U.S. GOVERNMENT PRINTING OFFICE

63–454 WASHINGTON : 2000

ADMINISTRATION’S PLAN TO DELAY

IMPLEMENTATION OF THE BALANCED BUDGET ACT OF 1997

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH

OF THE

COMMITTEE ON WAYS AND MEANS

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

SECOND SESSION

JULY 16, 1998

Serial No. 105–106

Printed for the use of the Committee on Ways and Means

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(II)

COMMITTEE ON WAYS AND MEANS

BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois

BILL THOMAS, California

E. CLAY SHAW, JR., Florida

NANCY L. JOHNSON, Connecticut

JIM BUNNING, Kentucky

AMO HOUGHTON, New York

WALLY HERGER, California

JIM MCCRERY, Louisiana

DAVE CAMP, Michigan

JIM RAMSTAD, Minnesota

JIM NUSSLE, Iowa

SAM JOHNSON, Texas

JENNIFER DUNN, Washington

MAC COLLINS, Georgia

ROB PORTMAN, Ohio

PHILIP S. ENGLISH, Pennsylvania

JOHN ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

WES WATKINS, Oklahoma

J.D. HAYWORTH, Arizona

JERRY WELLER, Illinois

KENNY HULSHOF, Missouri

CHARLES B. RANGEL, New York

FORTNEY PETE STARK, California

ROBERT T. MATSUI, California

BARBARA B. KENNELLY, Connecticut

WILLIAM J. COYNE, Pennsylvania

SANDER M. LEVIN, Michigan

BENJAMIN L. CARDIN, Maryland

JIM MCDERMOTT, Washington

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

RICHARD E. NEAL, Massachusetts

MICHAEL R. MCNULTY, New York

WILLIAM J. JEFFERSON, Louisiana

JOHN S. TANNER, Tennessee

XAVIER BECERRA, California

KAREN L. THURMAN, Florida

A.L. SINGLETON, Chief of Staff

JANICE MAYS, Minority Chief Counsel

SUBCOMMITTEE ON HEALTH

BILL THOMAS, California, Chairman

NANCY L. JOHNSON, Connecticut

JIM MCCRERY, Louisiana

JOHN E. ENSIGN, Nevada

JON CHRISTENSEN, Nebraska

PHILIP M. CRANE, Illinois

AMO HOUGHTON, New York

SAM JOHNSON, Texas

FORTNEY PETE STARK, California

BENJAMIN L. CARDIN, Maryland

GERALD D. KLECZKA, Wisconsin

JOHN LEWIS, Georgia

XAVIER BECERRA, California

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records

of the Committee on Ways and Means are also published in electronic form. The printed

hearing record remains the official version. Because electronic submissions are used to

prepare both printed and electronic versions of the hearing record, the process of converting

between various electronic formats may introduce unintentional errors or omissions. Such occurrences are inherent in the current publication process and should diminish as the process

in further refined.

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C O N T E N T S

Page

Advisory of June 26, 1998, announcing the hearing ............................................. 2

WITNESSES

Health Care Financing Administration, Hon. Nancy-Ann Min DeParle, Administrator ............................................................................................................ 21

U.S. General Accounting Office, William J. Scanlon, Ph.D., Director, Health

Financing and Systems Issues, Health, Education, and Human Services

Division ................................................................................................................. 93

American Health Care Association, and Integrated Health Services, Mary

K. Ousley .............................................................................................................. 156

American Hospital Association, and Sentara Health System, David L. Bernd .. 183

Blue Cross and Blue Shield Association, and Blue Cross and Blue Shield

of Florida, Bruce Davidson .................................................................................. 119

Collins, Hon. Susan M., a United States Senator from the State of Maine ....... 7

Federation of American Health Systems, and Lutheran Hospital of Indiana,

Thomas Miller ...................................................................................................... 172

Pappas, Hon. Michael, a Representative in Congress from the State of New

Jersey .................................................................................................................... 13

Visiting Nurse Associations of America, and Visiting Nurse Service of New

York, Carol Raphael ............................................................................................. 140

SUBMISSIONS FOR THE RECORD

American Association of Health Plans, statement ................................................ 207

American College of Physicians-American Society of Internal Medicine, statement ...................................................................................................................... 214

American Occupational Therapy Association, Inc., Bethesda, MD, statement .. 216

AmSurg Corp., Nashville, TN, Ken P. McDonald, letter ...................................... 219

California Association for Health Services at Home, Sacramento, CA, Kathleen Sullivan, and Joseph H. Hafkenschiel, letter ............................................ 222

Cook, Hon. Merrill, a Representative in Congress from the State of Utah,

statement .............................................................................................................. 225

Cornerstone Health Management, Dallas, TX, Marilyn Humphreys, letter ....... 226

Franklin, Michael, Society for Radiation Oncology Administrators, Oak Brook,

IL, letter ................................................................................................................ 270

Hafkenschiel, Joseph H., California Association for Health Services at Home,

Sacramento, CA, letter ........................................................................................ 222

Health Industry Distributors Association, Alexandria, VA, statement .............. 228

Humphreys, Marilyn, Cornerstone Health Management, Dallas, TX, letter ...... 226

Kent County Visiting Nurse Association, Warwick, RI, Lisa M. Scott, statement ...................................................................................................................... 231

Mahoney, Diane, National Association of Health Underwriters, statement ...... 253

McDonald, Ken P., AmSurg Corp., Nashville, TN, letter ..................................... 219

McKusick, Kenneth A., Society of Nuclear Medicine, Reston, VA, letter and

attachments .......................................................................................................... 271

Morris, Susan, National Association for the Support of Long Term Care,

Alexandria, VA, statement and attachments ..................................................... 244

National Association for Home Care, statement ................................................... 234

National Association for the Support of Long Term Care, Alexandria, VA,

Susan Morris, statement and attachments ........................................................ 244

National Association of Health Underwriters, Diane Mahoney, statement ....... 253

PPS Work Group, statement and attachments ..................................................... 259

Page

IV

Richard, Steven, Sun Home Health Services, Inc., Northumberland, PA, letter

and attachment .................................................................................................... 276

Saxton, Hon. Jim, a Representative in Congress from the State of New

Jersey, statement ................................................................................................. 265

Scott, Lisa M., Kent County Visiting Nurse Association, Warwick, RI, statement ...................................................................................................................... 231

Smith, Hon. Christopher H., a Representative in Congress from the State

of New Jersey, statement .................................................................................... 267

Society for Radiation Oncology Administrators, Oak Brook, IL, Michael

Franklin, letter ..................................................................................................... 270

Society of Nuclear Medicine, Reston, VA, Kenneth A. McKusick, letter and

attachments .......................................................................................................... 271

Sullivan, Kathleen, California Association for Health Services at Home, Sacramento, CA, letter .............................................................................................. 222

Sun Home Health Services, Inc., Northumberland, PA, Steven Richard, letter

and attachment .................................................................................................... 276

Watts, Hon. J.C., Jr., a Representative in Congress from the State of Oklahoma, statement ................................................................................................... 279

Weygand, Hon. Robert A., a Representative in Congress from the State of

Rhode Island, statement and attachment .......................................................... 282

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ADMINISTRATION’S PLAN TO DELAY IMPLEMENTATION OF THE BALANCED BUDGET

ACT OF 1997

THURSDAY, JULY 16, 1998

HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, SUBCOMMITTEE ON HEALTH, Washington, DC.

The Subcommittee met, pursuant to notice, at 11:12 a.m., in

room 1100, Longworth House Office Building, Hon. Bill Thomas

(Chairman of the Subcommittee) presiding.

[The advisory announcing the hearing follows:]

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Chairman THOMAS. On August 5, 1997, President Clinton signed

in to law a bipartisan congressional plan that saved Medicare from

imminent bankruptcy. As the anniversary of the bill signing approaches, the Department of Health and Human Services seems

unable to implement key portions of our Medicare plan, even

though the administration assisted in writing it.

Health and Human Services has recently announced the following actions: They have decided to curtail a nationwide educational campaign required by law to educate seniors on how the

new Medicare options will operate. They admit that one priority on

which everyone agrees—fixing the high level of co-insurance that

seniors now pay for hospital outpatient services—will not be implemented for some time.

They’ve acknowledged that changes—again required by law—in

the way hospital outpatient departments and home health agencies

are paid will not be implemented on time, even though the Department requested these changes and has been working on these new

payment systems for years.

Because of implementation delays, the home health prospective

payment system will not be implemented on October 1, 1999.

Therefore, this will likely force Congress to take some corrective action to address problems in the interim payment system for home

health care, and as a matter of fact, we have a Member of the

House and a Member of the Senate to address that as our first

panel today.

Health and Human Services says that the Year 2000 computer

problems will delay implementation of the new laws of other Medicare provisions, despite the fact that Congress was assured years

ago that HHS, especially HCFA, was developing a new computer

system, known as the Medicare Transaction System, to handle the

problem. Millions of dollars were spent and the project did not

produce, I believe, a single line of computer code.

In short, key portions of our bipartisan Medicare agreement are

being unilaterally unraveled. As a result of these decisions by the

administration, we decided to convene this hearing to examine the

implementation, or the failure thereof, of last summer’s agreement.

The purpose of this hearing should be to start the process of making sure Medicare delivers for the people it serves, and does not operate as a tool to deliver someone’s political agenda or aspirations.

The Department’s decision to suspend the educational campaign

for seniors, and to a troubling extent the failure to consult in a

timely manner with Congress on implementation problems, presents, I believe, a very serious challenge to the credibility of the administration. I find it interesting that at the same time the administration is pushing a patient bill of rights, and the first item is a

patient’s right to information, we’re basically saying that we’re

going to be limiting seniors’ access to similar information about the

new Medicare+Choice program.

Nevertheless, the White House has announced a number of other

new health initiatives. So far, the administration clearly has time

and resources for its own priorities, while it neglects initiatives already enacted into law, especially a program like the

Medicare+Choice program, which encourages private health plans

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to develop broader benefit packages for seniors, rather than relying

on the old centralized price controls of the current system. Despite spending more than $210 billion last year for 34 million seniors, about $6,000 a beneficiary, Medicare still does not cover

long-term care or most prescription drugs in its basic package. Obviously, the Medicare Commission is meeting and attempting to address this, among other problems with the Medicare program.

During the course of this hearing, I’m interested in learning the

administration’s answers to a series of questions, among them, for

example: If the administration intends not to honor the current

law’s effective dates as to outpatient departments, nursing home

consolidated billing, and other key provisions, what is the legal authority that the Department would rely on for such action? And if

the Department intends to offer legislation requesting congressional acquiescence on these implementation delays, when do you

expect to send such legislation to the committees of jurisdiction? In

either case, what is the impact of these implementation delays on

senior spending, the Medicare trust funds, the overall Federal

budget? We would especially like to receive the analysis of the

Health Care Financing Administration’s chief actuary on the impact of these.

It just seems to me that when you look at everyone involved, I

want to make sure that HCFA’s priority is to be beneficiary service

in all regards, particularly as it pertains to their ability to improve

beneficiary’s benefits and lower their costs.

In dealing with doctors and hospitals I think it’s fair to say that

doctors and hospitals have seen almost nothing but perpetual

changes, usually in one direction in terms of reimbursement, but

continued changes. They face enough challenges without HCFA

holding payments hostage and questioning payment updates. Taxpayers deserve a program that runs efficiently, that does not use

resources, or lack thereof, as arguments for failing to adhere to its

core mission in a truly administrative and management capacity.

And just let me say that I believe there are thousands of capable

and well-meaning civil servants inside HCFA and in the Department of Health and Human Services who, to a certain extent, are

not being allowed to do their jobs perhaps the way they think they

should be done by virtue of the way this administration has played

politics with Medicare.

I find it troubling that the new law of the land may be over-ridden, not by a court, but by administrative fiat. The Balanced Budget Act is not a political document; it’s the Nation’s law. We all have

a responsibility to implement it, and I look forward to the information that’s going to be provided to us.

At this time I’d recognize my colleague from California, the gentleman, Mr. Stark.

Mr. STARK. Well, thank you Mr. Chairman. I’d like to offer the

first non-political move and say that I understand that Dr. Ganske

resigned from the Medicare Commission this morning. I’m making

myself available to replace him on the Republican side. I’ll take the

pledge for no new taxes, and we can start right out and have some

real fun. [Laughter.]

But, thank you for holding this hearing. I join in your concern

about the delays in the implementation of the Balanced Budget

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Act, even though I didn’t vote for it. Frankly, it’s incomprehensible

to me to sort out this 2000 problem and why it’s gotten so far out

of hand. I’ve introduced the Medicare contractor reform legislation

to give HCFA more power to get results from their contractors. We

should pass that legislation so HCFA’s abilities and responsibilities

are more clearly defined in the future. It is clear to me that HCFA

will need legislation to delay payments to providers. The administration should submit that legislation as soon as possible. I’m certainly not a computer programmer, and I won’t try and secondguess this year 2000 mess.

I would like to concentrate on the beneficiary education issue and

the ‘‘mega-reg’’ implementing the Medicare+Choice program. I’d say

congratulations to the administration for not mailing the new

Medicare handbook to all the seniors before the toll-free phone system is available to answer questions. I understand that’s partly

stalled by Land’s End and other mail order catalogs who’ll be doing

all their Christmas business at the time the book hits.

This fall, seniors are going to be swamped with ads and salespeople pushing managed care plans. We know from our experience

with Medigap policies that some of those sales pitches will be dishonest and/or disingenuous. It’s essential that seniors be protected

from high pressure sales pitches, the kind that caused some seniors

to buy a dozen or more Medigap policies in the past.

I’ve introduced a bill that prohibits cold-calling by Medicare

Choice plans, and it mirrors a provision in the Medicaid law. Until

we have a prohibition on cold-calling, I urge HCFA to prohibit

plans from assisting in the completion of the election forms. Their

tentative decision to permit form completion is sure to lead to horror stories and the abuse of vulnerable patients.

In general, I’d congratulate HCFA on the ‘‘mega-reg’’ and the

many strong consumer protection quality and anti-fraud provisions

you’re applying to the Medicare+Choice plans. There are many

areas in which I urge stronger action, but in general it’s a good beginning.

Specifically, I’m pleased with the shortening of the time in which

appeals can be answered. The requirement that a health baseline

be established within 90 days for managed care enrollees is a major

step forward. You can’t be a health maintenance organization if

you don’t know where your patients are or the basic health facts

about them. Requiring them to establish a health baseline within

90 days seems to me to be a minimum step that HMDS ought to

take to qualify for their monthly payments.

I’m pleased that HCFA has its quality improvement system for

managed care, and I urge you to keep pressing its speedy development. On page 144 of the regulation you say it’s uncertain whether

any minimum performance levels will be established for the 1999

contract year. I think it needs to be given more attention. I urge

you to establish at least several. For example, flu or pneumonia

vaccination levels ought to be easy to establish and enforce. Zero

tolerance for the accreditation organization’s failures to identify

non-compliance of health plans that expose beneficiaries to serious

risks.

Finally, your stance on anti-fraud (pages 272 and 81) and the requirement that plans establish a compliance program. In the past,

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plans have been paid for enrollees who they conveniently forgot to

tell HCFA had left the plan. Innumerable plans have told HCFA

they are providing the right level of benefits under the ACR requirements, then when a computer came to town, suddenly they

were able to offer lots of new benefits at zero premiums. On its

face, many plans have been filing false claims about their appropriate levels of service.

I urge that in addition to making these payment certifications

subject to the False Claims Act, that in the future any claim about

quality of care that is false be clearly subject to whistle-blower

complaints.

Again, I look forward to the testimony of our colleagues from the

House and Senate this morning, and I’ll look forward to hearing

the administration’s testimony later. Thank you, Mr. Chairman.

Chairman THOMAS. Thank you very much. As usual, any member

who wishes to express themselves in an opening statement can do

so in a written statement.

And at this time I would ask our colleagues, the United States

Senator from Maine, the Honorable Susan Collins, and our colleague from New Jersey, Michael Pappas—and I know there is a

degree of time pressure on the Senator. Your written statement

will be made a part of the record, and you can address us in any

way you see fit. I know the primary focus will be on a concern that

all of us have, which is part of the changes in the Balanced Budget

Act, which is now law, and that is dealing with home health care

payments.

STATEMENT OF THE HONORABLE SUSAN M. COLLINS, A

UNITED STATES SENATOR FROM THE STATE OF MAINE

Senator COLLINS. Thank you very much, Mr. Chairman.

Mr. Chairman, Congressman Stark, Members of the Committee,

I thank you very much for allowing me to be here to present testimony to you this morning, and I want to commend you, Mr. Chairman, for holding this hearing to examine recent policy decisions by

the Department of Health and Human Services to delay implementation of critically important provisions of the Balanced Budget Act.

As the Chairman has suggested, in the interest of time, I will

ask that my statement be included in full, and I will concentrate

primarily on my concern about the home health care interim payment system.

I am particularly alarmed, Mr. Chairman, that the administration has fallen behind in its implementation of the prospective payment system for home care. HCFA administrator Nancy-Ann Min

DeParle did call me earlier this week, as she had promised at a

hearing before the Senate Aging Committee earlier this year, to let

me know that the Y2K problems with the Agency’s computers have

diverted resources and forced a delay in implementation. I do understand these problems. I very much appreciate her courtesy in

calling me, but her call did not ease my underlying concern.

America’s home health agencies provide invaluable services that

have enabled a growing number of our most frail and vulnerable

older Americans to avoid hospital and nursing home care and stay

and get care right where they want to be—in their own homes.

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However, critics of the system have long pointed out that Medicare’s historic cost-based payment for home health care has inherent incentives for home care agencies to provide more and more

services, which has in turn driven up costs. Therefore, there was

widespread support for the Balanced Budget Act provision calling

for the implementation of a prospective payment system for home

care by October 1, 1999. Until then, home health agencies would

be paid according to the new interim payment system.

Unfortunately, delaying the implementation of the prospective

payment system, as HCFA has proposed, will only perpetuate the

serious problems that we are currently experiencing with the interim payment system that is currently terribly flawed. I’m very

concerned that the interim payment system inadvertently penalizes

cost-effective and efficient home care agencies by basing 75 percent

of their per patient payment limits on their Fiscal 1994 average

cost per patient.

This system, Mr. Chairman, members of the committee, effectively rewards those agencies that have provided the most visits at

the highest cost and spent the most Medicare dollars in 1994. The

result is that it penalizes the low-cost, more efficient providers. I

simply do not believe that is what Congress or the administration

intended.

Home health agencies in the Northeast are among those that

have been hardest hit by the formula change. As the Wall Street

Journal observed earlier this year, ‘‘If New England had just been

a little greedier, its home health agencies would now be a lot better

off. Ironically, the region is getting clobbered by a system because

of its tradition of non-profit community service and efficiency.’’

Moreover, there is simply no logic to the variance in payment

levels. The average per patient cap in Tennessee is expected to be

almost $2,000 higher than Connecticut’s. The average cap for Louisiana is expected to be about $2,600 more than the cap for the

State of Maine, my home State, without any evidence that the patients in these States are sicker or that the nurses and other home

health care personnel in this region cost more.

The system also gives a competitive advantage to high-cost agencies over their lower-cost neighbors, even within the same State or

region. This is true even when you can find no difference in the

population of patients that they are serving. And finally, the system may force low-cost agencies to simply stop accepting patients

with more serious health care needs.

Over the recess, Mr. Chairman, I visited two agencies in my

State of Maine, one in Lewiston, Maine and one in my hometown

of Caribou. One of these agencies told me of their fear that they

would simply have to close their doors if the system is not reformed. That troubles me greatly because they’re providing dearly

needed, much needed services to very frail elderly people in rural

parts of my State.

To rectify this problem, I’ve introduced Senate bill 1993, the

Medicare Home Health Equity Act, which currently has 22 Senate

co-sponsors from both sides of the aisle. This legislation, which is

very similar to the House bill introduced by my colleague, Congressman Michael Pappas, who is here with me today, will level

the playing field and make certain that home health agencies that

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have been prudent and careful in their use of Medicare resources

are not unfairly penalized.

The legislation will also ensure that home health agencies within

the same region are reimbursed similarly for treating similar patients. I think that’s a goal that we can all embrace. Instead of allowing the experience of high-cost agencies to serve as the basis for

the new cost limits, my legislation would set a new per beneficiary

limit based on a blend of national and regional average cost per patient.

