able to stay on top of this, to
be able to address that.


182

Mr. Horn. Right. Let me ask you on some of the points that you
have both raised and Dr. Kelly raised it. Based on your experience,
how much of a payback should be expected from investing in a new
health care automated system? In other words, for every dollar
spent, how much of a savings should be generated? How quickly
should that be realized? What is your experience with that?

Mr. RupIN. Across different industries, different organizations
use different measurements. I have been in organizations that look
for 14 or 18 month paybacks for their investments. Many organiza-
tions will look at the net present value of the investment, which
tends to encourage you again to go to these shorter term projects
because you can’t get a positive net present value unless they have
got a reasonable timeframe, you know, to get in. So I think those
are two measurements.

Mr. Horn. I must say the experiences I have had here, as well
as on the West Coast, usually the people that are selling the hard-
ware and the software are very optimistic and it never comes true.
They can’t get a system working in the time they claim they could
get a system working. So has that been your experience?

Mr. RuDIN. I think there’s a lot of things that come up very much
on time and I think in many cases due to some innovation there
are some things that don’t come up on time but, again, I think
that’s what leads to the focus of smaller sized projects.

Mr. Horn. Yes. That is certainly a good argument for them to
try to incrementally do this.

Let me ask you all a couple of questions just to get it on the
record. Based on the robust activity occurring in health care infor-
mation technology, would you try to design a single system today
that would be the state-of-the-art in the year 2000? That is what
we are talking about. I mean, I take it the answer is, no, am I
wrong, from most of you?

Mr. RupIN. I would offer for you that at the rate things are
changing right now, it’s very difficult to exactly predict the state
of technology in the health care industry in the year 2000. Both the
health care industry and technology are changing so fast. I don’t
think anybody has the ability to identify the rate at which the
Internet and public networks are starting to move forward. There
are already many massive pervasive private networks. You know,
you basically have a national information infrastructure existing
today. You don’t need to wait for the super information highway.

Mr. Horn. Right.

Mr. RuDIN. It is all out there right now and things are changing
so fast it is almost a blur. So to try to predict the year 2000 I think
is a little bit dangerous. I think you want to keep going along as
fast as you can incrementally applying what is best and most avail-
able to you and continually just keep improving the activities that
are going on.

Mr. Horn. At least be able to add on or transfer easily the data.

Mr. Owens, do you want to add anything to that?

Mr. OWENS. Simply, Mr. Chairman, that I have to agree with
that. We have noticed in the private industries that when they
start to address replacing their claim systems, they get all hung up
on what the design should be, given the amount of change. And
what they have realized is through the incremental changes that


12

medical practice patterns may vary and patient care may suffer.

In addition, the codes used in these computer programs will not be required to be publicly
disclosed nor will they be developed with the medical expertise of physicians and the input of
the physician community. This is would occur based on the claim that the substance of these
computer programs is proprietary. Without public disclosure, however, physicians will not
know and therefore will not have the opportunity to inform their patients about which
services may or may not be covered. Furthermore, if each Medicare carrier is allowed to
select different software packages there would no longer be system-wide uniformity with
respect to coding thus potentially resulting in the situation where Medicare patients would be
treated differently not based on existing Medicare law but on the software purchased by the

individual carrier.

HCEA’s INITIATIVE TO DEVELOP NEW CODING EDITS

‘The GAO report seeks to evaluate whether HCFA's development approach is likely to
generate savings comparable to that possible with a commercial system. We believe the
report mixes apples and oranges when estimating savings based on a comparison of HCFA's
coding edits and the commercially developed coding edits. For instance, of the seven
examples cited in the report only one can be confirmed as being an accurate reflection of
Medicare policy. The GAO report states that the commercial systems found two categories
of problems — unbundling and global service period violations — which accounted for 93


30

Mr. GREEN. But Mr. Vladeck, in response to, again, a constituent
concern, and from Texas, I know Blue Cross/Blue Shield is our
local contractor and I know I have asked you this at other hear-
ings, and concerning the enforcement of someone reporting to the
local State contractor, and this is not just a problem in Texas, I
have heard it all over the country.

In the followup, in the system, the MTS system, in your testi-
mony today, your answers, show that once we receive—or are able
to achieve the MTS system they will then be able to report and
they will be able to followup much easier than today.

Mr. VLADECK. Part of that, sir, the answer is, yes, but not all of
that will be attributable to the MTS, as much as we would like to
claim the system can do everything. There are other things that
need to be done. And the real issue here has been the relationshi
and the interface between our contractors, the Inspector General,
the local operating arms of the Department of Justice, whether the
FBI or the U.S. Attorney’s Office, in terms of getting those sorts
of feedback mechanisms.

We are now developing, in conjunction with the Inspector Gen-
eral and Department of Justice, automated referral tracking sys-
tems. So that if the contractor, Texas Blue Cross/Blue Shield, does
a preliminary investigation, they think there’s something funny
about these claims, they will then refer them to the Inspector Gen-
eral. The Inspector General will make their own evaluation and if
they think there’s a potential criminal prosecution, bring in the
FBI, for example, or the U.S. attorney.

By the time MTS is up and running, we should have all of these
folks sharing a single data system that will track all of the refer-
rals and complaints that come in to them. Then the beneficiary
who made the initial complaint will be able to find out what be-
came of it. That’s not part of MTS, per se, but it will be imple-
mented in conjunction with the MTS development.

Mr. GREEN. Well, I know we will have some other Members, if
you want to have the committee stand in recess until the majority
come back, and I appreciate the time to ask you questions.

Mr. VLADECK. Yes, sir.

Mr. Horn. I apologize for the delay. We had a little parliamen-
tary snarl on the floor and one never knows what’s next, but here
we are,

Let me ask you, Mr. Administrator, is there anything you would
like to say in conclusion besides what the Members have asked?
And if you were us, what kind of question would you ask you that
we haven’t answered—asked, OK? One of those days.

Mr. VLADECK. Well, if I may, Mr. Chairman, I was—I was think-
ing further about Mr. Clinger’s question about the FAA experience
and, obviously, I am not an expert.

Mr. Horn. I have had the same. I sit on that committee, too.

Mr. VLADECK. Although I am obviously a customer, as we all are,
I think it’s important to emphasize as we develop MTS, that while
the system is new and while the integration of many functions is
a very ambitious task, as opposed to what’s being done in the air
traffic control system or some of the other procurements at which
we have looked as we have tried to develop our own strategy for
MTS, we are not relying on any new, not-yet-developed tech-


101

eee
we

List of Works Cited

Automated Medical payment Directory. chapter 2: Faulkner & Grey, Inc., 1995

Bingham, Michael, et al. Negotiating with Health Plans for Better Data Now. 1995
Health Network & Alliance Status Report: Faulkner & Gray, Inc., p. 5.

Brohan, Mark, and Goedert, Joseph. “Trends in Automated Medical Payments:

Traffic on the Health Care EDI Highway.” Automated Medical Payment
Directory. p. 7.

CSC's Integrated Health Information Architecture: The JS for Your IDS. Health Payment
Technology, February 1995. Supplement page 8.

HOW TO JUSTIFY YOUR TELEMEDICINE/VIDEO CONFERENCING
INVESTMENT. Healthcare Telecom Report, 1995.

Integrating Computer-based Technologies into HMOs. Group Health Association,
November, 1993.

Integrated Health Care Delivery: A Blueprint for Action, Interstudy Publications
Managed Care Pathway Series, September 1994.

Reengineering Health Services: Federal Initiatives for Automated Patient Records. 1995
HMISS Proceedings: Vol. 4.

‘Systems Integration in Global Health Care and Health Insurance Markets. G2 Research,
April 1995: p. 19-24, 39, 44.



37

The Los Alamos contract is a very different kind of activity alto-
gether. The folks at Los Alamos, as you know are, from their work
on national defense-related matters, have enormous experience
with high-speed computing with very, very large databases. They
have done some very important and interesting work on the—I
don’t know all the right technical terminology, but on the analysis
of large databases to detect patterns of odd or disturbing kinds of
phenomena. They have begun working to apply that expertise and
technology to areas like credit-card billings and health insurance
billings to see if they can use some of this same software and tech-
nologies to detect patterns of fraud or abusive behavior in large
patterns of bills.

And so our contract with them is to take existing Medicare data
to see if their pattern detection and recognition software will turn
up problems in Medicare billing. Then, if that turns out to be the
case, as we expect it will, to design again one of these sort of plug-
in modules to incorporate into the MTS sort of on the front end so
that we have that extra screening capability on claims before we
pay them. If it all works, that will be a piece that gets plugged into
MTS as sort of an additional fraud and abuse detection technology.

Mr. CLINGER. Los Alamos will not be involved in sort of double-
checking the work that GTE is doing?

Mr. VLADECK. No, sir. This is a very discreet, separate piece, par-
ticularly around this pattern recognition technology.

Mr. CLINGER. Thank you.

Thank you, Mr. Chairman.

Mr. Horn. Thank you very much.

Let me just say in conclusion, we want to thank you very much.

I am inserting in the record several attachments: The organiza-
tional chart for MTS, the list of HCFA staff associated with MTS
and the fiscal year 1994-95 time line for MTS.

{The information referred to follows:]


62

In our January 1994 report on MTS,” we stated that if a contractor advances too far
into a succeeding system-development phase before sufficient progress has been
made in the previous phase, the risk that technical problems will occur is
significantly increased. Senior HCFA officials recently told us that the MTS
schedule contains concurrency because it is important to deploy the system before
the end of the century; otherwise, significant costs would be incurred to modify
existing systems. What is needed is quantifiable information on this cost,
compared with an assessment of the risks of concurrency. HCFA has not, however,
implemented a formal process to assess and manage system-development risks.

The IV&V contractor has also cited this lack of a formal risk-assessment process as

a problem.

In addition, while HCFA's MTS schedule has been revised several times because of.
the redirection of requirements definition in the analysis phase, the initial and final
system-implementation dates have remained largely unchanged. As a result, the
time scheduled to complete the rest of the system-development phases to meet
those dates is now significantly compressed. For example, because HCFA did not
adjust the initial operating capability date. it is now scheduled, at one point in a I-

°Medicare: New Claims Processing System Benefits and Acquisition Risks
(GAO/HEHS/AIMD-94-79, Jan. 25, 1994).

12


146

Yes, we do have an agenda. We tend to start with the status of
the system and how things are going, and we find ourselves looking
at other areas that need attention.

We do planning. We consider ourselves advocates for the project;
focus on resources for the agency. As a board, we think that if
Jared has a problem, that that takes priority for our meeting. We
have set up techniques to keep Administrator Vladeck informed.
We try to keep our finger on the pulse of the project and take a
corrective action or encourage a corrective action when needed.

Mr. Horn. Now you have got a subset of the MTS executive com-
mittee, that is the MTSI management group. Do they meet in the
interim, or how does that work?

Ms. WaLTon. The MTS management group is the group that
Jared was just describing, the midlevel executives. And I am not
sure how frequently they meet. I will ask her.

Mr. Horn. Well, as I understand it, the MTSI program manage-
ment team no longer exists and the functions of that group have
been incorporated into the office lead structure and the functions
of the MTS management group. And so then we have here the Bu-
reau of Data Management and Strategy Group with the various
subgroups of systems management, information systems, resources
management, computer communication services, program manager,
and so forth. And then the Bureau of Program Operations has its
people under your leadership, starting with the MTSI program
manager, who is here with us today, Ms. Adair, and then again
your subgroups.

I take it the people that are actually running the MTS program
day to day sit with these committees when they meet so you have
the direct feedback and there can be an interchange in questions?

Ms. WALTON. The line management is Jared. She is responsible
for the day-to-day management of the MTS project, and she does
have dedicated staff.

Mr. Horn. That is Ms. Adair?

Ms. WALTON. Yes. And she works for me.

Certainly, it is a HCFA-wide project, and there is coordination
across the agency. One of the things that all of the outside experts
tell you is that changing your software, the information technology,
alone is not nearly sufficient to get all of the advantages. You have
to change the environment and the processes around which you use
the system. So all of the agency has activities to do. And so the co-
ordinating of those activities—the line responsibility to the compo-
nent is with that office lead. The coordinating activities happen
with Ms. Adair’s management group or at my MTS management
board. So we maximize line responsibility but still can make it an
agency-wide project.

We have just shifted to this structure because we are moving
from the analysis phase, where we kept a more separate team, to
the development cycle, where we need more line responsibility in
areas like procurement and other areas like that.

Mr. Horn. Well, is the focus of this system really on the direct
Health Care Financing Administration people out there making
services available, one form of organization to the other? With the
current Medicare bill, this will substantially change things in
terms of how money is allocated, which I wonder if it is being ade-


33

lists, and so forth. Under MTS with a single integrated system, we
should be able to put a stop to that kind of problem.

Mr. Towns. Fraud and abuse, you know, it is a very, very serious
problem, as the chairman mentioned, you know. We have looked at
it in Florida and of course New York and some other places. My
concern now, which I guess is not really your area but I will raise
it based on the fact that I know you have had a lot of experience
with this, is that as we look at cutbacks, what are we doing to en-
forcement?

If we find out that there is something wrong and we are elimi-
nating people that are supposed to go out there and to pursue it
and there’s nobody to do that, then it’s just having information and
not doing anything with it.

Mr. VLADECK. Well, Mr. Towns, that’s why we have proposed and
talked to the relevant committees about making sure that as part
of any Medicare or Medicaid legislation that’s enacted this year,
that provision is made for adequate resources to continue to do the
sorts of program integrity things that may become even more nec-
essary in the future.

We still have a ways to go, I think, in terms of the specifics. But
I must say that we have found a receptive ear in Members and
staff from both parties to recognize that any reform of Medicare
and Medicaid must include, not only continued vigilance on fraud
and abuse, but mechanisms for ensuring that there’s adequate re-
sources to do both the prevention and investigational tasks that
will become increasingly important.

Mr. Towns. I thank you, and I agree with that. I think that’s im-
portant that we do it.

You know, sometimes we get caught up in phrases and terms
around here that sound good but, when you start asking questions
you know they are not too good. So when we talk about reform, we
are hoping that the reform is going to be in the positive kind of
way and that of course all these things must go together.

Reform is like prayer, it can be either positive or negative. So if
somebody is said they are going to pray for you, ask them what
they are going to say. You know, they might pray that you break
your neck. Anyway, so I am not impressed with the word reform
unless I know exactly what it means.

So let me close, Mr. Chairman, by asking unanimous consent to
place my statement in the record and also to recognize the Allen
Senior Citizens Center who are here today, that they are very con-
cerned about fraud and abuse and have been very outspoken down
through the years, so we are delighted to see them here as well.

Mr. Horn. Put up your hands if you come from that center.
Good.

Mr. Towns. Yes, Allen——

Mr. Horn. We are delighted to have some of Mr. Towns’ constitu-
ents here. And since you are from New York, you certainly know
a lot about reform, I know that.

Thank you.

Mr. Towns. I yield back.

[The prepared statement of Hon. Edolphus Towns follows:]


65

The risks we see in the development of MTS can be substantially reduced if HCFA
management implements some of the best practices that have been proven effective
in other organizations: managing systems as investments, changing information
management practices, creating line manager ownership, better managing resources,
and measuring performance. HCFA still has time to correct these deficiencies. We
are encouraged by HCFA’s expression of interest in learning about how to
implement the best practices in systems development used by successful

organizations, and look forward to working with them.

This concludes our statement, Mr. Chairmen. We will be happy to respond to any

questions you or other members of the subcommittees may have at this time.


102

Mr. Horn. Mr. Gary Rudin is vice president and group executive,
Electronic Data Systems Health Services.

Welcome.

Mr. Rupin. Thank you, Mr. Chairman, and congratulations to
you and the members of these subcommittees for your leadership
on this critically important strategy to improve effectiveness of the
Medicare Program.

EDS operates in 41 countries worldwide with more than 80,000
employees and annual revenue in 1994 of more than $10.5 billion.
In the United States, EDS is the largest information services pro-
vider to the health care industry.

Our systems and services touch over 88 million lives. We have
been a leader in IT for the Medicare Program since its inception
and helped process more than 194 million part B claims last year,
nearly one-third of the national volume.

Mr. Chairman, Medicare is faced today with market shifts that
must be considered in planning future IT strategies. The health
care delivery system is now focusing on managed care alternatives.
The technology industry is changing at an ever-increasing rate of
speed. And finally even though IT has proven to be extremely cost-
effective, budget cutbacks have reduced Government outlays for
technology.

In my prepared testimony, I suggest that Medicare technology
architecture or any technology investment must be based on four
principles: risk management, flexibility, speed to market, and re-
turn on investment.

This afternoon I want to emphasize the three main points in my
prepared testimony regarding the MTS initiative: First, the infor-
mation technology industry is changing at a rate no one could have
predicted when the MTS was conceived.

In the early 1990’s, the industry was focused on transaction-
based systems. The focus today is not on transactions but on infor-
mation to provide program improvements. HCFA’s vision correctly
states that changes are needed within the business processes, hard-
ware and software architecture supporting the Medicare Program,
but the MTS approach must be reexamined in light of today’s
health care environment and technologies becoming available.

Second, successful organizations in the future will be those that
muster the foresight to most effectively apply and rapidly deploy
the latest innovations in technology. The structure of our health
care business is being revolutionized by the convergence of tele-
communications, computing, and information services. We should
no longer approach IT problems seeking a single final solution. Ef-
fective systems in the future will be dynamic, open systems adapt-
able to new and innovative improvements.

Finally, a new IT paradigm is now clear. It focuses on smaller
projects, short-term in development and hard-hitting in scope, that
provide marked increased value and add quickly to return on in-
vestment.

My concern is that MTS is heading toward development of a new
monolithic system that by the time it is implemented may well be
obsolete. A strategy of investing in long-term, extremely large and
complex systems development will never yield the cost and effi-


124

that would cause a denial of a claim payment. In fact, GMIS’ studies consistently show that over

90% of providers do not have one claim denied by ClaimCheck in a given year.

In summary, the goals of the Medicare program and commercially available software are
complementary. Commercially available software insurers that claim payments are made
accurately and that provider's medical practices are evaluated fairly and consistently. Software
companies that automate medical rules and protocols must be responsive to changes in practices
and the needs of their customers in order to remain viable. To ignore the realities of the changing
practices of the health care industry is to risk extinction. GMIS has prospered for many years by

helping its customers protect its more precious asset: its beneficiaries,


43

STATUS OF MTS DEVELOPMENT

Fria FY 19S FY 1996 FY 197 FY 1998 | FY 1999,
i H i * - |
i A ul Complete
i Processing’ Transition
i Begisi Transition 099)
! 9
il i Test/Implement
\ Build
[ Analyze
i T i

Medicare Tran = -ti 9 Svctem Initiative 11195


85

Mr. Says. They get graded. Some are on the troubled list. One
has even been taken over by HUD because in Chicago it was so
poor. Some have been taken over by consultants. Some are on a
trouble list where they run by themselves but HUD pays special
attention to them. Do you have that kind of grading system?

Mr. REILLY. We don’t have a grading system, but to try to relate
to that kind of a criteria, the No. 1 criteria, and I think both of us
have talked about this, is requirements.

Mr. Suays. Is what?

Mr. REILLY. The requirements. Do you have well-defined require-
ments at a high level, at an intermediate level, and an operating
level?

Mr. Suays. OK.

Mr. REILLY. And that—if you can lay those out in detail, and by
the way, these things—these requirements now can be developed
using computer models.

Mr. Says. OK. So now give me an assessment.

Mr. REILLY. They are not at that stage yet.

Mr. Suays. OK.

Mr. REILLY. We are saying specifically that the requirements are
a problem. Their contractor said it’s a problem.

Mr. SHayS. There are gigantic warning bells going off?

Mr. REILLY. Absolutely.

Mr. SHays. You are making both committees aware that 2 years
from now if we come back to you all, you have warned us?

Mr. REILLY. I guess you can say it that way. I hadn’t thought
about it that way.

Mr. Suays. Fair enough. We are going to be sitting down and
talking to you to find out your solutions in greater depth.

Mr. HoENIG. We look forward to that.

Mr. Suays. I know you do. It is just I want you to know——

Mr. REILLY. By the way, we are working actively with HCFA
now, and anything that we can do working with the committee con-
cerning HCFA is certainly in our interest.

Mr. Suays. I understand, and in the scale of things, this is a nu-
clear bomb. That’s kind of how I view it.

Mr. HOENIG. Yes, it is.

Mr. Fox. Thank you, Chairman Shays.

Thank you, Member Souder.

I want to thank all the witnesses on behalf of the Chair for your
excellent testimony today. I know it will be very fruitful for us.

Panel 3 will convene at 1 p.m.

Chairman Horn will preside at that time.

We are in recess.

[Recess.]

Mr. Horn. Ladies and gentlemen, a quorum having been estab-
lished, we will convene the afternoon session.

We have panel 3 of Mr. Huntzinger and Mr. Rudin, Mr. Owens,
and is that an assistant to Mr. Owens?

Dr. KELLY. Yes.

Mr. Horn. OK.

What is your name?

Dr. KELLY. I am Dr. John Kelly.

Mr. Horn. Dr. John Kelly.


Ata hearing before Chairman Shays’ subcommittee on June fifteenth of this
year, testimony was given on the importance of the MTS to detect and curb abuses
of Medicare. I think that everyone in this room will agree that current fraud and
abuse controls are inadequate. The system is too easy to crack.

However, before the MTS has even had a chance to be implemented,
concems have been brought before this committee about the direction that HCFA.
is taking this program. We have already seen a midstream revision of HCFA
development requirements for the MTS, and a rollback in the date these
requirements are to be completed,

Tam also concerned with the potential for cost overruns. The MTS already
carries a proposed price tag of $127 million, and the GAO has reported that the
costs of the MTS will probably be significantly higher.

Today’s testimony will be instructive in judging whether the proposed MTS
system is going to effectively serve its intended purpose or whether this,
procurement is as problem riddled as some suggest. I commend Chairman Hom
and Chairman Shays for the oversight they are providing.


CONTENTS

Hearing held on November 16, 1998 .....

Stage oe George, CSC, Healthcare Systems, Inc.; Gary Rudin, EDS,
funtzinger, ms, .; Gary in, a
corporate vice president, Health Care Group; Thomas Owens, GMIS,
Inc., accompanied by John Kelly M.D., .D., chief medical officer
and senior vice president, Clinical Information Services ..

Reilly, Frank, Director, Information Resources Management
cation and Human ‘Services, General Accounting Office, and Chris
topher Hoenig, Director, Information Resources ent/Policies

id neral Accountiny ting. Offic, acrompanied by ‘Helen, Lew
and LJ. ‘Latham, Accounting Information Management Division, GAO
Vladeck, Bruce, Administrator, Health, Care Financing Administration

Walton,’ Carol, Director, Bureau of Program Operations, Health C
Financing Administration, accompanied by Jared Adair, MTSI Program
Manager, HCFA

Letters, statements, etc.,
r, Hon. William F., a Representative in Congress from the State
of ennsylvania, pi statement of ...

Green, Hon. Gene, a epresentative in Congress from the State of ‘Texas,
Pp statement of

Horn, Hon. Stephen, a Representative in Congress from the State of

California:

Organizational chart for MTS, list ste HCFA staff associated with

and 1994-95 time line for MTS

Prepared statement of "

Huntzinger, George, CSC, Healthcare Systems, Inc., prepared statement

ome Thomas, GMIS, Inc., prepared statement of
Reilly, Frank, Director, Information Resources Management/Health, Ed
cation and Human Services, General Accounting Office, and Chris-
topher Hoenig, Director, Information Resources Management/Policies
and Issues, General Accounting Office, prepared statement of ..
Rudin, Gary, EDS, corporate vice president, Health Care Group, prepared

statement of
Shays, Hon. Christopher, a Representative in Congress from the State
of Connecticut:
Prepared statement of ...
statement of the American Medical Associ
Towns, Hon. Edolphus, a Representative in Congress yom the State
of New York, prey d statement of
Viadeck, Bruce, Ac ator, Health Care Financing Administration,
prepared statement ot
walten, Carol, Director, Bureau of Program Operations, Health Care

ncing Administration:
Tnformation concerning automated systems
Information concerning Medicare .
Information concerning new technology

TM)



148

Ms. WALTON. They want it fast.

Mr. Horn [continuing]. Geared up to implement any change in
the law. It takes time. You are a massive agency dealing with prob-
ably more citizens than any agency but Social Security as a whole,
who has some people under 65 and 62.

So that is helpful to know that.

How many of the nine existing automated systems does the
health care financing system or GTE have a license to use or incor-
porate into MTS? Do you have any thoughts on that, how many of
these you have the authority to use them and incorporate them, if
you wished?

Ms. WALTON. The plan for the system is not to be limiting on
that. GT——

Mr. Horn. I am just saying of the nine existing ones, is there a
reason—-——

Ms. WALTON. Oh, I am sorry.

Mr. Horn. In other words, how many of the nine existing auto-
mated systems does your agency or GTE, the contractor, have the
license to use or incorporate into MTS? I am not saying they should
be or they shouldn’t be.

Ms. WALTON. I see.

Mr. Horn. I am just saying, if you wanted to use those systems
and you thought they were effective, successful systems, do you
have access rights to them under your current contracts?

Ms. WALTON. OK. Of the nine systems, let’s see, probably about
half of them would be in the public domain, and maybe a little bit
more. I was trying to think, it might be about 60 percent of them
are public domain, but at least two are proprietary. Probably all of
the part A system——

Mr. Horn. The top of the-—

B Ms. WALTON [continuing]. Are CWF and probably half of the part

Mr. Horn. You might want to do this for the record so you can
go back and ask your staff.

Ms. WALTON. OK.

[The information referred to follows:]


40

MTSI MANAGEMENT GROUP — This is a sub-sei of the MTS Steering Committee

Rick Friedman, MB

Stewart Streimer, BPO

Mary Hogan, OMC

Jared Adair, (BPO) represeating MTSI
Dennis Carroll, Philadelphia RO

Elaine Raubach, BDMS

Chuck Booth, BPD

Elaine Olin, BPO, GTE Project Officer

Jia Heath, GTE Project Manager

Larry Pratt, BPO, Imermetrics Project Officer
Tony Gonski, Intermetrics Project Manager

** NOTE: The MTSI Program Management Team no longer exists. The fictions of this
group have been incorporated imto the office lead structure and the functions of the MTS
management group.

Bureau of Data Management and Strategy
BDMS Bureau Director — Regina McPhillips

Office of Systems Management
Office Director, Bob Moore
MTS Office Lead, Mary Kavanagh

Office of Health Care Information Systems
Office Director, Joe Broseker
MTS Office Lead, John Booth

Office of Information Resources Management
Office Director, Elaine Raubach
MTS Office Lead, Bill Bake

Office of Computer and Communication Services
Office Director, Eva Jun
MTS Office Lead, Ted Broda

BDMS MTS Program Manager — Elaine Raubach


159

recommended is to improve our project management’s plan so that
instead of just having deliverables, include processes along the way
so we can measure progress better. We are improving that. We are
actually incorporating as many of their ideas and suggestions as we
can.

Mrs. MALONEY. They questioned your ability to meet the 1999
deadline. Do you think you will be able to meet that deadline?

Ms. WALTON. It looks like we can. We are certainly going to start
with staged releases so we can take advantage of the benefits of
the new system in a modular form so we don’t have to get into the
big bang theory. We are certainly still going to do contingency plan-
ning, for if it takes a little longer to get everything turned on and
everybody up how we will handle that.

Mrs. MALONEY. I wasn’t here for the testimony, but in reading
their remarks, the GAO cited the lack of adequately specified re-
quirements as the main problem. Are you being more specific in
what your requirements are?

Ms. WALTON. There is a little bit of confusion about the defini-
tion of requirements here. It is probably a difference in the level
of detail. The current requirements for Medicare, we certainly do
have those well-defined.

We operate a national program. The future requirements for the
MTS, for the new system, for as much flexibility, we have defined
those. We got customer inputs. We looked at old reports for defi-
ciencies. We looked at all the managed care choices and the ideas
for the future, and we put together a data base of 1,600 future re-
quirements that try to give as much flexibility to the system as we

an.

And, third, we have put together requirements for performance
of the new system, what kinds of volumes, what kinds of security,
what kinds of service; so those requirements are known.

The requirements documentation that GAO studied involves tak-
ing these thousands of current and future requirements and reduc-
ing them to actually tens of thousands of mini specs, really docu-
mentation that has the data flows and the data decisions and the
data values, the detailed structured documentation. That is called
a requirements document. In the way modern computer systems
are built, you have this very structured, very detailed documenta-
tion of the requirements. If it is robust and accurate, it is very
quickly coded. So that is the piece that we have just reengineered,
the process to improve it and make it more efficient.

So the basic requirements, current and future, yes, ma’am, we
have those. We know those. Detailed documentation of the require-
ments, an important tool for building a new system, is what we are
working on.

Mrs. MALONEY. I thank you very much and good luck. Thank
you, Mr. Chairman. I have no future questions.

Mr. Horn. I thank you, and I, again, thank the witnesses.

Before we close the hearing, I want to thank all of the staff that
have been involved. The majority staff starting with the Sub-
committee on Human Resources and Intergovernmental Relations,
Larry Halloran, staff director and counsel; Kate Hickey, profes-
sional staff member; Bob Newman, professional staff member, and
Tom Costa, subcommittee clerk.


val

COMMERCIAL COST REDUCTIONS OVERSTATED

The GAO developed its report with the objective of (1) determining whether commercially
available code manipulation-detection systems can reduce Medicare costs; (2) evaluating
whether HCFA's development approach is likely to generate savings comparable to that
possible with commercial systems; and, (3) assessing whether commercial systems are cost
effective. The report states that "commercial code manipulation-detection systems could
have reduced federal outlays for physician services and supplies, on average, by $603 million
in 1993 and $640 million in 1994,..this represents about 1.8 percent of Medicare
payments..." Our view, however, is that these numbers are inflated because the edits
produced by the vendors did not follow relevant Medicare payment and medical review
policies. The AMA and other members of organized medicine have long objected to such
“black box” review screens because they do not reflect the actual practice of clinical
medicine, The "edits" contained in the commercial programs were not, as may have been
implied, developed with adequate involvement from independent physician coding experts.

‘We maintain that if a code is randomly redefined it will no longer reflect the actual medical
services provided to patients. For example, a surgeon may include as a part of a total
surgical package the office visit that allowed that physician to determine that the patient
needed immediate emergency surgery the next day. This type of care is called evaluation
and management services and is properly payable under Medicare, If the code for this
process is randomly redefined to no longer accurately reflect what has occurred, actual


80

Mr. REILLY. And we have been very concerned about electronic
benefit transfer in this regard and GAO just issued a report within
the last 2 weeks on this very subject. While we support electronic
filing where it’s practical, we also have great concern that if it is
not controlled it could be a disaster of monumental—with monu-
mental consequences.

Mr. Horw. In the course of your studies—this is my last question
then I'll ask Mr. Fox to—in the course of your studies have you
found a certain type of delay at HCFA in paying their bills com-
pared to other agencies that have as complicated a situation? Do
you have any data on that?

Mr. REILLY. Mr. Chairman, what they have done, they have set
a policy that they must pay, if it’s electronically delivered within
so many days and they pay it.

Mr. Horn. How about it if it isn’t electronically delivered?

Mr. REeILiy. I think it is twice as long, and you can ask the
HCFA people specifically, but I think it is 14 days, 2 weeks, if it’s
electronically delivered and if it’s manually it’s a month. The real

uestion comes up, though, what happens if you have a backlog of
claims and you can’t process them in 2 weeks, do you just let them
go through anyway?

Mr. Horn. Yes. A friend of mine who is a doctor, several years
ago when they were having a problem paying the claims, simply
stamped “second request” on his first request and it seemed to get
their attention.

Mr. Fox, the gentleman from Pennsylvania.

Let me say I have to leave for a meeting.

