Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

MAY 1999 

OEI-05-98-00590 

Y2K READINESS OF MANAGED CARE 

ORGANIZATIONS 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's Chicago office prepared this report under the direction of William C. Moran, Regional 

Inspector General and Natalie Coen, Deputy Regional Inspector General. Principal OEI staff 

included: 

REGION HEADQUARTERS 

Thomas F. Komaniecki, Project Leader Stuart Wright, Program Specialist 

Suzanne Johnson Barbara Tedesco 

Brian Ritchie 

To obtain copies of this report, please call the Chicago Regional Office at (312)353-4124. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY 

PURPOSE 

To examine the Year 2000 readiness of Medicare + Choice managed care organizations 

and provide information for the Health Care Financing Administration. 

BACKGROUND 

The Year 2000 (Y2K) problem stems from the way computers have traditionally stored 

dates through the use of an “implied century.” To save memory and storage space, 

programmers have conventionally used only two digits, rather than four, in year date 

fields. The Health Care Financing Administration (HCFA) has made the Y2K initiative its 

number one priority and is committed to making sure that its date-sensitive systems and 

those of its business partners are ready to verify eligibility, enrollment, coverage and 

payment. 

Some of the key computer systems at risk among healthcare providers that could affect 

the 6.5 million Medicare beneficiaries enrolled in managed care are: premium billing 

systems, medical information systems, and managed care membership enrollment and 

disenrollment systems. Failure of these systems to correctly process data could negatively 

impact beneficiary access to care, service delivery, efficient Medicare reimbursement and 

quality of care. 

We sent surveys to 407 Medicare Managed Care Organization (MCO) contracts in 

January and February of 1999. We received 219 surveys, representing 310 MCO 

contracts, for a response rate of 76 percent. 

FINDINGS 

Managed Care Organizations appear to be moving toward internal Y2K 

compliance 

Currently, 22 percent of MCOs claim being Y2K ready. Of the 78 percent of MCOs that 

are currently not Y2K ready, nearly two-thirds report that all of their computer systems 

will be Y2K ready by December 31, 1999. Almost all MCOs have assessed their Y2K 

readiness with over half having tested more than two-thirds of their computer systems, 

although development and testing of contingency plans is lagging. 

Most MCOs are unaware of their business partners’ Y2K readiness 

The majority of MCO respondents have discussed the possible millennium risks with their 

medical providers and subcontractors. It appears that these discussions may have been 

largely information sharing since most MCOs report that they are unsure of the Y2K 

Y2K Readiness of MCOs 1 OEI-05-98-00590 
readiness of their medical providers and subcontractors. Less than one-quarter of MCOs 

report testing data exchanges with two-third or more of their medical providers and 

subcontractors. 

Differences in Y2K readiness, assessment and testing exist based on tax status 

and size of MCOs 

Currently, 22 percent of all MCO respondents claim to be Y2K ready. However, when 

the tax status of the MCO is taken into consideration, 26 percent of for-profit MCOs 

claim to be Y2K compliant compared to 16 percent of not-for-profit. In addition, more 

large size plans are Y2K compliant compared to small and medium size plans. Also, more 

large and for-profit MCOs have assessed 100 percent of their systems for Y2K readiness. 

Agency Comments 

We received comments from the Health Care Financing Administration. Their comments 

are included in Appendix D. The HCFA is conducting an outreach effort to address the 

preparedness of MCOs and is monitoring the MCOs’ business continuity and contingency 

planning efforts. As part of this monitoring, HCFA is directing MCOs to submit their 

contingency plans to HCFA by July 15, 1999. The HCFA has also awarded a contract to 

an Independent Verification and Validation firm to provide assistance in conducting onsite visits to numerous MCOs to assess their Y2K readiness. 

Y2K Readiness of MCOs 2 OEI-05-98-00590 
TABLE OF CONTENTS 

PAGE

EXECUTIVE SUMMARY ............................................... 1

INTRODUCTION ..................................................... 4

FINDINGS

MCOs’ Internal Y2K Readiness ........................................... 9

MCOs Unaware of Business Partners’ Readiness ............................. 11

Difference Based on Tax Status and Size ................................... 12

APPENDICES 

Non-Response Analysis ................................................ 14

Glossary ........................................................... 17

Survey Responses .................................................... 18

Agency Comments .................................................... 23

Y2K Readiness of MCOs 3 OEI-05-98-00590 
INTRODUCTION 

PURPOSE 

To examine the Year 2000 readiness of Medicare + Choice managed care organizations 

and provide information for the Health Care Financing Administration. 

BACKGROUND 

The healthcare industry is a complex array of public and private enterprises with many 

interdependencies among various Federal, State and local governments and key partners. 

Partners that include, but are not limited to, managed care organizations, physicians, 

healthcare facilities, durable medical equipment suppliers, clinical laboratories, biomedical 

equipment and device manufacturers and sundry other support services. 

The problem stems from the way computers have traditionally stored dates through the 

use of an “implied century.” To save memory and storage space, programmers have 

conventionally used only two digits, rather than four, in year date fields. When the 

calendar flips over to January 1, 2000, many computer systems will recognize the year 

“00" as 1900 and applications will either stop running or produce unpredictable results. 

Computer systems that are not “Y2K compliant” simply will not be able to recognize dates 

occurring after 1999 (e.g., “01" will be recognized as 1901 rather than 2001). These 

computer systems will not be able to process date and time sensitive data from one 

century into another or between centuries. 