Moreover, by eliminating the agency’s specific data from the formula, the Medicare Home Health Equity Act will move us more

quickly to the national and regional rates, which will be the cornerstone of the future prospective payment system, and it will do so

in a way that I believe is budget neutral. I realize that in light of

recent developments we will have to look at that issue and look at

the specific formula changes.

But, Mr. Chairman, members of the committee, the need to fix

the current interim payment system becomes all the more compelling if HCFA is unable to meet its October 1, 1999 deadline for implementing the prospective payment system. Moreover, the problem

is exacerbated by the fact that the Medicare home health expenditures are to be reduced by an additional 15 percent on October 1,

regardless of whether HCFA has developed a prospective payment

system.

Cost-efficient agencies in Maine and elsewhere are already beginning to lay off staff, reduce hours, and some may actually be forced

to close their doors because the reimbursement levels under this interim system fall so short of their actual operating costs.

Of course, Mr. Chairman, the real losers in this situation are our

senior citizens. Cuts of this magnitude simply cannot be sustained

without ultimately affecting patient care, and I know that is an

outcome that no one on this committee wishes to see occur.

Again, Mr. Chairman, thank you very much for your leadership

in this area and for the opportunity to testify. I look forward to

working with you and my colleague, Congressman Pappas, to get

a solution to this very real problem. Thank you very much.

[The prepared statement follows:]

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Chairman THOMAS. Thank you very much, Senator Collins. And

now it’s my pleasure to recognize the gentleman from New Jersey,

someone who has been a leader in attempting to offer solutions

that would mitigate the problems associated with the interim payment system.

Michael, your written testimony will be made a part of the

record, and if you could summarize it for us briefly, we would appreciate it.

STATEMENT OF THE HONORABLE MICHAEL PAPPAS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY

Mr. PAPPAS. Thank you, Mr. Chairman, Congressman Stark, and

Members of the Subcommittee.

I first became acquainted with home health care agencies years

ago when I was a county elected official in my home county in New

Jersey. I was in charge of Human and Social Services, and I was

impressed and continue to be impressed with the dedication of

these agencies, many of which are non-profit, and the kind of work

that they do in providing very important services to those that are

in need of specialized care.

The cost benefit is pretty evident in that it can delay people from

having to be institutionalized or hospitalized, and I think that’s

why so many people, like yourselves and us, want to try to see a

solution to what Senator Collins has really framed very well. I can

only emphasize and reiterate everything that she has said, but as

I was one of the Members that voted for the Balanced Budget

agreement, I certainly never intended to see this to be the case,

and I’m glad to be, hopefully, part of the solution.

Over the winter recess, a home health care agency approached

me and first made me aware of this dilemma, which is when we

got to work on it and became aware of Senator Collins’ efforts and

the concerns by you, Mr. Chairman, and members of this committee and subcommittee, and I am very pleased with this hearing

today and appreciate the opportunity to speak.

The situation, certainly in my State, is not unique. We could

speak of Maine and probably most, if not all, of our States. Efficient agencies would be hurt by what has been presented as the

solution in the form of an IPS, and I don’t think that any of us

want to see efficient agencies hurt, and therefore those that are

being served possibly being denied or seeing their level of service

decreased to the point of them maybe having to be institutionalized, which, again, in the other pocket, more funds would have to

be spent to care for them.

In late March I introduced H.R. 3567, along with three original

co-sponsors, one of them being Congressman Coyne, who is a member of this committee. And I’m very pleased that as of today we

have 94 co-sponsors, both Members of the majority and the minority, as well as the independent people from all ideologic spectrums,

all regions of the Nation, and that is really a culmination of so

many other Members’ efforts to see this very important problem

addressed.

Almost 180 Members of the House have co-sponsored either my

bill or other bills that have been introduced. Well over 200 MemVerDate 11-MAY-2000 12:56 Aug 10, 2000 Jkt 064533 PO 00000 Frm 00017 Fmt 6633 Sfmt 6602 E:\HEARINGS\63454 pfrm08 PsN: 63454
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bers of Congress, in the form of co-sponsorships, sponsorships or

signing ‘‘Dear Colleague’’ letters, have expressed their concern

about the Balanced Budget agreement’s effect upon this and IPS.

But we were trying to put together a bill, we had a couple of concerns. We wanted it to be budget neutral, not to jeopardize the

numbers in the Balanced Budget agreement, but we also wanted

to reward efficiency and not penalize efficiency in every State in

these efforts that need to be recognized.

We’ve heard about CBO and their ability or inability to score.

There have been numbers thrown around as to what mine would

do. Price Waterhouse, who had made an analysis, felt mine was

budget neutral. We think from very preliminary drafts CBO thinks

that it might even be better than that—$1.2 billion—but that’s preliminary, and with what concerns that have been raised here today,

we don’t know what number will stick.

But I’m here today to certainly advocate for my efforts and that

of Senator Collins. We think that there’s a benefit to having two

bills that are in both Houses that could move forward, hopefully

quickly, with the level of support that they’ve received, but the

most important thing for me is to just address the issue. And I certainly want to work with this committee and the members of it to

move that ball down the field, so to speak, and to resolve this.

And Mr. Chairman, I thank you very much.

[The prepared statement follows:]

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Chairman THOMAS. Thank you, Mike. The concern that I have,

to try to underscore the magnitude of the problem, is that notwithstanding your good effort and the fact that the Congressional Budget Office scored your proposal as saving $1.2 billion—I appreciate

your commitment to budget neutrality; you did a great job of going

in the other direction. The information that I’ve received as of

today, based upon clearly the reason for this hearing, is that CBO

now says that the policy, notwithstanding that it would work, can’t

be implemented.

And so the concern that we have is, if we’re going to try to solve

the interim payment system which both of you and any Member

who has co-sponsored either piece of legislation could clearly outline, and I think all of us are aware of, we don’t know what it is

that we can do that will address this problem because of the inability of HCFA to implement programs such as those outlined in your

bill, which would have otherwise solved the problem. So, we’re

going to have to require probably a greater degree of participation

voluntarily by HCFA in initiating potential solutions, because it

wouldn’t serve anyone’s benefit for us to dream up plans, assuming

HCFA’s going to be under its ordinary operating capacity, when

they’re clearly going to indicate to us today that they’re not able

to do it. So it only heightens our concern about finding a solution.

I believe we have to find one before we adjourn.

Senator Collins, I appreciate your testimony in which you indicated that Ms. DeParle called you to let you know that the Y2K

problems, quote, ‘‘with their computers have diverted resources and

forced a delay.’’ One of the things we don’t do well in the House—

I hope you do it better in the Senate—is for one committee to pay

attention to what the other committees are doing.

Our colleague from California, chairman of the Oversight—Subcommittee on Human Resources, Government Reform and Oversight Committee, Congressman Horn, has been holding a series of

hearings on the issue of Y2K. We’re clearly here today dealing with

HCFA, but the argument, as you indicated, is the Y2K problem.

Congressman Horn has been focusing for more than a year on the

entire Federal Government, including the Congress.

And I just think it might be enlightening to you because you may

not be aware of it, that on May 16, 1997, in front of that subcommittee was Bruce Vladek, who is the former Administrator of

HCFA. And in discussing whether HCFA was ready to deal with

the Y2K problems—now this is May 1997 when we were in the

middle of negotiating the contents of the Balanced Budget Act,

with the administration actively participating and, as I said, initiating proposals to be part of that plan—Administrator Vladek, in

response to the GAO statement, said, quote—the GAO statement

was that HCFA is not closely monitoring these critical activities of

the Year 2000 compliance. He said, quote, ‘‘This particular assertion I frankly find kind of puzzling. Once we have MTS’’—and, of

course, that’s the program that has now been totally scrapped with

a cost of millions and millions of dollars—‘‘we will have one set of

software under the Government’s ownership and the Government’s

control.’’ We now know that was pie-in-the-sky and it isn’t going to

work.

19

So he went on then to say, ‘‘Let me say this to you, because I

think this is the appropriate way to answer, we have required of

all the Medicare contractors that they have completed their Year

2000 corrections by December 31, 1998. We will have the first part

of 1999 to do extensive testing on the extent to which they have

in fact accomplished these changes.’’

He went on to say, ‘‘We’re talking about the actual re-writing of

something like 20 million lines of software code. We will get this

done. We will find things wrong during the testing process, but we

will find that out in late 1998 or early 1999, not on December 31.’’

In response to a set of written questions—which I’m quite sure

members, because they’re not going to be able to stay the whole

time, will submit to HCFA, as is normally done—in a response

dated August 22, 1997, Mr. Vladek said—again repeating, ‘‘There

are 20 million lines of code which were identified by HCFA as requiring modification for the Medicare standard systems. Where are

you in the process of dealing with those 20 million lines of code?’’

Mr. Vladek said, ‘‘Approximately 8 million lines of code have already been re-written, and the additional 12 million lines are expected to be completed by December 1998.’’

This being late July, they’re pretty much done. The cost of re- writing a single line of code has been estimated to be $1.10, and

the funds for this project have been allocated in the Fiscal Year

1996 to 1998 budgets. So as we were anticipating the needs and

concerns of this Department, along with other departments and

agencies, the Administrator of the Agency indicated there was no

problem—the funds were available and they were well along in addressing their concerns.

Now, that will be part of the discussion that we will have with

the Administrator, Ms. DeParle, to get a clearer understanding. If

this in fact is not true, what is true? Where are they? What resources do they have? And what is going to be the result in the failure to implement the law as it’s currently written?

Your concerns are a major portion of it, but, frankly, it just goes

across the board. So I really appreciate your initial willingness to

try to offer a solution which would have worked had we been able

to say HCFA could implement it. The Congressional Budget Office

now says, notwithstanding that, they cannot score it because HCFA

says they can’t make it work. This will be a problem which we will

resolve together and, hopefully, with the cooperation of the administration and HCFA to tell us what they can do to answer the interim payment problem.

Do any of my colleagues want to—the gentleman from Maryland,

Mr. Cardin.

Mr. CARDIN. Thank you, Mr. Chairman. I’ll be very brief.

First, let me thank both of our colleagues for being here. I’m one

of the 200 that have joined in either legislation or letters urging

this committee and Congress to pass corrective legislation for home

health services. I think we need to do that, and I share many of

the concerns that our chairman has raised, but I think it is important to point out that the IPS that we provided last year in the

Balanced Budget Act is not working.

And regardless of whether there is a PPS system in place on the

due date or not, the IPS that’s in place now will cause and is causVerDate 11-MAY-2000 12:56 Aug 10, 2000 Jkt 064533 PO 00000 Frm 00023 Fmt 6633 Sfmt 6602 E:\HEARINGS\63454 pfrm08 PsN: 63454
20

ing a devastating impact in the State of Maryland and around the

Nation, so we need to take corrective action on the IPS. We can

change the mix. We can try to do it in a way that’s budget neutral,

and that’s what we’re hopefully going to be able to come out with.

But, Mr. Chairman, I must tell you, there are many agencies

that are going to have a very devastating impact unless we can

find a more creative way to deal with some of the more difficult circumstances in our community because our colleagues are exactly

right. Those programs that were the most efficient, those programs

that went out and dealt with difficult patients, difficult assignments, and did it in a most cost-effective way are the programs

that are most at jeopardy, and that makes no sense whatsoever.

We, in passing the IPS, I don’t think anticipated the problems

that were going to be caused, and, I agree, we didn’t intend to do

what was done, but the law requires that type of action. And, yes,

it would be a lot easier if we knew that the prospective payment

system will be implemented on time, but as was pointed out by

Senator Collins, the law also provides for another 15 percent cut

next year, and we’re heading in a very disastrous area.

And I would hope that we’ll be looking at creative ways to correct

the situation and not just placing all of the responsibility on HCFA

in implementing a new system under the PPS to solve this problem, because I do think we have to deal with these problems now

and come up with a solution now that will keep these services

available to our seniors. They’re very, very important programs.

They’re keeping our seniors healthy in our community, rather than

being in more expensive institutional settings. That’s saving

money, makes sense, and we should work together with HCFA to

come up with a correction to what we did last year, and I thank

the chairman.

Chairman THOMAS. I thank the gentleman for his comments, and

I couldn’t agree with him more. The problem gets even more difficult as you analyze it carefully, because the 15 percent reduction

is scheduled under law to go into effect whether or not the prospective payment structure is in place, which it will not be. The interim

payment system has to be addressed, and it has to be changed before this Congress adjourns.

The difficulty is the usual process won’t work, because we have

a perfectly decent solution, and there are others that will be offered, but if the answer from CBO is that they now cannot tell us

what will happen because HCFA says they aren’t going to be able

to implement any changes within a period of time, it makes it absolutely imperative that the administration not say they won’t initiate a change, but that we sit down today—no later than tomorrow—and begin working out what is do-able and which addresses

those fundamental problems.

No one intended the current situation. It is intolerable and it

needs to be changed, but the circumstances under which those

changes need to be worked out is extremely difficult given the testimony and the posture that we’ll soon hear from the Administrator.

We’re not trying to drag this out in terms of the difficulties, but

we do need to underscore, we do need to keep the public and the

providers and the beneficiaries informed of what it is we are able

21

to do and not able to do, and that is the fundamental intent of this

hearing.

And I know the Senator from Maine has a voting problem, which

has just been created partially on our side, and the gentleman from

California wants to be recognized.

Senator COLLINS. Mr. Chairman, could I ask to be excused? I do

have a vote on right now, and I’d be happy to answer any questions

in writing or call any member, but I do apologize. I’m going to miss

the vote.

Chairman THOMAS. Thank you very much.

Senator COLLINS. My apologies.

Chairman THOMAS. Go tend to one of your primary functions.

Thank you very much.

Mr. STARK. Mr. Chairman, I just wanted to mention for the

record, and for Senator Collins and Congressman Pappas, that several of us signed a letter to the Administrator of HCFA asking that

in the cases where some of the home health agencies are being

back-charged for overpayments in Fiscal Year 1998, that HCFA

allow those payments to be made over a period of time, periodically, or to put them on an installment plan or at least their credit

card, which may help ease that burden in some cases. I would urge

Congressman Pappas and other members of our committee to urge

the Administrator to see if she could be lenient in collecting the

money that is due for overpayments. I think it will be of some

small assistance.

Chairman THOMAS. And that is precisely the reason for the hearing. We will continue to find additional concerns that we have to

face.

If my colleagues have no additional questions, I want to thank

the gentleman from New Jersey back to the drawing board. We

look forward to the new plans.

Obviously, the Administrator is next on our witness list, and my

belief is that it’s probably going to be easiest for us, rather than

to start you and then interrupt you, Nancy, just to say that the

subcommittee will be in recess.

Do you want to try to vote on a rolling basis?

Can you do it in 10 minutes? Okay; the subcommittee will now

hear from the Administrator of the Health Care Financing Administration. Your written testimony will, of course, be made a part of

the record, and we would appreciate hearing from you within the

timeframe allowed for purposes of getting your testimony in and

then going to vote. Thank you for being with us. It’s good to see

you again.

STATEMENT OF THE HONORABLE NANCY-ANN MIN DEPARLE,

ADMINISTRATOR, HEALTH CARE FINANCING ADMINISTRATION

Ms. DEPARLE. Thank you. Mr. Chairman, Congressman Stark

and members of the committee, thank you for inviting me here

today to discuss our implementation of the Balanced Budget Act.

Your leadership was critical in passing this landmark legislation,

which makes significant changes to Medicare and is an essential

step forward.

22

But with big changes come big challenges that we’re working

hard to meet. We are making solid, steady progress in implementing the more than 300 individual Balanced Budget Act provisions affecting our programs, and we have a strategy to meet the

challenge of informing beneficiaries about the many changes they

need to understand.

We are also making substantial progress in addressing the enormous and difficult Year 2000 problem. We must ensure that Medicare will be there to provide coverage for beneficiaries and payments to providers on January 1, 2000, just as it has for the last

33 years. That is and must be my number one priority. It involves

renovating all computer and information systems and a deadline

that nothing and no one can change.

Each computer system used by Medicare, its contractors, State

Medicaid programs, and 1.6 million providers must be thoroughly

reviewed, renovated, and tested to correct the glitches that could

cause problems on January 1, 2000. Our contractors must renovate

some 50 million lines of code. This is a major challenge, and it’s

one that I’m confident that we can meet, but to do so Year 2000

work must take precedence over other projects that require systems changes, including, as we’ve discussed this morning, some

Balanced Budget Act provisions.

This includes projects that are complex, such as the home health

and hospital outpatient department prospective payment systems

that we were scheduled to implement in 1999. But it also includes

some less complex changes such as routine provider payment updates that would occur in a critical window between October 1,

1999 and April 1, 2000. The updates, which would otherwise be a

routine matter, could create an unstable environment when Year

2000 activity and risk will be greatest.

I want to emphasize, though, that we want to work with the

Congress and providers to evaluate what our options are and ensure that any delays and provider updates do not create a hardship, and we will work with this committee to evaluate the legislative changes that may be needed.

I also want to emphasize, Mr. Chairman, that the vast majority

of Balanced Budget Act provisions are not affected by the Year

2000, including the Medicare+Choice program. We’ve already implemented almost 200 of the roughly 300 provisions in the law affecting Medicare. We are pushing forward with regulations to implement the Balanced Budget Act. In fact, in a few days I hope

we’ll be sending to the Federal Register the regulations concerning

the outpatient department PPS, even though it is affected on the

implementation side by the Y2K.

If Year 2000 computer system renovations are completed ahead

of schedule, I will make every effort to make sure that the delayed

provisions are back on schedule, but at this time it appears that

we must postpone them to focus resources and free systems for essential Year 2000 work.

Implementation of the Medicare+Choice program is not being delayed. However, as you have mentioned this morning, we have

changed our initial plans for the Medicare+Choice information campaign to take the time to more fully focus test our approach in the

field and make adjustments if necessary. We believe this will inVerDate 11-MAY-2000 12:56 Aug 10, 2000 Jkt 064533 PO 00000 Frm 00026 Fmt 6633 Sfmt 6602 E:\HEARINGS\63454 pfrm08 PsN: 63454
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crease the likelihood that the changes and that the new choices in

Medicare will be understood and well-received by beneficiaries.

We have an eight-point Medicare education plan that includes

beneficiary mailings, toll-free telephone services, Internet information, a national train-the-trainer program that just began this week

to train people in the field, a national publicity campaign, State

and community outreach, enhanced counseling from State health

insurance advisory programs, and beneficiary feedback and assessment.

Instead of mailing new Medicare handbooks to all 39 million

Medicare beneficiaries this fall, which was my original plan, we

will first test the whole system in five States encompassing some

5 million beneficiaries. Outside these five States, we will send

beneficiaries a bulletin with basic Medicare+Choice data and other

Medicare information. We’ll provide them with a toll-free number

to call to receive health plan comparison information and additional information about medical savings accounts. We will carefully evaluate our efforts in the five test States so that we can improve them for the full-scale nationwide campaign that the Balanced Budget Act requires next year.

Mr. Chairman, this is the largest, most complex, and ambitious

education effort in the history of Medicare. We want to work with

the Congress, with providers, with beneficiaries and their families,

and with seniors groups around the country to make the national

Medicare education program the best it can be. We appreciate the

help that you and your staffs have provided us so far and look forward to working with you further to make sure that our campaign

is consistent with what you intended, as well as that it meets our

beneficiaries’ needs.

I look forward to continuing to work with this committee as we

continue efforts to implement the Balanced Budget Act and to address the Year 2000 challenge, and I’ll be happy to answer any

questions you may have.

[The prepared statement and attachments follow:]

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Chairman THOMAS. I thank you very much, Ms. DeParle. We will

be interested in pursuing some questions when we come back from

recess. We do have a 5-minute vote following this one. I hope members can be back here by 12:15 p.m., 12:20 p.m. at the latest.

The subcommittee stands in recess.

[Recess.]

Chairman THOMAS. Thank you very much.

Ms. DeParle, I would like to ask you a series of relatively general

questions, and I know my colleagues may have some specific questions about specific programs. And we’re all anxious to try to understand as much as we can about the full impact of the consequences of what no one doubts is real, but, frankly, still a little

perplexed about how we wound up in this context, especially based

upon the information of a year ago that it was already paid for,

that it was a problem that was well in hand, and that GAO should

not be upset or was misleading in indicating we didn’t have a handle on it. Apparently—no matter how much it pains me—GAO may

have been more accurate than the HCFA Administrator.