Mr. Fox, if you would be good enough to be the acting chairman?

Mr. Fox. I will fill in later.

Mr. Horn. Next we will yield back to Mr. Green and then yield
to the gentleman from Indiana.

Mr. Fox. Mr. Souder.

Mr. Horn. Right.

Mr. Fox. My question would be directed to anyone who would
like to answer.

Mr. Horn. And we will recess after you two, until 1:00.

[Recess.]

Mr. Fox [presiding]. There are apparently many exciting develop-
ments in health care information technology. GAO reviewed the po-
tential of fraud and abuse software and concluded that this soft-
ware was quite promising.

Does HCFA have a process for testing on a pilot basis such prom-
ising new developments?

Mr. REILLY. Mr. Fox, HCFA currently is testing its own in-house
software that they had developed by a contractor. To my knowl-
edge, and again I would—there are contractors that are going to be
in the next panel, you can ask them specifically, but to my knowl-
edge, HCFA has not used a commercial off-the-shelf product yet.

Mr. Fox. Are they doing it in-house then?
bh Mr. REILLY. They are, depending on what they developed in-

ouse.

Mr. Fox. Are you also as part of your in-house operation consid-
ering such initiatives as the paperless claims processing, through
on-line, real-time processing?


STATUS OF THE MEDICARE TRANSACTION SYS-
TEM: THE HEALTH CARE FINANCING ADMINIS-
TRATIONS PLANNED DATA SYSTEM TO
CONTROL FRAUD/ABUSE

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

AND THE

SUBCOMMITTEE ON HUMAN RESOURCES
AND INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS
FIRST SESSION

NOVEMBER 16, 1995

Printed for the use of the Committee on Government Reform and Oversight

oe

U.S. GOVERNMENT PRINTING OFFICE
37-995 WASHINGTON : 1997

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC. 20402

ISBN 0-16-054168-9
3



106

Today’s Medicare technology architecture and strategy must be founded on the basic
principles of risk management, flexibility, speed to market and return on
investment. During my brief time with you today, there are three main points I

would like to make

* Change in the information technology industry is accelerating so rapidly that the
industry is being modified at a rate that no one could have predicted when MTS
was first conceived. Enormous changes within our communication networks,
computer hardware and software, and business process reengineering are

reshaping our national information infrastructure.

* Organizations that succeed in the future will be those that muster the foresight to
most effectively apply and rapidly deploy the latest innovations in technology.
The ability to create and share health care information hinges on the
standardization of data, pervasive connectivity, open and flexible systems, and

health care organizations’ ability to take advantage of change.

* A new information technology paradigm threatens the success of the existing
MTS strategy, but it also provides a cost effective and reduced time-to-market
alternative. A strategy which focuses on breaking the approach down into
smaller, successive projects -- short term and hard hitting in scope -- will
deliver added value and a return on investment to the program. This alternate
strategy can be achieved rapidly and at a much reduced cost through the

continued consolidation of existing systems and processing centers.

When the MTS initiative was conceived (and EDS bid on the concept) in the early
1990s, its strategy was based upon the health care delivery system and supporting


129

activity. We are one of their larger customers. We use their prod-
ucts in a number of settings in the private sector, in a number of
our Medicaid States that we have responsibility for, and have
found very, very positive results.

And as we talk more about high-impact projects, if we go back
to the GAO report this morning, talking about wanting to get down
to more specifics on scope and cost and timeframes and benefits,
these are classical examples of the kind of projects that can be in-
stalled in basically any kind of legacy system to create high impact
with very reasonable short timeframes to install.

I am sure I am being very conservative when I would say that
the benefits are at least 10 times to 1 what the costs are to put
these things in. And I mean, I can find no reason why you wouldn’t
want to be pursuing these types of things under the Medicare Pro-

‘am.

Mr. Horn. Mr. Huntzinger.

Mr. HUNTZINGER. Thank you, Mr. Horn.

Also, I would like to add that we are in the business of develop-
ing proprietary solutions for the managed care industry, so we de-
veloped application software similar to your MTS initiative. We are
doing that for the commercial sector, and we do not have all the
expertise in our shop to develop all the specialty functions and
technology that need to go into a complete integration effort.

We have also done the same thing and evaluated the market and
we have developed intelligent interfaces to products that we are
talking about today. Our customers have gained—I believe, signifi-
cant benefit from their use, and as was mentioned previously, there
are other competing market—products on the market and we have
taken a path where we have developed intelligent hooks to a num-
ber of those products and have not endorsed any one in particular.

I agree with what was said in that there is significant gain in
benefit that can be realized, and I think it was very appropriately
stated, by the way.

Thank you.

Mr. Horn. I think we have learned years ago in many areas of
rapidly changing technology that we all know it’s out of date the
day the system starts and that another generation is coming right
behind it.

In that time spread they gave us, where it really won’t be fully
implemented until 1999, did you have any reactions on what you
saw? Do you think we are buying an Edsel from the fifties and put-
ting a lot of money in it? Will there be something coming right be-
hind it or that you are already doing, that they haven't taken ad-
vantage of?

Mr. HUNTZINGER. Well, Mr. Chairman, I have been in the infor-
mation technology business since 1969, all on the applications de-
velopment side of the fence. I have not had the opportunity to
evaluate the work that has been done to date, so I cannot really
comment on that. I can only speak from experience, and I can re-
late it to an example.

We have been in the application sciences or application software
side of the business since 1977. We developed some of the first ini-
tial managed care software that’s been—that went on the market


157

maintenance contractor, but using lots of commercial software.
That is the goal.

Mr. Horn. As I listened to the GMIS, both Chairman Owens and
Dr. Kelly, who has had a lot of overview nationally on these things,
it seemed to me, maybe I am optimistic, that they are already
doing what you are aiming to do by 1999. I wonder am I completely
off base there and, if so, tell me where?

Ms. Watton. Dr. Kelly certainly does not have a Medicare oper-
ating system. There are not commercial packages that would man-
age or operate Medicare choices, fee-for-service, capitated pay-
ments.

What Dr. Kelly’s software package does is it edits coding on
claims and rebundles them according to coding rules. You have dif-
ferent parts of a system. There is not a system out there today
other than the nine fee-for-service systems and our HCFA inter-
nally homegrown managed care system. So I think that the dis-
crepancy is as to whether it handles all the functions. It is one
piece; it could be one module.

Mr. Horn. That piece you have already taken care of or is that
somewhere down the line?

Ms. WALTON. The coding rebundling; we have had coding rebun-
dling in our system nationally since the physician payment reform.
Because of the Inspector General’s report that we needed to do
more, we had a competitive contract with a commercial company
to refresh and update the rebundling codes, and several thousand
new ones are going into place the first of the year.

Mr. Horn. My last question; you mentioned the Inspector Gen-
eral’s report. We have had discussion here, and you are well aware
of the GAO report. Do those reports in draft form come to you for
correction, criticism, suggestion before they are issued, or do they
just go out and issue them?

Ms. WALTON. They generally come to us when they are in draft
for comment. My recollection is that the one on the coding did come
to us.

Mr. Horn. Do you feel the Inspector General report and the GAO
reports fairly portray the situation as you know it from the inside?

is. WALTON. I am not an expert in coding rebundling. I think
that there is probably some difference of opinion on the appro-
priateness of coding software that might not have made perfectly
clear to the public what the medical policy is. So I think there is
probably some difference of opinion between GAO and ourselves on
the kinds of research and look behind on the software you need.

Mr. Horn. How would you pull that together and describe the
differences? State your approach to it and what do you think their
approach is?

Ms. WALTON. I hate to speak for GAO but I think some be-
lieve-—

Mr. Horn. Perception is reality. Reality is not reality.

Ms. WALTON. The coding rebundling package is something that
you can purchase, plug it in, and start denying claims immediately.

In a public program, we have looked at these packages and we
find that much of the saving is in the medical policies that go be-
hind the rebundling of the codes. It is our practice, first of all, to
make sure that the policies were, indeed, Medicare policies, and we




107

hardware, architecture, and processing environments that could be envisioned at
that time. We have since experienced enormous change in both the IT and health
care industries. Today's environment is moving away from strictly transaction-
based systems toward those based on the collection, modeling, and management of
data into information for decision support and program improvements. The
magnitude of change occurring over the past five years shows no sign of slowing
down through the end of the millennium. In fact, rapid change is providing us
with new health care delivery systems and enabling communication networks,
business environments, and, most importantly, knowledge that simply could not
have been foreseen in 1990, According to Volpe Welty & Company, clinical data
integration is expected to grow 22% annually; clinical decision support systems will
grow at 53% and health care information management networks are expected to

grow at 39% annually until the year 2000.

Information technology is today, and will be in the future, a critical component in
controlling program costs and safeguarding benefit payments within the U.S. health
care system. This rapid weaving of communication networks, computer hardware
and software, and business process re-engineering services together with the laws,
regulations and policies which shape how it is deployed, is rapidly reshaping our

national information infrastructure.

HCFA’s vision points to the fact that changes are needed within the business
processes, hardware and software architecture supporting the Medicare program.
We applaud HCFA in its efforts to move toward an environment which defines
uniform data models and standards in data definition and structures; provides for

re-engineering of business and IT processes; strives for shared access of data;


28

Statement of Representative Gene Green
Subcommittee on Human Resources and Intergovernmental Relations
November 16, 1995

Thank you, Mr. Chairman for calling this hearing,
which is one in a series of oversight hearings we have
had on various aspects of the Medicare system. The
elimination of waste, fraud and abuse in our Medicare
system is imperative if we are to control costs as well
as maintaining public support for the program. In both
areas, our current performance is not good.

The subject of today’s hearing is the attempt of the
Health Care Financing Administration (HCFA) to
update its computer system to improve fraud and waste
tracking. Several questions have been raised regarding
the cost of the system and the technical capacity of
HCFA to run the system in-house.

I look forward to today’s hearing and hope we can


87

greatest potential payback. They are as follows: electronic com-
merce, the computerized patient record, information warehouse and
decision support systems and telemedicine.

Electronic commerce: One area in which the health care industry
has made substantial gains is electronic claims. Claims processed
electronically significantly reduce administrative costs.

The work group for EDI, WEDI, estimates gross administrative
savings for its four core transactions, that’s claim payment, enroll-
ment, claims submission, and eligibility, at $8 to $20 billion per
year. If 11 EDI transactions are included, the gross administrative
savings range from $13 to $26 billion a year as reported in GHAA
1993.

The computerized patient record, when fully implemented, will
change the way medicine is delivered. The system would incor-
porate complete patient histories, inpatient and physician visits
and results and clinical and functional outcomes.

In addition, clinical management information, including pre-
ferred protocols, practice guidelines and practice pattern informa-
tion needs to be available at point of care. System-wide process
savings would be significant in addition to increases in quality of
patient care and reductions in redundant and/or inappropriate test-
ing.

Information warehouse and decision support systems: A decision
support system that allows a manager to graphically analyze, inter-
actively retrieve data, identify exceptions, and drill down into the
data to view the details, will provide a foundation for better data
analysis. This will result in better decisionmaking than traditional
reporting methodologies.

In addition to tools that provide ready access to data, software
aimed at helping managers better understand health care resource
consumption will also result in cost economies. One such applica-
tion, ambulatory care groups [ACG] was developed by Johns Hop-
kins. The use of ACG’s represents approximately fivefold to twenty-
fold improvement in explaining health care resource consumption
over age and sex alone.

This methodology has many applications in a managed health
care environment, including capitation rate development, utiliza-
tion management, quality assurance, provider profiling, and out-
comes research.

Last, telemedicine. With telemedicine, the patient will be able to
receive education, have vital signs monitored, participate in inter-
active video consultations with their physicians and schedule ap-
pointments, to name a few, all without leaving the home.

In addition to substantial patient benefits, telemedicine will pro-
vide significant cost savings to the caregivers in primary areas of
medical training, surgical preceptorship, and point-of-care delivery
in clinics and primary care hospitals.

Finally, there is current legislation under review that would in-
crease the number of organizations eligible to support the Medicare
Program. The Medicare Contractor Reform Act promotes competi-
tion and holds contractors accountable; thereby improving services
to Medicare beneficiaries and providers. As a long-standing con-
tractor to State Medicaid programs, CSC believes that improved


82

have an interim system on that and we hope that they will be talk-
ing to the contractors about it as well. But there are—there are no
fixed plans that I know of to set up an interim system between now
and MTS.

Mr. Souper. If each of you had a single piece of advice to give
to HCFA, what would it be?

Mr. REILLY. Well, I guess, if there was one piece of advice, I
would have to go back to an assignment we did for the Defense De-
partment on the Composite Health Care System, a $2 billion medi-
cal information system. And while there were many things that
over a period of time that we recommended, it seems to us the most
important was when they changed the project manager to someone
that took responsibility for the entire project, was trained to do it
and was given the authority and responsibility to pull all the pieces
together, at that point we saw a definite improvement. When this
person was set in a vertical organization, a project manager organi-
zation, responsible for that project, and that project alone, and was
given all full-time people to work with and had the authority and
those people were then trained and they had the resources, there
were many technical things I could tell you, but in terms of man-
agement, that was key, and then they were held to strict account-
ability at the same time.

Mr. HOENIG. My advice on this, Congressman, really comes from
not only my own personal experience working with large organiza-
tions but also from the leading organizations we studied, and there
is one thing that I would advise HCFA on at this stage. If you don’t
know where you are going exactly, you won’t get there. You will be
lucky if you get close. It really comes down to that.

To get stakeholders on board and to have a common mode of
communication with the Congress, to get the implementers and the
technical people in particular, who tend to get lost in the details,
to focus on what's really of value to the public, and ensure the sen-
ior executives that they are getting the maximum net benefit for
the public out of their scarce resources, HCFA needs to define,
early on, target ranges of performance measures for each of the key
areas of benefits that they plan to deliver: fraud, quality, customer
service, and cost-savings. And begin to set ranges and targets for
how those will go down, where they are now, what the trends are
and how they will go down over time as the system goes in place.
Without those, the risk really increases dramatically.

Mr. SouDER. How do you feel so far—I got kind of a gut feeling
just from the little bit of what I have heard, is that you are both
uncomfortable that they don’t—we may be moving too fast, at the
same time, maybe not fast enough.

How do you feel on their progress with that? We have seen it in
food stamps. Some of the automated tests are worse than what we
had. Not that what we have is very good. How do you feel they are
coming in their progress with it and where would you——

Mr. REILLy. I think our biggest concern, quite frankly, is two
things: One is compression on the schedule and no change in the
final date. Here we are now saying within 11 months after Septem-
ber 1996, we are going to have a system in operation and that’s
when the design is to be completed and programming, testing, and


10

to significantly upgrade our tools for combating fraud and abuse
and to integrate the basic data systems for fee-for-service, capitated
and partially capitated services under the Medicare Program.

In developing the MTS, we have three major goals in mind: First,
to provide our beneficiaries with superior customer service; second,
to give the program an information system commensurate with our
responsibilities to our beneficiaries, our partners in the provider
community and our colleagues in the executive and legislative
branches.

And third, we want to make sure that payments are made appro-
priately the first time.

Fulfilling our mission of assuring beneficiaries access to high-
quality, affordable health care depends on topnotch customer serv-
ice and on communication with beneficiaries, their families, provid-
ers, and the host of partners with whom they work. When MTS is
fully implemented, beneficiaries and providers will be able to call
a customer service representative who has on-line access to all
claims processing and enrollment information and who can resolve
minor difficulties on the spot.

Using the system, beneficiaries will be able to check on claims,
start appeals, clarify issues of enrollment status, and see where
they stand relative to annual deductibles. It will also help bene-
ficiaries better navigate a world of multiple choices of types of
plans.

By the year 2000, beneficiaries will have many more choices in
their health care delivery arrangements, not only including health
maintenance organizations and preferred-provider organizations,
but point-of-service plans, and we expect, of course, provider serv-
ice networks as well.

To help beneficiaries make informed choices, MTS will maintain
information on various options available and be able to provide
telephone assistance to people making choices. We will also provide
beneficiaries in the fee-for-service sector, single-integrated notice of
benefits.

Since information on all part A and part B payments will finally
be available in one system, we will be able to send each beneficiary
a single monthly summary notice of all transactions, much like a
credit card bill. This notice will help beneficiaries better under-
stand their claims while giving us significant administrative effi-
ciencies and savings.

No longer will a beneficiary, who has just experienced an illness
that required multiple services, receive stacks of notices, each of
which is labeled, “This is not a bill,” which generates more confu-
sion and complaints, I think, than any other aspect of the system.
The MTS will provide us with current detailed information about
expenditures and service utilization in part A, part B and capitated
plans.

We can then use that information for updating our policies, simu-
lating the effects of policy changes and responding to requests from
the Congress and others. And it will critically improve program
safeguards.

We will have a single, uniform claims processing system across
the Nation. We will have a single, integrated, comprehensive data
base. We will be able to apply the most modern, sophisticated and



52

perform as required: fortunately, the project is still in its early developmental

stages, and the outlay of funds has been limited.

AN IMPORTAN:

HCFA's vision, which we support, is for a single, unified system to replace the nine
current systems now used by Medicare, the nation’s largest health insurer, serving
about 37 million Americans. The goals of MTS are to better protect program funds
from waste, fraud, and abuse; allow better oversight of Medicare contractors’
operations; improve service to beneficiaries and providers; and reduce
administrative expenses. At present, HCFA expects MTS to be fully operational in
September 1999, and to process over 1 billion claims and pay $288 billion’ in
benefits per year by 2000. These are ambitious goals, and we realize that

developing such a system is complex and challenging.

Currently, when legislative or administrative initiatives result in revised payment or
coverage policies, each of the nine automated systems maintained by Medicare

“The Economic and Budget Outlook: an Update, Congressional Budget Office,
August 1995, p. 26.

3


94

ece
we

Electronic Commerce - One area in which the health care industry has made
substantial gains is electronic claims. Claims processed electronically significantly reduces
administrative costs. In 1994, 1,271 billion or 36% of all health care claims were
processed electronically (up from 32% in 1993). Understandably, payors who are now
experiencing substantial savings, are embracing electronic claim initiatives and are trying

to accelerate its acceptance. (Automated Medical Directory, 1995)

[DCiaims manually processed
[Claims electronically processed

AA °

1
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994
Source: AMPD Estimate

The Work Group of Electronic Data Interchange (WEDI) estimates gross
administrative savings for the four core transactions (claims payment, enrollment, claims
submission and eligibility) at $8 - $20 billion per year. If eleven EDI transactions are
included, the gross administrative savings range from $13 - $26 billion per year (GHAA,
1993). WEDI also estimates the net savings from 1995 through the year 2000 period at
$42 billion. (ibid.)

According to Michael Brohan and Joseph Goedert, editors for Automated Medical
Payments News,

Today it may cost a commercial payor as much as $25 per claim to

manually record the injury or accident information on a paper claim form

and file it with the State. But if the same date could be automated and sent

to the State in standardized electronic batches, some payors project their
administrative overhead could drop to around $3 per claim.


13

percent of the savings in the sample. It also cites problems with duplicate procedures and

‘unnecessary assistants at surgery.

‘Unfortunately, the examples provided in the report do not provide enough information to
determine if the claim had already been developed (i.e. kicked out for further review and
ultimately paid by Medicare). For instance, examples regarding “global service period
violations” do not provide sufficient information to allow others to adequately assess the
concerns presented. The report's illustration of a surgeon receiving payment for an office
visit the day before a major surgical procedure may or may not be valid. There is
insufficient evidence presented about the diagnosis or services provided during the office visit
which could be considered part of the global surgical package. It Is possible that the office
visit should have been reported with an appropriate coding modifier (specifically, -57,
Decision for Surgery). Medicare payment policy appropriately allows for the paymear of
evaluation and management services when a decision for surgery is made in the immediate
preoperative period. Other examples cited in the report regarding alleged global service
period violations are equally questionable.

We believe that HCFA already has in place an effective process to develop coding edits that
would detect any fraud and abuse in the Medicare program with the assistance of
AdminiStar.


34

sik eimton ean ONE HUNORED FOURTH CONGRESS. ‘tomes esto aan
ae Congress of the United States SS
ee House of Representatives ea Feeeceoton
Seniesa COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT Santuanetagona
stenaer 2187 Ravourn House OFFICE BULONG See
Se Ss, Wasvmaron, DC 20515-6143 mes
Ere oe Statement of [aS

FRE ee vn canane Representative Edolphus “Ed” Towns veces er
RORERT Cue Be waar Ranking Democratic Member

Subcommittee on Human Resources and Intergovernmental Relations =="

Before a Joint Hearing of the Subcommittee on Human Resources and Intergovernmental
Relations and the Subcommittee on Government Management, Information and Technology
‘on Health Care Finance Administration’s Medicare Transaction System

November 16, 1995

IT want to thank the Chairmen for holding today’s hearing on the Medicare Transaction
System. While this is an important issue, I am concerned that today, the Federal
Government is shut down because my colleagues on the other side of the aisle have
repeatedly chosen to aitach Medicare and Medicaid reductions to the Continuing Resolution
that would have kept this government running. Therefore, I find our presence here today, in
‘our oversight role of the Health Care Financing Administration's implementation of the
Medicare Transaction System (MTS) a little ironic.

Medicare currently covers health care services to 36 million people. The great
majority of the beneficiaries are over 65 years old. In 1993 alone, Medicare processed
almost 700 million claims. In a national system which involves 79 contractors and millions
of beneficiaries, small unintentional errors can translate into large problems. Intentional acts
of improper billing can result in multi-million dollar cases of fraud. Old and multiple billing
systems make fraud more difficult to detect, Therefore, it only seems logical that we should
Took at ways to streamline and simplify the Medicare claims processing system,

MTS, a 1990 HCFA initiative is an attempt to provide a single system which will

claims, provide patient treatment information and facilitate fraud detection. This
fystem is scheduled to be fully operational in 199. Tneonsdering his starting dee, {am
reminded of a car which promises 60 miles per gallon. It is a revolutionary achievement
unless the gas tank is emply. Given the recent cuts and promised future cuts in Medicare, I
‘am concemed that there may not be a program by the time MTS is in place. I guess this
{question can only be answered by the American public. I look forward to hearing the
testimony of the witnesses here today.


46

Second, shrinking the development schedule has led to signifi-

cant overlap of development phases meant to be largely sequential.

uhird, there is a lack of reliable information about costs and ben-
efits.

The good news is, however, that if management exercises invest-
ment control and other “Best Practices” these risks can be greatly
reduced. Since MTS development is still in its early stages—and I
want to stress that, within a limited outlay of funds, this is an ex-
cellent time to assess what changes in approach could enhance the
likelihood of success. HCFA has expressed interest in learning
more about “Best Practices” and we are very happy to work with
them in this area.

HCFA expects MTS to be ready for initial operation in Septem-
ber 1997, and full capability in September 1999. A contract for the
design, development and implementation had been awarded to
GTE, and as Br. Vladeck said, the independent verification and
validation or IV and V’s to Intermetrics, which is a separate tech-
nical check of GTE’s work and works closely with HCFA as well.

I want to make one observation, Mr. Chairman. The MTS project
represents a role shift for HCFA, one that may be difficult to mas-
ter. The nine existing processing systems were built entirely by ex-
perts in systems development. HCFA’s role is to manage the devel-
opment of MTS using its contractors GTE and Intermetrics.

In other words, Medicare program managers are tasked with de-
veloping guidelines for GTE to follow. This technical management
responsibility introduces additional risks to the extent that HCFA
program personnel are inexperienced in such direction and this is
to be expected with this kind of a transition.

Early symptoms of risk: In our experience, problems related to
requirements definition, schedule and cost often contribute to ex-
tensive delays, large cost increases and a systems inability to
achieve the potential benefits it was designed to produce. Such risk
is not merely theoretical. Symptoms are appearing.

For example, in the area of requirements, the needed level of
specificity has not been achieved, a fact also highlighted to HCFA
by the IV and V contractor. Since requirements provide the founda-
tion for developing the system, they must be precise. They also
need to be in place before design and other decisions that follow
from the requirements are set.

One indicator of an undisciplined approach is that HCFA has
gone back and forth with GTE initially saying the requirements are
too broad, then too detailed. At this point, while HCFA officials be-
lieve requirements have been sufficiently defined, both we and the
IV and V contractor disagree. I’d like to have you take a look at
our board here.

Mr. Horn. And all of those will be included in the record at each
point.

Mr. REILLY. Thank you.

Schedule compression is another potential flag and the graphic
shows the sequence of a normal systems development, and the
topline is taken from an early HCFA plan, and is not meant to in-
dicate delay but merely that the latest revised scheduled under-
neath where it says 11-95 shows a good deal of phase overlap
which can cause problems.


115

Aetna, Signa, Prudential, as examples of those very large proc-
essors. Most of the Blue Cross/Blue Shield plans are our customers,
over 75 percent of them nationwide, as well as many of the HMO’s,
leading HMO’s such as Harvard Community Health Plan, U.S.
Health Care, Humana, and so forth.

We have had terrific experience in unveiling these technologies
through this customer base, which, by the way, and I think this is
an important fact, their subscriber represent over 125 million
Americans. So half the country is being evaluated through these
technologies today.

And our experience to date has been that the reaction of both the
provider community has been negligible and the reaction of the in-
dustry itself has been to realize very significant savings because of
the nature of the problem that we “detect. And when we talk about
the issues of billing abuse, what we are really talking about here
is double billing. It’s very creative double billing. It’s double billing
that perhaps I will ask John to describe, because it’s subtle. The
average layman can’t detect it.

But perhaps you could give some examples, John, that would
show the committee how medically sophisticated a system has to
be in order to address this issue.

Mr. Horn. Dr. Kelly.

Dr. KELLY. Mr. Chairman, just to amplify on Mr. Owens’ com-
ments, I think that, as you recognize, physicians are trained in the
practice of medicine. Coding is an area in which most physicians
do not have substantial training. Beyond that, the rules of coding
are relatively complex and they keep changing. Even the terms or
the language which is used to describe particular services, what
the rules are for billing, all of these are somewhat complex and
they keep changing. And so it’s a difficult matter for physicians to
remain current and fully knowledgeable on this.

Add to it, there are a huge number of different kinds of services
that physicians provide and so the issue of submitting bills accu-
rately is a major challenge. And so as Mr. Owens has described,
part of what we do is to use large numbers of physicians to care-
fully review the coding rules and then to translate this into stand-
ardized software which we can make widely available that other or-
ganizations can then use as part of their claims payment process.

Where necessary, the software that we develop can be modified
to take into account local variations in payment policy, so that
there is the value of both standardized coding, standardized deci-
sionmaking, as well as customized decisionmaking, based upon
input from the medical community.

And so what we find is that what these kinds of tools allow is
fair and consistent and appropriate payment, and as Mr. Owens
has indicated, these tools are now very widely used throughout the
health care industry. They are used throughout the private system.
They are used in many of the Medicaid programs. They are used
in the CHAMPUS Program. In fact, the only significant part of the
delivery system that does not have the benefit of these kinds of
tools is the Medicare Program. And we think that that is a loss to
the program, as well as a loss to the country.

Second, as far as the input from the physician community, not
only do we have significant input in the development of our tools,


51

such as improving customer service through direct access to Medicare claims
information through MTS, both for beneficiaries and providers. These are all good

ideas.

We see problems, however, that seem to stem from the lack of a disciplined
management process that has as its hallmark managing information systems and
technology as investments. Not managing MTS in this way has led to system
design and development proceeding despite (1) difficulties in defining requirements,
(2) a compressed schedule containing significant overlap of system-development
phases, and (3) a lack of reliable information about costs and benefits. These

deficiencies increase risk.

The results of our work looking at systems-development initiatives shows, however,
that management attention to implementing effective investment-control practices
can reduce such risk. HCFA officials have expressed interest in learning more
about effective management practices that have helped other organizations succeed
with similar projects, and we have agreed to continue to work with them by
suggesting successful approaches to reduce MTS development risks. Now is the

time for careful scrutiny and improvement to enhance the chances that MTS will


136

lectors, and after 6 months we want that to be turned over to pri-
vate collectors.

I think there is no question that we will, through that competi-
tion. One of the incentives we have is to give the agency that is
collecting part of the action to spend in their budget. Whether that
finally goes through the various appropriations committees, I don’t
know, but we are starting with 5 percent. If they collect $1 billion
out there, the agency earns 5 percent.

But the competition is the key and because other people are in-
volved you can test out who are the sleepers and don’t give them
anymore of the business. You can know statistically and keep ev-
erybody on their toes.

So that is why that competition question is here. I think it is a
good idea. Now, some people don’t. Some people say big govern-
ment knows all. The current majority does not feel that way, need-
less to say, especially when we see $100 billion written off by IRS.
That doesn’t please me, as the Commissioner knows. So we will
have a hearing on that, maybe a date like April 15, which might
stay in everybody's mind.

What incentives do current Medicare contractors have to update
their systems while HCFA develops MTS? Are there any incentives
that you are aware of?

Mr. Rubin. I would think that the most effective way to instill
the right set of incentives in this system would be to look toward
more activity in the privatization of the program and more
outsourcing of the functionality of the program that would cause
more and more continual upgrading and competitiveness of the
whole activity and process.

Mr. Horn. Anybody want to add anything to that?

What concerns does EDS have about reverse engineering as it
may relate to copyright infringement? Any feelings on that?

Mr. RupDIN. Offhand, I don’t think I have got a clear view of how
that would apply in this case. I am sorry. I would have to check
with some other people.

Mr. Horn. Let me ask you this, then: Are data processing compa-
nies reluctant to do business with HCFA out of fear of copyright
infringement? In other words, if you have got a system going are
you concerned about doing business with HCFA? We know we are
in an age where intellectual property is regularly stolen by some
of our friends and enemies and allies.

Mr. RUDIN. I think that if we look at the Medicaid Program as
an example, I believe that we have gone through an evolution over
the years in Medicaid, you know, where there’s access to all the
systems in the marketplace, if you will, so they don’t remain pro-
prietary, if you will. So I think we have already paved the way in
some of the Medicaid areas to already deal with this entire issue.

Mr. Horn. OK. I think we might have a few more questions, but
if you don’t mind, we will submit them in writing, and if you would
be good enough to share your experience with us, we would like to
put them in the record at this point. So I thank you all for coming.

Mr. Horn. Yes, do you have a question?

Mr. Davis. I am sorry.

Mr. Horn. No, that is great. This is the gentleman from Virginia,
Mr. Davis.


47

HCFA officials explain such schedule compression by saying it is
important that the 1997-99 dates not be delayed because doing so
would mean incurring additional expense because of the so-called
millennium change in the year 2000 where the digits change. But
if you look at that schedule and—Karen, show where the 1996 line
is and where the 1997 line is—at the end of 1996, that’s 10-96, the
analysis, design is supposedly completed and they begin program-
ming and testing and evaluation, but you will see there’s only an
11-month period between the end of design and the beginning of
implementation. And this is a time compression.

0 we think what is needed is an evaluation of these costs versus
the risk of compression, and HCFA has not developed a tool for
such risk assessment.

Finally, cost estimates have not been updated for over 3 years
and internal costs, such as for personnel training and travel, have
been and are not being tracked. In conclusion, signs of risk are
present but can be reduced—pardon me, be reduced.

Mr. Chairman, the pattern is all too familiar when systems are
not developed according to sound discipline practice. Major and ex-
pensive problems crop up later on, and Mr. Clinger’s mention of
FAA we will discuss later on.

The larger project, the bigger and the bigger the risk, and MTS
is an extremely large project. These risks can be reduced. My col-
league Mr. Hoenig will detail what is necessary to do just that,
after which we will be happy to entertain questions.

Mr. Horn. Very well.

Mr. Hoenig.

Mr. HoENIG. Good morning, Mr. Chairman and members of the
subcommittee. The purpose of my remarks today is to bring a larg-
er perspective to the discussion of this MTS effort.