Some of the key computer systems at risk among healthcare providers that could affect 

the 6.5 million Medicare beneficiaries enrolled in managed care are: premium billing 

systems, medical information systems, and managed care membership enrollment and 

disenrollment systems. Failure of these systems to correctly process data could negatively 

impact beneficiary access to care, service delivery, efficient Medicare reimbursement and 

quality of care. Also at risk for failure are medical devices and scientific laboratory 

equipment that have software applications or embedded chips using two-digit fields to 

represent the year. Equipment failures, especially those that provide misinformation that 

goes undetected, could possibly lead to false diagnoses that harm beneficiaries and delay 

needed care. 

The General Accounting Office’s (GAO) “Year 2000 Computing Crisis: An Assessment 

Guide” purports that, for Federal agencies to meet the Y2K deadline, assessment should 

have been completed in mid-1997 and “renovation work should be done by mid-1998 to 

allow sufficient time for validation and implementation.” 

Though perhaps not as complex or problematic as government program systems, managed 

care organizations (MCOs) are considered especially vulnerable to Y2K problems due to 

the myriad business systems they operate. These are systems that are crucial to the 

ongoing interface necessary to communicate with corporate and government payer 

Y2K Readiness of MCOs 4 OEI-05-98-00590 
sources and accounts-payable balances with physicians, hospitals, and other medical and 

non-medical providers and subcontractors. 

Meeting the Y2K Challenge 

The Health Care Financing Administration (HCFA) has made the Y2K initiative its 

number one priority and is committed to making sure that its date-sensitive systems and 

those of its business partners are ready to verify eligibility, enrollment, coverage and 

payment. The HCFA defines Y2K compliant as: 

“...information technology that accurately processes date/time data 

(including, but not limited to, calculating, comparing, and 

sequencing) from, into, and between the nineteenth, twentieth and 

twenty-first centuries, and the years 1999 and 2000 and leap year 

calculations. Furthermore, Year 2000 compliant information 

technology, when used in combination with other information 

technology, shall accurately process date/time data if the other 

information technology properly exchanges date/time data with it.” 

Meeting the Y2K challenge requires identifying, renovating and testing all computer and

information systems to assure the transition from a six-digit date (12/31/99) to an eightdigit date (12/31/1999) by January 1, 2000. Some examples of critical dates include:

< the date a beneficiary became eligible for Medicare, 

< the date a patient was admitted or discharged from a hospital, 

< the date a wheelchair rental began, and

< the date an enrollee entered a Medicare managed care plan. 

A trouble-free transition into the new millennium is key to meeting the needs of Medicare

beneficiaries and providers. At stake are efficient reimbursement and beneficiaries’ access

to, and the timeliness and quality of, health care. The HCFA advises its contracting

MCOs to review the GAO Assessment Guide as an aid to becoming Y2K compliant. The

HCFA advocates using the following five proactive steps to identify and address potential

impacts presented by the Year 2000 challenge: 

1. Awareness - inventory all hardware and software systems on the potential Y2K 

impact. 

2. Assessment - determine the Y2K readiness of these systems for operation beyond 

12/31/99. 

3. Renovation - update or replace systems and software programs as needed to 

ensure operations will be Y2K ready. 

4. Testing - test existing and newly purchased systems and software to verify they 

work. 

5. Contingency Planning - develop business contingency plans for operations 

beyond 12/31/99, just in case something goes wrong. 

Y2K Readiness of MCOs 5 OEI-05-98-00590 
Managed Care Organizations’ Millennium Compliance Responsibilities 

Effective January 1, 1999, The Balanced Budget Act of 1997 established a new Medicare 

+ Choice program that expands the health insurance options available to Medicare 

beneficiaries. The options now include an array of health plans and delivery systems 

beyond those that were previously available under the Medicare program. These new 

choices will offer beneficiaries health plan options similar to those available to the nonMedicare population. 

The HCFA has requested their Medicare + Choice managed care organizations to make 

Y2K compliance a top priority. They have advised MCOs to assess the following business 

components: 

< Applications (including cross-business applications and all external interfaces). 

< Databases. 

< Computer Infrastructure (including hardware, system software, 

telecommunications, and date dependent functions such as passwords, accounts 

and software licenses). 

< Non-Information Technology Systems (including physical plant security, card entry 

systems, elevator systems, environmental control systems). 

In a Managed Care Millennium Compliance Letter dated September 17, 1998, HCFA 

delineates the following Year 2000 compliant responsibilities for their contracting MCOs: 

< Complying with the enrollment and payment data exchange processes requirements 

as outlined in HCFA’s Operational Policy Letter 98.068. (In essence, MCOs are 

to update all “date/time” fields in the record layouts of the Enrollment and 

Disenrollment Transaction and the Transaction Reply/Monthly Activity Report 

Data Format to record a four digit year.) 

< Clearly defining all internal and external systems and interfaces requiring 

compliance (membership systems, claims systems, medical record systems, 

pharmacy and lab systems, exchanges between delegated groups, etc.). 

< Performing a thorough risk assessment. 

< Identifying all involved parties and entities with whom data is exchanged and 

assuring that the defined requirements are clearly understood by these parties. 

< Ensuring that providers, suppliers, and beneficiaries are aware of the Y2K 

compliant issues and problems that may arise. 

< Ongoing communications with trading partners with whom there is a data 

exchange to assure that they are taking the appropriate measures toward Y2K 

compliance. 

< Developing implementation plans and testing schedules. 

< Performing extensive testing. 

< Developing an extensive contingency plan. 