But the things that we need to know, going back to my opening

statement about the concerns of beneficiaries, given the promise of

this program, which was a bipartisan initial effort to restructure

Medicare. And now the latest information—that even on a interim

payment system for home health care, the Congressional Budget

Office can’t score it because it contains programmatic changes that

HCFA probably can’t implement, given the policy that we now are

beginning to fully appreciate that you are desirous of putting in

place. My assumption is that it will require legislation.

But what I really want is to see if you can to this subcommittee

commit that no claim will be delayed due to the problems that

you’ve identified in the Year 2000 reprogramming. Can you now

make that statement, that no claim will be delayed, or are you not

able to make that statement?

Ms. DEPARLE. Mr. Chairman, I will commit to you that I’m doing

everything possible to ensure that no claim will be delayed.

Chairman THOMAS. But you can’t make the commitment that no

claim will not be delayed. That’s fine; I understand that. We just

need to know the context in which you are working.

I know you do not want to be before us with the testimony that

you gave us; you would much rather be in a different circumstance.

And I just think it’s going to be necessary, if you would, to provide

us with the other functions that HCFA considered postponing or

other alternative actions that you may have contemplated taking,

because my assumption is this wasn’t the first thing that you arrived at, and I do need to be able to at least provide my colleagues

with some assurance that that was the case, if indeed that was the

case.

[The following was subsequently received:]

HCFA’s Office of the Actuary projects that the anticipated delays in implementing

certain BBA provisions due to Y2K activities will increase Medicare expenditures

by approximately $150 million (or 0.01%) over five years. As you know, after a reconciliation bill is enacted, the actual effect of the provisions may differ from the savings estimated when the law was passed. There may be changes in the implementation of other BBA provisions that could have a financial impact on the program.

These impacts are not reflected in the estimate of Y2K-related delays.

52

Chairman THOMAS. I would very much like to have—and this

subcommittee would—your guarantee that the beneficiaries will

not be harmed by the failure to manage the computer system.

The one thing that I guess I’m most concerned about—and if you

would just spend 30 seconds or so, and if you need to elaborate in

writing, I would—because the current national law includes a limitation on beneficiary co-insurance liability for outpatient services.

For so long there was a charade going on about how much was to

be paid, and, frankly, beneficiaries were paying a far greater share,

and it was all ultimately acknowledged and we put in place a

changed process.

If, in fact, we freeze it now, since it’s now known that in fact that

process was not a fair and equitable one, are we saying that we’re

going to sustain that for a while longer? Because that clearly

means that it’s now clearly understood that beneficiaries are paying a greater share than probably they should. My guess is that’s

going to stay in place.

Ms. DEPARLE. Yes, sir. As you said, I’m not happy to be here

today talking about this, and of all the things to have to delay, that

change which we worked so hard together with you to put into

place. It is very disappointing to me that we’re going to have to

delay it. But, yes, sir; I think that is right.

Chairman THOMAS. And of course my concern is that you have

completed the mega-regs—so-called mega-regs—on the

Medicare+Choice, which means the timeline goes forward for plans

to be able, under those regs, to offer it. Are those deadlines planning to be met?

Ms. DEPARLE. Yes, sir.

Chairman THOMAS. Which obviously creates the concern—and

the gentleman from California placed it in his perspective of concern—that plans will be out in the marketplace actively marketing

product at a time that HCFA has indicated that the aggressive,

full-court press educational program will not be going forward, that

it will be narrowed to five States initially—and I think folks should

focus not on the number of five, but on the percent of Medicare

beneficiaries covered by those five States—in an attempt to try to

move it in equal segments of the Medicare population.

But how are we expecting beneficiaries not within those States

that are going to be aggressively educated to be able to make decisions? What is it that you’re planning on doing for those folks?

Ms. DEPARLE. Well, as I said, we have an eight-point Medicare

education program that’s displayed over there on the poster. In the

five States where we’re going to be doing the full system all at

once, there are 5 million beneficiaries, and we chose those States

based on high, low, and medium penetration of HMO’s, and then

we’ll keep moving around the country. But for everyone this fall,

all beneficiaries will get a bulletin that we’re currently in the process of focus group testing—and then we want to consult with your

committee staff about it. It will notify them about the new changes.

It will offer them a toll-free number that they can call that will just

give them——

Chairman THOMAS. Let me ask you a question about that notification, because I know the President just this week instructed

HCFA to mail to 100 percent of the Medicare beneficiaries, I beVerDate 11-MAY-2000 12:56 Aug 10, 2000 Jkt 064533 PO 00000 Frm 00056 Fmt 6633 Sfmt 6602 E:\HEARINGS\63454 pfrm08 PsN: 63454
53

lieve—and correct me if any of my statement is wrong—a notice

about the ability to subsidize a portion of the premium if you are

a qualified Medicare beneficiary, which affects maybe 10 percent of

the Medicare population. Is that going to be a separate mailing?

Ms. DEPARLE. No, sir. I think what he was talking about is that

he has asked us to do a better job of notifying beneficiaries about

their potential eligibility for this. Our plans are to do that in two

ways. One is we will include a sentence in the bulletin that I was

talking about that will go out to all beneficiaries, and the other is,

through the Social Security system, which is, after all, how most

beneficiaries sign up for this. We plan to put a notice on the premium payment statements that go out every year.

Chairman THOMAS. Okay.

Ms. DEPARLE. So it won’t be a separate mailing.

Chairman THOMAS. All right. Now one of the things that I

know—our colleague from Connecticut provided me with what was

an example of how the Connecticut notification process worked

with seniors. When we were out in Minneapolis-St. Paul for the

Medicare Commission, we received a booklet—and there was some

advertising to defray costs—but the point of any of this material—

and I’ve got it, and I think you’re probably familiar with it, but

we’d like to show it to you. Here it is. This is the booklet, and it

does provide, you know, as you go through it, a pretty adequate

comparison on a chart.

[The booklet is being retained in the Committee files.]

And I know the Senators were concerned about a chart in the

legislation which lets you make comparisons——

Ms. DEPARLE. Yes.

Chairman THOMAS [continuing]. And the gentlewoman’s New

England, very frugal approach to giving options, but, nevertheless,

providing, you know, a full choice. And this is going on without any

national, or at least minimal national role. Is that correct?

Ms. DEPARLE. Well, not quite, sir. We are providing through the

Medicare.gov Internet site that plan comparison information. And

in addition, the bulletin that I mentioned that we are sending out

to all beneficiaries will have a number that they can call to get a

printout of the plan comparison for their area if they want to order

it through the mail. So we will be able to provide it to them that

way.

I was with Congresswoman Johnson last week in Connecticut

and I also saw the materials, and they were provided by one of the

State health insurance advisory programs, also called ICA’s—the

one for Connecticut. They are one of the pieces of our information

campaign. We will be helping them to make that information available as well.

Chairman THOMAS. On the Quimby notification, is this something that you had planned? Was it not something you had

planned? Is there a cost involved to it beyond what you had

planned?

Ms. DEPARLE. No. It is something we had planned. The draft of

the Medicare handbook that I believe you saw had a section in it

about it, and we had planned to notify beneficiaries about it

through that process.

54

Chairman THOMAS. So the President’s announcement was basically staged for the purpose of making it appear as though this was

something he was concerned about and highlighting it as a separate item, but in fact it’s something you were planning on doing all

along. You know what I’m trying to say. I can try to soften it. But

you see it’s very difficult when you’re telling us you’re not going

forward with programs, and we see a Rose Garden shot of the

President announcing yet another new initiative by the administration which appears to require resources, either redirected or dedicated that hadn’t been planned, to achieve a particular goal, when

we look at programs that are statutory not going forward.

And a number of my colleagues have almost required me to ask

you—it’s going to be necessary for us to know in what context the

cost of these numbers of initiatives—and I know the President has

indicated an initiative with HIPPA to go forward in analyzing the

oversight responsibilities to ensure that plans are satisfying their

requirements under the law. Was this something that was planned

as well, and he just announced it in a way that it looked like it

was something special? Or was it in fact a new assignment? Do you

know what I’m talking about?

Ms. DEPARLE. Yes; and you and I have discussed this and I understand your concern. What I want to emphasize to you is that my

commitment and my priority is to implement the Balanced Budget

Act, and I agree with you, Mr. Chairman, that that is not a political law. It is, in fact, a major step forward for the Medicare program and in fact for other programs that we administer, and I can

assure you that my full attention is being devoted to that.

Chairman THOMAS. Well, the appearance is is that it’s not, and

that’s the problem that we’ve got to deal with. And rather than try

to ask you a series of Y2K questions—I guess I’ve given in to that

phraseology—you heard the testimony of the previous Administrator. It frankly either was not grounded in fact, or something serious has happened between May 1997 and today about the resources available to HCFA to carry out the job and, in fact, the job

itself and the timetable associated with carrying out that job.

Do you want to make any statement at all in regard to Mr.

Vladek’s testimony—that it was 20 million lines of code, 8 million

had been done by the time the August 1997 letter was written,

with 12 million remaining, December 1998 was going to finish it,

and the funding was available from 1996 to 1998, so that no one

should be concerned about the Y2K question?

Ms. DEPARLE. Yes, I would like to comment on that. I’ve read the

testimony myself, and if you read the testimony closely, right after

the part that you quoted there is a discussion of GAO’s recommendations to us which included hiring an independent

verification and validation contractor to go out to our contractors

and to look, frankly, inside HCFA to make sure that we were doing

the kind of planning and that it was really all there to move forward on the Year 2000. We did that last fall, and that contractor

went out and visited all of our sites around the country that process Medicare claims and discovered that the assessments that had

originally been done were not in the right ball park, that really

we’re talking about renovating more like 50 million lines of code.

55

I can tell you that on the internal code that we have to renovate,

we’re well along the way towards testing. We still have a lot of

work to do, and this is a problem that I think was found to be a

lot more difficult than had been thought. The GAO has been very

helpful in that regard. They made, at that hearing that you’re talking about, some recommendations. One of the first things I did last

fall was sit down with Joel Willemssen and Gene DeDaro of GAO,

who gave me a number of suggestions, many of which I’ve moved

forward to implement. And I apologize for the fact that this problem has turned out to be a lot bigger than I think anyone thought.

Chairman THOMAS. No; I know how difficult it is for you. Maybe

resent is too strong a word, but I know the concern that you have,

and the fact that you have to appear before us to discuss this, but

it’s a fact of life. And my concern is, to what extent is this a failure

to solve a management problem in the overall context? My question

is, how are you doing on keeping your focus on core responsibilities?

I think you’ve answered the non-legislative initiative focus, that

it isn’t that much. But I wish the press would put it in the context

in which it is delivered, then—that is, they’re going to do it anyway, but I thought the Rose Garden would be a better place to announce it and maybe we can get a bigger spin out of it.

I am concerned about resources being focused for that purpose,

and it goes back to some of the concerns that we had—all of us

did—as we discussed putting this package together, where HCFA

changes from a billpayer—now we’re worried about paying the bills

because you’re so computerized—to a kind of a consumer-oriented

education program. How is the skill mix among HCFA employees,

in part a concern about not being able to meet the deadlines? Is

that part of the concern?

And then, lastly, because I just want you to go ahead and talk

about it awhile, is the vulnerability of HCFA. We had the MTS

problem; for the record, I’d like you to tell me how much money

was spent on that. Did we gain anything at all of positive leverage

going into Y2K, or did you just have to drop that? And to the extent you were trying to put your eggs in that basket, did that perhaps give you a problem coming out the other side?

And then deal, finally, with the $23 billion that has been found

to be waste, fraud, and abuse. I think it’s better to say inappropriate payment or inability to determine appropriate payment. If

you’re fixing the Y2K problem, are we going to be able to address

the problem associated with the GAO study on our inability to account for that? Is that a bonus that we’ll get, perhaps, out of waiting beyond the current statutory time for putting programs in effect? And I’ll just give you a minute or two to react to that.

Ms. DEPARLE. Well, I think there’s no question that the Year

2000 problem has caused a focus and a coordination at the Health

Care Financing Administration that perhaps wasn’t there before. It

has forced us to sit down and—for instance, you asked me about

decisions made on the various systems that had to be delayed.

When the independent verification and validation contractor first

said to me—and the language they used was, ‘‘You must stop parallel development,’’ which in their parlance means stop telling the

56

contractors to do all these changes at the same time you’re telling

them to renovate the code.

And what we had to do was sit down as a group—the policy people, the information systems people, the whole group of us—and decide what it was possible to get done. You had to balance the risk

that you wouldn’t be paying claims at all against our strong desire

to get all of the changes in the Balanced Budget Act implemented,

and I think it has forced a management focus that probably wasn’t

there in the past. So, yes, sir; I would like to think that is an advantage of this.

Chairman THOMAS. Let me interrupt you briefly on that point

and just to explain that I know—and GAO was going to do this—

we’re going to go through the number of items that are currently

on-line from—that’s a quantitative analysis. At some point you had

to look at the magnitude of programs, and I am a bit concerned

that it was probably—obviously, from Congress’ point of view—way

too unilateral in terms of the decisions.

I would have appreciated, and I think my colleagues would have

appreciated, given the manner in which this legislation was put together and passed, an earlier awareness, a prioritization, perhaps,

shared with some of us, and an earlier notification so we could

have begun some of the changes that are necessary. And that does

concern me, about an unwillingness to share earlier if you did

know about it and a prioritization of programs so that, given the

very brief time left in the legislative process, we’re not going to

have to—which we are now—ram through something on the interim payment system for home health care and whatever else we

find out we need to do. That does concern me.

Ms. DEPARLE. Yes, sir, and it concerns me, too, and I regret that.

When I first heard about this, I did mention to you that I thought

there was going to be a problem coming. I regret that you had to

get the details from a leaked memorandum. My plan had been to

come up and discuss it with you and your members of this committee, as well as other Members of the Congress, and I didn’t get

to do that at the time I would have wanted to, so I’m sorry for that.

Chairman THOMAS. Thank you. And I am concerned that the last

item was the $23 billion of inappropriate payment. Are we going

to get a bonus? Do you think that what you’re doing on the Y2K

is going to be of some measurable assistance in pinning down what

it is and how it works that allows the GAO or the OIG to say

there’s $23 billion of inappropriate payments?

Ms. DEPARLE. Well, let me say this. The efforts that we’re making and that this year got us a qualified statement from the Inspector General on our financial statements will not stop, and I don’t

expect them to be interfered with at all by the Year 2000 efforts.

We are putting a major focus on getting our house in order from

an accounting perspective and bringing the claims error rate down,

and that is one of my top priorities.

Chairman THOMAS. The gentleman from California—thank you

very much.

Mr. STARK. Thank you, Mr. Chairman. Could you just quantify

for me this Year 2000 thing? On a percentage basis, how much of

the Year 2000, quote, ‘‘problem’’ is a problem of changing Government-operated computer systems, and how much of it is a problem

57

of the contractors—the beltway bandits who are doing new implementation work and working for the intermediaries who don’t have

enough personnel to do their own work? I’m not sure I can identify

what the problem is.

Do we have Federal computers that need a lot of reprogramming,

or is it the fact that the intermediaries, the people you contract

with, can’t hire enough people because the people are all busy

doing Year 2000 work elsewhere?

Ms. DEPARLE. Well, both our internal systems and our external

systems need work. We’ve identified around 25 mission-critical systems that are internal to HCFA.

Mr. STARK. Just tell me, is it 25 percent internal and 75 percent

external, or 50/50? Give me an idea.

Ms. DEPARLE. It’s about 25/75 and——

Mr. STARK. So the major part of the problem is with outside contractors just having enough personnel to do the job. You can’t hire

any outside computer experts? You can’t find them?

Ms. DEPARLE. Yes, and they’re working hard to try to find the

people, and I want to thank the Congress for providing us with the

resources to do that.

Mr. STARK. Okay. Now, speaking of providing you with the resources to do that, there’s some testimony that’s been submitted for

the record only. I can’t ask them the question, so I’ll ask you. This

American Association of Health Plans, they’re bleeding in their testimony to the fact that they’ve paid their $85 million, or whatever

it is, to HCFA for this implementation of the education component

of the new Medicare+Choice program. They say that last year

HMO’s and their enrollees represented 14 percent of the program,

and they shouldered 100 percent of the cost of the Medicare+Choice

information program at about $95 million, right?

Ms. DEPARLE. Yes, sir.

Mr. STARK. Now my calculations would say that they also avoided 14 percent of the graduate medical education burden, and they

also avoided about 14 percent of the disproportionate share burden.

Each of those would be about $1 billion. So, basically, for $2 billion

that they didn’t contribute—that all the other providers have to

pay—they are complaining about $100 million. Is that a reasonable

balance to their argument? Shouldn’t they have paid into graduate

medical education and the disproportionate share costs as well?

Ms. DEPARLE. Well, as you know, one of the policies in the Balanced Budget Act was to divert the graduate medical education

payments so they go directly to the teaching hospitals, and we’re

in the process of implementing that.

Mr. STARK. But, I’m saying that their vocal complaints about

coming up with $100 million when they’ve saved billions not paying

their fair share into the system, not to mention uncompensated

care and other costs that they avoided needs to be considered in

that light. I just wanted to make sure that we get their testimony

on the record and that we straightened out the accuracy of their

perceived problem.

I’m always interested in Golden Rule and all these other great

American patriots. I understand you had a meeting yesterday. Did

you invite all the insurance companies in the world to come and

evidence their interest in Medicare savings accounts?

58

Ms. DEPARLE. We invited everyone that we had heard from, and

we asked Members to let us know, too, of companies——

Mr. STARK. How many showed up?

Ms. DEPARLE [continuing]. That might be interested in offering

a demonstration.

Mr. STARK. How many showed up?

Ms. DEPARLE. I believe that representatives of about 11 different

possible plans came to our meeting.

Mr. STARK. And did any of them say they were going to offer

MSA’s, outside of Golden Rule, who ought to be disqualified on ethical grounds?

Ms. DEPARLE. I don’t think anyone has made a firm commitment

yet. They asked a lot of questions about the payment schedule and

all of that, so——

Mr. STARK. You want to bet me on how many are going to offer

them? Do you want to make a guess?

Ms. DEPARLE. I’m not a betting person.

Mr. STARK. OK. [Laughter.]

Are you going to have some regulations on the pharmaceutical

managed care benefits in terms of requiring them to disclose to

beneficiaries where they limit pharmaceutical options or where

there are incentives for the physician or the plan to substitute one

drug for another? This is a very popular benefit that is being sold

as an inducement. I think that without further regulation the beneficiaries could be disadvantaged. Are you considering regulations

that would require a more honest, or more detailed, description of

the types of problems beneficiaries could run into? Have you any?

Ms. DEPARLE. Well, it’s not in the Medicare+Choice regulation,

but I believe the kind of thing you’re talking about should be reflected in the adjusted community rate. Now if you’re asking to

make that available to seniors, I don’t think——

Mr. STARK. I want Senator Dole to know that Viagra isn’t going

to be covered or is going to be covered in his plan. So, before he

signs up he knows what they’re going to pay for or not going to pay

for, or that they’re going to substitute aspirin as a generic alternative. I think those kinds of disclosures would be important and

ought to be required. You can’t put them in your managed care regulations?

Ms. DEPARLE. Well, the regulation is already out, but we will be

happy to work with you, Mr. Stark.

Mr. STARK. Okay. Excuse me, but the chairman probably isn’t

going to indulge me much longer here.

Chairman THOMAS. No, no. Go ahead.

Mr. STARK. Go ahead? All right.

The Balanced Budget Amendment got us enough money to extend the trust fund another 10 years. We extended the Medicare

trust fund, and Chairman Thomas is trying to make it solvent for

all time and hopefully you’re going to recruit me to help him. But,

we did hear that if we saved the budget surplus, the $650 billion

estimate, it would take the Medicare trust fund out to 2020.

Now we’ve got a higher budget estimate, maybe another $1 trillion in surplus, that would probably take Medicare past the date

of the bipartisan Commission’s target of 2030. If we saved all of the

CBO surplus for Medicare, how long would we extend the trust

59

fund? Would you guess? Do you know, or would you find out and

submit to us how long the Part A trust fund would be protected?

In other words, we don’t have to make any changes in Medicare.

We could just keep going and paying the good providers and providing the benefits, if we save the surplus and didn’t spend it in

other ways.

Ms. DEPARLE. I’d be happy to ask our actuaries and provide you

with an answer.

[The following was subsequently received:]

The HCFA actuary estimates that applying the Federal budget surplus, as estimated by CBO, to the Medicare Trust Fund through 2008 would extend its solvency

through 2033.

Mr. STARK. Thank you, Mr. Chairman.