I'd like to cover the following three areas with you. The wheel
doesn’t have to be completely reinvented with MTS. We can learn
from the success and failure of others; there are three management
areas especially critical to its success and each of those three areas
leads to an important oversight issue for you to consider.

Let me start with the idea that there is much experience in re-
ducing risk with large systems that most professionals agree on.
These practices make a difference and we in Government ignore
them at our peril, as you have talked about already.

It is easy to talk about, but the difference is really in execution.
Although some successes have been frequently touted in the IT
area, high failure rates for large projects are a problem and have
been for years in both the private and the public sector. However,
certain selective leading organizations have figured out how to re-
duce the risk and repeat successes.

Last year, we completed a 2-year research effort to study how
they did. it, private and public sector, senior management teams re-
peatable successes—you should have this in front of you—profes-
sional consensus is developing on these critical issues in Congress,
in the administration and the agencies, in law, in regulation, and
in day-to-day practice.

Second, the essence of what we learn comes down to this; experi-
ence and discipline must be proportional to the scale and complex-
ity of the effort. MTS is a large effort. And the three management


6

DHHS's Office of Inspector General, the government entity responsible for detecting waste,
fraud and abuse in the Medicare program, allocates most of its resources for the investigation

of non-physician payments and services because of its own experience.

CONCLUSION

All agree, abuse of the Medicare system cannot be tolerated. No one would argue that
abusive billing practices should be allowed to continue. But allowing the Medicare coding
system to be redefined without the benefit of outside examination will place beneficiaries at
risk by not implementing abuse safeguards that are directly consistent with the objectives and
structure of the Medicare program. The AMA maintains that computer coding systems
should be developed with the medical expertise of physicians and the input of the physician
community. Without such expert review physicians will oot have the opportunity to become
educated regarding these codes and therefore will not have the opportunity to inform their
patients about which services may or may not be covered. The AMA is committed to
improving the medical coding system and we look forward to working with you and
Members of the Subcommittee as this important legislation moves forward.


86

Dr. KELLY. Yes, Mr. Chairman.

Mr. Horn. All right.

Gentlemen, as you know, we have a tradition of swearing in wit-
nesses on this committee, so if you will stand and raise your right
hand.

[Witnesses sworn.]

Mr. Horw. I take it all four of you affirmed on that?

All four have affirmed.

We will begin, I believe, Mr. Huntzinger, president of Computer
Sciences Corp., Healthcare Systems, Inc.

Welcome.

We are delighted to have you here, sir.

STATEMENTS OF GEORGE HUNTZINGER, CSC, HEALTHCARE
SYSTEMS, INC.; GARY RUDIN, EDS, CORPORATE VICE PRESI-
DENT, HEALTH CARE GROUP; THOMAS OWENS, GMIS, INC.,
ACCOMPANIED BY JOHN KELLY, M.D., PH.D., CHIEF MEDICAL
OFFICER AND SENIOR VICE PRESIDENT, CLINICAL INFOR-
MATION SERVICES

Mr. HUuNTZINGER. Mr. Chairman, members of the committee,
good afternoon. I am George Huntzinger, president of CSC
Healthcare Systems.

On behalf of CSC and ITAA, I am pleased to be here and appre-
ciate this opportunity to share our views and expertise on the role
information systems play in the health care industry, especially in
assisting managers and controlling costs.

CSC Healthcare Systems markets information systems consult-
ing and outsourcing services to support managed care organiza-
tions, point-of-service plans, medical groups, and private practices.
We are the largest supplier of information systems to HMO’s, in-
cluding 31 percent market share.

The Information Technology Association of America [ITAA] is the
premier trade association of our Nation’s computer software and
services industry. ITAA’s more than 6,700 direct and affiliated
member companies provide business applications and systems soft-
ware, customs software programming services, information systems
integration, and information processing services.

Today's health care system, put simply, has an abundance of op-
portunity for efficiency improvements in both the cost of admin-
istering and delivering health care. The industry has grossly
underinvested in information technology and overinvested in ad-
ministrative personnel.

Industry such as banking and insurance are spending 10 and 6
percent respectively on information technology, while health care
IT spending is in the range of 1 to 2 percent. As the health care
industry moves to a true business model where competition is a
way of life and the customer or patient is supplied with enough in-
formation to make an informed choice, the industry will look to-
ward information technology for gains in competitive positioning.

The challenges confronted by today’s administrators and care-
givers cannot be solved by information systems alone. Investment
is necessary in three key areas: infrastructure, business and proc-
ess reengineering, and information systems. I will concentrate on
information systems and focus on those areas that provide the


41

Boreau of Program Operations:
BPO, Bureau Director, Carol Walton
MTSI Program Manager, Jared Adair

Office of Analysis and Systems
Office Director, Jared Adair
MTS Office Lead, Amold Rottnan

Office of Benefits Integrity
Office Director, Linda Ruiz
MTS Office Lead, George Mills

Office of Program Requirements
Office Director, Stewart Streimer
MTS Office Lead, Max Buffington

Office of Customer Communications
Office Director, Tony Mazzarella
MTS Office Lead, Bary Turska

Office of Contract Administration
Office Director, Michelle Snyder
MTS Office Lead, Mare Thomas

MTS Trail Boss ~ Chuck Slike
MTS Systems Manager ~ Ronald Graham

Office of Maneged Care
Office Director - Gale Drapala
Office Lead ~- Marla Kilbourne

Bureau of Policy Development
Bureau Director — Tom Ault
BPD Office Lead — Harold Hetherington


127

What has happened over time has been that those organizations
have typically turned to private sector organizations such as ours,
and we are not the only one. There are others that do similar—de-
veloped similar tools and do so in a way which is similar to what
we do. And what those, whether it’s a large insurer, a large HMO
or a hospital system or a group practice, what each of them have
found is that it makes sense to turn to experts who devote their
attention fully to this and who then develop tools which they can
license and use that; in effect, provide them the benefit of this ex-
pertise.

Absent doing that, they would have to, in effect, recreate the
same kind of process that we have in place, and so the benefit that
we provide to them, why these kind of tools have been used in so
much of the private arena, as well as in the Medicaid, as well as
in the CHAMPUS, is, in effect, we are able to bring all of this ex-
pertise and then to translate it into a relatively easy, automated
way, that can be inserted relatively effortlessly into their payment
systems.

You may choose to ask some of the other participants here as to
how easy it is and how readily this can be transferred. into the
Medicare Program, the same kind of tools that they are using in
other parts of their business.

Our concern then as far as the Medicare Program is concerned
and as far as HCFA is concerned, is that they are not moving rap-
idly enough or not taking advantage of some of the kinds of tech-
nology which is available today, widely used today, not devel-
opmental! but, in fact, readily available. And our belief is that the
Medicare Program would benefit in the same ways as the rest of
the health care system is currently benefiting from this kind of
technology.

Mr. Horn. What do the various academies in medicine, surgeons,
family practice, or whatever, do? Do they have committees that
deal with this type of matter in terms of agreeing on coding, agree-
ing on the various processes that are best practiced processes at
this point in time? And how does that information get to the in-
surer, the nationwide HMO, the nationwide hospital system and
HCFA?

Dr. KELLY. Well, Mr. Chairman, what happens is the following:
Is that, first of all, there’s the process which the American Medical
Association has in place, which is developing the coding system, the
CPT coding system and developing the various rules and providing
guidelines regarding payment policy. That’s a major activity and an
important activity.

Many of the medical specialty societies, such as the American
Academy of Dermatology or the American Academy of Orthopedic
Surgeons or the American College of Cardiology, will have input
into that process and so provide influence there. At the same time,
they will oftentimes communicate with their members and provide
guidance regarding payment decisions, how they should bill, how
they should code for particular services.

Typically, this is conveyed through books or educational pro-
grams. The difficulty, of course, is that the number of codes is
large. The number of rules are complex and how particular rules,


ll

probability of success in attaining a Medicare environment that safeguards the

Medicare trust fund dollars and the confidence of those it serves.

We recommend that the MTS initiative be revisited, taking into consideration the
dramatic changes in the health care and IT markets over the past five years.
Through this effort, HCFA and Congress can be assured that the strategy and
approach taken are based upon the most current knowledge and solutions available
for deployment in the Medicare program, with a rapid return on investment for

managing program costs and payment safeguards.

I have suggested that the current MTS strategy threatens the project's success and
may result in an antiquated or even obsolete solution. In considering this
situation, I hope our decision-makers fully appreciate the technology paradigm I
mentioned earlier that threatens the viability of the current approach. Today's
technology architecture paradigm has four principles: risk management, flexibility,

speed to market, and return on investment.

First, the focus in health care today is on program improvements. Information
analyses critical to the achievement of these improvements are driven by data
integration and enhancement technologies that create the decision support required
to achieve improvements. Data integration and enhancement capabilities already
exist and can be leveraged today with the current systems at minimal risk. For
example, nearly 42% of HMOs and approximately 40% of Blue Cross Blue Shield
plans and commercial organizations plan to add to or enhance their existing
reporting capability during 1995, according to a survey conducted by Charles J. Singer
& Co. Included in this survey are health care organizations which have recently


120

The private sector overwhelmingly employs ClaimCheck or similar products from other
companies as a part of their claim payment processing. Nearly all indemnity insurers, Blue Cross
Blue Shield plans, or managed care organizations use commercially developed and marketed
software to prevent claim overpayments. Any organization that is at financial risk for
beneficiaries’ medical services protects its investment by licensing, rather than developing itself,
the technology necessary to safeguard claim payments. Increasingly public sector programs are
discovering the value in this approach. Medicaid programs in Kentucky, Kansas, Alaska,
Wisconsin, Pennsylvania, and Virginia have licensed technology directly from GMIS. The
Department of Defense’s CHAMPUS and CHAMPVA programs have procured our technology.
The Department of Justice has used ClaimCheck to support civil prosecutions and is currently

studying possible applications in support of criminal investigations.

The savings experienced by private and public sector organizations are completely
consistent with the findings of several studies performed by various United States Government
Agencies done to determine the value of claims editing technology. The Department of Health
and Human Services Office of Inspector General study, released in July of 1994, showed that
eight Medicaid programs, California, Ohio, Michigan, Illinois, Missouri, Nebraska, Colorado, and
West Virginia, had a collective projected annual savings of over $60 million if a claims editing
system were used. This study confirmed the findings of a 1991 study of the Office of Inspector
General. And, this past May, the United States General Accounting Office released a study of
Medicare claims projecting annual savings of at least $640 million for the program if it used

commercially available software like ClaimCheck. This GAO study merits more discussion.


125

Mr. Horn. Well, we appreciate that offer of assistance, Dr. Kelly,
and we will take you up on it.

Let me just ask you, on the coding, since you brought it up, it
seems to me one of the problems we have in coding is there’s a con-
stant change in expansion of various processes. As I recall, when
HCFA started squeezing the hospitals and the doctors to save
money nationally, what you had in physician coding was a subdivi-
sion of processes for which used to make a certain charge, in order
to get their fees up in gross say—by subdividing them and making
them separate processes. So when it all added up, they were either
equal to what they had been prior to HCFA squeezing them, et
cetera.

Now, to what extent was that a true description of the situation
and how does one deal with that in a constantly changing system,
either based on new technology that changes the nature of medi-
cine, new processes, new ways of serving people.

You have to have obviously a very flexible system, a system that
can take expansion and contraction, and yet this is nationwide
even though you mentioned some regional practices there, which I
am sure are true, that the medical community in some parts just
sort of feels this is the way we do things around here, whether it’s
20 rears old or 10 years ahead. And to talk a little bit about that
and how much of a problem that is? Is it any sort of a problem in
a modern, technically up-to-date system to be flexible?

Dr. KELLY. Thank you, Mr. Chairman.

lL appreciate that.

First of all, as you know, medicine keeps changing. There are
new kinds of services that are developed, that then become widely
available because, in fact, they benefit patients. And so there are
many services that physicians are providing today that weren’t
even available or even possible several years ago. And so there’s
clearly a need for new codes to describe those kinds of services so
the coding system itself changes in that regard.

Second of all, over time, the range of services that are encom-
passed within a particular code, that also changes as well. As you
know, there are organizations such as the American Medical Asso-
ciation, CPT effort, which meets regularly to try to develop accu-
rate descriptions of the kinds of services that might be provided,
what’s included in that. That group continually updates the coding
system and publishes new codes every year.

Part of what we find is one of the major challenges, first of all,
is making sure that the code itself is accurate, and that’s a major
part of the services that we provide, helping to facilitate the accu-
racy of coding.

The second part that Mr. Owens was speaking to and that part
of our software addresses, that oftentimes physicians provide mul-
tiple service—services to a patient at a given time. And, so part of
the challenge is how many of those services are included within
one code or included in a different code or multiple codes?

There are, in fact, in our system, well over 10 million different
possible code combinations that could be provided and that we have
rules to address, and so the challenge that physicians face, and
those that assist them with their billing, is when the physician pro-
vides, for example, a particular surgical procedure, there may be a


149

QUESTION:

How many of nine existing automated systems does your agency or GTE, the contractor,
have the license to use or incorporate into MTS? (Transcript page 172.]

ANSWER:

There are nine standard systems, three Part A systems and six Part B systems, We have the
rights to two Part A systems and two Part B systems that are in the public domain. They
are:

Part A Arkansas UB82 System, maintained by Arkansas Blue Cross Florida
Shared System, maintained by Florida Blue Cross

Part B CFA Part B Standard System (HPBSS), maintained by The Travelers
Pennsylvania Blue Shield Part B System (PBSPTB), maintained by
Pennsylvania Blue Shield

The remaining five systems are proprietary. They are:

Part A Advanced Claims Processing Systems (ACPS), maintained by Policy
Management Systems Corporation

Part B Optimum Systems Inc. (OSI/Shared Arkansas System (SAS), maintained by
Arkansas Blue Shield Multi-Carrier System (MCS), maintained by Electronic
Data Systems-Federal (EDSF) GTE Medicare System (GTEMS), maintained
by GTE Data Services VIPS Medicare System (VMS), maintained by Viable
Information Processing Systems (VIPS)


153

Mr. Horn. What pilot projects is the Health Care Financing Ad-
ministration engaged in to test the potential software modules for
incorporation into either MTS or your existing system? What are
we looking at here in pilot projects?

Ms. WALTON. Several things are being piloted. One of the cus-
tomer service features of the new system is a Medicare summary
notice that, like a Visa card statement, summarizes the charges.
We have done focus groups with beneficiaries, but we want to make
sure that we have it right.

It’s one of those things, when you have 38 million people, that
you don’t want to have that be your test; so we are actually run-
ning two pilots this coming year, 1996, two pilots as control groups
and two pilots with the summary notice. We are doing pilots—actu-
ally, we are prototyping the user screens. Both providers and the
customer service reps at the carriers are going to have some advan-
tages of integrated data from the MTS. So the way systems are
built today, it is not that the programmers sit back in their closets
and decide what the screens will look like; they actually work with
the customer, the user, to prototype the screens. That is also hap-
pening in 1996.

Mr. Horn. So this is a Windows-type system, in essence, and you
want the consumer, the beneficiary, to be able to come into an of-
fice or what and use it, or is it a customer service representative?

Ms. WALTON. The consumer in this case would be the provider
or the physician checking the eligibility of the insurance, or it
would be the customer service representative taking a telephone
call where someone was asking a question about something.

Mr. Horn. Well, the next part of that question was that the pri-
vate sector has been moving toward online real-time processing
systems. Do you have any pilot projects for that aspect? As my
counterpart and colleague, Subcommittee Chairman Christopher
Shays of Connecticut, when this has come up, has said, hey, why
don’t they look at Home Depot. They for example, have immediate
information about transactions anywhere in the country and tie it
into inventory renewal and all of that? And as you know, when you
walk into something like Target, Home Depot and Office Supply,
it is amazing, you know, how their information systems work. And
this is nationwide.

But anyhow, where are we on that? Do you have that type of
pilot project under way, too?

Ms. WALTON. Actually, I am not as familiar with Home Depot.
The one I usually think of is the airline reservations, but it just
goes to show you, I am not as good at the home improvement lines.

To have a real-time and online system for the Medicare insur-
ance file, right now, when a beneficiary signs up in an HMO it’s
very slow. Sometimes the managed care company doesn’t hear back
for weeks. If they wanted to drop out or change, it’s a batch proc-
ess. It takes weeks and weeks.

With the coming managed care choices, and actually talking to
customers, to not only beneficiaries, but providers and managed
care companies, one of the main things they asked for was real-
time updating of insurance eligibility. So that is something that we
are working on and hoping to get piloted late next year.


Tl

SUBCOMMITTEE ON HUMAN RESOURCES AND INTERGOVERNMENTAL RELATIONS
CHRISTOPHER SHAYS, Connecticut, Chairman

MARK E. SHOUDER, Indiana EDOLPHUS TOWNS, New York
STEVEN SCHIFF, New Mexico TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland BERNARD SANDERS, Vermont (Ind.)
THOMAS M. DAVIS, Virginia ‘THOMAS M. BARRETT, Wisconsin
DICK CHRYSLER, Michigan GENE GREEN, Texas
WILLIAM J. MARTINI, New Jersey CHAKA FATTAH, Pennsylvania
JOE SCARBOROUGH, Florida HENRY A. WAXMAN, California
MARSHALL “MARK” SANFORD, South

Carolina

Ex OFFICIO

WILLIAM F. CLINGER, Jr., Pennsylvania © CARDISS COLLINS, Illinois
LAWRENCE J. HALLORAN, Staff Director
KATE Hickey, Professional Staff Member
Ropert NewMAN, Professional Staff Member
Tuomas M. Costa, Clerk
CHERRI BRANSON, Minority Professional Staff


143

Mr. Horn. I am going to yield time such as he would like to
consume to Mr. Davis who has other commitments.

So, Mr. Davis, the gentleman from Virginia.

Mr. Davis. Just a couple of quick questions.

HCFA’s testimony projected about $200 million in annual admin-
istrative savings after 1999 as a result of MTS. According to the
GAO, you have not updated since 1992 your MTS cost projection
of $151 million and that old number never included many of
HCFA’s own internal costs. Could you furnish the committee and
GAO with your most recent breakdown of the anticipated cost of
MTS and the potential savings?

If a further analysis by the GAO demonstrates that MTS as cur-
rently constituted would. not save as much as alternatives, would
you be willing to re-examine your decision to proceed with the cur-
rent plans with MTS?

Ms. WaLToN. I didn’t understand the last piece. Did you say that
GAO has——

Mr. Davis. No, if.

Ms. WaLTON. Oh, if—

Mr. Davis. If they have analyzed, if they updated the cost—if
they analyzed it at that point and they find that you would not
save as much—the MTS as currently constituted wouldn’t save as
much as alternatives, would you then re-examine your decision to
proceed with the current plans?

Ms. WALTON. The $152 million estimate for building and imple-
menting and bringing up the operating sites is still the current es-
timate. Until we make the design decision at the end of the year
and do some of the cost-benefit decisions that come with that deci-
sion, we have not updated that estimate because we think that’s
still an accurate number.

If evidence were that a great more could be saved with a dif-
ferent strategy, of course, it would be important to look at that.

Mr. Davis. So you would be willing to look at that point?

Ms. WALTON. Yes.

Mr. Davis. Let me ask you another question. We had in our
packet a copy of an article from Health Systems Review that you
wrote on the Medicare Transaction System. Now, it listed a num-
ber of the priorities for MTS, including uniformity in operations
and efficiency in administration. But detecting waste and fraud is
hardly mentioned at all. How important is fraud detection for

Ms. WALTON. Well, it’s certainly one of the main strategic goals.
The goals have been—I think what may have—have caught—not
been clear in that article is what we called it was better manage-
ment of the program dollar or the benefit dollar, the idea being
that our goal is never to pay out less of the benefit dollar if, indeed,
it’s accurate but not to pay out one extra dollar if, indeed, it was
inaccurate or fraudulent. So that might have been a little bureau-
cratic way of saying that we wanted to be tougher on fraud and
abuse.

It’s really a basic strategic area. The background of Medicare
coming from such a claims processing mentality to our systems,
they have not had the data basis, the information systems that al-
lowed us to do the kind of job on fraud and abuse prepay. Most of


104

Testimony of

EDS

Representative Horn, Representative Shays, and members of the joint Government
Reform and Oversight subcommittees on Government Management, Information,
and Technology, and on Human Resources and Intergovernmental Relations. Iam
Gary Rudin, Corporate Vice President of EDS and the executive responsible for the
Health Care Group. I appreciate the opportunity to discuss the MTS ~ Medicare
Transaction System -- and how this initiative proposes to leverage improvements
in the efficiency and effectiveness of Medicare operations, payment safeguards, and

decision support through information technology.

Before I begin, I would like to congratulate the two Chairmen, and the two
subcommittees, for the leadership you are demonstrating on this critically
important strategy to improve effectiveness of the Medicare program. EDS supports
the efforts of these subcommittees and HCFA in looking for solutions that will

prevent and reduce fraud and abuse within the Medicare program.

Based just outside of Dallas, Texas, Electronic Data Systems is a major provider of
business process improvements through information services, including
consulting; systems development, integration and maintenance; and process
management. EDS’ 1994 revenues were $10.5 billion and our leading markets
include Federal, State, and Local Government; Health Care; Insurance;
Communications; Manufacturing; Transportation; Financial Services; Energy; and

Retail Services. We employ more than 80,000 people in 41 countries.

EDS is the largest information services provider to the health care industry; we
have supplied consulting, information technology, and process management

services to that industry for more than 30 years. As the provider of outsourcing


64

tracking internal costs associated with the project, such as personnel, training, and
travel. According to HCFA officials, they plan to update their cost estimate next
year, to reflect their current understanding of MTS' capabilities. Similarly, except
for estimated administrative savings of $200 million a year during the first 6 years
of operation (1997-2002), HCFA has not yet quantified other important expected
benefits of MTS, such as targets for reducing fraud, waste, and abuse, and
improving services to beneficiaries and providers. Without current information on
costs and potential benefits, HCFA executives will not be in the best position to
realistically monitor performance or identify and maximize the system's true return

on investment.

INCL IN:

We have seen an inescapable pattern in agencies’ development of information
systems: even on a small scale, those that are not developed according to sound
practices encounter major, expensive problems later on. The larger the project, the
bigger the risk. It takes serious, sustained effort and disciplined management
processes to effectively manage system development. Effective oversight greatly

reduces exposure to risk; without it, risk is dramatically and needlessly increased.

14


50

‘Statement of Frank W. Reilly

Director, Information Resources Management/
Health, Education, and Human Services

an

Christopher W. Hoenig

Director, Information Resources Management/
Policies and Issues

Accounting and Information Management Division

Mr. Chairmen and Members of the Subcommittees:

We are pleased to participate in this joint subcommittee hearing today to discuss
our ongoing review of the Health Care Financing Administration's (HCFA) efforts
to design, develop, and implement a critical new claims-processing system, the
Medicare Transaction System (MTS). At the request of Chairman Shays, we have
been evaluating HCFA's progress; specifically, we were asked to focus on the
process for defining MTS requirements, and the reliability of the development
schedule and project cost estimates. In connection with our ongoing work to
identify recognized best practices for large systems-development efforts, we are

also providing observations on HCFA’s overall approach to managing MTS.

We are finding, Mr. Chairmen, that HCFA's approach has several strengths, and
several weaknesses that have contributed to early symptoms of unnecessary risk.
On the positive side, HCFA plans to design and develop MTS to allow for future
modifications. With the vast and varied Medicare reform issues before the
Congress, this is essential. HCFA also plans to build, test, and implement MTS in
increments, or segments, thereby mitigating the impact of large-scale problems;
similarly, the system is planned for deployment initially at a limited number of
sites, which means that HCFA should be able to identify problems and correct them

before further implementation. Finally, HCFA’s plans include worthwhile goals


99

fara
wt

As for telemedicine’s return on investment (ROI), Michael O'Connor, President

of United Medical Network, says,

Tt is usually 3:1 to 5:1 for the educational application. The buyer must ask

himself: If I can free one surgeon up one day per month, what kind of

revenue does that amount to? For a great surgeon that may be eight to ten

‘operations; for an average surgeon three to five. In either case, that’s a ton

of revenue. Or you could add up the revenues saved by keeping three or

four residents off the road for a few days each month, saving FTE

equivalents and staff costs. (The 1993 Healthcare Communications

Directory)

Home care was estimated to be a $40.1 billion industry in 1994 and has been
growing 23.8% annually since 1989. Even though it is a small portion of total health care
expenditures (approximately 4%), information systems can help care givers be more
efficient. Nursing staff equipped with hand held PCs could collect patient data during
home visits and immediately transmit data to the medical center via modem.

‘This system eliminates remote care nurse paperwork and increases the number of patient
visits a nurse can make each day. People prefer the comfort of their homes and the care of
their families. If more care can be rendered at home, significant dollars can be saved.
Based on government figures, average hospital charges per day in 1992 were $1,459 and
skilled nursing facility charges per day per $264, while average home health charges per
visit were $75. Estimates for 1994 were $1,756, $284, and $83 respectively. (HIMSS

Proceedings, 1995)


24

it should be administered from a single central site. We do not be-
lieve it should be administered directly by the Government or oper-
ated directly by the Government, because our experience is that the
private sector has substantially more flexibility. We can have more
flexibility if we don’t operate these systems directly ourselves. But
we do feel very strongly that there should be a single national set
of rules, set of systems, set of codes and so forth, which can then
be administered in a variety of ways.

Mr. Horn. Well, that is heartening because we have just ana-
lyzed some of the debt collection of the Federal Government and
the job just hasn’t been done. There is a need to really contract
some of that out and get the job done. We are talking about $60
billion out there in IRS uncollected debt, $50 billion in other agen-
cies uncollected debt, and here we are struggling to find the next
penny in the budget.

Mr. VLADECK. Mr. Chairman, if I could turn that around a little
bit. We have been criticized by our Inspector General, appro-
priately, because as we have sought to come into compliance with
the Federal Financial Manager’s Act and develop financial state-
ments for the Medicare Program that are in conformance with ac-
cepted accounting principles, there are three or four major ele-
ments of those statements that we have not been able to bring into
conformance. The reason is that each of our contractors maintains
data on certain categories of receivables, certain kinds of credit bal-
ances and so forth, under their own systems. Each of those systems
has different—somewhat different set of definitions, entirely dif-
ferent software and so forth, and we have not been able to give a
single Medicare-wide estimate of some of those basic financial num-
bers that meets—that meets the IG’s standards for accuracy. That’s
exactly why we feel we need a single accounting system as it were
in the Medicare Program.

Mr. Horn. Your testimony projects about $200 million annually
in administrative savings as a result of MTS. However, GAO esti-
mates that the Medicare fraud, waste, and abuse is 10 percent of
the program, which was discussed with Chairman Clinger. By the
time MTS is scheduled to be in place, this could be about $25 bil-
lion a year.

Are we placing too much emphasis in holding administrative
costs down when we could save money by investing in waste, fraud,
and abuse detection systems?

Mr. VLADECK. Mr. Chairman, you are playing a tune that is
somewhat familiar to us. We have felt for a long time that the arbi-
trary separation of administrative costs and appropriated accounts
from trust fund expenditures in the entitlement accounts probably
caused us to underinvest in certain program integrity activities.
And, in fact, the administration has proposed legislation and has
worked with the congressional majority in both Houses on legisla-
tion that would permit us to develop new financing vehicles so that
the savings in—some of the savings in trust fund outlays could be
reinvested in administrative activities, both on our part and that
of the law enforcement agencies.

Mr. Horn. I now yield to the chairman of the full committee, Mr.
Clinger.


NOU-15-1995 13:10 oLiGA 2e2 698 8168 P.a2

Medicare Contractor Reform Act of 1995

This bill provides for increased flexibility in contracting for
Medicare claims processing.

Permits the Secretary to enter into contracts with agencies
and organizations that are not health insurers.

Allows providers to nominate a fiscal intermediary every 5
years from a list of three approved by the Secretary.

Permits the Secretary to selectively contract out certain
functions traditionally performed by all contractors, such
as medical review.

Eliminates special requirements for termination of
contractors.

subjects new contracts to the same competitive requirements
that apply generally throughout the Federal government.

Allows more flexibility in the payment of contractors.


103

ciency improvements that can be achieved through multiple small-
er projects, put in operation quickly, with the latest technology.

Mr. Chairman, we recommend that the MTS initiative be revis-
ited considering the dramatic changes in health care and tech-
nology over the past 5 years. Rapid changes in IT are altering the
way we collect, model, and manage data. Medicare, like other
health care organizations, is driven by the need for knowledge that
leads to program improvements.

This knowledge is obtainable through the new technology para-
digm I have outlined. But it requires a different approach and
mind-set than the current long-term costly and monolithic Medi-
care strategy for MTS.

Thank you again for this opportunity to share our views.

Mr. Horn. Well, we thank you very much, Mr. Rudin.

[The prepared statement of Mr. Rudin follows:]


160

From my subcommittee, the Government Management, Informa-
tion, and Technology, J. Russell George, staff director and counsel;
Mark Uncapher, the prime organizer of this hearing, professional
staff member and counsel; Tony Polzak on loan as a legislative fel-
low from the Department of the Army. This is his last hearing. He
has held three this week. Did we do 27 this year? And our able
subcommittee clerk, Andrew G. Richardson.

Minority staff, David McMillen, professional staff member;
Cherri Branson, staff member; and our two official reporters Mindi
Colchico and Donna McCalley. We thank you for a fine effort.

With that, this hearing is adjourned.

{Whereupon, at 3:50 p.m., the subcommittees were adjourned.]

O°


32

They didn’t know how to say no. I think you’re right to test existing
systems because a lot of these problems have been solved in many
large corporations or large enterprises.

Mr. VLADECK. When again, sir, our basic philosophy has been
here, that on the technological side, in fact, we had taken so long
before beginning the modernization of the Medicare information
systems that multiple generations of development had occurred and
so we didn’t have to get to the next step beyond the state-of-the-
art to give us the systems performance we needed. We could work
within the envelope of established technologies and not run the
risks associated with untested technologies in a system of this
kind.

Mr. Horn. I am now very glad to yield to a very distinguished
colleague on the Shays subcommittee and the former chairman of
that committee, Mr. Towns of New York. We happened to go to his
home State in the last Congress when I served on his committee—
and found quite a substantial bit of Medicaid fraud in this case. I
don’t know how much Medicare fraud you found. But he’s well-gift-
ed on this by experience.

Would you like to ask some questions?

Mr. Towns. Thank you very much, Mr. Chairman. Appreciate
the opportunity to participate in this hearing.

What cost savings—let me begin by that, can you—-What cost
savings will be achieved simply by consolidating these systems?

Can this consolidation be accomplished without MTS?

Mr. VLADECK. The answer to that is just on the administrative
overside, Mr. Towns, we have projected savings of about $200 mil-
lion a year that come about from the implementation of a single
integrated system and, therefore, by definition are not available as
long as we have multiple systems operated independently within
the program.

Mr. Towns. There was a hearing held by our subcommittee I
think in June. We learned of significant gaps in HCFA’s efforts to
exclude fraud or abusive problems of providers, I should say, from
participation in Medicaid and Medicare programs. How will MTS
correct these problems?

Mr. VLADECK. Actually, the issue of provider exclusions and pro-
vider patterns of behavior is a very good illustration of what MTS
will permit us to do that we haven’t been able to do to this point.
In concert with the implementation of the MTS, we will have a sin-
gle unitary national provider file, and we will be processing claims
in a way that can cross-reference national claims on a real-time
basis. There are two kinds of problems we now have that MTS
should permit to us address: One, is the provider we catch commit-
ting fraud against the system, we exclude them, they move to an-
other State, reapply for licensure, do business under another name,
apply for a provider number with another contractor and are back
in business in no time at all. Again, with the single national pro-
vider file with some entry checks in it, that won’t be able to hap-
pen.