In addition to the above responsibilities, HCFA will require MCOs to: (1) “...certify that 

they understand HCFA’s Y2K compliant definition and have tested all of their data 

systems/interfaces to ensure Y2K compliance,” and (2) “...have a contingency plan in 

place in the event that internal organization or key external business partner systems fail.” 

Y2K Readiness of MCOs 6 OEI-05-98-00590 
Other Office of Inspector General Work 

The Office of Inspector General (OIG) has also conducted surveys of hospitals, nursing 

homes, home health agencies, durable medical equipment suppliers and physicians to 

examine the Y2K readiness of these providers. The results of these surveys can be found 

in an OIG report entitled Y2K Readiness of Medicare Providers, OEI-03-98-00250. 

METHODOLOGY 

The purpose of this inspection was to gather information from Medicare + Choice 

contractors regarding their Y2K preparedness. We developed the survey instrument in 

cooperation with the Health Care Financing Administration, the Health Insurance 

Association of America and the America Association of Health Plans. Based on 

discussions with HCFA and with the intent to achieve a higher response rate, the survey 

was anonymous with no tracking of respondents. 

We received from HCFA a list of 412 Medicare + Choice contracts that were in effect 

January 1, 1999. Some organizations have multiple Medicare + Choice contracts with 

HCFA, we decided to send a survey for each contract. After reviewing the information 

provided by HCFA, we determined that five contracts did not have complete address 

information. We did not send a survey to these contracts. 

On December 28, 1998, we sent postcards to the 407 Medicare + Choice contractors 

alerting them that we would shortly be sending a survey on their Y2K preparedness. On 

January 4, 1999, we sent a survey along with a cover letter and a self-addressed, stamped 

envelop to 407 contractors. We sent a follow-up postcard on January 19, 1999. Another 

survey package was sent on February 8, 1999 to all Medicare + Choice contractors, 

except those contractors where the organization voluntarily identified themselves on a 

returned and completed survey. 

For those organizations that have multiple contracts with HCFA, we allowed them to 

respond once for the organization. We asked all organizations to inform us about the 

number of contracts for which they were responding. We received 219 surveys, 

representing 310 contracts, that were used in our analysis for a response rate of 76 

percent. 

In addition to those organizations that completed and returned our survey, five 

organizations responded with form letters regarding the Y2K readiness. These five 

organizations represent 41 contracts. We did not include their responses in our survey 

analysis. We also received two letters back from organizations for other reasons. Seven 

surveys were returned as having no forwarding address. 

Because of the anonymity of the survey, we were only able to conduct a limited nonresponse analysis to determine if the responders were different than the non-responders. 

Through the survey, we identified the tax status of the contractors that responded. We 

compared the response rate for not-for-profit and for-profit MCOs to the overall 

percentage of not-for-profit and for-profit MCO contracts. We found no statistical 

evidence of bias based on the tax status of the contract. For more information on our nonY2K Readiness of MCOs 7 OEI-05-98-00590 
response analysis, please see Appendix A. We have included as Appendix B a glossary of 

terms used in the report. We have also included as Appendix C a copy of the 

questionnaire that we used along with the overall survey results. 

Scope 

We did not assess the data exchange between HCFA and the Medicare + Choice 

organizations. We also did not examine issues that dealt with the potential impact of 

Y2K-related problems on Medicare beneficiaries access or quality of care. The data 

analyzed in this report was furnished by MCOs and was not verified for accuracy. 

We conducted our review in accordance with the Quality Standards for Inspections issued 

by the President’s Council on Integrity and Efficiency. 

Y2K Readiness of MCOs 8 OEI-05-98-00590 
FINDINGS 

MCOs appear to be moving toward internal Y2K compliance 

Currently, 22 percent of MCOs report being Y2K ready 

Overall, 22 percent of MCOs claim that they are currently Y2K ready. Yet, less than half 

of these MCOs have tested all of their computer systems to ensure that they accurately 

process time and dates. In addition, only 72 percent of these MCOs report that they have 

completed assessing all of their computer systems for Y2K readiness. Of the MCOs that 

report that they are currently Y2K compliant, 56 percent have contracted out for an 

independent verification and validation assessment of their computer systems’ Y2K 

readiness. 

Most MCOs report that all of their computer systems will be Y2K ready by 

December 31, 1999 

Of the 78 percent of MCOs who report that they are currently not Y2K ready, 65 percent 

claim that 100 percent of their computer systems will be Y2K compliant by December 31, 

1999; another 34 percent of MCOs report that between 67 to 99 percent of their 

computer systems will be Y2K ready by December 31, 1999. 

Almost half (45%) of all our MCOs report that they have contracted with an outside 

organization to perform an independent verification and validation assessment of their 

Y2K readiness. The HCFA strongly recommends MCOs follow this course of action to 

ensure Y2K compliance. 

Almost all MCOs have assessed their Y2K readiness 

Almost all (93%) MCO respondents report having taken the first step of identifying Year 

2000 risks and assessing the potential impact of these risks to their organizations. 

Elemental in this assessment is the prioritizing of mission-critical systems for Y2K 

conversion. Nearly all (95%) of our MCO respondents have assessed more than twothirds of their computer systems, with 56 percent claiming to have assessed 100 percent of 

their computer systems for Y2K readiness. 

Managed care organizations may conduct such assessments in house or employ the 

services of an independent, external contractor. Fifty-five percent of MCOs have engaged 

the services of an external contractor to assist them in their efforts to solve Y2K-related 

computer problems. 