Chairman THOMAS. Well, that is our concern, paying the good

providers and my concern is that the window that’s discussed

might even be a quarter or extend to four months in the year 2000

of not paying providers, since we’re so computer oriented. My assumption is you do not want to shift to a pay per payment structure, and that’s just one additional question. The gentlewoman

from Connecticut I know wishes to inquire.

One of the more high profile computer types in the administration is the Vice President, who has an ongoing initiative called the

Re-inventing Government initiative. My understanding is that

HCFA submitted a response or a report to the Reinventing Government operation of the Vice President. Is that correct?

Ms. DEPARLE. Well, I don’t know about a report. I recently met

with the person who’s in charge of that over there to talk about

that. What they wanted to know was about our Government Performance and Results Act objective and how we were doing on

meeting them; things like reducing diabetes, things like that.

Chairman THOMAS. Would that bring up the year 2000 question?

Ms. DEPARLE. We did have a discussion of it, yes.

Chairman THOMAS. Do you have it in writing?

Ms. DEPARLE. I can get you the paper that I used to talk from.

Chairman THOMAS. How long was it?

Ms. DEPARLE. I didn’t talk to him about—I didn’t have a written

thing about the year 2000.

Chairman THOMAS. No, but how long was the paper in discussing

HCFA reinventing Government?

Ms. DEPARLE. It was mainly charts with the GPRA objectives

and where we were with meeting them. It was a few pages.

Chairman THOMAS. A few pages. So, it wasn’t a major presentation. I mean, it wouldn’t do much good for the subcommittee to

look at it to see what’s going on in terms of innovation and redirection.

Ms. DEPARLE. I think this might be a different kind of report

than what you’re thinking of, because they have designated HCFA

as one of the reinvention laboratories, but what we were supposed

to do was to identify objectives—outcomes, objectives for our programs; things like increasing the number of children who are enrolled in Medicaid and the Children’s Health Program, and what

I did was just walk through where we were with each one of those.

I’d be happy to provide it to you.

60

Chairman THOMAS. That’s another administration high profile

initiative. They’re reinventing Government, and, obviously, HCFA

would be, in my opinion, in the center of a number of key individual programs where reinvention of Government would be critical, but if the report was just a couple of pages, that probably

doesn’t focus on what we want to focus on.

The gentlewoman from Connecticut.

Mrs. JOHNSON of Connecticut. Thank you, Mr. Chairman, and

welcome, Administrator DeParle. First of all, I just want to open

by saying, I appreciate your accomplishments in getting the agency

focused on the year 2000 problem. It is very impressive to me how

focus matters, and your work to actually look and see whether the

plan that had been made was being implemented has brought focus

and, therefore, an effective action to the service of the agency and

to the service of all of us, and I appreciate that. I think the example that both you and Commissioner Rosotti have set, really being

able as administrators to focus on key issues, is very refreshing

and certainly all the people of America are going to benefit from

your excellent leadership on this issue.

I have been particularly concerned, as you well know, since I believe focus matters, in focusing on the problems that the home

health industry faces as we make significant changes in how we

pay for home health services in order to address some of the fraud

and abuse problems that we know exist in that sector. Our rationale was very good. Our execution is poor for a lot of reasons, not

the least of which is the availability of appropriate and accurate information. Be that as it may, regardless of the causes, the decision

to delay the PPS system is going to have catastrophic effects in my

region, because the interim payment system is going to be so catastrophic. I appreciate the time you have given to this. I appreciate

your understanding of how New England is going to be disadvantaged. I know the testimony of my colleague from the Senate, Senator Collins, and Mr. Pappas did not break any new ground for

you. I appreciate your coming up and hearing it directly from my

agency people, because, indeed, they were eloquent, but I need to

ask a few questions to see if we can get some of the issues straightened out and moved forward.

First of all, have you notified the fiscal intermediaries about the

change in date for implementation of the surety bonds?

Ms. DEPARLE. Yes, I believe we have.

Mrs. JOHNSON of Connecticut. Well, they seem to feel that they

haven’t received the level of official notice they need. There was a

two-week period in which the notice was to come. The period ended

last Friday, and at least the intermediaries in my State have not

received notification. Consequently, they are not able to relieve the

small agencies of this obligation.

Ms. DEPARLE. Let me look into that immediately. As you know,

there are six of those intermediaries, and I think I could pick up

the phone and call them myself if I need to. They should know by

now that they don’t have to be requiring that, and, in fact, as you

know, in our meeting, all of your agencies had already gotten surety bonds.

61

Mrs. JOHNSON of Connecticut. Right. So, but if you could make

sure that that notification is there, so that they don’t keep running

into this, sort of, odd barrier.

And then the second thing that I would like you to consider is

announcing or in formal writing indicating that you do not intend

to use the resources of those surety bonds to cover any liability and

that you would urge the companies that offered them to simply extend their useful life, because they aren’t going to be called on until

the effective date of the regulation. This is very important, because

I know you don’t have the legal authority for us to be able to allow

consideration of the costs of these bonds, but, perhaps, if it was

very clear that you weren’t going to use—to reach into those bonds

for liability purposes, we could get the private sector to think

through extension and help us accommodate the cost more effectively or more fairly, I should say. This would provide a certain

modicum of relief to agencies that have, in fact, played by the

rules, and one of the problems, always, in deferring implementation

dates is that there’s a lot of ramifications, and the people who are

hurt the most are the people who have tried to comply, and since

the New England agencies are going to be so heavily damaged by

our proposal anyway, they have also put the money into the surety

bond, and I think we have an obligation to try to do that, and I

know you share that. So, I just put those two suggestions on the

table.

Then, I want to raise the issue about the dramatic changes in

home health spending that have occurred since we passed this bill,

and I would like to ask for your help in looking at how we can use

those dramatic changes and expenditures to rewrite the 15 percent

cut that goes into effect automatically as we move along, so it won’t

go into effect if we make the savings.

And, secondly, how we can use that dramatic cut in spending and

really beyond, I think, our wildest imaginations to find a solution

to the interim payment system since now it’s going to be in place

for such a long time. For example, maybe we could simply change

the 1994 date. That would help a lot, if we had a more recent cost

date. We’re into 1998; we’re going to be in 1999; we’re going to be

in the year 2000. So, since the system is saving more than anticipated, I think we have to look at mechanisms as simple as that

change in date, because I would hope that your freeze on computer

changes due to the year 2000 would not extend to that level of simple action. My understanding is that there is a difference between

your ability to accommodate that kind of change and your ability

to accommodate more complicated changes.

Ms. DEPARLE. Yes, and I want to work with the chairman and

with the committee on alternative proposals, and we’ve been working on some ourselves. I do want to mention, though, that the base

year is a critical thing from a system standpoint. The base year is

one of the things that is very difficult to change, but some of the

other ideas that you and I have discussed are things that could

operationally be done, and I want to work with you on that.

Mrs. JOHNSON of Connecticut. Well, the reason the base year has

come to my mind is because it’s at least simple, and computer-wise,

this is easy to implement.

62

Ms. DEPARLE. I agree, Congresswoman—it seems like it should

be, but my understanding is that changing the base year is not

simple from the standpoint of doing this formula.

Mrs. JOHNSON of Connecticut. Okay, then the other thing I did

want to just get to briefly is this issue of the information. If there’s

one thing that I’ve been saying at every senior citizens’ center I

have been in since we’ve passed this bill was that the Government

would provide you with the kind of information like we have always provided you on Medicare insurance plans, and we would

guarantee that it would be simple, intelligible, and accurate, and

you would be able to make a decision that was in your interest.

Now, I appreciate the decision that you’ve made, but I think

there is so much more we could do. For instance, if you’re going to

send them some kind of two-page letter, why don’t you from every

area include the information that the area agencies have already

developed. I mean, you print it on both sides, and it’s five pages.

If you’re going to put the money into postage, why don’t we in

every State at least send them that much; that this is interim because it took a while for the regulations to be written; it took a

while for the plans to get in, and by next year the plans will be

more solid and then we will send you a formal handbook—which

I think makes absolutely good sense anyway. But we have good information in Connecticut. I can’t believe every State doesn’t have

good information. They’re just not getting it. So, in addition to this

information, the same organization, the Area on Aging, using Federal money from your office, also have an excellent handbook about

how do you decide whether managed care is for you or not? What

are the questions you should ask? How do you go about thinking

about that? And, frankly, I think a mailing in a brown envelope

that provided these things would be well worth the cost and much

more important than funding some of the publicity efforts that

you’re planning to make. I mean, I know those are important, but,

after all, we aren’t reaching the whole population; we’re reaching

the seniors.

The other thing I would suggest is that you include it in a social

security mailing. Why can’t it go with whatever Social Security

sends out regularly? So, let’s look as a Government across lines and

get at least the information we have out, because I can tell you

that seniors desperately need it. Has there been any cross-agency

information——

Ms. DEPARLE. There definitely has. We are working closely with

Social Security, and we are working with the Area Agencies on

Aging such as the one that we met up in Connecticut, and every

beneficiary who wants comparison information will be able to get

it. The difference is that the full handbook with all of that information tailored to each area wouldn’t be going this fall. For next year,

the first open enrollment period it will be there.

Mrs. JOHNSON of Connecticut. But I would ask you specifically to

change your plans about this letter that’s going to go out to the

States where you’re not going to send the booklet, and, instead,

mail the material we have with an explanation that this is just a

rough cut or whatever you want to say. Honestly, I don’t think a

letter of the generic type that you’re describing is useful when we

63

already have such good information that you could reproduce and

send. So, I would urge you to reconsider that plan.

I also am concerned about your plans to train trainers. I have

talked a lot recently with who’s available to help seniors understand this, and I think we’re really nuts to follow the kind of process that we have in the past as useful as that may be as an auxiliary, but we really need now to provide an educational—to pay people who are in the business of health benefits to be able to explain

this and present this impartially, and I think, really, we ought to

be looking to the independent agents and bringing them in, and

our money would be far better spent that way than the millions

that we’re going to put out there for other groups who are not professional at this business and may not be objective; that worries me

a lot. I see a lot of biased stuff out there. So, I would ask that you

look at the independent agents and look at some way of using

them. They do this professionally. Furthermore, a lot of this for

seniors also has implications for their estate planning or they’re

thinking about their future, and you could also, then, get information out there about long-term care options which even for a

healthy 65 or 70-year old is still a viable option. So, I’m very concerned about it. As long as we’re going to delay, let’s try to do a

better job than we might have been able to do if we hadn’t had to

delay.

So, there are a couple of other issues that I’d like to raise, but

those are the top of my list. Thanks.

Ms. DEPARLE. Thank you.

Chairman THOMAS. And let me before I recognize the gentleman

from Nevada indicate that the concerns that we have in terms of

the way in which this program is being presented—and I know

that we have discussed this—but, for example, someone who is a

spokesperson for the Department, Mr. Michael Hash, in front of the

Senate Special Committee on Aging on May 6th—and I didn’t want

to take it out of context, but I wanted to look at the full context

of the statement that was made, and you were kind enough to provide the transcript with me—and it concerns me that attitude and

approach of conveying these options has been almost consistently

in a hedged or negative environment. At least the materials that

we’ve looked at has been a neutral environment where you simply

run a chart and maybe that’s one of reasons the Senate put such

emphasis on having a chart because it’s harder to spin a chart. For

example, he says to the Senate subcommittee—‘‘They—meaning

the seniors—need to know that their ability to obtain private supplemental Medicare insurance, if they return to the fee-for-service

program after just enrolling from a managed care plan may not be

on the same basis as their original opportunity to get those private

supplemental plans without the existing conditions and without

other limitations.

Whether it’s in the context of the full blown Medicare Plus Program in which there’s a full opportunity to go back to their original

program or whether it’s even in the interim in which they have a

period of trying a Medicare Plus Choice in which they’re guaranteed to go back to their previous with no preexisting condition. This

is from someone who is supposed to be on the team explaining the

program. Now, either he doesn’t understand what was put into law

64

or there’s an attempt to create an informational pitch that now

you’ve got this, but, remember, you may be out there in the cold.

There may be preexisting conditions which won’t allow you to go

back to the previous plan when you and I know we worked to make

sure that there was an initial opportunity with no fear or danger

of a lost position at all in trying this program. These are the kinds

of things that create the impression that we’re not all working together.

Ms. DEPARLE. Well, I understand your concerns there, and, as

you say, we actually made improvements in that particular situation in the Balanced Budget Act.

Chairman THOMAS. But nowhere did I find a qualifier in his explanation of the program. In fact, repeatedly over pages—and I’m

going to put it in the record—there was a negative connotation that

there is a downside to anyone making a choice. There’s nothing

wrong with presenting clear options in a way that you can look at

them. I was looking for somebody saying, ‘‘But you know you could

get a paid prescription this way. Or you know that you could get

some additional services traditional Medicare doesn’t offer.’’ I

mean, I saw no ability to put any positive spin on this but rather

a continual repeat of the downside of the option of

Medicare+Choice, and, as you know, in the booklet that was going

out, virtually every page was a reminder that you can stay in the

current program and then a repeat of the dangers that may be

present in trying to make an option, and I understand the concerns

that somebody might have, but the concerns that the gentlewoman

from Connecticut and a number of us have is that this material be

presented in at least a neutral fashion, and I think so far there’s

quite a bit of evidence on the record both printed and stated that

indicates that not everybody believes, maybe, that that’s the way

it ought to be, and maybe it’s not intentional; maybe it’s just living

in the old environment and not learning the new, but isn’t that

part of the management problem of the reculturalization of HCFA?

Ms. DEPARLE. Yes.

Chairman THOMAS. And if you can’t do it, we’ll find somebody to

do it.

Ms. DEPARLE. Well, Mr. Chairman, I think that this is the biggest, most ambitious educational campaign that we’ve ever attempted, and I think that we’re going to have to work together to

make it the best it can be. I believe we can do that, and I agree

with you that our role is to be neutral.

Chairman THOMAS. My problem is that testimony as recently as

May 6th in no way, I believe, in an objective analysis could be believed to be neutral. The gentleman from Nevada.

Mr. ENSIGN. Thank you, Mr. Chairman. I have a couple of different questions related to BBA and its implementation. The first

one has to do with the medical nutrition therapy study that’s being

done by the National Academy of Sciences. In the Balanced Budget

Act, we had directed that that would be a stand-alone study; that

the National Academy of Sciences would determine what the benefits of nutrition therapy are and whether it’s going to cost or save

money. From what I’m hearing, the National Academy of Sciences

wants to include the monies from the BBA in one of the studies

that they’re already conducting. I just wanted to ask you what the

65

status is on that and whether or not medical nutrition therapy is

going to be a stand-alone study.

Ms. DEPARLE. My recollection, Congressman, is that the National

Academy was conducting the study, and I thought it was a standalone study. I think that we were going to provide them some resources to do it. Our office of research has been working with them

on——

Mr. ENSIGN. Can you make sure that it’s going to be a standalone study, because that’s one of the concerns that we have been

getting feedback about; that it’s not going to be a stand-alone

study. So, since you’re on the record today, can I get your assurance that it will be a stand-alone study?

Ms. DEPARLE. If I understand you correct, sir, yes, I think you

can, and I will look into it and get back to you.

Mr. ENSIGN. Okay, I’d appreciate that.

[The following was subsequently received:]

The BBA did not require a separate study on nutrition therapy alone; rather, it

required a study on several prevention-related topics including nutrition therapy.

Specifically, Section 4108 of the BBA directed the Secretary to request the National

Academy of Sciences (in conjunction with the U.S. Preventive Services Task Force,

as appropriate) to analyze the expansion or modification of preventive or other benefits provided to Medicare beneficiaries. The study will consider both the short and

long term benefits of such expansion or modification, and the costs to the Medicare

program. The Secretary is to report to Congress on the study’s findings within two

years of the BBA’s enactment. The BBA requires that the study consider Medicare

coverage of at least the following benefits: (1) nutrition therapy, including enteral

and parenteral nutrition and provision of services by registered dieticians; (2) skin

cancer screening; (3) dental care; (4) routine patient care costs for beneficiaries enrolled in approved clinical trials; and (5) elimination of the time limit on coverage

of immunosuppressive drugs for transplant patients. The study is being conducted

by the Institute of Medicine (IOM), the health branch of the National Academy of

Sciences. HCFA’s contract with IOM for the study is currently under development.

Mr. ENSIGN. The second question has to do with the $1,500 cap

on outpatient rehabilitation services. From what I understand, implementation of the cap could be a problem with all of the Y2K

computer problems, the Y2K problems and all that. Some of the

providers are concerned, or at least have expressed concern to me,

that if there are Y2K problems, they are going to be penalized because of the $1,500 therapy cap—in other words, it will be difficult

track. What provisions are being made for the $1,500 cap?

Ms. DEPARLE. It’s my understanding, Congressman, that the

$1,500 cap was just a function of the Balanced Budget Act, and I

don’t believe that there should be any problems related to the year

2000 on that, but I just left, before I came up here, a meeting with

100 different provider groups to talk through some of the year 2000

issues, and if this is one of them, we’d certainly be happy to work

with them on it.

Mr. ENSIGN. Well, if you have one provider who doesn’t have

their computer problems worked out and you have another that

does, so there’s no sharing of the information through HCFA, are

they in violation? Would they get into fraud problems? Some of the

providers are afraid that there would be a fraud problem at this

point. So, is the $1,500 cap going to be in place year 2000?

Ms. DEPARLE. Yes, it’s my understanding that it will be.

[The following was subsequently received:]

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No. The $1,500 cap on outpatient physical therapy will be delayed by Year 2000

problems. This provision was a part of the proposed physician fee schedule regulation that we recently published, but there are systems barriers to implementing the

cap.

Mr. ENSIGN. Okay. Also, I want to make a comment about what

you had addressed earlier and that was talked about earlier related

to the President’s proposals. You don’t think that those proposals

are taking away a lot of resources; that it’s a fairly minimal

amount. Just from my own experience being in management—and

I was not the top but I was in upper-level management—I can tell

you as a person in that position similar to the position you have

been in, that when the CEO, in this case, the President, says something, that everybody jumps. In other words, if he puts down an

initiative and there are a lot of resources, there is nothing else in

people’s minds except making sure that his wishes are carried out.

That’s normal in any company and in this case because he’s kind

of the big cheese of all of the administrative functions, if the President says something, everybody jumps. So, I would not minimize

the amount of work that’s probably being done to make sure that

his initiatives are carried out. I know you’re in a difficult position,

really, to comment on this, but it is something that I think the

President—as a warning to the President, that he should be careful

of, just like any CEO or just like a Member of Congress. I have to

be careful of what I say to my staff as a casual comment, because

they’ll put a lot of resources into something I didn’t intend for them

to put resources into, and the President needs to be very careful

on what he says in the same regard.

Ms. DEPARLE. Well, with all respect to the President, I think if

you ask my staff what they’re more conscious of on a day-to-day

basis it is my Balanced Budget Act implementation chart and

where are we on this reg or that reg? I think they’re very—I’m not

sure they’re jumping around—but I think they’re very conscious of

that being the priority, and the Medicare Education Program being

the priority, and combating fraud, waste, and abuse being a priority and dealing with this year 2000 problem.

Mr. ENSIGN. Speaking of the fraud, waste, and abuse; if we had

hypothetically—if we had a private company that was a provider

and they failed to reimburse—let’s say, one of the insurance providers, one of the managed care companies—and they had failed to

reimburse three or four months—similar to what HCFA may do if

they have problems with their updates. Would it be considered

fraud for that provider? In other words, the Department of Justice

has been fairly heavy-handed in its calling honest mistakes fraud.

I mean, we’ve been hearing a lot about that in the news and getting a lot of feedback from, I think, a lot of Members of Congress’

offices about the heavy-handedness right now of the Department of

Justice between what it calls fraud and what are really honest mistakes. I guess, if they had a Y2K problem and it was three or four

months, could that be interpreted as fraud?

Ms. DEPARLE. No, I don’t think it could, but I think it is something that we all have to be concerned about. I know of at least

one instance where a managed care plan had a situation like that,

and we were looking into it, because you start to get concerned

about whether beneficiaries are going to get services. That’s why

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I want to work with the Congress to make sure that we deal with

this problem while we still have a year and a half to work on it

instead of waiting until the last minute.

Mr. ENSIGN. And could you address the whole fraud and abuse

issue? Mainly the fraud. From HCFA’s perspective, do you think

that the Department of Justice has been fairly going after fraud?

Do you think that it’s including honest mistakes in fraud or do you

think that it has been an even-handed affair?