The second problem we have had is—is of providers who may do
business in a number of States, who we put out of business in one
State, but continue to bill us in others because, again, each of the
contractors is maintaining separate records, separate exclusion


118

achieved through multiple, smaller projects that are, again, realizable in today’s

existing technology environment.

And finally, with regard to overall cost, the technology industry must be given
incentives to be innovative and to build best-in-class systems that support the “plug
and play” strategy. Market competition will continue, as history has shown us, to
reduce the overall cost for organizations to rapidly take advantage of new

efficiencies.

Rapid changes in information technology are changing the way we collect, model,
and manage data. Medicare, like other health care organizations, is driven by the
need for knowledge that leads to program improvements. This knowledge is
attainable through the new technology paradigm I outlined earlier. That paradigm
-- based upon the four principles of risk management, flexibility, speed to market,
and return on investment -- requires a different approach and mindset than the

current long term, costly, and monolithic Medicare strategy for MTS.

-10-


134

able, that can be used. And I think that the Medicare Program
that, as you know, is likely to continue to undergo changes, clearly
should be taking advantage of those various solutions that are
available rather than trying to independently come up with a—
with a solution that doesn’t take advantage of all the tremendously
positive developments going on elsewhere in health care.

Mr. Horn. I remember in the time—I was on the Hill in the
times of the McNamara Pentagon—when they wanted to have one
universal plane for the Navy and the Air Force. Well, after every-
body got done, it could barely get off the ground. I don’t know that
it ever did.

If you had a single advice for HCFA on MTS, what would it be
that you haven’t already said?

Mr. HUNTZINGER. I don’t believe I would add anything else. I am
not that familiar.

Mr. Horn. OK. Mr. Rudin, anything else to add on that?

Mr. RupIn. I would just reemphasize going to shorter term, high
impact projects, to start having some impact on these things that
you are concerned about.

Mr. Horn. OK. Mr. Owens, anything else on that?

Mr. OWENS. Nothing to add.

Mr. Horn. Dr. Kelly.

Dr. KELLY. No, thank you, Mr. Chairman.

Mr. Horn. OK. What savings could HCFA expect if it imple-
mented fraud detecting software like claim check? Have we had
enough experience with claim check to really see what the results
are?

Mr. OWENS. Our experience in the private sector, and we don’t
have any reason to believe that the experience can’t be replicated
in the public sector because it has been replicated in Medicaid pro-
grams and is being implemented now in the CHAMPUS Program,
is that the savings would be somewhere close to 5 percent of profes-
sional payouts. That’s a very significant amount of money.

The issue that I think is obfuscating some of the facts around the
implementation in Medicare is really that we are talking about the
same coding system used both in the private sector as well as in
the public sector, the same coding guidelines being applied to that
coding system and the same misinterpretation of those guidelines
by a provider, whether it’s for Medicare or for some other form of
insurance. And given the fact that those guidelines should be inter-
preted uniformly, regardless of payment type, I think that the sav-
ings estimates that have been realized on the private side are eas-
ily replicated on the public side.

Mr. Horn. I am going to have to recess this for about 20 min-
utes. We have this vote and then a 5-minute vote immediately fol-
lows. So go have a coke or whatever and see you in about 20 min-
utes.

[Brief recess. ]

Mr. Horn. The hearing will resume. It is now 2:30. We have a
couple more questions. We have culled them down from 15 to 50
we were planning to ask you.

Drawing upon your experience with the claims processing con-
tractors, is the development of MTS discouraging these contractors
from developing new software and technology strategies which


56

Among others, one key practice is for executives to manage information systems as
investments rather than expenses.° This requires using disciplined investment
control processes that provide quantitative and qualitative information that senior
managers can use to continuously monitor costs, benefits, schedules, and risks; and
to ensure that structured systems-development methodologies are used throughout

the system's life cycle.

A consensus has emerged within the administration and the Congress that better
investment decisions on information technology projects are needed to help the
government improve service. Important changes recently made to several laws and
executive policy guidance are instituting best-practice approaches of leading
organizations into the federal government.’ This month, the Office of Management

and Budget will issue guidance that describes an analytical framework for making

“Other practices include (1) recognizing and communicating the need to change
information management practices, (2) involving and creating ownership on the part
of line managers, (3) improving organizational capabilities to manage information
resources, and (4) measuring performance.

"The Paperwork Reduction Act of 1995, Federal Acquisition Streamlining Act of
1994 (Title V), OMB circulars A-130 and A-11, supp. 1 (9/14/95), and OMB
Bulletin 95-03.

7


110

technology architecture that, by the time it is fully implemented, may be considered

obsolete -- especially considering the Medicare processes it must serve.

Regardless of these process changes, for a program as large and complex as the MTS,
an aggressive completion date exponentially increases the risk and decreases its

probability of success.

Combining the current 12-month MTS development period with an 18-24 month
transition period, current projections suggest that the initial phases of MTS will not
be fully implemented until the end of 1999 -- nearly three years after systems
development and nine years after the MTS initiative was conceived. That's the
equivalent of several generations of change in today’s environment. In that time,
the potential for great savings is being lost. According to a recent study by Arthur D.
Little Inc., annual U.S. spending on health care could be reduced by $36 billion if

information technology was utilized nationwide.

In simplest terms, given that the transition of Medicare contractors to existing and
proven shared systems currently takes between four and eight months each, a
transition plan calling for the conversion of more than 70 contractors to a newly

developed system over an 18- to 24-month period is risky.

Alternatively, a strategy which focuses on breaking the vision down into smaller,
successive projects, and which is short term and hard hitting in scope, will deliver
added value and impact to the program. This strategy can be achieved rapidly and at
a much reduced cost. Furthermore, this adjustment would not only reduce the risks

inherent in deploying a vision of this magnitude, but would also increase the


14

THE ADMINISTAR PROJECT

Currently, the AMA along with several medical specialty societies, is working closely with
HCFA in their ongoing initiative to standardize and eliminate unnecessary payments under
the Medicare system. With the assistance of AdminiStar HCFA will now be able to produce
and design the next generation of waste, fraud and abuse detection efforts with the necessary
input from the medical community, We believe this effort has the potential to lead to actual
and substantial savings in the Medicare program. We are encouraged by the progress of the
AdminiStar project and are actively participating in this public process. We believe that
important projects such as AdminiStar can be successful because they include input from the

physician community, include physician education efforts and comply with medicare policy.

The AMA has vowed to continue to work with the relevant government entities to address
these important problems. In addition, we have requested that GAO convene a meeting to
discuss the relevant underlying Medicare payment policies, clinical judgements and
interpretations of existing coding description used in the development of the report issued by
the GAO. Specifically, we requested that the appropriate representative from the GAO, the
AMA, HCFA, GMIS, Inc., Health-Chex, Inc., Health Payment Review, Inc., and Value
Health Sciences, Inc. meet to discuss these important issues and the claims data used in the
development of the report and the scientific and medical validity of the conclusions contained
therein. Although we sent that request on October 9, 1995, we have yet to receive a

response.


26

centive that if you bat 300 you will get a $10,000 bonus. It is an
expectation that they all meet our expectations in order to continue
as Medicare contractors.

Mr. Horn. When a claims processing contractor uses fraud detec-
tion programs, will HCFA compensate those contractors with some
portion of the savings for the additional costs associated with more
effective screening of claims? How does that work?

Mr. VLADECK. We don’t now have the—have the authority to cre-
ate such incentive contracts. Under law, we are on a, basically a
pure cost reimbursement contract arrangement with our contrac-
tors. One of the aspects of the legislation we have proposed would
permit us to do incentive contracting. We have experimented with
it in the past. It makes good sense. Our MTS contract is on an in-
centive contract and we definitely believe we ought to be able to
do that in the future.

Mr. Horn. One of the most effective ways to get at fraud, waste,
and abuse is what you said earlier, and a lot of us have said for
years, and that is giving the consumer the information to know and
hopefully they will know whether they had that service or didn’t.

How do you feel about the type of input you are getting from the
customers, now? Is there some other way we might want to design
these forms to be a little more consumer friendly for the senior citi-
zen in terms of visibility of numbers? Have we thought of that in
the development of this system?

Mr. VLADECK. Again, sir, I think the single monthly notice will
be much more customer friendly than the paper beneficiaries re-
ceive from us now, but I don’t think that’s the critical element that
we need to improve.

The problem is, at the moment, because of the antiquatedness of
some of our systems and because of the fact that we are really just
beginning to reorganize ourselves to do this better, once a bene-
ficiary calls in and says, you know, I understand you paid claims
for X, Y, and Z on such a date, I don’t think I received such a serv-
ice. The question is what happens to it then and particularly what
sort of feedback is there to the beneficiary?

In the past, we were not linked in an automated way with the
Inspector General or with the law enforcement agencies so that
once our contractor staff investigated such a report, if they thought
there was something to it and made a referral, there was not auto-
mated tracking of that. If the beneficiary called back a month later
to say, you know, I called you guys in November to tell you about
this and my doctor is still in business, why isn’t he in jail, we
would not be able to track the complaint through processing.

We are in the process of implementing, at the moment, some of
those automated systems on a pilot basis. And the real customer
service piece is not so much, I don’t believe, the first contact as the
feedback loop. That’s where we need to do much more work, and
that’s very much on the agenda in MTS development.

Mr. Horn. In the development of the MTS, are you using some
focus groups of senior citizens on Medicare to look at some of these
samples that might come out from this system? They are going to
be the recipients and if they can’t comprehend it or tinderstand it,
and we aren’t communicating, then we have all failed.


92

cor
we

Privacy - Uniform Federal confidentiality and privacy laws that supersede many

state privacy laws must be developed.

Business and Process Reengineering:

Today’s health care is provided on a fragmented basis with each independent
function or department (i.e., radiology, pharmacy, labs and physician specialists, etc.)
contributing to a paper driven patient record. In addition, the administrative process
interjects its requirements for patient control and financial reporting. This results in a
health care system with redundant or incomplete information, high data management costs
and inefficient data distribution. On top of this, add in inefficiencies resulting from
redundant tests and procedures ordered by providers due to lack of readily accessible
centralized patient information.

‘There are significant lessons to be learned from business process reengineering
implementations that are directly applicable to heath care. Michael Hammer and James
Champy, founders of the reengineering movement, define reengineering as “the
fundamental re-thinking and radical redesign of business processes to achieve dramatic
improvements in contemporary measures of performance.” Reengineering health services
is not a technology problem but an information management problem, specifically linked
to the goals, objectives and performance measures of the organization.

For example, automating patient records requires presenting relevant information
to health care providers and customers or patients. Process reengineering can be applied

to the computer based patient record (CPR) in several ways.


7

Mr. Horn. Thank you very much, Mr. Chairman.

I am putting in the record at this point the statement of Rep-
resentative Christopher Shays, the chairman of the Subcommittee
on Human Resources and Intergovernmental Relations. It will be
without objection put in the record.

[The prepared statement of Hon. Christopher Shays follows:]


5

‘We urge caution with respect to legislating the recommendations of the GAO report. As you
know, the report directs HCFA to have its carriers purchase and utilize existing commercial,
proprietary, automatic data processing equipment (ADPE) to process Medicare claims.
‘Under the rubric of waste, fraud and abuse, these unknown and undisclosed computer

programs will be called upon to save Medicare billions. What these programs will actually

‘until a more accurate review of the claims data used in the report can be developed to reflect

the actual costs of the proposed recommendations. Until this analysis is completed, we
believe it would be misleading to assert that adoption of the GAO report's recommendations
would result in the levels of Medicare savings claimed in the report.

AMA IS COMMITTED TO FIGHTING FRAUD AND ABUSE

Presently, the AMA is working in conjunction with the Federal Bureau of Investigation
(FED), the Department of Justice (DOJ) and the Department of Health and Human Services
(DHHS) to step up its assault on fraud and abuse within Medicare. While we understand
health provider fraud and abuse is responsible for sonse portion of Medicare's growth,
researchers disagree about the actual extent of such practices as "upcoding" and
"unbundling." For example, the Physician Payment Review Commission's (PPRC)
investigation of physician coding for evaluation and management services between 1991 and

1992 suggested that no “upcoding” had occurred (PPRC 1994). It is also noteworthy that the


81

Mr. REILLY. I think that is—they haven’t come out and called it
paperless yet.

Mr. Fox. Right.

Mr. REILLY. But I think that’s—as this thing develops, it almost
has to go, sir, to that direction because with this volume, if you
have to rework paper claims, you will never catch up on the curve.

Mr. Fox. Right. We see the problem, just in Medicare where we
are spending, what, 12 percent of our cost just in paperwork dis-
tribution and we want to make sure it goes to services for seniors
as opposed to paperwork for—to support if bureaucracy.

So I thank you for your assistance.

Thank you, Mr. Chairman.

Oh, I am the chairman.

Mr. GREEN. Is this a 90-day wonder, Mr. Chairman?

Mr. Fox. This is a 90-day wonder, therefore special.

Congressman Green.

Mr. GREEN. Thank you, Mr. Chairman.

I have a brief question. You mentioned earlier in my questions
concerning your report on Medicare fraud, and I have a listing from
1992 to 1993 of various GAO reports on testimony—testimonies on
HCFA management and payment safeguards, do you have a par-
ticular number on the recent report that you mentioned in earlier
questioning on Medicare fraud?

Mr. REILLY. We have one that we did on the claims, was May
1995. The number is GAO 95-135, and the one on Medicare anti-
fraud technology offers significant opportunity to reduce health
care fraud is August 1995 and the number is 95-77.

Mr. GREEN. Thank you.

Thank you, Mr. Chairman.

iyield back my time.

r. Fox. Thank you, Congressman Green.

Congressman Souder.

Mr. Souper. I apologize for missing the testimony and I am try-
ing to catch up. So there are a couple questions I heard you talking
about the new systems.

What is done in the interim as the new systems are being
brought on line? Are there any incentives for people to upgrade
what they are currently doing or——

Mr. REILLY. Well, the intent, Mr. Souder, is to when the new sys-
tems come on line that they will—everybody will use them.

Now, how that transition is going to occur on that schedule
there, we don’t—I can’t really tell you now because we really don’t
understand it. I don’t know whether HCFA has laid out its plans
in that depth yet. So I—but there will be some day, somewhere
down the line where this system, MTS will then be given out to
contractors and all the contractors will use it. How that transition
is going to occur has not been worked out yet.

Mr. SouDER. But even before the transition, at this point, are
they basically sitting and waiting now for the new system?

ir. REILLY. Yes.

Mr. SouDER. There is no interim incentives to try to improve it
while we are waiting for the new?

Mr. REILLY. Well, we have written—the point that came up ear-
lier about the May 1995 report that we did on abuse of billing, they


sees Congress of the United States SE
Joust of Representatives Sao

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT anew atta
(2157 RAYBURN House OFFICE BULDING: Sasa
Wasnnaron, 06 20515-6149 a
poe Opening Statement by crea
“ee ‘The Honorable Stephen Horn, Chairman nee

Subcommittee on Government Management,
Information and Technology
November 16th, 1995

A quorum being present, this joint session of the Subcommittees on
Government Management, information and Technology and on Human
Resources and Intergovernmental Relations will come to order. This hearing
will be a review of the information and data systems that support America's
Medi Program. Today approximately seventy different claims-processing
contractors are using any of nine separate independently-designed private
automation systems, in order to compute and pay the hospital or doctor bills
of people covered by Medicare.

The Health Care Financing Administration, part of the Department of
Health and Human Services, has been working since 1992 on a single new
Government system, called the Medicare Transaction System, or M-T-S. We
are told the new system would replace the nine different private systems in
use today. If all goes as planned we can expect the M-T-S to lead to more
efficient Medicare service, simpler paperwork, and faster coordination among
‘the many benefit in: The General Accounting Office is not so sure it
will turn out that way, unless several far-reaching recommendations are
adopted and implemented. Together our two subcommittees will try to find
out where the real truth lies.

We need now to improve existing processes and software routines in
order to help Medicare do a better job of detecting and preventing fraud.
‘The introduction of innovative software into the Medicare claims processing
system is essential.

‘Our witnesses come from the Health Care Financing Administration
and its task force for the new Medicare Transaction System; from the
General Accounting Office; and from three private-sector companies involved
with health care automated systems.

Ladies and gentlemen, we thank you all for joining us, and we look
forward to your testimony.

It is my pleasure now to yield to my co-chair, the distinguished
representative from Connecticut, the Honorable Christopher Shays.



109

changing so rapidly that we don’t even know what to call the information

technology paradigm of today. That's how fast we are moving.

As I stated earlier, the ability to create and share health care information hinges on
the standardization of data, pervasive connectivity, open and flexible systems and
health care organizations’ ability to take advantage of change. There must be a
continuing investment in health care information systems. Many of us supporting
the health care industry share an optimistic vision of the 21st century health care
system. It is a system where users have easy and immediate access to the
comprehensive information required to make sound health care related decisions.

It should also be a system with far less waste, fraud, hassle and paperwork.

Tronically, while health care is one of our most information-intensive industries, it

is also one in which IT has been taken advantage of the least.

Each patient encounter with the health care system -- and there are well over a
billion each year -- generates massive data: medical, financial, and administrative.
To date, that data has not been harnessed effectively. As a result, Medicare's ability
to generate useful information from their data -- to support coverage, to support
patients seeking care decisions, to support providers of care in making treatment
decisions, and to improve the detection of fraudulent or abusive billing practices —
has not been realized, The net result is this: by shortchanging investment in

technology, we are wasting benefit dollars.

Iam concerned, Mr. Chairman, that a Medicare strategy predicated on aggressive

time frames for the development of a new, monolithic system will yield a



79

Mr. Horn. How are we coming? Is GAO helping on getting that
commonality of forms, which to me is such a simple thing; it should
have been done 20 years ago?

Mr. REILLY. Mr. Chairman, you couldn’t have asked a better
uestion from the standpoint of this group. We have been working
for 5 years to standardize computerized patient records, because
the heart of all of this ultimately is clinical data. And without
standardized clinical data, you can never really get a billing system
that is one, accurate and economical. Because if even looking at
some of the data that we have from HCFA’s long-term—plans over
the next 6 or 7 years, we still see large quantities of forms that are
going to be kicked back and have to be manually reworked, I mean,
in the hundreds of millions. So it’s only when we can get all of
these things standardized, which the industry is working at
today—I mean, the health care industry recognizes this problem
from its standpoint, it can’t operate as efficiently as it wants to and
it can’t transfer data between various groups.

So I think we—we, GAO, have worked very hard on this. We
have published numerous reports and have appeared before com-
mittees to discuss this subject and would do anything that we can
possibly do through this committee to push that we’d be happy to

Jo so.

Mr. Horn. Well, I am delighted because I think that our sub-
committee’s combined staff and your office ought to work to get a
prod to the private insurers here. You call them in and ask, for ex-
ample, is the first name last or first on this form? And then go
right down the line, instead of having 70 versions.

And it just seems to me that is such a simple thing to do. I don’t
understand what is taking so long.

Let me mention one more question. In California, the State EPA,
is working with National EPA, particularly the people that review
permits, on electronic filing. To what extent have you looked at the
private insurers relating to HCFA in terms of electronic filing? Is
there any effort in that area?

They let the private people figure out all the coding and are all
in agreement. Everybody is agreed and everybody loves each other.
EPA nationally backs it, EPA California backs it, and I have a bill
in on that on electronic filing. It just seems to me we ought to pro-
mote it.

Mr. HoENIG. I am not familiar with that particular effort. I know
in the tax area, especially in Minnesota, there have been a lot of
efforts to do just that and particularly in terms of sales tax infor-
mation, but I am not aware of that particular environmental effort.

Mr. Horn. Well, it solves some of the coding problems. Obvi-
ously, you have to recode at various stages along the way.

Mr. REILLY. I would offer a cautionary comment as well as a very
supportive comment. We supported very strongly Dr. Sullivan and
the work group on electronic data interchange, WEDI that the pre-
vious testifier mentioned. The problem is—and this is a serious
problem, whether it’s IRS, whether it’s food stamps, whatever it is.

When you go electronic, you increase the speed of filing enor-
mously, which is positive. But if you don’t have systems in there
to protect you on fraud and abuse, you just lose money faster.

Mr. Horn. Right.


105

services to some 60 health care organizations, EDS systems and services touch more

than 88 million lives.

EDS has been a leader in IT for the Medicare program since 1966. In support of eight
Medicare contractors, supporting 17 States, we provide business and systems services
for more than 194 million Part B (physician originated) claims annually. This
represents approximately 31% of the National Medicare Part B claims volume in FY
1995. EDS prides itself on providing the best-in-class portfolio of offerings, such as
business process re-engineering, claims processing, image processing, expert systems,
and client server tools, to reduce program costs and increase the effectiveness of

payment safeguards.

Mr. Chairman, I believe that the Medicare program is faced with a number of
industry changes and market shifts that need to be considered in our future IT

strategies.

* We have a dynamically changing health care delivery system that must
accommodate a combination of fee for services, health maintenance

organization, preferred provider organization, and managed care alternatives.

‘© There is an ever-increasing rate of change in the technology industry. We are
seeing a greater deployment of client server architecture and greater acceptance of

common communications vehicles such as the Internet.

* We have experienced a reduction in federal budgets allocated to implementation
of technologies, putting huge numbers of benefit dollars at risk.


90

eee
we

My testimony today centers around the role that information systems plays in the
health care industry, especially in assisting managers to control costs.

I would like to begin with a brief statement of the problem. The health care
industry has grossly under-invested in information technology and over-invested in
administrative personnel. Industries such as banking and insurance are spending 10
percent and 6 percent of annual revenues respectively on information technology (IT),
while health care IT spending is in the range of 1 - 2%. According to the New England
Journal of Medicine,

On an average day in 1968, US hospitals employed 435,100 managers and

clerks to assist in the care of 1,378,000 patients. By 1990 the average daily

number of patients had fallen to 853,000; the number of administrators and

clerks has risen to 1,221,600. (August 5, 1993)

In other words, the administrative workforce grew more than 180% while daily
admissions decreased 38%. Fortunately, today’s health care system has an abundance of
opportunity for efficiency improvements in both the cost of administering and delivering
health care.

As the health care industry moves into a true business model where competition is
2 way of life and the customer or patient is supplied with enough information to be able to
make informed choices. the industry will look toward information technology for gains in
competitive positioning. G2 Research states,

Non-competitive health care providers, defined as such through a lack of

profitability (primarily in the US) or through an inability to satisfy patients

(primarily in regions with competition among state and privately owned

facilities), will disappear. Insurers that are incapable of meeting the call to

limit rising premiums will also fail, The effective use of information will
enable firms to stay competitive. (April 1995)


58

into the contract, requirements definition at the appropriate level of specificity has
not been completed. Requirements, which are defined during the analysis phase of
a project, document the detailed functions and processes the system is expected to
perform and the performance level to be achieved. They are intended to correct
deficiencies in the current system and take advantage of opportunities to improve
program economy, efficiency, and service. Because requirements provide the
foundation for designing, developing, testing, and implementing the system, it is
critical that they be precisely defined to avoid ambiguity and overlap, and that they
completely and logically describe all features of the planned system. Using an
appropriate methodology to define requirements significantly reduces risk that

requirements defects will cause technical problems.

Originally, HCFA's plans called for GTE to document the current systems’
requirements, while HCFA staff defined new or future requirements for MTS.
However, in September 1994, HCFA concluded that GTE's analysis of the current
systems did not contain enough detail to fully describe the current systems’
requirements. HCFA then directed GTE to provide additional detail. In September

1995, HCFA concluded that the products GTE was developing were too detailed,


54

failure to take advantage of business process improvements that can significantly

reduce costs, improve productivity, and provide better services to customers.”

These problems have often led to meager results in federal agency efforts to design,
develop, and acquire complex information systems. For example, after investing
over 12 years of effort, the Federal Aviation Administration (FAA) chose to cut its
losses in its problem-plagued Advanced Automation System by cancelling or
extensively restructuring elements of this modernization of the nation’s air traffic
control system. The reasons for FAA's problems included the failure to (1)
accurately estimate the project's technical complexity and resource requirements, (2)

finalize system requirements, and (3) adequately oversee contractor activities.’

Similarly, our work on IRS' Tax Systems Modernization, designed to automate
selected tax-processing functions, identified several weaknesses. For example, IRS

lacked (1) a disciplined process for managing definition of requirements, and (2) a

"Managing For Results: ing For Results: Steps for Strengthening Federal Management (GAO/T-
GGD/AIMD-95-158, May 9, 1995); Government Reform: Using Reengineering
and Technology to Improve Government Performance (GAO/T-OCG-95-2, Feb. 2,
1995).
y ion System: Implications d Recent Changes
(GAO/T-RCED-94-188, Apr. 13, 1994).

5


16

aggressive systems modernization project in HCFA’s history. For the first time, HCFA will
integrate data from Medicare Part A, Medicare Part B, and managed care into one system. In
fact, few government agencies or private organizations have undertaken a systems project of this
scope ~- one that would affect payments for 38 million people, affecting access to health care for
the elderly and disabled throughout the country

In short, we are well aware that this is a high risk venture. We are conducting the project with a
keen appreciation of the need to manage the risks involved. For example, we are reaching out to
learn from other large data users that have undertaken simitar projects. We have looked closely at
their experiences in formulating our planning and procurement strategy and in organizing the
project

Early in the planning for the MTS, we realized that rapid change in the health care industry meant
that we had to go beyond merely updating our claims processing system. We knew the MTS had
to make available standard data on all Medicare providers, plans, beneficiaries, and services, and it
must be able to accommodate virtually any option for receiving health care benefits that might be
made available to Medicare beneficiaries

To maintain the adaptability required by this environment, the MTS design contract took a flexible
approach to systems requirements and sought to build a dynamic system that would meet our
needs now and well into the 21st century. ‘The many changes in the Medicare program in the past
few years and the more extensive changes now under consideration prove that we were right to
plan for a flexible system.

‘The MTS is the platform that will permit Medicare to adapt effectively to these changes. Without
the MTS we would be forced to develop discrete systems, which would not red rommunicate
with each other, to support each type of change. We can no longer afford to do business this
way. Only with a single, national system can we efficiently and effectively operate in the rapidly
changing health care environment

Because this project is so important to Medicare, we hold our design contractor to a very high
standard of perforiaance. We have continued to improve the processes which the contractor must
follow.

At the time we awarded the design contract, HCFA also awarded a separate contract for
“Independent Verification and Validation.” This contractor assists us in identifying and resolving
problems during MTS development and implementation and helps us to continuously improve the
MTS development process. We use this contract to help us continuously evaluate our progress
and adjust our course as necessary to insure the MTS will work properly and begin operation on
time.

From the outset, the MTS has been an agency-wide initiative, with the strong support of the
Secretary and the Administration, Responsibility is shared among a number of people, but lines of
accountability are clear


45

STATEMENTS OF FRANK REILLY, DIRECTOR, INFORMATION
RESOURCES MANAGEMENT/HEALTH, EDUCATION AND
HUMAN SERVICES, GENERAL ACCOUNTING OFFICE, AND
CHRISTOPHER HOENIG, DIRECTOR, INFORMATION RE-
SOURCES MANAGEMENT/POLICIES AND ISSUES, GENERAL
ACCOUNTING OFFICE, ACCOMPANIED BY HELEN LEW AND
LJ. LATHAM, ACCOUNTING INFORMATION MANAGEMENT
DIVISION, GAO

Mr. REILLY. Mr. Chairman and members of the subcommittee,
we are pleased to be here today to discuss our ongoing review of
the Health Care Financing Administration’s effort to design, de-
velop and implement a critical new claims processing system, the
Medicare Transaction System, or

With your permission, Mr. Chairman, I would like to submit my
full statement into the record and submit a brief summary at this
time.

Mr. Horn. That is automatic with all witnesses. We put your
statement in right after we introduce you.

Mr. REILLY. Before I begin, I would like to introduce my col-
leagues, Chris Hoenig on my right, who will also offer a brief oral
statement this morning. He is in charge of our group looking at in-
formation resources, management policy and issues government-
wide, and it was this group that developed what has come to be
known as “Best Practices.” And Mr. Hoenig will discuss these prac-
tices for large systems development projects and how they relate to
HCFA and MTS.

And also accompanying me on my left are Ms. Helen Lew and
Mr. L.J. Latham of our Accounting Information Management Divi-
sion, and we have all jointly worked together on this project.

The goal of MTS, which Mr. Vladeck talked at great length, is
the current nine separate systems that process Medicare is going
to be into a single system, and this means that when the adminis-
trator or legislative changes call for an adjustment in payment poli-
cies, each system must be individually updated; that is a problem.
MTS is meant to be the single unified system to replace the sepa-
rate systems, increasing service efficiency and oversight and the
prevention of fraud. This is a vision we certainly support.

We are finding, Mr. Chairman, while HCFA’s approach to devel-

oping MTS contains several strengths, it also contains important
weaknesses that are adding unnecessary risk. On the plus side,
HCFA is attempting to build as much flexibility as possible into the
system so it can be easily modified, that this is especially impor-
tant given the variety of Medicare proposals before the Congress
today. HCFA also plans to build, test and implement MTS in
stages so that problems that arise can be addressed more manage-
ably.
Th addition, the system will allow direct access to claims by bene-
ficiaries and provide—pardon me, providers. The problems we see,
however, seem to come from the lack of a disciplined management
process. HCFA is not managing MTS as an investment.

As a result, difficulties are emerging in three key areas: First,
the system requirements, which are crucial because they spell out
exactly how the system must operate and what it will be enabled
to do. These are not being defined as fully or as early as necessary.


49

With good answers, the chances increase of getting the right peo-
ple in the right jobs, with the right skills. The agency can go
through a healthy learning process with a big project like this and
in_ 1999, everything can be finished with minimal risk or failures.

Without these answers there is additional risk that capabilities
will be highly variable. The agency could quickly fall behind the
curve and never catch up. We could spend many years and still
have it very unclear whether we will ever have the capability to
get anything at all.

ain, Mr. Chairman, we have been down this road before with
the IRS. Eight years, $2.5 billion spent on an $8 billion project, and
right now we still don’t know. The system is in serious risk and we
don’t know what we are going to get for it.

Third question: Is the agency showing evidence of making con-
sistent, real progress in managing risk? The answers you should
get include quarterly senior management decisions and actions
that address selection of project modules, their risks, progress
ai ainst plan, and independent evidence of net benefits achieved

+ implementation versus projections.

With good answers, the chances increase of going through a
minimal number of cost and schedule revisions, basically meeting
deadlines with reasonable variations and producing solid evidence
that investments will increase returns fi for the public. Without
these, the risk rises of constant cost and schedule revisions, re-
duced benefit and functionality at every step of the way for more
money, and finally, after many years, actual cancellation of the sys-
tem that may not even work—FAA, which you are both very famil-
iar witl

Mr. Chairman, the risks in large-scale systems development are
real. There are ways to minimize these risks and increase the
chance of capturing benefits. All of us in the Federal Government
need to learn to apply them or face the consequences. It takes time
to get these things right. We need to start now.

That concludes my statement. Mr. Reilly and I will be happy to
answer any questions.

[The prepared statement of Mr. Reilly and Mr. Hoenig follows:]


78

range from 1 million lines of code to 10 million lines of code. So
that tells you of those nine systems, there’s that extreme range,
there must be some difference in capability, I would think, in that
even though business functions are being handled or they are han-
dled with different levels of specificity.

The other question—so I would say much of what we have today
is that because we have legacy systems in there that are legacy in
every sense of the word, they are not up to date. The other problem
is at the time the Government was designing these kind of sys-
tems, first, these commercial off-the-shelf systems did not exist.
And second, the Government’s attitude toward buying commercial
off-the-shelf was very negative. Government was not buying so-
called caught systems in those days. Today, any designer worthy
of their mettle would certainly go out and look at what’s on the
market. That is the two differences.

Mr. GREEN. And you have—or GAO did look at other systems—
and I know you mentioned our next panel are people who have
similar systems that would be compatible with the MTS system.