An organization’s awareness of Year 2000 issues is a contributing factor to the successful 

implementation of a Y2K compliant program. Ninety-seven percent of our MCO 

respondents believe that their staff are aware of potential Y2K problems. About half of 

the MCOs have trained staff, organization wide, to handle any problems associated with 

millennium issues. 

Y2K Readiness of MCOs 9 OEI-05-98-00590 
Over half of MCOs have tested more than two-thirds of their computer systems 

To date, over 50 percent of MCO respondents have tested two-thirds or more of their 

computer systems to ensure that dates and time are accurately processed in the Year 2000. 

See Table 1 for MCO survey responses on their computer systems’ Y2K readiness. 

Table 1 

MCO INTERNAL COMPUTER SYSTEMS TESTING 

Survey Question Response Percent of Systems Tested 

0% 

Q 30. 

hardware and software, have you tested to ensure that 

they accurately process date and time data (e.g. 

calculating, comparing and sequencing) for the years 

1999 & 2000, and the leap year calculations? 

N = 310 2% 

Q 31. 

hardware and software, have you tested to ensure that 

they accurately process date and time data (e.g. 

calculating, comparing and sequencing) from, into 

and between the nineteenth, twentieth and twentyfirst centuries? 

N = 310 11% 

Q 32. 

hardware and software, have you tested for possible 

“date discontinuity” failures? N = 308 5% 

Q 33. 

hardware and software, have you tested to ensure that 

end of file codes are not misinterpreted as dates (e.g. 

9999 as September 9, 1999 and 999,999,999 as 

September 8, 2001)? 

N = 308 5% 

Source: OEI Survey 1999 

May not add to 100 percent due to rounding 

1-33% 34-66% 67-99% 100% Unsure 

How many of your computer systems, including 

14% 20% 49% 13% 2% 

How many of your computer systems, including 

17% 17% 47% 5% 3% 

How many of your computer systems, including 

12% 16% 53% 6% 8% 

How many of your computer systems, including 

12% 17% 44% 14% 8% 

The GAO advises that system renovation efforts should be validated and tested to: 

(1) uncover errors introduced during renovation, (2) validate Y2K compliance, and 

(3) verify operational readiness. Testing should account for application, database 

interdependencies and interfaces. Without going through this verification process, 

assurances of Y2K compliancy are a coin toss. 

Contingency plans are lagging 

Contingency planning is an important aspect of a Year 2000 conversion program and one 

that HCFA and the GAO advise for mission-critical systems. The GAO further advises 

that such plans should begin development in the assessment stage of a Y2K program, prior 

to the renovation and testing of computer systems. On average, 64 percent of MCOs have 

thus far developed contingency plans related to potential Y2K problems. See Table 2 for 

MCO survey responses on their Y2K contingency planning. 

Table 2 

Y2K Readiness of MCOs 10 OEI-05-98-00590 
MCO INTERNAL SYSTEMS CONTINGENCY PLANS 

Survey Question Number of Response 

Respondents Yes 

Have you developed a contingency strategy for 

dealing with potential Y2K-related problems 

associated with your: 

premium billing systems? N = 298 71% 

biomedical equipment or devices? N = 303 41% 

medical information systems? N = 302 68% 

membership enrollment & disenrollment systems? N = 303 73% 

member appeal & grievance systems? N = 297 67% 

telephone systems? N = 284 67% 

Source: OEI Survey 1999 

May not add to 100 percent due to rounding 

No N/A Unsure 

15% 5% 9% 

9% 41% 10% 

13% 9% 10% 

14% 4% 10% 

16% 5% 12% 

19% 3% 11% 

Forty-one percent of our respondents believed the development of contingency plans for 

biomedical equipment did not apply to them. Another 41 percent believed the opposite 

and had developed contingency plans for Y2K problems that might occur involving 

biomedical equipment used by their medical providers or subcontractors. 

Testing contingency plans is vital to achieving a smooth transition into the new 

millennium. As of January/February 1999, only 8 percent of MCOs had tested their 

contingency plans to verify they worked. 

Most MCOs are unaware of their business partners’ Y2K 

readiness 

Y2K discussions with medical providers and subcontractors appear to be limited 

to MCO information sharing 

In general, MCOs’ knowledge of the Y2K readiness of their medical providers and 

subcontractors is largely unknown. We found that 81 percent of MCOs have discussed 

possible millennium risks with their medical providers and 89 percent have discussed these 

issues with their subcontractors. 

However, it appears that these discussions may have been largely information sharing by 

the managed care organizations, since 68 percent of MCOs report they are unsure of the 

current Y2K readiness of their medical providers’ computer systems. Fifty-nine percent of 

MCOs report that they are unsure if their subcontractors’ computer systems are Y2K 

compliant. 

Y2K Readiness of MCOs 11 OEI-05-98-00590 
In addition, 68 percent of MCOs are unsure if their medical providers have tested their 

biomedical equipment. Seventy-five percent of MCOs are unsure whether their 

subcontractors have tested their biomedical equipment. 

Over half of MCOs have developed contingency plans to deal with potential Y2K 

failures associated with their medical providers and subcontractors 

Sixty-one percent of MCOs have developed contingency plans for dealing with Y2Krelated problems associated with their medical providers, while 65 percent developed 

contingency plans for subcontractor Y2K-related problems. Managed care organizations 

have received limited assurances from their medical providers and subcontractors that they 

will be Y2K compliant by December 31, 1999. Only 24 percent of MCOs had received 

such assurances from two-thirds or more of their medical providers that their systems 

would be Y2K ready. Twenty-one percent of MCOs had received such assurances from 

two-thirds or more of their subcontractors. 