Ms. DEPARLE. Well, it’s really hard for me to comment on what

they’ve been doing. I can tell you that I think law enforcement has

been an important participant in our efforts to make sure that

Medicare gets what it pays for, and I can cite a number of examples where that has been very important, not only in stopping some

pretty bad situations from occurring but also in deterring that conduct in the future.

I want to give you my perspective, though. From where I sit, administering this program, which includes your taxpayer dollars, I

want to make sure that it’s well managed and that we get what

we pay for. If we overpay a provider, we should get the money

back; I think everyone understands that. But I don’t want to punish people who make honest billing mistakes, and I’ve met with

medical societies around the country to try to make sure they understand that. The example I use is one that I got from reading one

of the medical journals about a Beverly Hills doctor who charged

Medicare for 1,600 people who were either in prison or deceased.

That’s just not right. That’s the kind of thing that we have to stop,

and the Justice Department has been an effective partner in working with us to do it, but if someone makes an honest billing mistake, no, sir, I don’t think that’s the kind of thing that we should

be spending resources and energy on going after.

Mr. ENSIGN. Thank you, Mr. Chairman, for allowing me to question. I would just like to reiterate, I hope that that is more consistently done, because, yes, everybody wants to eliminate fraud from

the system; they want to be good stewards of the taxpayer dollar,

but at the same time, we don’t want to turn just honest bookkeeping errors into fines and criminal offenses. Thank you, Mr.

Chairman.

[Questions from Congressman Ensign submitted to Ms. DeParle

and her responses follow:]

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70

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Chairman THOMAS. I think that’s absolutely true, but when we’re

discussing a potential three-month window and the response was

no, it probably wouldn’t be fraud if you don’t make your billing or

payments, the time value of money in the context of sometimes the

size of the dollar amounts that move back and forth. I think you’re

going to have to watch fairly carefully, because if this becomes an

excuse for delaying, there are dollars in resources and the taxpayers deserve fair return on their dollar in a timely fashion, and

that does concern me to a degree.

The gentleman from California wanted to be recognized.

Mr. STARK. Nancy, later we’ll hear from a Visiting Nurses’ Association with a suggestion of going to a 75 percent national rate, 25

percent regional rate. It’s my understanding that that might solve

some problems but also impact adversely those associations who

are currently providing what are almost outlier benefits to very

sick people. When you tinker with these mixes, whether it’s national or association or regional, you get some unintended consequences. I’m sure the chairman is hearing as many complaints

as I am. Do you have, or do you intend to have, some kind of a

change that we’ll be hearing about before Congress adjourns in October? I know we’re going to hear from people later today, but I

just wanted to ask you what suggestions you might offer to us or

what help we could give you? What do you suggest?

Ms. DEPARLE. We have been working on some ideas. We’ve been

providing technical assistance to members of the committee and

have been working on some ideas ourselves. As I think the chairman noted earlier, we’re constrained, because of this year 2000

problem, operationally in what we can do. The base year is an

issue. It’s very difficult to change that operationally. Changing

around the percentages as you just suggested, that can be done,

but, as you also pointed out, it can create other problems.

This is very complicated. Last week when I was with Mrs. Johnson up in Connecticut, I met a man who has run a home health

agency dealing specifically with a mentally ill population, and its

costs have been very high, higher than—the others in the room

were $2,000, $3,000; this guy was at $8,000. So, if we move away

from what the Balanced Budget Act did which was to put a great

weight on agency-specific costs, a number of the people in that

room in Connecticut, their reimbursements would have been better.

This particular guy, who they all said was providing a very needed

service, would do worse, and that’s the problem with these formulas, but we want to work with the Congress, and I expect we’ll

be having discussions soon.

Mr. STARK. Is there something as simple as making some kind

of an adjustment and then having some kind of an outlier provision? Or, does that jam up your computers? I don’t want to prejudice any groups.

Ms. DEPARLE. From a policy perspective, outliers make a lot of

sense, and we’ve been struggling with how we could do it operationally based on the data that we have, and we want to work

with the committee on that.

Mr. STARK. Okay. Thank you very much. Thank you, Mr. Chairman.

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Chairman THOMAS. No, thank you. I just want to underscore before I call the gentleman from Nebraska, the frustration that we

now face when we don’t know what you can do, and it was indicated here a simple base year adjustment which might be of some

assistance is going to be very difficult to do. One of the options that

had been examined in discussions with the industry was to deal—

and the Senate had looked at it—was to deal with a copay arrangement. Frankly, we’re going to leave no option unexamined, but we

need your initiation and a quick reaction to ideas that we come up

with so that we can come up with a solution that you can make

work in the time frame that we have left. I’m very concerned of our

ability to respond legislatively, and I think all of us feel we have

to respond prior to adjournment.

Ms. DEPARLE. Yes, sir.

Chairman THOMAS. We can’t play the usual games that we play

given the conditions under which you’ve indicated you’re going to

be able to participate in the decision process.

The gentleman from Nebraska.

Mr. CHRISTENSEN. Thank you, Mr. Chairman. Nancy, I do want

to tell you, it’s been more pleasurable having you before us than

your predecessor, and a lot of the things that have——

Ms. DEPARLE. I think I should say the same, I guess, I don’t

know.

Mr. CHRISTENSEN. A lot of the things that have been said are not

your doing, but now you are stuck in this position, and I’ve just got

some preliminary questions. And the first is, is there any truth

that your department is still working off of 85 IBM mainframe

computers or is that not true?

Ms. DEPARLE. I suspect it is still true.

Mr. CHRISTENSEN. Okay. So, you are working—HCFA is working

off of 1985 IBM mainframe computers?

Ms. DEPARLE. I should check, Congressman, and get back to you

for the record about the exact model, but I suspect we have some

old equipment.

[The following was subsequently received:]

The 1985 IBM processors have been replaced with a 1996 IBM 9021–942 and a

1997 IBM 9672–R64.

Mr. CHRISTENSEN. My office is working off of 1996 Apples, and

we’re slow and way behind. So, I guess, one thing I’d like to see

is—has the department put any kind of bid out for where you’re

going to be systems-wide in the next 10 years? Obviously, we have

major problems over the next 12 months, but have you done anything as far as looking forward as far as your 2010 and where we

need to be systems-wide; where we need to be with our programs,

our software, our hardware? Is there any kind of bid process out

there at this point?

Ms. DEPARLE. There is not a bid process. As the chairman mentioned, in the late eighties, HCFA began working on something

that was called the Medicare Transaction System which was going

to be a total revamping of its computer systems. Last year, we

stopped that effort. We did get as far as getting the requirements

out of it, but it didn’t move nearly as fast as people thought, and

it didn’t appear to be designed to get where we need to go.

73

Mr. CHRISTENSEN. I think we’ve come to understand that that

was $50 million or so, roughly——

Ms. DEPARLE. It’s around $50 million.

Mr. CHRISTENSEN [continuing]. That has been, basically, down

the drain.

Ms. DEPARLE. Well, we did get requirements out of it, but we did

not get a new computer system to process our claims.

Where we are now is last year we brought in a new chief information officer who has been working on a vision for a new infrastructure. It is not a big bang approach like the Medicare Transaction System. It will not be one big computer system. It makes incremental changes over time, and what I’d like to do is offer you

and other members of the committee a briefing on it, but, as you

say, my chief information officer and his staff are spending 150

percent of their time on this immediate problem. There are no bids

out on the post-year 2000 infrastructure, and, frankly, before we

even got to that stage I would want the Members of Congress as

well as others in the administration who need to see this to see it,

understand it, and give me your suggestions and advice on it.

Mr. CHRISTENSEN. Could we go back to the chief information officer? When you came on board, you’ve inherited a real mess, but,

also, in any private enterprise when a new manager or president

or CEO comes on board, he cleans house. Have you cleaned house?

Have you let anybody go that was responsible for the systems; that

was responsible for making this serious adding problem in terms

of 20 million lines of code compared to 50 million lines of code?

Have you let anybody go in those areas of responsibility?

Ms. DEPARLE. No, I haven’t, but I did, as you mentioned, I

brought in a new chief information officer from New Mexico, from

Los Alamos.

Mr. CHRISTENSEN. Should you let someone go? Should heads roll?

I mean, this is pretty grave here. We’re talking about taxpayer dollars here. I mean, I know that you are—you talk about bureaucracies of all bureaucracies, HCFA is it. I think in light of the fact

that you are the head of the agency, that you should do all you can

within your power to make some changes. You may be there for a

year, two years, six months, but for the next person that comes in

there, you would be doing the American taxpayer a big favor, but

you would be doing a number of other people that are looking for

some efficiencies if you were to take a leadership position in this

area and make some things happen.

Ms. DEPARLE. Well, I am taking a leadership position. I view this

as my responsibility. The chief information officer is reporting directly to me, and I am managing that part of the operation.

Mr. CHRISTENSEN. Okay, I want to encourage you in the other

area as well.

Let me get to another question: during the testimony of the Senate Aging Committee, Deputy Mike Hash, he talked about some

different agencies, different programs, that were going to be getting

some money, about $9 million—Mr. Chairman, may I continue another minute or two?—and I wanted to go over with you that $9

million and exactly who it was going to be going to if you had any

knowledge of that area? During his testimony, he talked about 23

partners on a coordinating committee, 15 organizations on a task

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force, 28 organizations helping as educational affiliates—and this

kind of follows along the line of Ms. Johnson’s query about the

independent organizations, hoping that you would move towards

that area. Are these the groups that he talked about that are getting some of this $9 million or all the $9 million in this area of outreach programs?

Ms. DEPARLE. Primarily, sir, I believe the people who will be getting money are what are called the State Health Insurance Advisory Programs that used to be known as the Information Counseling and Assistance Programs that provide one-on-one counseling

to Medicare beneficiaries, and I believe that’s primarily what he

was talking about. He may have also been referring to some of the

State aging offices that will be getting some funding from this.

Mr. CHRISTENSEN. Well, I just want to, for the record, Nancy,

most of these organizations in here seem to be of the type that I

saw in commercials or paying for commercials against a lot of my

fellow Members of Congress in 1994 and 1996. The AFL–CIO, the

AARP, the Medicare Rights Center, the National Council of Senior

Citizens, which is an arm of the AFL–CIO, the Visiting Nurses’ Association, the American Nurses’ Association. I could go on and on,

but I think this would lend some credibility to the question that

Nancy was asking about, we need to have more of an independent

agency that’s out there disseminating information and educating

the seniors on Medicare Plus and most of the money that I see earmarked in this $9.9 million is going to rather suspect organizations

with very left-leaning credentials, and I’d like to see a little bit

more equalization if we’re going to be spending money in this area.

I’m sorry I’m out of time, but maybe you want to respond?

Ms. DEPARLE. I would like to look into that and get back to you.

Mr. CHRISTENSEN. Thank you.

[The following was subsequently received:]

There are 80 partner organizations in the National Medicare Education Program.

This is not a partisan effort; any organization can participate. Organizations as diverse as the AARP, AAHP, HIAA, and the U.S. Office of Personnel Management are

all participating in this effort to educate their members who are Medicare beneficiaries. These partners do not receive any funding from HCFA. Funding dedicated

to this part of our National Medicare Education Campaign is spent on printed materials and the costs of delivering the materials to our partner organizations.

Chairman THOMAS. I believe Members want to go through and

ask some additional questions, and we do have Members who are

not Members of the Subcommittee, and I will try to accommodate

you.

Briefly—and this has been a discussion privately, and I do want

to get it on the record. I want to indicate a degree of concern, because, frankly, it’s coming up now with other members—your point

number eight in terms of beneficiary feedback and assessment, I

was recently sent, on June 24th, a packet from the chairman of the

Veterans’ Affairs Committee, Bob Stump, which contained a survey

from one of his constituents, and it was to evaluate the quality of

the Medicare health plan, and there was a cover letter from you:

‘‘Dear, Medicare beneficiary, As a Medicare beneficiary, you deserve the highest quality medical care, et cetera, and would you

please fill out the questionnaire?’’ It’s the questionnaire with a

number of seniors on the front in individual photos. The concern

that was expressed by the constituent—and I know this is difficult,

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and is going to be an ongoing concern, and it’s why we need to review the material that we send out very, very carefully—there was

a question which was highlighted in the questionnaire which was,

‘‘These questions are about how you feel and things that have been

with you during the past four weeks—these questions are about

how you feel and how things have been with you during the past

four weeks. For each question, please give the one answer that

comes closest to the way you have been feeling. How much of the

time during the past four weeks, A, did you feel full of pep? B, have

you been a very nervous person? C, have you felt so down in the

dumps that nothing could cheer you up? D, have you felt calm and

peaceful? E, did you have a lot of energy?’’ Obviously, these are so

subjective, and I know that sometimes you can, from a subjective

choice, come up with—I mean, the choices were ‘‘all of the time,

most of the time—as you might expect—a good bit of the time,

some of the time, a little of the time, none of the time. Have you

felt downhearted and blue?’’ This is over a four-week period, so if

anybody’s like me, I’ve already recorded four different attitudes.

‘‘Do you feel worn out? Have you been a happy person? Do you feel

tired?’’ Now that’s differentiating from feeling worn out.

The problem is that when you get these kinds of things sent, I’m

sure there is a clear analysis in an objective way that, perhaps, is

available to this, but this is what people are going to be getting in

terms of beneficiary feedback. This is what they focus on, and

they’re trying to say, because we’re not going to be able to go out

with an education program that will give them the full benefit of

it, but we’re going to be doing follow up, because, frankly, this is

not based narrowly on the Medicare + Choice. This is based on the

current Medicare risk contracts that are out there in terms of managed care. We know we’re not doing these same kinds of things

with fee-for-service, because, in part, you can’t do them, but no one,

I believe, has tried to create some kind of measuring tool there.

All of the focus is on the 15 percent of the program. The 85 percent of the program where the dollar is being spent, nobody ever

does a follow up to ask you if you’ve been cheerful over the last

four weeks. So, I just have a concern that if this is what people are

seeing and it’s coming to members already and this is—I want to

underscore—this is not on the Medicare Plus Choice—this is on, I

believe—if I’m correct—on the ongoing current evaluation of the

current managed care program, 15 percent of the program is what

we’re faced with.

Ms. DEPARLE. I think it went out in January, and, Mr. Chairman, I totally agree with you that we need to be focusing on the

fee-for-service side of the program, and we are working on developing a measurement of satisfaction there too.

Chairman THOMAS. But if these are measurements of satisfaction, they are so subjective, unless, of course—I’m willing to listen

to whoever designed this matrix—that they are going to get valuable information out of it. I know sometimes when you ask similar

questions you mark to see if they answer it the same way.

Ms. DEPARLE. I’d like to get you the information. I don’t remember which academic institution it was that worked with us and the

Agency for Health Care Policy Research in designing it, and some

of the questions—part of it is that it’s designed at a fourth-grade

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reading level, and there are all sorts of things like that, but I’d like

to get you some background on it, and I totally agree with you that

we should be also measuring satisfaction and results on the fee-forservice side.

[The following was subsequently received:]

The Health of Seniors survey was designed in collaboration with the National

Committee for Quality Assurance (NCQA). It was developed as the first HEDIS

health status outcome measure and adopted by NCQA’s Committee on Performance

Measurement for inclusion in the HEDIS 3.0 for Medicare. The Health of Seniors

Survey is designed to measure how well managed care plans are taking care of

Medicare beneficiaries. It measures both physical and mental health functioning.

The questions cited are components of a well-tested scale which validly measures

an individual’s mental health status. It asks people whether they feel tired and blue

because some would never say they are depressed due to the social stigma attached

to mental illness. The questions come from an instrument known as the Short Form

36 (SF–36). Early versions of the tool were used by RAND as part of the landmark

Health Insurance Experiment research. For over nearly twenty years a team of researchers led by John Ware at the Health Institute, New England Medical Center/

Tuffs University has tested, improved and validated the instrument. This survey is

used as a measure of the health status of the general population and in patients

with specific disease conditions (i.e. diabetes, hip fracture, etc.) both in the United

States and internationally. The most well known test of the SF–36 in the general

U.S. population is the Medical Outcomes Study. Results of this work have been published in the Journal of the American Medical Association (JAMA), a highly regarded, peer reviewed journal.

[An attachment is being retained in the Committee files.]

Chairman THOMAS. What we’re hearing at the same time is that we didn’t give you enough money; you only had $95 million; $95

million with a full 48-State roll-out; you’re only doing 5 States at

a time, but the problem is we don’t have enough money. It is very

difficult to sustain a drive which I’m committed to get you enough

money when these things keep popping up. That’s a concern, and

that gets back, in part, to that original question about management; about culture; about the way you approach your testimony

in front of Senate committees, material coming in. I’m very concerned about our ability to get a fundamental seed change in the

Health Care Financing Administration of a consumer-oriented education program.

Does the gentlewoman from Connecticut wish to inquire briefly?

Mrs. JOHNSON of Connecticut. I just have to say the questionnaire that the chairman just used, it’s truly an outrage. I hope you

will provide the committee with the rationale as to why this went

out and what it’s supposed to accomplish and how it will help us?

For an agency that can’t afford to send out the basic information

that would really help seniors; those are the questions I’m getting.

I mean, this is what makes people really angry about Government,

and I’m just glad it wasn’t one of my constituents who came up to

me and showed me that questionnaire.

I mean, first of all, what business is it of ours if people feel tired?

I don’t know a senior that isn’t going to answer yes to that question, and what does it have to do with managed care; with Medicare choices; with fee-for-service medicine or not? So, I’ll tell you,

I’m looking for that rationale, because if we don’t have money

enough to educate our seniors about the choices that they—I’ve got

seniors in my district living on $7,000 a year and struggling to

make some little payment so they get some Medigap insurance.

Those folks need and deserve to know that there are plans in the

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market now that will cover their copayments; cover them, help

them out. So, anyway, I really want the committee to get the rationale for that, because that strikes me off the top of my head as

indefensible.

I also do want to say that Mike Hash’s testimony is inaccurate,

inaccurate. We spent a very long time making sure that in every

single State any Medicare recipient who went from fee-for-service

to managed care—first of all, under the bill, for the first three

months, they have the absolute right to go back to exactly the same

Medigap program they were in, but down the road apiece in every

single State, there is at least one and usually at least two Medigap

policies that have no preexisting conditions, exclusions, and have

open enrollment. So, in fact, if they don’t like their managed care

program and they want to go back to Medicare, they do have an

open enrollment, no discrimination for preexisting conditions option. It may not be exactly the plan they wanted, but when you

look at the variation of Medigap plans, they all cover certain basics. So, I really regret—when you read the whole thing of Mike’s

testimony, it is very negative. It doesn’t make a clear differentiation between when the program is fully implemented and what the

choices of being on. This is why this is going to be hard.

You’re right, this is the biggest educational challenge we’ve ever

undertaken, and we’ve got a long way to go, but we have to really

be much more careful about not scaring the seniors and giving

them the information they need.

Let me just conclude with the two things that I wanted to bring

up. You know, one of the problems in implementing this whole new

program and particularly the reimbursement rate is that we are

back to a one-size-fits-all policy; that’s the nature of Medicare. But

in these new reimbursement systems, the vulnerability of small

agencies is far greater than in the old payment system, and so we

see that in the efficient small home health systems. But I would

tell you that I’m going to be contacting you about the Little Sisters

of Mercy Nursing Homes that have one or two or three Medicare

patients; less than 5 percent of their whole load, and they’re having

to—they’re facing just an accounting challenge that is, frankly, absurd, and they couldn’t be servicing more than a tiny percent, and

I—just as you have deferred some of the new billing changes in the

nursing home area—which, frankly, I don’t regret; I think we’re

going to need some experience before we get into that—I think

we’ve got to look at implementing even what we’re going to do with

the bigger ones; maybe exempt the little tiny ones until we get the

system straightened out and see what we really need, because

we’re going to do—in sector after sector—we’re going to put out of

business the most kindly; the ones supported by the local church;

the most human providers, and what we’re going to get is a system

of chain nursing homes. I don’t want that to be the outcome of reform. So, I’ll send you more information on that.

And the last thing that I want to just mention that I’m going to

bring up to you is that your ambulatory surgical center reimbursements that you’re going to use in developing the outpatient reimbursements are based on very old data, 1993 data. So, and the odd

thing is the discriminatory impact it has on women services v. men

services, because prostate testing and things like that, some of

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those things are more recent, it’s a reasonable reimbursement.

