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44–342 CC 1997

STATUS OF THE MEDICARE TRANSACTION SYSTEM

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON HUMAN RESOURCES

AND THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, 

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON GOVERNMENT 

REFORM AND OVERSIGHT 

HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS

FIRST SESSION

MAY 16, 1997

Serial No. 105–48

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

(

(II)

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT 

DAN BURTON, Indiana, Chairman 

BENJAMIN A. GILMAN, New York 

J. DENNIS HASTERT, Illinois 

CONSTANCE A. MORELLA, Maryland 

CHRISTOPHER SHAYS, Connecticut 

STEVEN SCHIFF, New Mexico 

CHRISTOPHER COX, California 

ILEANA ROS-LEHTINEN, Florida 

JOHN M. MCHUGH, New York 

STEPHEN HORN, California 

JOHN L. MICA, Florida 

THOMAS M. DAVIS, Virginia 

DAVID M. MCINTOSH, Indiana 

MARK E. SOUDER, Indiana 

JOE SCARBOROUGH, Florida 

JOHN B. SHADEGG, Arizona 

STEVEN C. LATOURETTE, Ohio 

MARSHALL ‘‘MARK’’ SANFORD, South 

Carolina 

JOHN E. SUNUNU, New Hampshire 

PETE SESSIONS, Texas 

MICHAEL PAPPAS, New Jersey 

VINCE SNOWBARGER, Kansas 

BOB BARR, Georgia 

ROB PORTMAN, Ohio 

HENRY A. WAXMAN, California 

TOM LANTOS, California 

ROBERT E. WISE, JR., West Virginia 

MAJOR R. OWENS, New York 

EDOLPHUS TOWNS, New York 

PAUL E. KANJORSKI, Pennsylvania 

GARY A. CONDIT, California 

CAROLYN B. MALONEY, New York 

THOMAS M. BARRETT, Wisconsin 

ELEANOR HOLMES NORTON, Washington, 

DC 

CHAKA FATTAH, Pennsylvania 

ELIJAH E. CUMMINGS, Maryland 

DENNIS J. KUCINICH, Ohio 

ROD R. BLAGOJEVICH, Illinois 

DANNY K. DAVIS, Illinois 

JOHN F. TIERNEY, Massachusetts 

JIM TURNER, Texas 

THOMAS H. ALLEN, Maine 

HAROLD E. FORD, JR., Tennessee 

———

BERNARD SANDERS, Vermont 

(Independent) 

KEVIN BINGER, Staff Director 

DANIEL R. MOLL, Deputy Staff Director 

JUDITH MCCOY, Chief Clerk 

PHIL SCHILIRO, Minority Staff Director 

SUBCOMMITTEE ON HUMAN RESOURCES

CHRISTOPHER SHAYS, Connecticut, Chairman 

VINCE SNOWBARGER, Kansas 

BENJAMIN A. GILMAN, New York 

DAVID M. MCINTOSH, Indiana 

MARK E. SOUDER, Indiana 

MICHAEL PAPPAS, New Jersey 

STEVEN SCHIFF, New Mexico 

EDOLPHUS TOWNS, New York 

DENNIS J. KUCINICH, Ohio 

THOMAS H. ALLEN, Maine 

TOM LANTOS, California 

BERNARD SANDERS, Vermont (Ind.) 

THOMAS M. BARRETT, Wisconsin 

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California 

LAWRENCE J. HALLORAN, Staff Director and Counsel 

MARCIA SAYER, Professional Staff Member 

R. JARED CARPENTER, Clerk 

CHERRI BRANSON, Minority Counsel

Page

III

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman 

PETE SESSIONS, Texas 

THOMAS M. DAVIS, Virginia 

JOE SCARBOROUGH, Florida 

MARSHALL ‘‘MARK’’ SANFORD, South 

Carolina 

JOHN E. SUNUNU, New Hampshire 

ROB PORTMAN, Ohio 

CAROLYN B. MALONEY, New York 

PAUL E. KANJORSKI, Pennsylvania 

MAJOR R. OWENS, New York 

ROD R. BLAGOJEVICH, Illinois 

DANNY K. DAVIS, Illinois 

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California 

J. RUSSELL GEORGE, Staff Director and Counsel 

MARK UNCAPHER, Counsel 

JOHN HYNES, Professional Staff Member 

ANDREA MILLER, Clerk 

DAVID MCMILLEN, Minority Professional Staff Member 

MARK STEPHENSON, Minority Professional Staff Member 

(V)

C O N T E N T S 

Page 

Hearing held on May 16, 1997 ............................................................................... 1

Statement of: 

Vladeck, Bruce, Administrator, Health Care Financing Administration ..... 44

Willemssen, Joel C., Director, Information Resources, General Accounting 

Office, accompanied by Leonard J. Latham and Mark E. Heatwole ........ 8

Zaks, Irving, vice president and general manager, information systems 

division, GTE; and Bruce Burton, vice president, Intermetrics Systems 

Services Corp. ................................................................................................ 77

Letters, statements, etc., submitted for the record by: 

Burton, Bruce, vice president, Intermetrics Systems Services Corp., prepared statement of ........................................................................................ 87

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

California, prepared statement of ................................................................ 7

Shays, Hon. Christopher, a Representative in Congress from the State 

of Connecticut, prepared statement of ........................................................ 4

Vladeck, Bruce, Administrator, Health Care Financing Administration: 

Additional questions and responses ......................................................... , 75

Prepared statement of ............................................................................... 46

Willemssen, Joel C., Director, Information Resources, General Accounting 

Office, prepared statement of ....................................................................... 11

Zaks, Irving, vice president and general manager, information systems 

division, GTE: 

Information concerning summary list of meetings ................................. 100

Prepared statement of ............................................................................... 80

(1)

STATUS OF THE MEDICARE TRANSACTION 

SYSTEM 

FRIDAY, MAY 16, 1997 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HUMAN

RESOURCES, JOINT WITH THE SUBCOMMITTEE ON GOV- ERNMENT MANAGEMENT, INFORMATION, AND TECH- NOLOGY, COMMITTEE ON GOVERNMENT REFORM AND

OVERSIGHT, Washington, DC. 

The subcommittees met, pursuant to notice, at 11:28 a.m., in 

room 2154, Rayburn House Office Building, Hon. Stephen Horn 

(chairman of the Subcommittee on Government Management, Information, and Technology) presiding. 

Present: Representatives Horn, Sessions, Davis of Virginia, and 

Maloney, Subcommittee on Government Management, Information, 

and Technology; Representatives Snowbarger and Kucinich, Subcommittee on Human Resources. 

Ex officio present: Representative Waxman. 

Staff present: Lawrence J. Halloran, staff director and counsel; 

Marcia Sayer, professional staff member; R. Jared Carpenter, clerk; 

J. Russell George, staff director and counsel; Mark Uncapher, counsel; John Hynes, professional staff member; Andrea Miller, clerk; 

Cherri Branson, minority counsel; and David McMillen and Mark 

Stephenson, minority professional staff members. 

Mr. HORN. Today, we’re reviewing the information and data systems in support of America’s Medicare program. A quorum being 

present, we shall begin. Mr. Snowbarger will give the statement of 

our co-chairman of this hearing, Mr. Shays of Connecticut. He is 

unavoidably detained, and so I will yield to my colleague for reading the co-chairman’s statement as well as any remarks he has on 

his own. 

Mr. SNOWBARGER. Thank you, Mr. Chairman. 

Think of Medicare as the trusty family station wagon, the aging, 

but serviceable, vehicle that we rely upon to carry precious cargo 

safely and efficiently. Although many cars can go faster and some 

run more cheaply, we wouldn’t think of using anything else. 

But our Medicare vehicle needs substantial mechanical repairs if 

it’s going to carry us into the next century without a major breakdown. Under the hood, Medicare’s engine, the computerized claims 

payment system is a sputtering, inefficient tangle of jury-rigged repairs and incompatible parts that no one mechanic can understand 

and fix. 