Less than one-quarter of MCOs have tested data exchanges with two-thirds or 

more of their medical providers and subcontractors 

Twenty-two percent of MCOs have tested data exchanges with two-thirds or more of 

their medical providers. A similar percentage reports having tested data exchanges with 

two-thirds or more of their subcontractors. 

About three-fourths (73%) of MCOs will require their subcontractors to demonstrate that 

their systems are Y2K compliant. On the other hand, only 30 percent of MCOs will 

require their medical providers to do so. 

Differences in Y2K readiness, assessment and testing exist 

based on tax status and size of MCOs 

More for-profit and large MCOs claim to be Y2K ready 

Overall, 22 percent of MCOs claimed that they were currently Y2K ready. When we 

examined MCO responses based on their tax status, we found that 26 percent of for-profit 

MCOs claim that they are currently Y2K ready, while 16 percent of not-for-profits claim 

that they are Y2K ready. 

In addition, more large size plans (47%) are currently Y2K ready compared to small 

(20%) and medium (15%) size plans. We considered large plans to be those with more 

than 50,000 Medicare enrollees, medium size plans to have Medicare enrollments between 

2,000 and 50,000, and small plans to have less than 2,000 Medicare enrollees. 

Y2K Readiness of MCOs 12 OEI-05-98-00590 
More large and for-profit MCOs have assessed 100 percent of their computer 

systems 

Seventy-one percent of large MCOs have assessed 100 percent of their computer systems 

for Y2K readiness compared to 50 percent of medium MCOs and 64 percent of small 

MCOs. In addition, 68 percent of for-profit MCOs have assessed all of their computer 

systems compared to 39 percent of not-for-profit MCOs. 

Fewer medium size MCOs have developed contingency plans for Y2K-related 

problems related to medical providers 

Overall, 61 percent of MCOs have developed contingency plans for dealing with Y2Krelated problems associated with their medical providers. When we analyzed the MCOs’ 

response by the size of the MCOs, we found that 56 percent of medium size plans 

developed contingency plans for problems associated their medical providers compared to 

71 percent and 72 percent for large and small MCOs respectively. 

A similar situation exists as it relates to contingency plans developed for subcontractor 

Y2K-related problem. Overall, 65 percent developed contingency plans for subcontractor 

Y2K-related problems compared to 59 percent of medium size plans. 

Agency Comments 

We received comments from the Health Care Financing Administration. Their comments 

are included in Appendix D. The HCFA is conducting an outreach effort to address the 

preparedness of MCOs and is monitoring the MCOs’ business continuity and contingency 

planning efforts. As part of this monitoring, HCFA is directing MCOs to submit their 

contingency plans to HCFA by July 15, 1999. The HCFA has also awarded a contract to 

an Independent Verification and Validation firm to provide assistance in conducting onsite visits to numerous MCOs to assess their Y2K readiness. 

Y2K Readiness of MCOs 13 OEI-05-98-00590 
APPENDIX A 

Non-Response Analysis

A consideration in survey analysis is that the results may be biased if non-respondents are 

significantly different from respondents. To determine whether a difference exists in this 

survey, we compared the two groups, respondents and non-respondents by the tax status 

of their contracts. Since tax status is a categorical variable (either for-profit or not-forprofit), we tested for statistical significance using a chi-square with the appropriate 

degrees of freedom. 

Analysis by tax status 

We found that not-for-profit MCOs had a lower response rate (68%) compared to forprofit MCOs (82%). The computed chi-square test statistic (11.757) is statistically 

significant at the 99 percent confidence level. This indicates a potential for bias in the 

results. See Table 3 for response rate and test statistics. 

Table 3 

Comparison of Respondents By Tax Status 

Respondents Non-respondents Total Percent 

Responding 

Number Percent Number Percent Number Percent 

ForProfit 188 61% 40 41% 228 56% 82% 

Not-ForProfit 120 39% 57 59% 177 44% 68% 

Total 308 100% 97 100% 405 100% 76% 

Chi-square = 11.757 DF = 1 

To determine the effect of the relationship between response rate and tax status, we 

undertook an analysis of the non-respondents. Assuming that non-respondents would 

have answered the same as respondents answered, we calculated a hypothetical global 

response to Questions 15, 25a, 28 and 35. These questions ask about overall assessment, 

current Y2K readiness, computer systems’ assessment and anticipated Y2K readiness. We 

found that the responses were within the confidence intervals for the original estimates. 

Therefore, no statistical evidence of bias based on tax status was shown. 

Y2K Readiness of MCOs 14 OEI-05-98-00590 
APPENDIX A 

Non-Response Analysis

MCO letter responses to Y2K survey 

In addition to our non-response analysis, we received letters detailing Y2K efforts from 5 

managed care organizations, representing 41 plans. The following is a summary of their 

reported Year 2000 readiness. 

MCO A: This MCO began its Y2K assessment in 1998. It “anticipates” that its internal 

systems will be Year 2000 compliant or contingency plans will be in place before 

December 1999. The MCO has sent a Y2K readiness questionnaire to its vendors and 

plans to track vendor responses. 

MCO B: This MCO began its Y2K assessment in 1995. As of February 1999, the MCO 

reports that its internal inventory and assessment, including its biomedical equipment, is 

“largely complete.” Remediation efforts are currently underway and hardware and 

operating system software is currently being tested. The MCO is also investigating the 

Y2K readiness of its business partners and is seeking assurances of those partners’ Year 

2000 readiness. 