Mr. REILLY. Yes.

Mr. GREEN. And maybe even better.

Mr. REILLY. By the way, we only talked about the outpatient
panel. There are inpatient systems as well. In other words, systems
that can look at codes. We are only talking about coding.

I want to stress that we have written another report dealing with
fraud, but we are talking about here is basically miscoding prob-
lems. It is not fraud because fraud means intents and the
miscoding is not classified as fraud, it’s classified maybe as abuse
or just simple mistakes. They are running about on the outpatient,
the miscoding is running about 8 percent of the providers are fall-
ing into that category; 90-some percent never have any miscodes at
all.

Mr. GREEN. Thank you, Mr. Chairman.

Thank you.

Mr. Horn. On that last point, do we know whether this is a
human problem of a failure to train or of comprehension? What are
the factors on miscoding? Has that been analyzed?

Mr. REILLY. The miscoding I can tell you from—I have my per-
sonal physician I have been going to for many, many years. I got
a wrong bill one time and I call him I said, Dick, what the heck
is this bill you sent me? And he said, well, you know everybody
makes a mistake. And he said, I'll turn you over to my billing
clerk, and somebody just made a coding mistake. So I mean, that’s
legit.

‘ou know, anybody can make a mistake. I mean, erasers are on
pencils. Where there’s patterns, where the same providers keep
making the same mistakes again and again, that is a different kind
of story.

Mr. Horn. You were probably here when I went back to Sec-
retary Sullivan’s endeavor—and to get commonality among all
these forms. When you go into any doctor’s office now, whereas
they used to have a nurse receptionist all in one person, they now
have four clericals to handle the 1,500 insurance companies with
whom they deal.

Mr. REILLY. That’s correct.


140

attaching a price, and pushing a check out the back door. That is
not the technology that the program needs today.

So finally, in addition to supporting the Medicare choices and the
different insurance benefits that I think will be available for bene-
ficiaries in the future, the MTS is a strategic move to go from
claims processing to an information systems platform that watches
for fraud and abuse and manages the program dollars instead of
concentrating on pushing the check out the back door on a claim-
by-claim basis.

Mr. Horn. Just give me an idea of the process the agency went
through in selecting this route. Was this something that just grew
over several years? Did people say we have got to look at this a
different way; times are changing? How did that all develop?

Ms. WALTON. I think that, just sort of a thumbnail sketch of his-
tory is, perhaps maybe in about 1991, the administration did feel
like the system was big, inefficient, very expensive to change.
When legislative change would come out, Reconciliation Act would
cost sometimes $40 million, $50 million just to change multiple sys-
tems. It was clear that it was an old, batch-oriented technology,
and even as early as 1991 there was a sense that technology was
advancing.

The administration leadership met with outside groups. I
thought it was interesting that you asked the last panel that, be-
cause, indeed, that was something that Administrator Wilensky
did. She met with outside groups on technology. She met with pro-
viders. She met with some oversight agencies. There was quite a
bit of consultation before deciding on the direction for the system.

Step two was to do an alternatives analysis to decide, so, if you
need a new technology, what do you do? The alternatives analysis
looked at basically variations on two different themes. One was to
build on or fix up the current systems, and the other one was to
refresh the technology and start from a new platform. And then
within both of those there were a couple of alternatives evaluated.
And from the benefit side of meeting overall program goals for the
future and achieving maximum savings and enhanced control of
the program payout, the alternative selected was the direction we
have under way. Next was a competitive procurement to select an
outside company.

Mr. Horn. To what extent were existing processes in software,
hardware, and operations looked at as a possible alternative along
the line you are talking about, of having an open architecture and
being able to add on things? If we found something that worked,
was there any thought to a pilot program that could determine if
they could handle the Medicare situation? Were alternatives al-
ready in use for insurance companies, hospitals, HMO’s, you name
it considered?

Ms. WALTON. Well, the current Medicare systems were examined
for this, and the current technological platform was found not to
be sufficient to handle the managed delivery programs and the dif-
ferent benefit structures. We did not dismiss the fact that there
might be insurance systems commercially developed that would
meet some of these needs. That is why the decision was for a mod-
ern platform and a modular approach to the system so that we
could take advantage of commercial products off the shelf or per-


133

Mr. Rudin was talking about, they can realize very significant sav-
ings. And as the GAO report points out, with the kinds of systems
that are in the private sector today that deal with billing abuses,
they estimate $640 million in savings to the Medicare Program. We
think that’s conservative and underestimated. But clearly, for the
amount of investment, estimated again at $20 million, to get a re-
turn like that, I can tell you anybody on Wall Street would love
anywhere near that return, even half or a third or a tenth of that
return.

There’s very significant things that can be done. And to try to de-
sign a system today that will meet all of those needs, unpredictable
needs in the future is a very dangerous undertaking.

Mr. Horn. Do you have a comment?

Mr. HUNTZINGER. Yes. I would like to add something to that, and
I am going to take an opposing point of view. We have been, as I
said, in the information systems development business, especially
on the health care side, for a long time. You can continue to en-
hance, and I agree with both of the gentlemen, that you can con-
tinue to enhance something for a certain point in time, but you
reach a point where technology changes so radically and you can
through a paradigm shift in technology where now it’s time to re-
Write, reinvent, to fully take advantage of the technology that’s in

and.

Also, health care itself is rewriting and changing itself at the
same time and you cannot continue to always patchwork something
to get the full efficiencies. You need to take a look at the entire
business and try and build a system or a solution that anticipates
change and builds flexibility into the solution that you are develop-
ing so that you are using the most current technologies to take ad-
vantage of the capabilities that are at hand today.

I think also, and I would like to add, that the focus here has
been for the most part on the administrative side of the equation.
We are missing a very significant part by focusing on the adminis-
trative side solely. You need to focus more significantly on the de-
livery side, the medical side of the equation. If you look at the
equation itself, 78 to 85 cents of every dollar is going to medical
costs; 12 cents is going to administrative costs and that’s on the av-
erage. A few cents are dropping to the bottom line.

A 5-percent improvement on the medical side is a radical change
and big benefit. There are technologies available today that can be
added to your legacy applications to help you drive down the medi-
cal cost side of the equation or at least control it a little bit better
than it’s being controlled today, in addition to working on the ad-
ministrative side, and coming up with a unified system that better
serves the needs of the industry today.

Mr. Horn. I completely agree with you. The administrative side
in a system is obviously peanuts compared to where the real money
is going, to the hospitals, the doctors, and so forth and so on.

Dr. Kelly, do you have anything to add to that?

Dr. KELLY. I agree, Mr. Chairman. There are tremendous oppor-
tunities to improve the delivery of health care. Physicians are
clearly looking for that.

I think that also what we have heard today is that there is a tre-
mendous number of very practical solutions that are, in fact, avail-


ll

analytic tools to detect patterns of fraud and abuse and increas-
ingly to prevent mispayment of claims before they are paid.

For example, MTS will greatly improve our ability to profile data
by type of service provider. We use profiles to identify aberrant pat-
terns for more detailed review. We recently entered into an agree-
ment, for example, with Los Alamos National Laboratories for
them to develop state-of-the-art artificial intelligence software tools
that can be plugged in, in a modular fashion to MTS to help pre-
vent the payment of fraudulent and abusive claims.

'S will also integrate a data system that will help us build on
the best practices and information systems to incorporate new tech-
nologies. Our contractor staff will be better able to work with each
other and with law enforcement agencies.

The important role that our beneficiaries already play in the de-
tection in fraud and abuse will be augmented by the summary no-
tice process. Beneficiaries will get a comprehensive picture of the
claims that have been paid on their behalf, and fraud reminders
and alerts will advise them of what to look for and who to contact
if fraud is suspected.

Our current system needs replacing. You made reference to it. In
the interest of time, I won’t go into the details, 1 would be happy
to do that.

Mr. Horn. Wind it up in 2 minutes or so. We do need to get the
framework.

Mr. VLADECK. I want to say something about project manage-
ment, which is a major subject of this hearing. We recognize that
MTS is a very complex undertaking. It is clearly the most aggres-
sive systems modernization project we have ever undertaken.

Now, we are also aware that there are considerable risks associ-
ated with it, and we are conducting the project throughout with a
keen appreciation of the need to manage those risks. For example,
in formulating the planning and procurement strategy and in orga-
nizing the project, we have reached out to learn from other large
data users, both in the Government and the private sector, that
have undertaken similar projects. To maintain the adaptability re-
quired by rapid change in the health care industry and in Medi-
care, our MTS design contract is taking a flexible approach to sys-
tems requirements, so that we can build a dynamic system that
will meet our needs not only now, but well into the next century.

The many changes in the program in the past few years, not to
mention the more extensive es, are now under consideration,
demonstrate how essential such flexibility is. As you know, at the
time we awarded a contract for the design of MTS. we also award-
ed a separate contract for what’s called in the trade, Independent
Verification and Validation. Our IV&V contractor assists us in
identifying and resolving problems during development and imple-
mentation and helps us to continuously improve the development
process.

We use that as a mechanism for continual evaluation of how we
are doing and to make midcourse corrections as necessary.

Finally, we believe MTS is a capital investment that ‘will yield
significant returns when fully implemented. It will lower contractor
overhead and administrative costs, increase efficiency through data


185

could improve Medicare claims processing before MTS itself is
ready?

Mr. Rupin. I believe, if I understand your question, Mr. Chair-
man, that moneys for changes to the current systems have pretty
much come close to a halt during MTS. So I think things have
greatly slowed down as far as changes during this time period.

ir. Horn. So we have a transition period problem?

Mr. | Rupin. Yes. I think we have a great slowdown during this
perio

Mr. Horn. Where is that slowdown occurring, primarily?

Mr. Rupin. I think its source is just in the funding of changes.
F think there’s actually a little bit of shrinkage in the amount of
money available for technology projects, and I am not sure—I am
not the right expert to comment on the—where the moneys are ap-
propriated for the funding of the administrative and technology
portions of Medicare versus the trust funds and the 97 percent, but
I think there’s some lock up in that area during the course of the
development of MTS.

Mr. Horn. Dr. Kelly, did you want to add something to this?

Dr. KELLY. I think, Mr. Chairman, what we see is that the exact
same organizations that are doing processing, claims processing,
for Medicare, who are not investing in certain of these solutions in
that part of their business, in fact, are making tremendous invest-
ments on their private side or in the managed care side or even
what's going on in the Medicaid side which they are serving. So we
are seeing a tremendous investment on that side to great benefit.
Obviously, we are not seeing the transfer of those same kind of ca-
pabilities into the Medicare, where we believe that similar benefits
could be achieved.

Mr. Horn. Anybody else like to comment on this?

OK. Would you agree with the assessment that with MTS there
seems to be a strategic decision to take more control of claims proc-
essing from contractors? How do you feel about that? Does that
make any sense or is that baloney?

Mr. RupIn. I think from the testimony I listened to this morning,
I think that definitely was the implication taking place there. I
think if you want to fully deploy the creativity of the private sector
to help out with Medicare, I think the more that you are deploying
the administrative activity of the program and to engage all of the
many companies and organizations that want to come forward can
help with programs like this, I think that competition and that in-
terest and involvement only more and more facilitates competition,
and a very centralized singular system probably does deter from
competition.

Mr. Horn. Well, competition is a very good word for it. 1 am
drawing an analogy between the debt collection legislation I have
offered and the arguments I have listened to in pursuit of that. The
Federal Government has never had a systematic way to collect
debt, and we have—$100 billion that has been written off by the
Internal Revenue Service over the years. There is still about $60
to $70 billion to collect. And the rest of the Government has about
$60 billion to collect. And what we are saying is, hey, folks, you get
the first crack at it since they have got their own in-house bill col-


53

contractors to process claims must be modified. An integrated system would
eliminate the need for such cumbersome and costly multiple processes. In January
1994, HCFA awarded a contract to GTE Government Systems Corporation to
design, develop, and implement the new automated system for processing claims.
Two related contracts were awarded: to Intermetrics, Inc., in April 1994 for what
is known as independent verification and validation, or IV&V--a separate technical
check on GTE's work; and to SETA Corporation in September 1995 for systems

testing.

BEST PRACTICES: DISCIPLINED MANAGEMENT PROCESS

ESSENTIAL FOR SUCCESS

Over the last 12 years, the federal government has spent more than $200 billion on
information technology, and we have evaluated hundreds of these projects. On the
basis of this work, we have determined that two basic, recurring problems constrain
the ability of organizations to successfully develop large systems: (1) failure to

adequately select, plan, prioritize, and control information system projects; and (2)




70

payors, policy-makers and other interested parties. The AMA, therefore, supports the use of
a single coding system and is committed to its improvement. The AMA is also concerned
about attempts to allow so-called private "edits" into the medical coding system because they

would undermine the existence of a single coding system,

GAO ANALYSIS IS INACCURATE AND MISLEADING

The AMA has long maintained a zero tolerance policy with respect to physician waste, fraud
and abuse. We are particularly concerned, however, with the potential areas of fraud and
abuse identified in the recent General Accounting Office (GAO) report, entitled Medicare
Claims - Commereial Technology Could Save Billions Lost to Billing Abuse (GAO/AIMD-
95-135). We believe that the report’s findings are inaccurate and misleading based, in part,
on the fact that the private sector coding “edits” (algorithms that redefine the procedure
codes submitted by the physician to match some predetermined payment policies or
objectives) used do not reflect the Medicare law. In short, the GAO report recommends that
HCFA be directed to have its carriers purchase and utilize existing commercial, proprietary,
automatic data processing equipment (ADPE) to process Medicare claims and detect fraud

and abuse. We believe these recommendations are premised on flawed analysis.


25

Mr. Clinger will go and try to be back to carry this on and then
I will vote. So this is the—this is democracy at work, folks.

Mr. VLADECK. Yes, it is.

Mr. Horn. We do vote, even on motions to table, one of the sillier
motions.

Let me ask you about the Blue Cross/Blue Shield Association
proposal of a couple of years ago, on a joint procurement implemen-
tation effort involving both HCFA and its Medicare contractors.
That report was an alternative strategy for the Medicare Trans-
action System.

Why did HCFA reject this approach, try to develop the system
itself, and what are the benefits of your single system strategy?

Mr. VLADECK. Again, I think we talked about some of the advan-
tages of a single system strategy, just a few minutes ago. And I
could—I won’t elaborate on them further unless you would like, but
I think to us the Blue Cross proposal, apart from the dynamics of
contractors potentially losing a lucrative monopoly, also struck as
though an effort to build a 21st century system by taking some
parts from a 1937 Chevy and some from a 1952 Dodge and cobbling
them together.

We think that the state-of-the-art in data processing, particularly
on the software side of data processing, has developed to the point
that we can have a single uniform software platform that permits
a variety of custom applications that permits and encourages var-
ious kinds of innovation, that allows us to modularly build on to
meet needs as they change and so forth, but that you ought to start
from a single system before you begin to decentralize or differen-
tiate it, rather than trying to take four existing systems, none of
them perfect, and cobble them into one camel.

Mr. Horn. I assume there have been quite a bit of overlap with
the existing systems and between them. Is that not correct? I
mean, you have to ask certain questions regularly.

Mr. VLADECK. They all perform the same business functions but
they do them often in significantly different ways.

Mr. Horn. And do you feel you have taken the most effective and
efficient ways showed and to integrate those systems into your
MTS system?

Mr. VLADECK. Part of the—a major part of the MTS planning ef-
fort has been both an extensive review of the existing systems and
operations and a series of discussions with the contractors and the
people who operate the existing systems about what they would do
differently if they were starting all over again or what their wish
lists would be for characteristics of the new system.

Mr. Horn. Getting back to fraud, waste, and abuse, what incen-
tives does HCFA really provide to the claims processing contractors
area?

Mr. VLADECK. Well, we define payment safeguards, which in-
cludes fraud and abuse activities, as well as certain other activities,
as one of the four basic functions of our contractors. And they are
evaluated on that annually with increasingly stringency, and in the
last several years we have demonstrated to our contractor commu-
nity that within the constraints of the existing law we are not
going to continue to engage contractors who don’t meet our per-
formance standards. So there’s no particular sort of score card in-


68

Statement
of the
AMERICAN MEDICAL ASSOCIATION
to the
Government Reform and Oversight Committee
Subcommittee’s on Government Management,
Information and Technology &
Haman Resources and Intergovernmental Relations
U.S. House of Representatives

Chairman Horn, Chairman Shays and Members of the Subcommittees:

‘The American Medical Association (AMA) is pleased to provide this statement for the record
regarding the important issue of Medicare billing practices. We commend both Chairmen
‘and the Members of the Subcommittee for holding this hearing on an issue critical and timely
to the medical profession - Medicare billing practices and correct coding. The AMA has an
active interest in participating ia the debate on medical coding issues, especially where the
subjects of Medicare billing practices, correct coding and waste, fraud and abuse are
discussed.

One such coding system is the AMA’s Physicians’ Current Procedural Terminology (CPT).
CPT is designed and used by physicians to reflect the clinical practice of medicine. Each
code corresponds with a medical procedure that is performed then recorded and billed. The
purpose of the terminology is to provide a uniform language that will accurately describe
medical, surgical, and diagnostic services and thereby provide an effective means of
communication among physicians, patients, and third parties.


144

the systems, the data warehousing and the analysis to date hap-
pens postpay, after the data is paid, because our systems are such
outdated claims processing systems. So this is a pretty basic strate-
gic mark for us.

It’s extremely important. The idea is to not only have prepay
identification of incorrect payments or patterns that are fraudulent,
but to also have the modules and the pieces of the system inte-
grated so they talk to each other and they update one another.

My recollection is in Mr. Vladeck’s testimony he talks about the
fact today when a Medicare card is stolen and that’s reported,
there is no way for an automatic update to a file. So when a claim
comes in against that card number that someone is aware that
that’s a stolen card, and can look into that in an automated fash-
ion, if bills are being paid for on some kind of spiffy medical equip-
ment that would mean there should be physician bills of a certain
type showing up, those kinds of things are not automated today,
basic things for the future. It’s a very key point to look for these.

Mr. Davis. OK. Mr. Chairman, I have got to run. Thank you very
much,

Mr. Horn. Well, we thank you very much.

Let me go through a few things that relate to the GAO report.
I take it you have had an opportunity to read it, have you?

Ms. Watton. I have looked at it briefly.

Mr. Horn. OK. According to GAO, your own independent ver-
ification and validation contractor has warned you against selecting
your system design before defining the system requirement. Your
own independent verification and validation advisor has also criti-
cized your process for controlling requirements as lacking dis-
cipline. Are they wrong? Are you heeding their advice? If so, what
has changed?

What do you think about that, those statements? Are they in
error?

Ms. Watton. Actually, I would be very surprised at the first one.
The IV&V contractor has actually been encouraging us not to get
into the documentation of the requirements in full detail as a pre-
cursor to moving forward on the design. So I actually think there
might be some confusion in a discussion with the IV&V. They have
been a catalyst for us to what they call stay out of the weeds, to
know your business and your requirements at a high level. Look
for those important flexible requirements and move on with your
architecture. So that one—that surprises me.

Mr. Horn. So you are saying you have defined the system re-
quirements?

Ms. WALTON. Yes, sir.

Mr. Horn. Yes.

Ms. WALTON. Yes, sir.

Mr. Horn. And so, in essence, you are saying you don’t think
that is a fair charge because you are trying to define them in ad-
vance of selecting particular processes as a way to solve those re-
quirements?

Ms. WaLTon. That’s correct.

The second part of the question, I think that I agreed with IV&V,
but I can’t remember, that we needed to improve something.


61

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18

This legislation would enable HCFA to operate more like the private sector in writing contracts.
Under current law, HCFA is not allowed to contract even like other government agencies. First,
only kealth insurers may become Medicare carriers. Second, for Part A, HCFA can only contract
with organizations nominated by health care providers. Third, HCFA must pay termination costs
for all contracts which end -- even if the contract is terminated for cause or the contractor
withdraws from the program, HCFA must pay full termination costs to the contractor. We think
these provisions unduly hamper our ability to do business, prohibiting us from making the most
advantageous contracting arrangements for the Medicare program.

We would appreciate your support for this bill.
Vi. CONCLUSION

HCFA's challenge is to develop and manage information systems for the health care system of the
future. As we approach implementation of the MTS, we do not expect 100 percent perfection.
We do expect change, and we have designed the MTS to be flexible. We also anticipate that we
«vill experience minor performance difficulties. GAO has assured us that problems of this sort are
to be expected in projects of this magnitude, and we will work closely with GAO in addressing
these issues. We have the organization and processes in place to be able to respond effectively to
these challenges and to keep the project on track.

It is the right time for the MTS. The MTS puts HCFA in a unique position to take full advantage
of quickly evolving information technology, enabling us to more efficiently and effectively finance
beneficiaries’ health care. We are carefully managing the design, development and implementation
of the MTS. The MTS will then help us achieve our goals of modernizing our information
system, helping to safeguard the Trust Funds, and providing Medicare beneficiaries with superior
customer service.


35

Mr. Horn. I now yield 5 minutes to the distinguished gentle-
woman from Maryland, Mrs. Morella.

Mrs. MoRELLA. Thank you very much, Mr. Chairman. Thanks for
calling the meeting.

I ask unanimous consent that my opening statement be included
in the record.

Mr. Horn. Without objection, so ordered.

Mrs. MoRELLA. In order to save time, I really have just one ques-
tion to ask Dr. Vladeck.

Good to see you. We support you. We certainly feel that what you
are doing is the right direction and more needs to be done.

As I pose the question, let me just tell you that in my office I
have received from two different constituents, checks. They didn’t
know the other was sending it. These checks are each in the
amount of one penny, .01 cent.

Now, what they are saying to me, you know, as you are looking
at the integrity and solvency of Medicare and waste, fraud and
abuse, do you realize how much it costs to process that refund
check for one penny? I have no answer for them, so I said I’ll save
it and when I have an opportunity, I will certainly make sure that
we do something about it.

What are we doing about that?

Mr. VLADECK. Can you tell me the dates on that check?

Mrs. MORELLA. One is recent, but I will bring them.

Mr. VLADECK. If you can supply us with copies, if the bene-
ficiaries wouldn’t mind. When I arrived here about 2% years ago,
I got that question and I was told that it costs us about a dollar
and a quarter to process a part B claim, including postage, and I
was fold it would cost about $2 per claim to not pay the .01-cent
checks.

After I had been around for a few months and had somewhat
more sophistication about dealing with the various bureaucracies
with which we work, I had a fit and I insisted on a policy that,
henceforth, we would no longer write checks for less than a dollar.
And I have been advised that the procedures for doing that are put
in place. If that hasn’t fully happened, I would like to know about
it, and I would appreciate it if your office could get us that informa-
tion. We will see what has fallen through the cracks.

Mrs. MorELLa. I promise I shall, because I believe it was quite
recent.

Mr. VLADECK. That shouldn’t have happened. And I think by and
large, we have stopped writing checks for less than a dollar. I’d like
to know where that one went wrong.

Mrs. MorELLA. Thank you. I appreciate it.

Also in your testimony you project that about $200 million annu-
ally will occur because of administrative savings as a result of
MTS; however, the General Accounting Office estimates that the
fraud, waste, and abuse in Medicare is about 10 percent of the pro-
gram. By the time MTS is scheduled to be in place, this could be
about $25 billion per year. So are we placing too much emphasis
on holding administrative costs down while we could be really sav-
ing more money by investing in waste, fraud, and abuse detection
systems?


155

nized for information on the leading edges of technology, and we
have a contract with them to give us advice, put us in touch with
experts, and they even do training at a level like mine to come in
to talk about what serves over clients and what are the leading
technologies so we can stay a little bit more on board.

From a little less technical area, we have been spending time
with private companies on how they are handling the choices of
their insurance, because the future in Medicare looks a lot more
like the way large employers handle their insurance today where
employees make choices. So we visited companies like IBM and
talked to them about the way they manage both current employees
and retirees, they have a large base of insurees, to talk about how
they handle the service, enrollment, what kinds of data they use.
We have been doing that at a more executive level, again, for the
less technical people like myself.

Mr. Horn. Does your Gartner consultant sit in on some of these
meetings so they can get a feel for what the concerns of the man-
agement group are?

Ms. WALTON. They have not been sitting in on the management
board meetings, although the IV&V contractor sits in on some of
those, but they are working with the management group and Miss
Adair’s group, yes.

Mr. Horn. HCFA does not have its own Inspector General, right,
on do you? Are you part of Social Security’s Inspector General, or

Ms. WALTON. Part of HHS.

Mr. Horn. Inspector General Brown. She mentioned to me a few
weeks ago that they collected $8 billion in health care, primarily
Medicare/Medicaid fraud and abuse. I am sure your people have
helped bring that in.

Ms. WALTON. We like to see it as a team effort, yes, sir.

Mr. Horn. She certainly would acknowledge that.

But to what degree is the Inspector General’s people in these
meetings so they can help think about how do we discover this
fraud that we know about and that we have detected around the
country, and are we building that into the system?

Ms. WALTON. This past year when we were preparing the future
requirements, the new functionality we would like the system to
have, we had a series of work groups and the Inspector General’s
staff participated in whichever of those work groups were appro-
priate to the kind of activities they were doing, whether debt collec-
tion or fraud and abuse. So they participated fully in identifying
new requirements.

Additionally, in preparing the requirements, we combed through
the reports for the last 5 years from both IG and GAO to look at
deficiencies that have been pointed out. I am actually very pleased
to say that the Inspector General’s office just quite recently came
out with a report on the MTS quite complimentary of the require-
ments addressing the deficiencies that have been pointed out.

Mr. Horn. If I were the manager of any program and I was de-
veloping a new one, I would have the Inspector General’s rep-
resentative right there. Better to have them inside, because you
never know when something will come up that is not on the agenda


55

management process for controlling software development. These problems caused

significant rework and delays.‘

Last year, to help federal agencies improve their chances of success, we completed
a study of how successful private and public organizations reached their goals of
acquiring information systems that significantly improved their ability to carry out
their missions. Our report’ describes an integrated set of fundamental management
practices that were instrumental in producing success. The active involvement of
senior managers, focusing on minimizing project risks and maximizing return on
investment, was essential. To accomplish these objectives, senior managers in
successful organizations consistently followed these practices--which have become
known as best practices--to ensure that they received information needed to make

timely and appropriate decisions.

lodernization: Management Weaknesses Must
Corrected If Modernization Is To Succeed (GAO/AIMD: -95-156, July 26, 1995).

5 juide:_Improving Mission Pe: ugh Strategic Information

Management and Technology (GAO/AIMD-94-115, May 1994).
6


21

Mr. Horn. I am going to yield 5 minutes to the chairman of the
full committee, Mr. Clinger.

Mr. CLINGER. Thank you, Mr. Chairman and Dr. Vladeck, thank
you very much for your testimony.

As you have heard, the figure $28 billion waste, fraud, and abuse
that GAO has estimated, there have been other estimates of that;
is that in the ballpark?

Mr. VLADECK. Sir, I don’t want to disagree with GAO on this or
most other subjects, but I must say that if you stop and think
about it, if we knew exactly how much fraud and abuse there was
in the program, we would be much more successful about eliminat-
ing it. Either that—or we would be totally negligent. It’s clearly a
multi-billion dollar problem. It’s clearly a problem that particularly
got out of control over recent times and is something we are begin-
ning to move on aggressively.

But I do not believe we are fully on top of the problem yet. And
until I have a sense that we are, I would be very reluctant to try
to make a quantitative estimate. But I am certain GAO’s is as good
an estimate as anyone’s.

Mr. CLINGER. Having on my other hat that I wear across the hall
here in the Transportation Committee, and one of the things we
have dealt with now for a number of years is upgrading, bringing
on the line a whole new air traffic control system which has been
fraught with incredible problems, hangups, delays. We are way be-
hind schedule.

So you will understand that I am a little skeptical when we have
a time line presented here. What assurance can you give us, do you
think at this point, that, in fact, you will be able to meet that time

ine?

Mr. VLADECK. Well, the only assurance I can give you, sir, is that
we are on it. We believe we are very much on it at the moment
and have been pretty much on it for about the last year.

Now, our colleagues in the GAO, I know, think that we are—we
are over optimistic, in some regards, and that we are pushing
this—the development in a way that may cause us some difficulties
down the road because we are trying to meet that end of 1999 date
for full implementation.

My feelings about that, to be direct about it, are that so long as
we don’t make any irrevocable mistakes in pushing ahead, we
ought to continue to try and push ahead, having contingency plans
at all times. If we don’t meet the deadline, the world will not end.
The systems will continue to operate.

We actually will have a particular problem if we get to January
1, 2000, there’s an awful lot of reprogramming of the existing sys-
tems that have to be done that would be very, very expensive, if
we are still running them, just to change the digits for the century.
So we would really like to be up and running by December 31,
1999. But we may not make it.

I think as managers, our job is to turn the heat up as high as
we need to, to keep everybody focused on that, while making appro-
priate contingency plans if we don’t meet it. Because otherwise
this—my fear is it could take forever and indeed never happen once
you take the deadlines off.


142

QUESTION:

Can Medicare save by using the Social HMO (SHMO) program? And did you have any
billing and paying problems with SHMOs? [Transcript pp. 158 and 159.]

ANSWER:

An evaluation was completed covering the first five years of operation of the Social HMO I
demonstration sites — 1985 through 1989. The four sites established a long-term care benefit
package that could be marketed in a competitive market and have consistently built
enrollment in their communities. Due to data systems difficulties, findings related to
expenditures were limited to two years in the sites’ operation (1987 and 1988). Therefore,
we cannot draw conclusions regarding savings from this evaluation.

~ Case management was found to be successful in managing the long term care
benefit, and provision of formal case management and long-term care services did not
detract from the provision of informal care by family members.

- There appeared to be favorable enrollment and disenrollment.

- There were no significant differences between individuals in the Social HMO versus
the fee-for-service group assessed on the basis of case-mix standardized mortality
rates.

- The service delivery system has continued to evoive over time to address the health
and long-term care needs of individuals enrolled.

We are refining the design for a second generation SHMO demonstration, Refinements
include changing the payment methodology so that it more appropriately pays for those who
are low risk compared to those who are high risk for health care use. We are also changing
service delivery patterns to more geriatrically oriented care. We anticipate savings from the
refined payment combined with service system changes.

There were no real billing and payment problems and there have been no provider
complaints. Systems changes were needed to refine our HMO payment methodology to
accommodate specific long-term care considerations.


88

administrative efficiencies can be achieved by allowing nonhealth
insurers to contract directly with the Medicare Program.

Mr. Chairman, we appreciate the opportunity to share our views,
and I would be pleased to respond to your questions.

ank you.

Mr. Horn. Well, we thank you very much for that very thorough
statement.

[The prepared statement of Mr. Huntzinger follows:]


42

MTS MANAGEMENT BOARD:

Director, BPO — Ms. Carol Walton
Director, BDMS ~ Ms. Regina McPhillips
Director, HSQB — Ms. Berbara Gage!
Director, OMC ~ Ms. Gele Drapala

MTS STEERING COMMITTEE:

Jared Adair, BPO, MTSI Program Menager and Chair, MTS Steering Committee
Chuck Slike, BPO, MTS Trail Boss

Eva Jun, BDMS

Joe Broseker, BDMS
Bob Moore, BDMS
Bob Goldrick, BDMS
Lillian Gibbons, ORD
Chuck Booth, BPD

Liz Cusick, BPD
Thomas Hoyer,BPD
Stewart Streimer, BPO
Linda Ruiz, BPO
Michelle Snyder, BPO
Michael McMullan, HSQB
Rick Freidman, MB

‘Sol Mussey, OACT
Ellen Angus, OFHR.
Jerry Hankin, OFHR
William Saunders, ORD
Dennis Carroll, Philadelphia RO
Sharon Arnold, OLIGA
Lori Harris, OLIGA
Mary Hogan, OMC


83

validation will all be done in this 11-month period. And we find
that a very tight timeframe.