Rather than continue tinkering with the old system, the Health 

Care Financing Administration correctly decided to replace the enVerDate 0ct 02 2002 12:44 Oct 05, 2002 Jkt 010199 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 W:\DISC\44342 44342
2

tire Medicare drive train with integrated up-to-date technology. 

That was almost 5 years ago. Today the repair project, called the 

Medicare Transaction System, is a costly shambles. After spending 

more than $40 million dollars, committing to spend more than $100 

million, and projecting to spend more than $1 billion, HCFA has 

halted work on all but the newest and simplest element of the new 

computer system. 

Despite earlier and repeated warnings from the General Accounting Office, congressional committees, including our subcommittees, 

and HCFA’s own technical consultants, the MTS project has been 

hobbled by poor management, weak risk assessment, and questionable cost assumptions. 

Now HCFA is re-evaluating MTS. This is no midcourse correction, but a fundamental reassessment of the MTS process and the 

prospects for completion before the millennium dawns. Alarms are 

sounding, and the future of the Medicare program hinges on our 

response. 

At our joint hearing in November 1995, I asked if MTS would 

succumb to delays and design flaws that doomed other Federal 

computer acquisitions to early obsolescence or failure. We were assured HCFA was on schedule for transition to MTS beginning in 

September 1997, with full transition completed by September 1999. 

We were also assured HCFA welcomed our continuing interest and 

would periodically report MTS progress and problems. Neither assurance proved very accurate. 

Pursuant to our bipartisan request, GAO audited the MTS development process, risk assessment, cost estimates and the year 2000 

transition activities. We will hear their findings and recommendations today. They describe critical managerial and technical weaknesses that continue to delay and undermine the MTS effort. 

Nor was HCFA forthcoming with information as the process of 

defining the system requirements churned endlessly and the MTS 

schedule slipped further. The complexity of the project, the fluidity 

of the design process, and HCFA’s introverted culture combined to 

veil MTS behind multiple layers of disclaimers and equivocations. 

For months, while renegotiating the design contract, HCFA would 

not tell us the exact status of MTS. Now, in view of the 90-day 

stop-work order issued April 4, HCFA disclaims its own cost estimates because key design elements may be changed. 

An unrealistic schedule and an unwillingness or inability to communicate critical information make it very difficult to be confident 

MTS will ever be the fix Medicare needs to serve beneficiaries and 

stem losses to fraud and abuse. Today, we ask the HCFA Administrator to assure us once again that MTS is both a realistic vision 

for Medicare and one within the agency’s capacity to realize. We 

also need to be sure the still distant promise of MTS is not blinding 

the agency to other near-term cost-effective steps to a unified Medicare claims system. 

This joint hearing reflects the determination of all our Members 

to keep Medicare on a safe course. The Government Management, 

Information, and Technology Subcommittee, led by my good friend 

Mr. Horn, is responsible for the oversight of the governmentwide 

performance and procurement issues. The Human Resources Subcommittee oversees Federal health and human services programs. 

3

Together we will continue to examine the problems and progress of 

MTS. 

Finally, I have to express my disappointment that the Office of 

Management and Budget declined our invitation to testify today. 

Their testimony would have been helpful to us. OMB’s role in directing agency information, technology and acquisitions is central, 

and I hope the lessons of MTS will not be lost in the one agency 

in position to guide all other major system procurements. 

To all the other witnesses who accepted our invitation, welcome. 

Your testimony is an important part of our ongoing MTS oversight, 

and we appreciate you being here. 

Thank you, Mr. Chairman. 

Mr. HORN. We thank you for reading co-Chairman Shays’ statement. And that is very helpful. 

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

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Mr. HORN. Let me briefly read one of my own. As I noted when 

we started today, we’re reviewing the information and data systems that support America’s Medicare program. We’ve been here 

before on this subject. In November 1995, these two subcommittees 

held a joint hearing that considered among other matters how existing information technology processes could be incorporated into 

the Medicare claims system to more effectively identify fraud. 

Based on several reports from the General Accounting Office over 

the years, we’ve had very serious concerns at that time as well as 

now about the ambitious Medicare Transaction System or MTS. We 

believe that the Health Care Financing Administration was illequipped to manage such a massive and complex project. We believe that the costs would outweigh the benefits. 

Unfortunately, our beliefs have materialized. On April 4th, the 

Health Care Financing Administration announced that it was exploring other options to develop MTS. The project is in jeopardy. 

Moreover, we’ve learned that the Health Care Financing Administration has a serious year 2000 problem as well. 

The General Accounting Office has written a report that includes 

sharp criticism of the Health Care Financing Administration’s involvement in the year 2000 software conversion effort of its claims 

contractors and standard systems maintainers. Needless to say, if 

the Medicare system is unable to process claims accurately in the 

year 2000, the impact on Medicare beneficiaries across the country, 

and, indeed, the entire health care system, could be catastrophic. 

Where do we stand now? We need to get assurances today about 

the future of the Medicare Transaction System as well as the 

Health Care Financing Administration’s management of the year 

2000 problem. 

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. HORN. So I’m delighted to start with panel one. I’m not sure 

that was a vote on the floor. It is a vote. I’m going to swear you 

in, then I’m going to go to vote and come back and begin the hearing. 

So, gentlemen, you know the routine of the committee. Raise 

your right hands. 

[Witnesses sworn.] 

Mr. HORN. The clerk will note that all three witnesses have affirmed. 

We are going to be in recess until we’ve cast the vote and return. 

[Brief recess.] 

Mr. HORN. The subcommittees will reconvene, and we will begin 

with the testimony of the first panel. With us is Joel Willemssen, 

the Director of Information Resources of the General Accounting 

Office, and if you would identify your colleagues, we would appreciate it. 

Mr. WILLEMSSEN. Thank you, Mr. Chairman. 

Accompanying me today is Mark Heatwole, Assistant Director, 

and L.J. Latham, Technical Assistant Director. Thank you for inviting us to testify today on MTS. 

Mr. HORN. I might say at this point you know your full statement will be in the record, and so will the GAO study on which 

it is based, as well as the various exhibits you have. Go ahead. 

STATEMENT OF JOEL C. WILLEMSSEN, DIRECTOR, INFORMATION RESOURCES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY LEONARD J. LATHAM; AND MARK E. HEATWOLE 

Mr. WILLEMSSEN. Thank you, Mr. Chairman. Accordingly, as 

agreed, I will summarize our statement today. The results are presented in more detail in a report to you that’s being released today 

at the hearing. 

In summarizing my statement, my comments will focus on three 

areas. First, HCFA’s management of its interim claims processing 

environment in which it must operate until MTS software is implemented; second, how HCFA has managed the MTS as an investment and assessed the system’s cost and benefits; and third, how 

effectively sound systems practices have been used in developing 

the MTS software. 

Prior to MTS being fully implemented, HCFA will continue to operate in an interim processing environment for a number of years. 

In doing this, HCFA plans to reduce the number of existing claims 

processing systems to one for Part A and one for Part B and cut 

the number of processing sites by about half, to about 20 nationwide. HCFA was then planning in mid-1998 to move these systems 

to two planned MTS processing sites and then fully implement the 

MTS software at these sites sometime after the year 2000. 

To successfully handle this major transition, careful and detailed 

planning is necessary. However, this has not been done. In particular, we see unnecessary risk in HCFA’s approach to address the 

year 2000 computing issue. Failure to adjust systems for the year 

2000 could cause payment delays as well as losses due to bypassed 

system controls. However, HCFA’s year 2000 plan has been focused 

predominantly on its own internal systems rather than its conVerDate 0ct 02 2002 12:44 Oct 05, 2002 Jkt 010199 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 W:\DISC\44342 44342
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tractor systems, which are responsible for processing about $200 

billion annually in claims. 

A further complication is that these contractors may not have 

much incentive to make changes because HCFA intends to eliminate the contractors once MTS has been implemented. We are concerned that HCFA is relying predominantly on its contractors and 

has not been closely monitoring their activities or demanding assurances from the contractors that they will indeed fix the systems. 