MCO C: This MCO plans to have all major information services and facility equipment 

and services Year 2000 compliant by August 1999. The initial inventory of its information 

services and infrastructure is complete. Project test plans are currently, as of January 

1999, being developed for its “high risk enterprise-wide and department specific 

equipment and systems.” In addition, the MCO is currently in the process of contacting its 

business partners (e.g. vendors, suppliers, contractors, external agents) to determine their 

Y2K readiness. 

MCO D: This MCO reports that 98 percent of its internal systems remediation efforts 

were completed by December 31, 1998. The MCO reports that most of its external file 

formats and underlying system logic has be modified to process 4 digit years and all of its 

systems meet HCFA’s eight digit requirement. As of January 1999, the MCO systems 

“currently Y2K ready and processing proven” are: (1) automated eligibility systems, (2) 

medical and dental claims systems, (3) provider referral and pre-authorization systems, and 

(4) other critical managed care billing and payment systems. The MCO also reports that 

its reimbursement accounts, pharmacy administration, managed dental care systems, and 

managed behavioral care systems are also Year 2000 compliant. 

The MCO plans to focus on integrated testing and external readiness issues in 1999. It 

has completed internal unit, system and acceptance testing on all of its systems and is now 

in the process of conducting end-to-end testing of all systems. Contingency and business 

resumption plans are currently being developed for key processes. In addition, the MCO 

has retained the services of biomedical engineering firms to verify Y2K claims made by 

manufacturers of the biomedical equipment directly owned by the MCO. Presently, the 

MCO is also conducting assessments of the potential Y2K problem impact from thirdY2K Readiness of MCOs 15 OEI-05-98-00590 
APPENDIX A 

Non-Response Analysis

party entities critical to its operations. Critical vendor assessments and site visits, 

including alternative sourcing strategies are now being done. The MCO is also in the 

process of testing key vendor computer systems’ interface. 

MCO E: This MCO began its Year 2000 compliance efforts in 1996. As of December 

1998, the MCO reports that 75 to 80 percent of its systems are currently Y2K ready. The 

MCO expects to be 100 percent Y2K compliant by December 1999. The MCO also 

expects to have completed its internal assessment by January 31, 1999 and its remediation 

efforts by March 31, 1999. Contingency plans for critical business processes are expected 

to be completed by June 1999 and testing for Year 2000 compliancy has already begun. 

An inventory and assessment of the Y2K readiness of its vendor and counter party support 

(e.g. insurance, payroll, outside data processing) is also being conducted by the MCO. 

Letters of compliancy expectation have been sent to its business partners and the MCO 

plans to assess suppliers and vendors for their Y2K readiness. 

Y2K Readiness of MCOs 16 OEI-05-98-00590 
APPENDIX B 

GLOSSARY

Y2K Ready: MCO’s, contracted medical providers’ and subcontractors’ computer 

systems that can compute and process dates after December 31, 1999. 

Medical Provider: Any individual or entity engaging in the delivery of health care services in a 

State who is licensed, certified or required by the State to engage in that 

activity in that State. 

Subcontractor: A secondary contractor undertaking some or all of the obligations of 

(Vendor) another contract. These obligations include, but are not limited to, tangible 

goods, professional services, technical support and functions delegated to 

other entities. For example, DME vendors, home health agencies, 

hospitals, audit firms, billing companies, etc. 

Computer Systems: Systems that relate to the following functions or areas: 

1. Continued access to quality medical care (including things like 

DME, appointment scheduling, pharmacy, etc.); 

2. Financial stability; 

3. Continued provider payments (contracted and non-contracted); 

4. Enrollment/eligibility administrative functions (e.g. appeals, 

grievances and encounter data collection); 

5. Communications capabilities (e.g. telephone systems); 

6. Quality assurance; and, 

7. Any other delegated or subcontracted good, services or 

relationship, that could cause a potential adverse impact to an 

enrollee. 

Date Discontinuity: Date discontinuity can occur when a computer system’s internal time clock 

does not move forward in line with true time. For example, such systems 

are equipped with a “clock” that calculates time from a fixed point by 

counting the number of clock ticks. This fixed point is usually an arbitrary 

date set by the equipment manufacturer. When enough clock ticks 

accumulate and register as full, the internal clock is reset, like a car 

odometer, to show zero. This will be interpreted by the computer as the 

arbitrary date previously set by the manufacturer. 

End of File Codes: Software programers commonly designate certain numbers to indicate the 

end of a computer program file. For example, “9999" and “00" are often 

used. The computer will malfunction if it misinterprets these end of file 

codes to represent actual dates; in this case, September 9, 1999 and the 

year 2000. 