And the second problem that we have is the overlap of activities
which to a great extent are sequential, not totally, but to a signifi-
cant extent, and if you start getting them too much overlap, then
you are going to miss major design problems.

Mr. LaTHAM. I would like to add one other thing to that. I think
the key to—in this compressed timeframe to deliver the system, it
is essential that HCFA develop an integrated schedule of all the ac-
tivities it needs to complete in that timeframe, and along with that,
a management plan to manage any risks that may come up during
that time.

If they get set back by a month, they need to have some contin-
gency plans as to what do I do from here? Do I reduce the capabil-
ity I am going to deliver? Do I push out the time when I am going
to employ—deploy the system?

I think those kind of decisions have to—the process is to make
those decisions in this critical compressed timeframe have to be in
place. This is a criticism that the IV&V contractor has placed on
HCFA. And we certainly agree someone needs to manage this risk,
because it is a very, very critical risk?

Mr. SouDeER. I thank the chairman.

Mr. Fox. Thank you, Congressman Souder.

Congressman Shays.

Mr. Suays. Thank you, Mr. Chairman.

I have tried to look for a similar system in the private sector.
The best that we can come up with is a fairly good system in the
Defense Department.

But the question I have is: What analogy could we make in the
private sector to a system so large, involving so many people? Is
there nothing like it? Are we totally charting new territory?

Mr. REILLY. I don’t know of a health insurance system in the
United States.

Mr. Suays. Forget health insurance. Just any system.

Mr. REILLY. You are talking about a transaction system?

Mr. Suays. Yes.

Mr. REILLY. I am sure telephone company systems are larger
than this.

Mr. SHays. OK.

And is there anything to be learned by how they do what they
do?

Mr. REILLY. Oh, I think it’s incumbent upon the Government to
always go out and look at the systems in the private sector that
are large scale, to find out what you can learn, because you never
can tell.

Mr. HoeENIG. I think another potential analogy, I am not totally
certain of this, but to look for would be in the retail business,
which has lots of real-time data that’s coming up from customer
sales on a day-to-day basis, which is feeding into inventory and lo-
gistics and ordering and design quantities for new colors of fabrics,
and new types of goods that gets turned around very quickly from
multiple operations and locations and it has to operate off of a
standard approach.


60

parallel with defining system requirements also increases risks that the system will

not meet important goals.

HCFA officials told us they believe that MTS requirements are sufficiently defined
to prepare high-level system-design alternatives, but the IV&V contractor disagrees.
To support critical design decisions, requirements need to be sufficiently detailed to
include such functions and processes as performance levels and response times.

When we reviewed HCFA's preliminary set of requirements, we found that many of

them did not contain enough detail.

Second, HCFA's development schedule for MTS contains significant overlap--or
concurrency--among the various system-development phases: analysis, design,
programming, testing, validation, and implementation. As shown in figure 1, the
April 1994 MTS schedule--an early estimate by HCFA--is used only to illustrate
the sequential nature of these phases. The November 1995 schedule shows
extensive concurrency; for example, the analysis and design phases are occurring

simultaneously during the period from July 1994 to September 1996.


84

Mr. Suays. When I asked my first question to you and I pointed
out it’s the volume, but you also said the kinds of claims are so dif-
ferent, and I continually used Home Depot as my example. If Home
Depot can do it, why can’t HCFA do it? And you answered one
question of why it can’t.

I mean, it’s—you know, a saw is a saw. I mean, there are dif-
ferent kinds of saws, but you are not going to dispute that issue.
So I have a little more sensitivity to this.

Before Mr. Horn was leaving, he said since he and IJ are going
to be around in December here, either paid or unpaid, we thought
we would like to sit down with you and just pursue this further.

I consider this just a gigantic issue. I mean, I think of it. I mean,
we are talking in Medicare, I think, of $178 billion or something
close to it, and so—I just make that point to you. In terms of this—
I make the point that this is such a gigantic issue with such an
incredible payback or cost, which you are making. It’s registering.

In terms of my question, though, I need to have a sense of how
you rate the risk factor. I mean, you all look at automated systems
and where the Federal Government has done well and where it
hasn't. If you were to put a grade on this system right now, I mean,
this is a high risk, I mean, we should say, look out, this is a big,
big problem? I mean, how do you rate it?

Mr. REILLY. There’s no question it’s high risk. Mr. Vladeck him-
self in his printed statement said it is.

Mr. Suays. I need you to define high risk. Do you grade other
systems?

Mr. HOENIG. One thing I can comment on here——

Mr. Suays. Let me clear on my question and then I will try to
listen here.

Do you take automated systems in general in the Federal Gov-
ernment and decide whether they are low risk, high risk, they are
destined to succeed, likely to fail? Do you grade them and then
does that bring attention to us?

Mr. HoENIG. There are two responses on that. One is, there are
high-risk designations that both GAO, GSA, and OMB do. Right
now, 11 of the 18 agencies that compromise 90 percent of Federal
IT spending have systems on those high-risk lists.

Mr. Suays. Almost every project is on the high-risk list?

Mr. Hoenic. A large proportion.

Second, we are very familiar with how the leading organizations
we studied rank risk and the kinds of risk assessment models they
use. And just to give you a sense of benchmark, comparable scale-
type organizations, Xerox for one, 110,000 staff employees, their
highest level of risk is for systems that are over $800,000, just in
terms of size. So size is a key scale.

Now, you compare that kind of a system to a Federal Govern-
ment system, I mean, the private sector grades even very small
systems by our comparison as high risk, and then we have also
found that they use anywhere between 40 and 60 other variables,
from security to technical complexity.

Mr. SHays. Maybe I am looking at risk differently than I should
be. When we have a troubled housing authority in HUD, which my
committee also oversees.

Mr. HoEnic. Right.


119

Providers of care represent the services performed for a patient using the five digit CPT-4 coding
system developed and updated each year by the American Medical Association. These codes may
represent very discrete services, such as 47600 for removal of the gall bladder and 74320 for an
X-ray of the gall bladder, or more comprehensive services such as 47620 for removal of the gall
bladder and its X-ray, when performed at the same time. If'a provider billed the insurers with the
two discrete codes I just described, 47600 and 74320, ClaimCheck would instantaneously
recommend that they be replaced with the code that includes both services performed
simultaneously, 47620. ClaimCheck would also provide extensive documentation that our clients
may use as part of their Explanation of Benefits to the provider. In this way ClaimCheck has
ensured that the provider is paid correctly for the services performed. Revenue savings are
realized because of the sum of the reimbursements for the two discrete codes would improperly
exceed the reimbursement for the code that includes both services. This practice is commonly

referred to as unbundling and is very expensive to the health insurance industry.

Private and public sector programs utilizing ClaimCheck typically realize a savings in the
range of 1% to 8% in their payout on professional claims with anecdotal evidence suggesting
average savings of 5%. For the largest insurers like Aetna, CIGNA, and the Prudential, and large
Blue Cross Blue Shield plans like Blue Shield of California, Empire Blue Cross Blue Shield, Blue

Cross Blue Shield of Connecticut, and Blue Cross Blue Shield of Michigan, the annual savings are

calculated in the tens of millions of dollars. Our initial experience with Medicaid programs has
shown savings of equal magnitude. Even Alaska Medicaid, one of the smaller of the Medicaid

programs, has saved millions of dollars since implementing ClaimCheck.


122

a possible sign of fraud. In a managed care environment, where, through capitation, the provider
assumes some or all of the financial risk, Provider Insight is used to determine which providers
may be underutilizing resources. In managed care, this underutilization of resources may be a
sign of fraud. In any case, the comparison of provider practice pattems, carried out in a fair and
consistent manner, is essential to any insurer or managed care company to adequately protect its

beneficiaries.

What does a private sector insurer have to lose by using commercially available software
like ClaimCheck? The answer is, potentially everything. If our products make inaccurate or
inappropriate recommendations, then our customer risks losing their customer. Also, in this day
and age of managed care, with the development of close linkages between insurers and the
provider community, the last thing an insurer can afford is to alienate providers with inaccurate or
inappropriate recommendations. Consequently, the implementation of products such as
ClaimCheck and Provider Insight is done with great caution by the private sector. The growing
and widespread use of this technology attests to the excellent job done by companies like GMIS

and its competitors.

With respect to implementation, a private sector insurer typically takes less than six
months to install and begin getting value from products such as ClaimCheck. The typical insurer
dedicates several full time employees to ensure that ClaimCheck processing rules correspond with
their medical payment policies and also dedicates several full time employees to making the

necessary software modifications to achieve a full integration of ClaimCheck’s functionality with


29

shed some light on the where we stand on the subject

of fraud and abuse prevention.


154

Mr. Horn. In other words, there would be different access codes
and all the various parts of the Medicare communities, if you will,
could access those common data to know what the situation is on
the beneficiary, and all the rest if case fraud was being committed.

Have you experienced any fraud to any degree on that? We have
it in the Social Security Program where you can have 20 people on
the same number and they seem not to have been able to check it
or didn’t want to. Have you had similar problems on Medicare?

Ms. WALTON. We know that there have been situations where
Medicare cards have been purchased from senior citizens and then
used for submitting fraudulent bills. Stolen cards have been used
for submitting fraudulent bills.

Mr. Horn. Is there a system you have to detect that by simply
seeing either unusual use in different areas where that person
lived the last time you knew, or what? How do you get on top of
that issue because I think it is probably more common than you
and I believe.

Ms. WALTON. The system today does not have an artificial intel-
ligence that systematically looks for unusual activity. The MTS is
very basic to have. The annotation of the card has been reported
stolen or missing.

Finally, one oF the key areas we have is tips from the beneficiary
when Explanation of Benefits comes back to the senior saying they
got an exercise bicycle and retractable bed and they are really sure
this didn’t happen. We are hoping that the summary notice on a
single statement will be an improvement for that. Some of those
processes clearly exist today, and we think in the MTS they will

e stronger and more systematic at stopping that kind of fraud.

Mr. Horn. And you are testing those reports that go back to your
customer and beneficiary to see if anyone can read them other than
an accountant?

Ms. WALTON. Absolutely.

Mr. Horn. I have had that experience with my private insurance
and went to see the senior partner and he couldn’t understand it
either. Then he called in the junior partner who had been on the
national committee that created this form, and he couldn’t under-
stand it either. So I am dubious about the degree to which the av-
erage citizen can understand it.

Ms. WaLToN. I agree. I always say it is good intentions I have
and good intentions won’t cut it. The program is complex, and we
will have to do a lot of testing and piloting with the beneficiaries
to get it right.

Mr. Horn. What investigations or reviews of automation tech-
nology currently in the marketplace has the Health Care Financing
Administration taken? Have you got somebody that is an ex-nerd
in high school that really loves this kind of thing and runs around
to see what is happening? That is what you need.

Ms. WALTON. Actually, we do have a systems manager that we
just brought on board. We said this was one of our internal weak-
nesses that we didn’t have the ex-nerd, so we have just brought
someone onto staff to provide that systems expertise.

We do rely a lot on outside help for that. It is the kind of exper-
tise that is difficult for the Government to keep. We have a group
called the Gartner Group, which is quite well respected and recog-


‘one HONORED FOURTH CONGRESS

Congress of the United States

Bouse of Representatives
‘COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
2157 Raveurn House Orrice Bua
‘Wastimeron, OC 20515-6143

Sear Opening Statement
Chairman William F. Clinger, Jr,
Joint Hearing on Oversight and Review
of Medicare Information and Data Systems
November 16, 1995

Good Morning. 1 would like to thank Chairman Shays and Chairman Horn
for holding this joint hearing. Medicare needs assistance to avoid bankruptcy, and
Tcommend them for focusing on the financial system that manages it.

‘The General Accounting Office estimates that ten percent of health care
spending in this country is consumed by fraud and abuse. Congress is currently
undertaking an historic éffort to restore fiscal soundness to the Medicare program.
An essential component of any reform package must be a strong anti-fraud
program. We're here today to find out if the MTS system fits that bill.

‘The Medicare program cannot sustain unlimited losses to fraud and abuse,
rather it demands an aggressive approach to curb such activities. The Medicare
program cannot continue losing money hand over fist. As we balance the budget,
all of us must work together and establish a zero tolerance for fraud.

‘The current claims processing operation, involving dozens of fiscal
intermediaries and carriers, allows $26 billion to be siphoned away from medical
care into the pockets of unscrupulous providers. Having an organized method of
tracking the more than 800 million Medicare claims filed each year is an attractive
idea. ‘The Health Care Financing Administration has initiated the Medicare
Transaction System with the goal of preserving the security of these claims.

Continued


137

Mr. Davis. Let me just ask some questions. EDS has a big com-
plex out in our area and I am familiar with a lot of things they
are doing. What is your reaction to HCFA’s earlier statement that
they are ready to implement 1990's technology?

Mr. RuDIN. If you look at the whole nature of global competition,
which does not deal in just the private sector but I think also has
to do with the public sector as well, there is no organization in pri-
vate business that could possibly deal with implementing tech-
nology that’s 10 years old and think they are going to stay in busi-
ness in the global competitive environment that we are headed
into.

I think the same analogy basically works with the Government
as weil.

Now, that doesn’t mean you take undue risk, but with the rapid
rate of development of technology in the health care industry, you
have got to be actively moving with smaller size projects, trying to
actively leverage and deploy as quickly as you can the greatest ad-
vancements in technology in the health care industry as soon as
possible in the major programs like this.

Mr. Davis. Anybody else have a reaction to that? Anyone else
want to take a stab at that?

Mr. HUNTZINGER. I commented earlier on that, I believe. I guess
I would just add that in developing information systems, and as I
said earlier, it’s important to capitalize on the technology that’s
available. There have been significant technological changes over
the last couple of years. I am not familiar with the program that’s
being developed for HCFA and what technology platforms are being
deployed.

I agree with what was stated earlier in that in order to really
get a full gain out of technology being deployed, you have to cap-
italize on the current technology at hand. It’s very difficult to de-
ploy it in a big bang theory. However, a common system is an im-
portant thing. I mean, you have to operate in a standard mode.
Things have to work and link seemlessly together so that you are
not administering systems under two different standards and there
is commonality in whatever it is you are bringing to market.

Technology can be an enabler for change. ft can help if you use
the technology properly. It can help you deliver significant change
not only on the administrative side but on the medical side of the
equation. It can position you properly. If you combine technology
innovation with re-engineering, and process redesign, you can get
significant improvement and benefit by looking at the whole sys-
tem, not just the technology side of the equation.

Mr. Davis. OK. Thank you. Let me just conclude and start with
you again, Mr. Rudin. Do you disagree with the basic vision of MTS
or are you more concerned about HCFA’s approach? I think you
touched on that earlier.

Mr. RupIn. My problems are not with the vision of HCFA regard-
ing MTS. I think that’s pretty much right on target. I think the
issue really deals with the approach and the idea of doing a project.
over a 10-year period with all the things that are changing that
should be broken down into many successive projects, that can
have high impact and can start to affect all the multitude of things
that can be brought to bear to deal with the issues.


145

Mr. Horn. Well, the question was, your own independent ver-
ification and validation advisor has criticized the process for con-
trolling requirements as lacking discipline.

Ms. WALTON. They have asked us to put together a control board
to manage that, and we have done that. We have just established
that. Ms. Adair has just put the management group in place to be
that—that is a change control board, yes.

Mr. Horn. How does that work? How do you select people for
that board? Ms. Adair.

Ms. Apair. What we did is that we have a management group
which has an intercomponent reflection of HCFA that we have peo-
ple of midlevel executives from across the agency sitting on that
group, and we will be asking them to take a look at requirements
that would be included in releases and modifications that need to
be made.

Mr. Horn. And are there any people from the outside of HCFA
or are these all within HCFA?

Ms. Apair. We do have participating in the group a representa-
tive from our IV&V contractor and from also our design contractor.

Mr. Horn. Have you searched out for advice of consultants while
you are doing this? Have the best in the private sector been
brought into it in any way?

Ms. WALTON. For this particular piece of the change control, no.
For the system, absolutely. We have talked to several outside com-
panies looking for the best in its class. We talked to NationsBank
because they had done a consolidation of systems when the bank
had done some consolidations, and they were in multiple States.
We have contacted Wal Mart because they are doing a systems
modernization of their computer room. So we are trying to really
take advantage of other outside experts. It’s interesting how much
similarity we find between our application and that of an outside
company.

The NationsBank, for example, they were very concerned about
many of the same things we were doing. They were integrating
what had been previously multiple systems. They were very con-
cerned about testing and making it transparent to the user. So this
has been useful. It’s something GAO encourages us to continue,
and you bet we will.

Mr. Horn. I noted—I put in the record maybe before you arrived
some of the various attachments, such as the MTS executive com-
mittee, which you chair, Ms. Walton, and you got some fairly high-
powered people there. How often does that group meet to review
what is happening on MTS?

Ms. WALTON. We meet once every 2 weeks for an hour and a
half. We have been known to meet more often if there is a need
or a request from Ms. Adair. But we do meet once every 2 weeks.

Mr. Horn. What sort of things do you discuss? Is there an agen-
da prepared in advance and circulated so people can get all the
input they can from their particular part of the Health Care Fi-
nancing Administration?

Ms. WALTON. Sometimes it’s an electronic mail agenda. Other
times, there would be a quick discussion at a senior staff meeting.


151

new on billing that causes people to say, what is this, and go out
and investigate it?

And to what degree are the various academies that we talked
about earlier, be it famil ly physicians or surgeons, to have them in-
volved in explaining this? How does the Health Care Financing Ad-
ministration deal with that?

Ms. WALTON. If it’s a new technology, a new medical device—

Mr. Horn. Yes.

Ms. WALTON [continuing]. Then it needs approval, it needs a
medical code. Then we become the agency or one of our contractors
would be aware of it and it would be checked out.

If what I am doing as a physician is something new in my office
but I am still billing it as an office visit, I think that is not the
kind of thing that the Medicare Program would be aware of.

Generally speaking, either at the local level, the carrier medical
director would. look at new technology or new devices, check the lit-
erature, check with his colleagues in the community, consult with
a local committee and try to figure out if it were a standing medi-
cal practice and should be covered. Once something is a big na-
tional issue, that would happen at a national level.

It’s an area where the MTS will continue to sup ert some local
differences with an overarching national program behi:

Mr. Horn. If that decision was made, that this is ai * secepted
practice, to what degree would the Health Care Financing Adminis-
tration retroactively make payments on those bills? Or does it start
from the day that your approval system recognizes it as a practice?

Ms. WaLTON. You are probably asking less than the top expert
on this topic.

Mr. Horn. Why don’t you just say we will file an answer for the
record?

Ms. WALTON. Great. I will be glad to do that.

Mr. Horn. I don’t want to put you on the spot. When we send
you all of this stuff, you can steer it to the right part of the agency.
And if you can’t find them, why that is a comment, too, on the size
of agencies.

(The information referred to follows:]


44

Mr. VLADECK. I appreciate that.

Mr. Horn. And as I note here, you are right now in the end of
the analyze phase, the beginning of the building phase in fiscal
year 1996, and we have really 4 years to go before complete imple-
mentation of the MTS system under the plan, as I understand it
now,

Mr. VLADECK. Correct.

Mr. Horn. Are we on track and on time?

Mr. VLADECK. Again, we are on track. As of now, we have been
pretty consistently on track for about the last year. I expect we will
be periodically checking in with you as we go down the road, and
we will keep you posted as it moves down.

Mr. Horn. Thank you very much, Dr. Vladeck. We appreciate
your appearance here today and you have been very patient with
democracy in action as we go to answer votes, so thank you very
much.

Mr. VLADECK. It’s my pleasure, Mr. Chairman. I'll be back, I
imagine.

Thank you.

Mr. Horn. Our next witnesses are part of the legislative branch
that are essential, namely, Mr. Christopher Hoenig, the Director of
Information Management Policy and Issues; Mr. Frank Reilly, the
Director of Information Management Technology Division of the
General Accounting Office.

Gentlemen, you know the routine, and if those accompanying you
please also take the oath.

{Witnesses sworn.]

Mr. Horn. All four witnesses, including staff, have affirmed.

Please begin, Mr. Hoenig.

Mr. Suays. Mr. Chairman, could I just-——

Mr. Horn. I apologize.

Mr. Suays [continuing]. Apologize first to you, and then to the
first panel for not being here. This is a joint hearing with primary
sponsorship from the Management Subcommittee. I just want to
say that for the record that gift ban and lobby disclosure are com-
ing before the Chamber, two activities that I have been very closely
involved in, and slightly before that debate I will be leaving here
about 12:15. I just want to explain why I haven’t been here.

Mr. Horn. I will be leaving here at 11:55, Mr. Chairman. So
hopefully between our two subcommittees we will have an acting
chairman.

Mr. Suays. Mr. Towns, do you mind being chairman while we
are gone?

Mr. Horn. This is true bipartisanship.

Mr. Towns. Thank you for the consideration.

Mr. Horn. OK.

Thank you.

And well, gentlemen, Mr. Hoenig, I believe will go first, is that—
or would you like Mr. Reilly?

Mr. REILLY. Mr. Reilly will actually go first.

Mr. Horn. Go ahead Mr. Reilly.


4

Mr. CLINGER. Thank you very much, Mr. Chairman.

I want to thank you and Chairman Shays for holding this joint
hearing this morning. Medicare needs assistance to avoid bank-
ruptcy, and I want to commend you both for focusing on the finan-
cial system that manages this very vast system that we have.

The General Accounting Office has estimated that 10 percent of
health care spending in this country is consumed by fraud and
abuse. Congress is currently undertaking a historic effort to restore
fiscal soundness to the Medicare Program.

An essential component of any reform package must be a strong
antifraud program. We are here today to find out if the MTS sys-
tem fits that bill.

The Medicare Program cannot sustain unlimited losses to fraud
and abuse. Rather it demands an aggressive approach to curb such
activities. The Medicare Program cannot continue losing money
hand over fist.

As we balance the budget, all of us need to work together to es-
tablish a zero tolerance for fraud. The current claims processing op-
eration involving dozens of fiscal intermediaries and carriers, al-
lows what is estimated to be up to $26 billion to be siphoned away
from medical care into the pockets of unscrupulous providers.

Having an organized method of tracking the more than 800 mil-
lion Medicare claims which are filed each year is an attractive idea.
The HCFA has initiated the Medicare Transaction System with the
goal of preserving the security of these claims.

At a hearing held earlier before Congressman Shays’ subcommit-
tee on June 15 of this year, testimony was given on the importance
of the MTS to detect and curb abuses within the overall Medicare
system. I would judge that everyone in this room would agree that
current fraud and abuse controls have been proven to be inad-
equate. The system really is too easy to crack, too easy to take ad-
vantage of, too easy to bilk.

However, before the MTS system has even had a chance to be
implemented, concerns have been brought before this committee
about the direction that HCFA is taking this program at the
present time. You have already seen a midstream revision of HCFA
development requirements for the MTS and a rollback in the date
these requirements are to be completed.

I am also concerned with the potential for cost overruns in the
system. The MTS already carries a proposed price tag of $127 mil-
lion, I understand, and the GAO has reported that the costs of the
MTS will probably be significantly higher than that. But today’s
testimony will be, I am sure, instructive in judging whether the
proposed MTS system is going to effectively serve its intended pur-
pose or whether this procurement is as problem-riddled as some
suggest.

Clearly, if we can really get a handle on what appears to be mas-
sive waste, fraud, and abuse in this system, that would mean much
less pressure to reduce services that are desperately needed. So I
commend you, Chairman Horn and Chairman Shays for the over-
sight you are providing in this very, very critical area.

[The prepared statement of Hon. William F. Clinger follows:]


38

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118

In sum, GMIS’ products enable our clients to promote more appropriate treatment for
their constituencies, to pay their claims more accurately, consistently, and efficiently, and to
retrospectively analyze their data in order to better manage their networks of providers for the
benefit of their customers. Two products, ClaimCheck® and Provider Insight® may be of

interest to you today.

ClaimCheck, is used by more than 160 organizations to guarantee accurate and
appropriate payment of claims. Approximately 125 million Americans have their health care
coverage from GMIS’ customers. These companies, some of the largest financial institutions in
the world, have historically internally developed all information systems, unless outsourced to.
companies like those represented by my colleagues at the table, However, they generally
outsource development of clinical applications to companies like GMIS. Quite simply GMIS
brings to clients specialized technology not commonly found in information systems companies.
Specifically, our professional staff of clinicians, coders, programmers and analysts are focused
solely on clinical development. Our customers put their trust in an outside developer because of
the dynamics of medical care and coding systems: ever changing practices, updated coding
systems, and interpretations of both, Use of our products eliminates, for our customers, any

appearance that their decisions are made in an arbitrary or capricious manner.

ClaimCheck does not make any judgement with respect to diagnosis or appropriateness of

care. ClaimCheck only detects and corrects coding errors on a health insurance claim form.


7

The MTS Management Board, which includes executives from several components across the
agency, provides leadership for the project team. The Bureau of Program Operations, which runs
our contractor network, manages day-to-day operations. The Bureau of Data Management and
Strategy, the agency’s information resource management group, is the other major component
involved with managing the project. We believe that our team approach has met the challenge of
addressing agency-wide needs for the project while effectively tapping expertise from HCFA’S
various components.

In the development of the MTS, we have found that different skills and different organizational
arrangements are needed for different stages of the process, HCFA is currently transitioning to a
new stage of the MTS development, moving from a largely free-standing planning effort to the
integration of the project throughout the organization. As we moye into this phase, each
component of the agency must incorporate planning for the MTS in its ongoing responsibilities.
This effort requires changes in our management strategy because it involves aligning project
activities with the organizational components that will ultimately be responsible for the new
system, At this stage, detailed decisions will be made by the people who will implement those
decisions. The business of MTS is becoming a major element of the business of HCFA.

A necessary complement to the MTS is our Medicare Transaction ‘system Initiative (MTSI).
While the MTS comprises the software, hardware and data components of the project, the MTSI
is an internal project designed to bring about the cultural changes in HCFA that will be necessary
for our effective use of the MTS. For example, the MTSI will allow HCFA to convert from a
more fee-for-service environment to one that addresses multiple payment schemes, The MTS will
also require changes in how HCFA writes operational instructions for implementing policy
changes, and we need to learn how to do that before the new system is upon us

The MTS is a capital investment that will yield significant returns when fully implemented. The
MTS will lower contractor overhead and administrative costs, increase efficiency through data
standardization, and avoid the costs of updating multiple software systems. Once the MTS is
fully implemented, we expect it to yield approximately $200 million dollars a year in
administrative savings as well as additional savings in benefits. |

HCFA and its contractors are on schedule for transition to the MTS beginning in September 1997
and ending by September 1999. In March 1997, we plan to award contracts to operate the MTS
at several sites, HCFA and GTE, the MTS design contractor, willl work closely together
throughout the life of the project to ensure timely and successful implementation of the MTS.

Vi. MEDICARE NEEDS INCREASED FLEXIBILITY IN CONTRACTING.

While the MTS can be implemented without statutory change, optimum use of this new tool
would require changes in our contracting practices, which in turn ‘end con passage of
contracting reform legislation. Our draft bill, the "Medicare Contractor Reform Act of 1995,"
would provide Medicare increased flexibility in contracting with otganizations that process claims

and perform related tasks under Part A and Part B. |
i

5


12

standardization, and avoid the cost of updating multiple software
systems.

Once the system is fully implemented, we expect it to yield ap-
proximately $200 million a year in current dollars, in administra-
tive savings as well as impossible to quantify, but much more sub-
stantial savings in reduced benefit payments because of better de-
terrence of fraudulent or abusive practices.

We are on schedule for transition to the MTS beginning in Sep-
tember 1997, with full transition completed by September 1999. We
hope in March 1997 to award contracts to operate the MTS at sev-
eral sites. We at GTE, our design contractor, are working closely
together to see that we meet those time lines.

The last point I can make, if I could, that we can implement
MTS without statutory change but to take full advantage of this
new system will require some changes in the law. We have talked
to various committees of jurisdiction in the contract about our draft
bill, the Medicare Contractor Reform Act, which would provide us
increased flexibility in contracting.

It would enable HCFA to operate more like the private sector in
writing contracts. Under current law, we are not allowed to con-
tract like other Government agencies. We are not under general
Federal procurement regulations for the administration of the Med-
icare Program.

We may only contract with health insurers, even though other
firms may be better or cheaper at performing part of our work. We
lack the flexibility to divide up functions to permit specialization
and to avoid conflicts of interest. Obviously we would very much
appreciate your support for this bill.

In conclusion, as we approach implementation of the MTS, we
certainly don’t expect 100 percent perfection. Medicare is a continu-
ously’ changing and evolving program, and its data requirements
will continually change and evolve.

We need not only a new data processing system, but one that is
flexible and that can be adjusted and adopted both to changes in
technology and changes in the health care system. None of this is
going to work perfectly, but we are consulting as widely as we can
and managing as carefully as we can to keep on track the imple-
mentation of a new system that will modernize the capabilities of
the Medicare Program and permit us to face management of the

rogram in the 21st century with the kind of confidence our bene-
iciaries deserve.

Again, I appreciate the opportunity to appear before you today
and of course I am happy to take any questions you might have.

Mr. Horn. Thank you very much.

(The prepared statement of Mr. Vladeck follows:]


STATUS OF THE MEDICARE TRANSACTION
SYSTEM: THE HEALTH CARE FINANCING
ADMINISTRATION’S PLANNED DATA SYSTEM
TO CONTROL FRAUD/ABUSE

THURSDAY, NOVEMBER 16, 1995

House OF REPRESENTATIVES, SUBCOMMITTEE ON Gov-
ERNMENT MANAGEMENT, INFORMATION, AND _TECH-
NOLOGY; JOINT WITH THE SUBCOMMITTEE ON HUMAN
RESOURCES AND INTERGOVERNMENTAL RELATIONS,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,

Washington, DC.

The Subcommittees met, pursuant to notice, at 10 a.m., in room
2154, Rayburn House Office Building, Hon. Stephen Horn (chair-
man of the Subcommittee on Government Management, Informa-
tion, and Technology) presiding.

Present: Representatives Horn, Shays, Fox, Clinger, Maloney,
Souder, Morella, Towns, and Green.

Staff present: Subcommittee on Human Resources and Intergov-
ernmental Relations: Lawrence J. Halloran, staff director/counsel;
Kate Hickey and Bob Newman, professional staff members; Thom-
as Costa, clerk; Government Management, Information, and Tech-
nology Subcommittee: J. Russell George, staff director/counsel;
Mark Uncapher, professional staff member and counsel; Andrew G.
Richardson, clerk; David McMillen and Cherri Branson, minority
professional staff; and Elisabeth Campbell, minority staff assistant.

Mr. Horn. A quorum being present, this joint session of the Sub-
committees on Government Management, Information, and Tech-
nology and on Human Resources and Intergovernmental Relations
will come to order.

This hearing will be a review of the information and data sys-
tems that support America’s Medicare Program. Today, approxi-
mately 70 different claims-processing contractors are using any of
nine separate independently designed private automation systems,
in order to compute and pay the hospital or doctor bills of people
covered by Medicare.

The Health Care Financing Administration, part of the Depart-
ment of Health and Human Services, has been working since 1992
on a single new Government system called the Medicare Trans-
action System, or MTS. We are told the new system would replace
the nine different private systems in use today.

If all goes as planned, we can expect the MTS to lead to a more
efficient Medicare service, simpler paperwork, and faster coordina-
tion among the many benefit insurers. The General Accounting Of-

a


130

at that time. We have revised that a number of times and came
out with replacement products.

The last 2.5 years were spent in an R&D lab developing our new-
est client-server product called Meridise, and Meridise is now cur-
rently in beta site. I will not talk about the two customers because
we are under nondisclosure there.

Suffice to say, one is a large managed care environment that con-
sists of about 400,000 lives and a mix of HMO, PPO, and tradi-
tional indemnity health insurance business. It took us 2.5 years to
take it from the design stage to the actual beta site and it just
started and went into beta site last month. It’s going to be in beta
site—actually, it’s going to be in two beta sites for probably around
9 months.