Second, regarding managing MTS as an investment, HCFA cannot make informed technology investment decisions without a valid 

cost-benefit analysis and an effective assessment of available alternatives. However, this has not been done for MTS. HCFA’s estimates of MTS benefits are based primarily on unsupported assumptions. For example, officials said that much of the anticipated 

program savings would result from automated edits, to identify unnecessary medical services and abuse of billing that could result in 

excessive payments. They acknowledge, however, that since they 

have not yet identified the edits to be included in MTS, resulting 

savings could differ substantially from these estimates. 

Another incorrect assumption is that without MTS, costs for 

claims would continually increase between the years 1993 and 

2002. Yet, actual contractor reports for 1994 through 1996, show a 

drop in costs of about 10 percent. Our chart over here shows the 

escalation in MTS costs. The figure on the left gives the escalation 

in total estimated costs for the entire MTS program, while the figure on the right on that chart is the escalation in costs for the software development contract with GTE. As shown on the chart, total 

estimated costs have dramatically increased almost sevenfold since 

the 1992 estimate of about $151 million. We now estimate, based 

on HCFA figures, that the total MTS price tag will be approximately $1 billion. 

Regarding the GTE contract, which was awarded slightly more 

than 3 years ago at about $18 million, actual estimated cost of that 

contract is now slotted at $92 million. There are alternatives to 

spending of this magnitude, and we believe that HCFA has a responsibility to explore them. For example, 2 years ago we urged 

HCFA to investigate commercial off-the-shelf software to help detect billing abuse. We understand that HCFA is currently looking 

into this. 

The third major area of our review is that HCFA is not assuring 

that sound systems development practice is being followed. HCFA 

has not developed plans critical to system success, has not managed its schedule well, and has not adequately monitored its contractor’s software development strategy. 

If I may point you to the other chart we have here, the chart has 

six figures. Each of those figures represents a major release or 

major module or piece of the software that GTE is responsible for 

developing. But what we’ve seen on the requirements for each of 

those releases is continued volatility. Even 3 years after the contract has been awarded, there is still not agreement on exactly 

what the system is supposed to do. This makes it, of course, very 

difficult for GTE to go ahead and program, and this is a key critical 

continuing concern. 

10

Deficiencies in critical systems development processes provide 

warnings of weaknesses in the management capability of HCFA 

and its contractors. These factors all increase risk. Among the critical areas that remain unresolved include missing or inadequate 

plans for requirements management, configuration management, 

and systems integration. 

In summary, we believe serious weaknesses with MTS exist. 

These weaknesses call into question whether MTS, without significant change, will be able to perform as required. 

Further, given the escalation in estimated costs, we have con- cerns whether MTS is worth the estimated $1 billion price tag. 

More can and must be done if HCFA is to obtain the type of system 

that it needs. 

Our report that’s being released today includes 20 major recommendations to help HCFA enhance the likelihood of acquiring a 

cost-effective system. We are encouraged that in commenting on a 

draft of our report, both OMB and HHS agreed with our findings 

and have agreed with all of our recommendations. However, our 

recommendations must be effectively implemented in order for a 

project such as MTS to succeed. 

That concludes the summary of my statement. I would be 

pleased to address any questions you may have. 

Mr. HORN. Well I thank you very much for that statement. 

[The prepared statement of Mr. Willemssen follows:]

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Mr. HORN. I’m going to only ask one or two questions and yield 

to my colleagues. But the first question I want to ask: you’ve been 

with GAO since 1979. Did you have anything to do with reviewing 

what the FAA did in terms of their failures in computerization and 

what IRS has done in its failures on computerization? Were you involved in those reviews at all? 

Mr. WILLEMSSEN. I participated and led numerous reviews at the 

Federal Aviation Administration, not at the IRS. 

Mr. HORN. Not at the IRS, because my question is—and I think 

you probably have some knowledge of the IRS since they did take 

a look at it—what’s different about this? Are they going down the same path that led to $4 billion down the drain with FAA, $4 billion down the drain with IRS? Are we headed there? 

Mr. WILLEMSSEN. I would say we are concerned that we do see 

certain similarities, but I am encouraged by recent actions at OMB, 

HHS, and HCFA, that they intend to stop and reassess and not 

proceed in a hurried manner, but at the same time expeditiously 

try to do what’s right. We would encourage them to base future decisions on full and complete analysis rather than deciding and then 

putting together analysis to support those presupposed decisions. 

So I have seen some similarities, but again, we’re encouraged by 

recent actions. We support the stop-work order of April. We think 

that was a recognition that there are problems, and that we have 

to halt and reassess and do what’s best from here on out. 

Mr. HORN. Is part of the problem the failure to have initial planning cost-benefit analysis, all of which you mentioned, and the 

GAO report released today mentions, or is it the management of 

the project as it evolves where decisions are made, not simply drift, 

and everybody’s ideas get put into the mix? And that, I think, was 

some of the problem in the other two agencies. 

Mr. WILLEMSSEN. Yes, I think it’s—it definitely has elements of 

both. We think, for example, in accordance with Clinger-Cohen, it 

is especially critical for a project such as this, the agency should 

be routinely providing the estimated cost of the project. Unfortunately, that kind of information has not been available until very 

recently so that key stakeholders, such as critical congressional 

committees such as yours, can keep an eye and watch on what’s 

going on. That has not been done. And we would hope that from 

this point forward that kind of continuing investment analysis, 

tracking what the estimated costs and benefits and risks are going 

to be, and comparing them to what the actual—what actually occurs, is going to happen. 

In this particular case, a key element that I want to emphasize 

again is the fact that requirements for what you want the system 

to do have to be defined before you’re going to be able to really do—

write software and develop a product. More than 3 years after the 

contract is awarded, we still aren’t at that point. 

Mr. HORN. Let me ask you about an issue that is of great interest to this subcommittee which began focusing on this over a year 

ago. In your report and in your testimony, you’re highly critical of 

the Health Care Financing Administration’s management of the 

year 2000 conversion efforts and of the existing claims processing 

contractors as well as the standard systems maintainers. Now the 

Health Care Financing Administration responded that it has relied 

33

on its contractors to make necessary software changes in the past 

and expects they will be able to make these changes in the future. 

The obvious question is: What are the risks for the Medicare 

claims processing system if these year 2000 software changes are 

not successfully completed, and what do you think of the plan they 

have to move ahead in that area? In the recent report of the Director of the Office of Management and Budget, as the basis for their 

budget estimate, which is absolutely off the wall in terms of the 

$2.3 billion cost to the Federal Government, they had these agencies turn in a semi-timetable. I can’t say it was a plan, but it was 

a timetable. And one of the problems is it seems to all pile up in 

the year 1999, and not much time is left with some agencies to 

really work the bugs out of it. And I just wondered what your reaction is on this? 

Mr. WILLEMSSEN. We’ve been very concerned with HCFA’s plans 

to address the year 2000 issue with its contractors. Until very recently its plan essentially dealt with only its internal systems, and 

it was relying entirely on its contractors to make the fixes. We 

thought that was a highly risky approach. There weren’t contingency plans developed, and still aren’t. In the event there is a failure, what are we going to do; what’s the backup plan? There has 

been no assessment of the severity of the impact, in the event there 

is year 2000 failure, what would actually happen to claims. That’s 

another area that we think definitely needs to be addressed. 

Mr. HORN. On that point, what would happen to claims? Obviously, one is eligibility——

Mr. WILLEMSSEN. Potentially. 

Mr. HORN [continuing]. Just are you 65? 

Mr. WILLEMSSEN. Definitely. 

Mr. HORN. And are you subtracting from 1900 or the year 2000, 

00. And I assume there are other things, such as hospital days, 

nursing home days, all the rest of the scheduling. 

Mr. WILLEMSSEN. Dating is especially critical, but that assessment of the particulars, we have not seen that yet, so we are obviously concerned. We are also concerned because HCFA hasn’t required contractors to provide them assurance that they’re going to 

fix it. We would assume that that would be a bare minimum step. 