There was no 1993 data. In some of the other areas, the more modern technology, the modern diagnostic approach, we don’t have realistic reimbursements under your system because the data wasn’t

there. So, we need to look at how do we assure state-of-the-art access to high quality health care, and I’ll give you some specifics on

that, because it’s just recently come to my attention.

But I’ll tell you, this is a mine field, and we all need to work together to make sure that the little guys get addressed that; that

change gets addressed, and that we do make good on our promise

to improve the quality of Medicare for our seniors. Thanks.

Ms. DEPARLE. Thank you.

Chairman THOMAS. The gentleman from Louisiana wishes to inquire.

Mr. MCCRERY. Thank you, Mr. Chairman. Ms. DeParle, on your

website, medicare.gov, a person can go to a site that explains the

provisions of plans that are available in their area.

Ms. DEPARLE. Yes, sir. Medicare Compare is what it’s called.

Mr. MCCRERY. Right. I was struck by the fact that the first real

item of information regarding these plans on your website is

whether the plan is a profit or a non-profit plan. Why is that on

there? What does that have to do with information that’s about the

plan to the potential patient?

Ms. DEPARLE. I noticed the same thing, and I asked the same

question. In focus group testing of this site last year, that was one

thing that seniors wanted to know. They wanted to know whether

the plan was for profit or not. It surprised me, because it wouldn’t

occur to me to ask that, but that was one thing that came back in

the focus groups.

Mr. MCCRERY. Did you discover in your focus groups why they

wanted to know that?

Ms. DEPARLE. I can probably get you some more information

about that. I don’t remember specifically what—I think they felt it

was some sort of proxy for something, but, obviously, some of them

are in for-profit ones, and some are in not-for-profit, and I don’t

know the exact details of it, but I’d like to get back to you on it.

Mr. MCCRERY. Yes, I don’t see the value in that for a number

of reasons, but I wish you would get back to me on the rationale

for including that.

[The following was subsequently received:]

Beneficiaries in focus groups expressed a strong interest in knowing whether

health plans are for-profit because they perceive that for-profit plans are more cost

conscious, and that non-profit plans focus more on patients.

Mr. MCCRERY. It would seem to me to bias the choice even

though the cost to the patient might be lower for a for-profit plan

than in a not-for-profit plan. So, I question the soundness of that

decision even in light of focus groups in which people said that’s

something they would like to know. I just don’t know that it adds

any value to their decision-making process.

John Ensign had to leave, but he asked me to ask you a question

which I will do for him, and it concerns the hospital wage index.

Evidently, HCFA was supposed to make an adjustment to the hospital wage index based on labor costs, regional or local labor costs,

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son the adjustment was left out; it was not included in the rule.

Do you know anything about that? Can you expand on that a little

bit for us?

Ms. DEPARLE. The rule hasn’t come out yet. We’re trying to get

it finalized by the 1st of August, and I am aware that a problem

has arisen. I learned about this in a meeting with the American

Hospital Association that there are some—and this is one of those

things that affects different regions of the country differently, and

we are working with them to see what can be done about it.

Mr. MCCRERY. Okay. Thank you, Mr. Chairman.

Chairman THOMAS. Thank you. Briefly, some Members who are

not members of the subcommittee, first, someone who is a member

of the Full Ways and Means Committee, the gentleman from Ohio,

Mr. Portman, wishes to inquire briefly.

Mr. PORTMAN. Thank you, Mr. Chairman, and thank you for allowing me to be here today. My question is related, indirectly, to

the subject today of expanding Medicare Plus options and getting

that message out to recipients. Ms. DeParle, I’ve already written

you about this topic, and I think you’re familiar with it, but it has

to do with the situation where roughly 22,000 seniors have lost

their coverage in rural counties in Ohio; 22 counties were affected.

My own district is affected. I have 2 counties—Brown County and

Warren County—that are part of the 22. Anthem Blue Cross and

Blue Shield had a Senior Advantage Medicare HMO Program that

was quite attractive to many of my constituents. What’s particularly disturbing to me is that based on what my constituents tell

me, a lot of folks were aggressively marketed, by Anthem just prior

to its dropping. In fact, even more disturbing, is that some of have

said that Anthem continued to market the program after it had

made its decision to pull out of these markets, and the two counties

I represent as well as many of the other 22, there are no alternatives. There are no other HMO products out there for Medicare

recipients. Many, of course, left their supplemental plans to join

the HMO and are now concerned as to whether they can get back

into their Medicare supplemental plans on favorable terms.

So, it’s a major concern, and I guess my questions to you are twofold: first, whether HCFA can do anything—and I’ve, again, sent

you a letter in this regard, and I’ve not heard back yet—but with

regard to facilitating other HMOs going into these rural areas, particularly where there’s no other option of a HMO product.

Ms. DEPARLE. Yes, and you did mention two of the counties

where I think there isn’t another option, and I appreciate your

bringing this to my attention, and the chairman also mentioned it

to me. We are working with some other companies that have expressed a desire to go into Ohio and to some of the counties to try

to make sure we quickly get them approved if that’s possible.

Unfortunately—and we’ve looked into, at your request, the issue

of the marketing to beneficiaries right when they knew they were

going to move out of the Medicare market. Under the current law

and regulations, it appears that what they did was all right. I must

tell you, I don’t like it from the standpoint——

Mr. PORTMAN. Because HCFA had approved the plan, and once

the plan is approved they would have the ability to leave those

counties whenever it was in their interest to do so.

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Ms. DEPARLE. Under the law, they can leave, and there are some

marketing standards, and we’re in the process now of looking at

updating our marketing standards, but the existing standards say

that if they know they’re going to go out of the business there, they

have to quit marketing by October of the year when the following

year they would be out of business. It’s not October yet—so, technically, they’ve already told the beneficiaries, but I agree with

you——

Mr. PORTMAN. Because it’s in place until the end of the year.

Ms. DEPARLE. Sir?

Mr. PORTMAN. Because the program is in place until the end of

the year.

Ms. DEPARLE. That’s right, but if it were my parent or grandmother there who had been marketed to, I wouldn’t have been

happy about it, and I think we’d like to work with you on that.

Mr. PORTMAN. The other question I guess I would have is to the

extent HCFA does approve these plans, do you look at the feasibility of the plans? What Anthem has told me is that reimbursement’s a big issue which is my second question really, and the

other issue is that there were not adequate health care facilities,

clinics, and so on, so that health care costs were, indeed, higher in

these rural areas than they were in the urban areas where, ironically, the reimbursement rate was higher. And, also, that there

were other factors that they, perhaps, hadn’t considered. I guess

my question is does HCFA look at those factors—the reimbursement rate, the availability of health care, the other factors that

would affect productivity—as HCFA approves or disapproves plans?

Ms. DEPARLE. Well, certainly, the reimbursement rate is something that is set under law, and it’s out there for the plans to decide whether they want to come in. We review the marketing materials; we look at the plan solvency. There are changes in all of this

as a result of the Balanced Budget Act, and we’re looking at making some changes in the regulation on marketing.

Mr. PORTMAN. My final question is—I know the balanced budget

agreement that got through the subcommittee I think made major

improvements to Medicare and helps in terms of rural areas.

Should we back up now, given this experience and other experiences around the country, and look at that formula. Again, Anthem

is in business to make money, ultimately, and they’re telling us

that the formula doesn’t work; that, in fact, ironically, the urban

areas get the higher reimbursement rate—there’s roughly a $64

difference on average in Ohio between the rural and urban areas—

as lower costs for their recipients for this particular HMO product.

Should we be looking at either a regional or maybe even more aggressively look at the national aspect being a bigger part of the formula?

Ms. DEPARLE. I certainly think we should continue to look at it.

I think that it’s not clear whether the changes that we made last

year to try to give the rural areas a floor have had the effect that

the Congress intended.

Chairman THOMAS. Tell the gentleman it’s a problem that we’re

going to be addressing, because I have two counties in my district

that have more than $100 difference between the 2 of them. The

plan didn’t pull out; the key providers simply couldn’t get value for

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it, and there is no plan, it was the single one available. His concern

is not a unique one. It is, unfortunately, under the old system, and

the checks that created were in the Medicare Cost Plus. It is an

area we have to address. We are not now providing the opportunity

for managed care that we had anticipated.

Mr. PORTMAN. I appreciate the chairman’s thoughts on that, and

I look forward to working with him and with HCFA to try to do

just that.

Chairman THOMAS. And I did want to recognize that we have

with us someone who is not a Member of the Subcommittee or the

Full Committee, the gentleman from Texas, Mr. Lampson. I will

say that this is technically in recess until 2:15. I want to thank you

for coming, but the gentleman does wish to inquire, and if you’ll

please act as though the subcommittee is still in session, he would

like to get the words and maybe have to follow up with some written information, and we will be back at 2:15 at which time we’ll

hear Bill Scanlon.

Ms. DEPARLE. Thank you.

Chairman THOMAS. Well, he’ll submit them in writing then? The

gentleman wishes to submit them in writing.

[Questions from Congressmen Cardin and Lampson submitted to

Ms. DeParle and her responses follow:]

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[Recess.]

Chairman THOMAS. The subcommittee will reconvene. I want to

thank Dr. Scanlon for, once again, attending to provide us a context and a perspective on the subcommittee’s deliberations, and

any written testimony you have will be made a part of the record,

and you can address us in any way you see fit, doctor.

STATEMENT OF WILLIAM J. SCANLON, DIRECTOR, HEALTH,

EDUCATION, AND HUMAN SERVICES DIVISION, GENERAL ACCOUNTING OFFICE

Mr. SCANLON. Thank you very much, Mr. Chairman, and I’m

very happy to be here today as you discuss HCFA’s implementation

of the more than 200 Medicare provisions contained in the Balanced Budget Act. Combined, these changes should help to control

the growth of expenditures while moving the program closer to a

model of consumer driven competition among health plans that’s

similar to how other parts of the health care system have been

evolving.

You asked me to provide you an overview of how HCFA’s implementation has progressed since our testimony earlier this year and

more detailed comments on two key elements that have been the

subject of extensive GAO work—the information campaign associated with Medicare Plus Choice and the new payment system for

skilled nursing facilities.

As you’ve heard, HCFA is making some progress in meeting the

BBA implementation schedule. We believe the implementation of a

large number of the mandates with the July 1998 deadline including the recent Medicare Plus Choice and SNF PPS rules is significant. However, the prospect that many BBA provisions will not be

implemented on time because of the year 2000 computer requirements and the content of some of the elements already implemented raise some concerns.

When I appeared before you in January, I indicated our review

of HCFA’s organizational capacity and processes had revealed that

the agency had adopted a very systematic approach to identifying,

tracking progress, and fulfilling the requirements of the BBA. We

were then concerned, however, about the multiple challenges besides the BBA which HCFA faced, including improving its effectiveness in combating fraud and abuse; updating and enhancing its

computer systems in the wake of the demise of the MTS, and completing a major staff reorganization. Now, unfortunately, it seems,

collectively, these challenges are going to delay portions of the

BBA. While HCFA indicates that these delays will have minimal

impact on program savings, some, as you indicated, however, involve significant provisions such as prospective payment for hospital outpatient services.

Keeping the BBA implementation efforts on track while integrating them with other agency priorities is clearly important, but

ensuring that those efforts also achieve congressional objectives to

the fullest extent possible should be a primary focus. The Medicare

Plus Choice information campaign and the skilled nursing facility

prospective payment illustrate the latter. In implementing Medicare Plus Choice, HCFA must give beneficiaries the tools to make

informed plan choices, a significant new task. Unlike many large

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employers, HCFA has played almost no role in helping beneficiaries to evaluate their health plan options. Now, it must assemble comparative information about the expanded array of choices

and find means to disseminate it to beneficiaries. Adequately informing beneficiaries about health plan options is likely to be a key

to the success of Medicare Plus Choice; it will foster genuine performance-based competition that can result in greater beneficiary

satisfaction and increased enrollment.

Our work on disenrollments from current HMOs has revealed a

very disturbing fact that some plans can continue to operate with

40 percent of their members disenrolling over the course of a year.

The longer term impact is most likely a greater reluctance of some

of these disenrollees or others to participate in HMOs. HCFA intends to pilot key components of the information campaign, namely

the toll free number and the beneficiary handbook. This cautious

approach is, perhaps, warranted given its inexperience in such an

endeavor.

Questions have been raised by health plan representatives and

others about the estimated cost of the campaign. We are conducting

a review of these costs at your request and that of the Senate Finance Committee. Our preliminary work indicates that the toll free

number is both the most expensive component and the most difficult cost to estimate given the lack of experience. HCFA does

seem to be trying to control the cost of the toll free number operation by providing only certain information on the phone and using

other means for more extensive inquiries. We will be comparing

HCFA’s estimated costs to those of similar toll free number operations. However, until HCFA actually gains experience, we will

have a somewhat limited basis to judge precisely either the efficiency or the effectiveness of its plans. Ultimately, the design of

this and other aspects of the information campaign should be determined not only by the cost but how effective they are in contributing to the intended transformation of the Medicare Program.

With respect to the new SNF prospective payment system, effective 16 days ago, it represents a major step in gaining control over

rapidly increasing SNF expenditures. However, we are concerned

that elements of it could compromise the anticipated savings. Specifically, we have concerns that the system’s design offers some opportunities for providers to increase their compensation by potentially supplying unnecessary services; that it’s rates were computed

using data that likely overstate the reasonable cost of providing

care, and that the published regulation gives the impression of creating a new automatic means of determining eligibility for coverage

that could both expand the number of beneficiaries and days covered.

Finally, we think there is insufficient planned oversight for this

system that will increase the potential for all of the above factors

to reduce expected savings. We do believe, though, on the positive

side, that some short-term modifications to the rule and longer

term efforts to refine the system could ameliorate our concerns.

In conclusion, I’d like to reiterate that we find the challenges created by the Balanced Budget Act, both in terms of the number of

the changes and the complexity of some of them, very daunting.

HCFA’s normal workload and internal factors that compromise its

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capacity compound the problem. In this context your oversight and

assistance in setting priorities and selecting among options are essential to the fulfillment of the goals underlying the Balanced

Budget Act. We will be very happy to continue to gather information and conduct analyses to assist you in these tasks. Thank you

very much, Mr. Chairman.

[The prepared statement follows:]

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Chairman THOMAS. Thank you, Dr. Scanlon. No one said this

was going to be easy. We’re dealing with a set of data that had

never really been brought forward in a way that most people would

have expected. If someone said they were working in an area, for

example, for 10 years, it’s not comfortable dealing with interim

payments and now having to change in the context that we’re in.

What we hope you will continue to do—and in your testimony is

a good example—of taking a look at something like the skilled

nursing facility prospective payment system, for example—I believe

it’s on page 13. In which, if you shift just a couple of minutes a

day—and we’re not talking about really sophisticated stuff here—

but if somebody gives you a rehab group definition based on the

number of minutes and it’s medium high, very high, and ultra

high, and the difference between very high and ultra high is $286

v. $345 and the difference is literally 1 minute, I assume most folks

are going to find the 1 minute. How do you go about trying to protect from that kind of gaming of a system? Have you looked at

that? Do you have any initial suggestions as to how it might be

done?

Mr. SCANLON. I think that we need to explore options to classify

patients using criteria other than the minutes of therapy. We recognize that minutes are very easy to measure whereas qualitative

factors such as the rehabilitation potential of an individual and the

amount of therapy that may be appropriate for that rehabilitation

potential are more subjective. With informed medical judgment

that is appropriately reviewed, we may be able to have a better

classification system that is less gameable.

At this point, one of the troubling things in this system is an attempt to limit the oversight being given to the determination of

benefits. The system essentially allows a classification based on the

minimum data set assessment to determine whether or not someone receives Medicare coverage. We think there is a need for clinical judgment, that take medical criteria into account to determine

whether or not this person is covered for a portion of their stay.

Chairman THOMAS. Well, this is part of the concern I have in—

for want of a better term—talking about the reculturalization of

HCFA. Because it’s easily measured, doesn’t necessarily mean it’s

worth measuring or that it ought to be a criteria, and, oftentimes,

it’s simply turning in paper which allows me then to show that

things are happening. We just don’t have the money to do that sort

of thing. The ability to move a bit more into a subjective definition—quality, improvement types of things—do you believe that the

law as currently written affords sufficient leeway for the administration to make those kinds of changes themselves if they were interested in doing so or do you think that would require a legislative

change?

Mr. SCANLON. I don’t think it would require a legislative change.

When you look at how the system treats therapies, differences are

measured in minutes. However, when you look at the ability for an

individual to care for themselves, the activities of daily living, there

are subjective judgments based upon clinical observation used we

are differentiate payment. So, clearly HCFA has the authority to

establish a case mix system that is appropriate for these kinds of

individuals and the care they’re receiving. I think it has the latiVerDate 11-MAY-2000 12:56 Aug 10, 2000 Jkt 064533 PO 00000 Frm 00120 Fmt 6633 Sfmt 6602 E:\HEARINGS\63454 pfrm08 PsN: 63454
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tude under the law to extend that type of subjective clinical judgment to therapies as well.

Chairman THOMAS. Good. I, obviously, will be working with you

on that.

You heard the earlier discussion, I believe, about the concern on

the Y2K problem and the window that may be as small as three

months or as large as five months. I’m concerned that there isn’t

enough creative thinking going on about how to deal with that

lights out period either, in terms of being creative on frontloading

with the settling later or some kind of a payment agreement which,

obviously, doesn’t leave people hanging or doesn’t require institution of paper unless you think that may be one of the things that

we could do. Because, frankly, a three or four-month period for payment and failure to do so in that period when you’re use to an ongoing regular reimbursement claim structure has me worried a little bit, and I guess from your professional point of view, does it

have you worried a little bit, and are you beginning to look at? Do

you need additional instructions and direction to begin focusing on,

perhaps, some attempt to find out what the private sector’s doing—

we don’t need to reinvent the wheel? But I have very little comfort

with what I heard today about where we are in dealing with this

dark period except that we know what we’re not going to be able

to do.

Mr. SCANLON. The Information Systems Group at GAO has been

working on the year 2000 problem for a considerable amount of

time. One of the significant points that they make in that work is

that it’s not just a question of correcting a certain number of lines

of computer code, whether it’s 30 million or 50 million. It’s an issue

of also having planned for contingencies that if you cannot correct

that code or if somebody you’re dealing with wasn’t able to correct

their code, you may find your normal business processes disrupted.

You have need to have that a contingency plan in place that provides you with the assurance that you’re going to be able to operate

over that three-month disrupted period.

Joel Williamson from GAO’s Information Systems Group has testified before about HCFA lagging in development contingency

plans. As HCFA pursues this now, I think it would be very important for us to be involved as well, because we’re moving from a

question that’s a computer problem to a question that’s a Medicare

Program policy problem.

Chairman THOMAS. Yes, and gets into that general area of management that we talked about.

Mr. SCANLON. That’s correct.

Chairman THOMAS. Okay, thank you very much. I look forward

to hearing from you again. Let me see if any of my colleagues have

questions they might want to ask. The gentlewoman from Connecticut.

Mrs. JOHNSON of Connecticut. I was interested in your testimony

where you’ve entitled one section: Care on the Basis of Use Rather

than Need. Under the old system, providing ancillary services in

nursing homes, we at least knew what services were being provided. What was our capability at that time of evaluating need?

Mr. SCANLON. It was no different than it is today in terms of relying on clinical judgment. It’s an issue of a clinician reviewing the

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patient’s status and feeling through their professional knowledge

what services might be of benefit. In the old system, we did not

have any oversight, though, I agree with you, in terms of the Medicare Program following up to understand whether that professional

judgment was something program reviewers would agree with and

whether they felt that it was an appropriate use of the benefit.

Mrs. JOHNSON of Connecticut. I think that’s exactly my point is

that it seems to me it would actually have been easier to implement a system of oversight when we had the specific bills for each

action based on need than what we’re going to have now which is—

I mean, theoretically, one of the savings of the new system is that

it won’t be so costly administratively, but if we require reporting

of every single thing and oversight, it will be just as costly.

Mr. SCANLON. We don’t want to make it as costly, of course. We

acknowledge understand that HCFA was dealing with the state-ofthe-art in terms of research on patient classification when they developed this system, but we really need to do is to think about how

to move this system or the state-of-the-art on patient classification

to be able to, at one point in time, classify somebody in terms of

their potential and the services that they’re likely to benefit from

and then use that for payment over a period of time. That’s not

going to involve tracking every service and justifying every service.

Right now what we have is a situation where we’ve determined

payment based on minutes which creates a perverse incentive that

a few minutes can generate significant increases in revenue.