Mr. Horn. | think for the viewer and the reader we need to
translate beta site. This is essentially the second site after you
have proved it works?

Mr. HuNTZINGER. Actually, no. It is—a beta site, in our definition
of it, is we have developed the system in-house. We have tested it
and put it through rigorous internal testing.

Now we are ready to take it to a real customer and someone who
is also going to put it through a very rigorous, intensive acceptance
test, and upon completion of that acceptance test will migrate a
segment of their business over to that product and monitor it very
closely.

We at that time put a swat team, per se, around it, making cer-
tain that anything that—any problems that are identified are cor-
rected. That’s a beta site.

Once we are all done with that and the customer has actually
used it in an ongoing production mode under close supervision;
then we believe, and after we have corrected all of the problems
that were identified at that time, we then make it commercially
available.

And beta sites are—it’s a way of—I think there’s reference to
model office work. It’s not a model office environment. It’s taking
actual live customer involvement.

Mr. Horn. It is fully operational?

Mr. HUNTZINGER. It is fully operational, on small scale.

Mr. Horn. You have gone from the laboratory. You have tested
it. You think you have got something that works but you are not—
really don’t know until you are out in the real world.

Mr. HUNTZINGER. That's correct.

Mr. HorN. So it goes through the basic research, the applied re-
search, the developmental research and you are there.

Mr. HUNTZINGER. Right.

Mr. Horn. I have learned long ago, don’t be the alpha site. That
I know. I have been through that. You can make headlines that
way.

But do you have any comments, Mr. Rudin.

Mr. RUDIN. Yes, Mr. Chairman. When you stand back and take
a look at the conversations this morning I compare it to your anal-
ogy about the Edsels back in the fifties and frowning upon legacy
systems; when I stand back and look at MTS, we are basically
spending close to 10 years to replace one series of transaction sys-
tems, the nine that are in place today, with one much larger trans-


108

enhances the automation of payment safeguard capabilities; and delivers consistent

and high-quality services to the beneficiaries and providers.

Nonetheless, the agency's Medicare approach must be examined in light of today’s
health care information technologies, which are characterized by rapid change,
uncertainty, and increased competition. For example, community and regional
health information networks are already in production or being implemented to
support access to clinical or patient care data as well as to claims and eligibility

information.

Growing demands for open system, client/server computing, microprocessor
technology, and high-speed public and private networks have caused some
fundamental changes in the use of information technology. Healthcare
Information and Management Systems Society (HIMSS) recently surveyed 1000
respondents in the process of formatting integrated systems and found that
applications technologies that will experience the most rapid growth in health care
are: clinical data repositories (24%), networking (17%), mobile computers/wireless
technologies (13%) and electronic data interchange (EDI) (13%). The pace of change
is putting stress on business systems and decision makers without the luxury of

having time stand still.

Clearly, the structure of health care business is being revolutionized by the
convergence of telecommunications, computing, and information services. It's
hard to tell where one begins and another ends. At the same time, we're seeing
bulky hardware begin to disappear as we strap new technology around our wrists

and cradle it in our hands. Let's face it. The world of information technology is


67

I know Home Depot can tell you at 9 a.m. what they sold from
6 to 8:59. They have already started to order new inventory. Is it
possible now for me to know what Stamford Hospital received last
week if I went to HCFA?

Mr. REILLY. When we—when you have a system, when you have
nine systems, not a system, when you have many, many contrac-
tors operating from different systems, it is extremely difficult for
anybody to get the kind of information I think that you want.

Mr. Suays. What that suggests to me, though, is the system is
so ripe for waste, fraud and abuse that a 10-percent suggestion of
waste, fraud and abuse is almost laughable. I mean, you basi-
cally—I have had constituents, one of the things I might say, Mr.
Chairman, and something Mr. Towns and I have talked about, is
we may decide in our subcommittee to have a hearing on just how
Medicare recipients—some of the absurd billings. We have had
men that are billed for pregnancy, we have had women who have
been billed for things that are not physically possible for a woman,
and so on. They just defy logic.

We thought we might just have a public hearing where we would
invite rank and file citizens to just come off the street, have it a
week long from 8 a.m. to 5 p.m., just to document the incredible
absurdity. When I hear you talking, I think how big the billing is—
you have answered my question very well. It was a broad question
but it speaks to the difficulty of processing a claim.

Now, the doctors—and there is the question I want to get into.
The doctors have a problem with a centralized system because they
think it is not flexible enough to note their particular analysis of
the problem and their solution for that problem. And so your main
testimony is that we should have one centralized system, or is your
bottom line we should have a variety of systems?

Mr. REILLY. No, in terms of a design, we should have a design.
I don’t think any person—any person, a systems designer in this
country, public or private, would consider anything other than a
single design would be appropriate for this.

Mr. Suays. With claims forms all the same?

Mr. REILLY. But that could be distributed around the country, I
mean the processing of it. But you need a single design, so that the
doctors know what the rules of the game are.

Mr. Suays. And they are the same anywhere in the country?

Mr. REILLY. Anywhere in the country. Because, I mean, Medicare
is a national program.

Mr. Suays. I thank you, Mr. Chairman.

Mr. Horn. Thank you.

The gentleman from New York, Mr. Towns.

Mr. Towns. I yield to Mr. Green.

Mr. Horn. Very good.

Mr. SHays. Could I ask that we put into the record, a statement
from the American Medical Association expressing concern about
this issue?

Mr. Horn. Without objection, it will go in.

(The information referred to follows:]


22

Mr. CLINGER. Clearly, one of the ways that we could have a bet-
ter control on fraudulent claims in the system is if the bene-
ficiaries, the recipients of the care, are advised of what has pur-
portedly been provided on their behalf. And I understand—you in-
dicated that all recipients of care will now be informed of what
they supposedly received from a provider?

Mr. VLADECK. Sir, we do that now for about 85 percent of the
claims we pay. Beneficiaries receive what’s called the “Explanation
of Medicare Benefits.”

In the past, for those services for which there were no copay-
ments or deductibles, my colleagues, I think, in a misguided—my
predecessors in what I think was sort of misguided pennywise,
pound foolish, suppressed those notices. So, for home care visits
where there’s no coinsurance for the last number of years, we had
not been routinely sending out such notices. But for physician serv-
ices, and for most outpatient services, and for hospitalizations, we
do send out perhaps a total of 500 million notices per year. The
principal source of tips we get about potential fraud and abuse
cases are from beneficiaries who report to us, literally thousands
of times a year, on problems where they know there’s something
wrong, whether or not it is a fraudulent situation.

The problem at the moment is that anyone who has tried to help
a relative negotiate between their Medicare and supplemental in-
surance talks about the shopping bags full of paper. We generate
one of these forms for every claim, and it’s not uncommon for some-
one, again, who’s been hospitalized for a serious illness to have 30
or 40 claims associated with that illness, each one of which gen-
erates a notice. And when they—depending on who their supple-
mental insurer is, may generate additional paperwork with the
supplemental insurer as well. So, it’s very hard for people to navi-
gate through all of that paper.

Under MTS, people will get a single monthly mailing that will
itemize all the services they received. We think that will be much
easier for folks to understand. And the better they understand
what we have paid on their behalf, the more likely we believe it
is that they will actually look at it and identify questionable
charges in the process. So we do expect it will substantially in-
crease the number of such inquiries or reports we get. But we al-
ready get literally thousands and thousands of them.

Mr. CLINGER. Thank you.

Thank you, Mr. Chairman.

Mr. Horn. Thank you.

Mr. Horn. Let me follow up on something that goes back several
years. As I remember, in the closing days of the Bush administra-
tion, Secretary Sullivan had the insurers in to get some coordi-
nated agreement on whether the last name went first or last, I
wondered why Secretaries had not done so since 1965.

Where are we on that and how does that interface with your par-
ticular system?

Mr. VLADECK. The group that Secretary Sullivan pulled together
for that, the acronym for which is WEDI. W-E-D-I, and I know
the last three letters are electronic data interchange, I can’t re-
member what the first one stands for, is continuing to meet largely
under private sector leadership, although we are continuing to ac-


141

haps even especially developed modules that would work. You
might need a managed care module. You might need an accounting
module. The analysis of the current system argued against trying
to fit them into the old batch technology.

Mr. HorN. You are familiar with the social HMO concept that
was authorized by Congress, where they took a group of senior citi-
zens and they compared it with what they pay on Medicare claims
with maybe 100,000 people and give them 95 percent or whatever
it is of what that would be.

Ms. WALTON. Yes.

Peed Horn. There were several experiments, California among
them.

Ms. WALTON. Yes.

Mr. Horn. I am just curious, on the handling of those payments.
It would seem to me it is very simple, whether you paid it on a
monthly basis or a quarterly basis or whatever, we are talking
about a lump sum and then it is up to the HMO to manage within
that. And as I remember, they made money on the contract.

Ms. WALTON. Yes.

Mr. Horn. So the fact is, it meant to any of us looking at it, that
Medicare could be done for 10 percent cheaper than it has been
done when you look at those experiments and you assume a pre-
ventive care model. But did that create any extra type of problems
for Medicare in terms of the billing and the paying and all the rest
of it or was that pretty simple to handle?

Ms. WALTON. I don’t recall the way that was handled at the time.
In planning for the future, what has been our model is that we
need maximum flexibility to handle beneficiaries choosing a PPO
where we might have——

Mr. Horn. Sure.

Ms. WALTON [continuing]. Varying co-pays depending on whether
beneficiaries are in or out of a network. You might have, perhaps,
a system where the payment to the plan, the insurance company,
is based on a competitive bid. We have tried to build those kinds
of variations into the system.

Mr. Horn. Well, I wonder, you might want to file for the record
how you did handle this at this point.

{The information referred to follows:]


Congress of the United States
BWouse of Representatives
COWMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
2187 Ravaurw House Orrice Buon
Wassanarow DC 20515-6143

SUBCOMMITTEE ON HUMAN RESOURCES
"AND INTERGOVERNMENTAL RELATIONS
3 Christopher Shays. Connectieut
ERECT ISS secre ‘Chatman
Bane Rn A Ream 8.372 Rayburn Bung
“Washingan. 0.6. 2081S
‘er 202 225.2588
Fax: 202 225.2362

Statement of Rep. Christopher Shays
November 16, 1995

‘The development of the Medicare Transaction System (MTS) by the Health Care Finance
Administration (HCFA) raises important questions about the acquisition and use of computer
technology in government health programs. Our subcommittees meet today to assess the MTS
development process, and to measure the promise of the MTS against its anticipated performance.

(Our hearings on waste, fraud and abuse in the Medicare and Medicaid programs pointed to
the increasing sophistication and staggering costs of the rip-offs that take ten cents, or more. of
every federal health care dollar. We need equally sophisticated tools to safeguard the integrity of
federal health care spending.

The MTS is intended to be such a tool. Through the centralized processing and automated
review of claims data, HCFA hopes to capture efficiencies and discem violations that elude the
current multi-contractor system, HCFA’s own work to standardize billing identification numbers
for vendors of durable medical equipment demonstrates the potential of this more unified
technological approach

But will the MTS deliver the benefits of advanced data processing to Medicare. of will it
succumb to the delays and design flaws that often doom government computer acquisitions to early
obsolescence? Are the goals, deadlines and cost estimates for the MTS realistic? Are important
opportunities to enhance Medicare being missed while HCFA pins all its hopes on MTS?

‘These are the questions we asked our witnesses to address today. I look forward to their
testimony.


139

an independent study using the same technology to derive essen-
tially the same results.

Mr. Horn. Well, unless anybody has anything else to say, I sim-
ply want to thank you for spending the time. It has been most
helpful. You have had a lot of experience and I am delighted you
could share it with us.

So thank you for your patience in the various votes we have had
to leave for.

Mr. Rubin. Thank you, Mr. Chairman.

Mr. HUNTZINGER. Thank you, Mr. Chairman.

Mr. Horn. Our last panel will be Carol Walton, Director of Bu-
reau of Program Operations, Health Care Financing Administra-
tion, and she is accompanied by Jared Adair, who is, the MTSI pro-
gram manager for HCFA.

So welcome and we will swear you in.

[Witnesses sworn.]

Mr. Horn. Well, we will start with Carol Walton, Director of Bu-
reau of Program Operations, Health Care Financing Administra-
tion. Please proceed. As you know, we put your prepared statement
in the record at the time of introduction. So we would like you to
summarize it as best you can, although you are the last panel and
we can have a lot of leeway.

Ms. Watton. I did not bring a prepared statement and was not
going to make remarks.

Mr. Horn. All right.

Ms. WALTON. Bruce Vladeck, the Administrator of HCFA, pre-
sented the prepared statement this morning, and I was hoping to
be able to be here to answer any questions that came out of the
day as best I could.

Mr. Horn. Sure. Well, you heard all the testimony. Let’s just
have your reaction as you listened to it.

STATEMENT OF CAROL WALTON, DIRECTOR, BUREAU OF PRO-
GRAM OPERATIONS, HEALTH CARE FINANCING ADMINIS-
TRATION, ACCOMPANIDED BY JARED ADAIR, MTSI PRO-
GRAM MANAGER, HCFA

Ms. WALTON. Well, I did not hear all of the testimony, but I did
listen to the last panel. If I had to just summarize a couple of
points about the Medicare Transaction System, I would say that
what we are building is a technical platform for the 21st century.
We are trying to build a platform that provides for a flexible, scal-
able system with open architecture so that we can have an invest-
ment that allows us to have a Medicare Program that we see
changing quite a bit. We think you have to have a modular ap-
proach and certainly support using as much off-the-shelf software
in a plug-and-play mode, but on the base of a modern information
systems platform.

The second thing I would like to point out is that the investment.
for the system is the very key to being able to support the Medicare
choices that I think we see emerging. The history of Medicare for
about 30 years has basically been overwhelmingly that of a fee-for-
service program, and our systems today are truly for claims proc-
essing. What they are actually fairly good at is getting a claim in,


27

Mr. VLADECK. Absolutely, sir. I have attended one such session
myself and we have conducted several dozen of these sessions. We
are doing it intermittently. We first had focus groups around the
general problem. We then did a dummy draft design. We checked
it out with a number of beneficiary groups, both through focus
groups and other opinion research techniques. We revised the docu-
ment on the basis of what we learned, and we are going to test the
revised document again. So there will be three or four generations
of such consumer testing before such a document is implemented.

Mr. Horn. I am going to ask this question. Please put the an-
swer on the record and then when you finish that answer, the com-
mittee will go into recess until Mr. Clinger or I return.

Mr. GREEN. Mr. Chairman, could I ask some questions?

Mr. Horn. Certainly. I am sorry. I didn’t see you here.

Mr. GREEN. We have some folks on this side.

Mr. Horn. Yes. You sneaked in on me. I yield 5 minutes. You
have voted, have you?

Mr. GREEN. No, I haven’t voted and I was going to run over at
the same time.

Mr. HorNn. Please. We will recess.

Mr. GREEN. I am glad you are here again, Doctor, and I appre-
ciate being on the subcommittee in the joint hearing today because
this is probably the biggest complaint I receive in my office in
Houston, is, you know, the example you gave. You know, I don’t
think I received this service and yet I see it has been paid and it
is frustrating to not only the Medicare recipients but to their chil-
dren, who I talk to on a regular basis who assist in that paperwork
that our chairman was talking about. And I don’t know if we need
to make it more user friendly. I think sometimes it would be better
to have a voice on the end of that phone that is more user friendly.

But I, first of all, Mr. Chairman, I would like to ask unanimous
consent to place in the record an opening statement.

[The prepared statement of Hon. Gene Green follows:]


cor
ew

‘* Replacing the standard paper patient record with a computerized
record that details inpatient stay information and incorporates clinical
and functional outcomes, physician visit information, patient histories,
and other patient-focused information that supports the continuum of
care.

Integrating existing information bases, including financial and
administrative as well as clinical information .

© Providing access to clinical management information, including
preferred protocols, practice guidelines, practice pattem information,
and quality measures.

CSC Healthcare Systems, for example, worked closely with Henry Ford Health
Systems in developing an integrated patient care and referral system (PCR) which resulted
in approximately $8.5 million in savings per year in processing hospital transfers, request
denials and care management transactions. Our continued efforts in developing solutions
such as the PCR system for Henry Ford is a testimony to the savings potentially available
to other IDS/IDN customers nationwide. Additional examples of information systems and
the'savings realized by IDS/IDN organizations are attached in an article entitled “Real
Solutions for Integrated Delivery Systems” which appeared in the February, 1995 issue of
Health Management Technology.

Information Analysis - We have spent decades developing systems capable of
handling large volumes of health care transaction data. This information was designed for
efficient transaction storage and reporting large amounts of tabular information.
Management’s challenge was to extract intelligent, usable information from the masses of
data collected. This was a nearly impossible task that took multiple iterations of requests

to an information systems department, with each request taking days and sometimes

weeks between iterations to complete.


138

As we talked earlier about the estimated $25 to $28 billion of po-
tential savings in the benefits areas, there are lots of things that
exist out there today that if we work with them and start putting
them in the program and not wait for many years, will have a lot
of impact very quickly if we just move on it.

Mr. Davis. Thank you. I yield back.

Mr. Horn. Just for the record, since our next panel is from
HCFA, have all of your firms made your interests known to HCFA,
that you have the software, the experience, the systems and so
forth that could maybe help solve some of their problems? I mean,
what is your involvement with HCFA? Have you posed the avail-
ability of your experience?

Mr. RuDIN. J would think that HCFA is well aware of all the ca-
pabilities of our company, being the large scale contractor that we
are in Medicaid and Medicare. So I suspect they understand all of
our capabilities.

Mr. Horn. To your knowledge, was there ever a meeting that
they called of people that are likely to solve their problems prior
to the development of this MTS system? Did they ever ask for ad-
vice from the private sector, to your knowledge?

Mr. HuNTZINGER. If I may answer the question a couple of dif-
ferent ways. We are currently a contractor for HCFA, and I head
up the commercial sector for CSC. We are not integrated as a com-
pany from a government/commercial sector perspective.

My organization was not contacted from the standpoint of what
we might be able to do from an information systems perspective
with COTS, or commercial off-the-shelf software. I think it’s appro-
priate and based on what I have learned today, that we should
take some initiative on both sides of the fence to see what other
opportunities might be available to help the Government in reduc-
ing costs, on both the administrative and medical side of the equa-
tion.

Mr. Horn. How about you, Mr. Rudin?

Mr. RupIN. Yes, Mr. Chairman. We provided input into shared
systems and processing initiatives but not a single system. We, as
we stated in our written testimony, did respond to the RFP on
MTS, and we are involved in conversations around it.

Mr. Horn. Any comments, Mr. Owens?

Mr. OWENS. Our involvement has been not—we have had some
direct involvement with HCFA on the issues of the technologies
that we can provide, but our involvement has been more directly
with the Office of Inspector General of HHS who used us as a sub-
contractor to quantify the problem in the Medicare Program in
Medicaid, as well as the Government Accounting Office used us to
validate the savings that they determined in the study that was
presented in May.

Mr. Horn. Is that development for the Inspector General for re-
view of claims on a spot check basis or what?

Mr. OWENS. Yes. They did a nationwide study, initially starting
with one State and then rolling it out to eight additional States,
back, starting in 1991 and completed it in 1994, looking at the
costs to the program of not utilizing technologies of this sort. But
more importantly, just what is the magnitude of the problem with-
in both of these programs? The Government Accounting Office did


89

George S. Huntzinger
CSC Healthcare Systems, Inc.

cor
we
Mr. Chairman, Members of the Committee, Good Afternoon.

Iam George Huntzinger, President of Computer Sciences Corporation’s (CSC)
Healthcare Systems Division. On behalf of CSC and ITAA, I am pleased to be here and
appreciate this opportunity to share our views and expertise on the subject of information
technology.

CSC Healthcare Systems (CSCHS) markets information systems, consulting and
outsourcing services to support managed care organizations, point-of-service plans,
medical groups and private practices. CSCHS is the largest supplier of information
systems to health maintenance organizations (HMOs), holding 31 percent of the market.

CSC has $3.6 billion in annual revenues for the 12 months ended June 30, 1995.
The company is headquartered in El Segundo, California, has 33,000 employees in 575
offices worldwide. CSC provides clients with a wide range of professional services
including management consulting, business reengineering, information systems consulting
and integration, and outsourcing.

The Information Technology Association of America (ITAA) is the premier trade
association of our nation’s computer software and services industry. ITAA’s more than
6,700 direct and affiliated member companies provide: business application and systems
software; custom software programming services; information system integration; and

information processing services.


9

Mr. Horn. We have a tradition in this committee, Mr. Vladeck,
of swearing in all witnesses, and if you would rise and raise your
right hand.

[Witness sworn.]

Mr. Horn. Thank you very much.

The clerk will note that the witness affirmed.

You have one of the most difficult jobs in Government, Mr.
Vladeck. Thirty-five—thirty years ago, I guess it was, I was on the
drafting team for Medicare when I was a Senate staff member.

Mr. VLADECK. I know who to hold responsible now.

Mr. Horn. Well, I want to see what our craftsmanship did. I
merely give you one thing to cogitate on and that is our projections
of hospital bills per day were $40 a day, skilled nursing home bills
per day were $20 a day and we only know of one city with home
care and that was Detroit, and that was $10 a day. So you see we
have come a long way. But we welcome you here and we look for-
ward to your testimony.

Mr. Vladeck is the administrator of the Health Care Financing
Administration that pays the bills on Medicare.

STATEMENT OF BRUCE VLADECK, ADMINISTRATOR, HEALTH
CARE FINANCING ADMINISTRATION

Mr. VLADECK. Thank you very much, Mr. Chairman.

I very much appreciate the opportunity to appear before this
hearing today and to talk about what I believe you have already
correctly identified as one of the most important initiatives in the
history of the management of the Medicare Program.

The Medicare Transaction System, or MTS, will provide state-of-
the-art information management for Medicare and its beneficiaries
in the 21st century. It will give beneficiaries, providers, as well as
us, the information we need to deal with the changing program and
with increasingly complex health care systems.

I should note at the outset that HCFA is already a leader in
some aspects of the electronic automated management of health in-
surance. We are the world leader in electronic data interchange.
We process a higher proportion of our claims electronically than
any other major insurance operation in the world and we admin-
ister the claims payments side of the Medicare Program for less
than 1 percent of benefit costs.

In the early part of this decade, however, in the face of increas-
ing workloads and limited administrative budgets, as well as our
projections as to what the future would hold, we concluded that not
only did we need to further lower our administrative costs, but that
we had to substantially improve the quality of our services to our
beneficiaries.

In addition, we recognized that the health care system is chang-
ing rapidly and that a growing proportion of our beneficiaries
would not be served in traditional fee-for-service kinds of arrange-
ments; so that we needed an information system that could accom-
modate the full range of choices beneficiaries would have.

To address all of these issues, we undertook the work to develop
the Medicare Transaction System, which is the heart of an infor-
mation management strategy to improve services to beneficiaries
and providers, to better manage Medicare Program expenditures,


95

coe
ws

Integrated Delivery Systems (IDS) / Integrated Delivery Networks (IDN) - The

formation of IDS/IDN organizations (e.g., 4-5 hospitals, 2,500+ providers, multiple payor

organizations, and other health care constituents) around the country is now crystallizing

the need for information systems that address the electronic connectivity of disparate

systems, in addition to the need for enterprise wide applications that enable the IDS to

provide seamless service to its customers or patients, and to effectively operate on a

competitive front.

IDSAIDN information system development needs center around three key areas:

1.

Developing intelligent interfaces to all the disparate systems so data can readily

pass among all participating health care constituents.

. Developing enterprise wide information systems such as a:

Master Information Index which captures patient, provider and payor
information

Resource Scheduling System

Centralized Patient Record

Centralized data warehouse designed for information analysis

Building information systems capabilities to track treatment outcomes, in

addition to helping providers quantify, collect and report measures of success

in all phases of their operations.

Interstudy Publications’ Managed Care Pathway Series states,

Integrating health care delivery involves a fundamental shift in orientation
from focusing on episodes of illness to assuming responsibility for total
health care needs of a defined population. Information systems designed to
serve integrated networks must support this continuum of responsibility
and be capable of achieving the following goals:


100

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we

Finally, there is current legislation under review that would increase the number of
organizations eligible to support the Medicare program. The Medicare Contractor
Reform Act promotes competition and holds contractors accountable, thereby improving
services to Medicare beneficiaries and providers. As a long-standing contractor to state
Medicaid programs, CSC believes that improved administrative efficiencies can be
achieved by allowing non-health insurers to contract directly with the Medicare program.

In closing, there is no question that information technology is an enabler for
driving down health care costs and improving quality of care. It will first require a
consistent infrastructure, and secondly, highly skilled business reengineering and
integration talent, to be combined with superior information system developers, to truly

realize the full benefits of the deployment of any major information system solution.

Thank you.


116

we also have significant input from the medical directors and the
physicians who ultimately have their decisions reviewed by these
tools. We have met with the Health Care Financing Administration
and showed them the tools, showed them our rules. We have met
with the American Medical Association, showed them our tools,
showed them our rules and invited them to provide input and com-
ment to us.

And so I think that what we have here is a tremendous oppor-
tunity to take advantage of technology which is available today to
bring to the program, to help provide for more standardized kinds
of decisionmaking, fair payment, with proper input from the medi-
cal community to assure that the decisions are fair and appro-
priate.

Obviously, as Mr. Owens indicated, I could go into detail over
some of the very specific kinds of coding issues. I think it might
be more helpful to do that in writing and to bring that to the com-
mittee rather than to take the time from all the participants here
to try to go through all the different kinds of rules that we have.

Thank you, Mr. Chairman.

[The prepared statement of Mr. Owens follows:]


63

year period, to work concurrently on the remaining development phases--design,
programming, testing, and validation. On the basis of our previous work on large
systems-development efforts, we believe that failure to allow for sufficient time to
complete system-development phases increases risk and will likely result in reduced

systems capabili

Moreover, HCFA has not developed an integrated schedule that reflects both HCFA
and contractor activities, work products, and time frames needed to perform these
activities. Such a schedule provides an important tool for closely monitoring
progress and problems in completing various activities. Without detailed insight
about the actual status of all development activities, management will not have the
information it needs to make timely decisions, HCFA’s IV&V contractor also
cited concerns about the lack of an integrated schedule baseline for MTS. HCFA

officials agreed that such a schedule is important

Finally, HCFA has not sufficiently developed disciplined processes to adequately
monitor progress in achieving cost and benefit objectives, which are important to
managing projects as investments. The estimated MTS project costs, pegged by

HCFA at $151 million in 1992. have not been updated since then, and HCFA is not


69

communication among physicians, patients, and third parties.
BACKGROUND

‘When the AMA began the development of CPT in 1966, it was one of many procedural
coding systems that was either in existence or that would be developed within the next 10
years. In fact, in the late-1970s it was estimated that there were over 250 different
procedural coding systems in use in the United States. Today, it is estimated that over 95
percent of services provided by physicians are reported using the CPT coding system.

In fact, CPT was adopted as part of the Health Care Financing Administration’s (HCFA)
‘Common Procedure Coding System (HCPCS) in 1983 based on the government's
independent evaluation and because it was determined that CPT was the best available
system, and would meet the needs of the Medicare program, namely:
e CPT could be implemented nationally with a minimum of disruption to
existing data processing activities;

e CPT could be implemented without fear of increasing costs to the health care
system;

° CPT was acceptable to the medical profession; and

e there was a professional commitment to maintain CPT.

In short, the AMA has a long history with respect to the research and development of CPT. ©
In fact, the AMA continuously updates the CPT with the advice and counsel of physicians,


14

regarding claims or having billing problems resolved yuickly. This is partly because claims are
processed by a variety of different contractors, depending on the type of claim.

With the MTS, beneficiaries and providers will be able to cali a customer service representative
who has on-line access to all claims processing information and who can resolve minor difficulties
‘on the spot. Using this system, beneficiaries will be able to start appeals or check on their
enrollment status.

Medicare in the year 2000 will be a different program than it is today. Beneficiaries will have
many more choices in health care delivery arrangements, such as health maintenance
organizations, preferred provider organizations, and point of service plans. To decide which
Medicare options are best for them, beneficiaries will need even more information than they do
today. The MTS will make information on various options available in one system, with one call
or visit.

The MTS will allow HCFA to implement a single integrated notice of benefits, the Medicare
Summary Notice. For the first time, information on all Medicare Part A and Part B payments will
be available in one system. We will be able to send each beneficiary a summary notice of all
transactions on their account during a month. This notice, similar to a monthly credit card
statement, will include information on bills that have been paid, on other insurance the beneficiary
may have, on claims that have been sent to other insurors for payment, and on enrollment status
This notice will yield administrative efficiencies and savings in postage. No longer will
beneficiaries receive stacks of notices labeled, “This is not a bill.”

The MTS will also provide current, detailed information about expenditures and service
utilization. We will be able to combine information about both Part A and Part B for fee-for-
service enrollees and follow enrollees in managed care options as well. This information can then
be used for updating our policies, simulating the effect of policy changes, and responding to
requests from Congress and others.

Ill. THE MTS WILL IMPROVE PROGRAM SAFEGUARDS

HCFA is responsible for assuring that Medicare payments are appropriate. In the current system,
this is a challenge. In a 1992 report, GAO raised concerns about uneven implementation of
payment controls resulting from Medicare's complicated claims administration system, The
nationally uniform MTS, with integrated data and improved analytic tools, responds to this
concern

HCFA's strategy for payment integrity emphasizes preventing inappropriate claims from being
paid in the first place, thus avoiding the need to “pay and chase” when fraudulent or abusive
claims are paid. The MTS has several elements that will help fulfill this strategy.

At present, beneficiaries’ claims for different services are frequently paid by different contractors.
Consolidated information from several contractors would be helpful in determining whether a
claim is appropriate. However, at present, a HCFA contractor is able to cross-reference a claim

2


158

would, second, want to be sure that the physician community was
aware of them. So there are extra steps that would take more time
in a public program.

In fact, we talked to our colleagues at the CHAMPUS because
they bought the GMIS software in 1993, and they have still not
brought it up because of these issues. That is not to say that it is
still not an important piece of software to study, to analyze, do a
cost-benefit analysis and implement. I just didn’t want you to think
it is a magic pill for us, because I think it is not.

Mr. Horn. J am delighted with your testimony. I think you have
been an excellent witness and I thank you for sharing the oper-
ational views, which is what I am interested in, that is where the
real work is done in the agency.

I recognize my ranking minority member, Mrs. Maloney.

Mrs. MALONEY. I thank the Chair for yielding to me.

Ms. Walton, the secondary payer problem has plagued HCFA for
a number years and most efforts to recover these dollars have not
been successful. How will the proposed MTS program solve the sec-
ondary payer problem?

Ms. WALTON. One of the tenets of the MTS is to move the pro-
gram safeguards to the front end and try to pay claims right in the
first place. So particularly with MSP, we are using this as an op-
portunity to try and get the beneficiaries’ insurance files correctly
annotated so the payment can be tracked correctly.

One of the things we have started doing today to get ahead of
the curve is an initial enrollment questionnaire so that when sen-
iors first become eligible for Medicare, we send a questionnaire, ask
about their insurance, explain the importance of keeping their in-
surance record up-to-date. That is just getting started, and it’s
working very well. We are going to reinforce that with the MTS,
with our Medicare summary notice.

Using the analogy of the Visa bill summary statement, along
with billing the Medicare activity, we are going to use this as an
opportunity to say has your address changed? Check this box or
call this number. Has your insurance changed? And use the sum-
mary notice as an opportunity to confirm with the senior, the work-
ing agent, or the spousal insurance or whatever, just like my
charge card confirms my address, et cetera. So we are making an
investment in getting it right on an insurance record.