Mr. HORN. In other words, in neither the hardware nor the software they’re examining to see that they’re 2000-compliant—or not 

examining? 

Mr. WILLEMSSEN. One of the contractors we visited was examining the software. One of the difficulties, though, is that software 

is sent to multiple locations. What assurance does HCFA have that 

each location is using the same version of the operating system, 

same data base management system, same telecommunications, 

same communications, and other peripherals? They’re relying on 

the contractor. So we definitely have concerns in that area. 

Mr. HORN. Is there a separate chief information officer for the 

Health Care Financing Administration? 

Mr. WILLEMSSEN. It’s one positive note in our report that HCFA 

has recently established the position, and will be filling it shortly 

as part of their reorganization, which I believe is going into effect 

this summer. 

34

Mr. HORN. In other words, they’ve had a year to do something 

about this since the law was passed, maybe a year and a half, and 

they haven’t filled the position yet? 

Mr. WILLEMSSEN. Well, actually, under the law, HHS is required 

to have the chief information officer. And many of the component 

agencies often follow suit, but are not legally required to do so. 

Mr. HORN. I now yield 10 minutes to the gentleman from Kansas, Mr. Snowbarger. 

Mr. SNOWBARGER. Thank you, Mr. Chairman. 

I’ve got a couple of questions specific to MTS, but let me ask an 

overall question first. One of the problems it seems that we’re dealing with here is that the original estimates were far understated, 

so much so that it would seem like anybody that knew what they 

were doing would have come a little bit closer anyway. My question 

to you is: To what extent is GAO involved either formally or informally in the original RFP process and trying to make those estimates, determinations of cost to the program? 

Mr. WILLEMSSEN. We are only involved from an evaluation perspective, from an external perspective. We are not involved in actually getting in with the agency and helping them make those decisions. We do participate as an—in an evaluative role. 

Mr. SNOWBARGER. So basically you come in after the fact and 

say, here’s your estimate, but here are the mistakes you’ve made 

in trying to come up with that or——

Mr. WILLEMSSEN. Well as Chairman Horn pointed out, in this 

case, though, we have previously reported on many of our concerns 

with the Medicare Transaction System. I guess I’m trying to make 

the point that we can’t tell HCFA, obviously, what to do. We can 

offer suggestions, offer recommendations as it pertains to cost estimates. And, in fact, that’s what we tried to do in the report we’re 

releasing today. But we can’t direct action. 

Mr. SNOWBARGER. I understand that. And I guess my concern 

is—and the chairman mentioned two or three different underestimations, particularly in terms of computerization technology—that 

it seems like we’re not doing a very good job with coming up with 

estimates in the first place. When it comes in with a significantly 

understated cost, Congress is more likely to accept the program 

and accept the direction; whereas if we knew the real cost, perhaps 

we’d have a different assessment of cost benefit analysis program. 

And I’m just trying to figure out a way that we can get a better, 

more accurate job in getting those estimates in the first place. 

Mr. WILLEMSSEN. I think, if I may——

Mr. SNOWBARGER. Sure. 

Mr. WILLEMSSEN [continuing]. Insert, Congressman, I think full 

implementation of the Clinger-Cohen Act, which was enacted in the 

last year, would go a long ways in doing that which is going to 

force agencies to take an investment approach to their information 

technology acquisitions and at all times, from cradle to grave, have 

an understanding of what the costs, benefits, and risks are on a 

schedule and an actual basis. 

Mr. SNOWBARGER. What’s the—if you could single out any change 

that you recommend to HCFA, what would that change be for the 

success of the MTS project? 

35

Mr. WILLEMSSEN. I would say the one thing that we are greatly 

encouraged by is the stop-work order and the recognition——

Mr. SNOWBARGER. I’m encouraged by that, too, because they 

are—they’ve been failing thus far. I’m glad they’re stopping. But 

just because they stopped doesn’t mean they’re going to proceed in 

the right direction once they gear up again. 

Mr. WILLEMSSEN. And the most important next step is to do the 

analyses that we pointed out both in the statement and in our report that drive the decisions rather than vice versa, that HCFA or 

whoever makes a decision and then puts together an analysis to 

support that decision. We think, for example, in the investment 

area, cost benefits and risks, there needs to be a full assessment 

of available alternatives on costs, benefits, and risks of each of 

those alternatives for what can best meet the needs of the Medicare claims processing area. That is especially critical. 

Mr. SNOWBARGER. Do you have any assurance or confidence that 

that kind of assessment is going to be done? 

Mr. WILLEMSSEN. I have more confidence today than I would 

have stated 6 weeks ago. 

Mr. SNOWBARGER. I’m not sure how comforting that is, but that’s 

OK. 

What recommendations have you made that have not been heeded, but you think would make significant impact on MTS project? 

Mr. WILLEMSSEN. Unfortunately the same ones that we just 

talked about. When we testified 18 months ago, we were pushing 

hard to have a full disclosure of investment cost benefits and risks. 

And subsequent to that, that did not occur. We are certainly hoping 

at this point that it will. 

Mr. SNOWBARGER. The combination of your two answers is not 

very comforting at all, because basically you’re saying you’re hoping you’re going to get what you asked for 18 months ago but didn’t 

get then, but you’ve been assured you will get it in the future. 

Mr. WILLEMSSEN. Well, the one distinction is there has been the 

stop-work order and a general recognition. When these kind of figures are disclosed, I don’t think the project can go much further 

without some substantial change. 

Mr. SNOWBARGER. I thank you. 

Thank you, Mr. Chairman. 

Mr. HORN. I’m now delighted to recognize the gentleman from 

Ohio, Mr. Kucinich. 

Mr. KUCINICH. Thank you very much, Mr. Chairman, members 

of the committee. 

Mr. Chairman, I certainly appreciate the work which this committee is doing in trying to protect the taxpayers’ investment in 

computer systems which are designed to handle not just bits of information, but the—the complex social and medical concerns which 

the American people have. We can sometimes get so bogged down 

in the technical details of computer or program failure that we forget that millions of Americans depend on these programs to work, 

and if there’s a glitch in a computer which has an effect on someone’s delivery for benefits or their being able to even be listed at 

all, that’s something that concerned the Congress. So it’s appropriate we’re here. 

36

I would just like to add to this discussion, Mr. Chairman a 

slightly new wrinkle, which perhaps the GAO has heard about, and 

the Chair, I’m sure, is familiar with. Since 1984, the Federal Government has spent over $2 billion in Federal funds to help develop 

statewide computer tracking systems to catch deadbeat dads and 

to make them pay child support. Only eight—and I’m sure the 

GAO knows all about this. Only eight States currently have systems that are certified by the Department of Health and Human 

Services. And furthermore, since the inception of Ohio’s State Enforcement Tracking System, Ohio has spent, since 1988—now follow this, Mr. Chairman—$35 million of Federal money on the development and installation of the system. Yet only one county in 

all of Ohio, all of 88 counties, is currently on-line. That’s Pickaway 

County, which has 140 delinquent child support cases. Are you following this, Congressman Snowbarger; 140 delinquent child support cases, and yet we’ve spent $35 million already. Now you want 

to talk about ‘‘deadbeat dads.’’ How about a ‘‘deadbeat’’ computer 

system? Right now they’re talking the current projected costs of 

Ohio’s computer system is about $92 million. I don’t know what 

success we’re having in tracking those 140 cases in Pickaway either. 

We have a mess here of a major order, and while this is tangential, this issue is tangential to what we’re speaking about today, let 

it be said that this problem of computer chaos is systemic. It is not 

related just to MTS. Certainly, the Senate Governmental Affairs 

Committee in their report in October 1994, in talking about the billions that have been wasted in the computer systems, have hit a 

nerve, but I want the GAO to know, and, Mr. Chairman, this would 

be, I believe, a worthy topic for a future meeting of this committee, 

where perhaps the GAO could grace the committee meeting with 

their attendance as well. I’ve sent a letter to Chairman Christopher 

Shays about it outlining some of my concerns. 