Mrs. JOHNSON of Connecticut. I just hope that as we think

through under the new system how do we assure that the services

that were delivered were, indeed, the ones that were needed and

that service wasn’t denied?

Mr. SCANLON. That’s going to be a very critical factor as well as

to ensure that the services that we paid for were delivered, because

this is a system that is prospective, and we want it to be prospective, because that establishes good incentives, but, at the same

time, we want it to be a system that’s accountable; that we know

that care was delivered appropriately when we paid for it.

Mrs. JOHNSON of Connecticut. I agree with that. I would hope

that we would try to build that into the annual review process or

something like that rather than a lot more paperwork and a lot

more coding and this and that. So, I think we have to think about

how we’re going to achieve that goal since in the past system and

since we had an easier task and didn’t achieve it.

Mr. SCANLON. I think we fully recognize that with the administrative resources available and wanting to be very sensitive to the

burden that we would impose upon providers, we need to find a

way to do this in a very targeted and efficient manner but in a

manner that we find to be effective and that gives us great confidence that services have been delivered appropriately.

Mrs. JOHNSON of Connecticut. Thank you.

Chairman THOMAS. Thank you very much.

Mr. SCANLON. Thank you.

Chairman THOMAS. And our last panel, if I could ask you to come

forward, Bruce A. Davidson, who is the senior vice president of

Blue Cross Blue Shield of Florida, on behalf of the National Association; Carol Raphael, president and chief executive officer of the

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Visiting Nurse Service of New York; Mary K. Ousley, senior vice

president, government and regulatory affairs, Integrated Health

Services, on behalf of the American Health Care Association;

Thomas Miller, chief executive officer of the Lutheran Hospital of

Indiana, on behalf of the Federation of American Health Systems,

and David Bernd, president and chief executive officer of the

Sentara Health System, Norfolk, Virginia, on behalf of the American Hospital Association.

I just wanted the record to note that as the chairman is from

California and the ranking member is from California, this is an

east of the Mississippi panel. My assumption is as much for the

economy of fair, I’m sure you’re going to be able to represent that

portion of the United States west of the Mississippi.

If you have written testimony, which I know you do, it will be

made part of the record, and you may address us in any fashion

you see fit in the time allotted to you, and let’s start with Mr. Davidson.

STATEMENT OF BRUCE DAVIDSON, SENIOR VICE PRESIDENT,

BLUE CROSS AND BLUE SHIELD OF FLORIDA

Mr. DAVIDSON. Thank you, Mr. Chairman and Members of the

Subcommittee.

I am Bruce Davidson, senior vice president of Blue Cross/Blue

Shield of Florida. Thank you for the opportunity to testify on behalf

of the Blue Cross/Blue Shield Association on two important points.

Let me address first the regulations implementing the Medicare+

Choice.

We are concerned that the recently released mega-reg will preclude HMO’s from entering into the program, and, in fact, increase

cost for participating HMO’s to the extent that many will have to

exit the program. Certainly this outcome would not produce the

range of options for beneficiaries desired by Congress.

It is important to understand that the mega-reg is closely tied to

a set of performance standards known as the Quality Improvement

System for Managed Care, or QISMC, that was being designed for

tightly-managed HMO’s. The mega-reg and QISMC will require a

significant increase in the level of clinical intervention and medical

management by all health plans. All health plans would be required to measure a core set of clinical performance indicators, essentially physician clinical practices, and demonstrate a minimum

level of performance. Plans would also be required to demonstrate

annual, measurable improvements in physician practices.

Many HMO’s are involved in this type of medical management

already. However, the technology and knowledgeable resources are

not available to support the level of activity contemplated by the

mega-reg. Certainly the architecture of PPO’s cannot support this

level of measurement of medical practice patterns or clinical management of physicians.

PPO’s meet a different demand of the market than HMO’s. They

offer a broad choice of physicians, ability to use physicians outside

the network, and lower administrative cost. They are very popular

products. However, to meet the QISMC standards, PPO’s would

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network coverage, impose practice protocols and new payment incentives on physicians, and reduce the size of choice of their networks. In short, PPO’s would have to redesign into a product closely resembling tightly managed HMO’s.

We hope that this will not happen. The references in the megareg notwithstanding, we are encouraged that the preamble to the

regulations state that HCFA does not intend to adopt a one-sizefits-all approach. Also, we have initiated discussions with HCFA to

assure that broad access PPO’s are viable in the Medicare+ program. However, at this point, our particular plan would not offer

a PPO in Florida to Medicare beneficiaries because of the nature

of the mega-reg.

Turning to the issue of Y2K compliance and contractor reform.

A representative group of contractors and senior HCFA personnel

are working collaboratively to ensure that the claims will be paid

accurately and timely in the year 2000. My contacts with fellow

contractor executives indicate that everyone is giving Y2K their utmost attention, and we believe that it is possible to complete basic

testing by the end of 1998.

It is important that changes to the Medicare program be minimized during the last quarter of 1998 and the first months of 1999,

which is when we will be doing most of our testing. Our technical

experts advise us that if other complex programming changes are

tested simultaneously with Y2K programming changes it will be

difficult to determine whether problems are originating with Y2K

programming or the other programming changes.

After Y2K testing is completed and problems are resolved, any

further changes in 1999 would necessitate retesting and should be

kept to a minimum.

In terms of contractor reform, we believe that HCFA currently

has the authority to terminate a contractor for non-performance,

including non-performance of Y2K responsibilities. We have serious

concerns about the breadth of proposed contractor reform which appears to give HCFA the authority to hire, fire, with or without

cause, and with or without competitive bidding for the replacement.

All this without having a clear strategy of what is to be achieved

with this new authority.

In summary, we advocate a less intrusive approach to the regulation of Medicare+Choice plans and a very careful approach to the

Medicare program change burden while Y2K remediation is in

progress.

Mr. Chairman, thank you for the opportunity to express our

views.

[The prepared statement follows:]

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Chairman THOMAS. I thank you very much, Mr. Davidson.

Ms. Raphael.

STATEMENT OF CAROL RAPHAEL, PRESIDENT AND CHIEF EXECUTIVE OFFICER, VISITING NURSE SERVICE OF NEW YORK;

ON BEHALF OF VISITING NURSE ASSOCIATIONS OF AMERICA

Ms. RAPHAEL. Thank you.

Mr. Chairman and members of the subcommittee, I am pleased

to be here today to speak to you. My name is Carol Raphael. I am

the president and CEO of the Visiting Nurse Service of New York

which is the largest not-for-profit home-health care agency in the

Nation. It is also one of the oldest with over 100 years of experience in providing home care, an important option for people who

want to leave hospitals as quickly as possible, avoid unnecessary

institutionalization and remain active, independent members of

their community.

My theme today is ‘‘no good deed goes unpunished.’’ And basically, I want to focus on the Interim Payment System which has

had a very harsh effect on particular agencies. And who might

these agencies be? I think they fall into two categories: those who

did what the Balanced Budget Act tried to accomplish. These agencies kept their costs low, controlled their costs before there was legislation, and in addition, those agencies are most impacted who

have experienced increased severity in their case mix. And it is

ironic that the prospective payment system couldn’t be implemented because it didn’t have a case mix adjuster, and now we

have a system that, in fact, also doesn’t have such an adjuster and

seems to be taking its course of action without it.

I think that you need to understand what the impact of the Interim Payment System has been on the Visiting Nurse Association

of America and its members. As of now, six VNA’s have closed including the VNA of southeast Indiana and the VNA of Palm Beach.

Yesterday, the VNA of Medford, Massachusetts shut its doors. Dozens of others are on the brink of closing. The VNA of St. Louis will

no longer admit any Medicare recipients because their reduction

under the Interim Payment System was 45 percent. Many other

VNA’s are laying off staff, shutting down services; this will affect

the access of beneficiaries to what has been an essential range of

services in many communities in this country. And I would like to

say that, in general, the effect has been a 25 percent reduction in

reimbursement.

And I think that I speak for all organizations in this Nation who

have been cost efficient and have tried to produce good care whether they are for profit, not-for-profit, rural, urban, large, small, community-based, hospital-based, or public health departments. We

really believe that it is essential that this committee take action

this year. We think that it is imperative because if action does not

occur, you will end up seeing a system of health care dismantled

that will be very difficult to rebuild down the road. And we have

several steps that we think that you should consider taking.

First of all, I want to recognize the efforts of Senator Collins and

Congressman Pappas who spoke to you this morning because they

have really tried to address our issues.

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We believe there are three key things that need to be done.

Change the formula. And we believe that Congressman Pappas and

Senator Collins have proposed the most effective blend which is 75

percent national and 25 percent regional data.

Secondly, move the base year forward. There is now a huge gap

between the base year’s cost and the cost we’re experiencing today.

And thirdly, raise the per-visit limits to 112 percent of the mean.

We understand that it isn’t increased costs-per-visits that have

really driven expenditures in home health care. In fact, costs have

remained fairly constant over the last seven years. And this would

help agencies in States like California where there is high penetration of managed care and where agencies have low costs per case

but high costs per visits.

And lastly, we heard confirmed for us this morning that HCFA

is not going to implement prospective payment by October 1999. So

what we thought was an interim, short-term system is no longer

an interim, short-term system. And Congress had enacted an additional 15 percent cut in the event that PPS does not come to pass.

We would very much urge you to reconsider putting us under the

knife even further and making the cuts deeper given that PPS is

not likely to be implemented.

So, I think that we want to say that we have addressed what we

think are key issues: budget neutrality, equity across the Nation,

and lastly, paving the way to prospective payment. And we look

forward to working with you, Mr. Chairman, and the committee

members to try to find a workable and doable solution to a very,

very serious set of issues.

Thank you so much.

[The prepared statement follows:]

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Chairman THOMAS. Thank you very much, and thank you for

picking up on my comment and throwing a line about California in

there. I appreciate that.

Ms. Ousley.

STATEMENT OF MARY OUSLEY, SENIOR VICE PRESIDENT OF

GOVERNMENT AND REGULATORY AFFAIRS FOR INTEGRATED HEALTH SERVICES; ON BEHALF OF AMERICAN

HEALTH CARE ASSOCIATION

Ms. OUSLEY. Thank you, Chairman Thomas and members of the

subcommittee for the opportunity to share the views of skilled

nursing providers.

My name is Mary Ousley, and I am the senior vice president of

integrated health services. I also am an independent owner of nine

facilities in Kentucky, a licensed nursing home administrator and

registered nurse.

I am speaking today on behalf of the American Healthcare Association.

I first want to restate our support for the committee’s work last

year in enacting a prospective payment system for skilled facilities.

And I also wish to commend the Healthcare Financing Administration for their willingness to sit down with the industry and work

through the countless implementation issues.

We have identified three areas where we feel that the Balanced

Budget Act and the prospective payment system could create access

problems for America’s seniors. Our list is short, but the concerns

that we have, we think that they are critical. First, as previously mentioned today, we oppose the $1,500 annual therapy cap. The Act created two annual caps in two categories, one for physical and speech therapy and additional for occupational therapy. These caps were imposed without the benefit

of hearings or adequate data. MedPAC itself has indicated in its review of the impact of these caps that of the recipients that may be

impacted approximately half of them would have needs that would

be in excess of $1,000. We feel that, in fact, these caps are a reduced benefit.

We support the Ensign-Cardin bill, H.R. 3835. We feel that it is

a very responsible solution that removes the caps and moves forward toward a more appropriate payment methodology based on diagnosis.

Additionally, again, as mentioned today, we are concerned about

HCFA’s ability to track the costs for these $1,500 caps in light of

the Year 2000 problem.

Second, we are seeking relief for facilities that are disadvantaged

by the PPS transition. The facility specific portion of the PPS transition rate is based on cost reports beginning in 1995. Facilities

without Medicare experience during 1995 are considered newly

participating and are not subjected to the transition. However, for

facilities that increase their acuity level, increase the intensity and

level of services that they have provided since 1965—1995, excuse

me—for these facilities, instead of providing a gradual progression,

as was the intent of Congress, toward the Federal rate, the transition actually serves to disadvantage them by providing rates during

the transition below the Federal rate.

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We have, and we would like to propose two solutions for this

problem.

We propose that HCFA broaden the definition of new facilities to

include a facility that has so dramatically changed its level of service during this period of time to be deemed newly participating.

Another option is to permit the fiscal intermediaries to allow facilities to merely opt into the Federal rate if they can, again, demonstrate that the level of care and services provided is so significantly than those provided in 1995.

We believe that both of these options could be done administratively.

Finally, and we urge—and I think that this is the most critical

issue that I talk about today—that a policy be put in place to allow

a budget-neutral pass through of certain ancillary services. This actual, we feel, is necessary to protect access to care for Medicare’s

sickest beneficiaries.

The skills prospective payment system utilizes reimbursement

categories based on submission of the minimum data sets, specific

patient information. These categories simply do not adequately

handle the non-therapy ancillaries.

I want to share with you just this specific example. The Healthcare Financing Administration allocated about $47 per day

into the rate for non-therapy ancillaries. The actual example: a patient is admitted to a nursing facility for care. This patient diagnoses included respiratory failure, pulmonary disease, depression,

sepsis and pneumonia. These are not uncommon diagnoses for

nursing facilities. This patient has tremendous need not only for

nursing care, but the non-therapy ancillaries to meet their needs. A couple—$74 this patient would require for respiratory therapy alone, and $170 for pharmacy. The total cost of non-therapy ancillaries would come to $272. And as I mentioned before, the PPS rate

allocates only $47. HCFA has acknowledged the shortcoming of the

RUG-III system, and, in fact, in the demonstration States, the nontherapy ancillaries were passed through. And we urge that Congress would take the necessary action to allow for a budget-neutral,

temporary pass through until research and data can be completed

to appropriately roll these into the overall cost.

We appreciate the opportunity to be here today, and I look forward to continuing to work with you on behalf of the American

Healthcare Association.

Thank you.

[The prepared statement follows:]

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Chairman THOMAS. I thank you very much, Mrs. Ousley.

Mr. Miller.

STATEMENT OF THOMAS MILLER, CHIEF EXECUTIVE

OFFICER, LUTHERAN HOSPITAL OF INDIANA

Mr. MILLER. Thank you, Mr. Chairman, and members of the

committee.

My name is Tom Miller. I am the Chief Executive Officer of Lutheran Health System in Fort Wayne, Indiana. I appreciate the opportunity to talk to you today concerning the Balanced Budget

Amendment and its implementation by the Healthcare Finance Administration.

Lutheran is owned by Quorum Health Group, and through its affiliates and subsidiaries, Quorum owns 18 hospitals and manages

approximately 240 non-profit hospitals throughout the country. Lutheran is an active member of the Federation of American Health

Systems, and Mr. Jim Dalton, the president for Quorum and Chief

Executive Officer is chairman of the Federation.

By background, I would like to let you know that I spent the last

17 years in healthcare management. I’ve had the opportunity to

run great hospitals in Tennessee, Texas, Virginia, and Indiana. I’m

sorry that I have not run good hospitals in Louisiana and California, but look for the opportunity in the future.

Let me give you a glimpse of Lutheran hospital so that you can

understand the commitment that our staff has to the seniors and

the amount of community support that we offer. We have a 100

year tradition in providing healthcare in the Fort Wayne community. Lutheran is part of a two hospital MedServe system both with

skilled nursing facilities. We have a free-standing rehab hospital,

a home health agency. We have performed 150 transplants. We are

full-service tertiary care provider, and we’ve had the opportunity to

take care of 21,000 inpatients this past year and over 250,000 outpatients in our facilities.

We feel like we have to have a partnership with our largest

payer, and that is the Federal Government, and that is why we are

here today. We’re trying to build and maintain a healthy partnership with the Government and understand your commitment and

those of the committee as well as those of the Congress as well as

an important relationship with Administrator DeParle and all of

HCFA both in the regional office and nationally.

I can tell you from my seven years in Tennessee that I had the

opportunity to know Administrator DeParle, and I will tell you that

she is well thought of amongst the healthcare field and through the

Federation has done an excellent job in her role in HCFA.

However, running the Agency has a lot of difficult challenges,

and the collision of the millennium bug and the mandates under

the Balanced Budget Act against the back drop of swift changes all

have come together and have made her job significantly difficulty.

Still, as good as she is, the local healthcare people—from a local

healthcare viewpoint, we have major challenges on our hands.

Hospitals and health systems like Lutheran are dismayed on the

current course that HCFA appears to have chartered to address

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nounced plans to delay the hospital update for the Fiscal Year

2000.

You’ve heard much talk about Y2K and all associated with that.

As an administrator of a hospital, I will tell you that January 1,

2000 our patients will not have a problem with computers. Every

system will be in place. We cannot afford not to be ready. And we

expect the same from the Healthcare Finance Administration.

This is not a new problem although it gets a lot of play today.

It is a problem that has existed for awhile, and the delay in the

fiscal update that has been discussed is something that HCFA has

had experience with for the last 15 years. We don’t necessarily, in

the healthcare field, understand why these two issues. We’d ask for

your help to make sure that the interim payments are appropriately paid in many different fashions. But, from our standpoint,

we believe that these two issues perhaps are not related.

Equally as much as we look at Y2K from the healthcare field, we

have a hard time understanding how ill-advised transfer policy can

also be implemented at the same time that the Y2K problem exists.

And the transfer policies—I know that you have heard about

them—I can tell you that the provisions are going to be an administrative nightmare, and I suspect it will be a serious problem and

demand on all of HCFA.

I project to you that the problems that we are having today will

be magnified sevenfold in five years, and I want to give you a very

specific example.

In Virginia, as I was the hospital administrator, I received one

of the letters from HCFA in regard to the 72 hours rule indicating

that we needed to make payments related to overpayments of patients. The systems related to this were not in place when the 72

hour rules were implemented. As we move forward with the transfer policy where hospitals are going to have to find ways of tracking home-health patients that were discharged within three days,

the systems are not in place, and when asked that we look at a

delay related to that transfer policy, let’s fix the Y2K problems,

let’s look at opportunities that we have to put the systems in place,

and seven years down the road let’s not monitor these and find out

that we had a huge mistake.

In regard to home health, we have an agency that treats 600 new

patients each year with 50 employees. Plan delays will handicap

Lutheran’s ability to provide seamless, quality care to our seniors.

The delay is moving toward a perceptive payment for home-health

agencies and is particularly troubling for two reasons.

First, it means that the interim-payment system already emplaced with devastating consequences for home-health providers

and the clients they serve will remain in place indefinitely.

Second, at additional 15 percent reduction in payments scheduled for September 1999 will take effect with or without the implementation of the home-health PPS system.

I would point out that the interim-payment system already is

projected to save $10 billion more than what was initially sought

for in the Balanced Budget Amendment of $16.5 billion savings. In

that light, it would be unfair and unjust to reduce payments another 15 percent under those circumstances.

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One delay in the home-health area of which we applaud the

Agency involves the deadline for securing surety bonds. Recently

the Agency responded to the course of congressional concerns and

agreed to suspend until mid-February as well as the GAO oversight

role. Notwithstanding this extension, which, when it is formally

issued, will be the fourth Federal Register publication this year.

We continue to believe that the Agency is going in the wrong direction on the surety bond issues.

For example, the Agency’s insistence on a ceiling of 15 percent

of revenues, its rejection of other equally reliable forms of securities such as irrevocable letters of credit, and its refusal to combine

Medicare and Medicaid bonds strikes us as arbitrary and inconsistent with the intent of Congress when it established the Balanced Budget Amendment. We hope that the Agency will use this

opportunity to revisit these fundamental policy issues.

With regard to skilled nursing facilities, our understanding is

that HCFA intends to proceed as planned with the July 1 implementation of the skilled nursing facility PPS except for the consolidated billing and requirements under part B.

Our chief concern is that only after several major policy twists

and turns to HCFA ultimately arrive at the policy that is in place

today. The difficulty that we have is that hospitals and skilled

nursing facilities can’t properly plan to implement these radically

new systems. This type of uncertainty places hospitals at risk and

not just in terms of fiscal exposure, but in the current fraud and

abuse environment, hospitals can’t be legally held at risk.

Mr. Chairman, last year’s Balanced Budget Act contained unprecedented levels of combined Medicare and Medicaid reductions

across the provider spectrum that fell especially hard on the hospital community. The uncertainty that we have faced, however, in

trying to determine the best way to comply with the host of new

policies has made our job of managing these reductions much more

difficult.