Y2K Readiness of MCOs 17 OEI-05-98-00590 
APPENDIX C 

Medicare Managed Care Organization Year 2000 Survey 

Demographic/Background Information (Please circle the correct response or fill in the blank) 

1. How would you describe your plan type? (a) HMO, (b) CMP, (c) Other 

N= 307 83% 12% 5% 

2. How would you describe your contract type? (a) Cost, (b) Risk, (c) HCPP, (d) Demonstration 

N= 307 11% 78% 2% 8% 

3. How would you describe your organizational model? 

(a) Staff, (b) IPA, (c) Group, (d) Mixed, (e) Other (please list): 

N= 306 3% 38% 12% 44% 2% 

4. What is the tax status of your plan? (a) Non-profit, (b) For-profit 

N= 308 39% 61% 

5. What types of enrollees do you serve? Circle all that apply 

(a) Commercial, (b) Medicare, (c) Medicaid, (d) Other (please list): 

6. What is the size of your enrollment for each population you serve? 

Medicare___________, Medicaid____________, Commercial___________, Other_____________ 

7. What is the total number of members you serve? _____________________ 

8. Where are the majority of your members located? (a) urban areas, (b) rural areas, (c) suburban areas, (d) Mix of 

areas 

N= 303 20% 2% 3% 76% 

9. Do you contract with Medicare on a national scale? _____ Yes No _____ 

N= 310 34% 66% 

10. What geographic HCFA region, or regions, does your plan service? 

11. Does your organization delegate claims or any other functions to providers or third-party administrators? 

____Yes No____ 

N= 310 61% 39% 

12. Have you engaged the services of an outside/external contractor to assist in your efforts to solve Y2K-related 

computer problems? _____Yes No _____ 

N= 310 55% 45% 

13. If you answered “Yes” to either Q11 or Q12, have you obtained assistance from that entity in completing this survey? 

_____Yes No _____ 

N= 252 10% 90% 

14. Concerning this survey, for how many H#s are you responding? ________________________ 

Y2K Readiness of MCOs 18 OEI-05-98-00590 
APPENDIX C 

Medicare Managed Care Organization Year 2000 Survey 

Awareness/Contingency Planning Yes No N/A Unsure 

15. Have you identified the Y2K risks facing your business operations and assessed the potential impact 

and probability of occurrence of each of these risks? Î Ï Ð Ö

N= 303 93% 2% 0% 4% 

16. Are your staff, organization wide, aware of potential Y2K problems? Î Ï Ð Ö

N= 305 97% 1% 1% 2% 

17. Have your staff, organization wide, been trained to handle potential Y2K problems? Î Ï Ð Ö

N= 302 51% 41% 2% 6% 

18. Have you discussed Y2K issues with your medical providers? Î Ï Ð Ö

N= 309 81% 14% 1% 4% 

19. Have you discussed Y2K issues with your subcontractors? Î Ï Ð Ö

N= 309 89% 5% 4% 2% 

20. Are you facing the following constraints or obstacles in identifying or fixing potential Y2K problems: 

a: lack of financial resources? Î Ï Ð Ö

N= 308 3% 96% 0% 0% 

b: lack of skilled personnel? Î Ï Ð Ö

N= 309 7% 93% 0% 0% 

c: lack of subcontractor cooperation? Î Ï Ð Ö

N= 308 3% 85% 3% 9% 

d: lack of medical provider cooperation? Î Ï Ð Ö

N= 309 3% 77% 3% 17% 

21. Are your medical providers and subcontractors (e.g. hospitals, physicians, chemistry and 

imaging service providers) hesitant to share their Y2K test information due to: 

a. fear of legal liability and litigation from patients, vendors and others? Î Ï Ð Ö

N= 280 19% 34% 4% 43% 

b. concerns over patient loss of confidence? Î Ï Ð Ö

N= 279 3% 35% 4% 58% 

c. concerns over investor loss of confidence? Î Ï Ð Ö

N= 279 3% 35% 4% 58% 

d. fear of interference and oversight from regulatory agencies? Î Ï Ð Ö

N= 278 4% 35% 4% 57% 

Y2K Readiness of MCOs 19 OEI-05-98-00590 
APPENDIX C 

Medicare Managed Care Organization Year 2000 Survey 

Yes No N/A Unsure 

22. Have you developed a contingency strategy for dealing with potential Y2K-related problems 

associated with your: 

a: premium billing systems? Î Ï Ð Ö

N= 298 70% 15% 5% 9% 

b: biomedical equipment or devices? Î Ï Ð Ö

N= 303 41% 9% 41% 10% 

c: medical information systems (e.g. patient files, utilization)? Î Ï Ð Ö

N= 302 68% 13% 9% 10% 

d: membership enrollment/disenrollment systems? Î Ï Ð Ö

N= 303 73% 14% 4% 10% 

e: member appeal/grievance systems? Î Ï Ð Ö

N= 297 67% 16% 5% 12% 

f: medical providers? Î Ï Ð Ö

N= 298 61% 19% 5% 15% 

g: subcontractors? Î Ï Ð Ö

N= 299 65% 14% 9% 12% 

h: telephone systems? Î Ï Ð Ö

N= 300 67% 19% 3% 11% 

23a.Have you tested your contingency plans? Î Ï Ð Ö

N= 300 8% 77% 2% 12% 

23b. If you have not tested your contingency plans, when will they be tested? ____________________ 

24. Have you contracted with an outside organization for an “independent verification and validation” 

assessment of your organization’s Y2K readiness? Î Ï Ð Ö

N= 309 45% 48% 0% 6% 

25a.Are your computer systems, including hardware and software, currently Y2K ready? Î Ï Ð Ö

N= 310 22% 76% 0% 2% 

25b. If your computer systems, including hardware and software, are not currently Y2K ready, 

when will they be ready? __________________________________________________________ 