But you know, we’ve—I think all of us share the concern that the 

Federal dollars be used to deliver services. We’re putting the 

money into hardware, and we’re not creating any solutions. We’re 

creating more problems and more waste. 

So thank you, Mr. Chairman. 

Mr. HORN. On that tale of horrors that you’ve described, we could 

endow the helpless spouse and children left behind at about 

$657,000 endowment, and that would draw, if properly invested, 

$60,000 a year to solve some of the problems at home. 

Mr. KUCINICH. Exactly, Mr. Chairman. And when you think 

about how you could distribute those benefits in a different way, 

it boggles the mind. And that’s why this committee’s work is so important to the American people, and I appreciate the Chair’s further insights on this. 

Mr. HORN. Well, I thank the gentleman from Ohio. One of my 

pet targets last year was the Columbus Processing Center of the 

Department of Defense. Now they’ve assured me that they’ve 

straightened that out, and maybe you and I and whoever else we 

could get to go along should have a field hearing out there and look 

at both of them. 

Mr. KUCINICH. Did the Chair say a field hearing or a field day? 

Mr. HORN. A little of both. 

37

Mr. KUCINICH. Thank you. 

Mr. HORN. Would the General Accounting Office like to comment 

on that? 

Mr. WILLEMSSEN. Yes. Congressman, I wanted to let you know 

that we will be issuing a report on June 30, to Congressman Hyde 

and Congressman Woolsey on child support enforcement systems. 

I would expect that report to be released probably sometime in the 

July timeframe. We would be more than pleased to come up and 

brief you on it. 

Mr. KUCINICH. Thank you, Mr. Chairman. Thank you. 

Mr. HORN. I hope you’re including in that the Horn-Maloney 

Debt Improvement Act which Commissioner Adams in Massachusetts said made his day, and he plans to collect millions from 

‘‘deadbeat dads’’ using the access to the Federal systems to track 

addresses and everything else. But I was rather pleased when he 

called me up that day and said that law pleased him, as opposed 

to some others we passed down here. 

Now I’m delighted to yield to the gentleman from Virginia, who 

is an expert in this area. Mr. Davis. 

Mr. DAVIS OF VIRGINIA. Thank you. I don’t know. I used to be 

an expert. 

You know the IT field is changing so rapidly and needs change, 

but I was puzzled. Two years ago, the IV&V contractor gave warnings to HCFA. I don’t know how they responded to it. But I would 

like to know GAO’s best observation of HCFA’s management structure. How does this fit into the reorganization currently going? And 

then GAO’s responses to the IV&V contractors’ warnings on this, 

and was it satisfactory? 

These systems can be so complex. I know how difficult it can be 

sometimes, how sometimes these projects are poorly defined at the 

beginning, and there are different understandings between the contractor and the Government. And that’s why we have IV&V contractors to help oversee that and give warnings and the like, because it’s very often beyond the abilities and the capabilities of inhouse to understand everything that’s going on. I am just interested in how that process got astray here——

Mr. WILLEMSSEN. I totally agree with your comments on the need 

for help and oversight from an IV&V. Frankly, HCFA isn’t in the 

business of going out and acquiring major software projects, so it’s 

unrealistic to think they would go out the first time and acquire 

this huge system and do it incredibly well. They don’t have the experience to do it. That’s why we were supportive of them getting 

an IV&V contractor, Intermetrics. Ideally, it would have been obtained before the contract was awarded, to give them additional 

support. But agencies such as HCFA, throughout the Federal Government, as you noted, need support. They don’t always have the 

expertise to carry it out themselves. 

One area of disappointment that we’ve noted is that, not in all 

cases, some of the IV&Vs’ findings were not heeded by HCFA. The 

IV&V pointed out many of the same risks in the software development area that we’re illustrating in our report today. HCFA was 

aware of those and didn’t take the necessary actions at the time. 

Mr. DAVIS OF VIRGINIA. I’m not sure why they wouldn’t. I mean, 

this is something that most contracting officers and procurement 

38

professionals when they get these, they understand, it’s a complex 

nature, would not want to go out on their note. They want to have 

the background support. They know they have to stand up and answer to this someday before a committee like us. And I don’t understand why they weren’t heeded, and he’ll get to that, I guess, a little later. Any thoughts as to why it wasn’t heeded? 

Mr. WILLEMSSEN. I think, again, going back to the major underlying cause for this, there was a severe underestimation of the complexity involved, something you touched on in your earlier comments. And I think, given that, when somebody from the outside 

identifies problems, there is sometimes a general feeling, well, that 

doesn’t really seem that significant, I don’t think we’ll have to deal 

with that. Let’s just go ahead and progress forward. 

Mr. DAVIS OF VIRGINIA. Was this a cost-driven procurement, or 

was this a value-driven procurement in terms of awarding the 

original contract? 

Mr. WILLEMSSEN. Cost plus award fee. 

Mr. DAVIS OF VIRGINIA. So it was won on price basically? 

Mr. WILLEMSSEN. As I recall, yes. In retrospect, again, the contract was for requirements definition, design. 

Mr. DAVIS OF VIRGINIA. OK. 

Mr. WILLEMSSEN. Design, development and implementation. In 

retrospect one could say we might have looked at a requirements 

contract, which is appropriate for a cost plus environment, and 

then look at developing and implementing under a firm fixed price. 

That is something in retrospect that could have been considered. 

Mr. DAVIS OF VIRGINIA. Let’s go back to your observation of 

HCFA’s management structure. Where does this fit into the reorganization currently going on at HCFA? 

Mr. WILLEMSSEN. The reorganization is, I believe, expected to hit 

this summer. And as the chairman pointed out, there will be a 

chief information officer within HCFA so designated. We would obviously like to see that position take over much of the management 

and control of this project. We don’t know yet—we don’t have the 

details on whether that’s actually going to occur. That could obviously be a question you want to pursue with HCFA. 

Mr. DAVIS OF VIRGINIA. What if you were trying to take a look at today and say, what is it, was it $38.7 million that’s been spent 

to date roughly? What has that bought us? Are we further down 

the pike from when we started, or do we really have to go back to 

the drawing boards, or we have some value for that? 

Mr. WILLEMSSEN. I think we have some value and a better understanding of exactly what we think we want the system to do. 

There was a limited understanding of that up front. As depicted on 

the chart, we still don’t have full agreement exactly on what those 

requirements are going to be. We’re getting a little closer, but 

again, there was severe underestimation of the complexity involved, so we don’t have that yet. 

Mr. DAVIS OF VIRGINIA. So the underestimate was on the part of 

both the Government and everybody involved; is that right? 

Mr. WILLEMSSEN. Yes, sir. 

Mr. DAVIS OF VIRGINIA. I’m sorry, I didn’t mean to stop you if 

you had anything else, any other observation on that. I think those 

are my questions at this point. And the project, how well-defined 

39

was it when we started? Is that part of the problem as well, the 

whole project being defined? 

Mr. WILLEMSSEN. Not well-defined because the first key element 

of it was to define requirements. 

Mr. DAVIS OF VIRGINIA. Yes. OK. I got you. Thanks. I yield back. 

Mr. HORN. Yes. The gentleman from Ohio. 

Mr. KUCINICH. Is it in order? Do I—— Mr. HORN. I was going to turn to you next. I was going to get 

in a few questions here and then—— Mr. KUCINICH. I yield, of course. 

Mr. HORN. OK. Let me just get in. It’s one question with a number of parts, and that’s looking at the fact that you’ve concluded 

that the transaction system is likely to reach $1 billion. Under the 

Information Technology Management Reform Act, which you mentioned in your testimony, the Clinger-Cohen Act, which came out 

of this committee last year, agencies must justify information technology expenditures through an investment review process. 

Now, having said that, for nearly 4 years up until last fall, the 

Health Care Financing Administration justified its MTS expenditures by claiming $200 million per year in potential annual administrative savings. 

Has either the Health Care Financing Administration or the 

General Accounting Office evaluated how much of these administration savings could be realized, or, in fact, has already been 

reached, simply by reducing the number of claims processing contractors or duplicative standard systems maintainers? 