Mrs. MALoneEy. Thank you. What is HCFA doing to address the
criticisms that were raised by the GAO?

Ms. WALTON. The criticisms from today?

Mrs. MALONEY. From their report and from today.

Ms. WALTON. Because we don’t have a report and I glanced very
quickly at the testimony——

Mrs. MALONEY. They questioned if you were going to stay on
schedule. They questioned if you were going to be effective. Are you
going to stay on schedule?

Ms. WALTON. We are certainly going to try. We met with GAO
a few days ago to talk about some of their findings and there is
quite a bit of agreement between us. We made some commitments
to talk about some of the areas. They feel the SIM practices of talk-
ing to outside companies and how they approach them—one of the
things they had suggested that also our IV&V contractor has also


97

fara
wt

In today’s world, the architecture of a health care data warehouse should be
designed for iterative information analysis with an umbrella tool set capable of providing
decision support to health care managers. Such an executive information system (EIS)
enables managers to graphically analyze, interactively retrieve data, identify exceptions and
“drill down” into the data to view the details of a single encounter. This interactive
approach provides the foundation for thorough, flexible, and rapid data analysis, which
results in better decision making than traditional fixed reporting methodologies.

Another area of key importance to improved information technology capabilities is
helping managers to better understand health care resource consumption. One such
application, Ambulatory Care Groups (ACG), was developed by Johns Hopkins.

The goal of ACG software is to provide a conceptually simple, statistically valid, and
clinically relevant measure useful in predicting the need for ambulatory health services.

‘ACG are based on the premise that measuring and tracking a population’s “illness
burden” can help explain variations in health care resource consumption. ACGS represent
a simple method for categorizing a person based on his or her age, sex, and their ICD-9
diagnoses assigned during an extended period of time, usually one year. Unlike other
case-mix measures, ACGs describe the mix of person in need of treatment, rather than the
mix of services.

“The use of ACGs represents approximately a five to twenty-fold improvement in

explaining health care resource consumption over age and sex alone.


19

NOU-15-1555 13:10 OIG 202 682 8168 P.O3

MEDICARE CONTRACTING LEGISLATIVE REFORM

4 = — tmprove Customer service

o Currently, a beneficiary may have to deal with up to 8
different Medicare contractors for different services.
This proposal allows us to designate one contractor to
act as a single point of contact and information for
each beneficiary.

© Hospitals and nursing homes will also have a contractor
as their single point of contact in resolving issues.

@ Eliminate Contractor Conflict of Interest:

© The distinction between health insurer and provider is
becoming blurred as insurers purchase provider groups.
This creates a direct conflict of interest as Medicare
contractors process claims for providers they own.

© Medicare could retain current, good performing
contractors, which purchase health care providers, b:
using their services in selected functional areas which
are not subject to conflict of interest.

¢ Improve Fraud and Abuse Operations:

° In certain instances, specialty contractors would focus
on the prevention, detection and investigation of
Medicare fraud and abuse alone or in connection with
related functions, such as medical or utilization
review. Currently, all Medicare contractors are
required to perform all payment integrity activities.

Competition:

© = Any qualified company (not just health insurers) will
be able to compete for Medicare contracts. This
flexibility will increase competition and enhance
contractor performance by allowing Medicare to contract
with entities who excel in a specific function.

* Increat

© Because Medicare contracts will no longer be
automatically renewed from year to year, contractors
will be accountable to continuously improve their
service to beneficiaries and providers and to safeguard
program dollars in order to retain their contracts.

© Every five years hospitals and nursing homes will have
the opportunity to select a new fiscal intermediary.
This will provide contractors with additional
motivation to provide the best quality of service.


48

areas that are especially important for its success come down to
this: First, they must define the right problem and set measurable
goals. Just one example from our studies, an organization, which
needed to improve productivity just like HCFA needs to improve
fraud. They set a target for 6 percent real improvement every year
and showed how it was going to go down with system implementa-
tion. That helped them keep a tight focus.

Second, you have to create the organizational capability to de-
liver. One of the organizations we looked at created the key tech-
nical officer positions, the CIO, and project management. They
trained everybody religiously and they made sure even the chief ex-
ecutive was trained and educated so that he was not a layman and
was actually keeping weekly updates on his 27 top systems
projects.

Third, carefully control implementation. An example here; all the
leading organizations we studied had investment control processes
where senior management selected control and evaluated the re-
sults of all major systems. Xerox, when they put this in place, went
from getting 13 cents on the dollar for their major systems invest-
ments to $1.33 on average. It makes a big difference.

Although risk always exists in large systems projects, if HCFA
can learn from and apply these practices, their chances of success
will increase significantly.

Finally, Congress, including oversight, authorizing and appro-
priating committees, needs to ask and get specific regular answers
to three questions that focus oversight on how well HCFA is doing
in the current practice areas I have mentioned. In the MTS effort,
it is currently too early to tell whether we will end up with a real
chance of benefits or unnecessary risks of failure, but one thing is
certain: Which we end up with depends heavily on the quality of
the answers to these questions over the next 3 years—next few
years.

First question: What is the net benefit to the public in specific
terms? How much faster, better, cheaper, by when and why it’s
necessary?

The answers you should get include specific measurable targets
for things like fraud reduction, cost savings and service improve-
ments over the system’s timeframe, and sound, clearly articulated
cost-benefit risk assessments. With good answers the chances of
real fraud reduction in administrative cost savings, provider and
beneficiary service improvements increase. Without such answers
we could end up in a situation where we don’t get what we expect,
only a fraction of what’s possible or even take a step backward.
qhis could mean few fraud reduction benefits or worse, new prob-
lems.

From our experience elsewhere in Government, we know what
this means; Veterans benefits, $256 million modernization, 6-
month wait time, only a 10 percent targeted reduction in the over-
all goal.

Second question: Does the agency have the capability to deliver?
The answers you should get include evidence of active institutional-
ized processes to identify key positions, existing and required skills
and the hiring, education and training efforts to fill the gaps.


93

fara
we

Information capture and availability during patient encounters will change. The
importance of nomenclatures, coding, classification, and data standardization will be
greater than ever. The analysis of practice pattern information by practitioners, extracted
from machine-readable patient records, will grow. The implementation of practice
guidelines and critical pathways will become a widespread reality. Patient outreach that is
targeted and specific to the individual needs of each consumer of health services will
become a cornerstone of health maintenance. The multiple uses and users of the patient
record all constitute potential recipients of benefits from automation, and must be included

in any comprehensive economic analysis of the CPR. (1995 HIMSS Proceedings)

Information Systems:

Fortunately, today’s technology is no longer an inhibitor to handling the high
volume, complex transactions prevalent in the health care sector. Technology capable of
handling voice, text, image, and video is now available in a client/server environment.
User interfaces have become more intuitive, easier to use and intelligent, and hardware
more compact, portable and affordable. Software engineers have the tools necessary to
develop information systems for providers of care and other end users that enables them
access to complete patient and reference information in a timely manner. Both
administrators and care givers can realize tremendous gains from the introduction of new

information systems.


31

nologies. We are not pushing the envelope, as it were, on data proc-
essing technology or data interchange technology.

This is a systems development and systems integration project of
significant size and complexity. I don’t mean to minimize that, but
we don’t need to invent anything that doesn’t yet exist in order for
this to work. And in my own layman’s look at some of these kinds
of cases and some of these kinds of instances, that really is a sig-
nificant difference. I believe that should render this less scary in
some important ways than some other kinds of systems develop-
ments where you really had to invent the technology that didn’t
exist.

The other thing I would say without trying to gild the lily at all,
Mr. Chairman, is that we were talking during the break about the
extent to which even when you think you are monitoring something
closely, preparations for a hearing of this sort are a very useful
spur to the organization and a way to make sure one’s doing his
homework. And so we have to this point worked closely with the
committee staffs on the MTS development.

We very much welcome your continuing involvement and inter-
est. And I would hope, I would expect and hope that we will peri-
odically be checking in with you and updating you on progress and
changes we have made as this goes forward.

Mr. Horn. I appreciate that answer. I think you made a very
good point how administrators can use these hearings to shape up
their own bureaucracy. That’s a point I made 35 years ago in a
book and I am glad to see somebody finally confirmed it.

Let me just ask you on one closing question, this is on the soft-
ware. What pilot projects did HCFA engage in to test the potential
software modules for incorporation into either MTS or the existing
systems? And as you suggest, the private sector has been moving
toward on-line, real-time processing systems, and do we have any
pilot projects for that?

Mr. VLADECK. In terms of the core claims processing system, we
have not pilot-tested existing software. In terms of some of what
might be described, as in the computer terminology, although prob-
ably not in a totally semantically accurate way, is as peripheral
systems, some of those for checking for the unbundling and rebun-
dling of codes, some of the pattern recognition software that you
used for fraud and abuse kinds of things, some of the software used
for particular applications.

fe have evaluated and tested, in some cases, our contractors
have procured, in some instances, we have procured special-pur-
pose commercial or preexisting software, and we expect again that
the core of the design of the MTS will be a core software informa-
tion platform into which we can plug through standardized inter-
faces, applications developed or used by others and that we can test
in a variety of ways before we fully integrate them into our system.

Mr. Horn. Well, I am glad you are proceeding the way you indi-
cated with not reinventing the wheel, because that was exactly
what happened on the FAA. They went billions of dollars beyond
estimate. They had everybody with a peachy keen idea at FAA add
their particular little wrinkle to the system and the result was they
immobilized themselves. It didn’t work, and the corporation doing
it had to really get out of the business and let someone else do it.


131

action system, that makes the assumption that life stands still. I
don’t think it does.

As we listened to the testimony from Mr. Owens and Dr. Kelly
talking about the things that are available, if we had a chance to
quickly go across the private sector across many industries in this
country today, I think we would find that in most all environments,
there are many legacy systems running all over the place. Now,
why is that? No one can afford to totally replace legacy systems.

Mr. Horn. We found 50 in the Pentagon earlier this week. They
should have done it in 1947. Now they don’t know what has hap-
pened to $15 to $28 billion. Actually they got the $28 billion down
now to $15, all because nobody thought that through.

Mr. RUDIN. Yes. But people don’t totally replace legacy systems
because the business case is not there.

Now, I think there’s a lot of wisdom in the GAO report this
morning as they were talking about, you know, getting to definable
projects with clear scopes, clear costs, clear benefits, very specific
details. What goes on in the private sector is a tremendous scrutiny
of projects, and what you typically find is an abundance of smaller
projects, 12, 18, maximum 24 months long, that have very defin-

able scopes, very definable costs, very definable timeframes, very
definable benefits of when they are going to occur, that allow the
executive committee of that firm to understand exactly what the
cost-benefit analysis is, the return on the investment, and the net
present value of the investment to go forward.

As you analyze any major large systems that would be com-
parable in size, to what we are talking about with Medicare, I
think the financial industry probably has many of them, you would
see an ongoing evolution of many projects and the upgrading of
these large systems, to continually keep tuning them with very
measurable paybacks that come from these things.

So I would—

Mr. Horn. Don’t mind democracy at work.

Go ahead. I am going to leave in 10 minutes so don’t worry. I
will be back.

Mr. RupIN. OK.

Mr. Horn. It might be evening, but I will be back.

Mr. Rubin. So I think the point is, I would make recommenda-
tions that there are many, if I can call them, plug and play activi-
ties. There are many things that can be done to deal with the cur-
rent systems in Medicare, and I would encourage you to look at
strategies that would look to consolidate perhaps some of the Medi-
care systems that are out there today.

Don’t worry about replacing the transaction systems. Move for-
ward toward looking at some common data formats of how to ex-
tract the massive data out of these remaining systems, how to
build the data warehousing that’s available, to leverage that data,
and to get it toward knowledge.

When you start applying the right decision support systems to it,
then if you followed the conversation this morning when they were
talking about $25 or $28 billion of estimated savings, to work on
that $25 or $28 billion, you need to leverage the data that already
exists and that’s where the projects should be focused, not on re-
inventing another transaction system.


15

with other contractors only after payment is made. The MTS will allow us, for the first time, to
compare across contractors before claims are paid.

The MTS will also greatly improve our ability to “profile” data on a national or regional basis by
type of provider or type of service. We will use these profiles to identify aberrant patterns for
review. HCFA has retained the Los Alamos National Laboratories to reassess how we look for
abusive billing patterns in the Medicare program and to develop state-of-the-art artificial
intelligence software tools that we can insert into the MTS to prevent the payment of fraudulent
and abusive claims.

‘The integration of data from Part A, Part B and managed care in the MTS will provide the
‘opportunity to build on “best practices” in information systems and to incorporate new
technology to facilitate innovative investigative techniques. GAO recommended these
improvements in a recent report. With more comprehensive, up-to-date information at their
fingertips, Medicare contractor staff can work in concert with each other and with law
enforcement agencies at both the local and national levels to detect and deter fraud and abuse.

The important role that beneficiaries already play in the detection of fraud and abuse in the
Medicare program will be augmented by the summary notices. ‘The notices will give beneficiaries
a comprehensive picture of the claims that have been paid on their behalf. Fraud reminders and
alerts will appear on the notice to advise beneficiaries what to look for and who to contact if fraud
is suspected. In this way, beneficiaries can be more active partners in detecting fraud and abuse.

IV. THE CURRENT SYSTEM NEEDS REPLACING.

Medicare's current system is essentially devoted to claims processing, with other functions added
as needed. The MTS, on the other hand, is fundamentally an information system, with a large
claims processing component, that can adapt to changing needs

In Medicare's early years, we had more than 100 hardware sites and software systems to process
Medicare claims. By the 1980s, we started reducing the numbers of standard software systems
and hardware sites.

Today there are nine standard systems, a Common Working File that contains beneficiary data at
nine separate sites, more than 70 intermediaries and carriers, and more than 56 hardware sites. It
is expensive and difficult to make a single change in Medicare policy or procedures because all
these systems need to be modified.

The MTS will replace the varied claims processing systems in existence today, greatly reduce the
number of hardware sites, and substantially lower the cost of system changes.

v. THE MTS IS ON TRACK.

The Medicare Transaction System is an enormously complex undertaking. It is the single most

3


59

and again directed GTE to refocus its efforts--this time, however, on assisting

HCFA staff in defining future MTS requirements.

On the basis of our experience in evaluating other systems, such multiple
redirections in the analysis phase of a major project indicate that HCFA's process to
control requirements lacks discipline. HCFA currently lacks an effective process
for managing requirements, and has not provided adequate guidance to staff
responsible for defining requirements. These deficiencies have also been cited by

the [V&V contractor as an area of significant risk.

Because of problems in completing the definition of requirements, and HCFA's
plans to implement a fully functional MTS in September 1999, HCFA is
proceeding into the next phase of system development, the design phase, before
requirements have been completed. HCFA plans to select an MTS design
alternative by the end of this calendar year, but requirements are not scheduled to
be completed until September 1996. Because design alternatives are used to
determine how the system will be structured. if the alternatives do not reflect key
requirements, the system's future capabilities may be seriously constrained. The

IV&V contractor pointed out that HCFA’s plan to select the system design in


128

oftentimes very general rules, how they should apply in a particu-
lar decision may not always be clear.

And I can tell you that what we find is that when we take the
codes that have been developed and the rules that have been gen-
erated, whether by the American Medical Association or one of the
medical specialty societies and then we look at how it should apply
with the particular set of codes in dealing with a particular claim.
Oftentimes decisions have to be made which are not fully provided
for by those policies or by those rules, and so there needs to be that
kind of very careful evaluation and input.

And then—and so what then happens is that can then be turned
into a set of decisions because of ultimately the general policies
helping form this, but in the final analysis, in claims payment, the
issue is how do you handle a particular claim for a particular pa-
tient, with a particular grouping of codes? And so that’s really
where a significant amount of activity needs to occur.

I should tell you that we and other organizations like our own
look to the AMA. We talk to them regularly about what a particu-
lar policy is, what it means, how it should be interpreted. We talk
to the numerous members of various medical specialty societies,
work with their leadership. And as Mr. Owens indicated, we have
over 200 physicians who work with us on a consulting basis who
provide guidance to us.

And then what we also have is that we have an 800-number and
regular contact back so that if there’s ever any question, whether
it be from a medical director or even going down to an individual
physician, about how a particular rule or decision was made and
what it means, then we provide a response to that and then we
also use that kind of input to help review and update our various
rules and modify them as necessary.

Mr. Horn. How do you interface then, after all of that, with
HCFA, the Health Care Financing Administration? And how do
they interface with you and any other groups around the country?

Dr. KELLY. Well, I think that at—as the primary arenas in our
tools are being used, are in the private sector, the CHAMPUS Pro-
gram and in the Medicaid Program and typically on the Medicaid
Program we deal with State organizations that are overseeing
those programs. So we do not typically interact directly with HCFA
over how these particular tools might be—might apply to the Medi-
care Program because, as you know, they have not made an affirm-
ative decision in that regard.

We have met with them. We have obviously indicated our view,
that’s reflected in the General Accounting Office’s recommenda-
tions, that these kinds of tools will be beneficial. Obviously, we
would be very eager to continue to meet with them to help identify
ways in which these kinds of tools could be transferred into that
program, because we see that they have tremendous positive bene-
‘it.

Mr. Horn. Would any of the executives of these different firms
want to comment on this dialog and add some dimension to it that
you see that we haven’t brought out?

Mr. RupIN. I would offer, Mr. Chairman, that I believe in 1989,
our company did an analysis of firms that do comparable functions
to GMIS. We basically chose them as a best-in-class, best-practice


112

integrated and enhanced their existing data and systems to better manage care

proactively

Second, an open systems architecture maintains the flexibility needed to take
advantage of “plug and play” or “commercially off the shelf” specialty applications
that enable decision support processes with minimal risk. Therefore,
transformation of the existing Medicare systems and capabilities, to utilize these
“plug and play” applications in conjunction with data warehouses, enables
contractors to take advantage of systems which have already proven themselves in
the Medicare program as well as specialty applications in which others have already

invested.

Third, as these specialty applications become outdated, they can be replaced with
newer applications at a lesser cost than redeveloping or re-engineering an entire
monolithic system. This approach enables organizations to increase the speed to
market for new innovations and to effectively and rapidly deploy best-in-class

applications.

Fourth, decisions regarding how technology is to be applied must consider cost, both
in terms of the expectation for return on investment and the cost at which
technology can be obtained. An organization's strategy for applying and deploying
newer technologies greatly influences when and how the return on its investment
is realized. Organizations demanding a faster return on their investment often
cannot withstand the pressure to perform or transform their businesses with the
“big bang” approach. But a strategy of long term, extremely large and complex

systems development and transition efforts will never yield the greater impacts


114

Mr. Horn. The next witness for this anel is Thomas Owens, the
chairman of—do you pronounce it GMIS?

Mr. OwENs. G-M-L-S.

Mr. Horn. GMIS, Inc., Malvern, PA, and he is accommodated by
John T. Kelly, M.D., the chief medical officer of the firm, who was
formerly director of the Office of Quality Utilization Management
at the American Medical Association.

Welcome.

Mr. OWENS. Thank you, Mr. Chairman.

As you mentioned, I am accompanied by John Kelly who is here
to assist me with any issues that may arise concerning both the
clinical nature of the products that I am going to describe, as well
as the provider reaction to those products that have been experi-
enced in the marketplace since we have introduced these tech-
nologies close to 7 years ago.

Let me begin, though, by recognizing that the focus of this hear-
ing is on the MTS, and while we believe that improvements in that
system are necessary, I’d like to talk about some of the proven
technologies that are widely available in the private sector that are
not being considered or planned for in the MTS implementation as
we understand it, that we think will have tremendous value to the
public sector, as it has in the private sector.

Let me begin by talking a little bit about GMIS and how we are
differentiated from most of the information technology companies
that you will have heard from today, as well as others in the mar-
ketplace. When you consider GMIS, what you should be thinking
about are the nature of the core competencies that our company
has amassed.

Our company is comprised of medical professionals, whether they
be clinicians, nurses, biostatisticians, health care researchers, a
whole variety of skill sets that we have focused on the issue of ad-
dressing the clinical nature of information in health care and how
we can start to address looking at that information to determine
appropriateness of care, appropriateness of payment, and the out-
comes of care that are received by patients.

We believe that that unique skill set, when married to tech-
nology, can begin to make the information that is available on
health care much richer in terms of the value that it provides in
assessing the payments, as well as the care that’s received by pa-
tients.

What we have focused on are building systems that look at ap-
propriateness, look at quality, look at outcomes, and look at effi-
ciency. And we do that by using our own staff of experts, as well
as panels of physicians from around the country, that represent
every medical specialty.

We have over 200 physicians on retainer that help us to develop
the clinical rules in the intelligent content that is provided through
our systems. Unlike other companies that focus solely on the tech-
nical side of development, we marry clinical expertise with tech-
nical development capabilities to bring medical intelligence to the
issue of evaluating information and data.

We found that that has been very successful in starting to look
at issues of payment, look at issues of appropriateness of care, and
it’s used by most of the major commercial insurers in this country,


2

fice is not so sure it will turn out that way, unless several far-
reaching recommendations are adopted and implemented.

Together our two subcommittees will try to find out where the
real truth lies. We need now to improve existing processes and soft-
ware routines in order to help Medicare do a better job of detecting
and preventing fraud. Introduction of innovative software into the
Medicare claims processing system is essential.

Our witnesses today come from the Health Care Financing Ad-
ministration and its task force for the New Medicare Transaction
System; from the General Accounting Office and from three private
sector companies involved with health care automated systems.

Ladies and gentlemen, we thank you all for joining us. We look
forward to your testimony.

It is now my pleasure to yield to the chairman of the full commit-
tee, Mr. Clinger of Pennsylvania, for an opening statement.

[The prepared statement of Hon. Stephen Horn follows:]


91

eee
wt

Uncontrolled cost increases have an adverse effect on everyone in the system; the
providers, the payors, the employers, and even the customers, better known as patients.

‘The challenges confronted by today’s administrators and care givers cannot be
solved by information systems alone. Investment is necessary in three key areas:

1, Infrastructure

2. Business and Process Reengineering

3. Information Systems

I will touch briefly on the first two and focus primarily on the benefits of

information systems.

Infrastructure:

To begin, lack of consistent infrastructure inhibits significant cost reductions and
quality improvements and has made it difficult to capture and compare information from
disparate systems.

Standards - Although some progress has been made, the health care industry
continues to suffer from an inherent lack of standards in electronic commerce,
nomenclature, fee schedules (CPT, ICD9, HCPIC), payment mechanisms (DRG, ACG,
percent charge) and protocols for delivering care (practice patterns) in both the hospital
and physician setting.

Unique Identifiers - Legislation mandating some form of unique personal
identification will be required to establish accurate links to all appropriate patient, provider
and payor information. Unique identifiers are critical to the development and success of

community health information networks (CHINs).


36

Mr. VLADECK. Actually, we have a long-standing dialog, as you
may know, with our colleagues in the ‘ice of Management and
Budget and General Accounting Office and the Congressional
Budget Office about how to score potential savings from the pre-
vention or deterrence of fraud and abuse or other problems of that
kind. Traditionally everyone—I think with some GAO theoretical
reasons, have been reluctant to make dollar estimates of how much
you can save. But to us it’s exactly the heart of the MTS that—
because, frankly, it will be replacing 1970's technology with 1990’s
technology, we will be able to save Perhaps $200 million a year in
administrative costs and have significantly increased power to de-
tect problems of fraud and abuse.

This will be a much more effective system for identifying fraudu-
lent billing patterns, for using new technologies and software devel-
oped by others for tracking problem claims, and so forth. It will be
such a leapfrog in the technology of our information systems that
we will be able to run the system less expensively and yet much
more productively on the detection of problems and in other re-
gards as well.

Mrs. MoRELLA. It just also seems to me, looking more at waste,
fraud, and abuse is going to bring in more money, but indeed you
need to be moving administratively with the MTS system.

Thank you very much, Mr. Chairman.

Thank you.

Mr. Horn. You are quite welcome.

Let me ask, are there any further questions on the minority side?

Mr. Towns. No further questions, Mr. Chairman.

Mr. Horn. Does the chairman have any further questions?

Mr. CLINGER. Thank you, Mr. Chairman.

I just have one additional question, Dr. Vladeck. I understand
that GTE, which is undertaking the design, is supposed to test as
they begin utilizing the system that they have been hired to design;
in other words, they have a self-testing role as well. In addition,
a company called Intermetrics has been hired by HCFA, as I un-
derstand it, to test the efficacy as you go along or as the system
is being implemented. And now my understanding is that you have
hired Los Alamos National Labs to test what appears to be the
same matters.

Is there a redundancy here? Is there an overlap? Or are they
doing different things? It does sound like the same.

Mr. VLADECK. Let me explain, if I can, the relationships among
those three contracts. GTE has the principal design responsibility
working very closely with us to figure out what MTS is supposed
to do, and to design it. That extends all the way to writing the ac-
tual software and testing the actual software for the system.

The involvement of an independent verification and validation
contractor, Intermetrics, is a technique that we learned, frankly,
from our colleagues in the Department of Defense. We have con-
tracted with Intermetrics at the same time as GTE to be an in-
house critic and monitor, both of GTE’s performance and ours. So
that is another firm that is expert in the development of this sort
of system, which is monitoring GTE’s performance and our per-
formance on our behalf, and which reports to us periodically on
their evaluations of the system as it’s going along.


156

that you could use some good advice from someone who has been
out there working the trade, if you will.

Ms. WALTON. I think that is an excellent point.

Mr. Horn. Let me finish and then yield to the ranking minority
member. She can take as much time as she likes.

GAO reports in its testimony that despite the changes in GTE’s
work assignments and delays in meeting deadlines for MTS, there
has not been an adjustment in the test and implementation dead-
line. Is that true?

Ms. WaLTON. That is true.

Mr. Horn. Wouldn’t delays in meeting initial deadlines for MTS
require an adjustment of the two final deadlines, if you are lagging
behind now? Are we talking about the year 2002, when we balance
the budget, and not 1999?

Ms. WALTON. No, sir; actually, we do believe we can still meet
the date. It seems to us an important enough investment to be
ready to support Medicare choices and be able to enhance fraud,
that it is an important project to try to push as aggressively as we
safely-can.

Right now, we do believe that we will still be able to bring the
system up in 1997. We are not going to turn anything on if we are
not 100 percent sure that it is tested and running well.

There is no reason to take any risk for disruption to the bene-
ficiary or the provider community, and we are certainly not going
with the big bang theory where every single thing changes at once.
We are going with staged releases, a very controlled environment;
so 1997 will be a controlled release and we think we can still make
the date, yes.

Mr. Horn. You heard the testimony of some of the private ven-
dors here. In a sense, aren’t they already doing what you want to
have done? Is it just a matter of scale rather than learning how
we do it? In a sense, aren’t they already doing it out there?

Ms. WALTON. It seems to me that they were generally supporting
what we are doing, that they seemed to be for the staged releases.
There seemed to be some question on whether we needed a new
platform. One gentleman from EDS seemed to think we could sim-
ply improve today’s old technology of the batched system. I would
disagree. I think there was a sense for some that you needed a new
platform modular approach, lots of plug-and-play, and that is pre-
cisely the plan we are following.

at I disagreed with was the idea that this is a 10-year project
based on the idea that the technology will be outdated. Certainly
we started thinking about it in 1991, but the requirements are
completed right now. The technology and the architecture for the
platform will be a competitive procurement for this 1996 year. We
will start with the staged releases in 1997, and I think we have
opportunities, because it is modular, for refreshing the technology.
It is our intention to build something that can be refreshed because
the technology is changing so quickly.

Mr. Horn. So GTE would remain the overall contractor or are
they on a part phase to reach the goal of 1999, and are you giving
separate contracts along the way?

Ms. WALTON. Their contract is a 6-year contract. When that ex-
pires, we would recompete the maintenance of the system, one


123

their processing system. The typical insurer often has several claim payment systems and perhaps
dozens of benefit plans to account for as its performs its process of implementation. With
appropriate professional consultation and proper planning, this technology is fully implemented
into large scale processing environments in not more than 180 days and, in some instances, less
than 90 days, Implementation of this technology in the Medicare program, though certainly a
large scale project, would not be dissimilar to what we have done for our existing clients. We are
confident that any organization that makes the necessary commitments in personnel and resources

and has the will to succeed can implement this technology in a timely fashion.

‘One issue of concern to GMIS is the proprietary nature of our products. As you know
GMIS has invested significant resources to develop and maintain our medical databases. GMIS.
employs over 200 people to develop and maintain its products, including personnel with software
and/or medical expertise. Additionally, we retain over 200 physicians to ensure that our products
stay current with changes and trends in the health care industry. It is critical that GMIS protects
its investment. GMIS believes that utilization of its products in public sector programs poses no
threat to the proprietary information it has developed. It is important that rules for products such
‘as ClaimCheck be published along with examples illustrating their application. However, itis
neither practical nor desirable to publish the entire edit database because there are over 10 million
edits and publishing them would enable unscrupulous providers to invent new ways to manipulate
the system. GMIS’ private and public sector customers have routinely published dozens of rules
that form the foundation for the millions of ClaimCheck edits. A provider’s office that

understands these rules and observes them is unlikely to submit a combination of procedure codes


This methodology has many applications in a managed healthcare environment, including
capitation rate development, utilization management, quality assurance, provider profiling,
and outcomes research. For example, according to Philip Vogel of the Institute of Health
Policy Solutions,

By drilling down, the analysts found that one [provider] practice in that

area was running at 40 percent. Taking out this practice, the rate for the

other providers was in the high teens. By going to that one practice and

saying, we need to change some practice patterns, we were able to use the

data to improve that practice and change the way it does business. (Health

Network & Alliance Status Report, 1995)

Telemedicine - Information systems will play a major role in changing the way
care is rendered for a selected segment of the population. As we continue to expand our
health network capabilities, build information based reference libraries, develop acceptable
practice patterns, implement electronic longitudinal patient record and increase the level of
technology at home, we will begin to treat and monitor more patients at home. The
patient will be able to receive education, have vitals signs monitored, participate in
interactive video consultations with their physician(s), and schedule appointments without
leaving the house.

In addition to substantial patient benefits, telemedicine will provide significant cost
savings to care givers in three primary areas:

Medical training;

1
2. Surgical preceptorship; and
3. Point-of-care delivery in clinics and primary care hospitals.


39

November 1995,

Following is a listing of the names associated with the titles identified in the organizational
chart dated October 1995, Please note that attached is an updated organizational chart
which more accurately depicts the “big picture” of the Office Lead structure.

MTS EXECUTIVE COMMITTEE:
Chair, Director Bureau of Program Operations (BPO) ~ Ms. Carol Walton

Administrator, HCFA — Dr. Bruce Viadeck
Deputy Administrator — Dr. Helen Smits

Associate Administrators
Office of the Associate Administrator for Customer Relations and Cammunications
(AACRC)
—Ms. Pam Geatry
Office of the Associste Administrator for Policy (OAAP)
Ms. Kathy Buto
Office of the Associate Administrator for Operations and Resource Management
(AAORM)
— Mr. Steven Pelovitz
— Mr, Dave Butler, Deputy

Bureau Directors:

Mr. Chet Stroyny, Chicago, Regional Administrator

Ms. Gale Drapala, Office of Managed Care (OMC)

Ms. Sally Richardson, Medicaid Bureau (MB)

Ms, Regina McPhillips, Bureau af Data Management and Strategy (BDMS)
Ms Barbara Gagel, Health Standards and Quality Bureau (HSQB)

Mr. Bill Broghe, Office of Financial and Human Resources (OFHR)

Mr. Tom Ault, Bureau of Policy Development (BPD)

Ms. Barbara Cooper, Office of Research and Demonstrations (ORD)

Mr. Guy King, Office of the Actuary (OACT)

Ms, Deborah Chang, Office of Legislative and Governmental Affairs (OLIGA)

Deputy Bureau Directors:
Mr. Gary Kavanagh, BPO