26. Are you going to require that your medical providers demonstrate that their systems 

are Y2K ready? Î Ï Ð Ö

N= 306 30% 46% 11% 13% 

27. Are you going to require that your subcontractors demonstrate that their systems 

are Y2K ready? Î Ï Ð Ö

N= 309 73% 13% 4% 11% 

Y2K Readiness of MCOs 20 OEI-05-98-00590 
APPENDIX C 

Medicare Managed Care Organization Year 2000 Survey 

Computer Systems 0% 1-33% 34-66% 67-99% 100% Unsure 

28. How many of your computer systems, including hardware and software, have you 

N= 310 0% 0% 3% 39% 56% 1% 

assessed for Y2K readiness? Î Ï Ð Ñ Ò Ö

29. How many of your computer systems, including hardware and software, have you 

renovated or replaced? Î Ï Ð Ñ Ò Ö

N= 305 1% 17% 28% 50% 2% 3% 

30. How many of your computer systems, including hardware and software, have you 

tested to ensure that they accurately process date and time data (e.g. calculating, 

comparing and sequencing) for the years 1999 & 2000, and 

the leap year calculations? Î Ï Ð Ñ Ò Ö

N= 310 2% 14% 20% 49% 13% 2% 

31. How many of your computer systems, including hardware and software, have you 

tested to ensure that they accurately process date and time data (e.g. calculating, 

comparing and sequencing) from, into and between the nineteenth, twentieth and 

twenty-first centuries? Î Ï Ð Ñ Ò Ö

N= 310 11% 16% 17% 47% 5% 3% 

32. How many of your computer systems, including hardware and software, have you 

tested for possible “date discontinuity” failures? Î Ï Ð Ñ Ò Ö

N= 308 5% 12% 16% 53% 6% 8% 

33. How many of your computer systems, including hardware and software, have you 

tested to ensure that end of file codes are not misinterpreted as dates (e.g. 9999 as 

September 9, 1999 and 999,999,999 as September 8, 2001? Î Ï Ð Ñ Ò Ö

N= 308 5% 12% 17% 44% 14% 8% 

34. If you have not tested your computer systems for the conditions described in Q28-Q33, 

when will they be tested? _________________________________________________ 

35. How many of your computer systems, including hardware and software, will be Y2K 

ready by December 31, 1999? Î Ï Ð Ñ Ò Ö

N= 310 0% 0% 0% 28% 71% 1% 

36. How many of your computer systems, including hardware and software, will be Y2K 

ready for the turn of the Century leap year (February 29, 2000)? Î Ï Ð Ñ Ò Ö

N= 310 0% 0% 0% 27% 71% 1% 

37. How many of your medical providers have given you assurances that their systems 

will be Y2K ready? Î Ï Ð Ñ Ò Ö

N= 306 9% 16% 17% 14% 10% 34% 

38. How many of your subcontractors have given you assurances that their systems 

will be Y2K ready? Î Ï Ð Ñ Ò Ö

N= 305 3% 13% 40% 12% 9% 22% 

Y2K Readiness of MCOs 21 OEI-05-98-00590 
APPENDIX C 

Medicare Managed Care Organization Year 2000 Survey 

Computer Systems 0% 1-33% 34-66% 67-99% 100% Unsure 

39. How many of your medical providers have tested their medical devices 

Î Ï Ð Ñ Ò Ö

N= 305 1% 8% 3% 12% 8% 68% 

(e.g. chemistry, imaging) for Y2K readiness? 

40. How many of your subcontractors have tested their medical devices 

(e.g. chemistry, imaging) for Y2K readiness? Î Ï Ð Ñ Ò Ö

N= 298 2% 6% 4% 12% 1% 75% 

41a.How many of your medical providers have tested data exchange between their 

systems and your systems? Î Ï Ð Ñ Ò Ö

N= 274 13% 26% 15% 19% 3% 24% 

41b. If you have not tested data exchange between your systems and your 

medical providers’ systems, when will you test?____________________ 

42a.How many of your subcontractors have tested data exchange between their systems 

and your systems? Î Ï Ð Ñ Ò Ö

N= 298 11% 23% 24% 19% 3% 20% 

42b. If your have not tested data exchange between your systems and your 

subcontractors’ systems, when will you test?______________________ 43a.How many of your medical providers’ systems, including hardware and software, 

are currently Y2K ready? Î Ï Ð Ñ Ò Ö

N= 270 3% 10% 6% 4% 9% 68% 

43b. If your medical providers’ systems, including hardware and software, are not 

currently Y2K ready, when will they be ready? ______________________________ 

44a.How many of your subcontractors’ systems, including hardware and software, are 

currently Y2K ready? Î Ï Ð Ñ Ò Ö

N= 265 2% 12% 11% 15% 3% 57% 

44b. If your subcontractors’ systems, including hardware and software, are not currently 

Y2K ready, when will they be ready? ______________________________________ 

Please answer the following question: 

45. Could your plan continue to provide services to patients if Medicare payments were delayed? 

_____ Yes (If yes, for how long?): __________________ No _____ 

N=310 74% Mode=1 to 2 months 19% 7% answered other or 

did not answer 

Y2K Readiness of MCOs 22 OEI-05-98-00590 
APPENDIX D 

Agency Comments

Y2K Readiness of MCOs 23 OEI-05-98-00590 
APPENDIX D 

Agency Comments

Y2K Readiness of MCOs 24 OEI-05-98-00590 
APPENDIX D 

Agency Comments

Y2K Readiness of MCOs 25 OEI-05-98-00590 
APPENDIX D 

Agency Comments

Y2K Readiness of MCOs 26 OEI-05-98-00590 
APPENDIX D 

Agency Comments

Y2K Readiness of MCOs 27 OEI-05-98-00590 
APPENDIX D 

Agency Comments

Y2K Readiness of MCOs 28 OEI-05-98-00590