Mr. WILLEMSSEN. It appears that the data based on contractor 

cost reports for the years 1994 through 1996, do indicate that there 

is a reduction in claims processing costs on a unit basis. Neither 

we nor HCFA has gone into detail to explain the reasons for that 

reduction. That is something that we are recommending that 

HCFA do. As part of this interim environment, they may be getting 

benefits. We think it’s especially important to track those benefits 

to see if, indeed, they are accruing, and they can compare those 

against the cost of the investment. 

Mr. HORN. A substantial portion of these total savings promised 

by the MTS system might also be available from a far less expensive option. If so, wouldn’t this undermine MTS’s ability to meet 

the investment review criteria required by the Clinger-Cohen Act 

and the Information Technology Management Reform Act as it’s 

called? 

Mr. WILLEMSSEN. We’re greatly encouraging HCFA to explore 

those other options, such as commercial off-the-shelf alternatives 

which may indeed be less costly; at the same time, may not give 

HCFA everything it wants, but that’s part of the tradeoff that we 

have to look at in assessing alternatives. 

Mr. HORN. Can the Health Care Financing Administration also 

realize program savings by focusing resources on waste, fraud and 

abuse software tools and incentives for the remaining contractors 

rather than building an entire MTS system? Is that an option? 

Mr. WILLEMSSEN. That is definitely an option. 

Mr. HORN. How good an option is it? 

Mr. WILLEMSSEN. Well, again, I’m not going to sit here and tell 

you that they should do it. What I will tell you is that we think 

40

they need to do the analysis and let that drive the appropriate decision rather than thinking—having a preconceived notion up front 

and then going with that and letting that drive the analysis. 

Mr. HORN. I’ve got a number of questions here in that area, and 

I’m not going to take up time in the hearing room to do it. So you 

know our usual routine is for the joint staffs, Democrat and Republican, on both the subcommittees will be sending and following up 

with a series of questions. 

I now yield to the gentleman from Ohio who had a comment to 

make. 

Mr. KUCINICH. Mr. Chairman, I have had a chance to review 

here page 58 of the GAO report, critical unmitigated MTS risks. 

And to the gentleman from the GAO, when you were first researching this, when was its earliest time you began this investigation? 

Mr. WILLEMSSEN. We have done predominantly three separate 

reviews. This current assessment was started late last summer. 

Mr. KUCINICH. And all of the impacts listed on table 4.1, each 

and every one of those impacts are things that exist now and into 

the immediate future, as opposed to something that you are commenting on existed and is now no longer a problem. These are current problems; is that correct? 

Mr. WILLEMSSEN. Yes, sir. 

Mr. KUCINICH. Who does the GAO use in its own realm of work 

for analysis of software and hardware? 

Mr. WILLEMSSEN. Mr. Leonard J. Latham here is an expert in 

software development. 

Mr. KUCINICH. Could I——

Mr. HORN. Certainly. 

Mr. KUCINICH. Mr. Latham, was the problem in the development 

or in the implementation? 

Mr. LATHAM. In the software, I think the problem started right 

from the beginning in a lack of being able to define requirements 

for the contractor to develop the code. 

Mr. KUCINICH. Wait. To develop? 

Mr. LATHAM. The software. The requirements need to be stable, 

they need to be well defined, before you can begin to address how 

you are going to achieve that requirement through a piece of software. 

Mr. KUCINICH. Was the problem in the programming? 

Mr. LATHAM. No, it was not in the programming. 

Mr. KUCINICH. Was it in the code? 

Mr. LATHAM. It was up front in setting requirements that would 

be used to develop code. They did not start coding immediately on 

the software. 

Mr. KUCINICH. So if they didn’t start coding immediately, the 

code was dependent on——

Mr. LATHAM. The code is strictly dependent, very dependent, on 

the up front analysis and identifying requirements, and writing 

those requirements in a form that the contractor and the programmers——

Mr. KUCINICH. By contractor, you mean? 

41

Mr. LATHAM. GTE would be able to use to translate into a set 

of instructions for the computer to execute. Without those, they 

could not develop software. 

Mr. KUCINICH. Right. And so was it the problem, the person who 

was doing the analysis really didn’t understand the complexity of 

the system? 

Mr. LATHAM. Well, I think what happened is, this has been a 

problem since the very beginning. GTE has been trying to help 

HCFA identify requirements from the beginning. At first, they 

started developing requirements and they returned some to HCFA; 

HCFA said they were too detailed; then they sent them back and 

redid them, and HCFA said it was not enough detail, then they 

said you just concentrate on integrating the future and current requirements to——

Mr. KUCINICH. And who did that part of it? 

Mr. LATHAM. HCFA did that part of it basically. 

Mr. KUCINICH. In house? 

Mr. LATHAM. In house, they formed working panels and gab sessions, people who process claims in the various areas, fee-for-service and managed care, and they basically arrived at those requirements through those sessions. Those requirements were passed off 

to the contractor to form the basis for writing the code, the software, translating that into software. 

Mr. KUCINICH. Mr. Chairman, in looking over this table 4.1, the 

critical unmitigated MTS risks, and reading the GAO’s report 

about the impact that HCFA will be unable to assess MIS software 

development, difficulty in tracing requirements to MTS or Medicare 

functions, cannot assure the systems are interfacing appropriately, 

cannot assure the integrity of the management information systems products maintained, expected completion dates cannot be 

met—I am hopeful that in this recitation which GAO presents us 

with that there is going to be some way out of this morass. I guess 

the problem at this point isn’t anymore who is responsible, it is 

who can help us straighten this out. 

Mr. LATHAM. I think that is correct. 

Mr. KUCINICH. Well, I’m asking you, who can help you? 

Mr. LATHAM. I think HCFA needs to rely on its IV&V contractor 

to arrive at solutions and enlist the private sector contractor who 

can do those things. They could use the services of Carnegie-Mellon, who has developed a model to assess the weaknesses that 

there are in the software development process and bring together 

some mitigating controls to help them prevent problems. 

Mr. KUCINICH. Mr. Chairman—and I will conclude with this discussion makes me wonder if people at HCFA took responsibility for 

the—essentially structuring the program, because they told GTE, 

look, we will handle it; who at HCFA was supervising that so that 

they could then take the responsibility and essentially not fulfill it. 

And this isn’t a matter of finger pointing, it is a matter of trying 

to understand why a system failed so that we don’t repeat these 

problems, because it is possible that someone may have taken on 

a bigger challenge than they could have imagined. I mean, obviously, that is what happened, and that appears to be happening everywhere. 

42

I just want to add an anecdote, even to the GAO, something as 

simple as a computer system with a local area network in a congressional office. Now hear this. I had a vendor who couldn’t deliver. In my own office in Cleveland, we have had problems for 

weeks and months and have people in there right now, as we 

speak, trying to straighten it out. You wonder how many times this 

scenario happens across this country. 

The whole idea of computerization is, we do things better and 

faster. 

Mr. HORN. I might say to the gentleman, we all can empathize 

with his experience. I had one major firm, that will go nameless 

to protect the guilty, work 6 months in my office and not be able 

to get their system in, and we finally didn’t pay them anything for 

6 months, and they took it out, and we went back to our old system, which is a commentary on why I learned 10 years ago as a 

chair executive in the university that I always want to be the beta 

site, not the alpha site; let some other poor soul struggle through 

that. But we have repeated alpha sites in the Federal Government, 

and the question is, where is the learning curve? 

I now yield to the gentlewoman from New York, Mrs. Maloney. 

Mrs. MALONEY. Thank you, Mr. Chairman. We have a vote, so 

I will be brief. 

We have another scathing GAO report. How would you rate this 

one compared to the IRS, the one you did on the IRS? Which is 

worse, IRS or HCFA? 

Mr. WILLEMSSEN. I would say both are in the same ballpark. 

Mrs. MALONEY. That’s surprising, because in 1995 we had a 

hearing and HCFA testified we were on schedule and moving forward and everything was all right. And I just want to suggest, why 

don’t we just go back to approaching it brick by brick, breaking it 

up, instead of trying to do everything in this one computer system, 

maybe taking it and taking one component, like we have started 

doing with the health care plan? 