As noted in the testimony, I fully understand the tremendous

pressures and the tight deadlines facing HCFA today, and I’m not

here to attack the Agency. It is clearly at the crossroads to change,

and in that context, some uncertainty even delay is inevitable. But

at the same time, as a hospital administrator, I must tell you that

my compassion is tempered by the reality that hospitals, including

mine, are at the frontier of healthcare and in a regulatory climate

that has become decidedly more complex over the years. It is virtually in an arena.

Lutheran Hospital delivers competent and quality patient care to

hundreds of people everyday with thousands of bills and annually

prepares several incredibly detailed cost reports numbering hundreds of pages. Still, we can’t afford to make a single mistake without risking major, adverse legal and fiscal consequences. Put another way, we are held fully accountable for every act of commission or omission. In this setting our biggest enemy is uncertainty.

In closing, I would ask that we ask you to try to set a course for

healthcare. We spend a significant amount of money changing and

rechanging to meet the needs of HCFA. It appears that hospitals

and health systems are at the end of the feeding chain and that

you establish the policies and the laws and that HCFA interprets

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those policies and laws and tries to implement them and gives hospitals days, weeks or a few months notice to implement these and

these hospitals are held totally accountable on day one as in the

skilled nursing facility proposals that are held out for comment—

I think they close today—that were implemented on July 1.

We ask for your help in establishing a course and plain be reasonable with our hospitals.

Thank you.

[The prepared statement follows:]

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Mr. MCCRERY [presiding]. Thank you, Mr. Miller.

Mr. Bernd.

STATEMENT OF DAVID L. BERND, PRESIDENT AND CHIEF EXECUTIVE OFFICER, SENTARA HEALTH SYSTEM; ON BEHALF

OF AMERICAN HOSPITAL ASSOCIATION

Mr. BERND. Thank you, sir.

Mr. Chairman, I am David L. Bernd, the Chief Executive Officer

of Sentara Health Systems which is a six-hospital system and notfor-profit located in Norfolk, Virginia.

I am here today as a member of the board of directors of the

American Hospital Association which represents nearly 5,000 hospitals, health systems, network providers and other providers of

care.

First, Mr. Chairman, I would like to commend your work as administrative chairman of the National Bi-Partisan Commission on

the Future of Medicare. As you know, we cannot continue to shore

up the trust fund by relying solely on reductions to providers.

Like you, we believe that we must change the basic structure of

the program. We support your efforts to strengthen Medicare for

generations to come.

We are here today to talk about the Balanced Budget Act and

the Year 2000. Hospitals and health systems agree that Y2K demands the immediate attention of everyone in healthcare. We applaud HCFA’s recognition that Y2K must be dealt with now. However, we are disappointed that HCFA plans to do so by delaying

the Year 2000 payment updates.

Across the Nation, hospitals are preparing for the date change

and making a commitment to do whatever is necessary to avoid

any disruptions in patient care. Sentara, for instance, has budgeted

$10 million for this effort, and it is 35 percent Y2K compliant as

of today.

The hospitals and health systems like mine are also trying to

cope with the Balanced Budget Act spending reductions. Delay in

the Year 2000 update adds to the burden. We still must pay the

bills associated with providing care, and those bills will keep coming during HCFA’s computer update.

Even if HCFA is confident that its computers are compliant,

problems could crop up. It is imperative that HCFA establish a failsafe contingency plan. We would like to work with HCFA to create

that plan including a provision to pay interest. At the same time,

if payment systems are impeded by the millennium bug, hospitals

and patients would be severely affected. A system to provide periodic payments based on past payment levels can prevent this. We

urge Congress to enact legislation to authorize such a system.

HCFA’s decision to delay PPS for home-health care also concerns

us because it extends the interim-payment system another year.

The IPS freezes historical base payments, as we’ve heard, locking

lower cost efficient providers into payments that are well below

their costs. This penalizes efficient agencies like hospital based and

visiting nurse association providers.

Moreover, 15 percent automatic reduction is scheduled for the

Year 2000 whether or not PPS is implemented. This reduction, in

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cient hospital based and visiting nurse association home-health

care agencies harder than others. We strongly urge Congress to revisit the IPS.

We also disagree with HCFA’s proposed delay with outpatient

PPS. The existing array of payment systems for outpatient services

is complex, expensive, and a large administrative burden. A simple

means of payment would simplify the system and could help bring

more efficient outpatient care.

I would also like to cite two issues unrelated to Y2K that are

part of the Balanced Budget Act.

First, is transfers. The act changed the definition of transfers to

include patient sent from acute care hospitals to a rehabilitation or

skilled nursing facility or a home health care agency. Efforts to coordinate patient care are frauded because the transfer provision penalizes hospitals for sending patients as soon as possible to the

healthcare site that best meets their needs. In addition, the prospective payment assessment commission found that on average,

patients who used post-acute care stay in the hospital stay in the

hospital longer than those who do not shining doubt on HCFA’s

claim that hospitals are pushing patients or rushing them into

post-acute care to receive extra Medicare payments.

Making the situation worse is HCFA’s decision to include swing

beds. These are acute-care beds in rural hospitals that are used for

post-acute services. Congress did not intend for them to be included

in the transfer position as Mr. Thomas noted in a letter to HCFA.

HCFA’s decision was arbitrary and must be reconsidered.

We urge you to support H.R. 2908 and S. 1604, legislation to repeal the entire transfer position.

Finally, we have concerns about the PPS for skilled nursing facilities. Our key concern is that the case-mix measure under SNF

PPS, the resource utilization groups, doesn’t reflect the resources

needed for hospital based SNF patients whose conditions are usually more complex than those of patients with free-standing SNF’s.

In conclusion, hospitals and health systems know that HCFA has

a big job ahead of it preparing a complex computer system for the

Year 2000. We are doing the same job, however, hospitals cannot

simply shut down their systems to prepare for Y2K, nor can they

delay the care that has been demanded by them daily by the patients and communities that they serve. The needs of Medicare

beneficiaries will not be delayed either. That is why HCFA must

meet its obligations to beneficiaries and hospitals and systems that

serve them.

We want to work with HCFA to find a way to continue critical

payment updates, and we want to help HCFA appropriately implement PPS for outpatients and SNF services. Y2K is a tremendous

challenge, but it is a challenge that all of us in healthcare must

face together.

Thank you.

[The prepared statement follows:]

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Chairman THOMAS [presiding]. Thank you all very much.

If you were here for the earlier testimony, you know that one of

the difficulties is that we don’t know that it is the Y2K and our

current problems are significantly related either except for the fact

that they occupy the same moment in time. And that for changes

that we think make sense—and frankly there are a number of

ways to adjust. For example, the interim payment, changing the

percentage mix and doing some other things as well as the Pappas

bill and the Collins bill indicate, simply aren’t going to be executed

because of the decision by HCFA.

So, what we need to do, as I indicated to HCFA, is get creative

in figuring out what it is that we can do. Obviously that means

that we don’t do our first choice, but frankly doing something is

more critical than getting our first choice because we’re not going

to be able to make some of the adjustments that you would think

would be relatively obvious. For example, as was mentioned by Ms.

Raphael on the changing of the formula, move the base year, none

of that is available to us.

So it is becoming a bit of a challenge as to just exactly what it

is that we are going to be able to come up with that will remedy

the discrepancies and can be done by HCFA in the time frame

we’re dealing with. And we’re committed to working with all parties to make sure that we find whatever that is.

Let me ask a general question and probably direct it to Mr. Davidson, but open to any who can respond. As you might guess, the

argument from HCFA has been that if we’re going to get into more

of this Medicare+Choice, we need more tools available to deal with

Medicare contractors. In fact, it has been stated that it is virtually,

if not impossible, to terminate a contract with a contractor.

Does anyone just off hand know of anyone that has been terminated? And if so, are you aware of the—in terms of the law, what

the mechanics are so we can at least get on the record if it is true

that they simply don’t have the tools to deal with contractors up

to and including terminating?

Mr. DAVIDSON. Mr. Chairman, my understanding——

Chairman THOMAS. And I would prefer if you can also react to

some kind of disciplining within the law short of terminating. I’ll

take either.

Mr. DAVIDSON. My understanding of the termination abilities of

HCFA is that they have the authority to non-renew a contract upon

its anniversary date with or without cause. They also have the authority to terminate a contract during its period for substantial

non-performance. I am not aware that they have ever exercised the

latter action.

In terms of disciplining, I am aware that when contractors have

performance difficulties of one sort or another, performance improvement plans and adherence to them is required as a condition

of continuing the contract.

Chairman THOMAS. Does anyone else want to respond? As I have

indicated there is an argument that they need greater flexibility.

In fact, my colleague from California, Mr. Stark, has introduced

legislation, H.R. 4186, I believe it is—it is called the Medicare Contracting Flexibility Act. Are you familiar with it?

Mr. DAVIDSON. I am somewhat familiar with it, sir.

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Chairman THOMAS. Well, for example, it allows HCFA to use

non-insurance companies as Medicare contractors. The Part A

would be carriers, Part B would be fiscal intermediaries. Any reaction to that part of it?

Mr. DAVIDSON. We don’t have a problem with that.

Chairman THOMAS. You don’t have a problem with that.

The second part of it is that it permits providers of medical services to choose their Medicare carrier or fiscal intermediary.

Mr. DAVIDSON. We think that there is a strategy that HCFA has

either explicitly or implicitly started to employ which breaks up the

contractor functions in a given geographic area between so-called

‘‘fraud abuse contractors’’—the MIP contractors, claims payment

contractors, other specialty contractors. Our view is that this is not

wise having one contractor who is responsible for both claim payment and fraud abuse activities in a given medical geographic area

given market is, in our opinion, the most effective way to get good

administration and good fraud and abuse protection for the program.

And we disagree with HCFA’s progress in breaking this up the

way they are doing.

Chairman THOMAS. Does anyone else want to react briefly?

Then the other one that I assume that you have some reaction

to is that Mr. Stark’s bill repeals the cost reimbursement system

giving HCFA greater authority to set payment rates.

Mr. DAVIDSON. We would be very, very much in favor of having

something besides the cost-reimbursement system for payment. I

think that it would put HCFA in a position to induce contractors

to better performance.

Chairman THOMAS. Is there any other reaction?

Ms. Raphael, just briefly, all of us are concerned about the Interim Payment System, and you have given graphic evidence of

how Visiting Nurses Associations are closing. Let me ask the question a slightly different way.

Forget the intermediate payment system. If we could have implemented initially the prospective payment system as it is structured,

do you think those visiting nurses programs would have closed anyway, or do you think that that structure would have provided a

minimally reasonable amount?

Ms. RAPHAEL. I think that the Visiting Nurses Associations

would have fared very well under a prospective payment system

because that kind of pricing system actually reward efficiency and

encourages efficiency and that is what we had hoped that any revised reform payment system would, in fact, do.

Chairman THOMAS. And without significant change in the intermediate payment system, if, in fact, it’s going to be present for a

longer period of time, which is my greater concern, we have got to

create some kind of an adjustment which allows incentives.

Last question. I don’t have an answer to this, and I would like

to try it out on you to help explain to me why in, for example, 1990,

the visits on a per-beneficiary using home-health services was 36

and by 1997 those visits had gone up to 80. What occurred in

roughly the decade of the 1990’s? In 1983 on the data I have—and

this is from a MedPAC information packet—in 1983 the per-beneficiary number was 28 home visits. Over that decade it went to 36.

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But between 1990 and today it has gone from 36 to 80. Since almost half, or about 48.9 percent are aid visits, does the relationship—and maybe, Mrs. Raphael, you might want to begin the comment on it—does the relationship between home visits in terms of

aids versus other skilled or particular needs, does that reflect a little bit in that structure? I have not been able to break it down in

terms of the number of visits that were strictly for aid or whether

they were partial.

Ms. RAPHAEL. I think that the reasons for the increase in utilization are multiple. I think that it certainly has to do with the fact

that there was a court decision which liberalized the Medicare benefit. I think that it had to do with changes in technology. It had

to do with what was happening in the hospital sector and with

State policies in some cases trying to manage the supply of nursing

homes as well as other factors in Medicaid expenditures in different States.

But I also do believe that like all insurance programs, if you look

at the Medicare home-health program, 10 percent of the beneficiaries use 43 percent of the resources. And who are they? They

tend to be people who fall into two categories. Either they are very

medically complex, (for example, they have cancer.) They have a lot

of hospitalizations, and they have a lot of episodes of home health.

Or they tend to be over 85, and they have functional impairments.

And to some extent, what they do need is a more supportive, longterm care benefit. And this second group tend to be the ones who

are diabetics with complications who may have come out of a hospital with bedsores, who may be incontinent, and therefore, it is

true that the ratio of aid visits in those cases is higher than is true

overall.

So, I think that you see the results of many forces at work here.

Chairman THOMAS. Does anyone else wish to react?

Mr. BERND. I think from running an integrated delivery system,

we have a number of hospitals and a home-healthcare agency. The

time frame that you talked about, probably the average Medicare

length of stay in a hospital went down by 50 percent. And that was

on probably providing more efficient patient care, but also at the

insistence of third-party payers and HCFA. It has driven up the

use of outpatient services.

Mr. MILLER. And I would agree with that. I think that the number of procedures that have been done on the outpatient basis, complicated procedures, have grown significantly. A lot of patients

don’t even get into the hospital and are treated on the outpatient

basis. Our home-health agency sees about 45 patient on the average today, and I will speculate that our average age of the patient

that we admit is, during this same time frame from 1990 to 1997,

is approximately four years older.

Chairman THOMAS. Are there additional reactions?

Thank you. Your answer was excellent. It is fairly obvious that

there were a number of changes in the system. I believe that the

primary problem was that they had no place else to go. In fact, government, I believe, created the skilled nursing facility universe,

and the decisions made in other areas drove the home healthcare

and that the real answer is, create what it is that people are trying

to get out home healthcare, which is a long-term care benefit, and

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you will see a readjustment in terms of the numbers. Of course, a

long-term care benefit is not now part of that package, and the

Medicare Commission is looking at that as a significant solution to

individuals needs in the next century with a more reasonable response on a need profile.

Thank you very much. The gentleman from Louisiana.

Mr. MCCRERY. Just one question for Mr. Miller and Mr. Bernd.

As you know, we’re going to be considering the HHS spending

bill here in the House. The White House proposed, as part of their

budget, funding certain HCFA functions by levying $650 million in

fees on providers, hospitals. The biggest provider fee would have

been about $395 million worth of charges on hospitals and Part A

providers.

What are your thoughts on the administration’s proposals for implementing user fees to pay for some of HCFA’s functions?

Mr. MILLER. I’ll give you a quick answer. Take the $650 million

and put it where it needs to be which is taking care of patients.

Mr. BERND. I think that it is rather difficult to put that burden

on the healthcare providers. We’ve talked about the issues of decreased payments and what is going to happen with Y2K. It is just

another tax on the healthcare system.

Mr. MILLER. We have had so many changes and so many reductions over the last few years. How much more can hospitals afford

to fund?

Mr. MCCRERY. So, you don’t approve of that part of the President’s budget?

Mr. MILLER. No, sir.

Mr. BERND. No.

Mr. MCCRERY. Thank you.

Chairman THOMAS. Let me ask one additional question because

it is out of that broad discussion that we had, and it was mentioned. And I want to get as fulsome an answer as I can. And it

has to do with the caps on the skilled nursing facility payments.

My understanding is that they will be delayed. In part the argument is because of the Y2K.

Ms. Ousley, on page two of your testimony, you state that, ‘‘a patient suffering from a stroke, a hip fracture, Parkinsons, or Alzheimers disease typically needs more than $3,000 in therapy.’’ If

you include all of those in that structure—I’m trying to understand

why it would be in all of those instances that that would be the

case. For example, if you have a hip fracture—I mean typically,

wouldn’t they be first admitted to an acute care hospital? And then

in a post-acute care structure, they have an opportunity to got to

the skilled nursing facility for up to 100 days under Part A. They

can go to a rehab hospital or unit. Obviously, we just discussed,

they could be sent home, depending on the situation, they could be

sent home to receive some home care. The Visiting Nurses Association could assist them. They might also, on an outpatient basis, receive therapy while they are still at home or some other kind of a

combination of services such as that.

So, the question would be, in that kind of a context, using the

one example that you provided, a hip fracture, how likely is it that

a patient will need more than $3,000 in SNF—a skilled nursing facility—therapy services after they have had an inpatient, a possible

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rehab hospital or unit admission, and 100 days of a skilled nursing

facility care covered under Part A?

Ms. OUSLEY. Well, sir, you are making an assumption that as the

patient transitions through each one of those levels of care that

they would be staying under a Part A care, and that is not necessarily the case.

Chairman THOMAS. But could it be the case?

Ms. OUSLEY. Under—it could be the case, but under most circumstances what our review and analysis predicts is that there will

be about 10 to 15 percent of the patients that would not follow that

course of therapy, and, in fact, they would be the ones that would

fall into the area that would need additional therapy that would

not be covered by the $1,500 cap. We think that that would translate into about 750,000 individuals that would not be able to access

the necessary care and services that they would need to achieve

their rehab potential.

Chairman THOMAS. My only concern is that as we were looking

for alternatives to try to slow down—I gave you an indication of the

growth of home-healthcare visits over the decade of the 1990’s. And

I think that the answers that were provided were excellent ones.

I think that they happen to represent a good rationale for why that

occurred in a number of different ways.

But in trying to examine a growth rate in the therapy services,

it was very difficult for us to put some kind of a demographic factor

price on what was occurring on the Part A. And on the Part B,

when you’ve got a growth from 151 million to 827 million within

a 5 to 7 year period at an average annual growth rate of 41 percent, and that is after they have exhausted the 100 SNF days, do

you have an ability to explain why there was that kind of a growth

rate tied to demographic or other factors?

Ms. OUSLEY. Well, I think that the demographics do come into

play there, but I also think that, especially in the skilled nursing

facility during this period of time, we have been seeing an intense

increase in the acuity level of patients that are transferred into the

facilities for our care.

Additionally, in 1990——

Chairman THOMAS. Yes, but isn’t it after they have had 100 days

of skilled nursing benefits that this kicks in?

Ms. OUSLEY. Pardon?

Chairman THOMAS. Isn’t it true that this is after 100 days of

SNF?

Ms. OUSLEY. Sir, the average utilization for——

Chairman THOMAS. I’m trying to understand what you’re saying.

You said that in terms of the acuteness of patients coming in. So

the acuteness carries through the 100 day SNF benefit and then

has to be treated with the therapy benefits on the other side of the

100 days?

Ms. OUSLEY. They—a patient does not necessarily always meet

the skilled, Part A criteria for a full 100 days. I think that the average utilization is about 22 days. So, when the patient is out of

their Part A, yes, the need for a continuing level of service, based

on their Part B, absolutely exists. And you certainly cannot assume—because most patients do not receive that covered 100 days

of service.

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Chairman THOMAS. It is just that we are looking for ways to try

to explain significant increases in dollar amounts. Any help that

you can provide us in alternatives other than simply delaying—the

kinds of controls unfortunately that are available to us are not as

sophisticated as we would like, but we would love to sophisticate

them as rapidly as we can.

Ms. OUSLEY. Well, you know, I think that one of the things that

the Senator—that Ensign’s bill that I referred to, it does move us

toward a PPS-like system for rehab services that would be based

on diagnosis. I think that that is critical to being able to have responsible use of the resources, but also to continue to meet the resident’s needs.

Chairman THOMAS. Well, I appreciate that, and obviously we are

working with it. Our problem is, again, that this occurrence of two

events in time, one a desire to change some of the structures that

we put in on an interim basis, and HCFA’s indication that they

aren’t doing anything for awhile makes it very, very difficult to

bring about changes. But I can assure you that on a bi-partisan

basis we will work with you to come up with—and I am looking for

some really creative ways to get around the Y2K argument. And

I will tell you that one of those that we are looking at, as I mentioned earlier, is the potential of a copay which we did not want

to deal with earlier, but it is something that could provide an adjustment on an interim payment since we now have a whole new

world that we hadn’t anticipated. We thought that we were going

to be able to adjust the formula rates, move the year around, do

some other things to come up with adjustments that would be relatively easy to do through computers. Apparently we are back to

paper and abacuses trying to figure out how to make this system

work.

So, any ideas you have would be greatly appreciated.

And I do want to thank you, on behalf of the subcommittee, for

your willingness to testify, and most importantly, for the content

of your testimony. Thank you very much.

[Whereupon, at 3:35 p.m., the hearing was adjourned subject to

the call of the Chair.]

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