Instead of trying to come forward with a plan totally on health 

care, we are going brick by brick, taking children’s health care, we 

are taking portability, issues like that. Why don’t we take the various components of what we are trying to track to help you and 

break it down into manageable units instead of trying to do the 

whole thing at once? Maybe that could be something we could do. 

And I just want to know, do you think we should continue with 

this contract, or do you think we should break it up into units, or 

should we just scrap this and start from the beginning? How do 

you get a computer system that works? 

Mr. WILLEMSSEN. I think the critical steps that needs to be done 

is that HCFA should look at all available alternatives to accomplish what it wants to accomplish, and that is providing a more efficient information processing system that can better track fraud 

and abuse of the claims processing system, and, to date, HCFA 

hasn’t looked at those other alternatives, such as commercial offthe-self options which may give them quite a bit of bang for the 

buck; may not give them everything they are looking for, but could 

be possibly implemented at a lower price. 

43

Mrs. MALONEY. OK, that’s a very fascinating recommendation, 

and, as you know, we have passed a procurement reform bill that 

moved to off-the-shelf purchases. 

And I think you raise an important point too, which is, what do 

we do in the interim as we try to create a system that will be helpful to HCFA? What do we do in the interim on fraud and abuse 

and tracking and all the other things we are trying to do? 

What might be helpful is if GAO came back to us with specific 

off-the-shelf items that they might be able to purchase right now 

that might track fraud and abuse, track the various components of 

what they are trying to achieve, and that maybe that could help 

them in the interim. 

And I also would like a response in writing of probably breaking 

down the components; instead of trying to go into a computer system that does everything at once, if you took off one area and tried 

to solve that, and then another area, instead of trying to do it all 

together. 

And, you know, what can I say? You can’t get your computers to 

work. 

Anyway, thank you. 

Mr. HORN. Thank you. I believe we have already had a GAO report on the off-the-shelf programs, have we? 

Mr. WILLEMSSEN. Yes, sir. 

Mr. HORN. Certainly major insurance companies are using these 

now to check particular procedures that you are billed for, and I 

would hope Medicare is using them. Do we know if they are—go 

through what is checked off and say, gee, that doesn’t make sense 

with a kidney operation? 

Mr. WILLEMSSEN. May I defer to Mr. Latham on that? 

Mr. HORN. Certainly. 

Mr. LATHAM. I think, much to HCFA’s credit, they have moved 

forward and are using a prototype of commercial off-the-shelf software at a location—I think it’s one location, maybe more; I will beg 

off until I have those numbers—but to try to prototype the use of 

the software to see the kind of benefits they are going to be getting 

from it. I think the State they are using it in is Iowa; I’m not sure, 

but I think that’s the first State. 

They bought the package and installed it on one of the standard 

systems, and they are trying to basically observe how good or how 

well the software works in this fraud and abuse situation. 

The problem seems to be HCFA’s insistence, in order to use the 

commercial product, that they would have to significantly change 

their policies, because the types of edits that are in the commercial 

software basically are not in compliance with their particular policy 

on edits for particular services and benefits. 

Mr. HORN. I thank you all for your testimony. 

I can see, Mr. Willemssen, you have testified before us, while you 

have won the Meritorious Service Award from the General Accounting Office, and I thank you and both of your colleagues joining you to lay out the usual, very solid presentation. Thank you. 

We will now move to panel two, Dr. Bruce Vladeck, the Administrator of the Health Care Financing Administration. 

If you would raise your right hand? 

[Witness sworn.] 

44

Mr. HORN. Welcome. Please start. I have read your testimony. 

Mr. Davis will come back, and he will be acting chairman. 

STATEMENT OF BRUCE VLADECK, ADMINISTRATOR, HEALTH 

CARE FINANCING ADMINISTRATION 

Mr. VLADECK. Thank you very much, Mr. Chairman. We are 

pleased to be here today to discuss the Health Care Financing Administration’s implementation of the Medicare Transaction System, 

which will provide a state-of-the-art platform for electronic billing 

and claims processing to meet the needs of Medicare beneficiaries 

well into the next century. 

We all agree upon the common goal. Medicare needs to update 

its information technology capabilities. We believe MTS will provide a single, national, integrated information and transaction system that is central to our ability to meet our customer service and 

fiduciary responsibility. 

As envisioned, MTS will be fundamentally an information system 

with a large payment processing component capable of adapting to 

changing needs. Our current claims processing systems are old and 

form a cumbersome and inadequate network with no integrated 

data base. Therefore, to solve problems, we must frequently access 

data bases, which is time consuming, laborious, and increases the 

potential for error. It is imperative that we make the transition to 

a new system as quickly as possible to continue to effectively serve 

Medicare and Medicaid beneficiaries. 

MTS will provide the capability for timely information retrieval, 

introduce improved control over the distribution of benefit payments to comply with provisions of the Chief Financial Officers Act, 

process transactions more efficiently and for less cost, enhance our 

ability to detect and prevent payments for services that represent 

fraudulent or abusive billings, and dramatically improve customer 

service. Most importantly, MTS will have the ability to respond to 

the rapidly changing health care environment because of the modular nature of the system, which can plug in or modify systems as 

needed. 

The development of the MTS system without disrupting service 

to providers is the largest task we have attempted. When the work 

began, we did not fully understand the enormousness of what we 

were undertaking. It is an exceedingly complex task, and as we 

continue through our re-evaluation process, we are refining our 

scope of work and comprehensive cost assessments. We welcome 

the assistance of this committee and others as we work to develop 

and implement MTS. 

Some have asked us why we don’t just update our current systems and build better interfaces rather than investing the time and 

resources to build MTS. This is analogous to asking someone with 

a 15-year-old computer trying to add memory and continue to repair it rather than taking advantage of new technology and buying 

a state-of-the-art model. 

If we do nothing and stay with our current systems, we will still 

spend over the next 10 years approximately $20 billion processing 

claims and at least another billion dollars just maintaining current 

systems. The important point here is that through the use of supeVerDate 0ct 02 2002 12:44 Oct 05, 2002 Jkt 010199 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 W:\DISC\44342 44342
45

rior technology, MTS can change our focus from paying claims to 

meeting program needs. 

We appreciate the comments of the General Accounting Office 

and others who have advised us in the management of the MTS 

initiative, and we realize the formidable challenge we face in making the transition without adversely affecting our beneficiaries 

while continuing to process almost 1 billion claims a year. This 

workload is added to ongoing activities such as implementation of 

Operation Restore Trust and the Medicare Integrity Program and 

the turnover of Medicare contractors. 

Let me emphasize that we would be the first to admit that the 

task is more complex than we originally contemplated. During the 

past 3 years, we have learned how best to identify the type and 

level of system requirements necessary for MTS and how to improve the management of the program. The assistance provided by 

our IV&V contractors and others has been invaluable and has redirected our software development approach by breaking down the 

project to multiple phases or releases, resulting in reduced risk and 

incremental implementation and more thorough testing of each 

component. 

Mr. DAVIS OF VIRGINIA [presiding]. You were trying to get 

through before anybody got back to ask you any questions. 

Mr. VLADECK. Now that you are here, I would be happy to stop 

with the statement. I had to keep talking until one of the Members 

appeared. Should I continue? 

Mr. DAVIS OF VIRGINIA. Sure. 

Mr. VLADECK. Recognizing the importance of managed care in 

Medicaid’s future, we have clarified the contract in this area and 

given it priority as the first release—— Mr. DAVIS OF VIRGINIA. I will tell you what. We will enter that 

in the record and go right to the questions. 

Mr. VLADECK. Can I say one thing for the record, because I need 

to correct something in the written testimony and I would like to 

read it into the record if I can? It was on, I don’t know what page, 

on some of the budget numbers. They need to be updated and corrected slightly. 

As of March 31, 1997, the testimony we submitted to you said that we had spent $43.4 million. The correct figure is $43.5 million. 

There is also a flat out typo in terms of total money obligated in 

all MTS related contracts. The testimony reads ‘‘$110 million.’’ That should have been ‘‘approximately $101 million,’’ and that is 

purely a typo. And I would like to have both of those corrected in 

the record, if I may. The rest will be submitted for the record. 

Mr. DAVIS OF VIRGINIA. Without objection, the rest will be entered in the record. 

[The prepared statement of Mr. Vladeck follows:]

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Mr. DAVIS OF VIRGINIA. Let me ask, do you see the chart up 

there, the volatility of MTS requirements? What happened in January 1997, that brought the requirements down so low? 

Mr. VLADECK. The only version of the MTS report that I have, 

the GAO report I saw was a fax version that was not entirely clear. 

But you have to understand that prior to early 1997, all requirements or projections are estimates, based on what is very much a 

work in progress. In fact, requirements for releases 2 through 5 

have not yet been completed; GTE has just completed work on requirements for release 1. 

So all of the numbers are projections of estimated future requirements, and as the project has proceeded, those requirements have 

evolved and those estimates have changed and evolved over time. 

Mr. DAVIS OF VIRGINIA. I understand that, but you go to 1/97, 

and in all but one of the charts it is at a low point. Is there any 

explanation for why at that point it was—do you see what I am 

saying? 

Mr. VLADECK. Yes, and the only thing I can say is that for release 1, the February 1997 date is near completion of the specification requirement work. 

So the only observation I can make is, all of the rest of these 

charts reflect estimates associated with work that is still very, very 

much in progress. I think we estimated then February 7 the requirements for release 1 were about 90, 95 percent completed, and 

we had the most solid numbers associated with that. 

Mr. DAVIS OF VIRGINIA. OK. I wonder if you would identify the 

HCFA activities which will ensure that the interim operating environment is being well managed. You heard GAO suggest that detailed planning is lacking, and I know you are trying to ensure that 

the current claims process remains uninterpreted while the additional systems are integrated, at the same time addressing the year 

2000 issues. What is going on? 

Mr. VLADECK. Let me say two words about that, if I can, and 

about the management of the overall current environment, and 

then let me speak specifically to the year 2000 issue. 

The issue of the current environment is something of a euphemism, if I may, for the existing relationships we have with approximately 70 contractors. Those relationships are changing all the 

time, often in ways that are not entirely within our control. 

For example, one of our largest contractors since the beginning 

of the Medicare program was Aetna, which about a year ago undertook a merger with U.S. Healthcare and then decided 3 or 4 

months thereafter that they no longer wanted to be in the fee-forservice business, including the Medicare claims processing business. So we all of a sudden were confronted with the need to convert the very, very large workload associated with Aetna to other 

contractors. 

We have in place some very well-specified and well-established 

routines and plans for dealing with contractor transitions, when 

one contractor leaves, distributing the work. We have contingency 

plans with most of the large continuing contractors. 

For Part A, the Blue Cross Association still has a statutory master contract for which individual plans for subcontractors, and we 

work regularly with them. But there is an inherent unpredictVerDate 0ct 02 2002 12:44 Oct 05, 2002 Jkt 010199 PO 00000 Frm 00065 Fmt 6633 Sfmt 6633 W:\DISC\44342 44342
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ability and inability to plan in any formal document that is associated with that activity. 

The second issue is the transition from the three standard systems on Part A and five standard systems on Part B to a single 

Part A and a single Part B system. We have a very detailed project 

management plan for the Part A transitions, and we have already 

completed the switchover of one of the nonsurviving Part A software systems to what will become the standard system. 

We have also contracted with Los Alamos National Laboratories 

for some very specific sorts of project management and project 

tracking software to help give a little bit more formal structure and 

a little bit more external accountability to the management of all 

of these transitions over the next number of years. The beginning 

pieces of that Los Alamos work is already beginning to be incorporated into our system management. 

On the year 2000 issue, we began about 18 months ago to work 

with our existing contractors to address the year 2000 issue. To 

date, they have all identified for us, and we have reviewed their 

work in this regard, all of the lines of code that will need to be rewritten in order to be year 2000 compliant. We have agreed on 

standard formats and standard solutions for the implementation of 

the new codes. Our contractors have all given us schedules to rewrite all of the relevant lines by December 31, 1998, and we are 

tracking their progress, actually doing that coding rewrite on a 

quarterly basis for each contractor. 

Now, we had thought at one time that since we are transitioning 

to standard systems, we might just want to focus on making sure 

that the standard A, standard B, and standard durable medical 

equipment software was year 2000 compliant and not worry about 

the systems we have hoped to phaseout before then. But we have 

taken a little bit of a belt-and-suspenders approach to that, so we 

are taking the time to rewrite all of the necessary lines of code 

even for those systems we will be phasing out probably before the 

year 2000. 

And I think if GAO were to come back and revisit our status of 

the management of that particular issue at the moment, I think 

their comments on that specific issue might be more favorable than 

they were in the report they provided to you. 

Mr. DAVIS OF VIRGINIA. OK. At what point did HCFA modify its 

original cost estimate of $150 million for the MTS project to reflect 

the transition costs, administrative costs, and costs due to the 

underestimates of the MTS project? 

Mr. VLADECK. The $150 million estimate was never our estimate 

for total systems development and implementation cost, but we 

have provided the committee recently, for example, a long-term 

cost-benefit model for implementation of the system which we prepared in November. That was the fifth such cost model that we 

have prepared since the inception of the project in 1993, 1994. 

We are going to need to revise it and update it once we have 

completed the reevaluation of our systems development strategy 

over the next 6 or 8 weeks. But part of the issue has been that as 

the implementation strategy has evolved, what goes into the particular cost model has changed over time. 

61

And so I would say that the big change in terms of the evolution 

of our estimation of the cost of the product came when we got the 

systems design architecture documents from GTE and went back 

and forth with them and accepted the documents. Those identify 

the need for a test facility and began to specify some of the hardware requirements associated with full implementation, some of 

the telecommunications requirements associated with that in a way 

that we had never before been able to identify because we never 

had an overall systems design. 

Mr. DAVIS OF VIRGINIA. I was just trying to aggregate the transition costs, and I am having a hard time because we have a lump 

sum here. Could you help me with that? 

Mr. VLADECK. Which transition costs over which period? 

Mr. DAVIS OF VIRGINIA. This would be the total costs over the 

time—particularly as you look at it, it looks like the 1988—1997, 

1998, 1999 timeframe when the costs are estimated increasing significantly. 

Mr. VLADECK. Well, we estimate, I think, the total transition 

costs associated with the President’s budget for fiscal 1998 are ap- proximately $80 million, if I’m not mistaken, compared to $50 or $60 million in the current fiscal year. 

And I would have to check with my staff on what our projections 

are in the transition numbers in the following fiscal years. I think 

we are running in the range of $75 to $100 million per year 

through the next 4 or 5 years for transitions either of contractors 

leaving the program and switching their workload and for the transitions of the obsolete A and B systems into the new system. 

Mr. DAVIS OF VIRGINIA. OK. To date—I asked this question to 

GAO—what do you think the $38.7 million spent for GTE’s work 

on the project has purchased us so far? 

Mr. VLADECK. Well, it has gotten us a basic systems design; it 

has gotten us a set of requirements, plans relative to communications and relative to security in the telecommunications network; 

it has gotten a design for a test facility; and we believe it has just 

about completed the requirements portion of the work for writing 

the new release 1 for a new managed care claims processing system. 

Mr. DAVIS OF VIRGINIA. And that has cost us $38.7 million. What 

is that worth? 

Mr. VLADECK. I can’t answer that question. I don’t have a sense 

of what a market price of that would be. I think in the context of 

what we spend on maintenance of the current claims processing 

system in a given year, I think it represents some progress, but I 

think it will have to be further down the line in terms of development of the system before we can look back and say, was that $38 

million worth; $50 million worth; $25 million worth? I couldn’t answer that question any better. 

Mr. DAVIS OF VIRGINIA. All right. We saw earlier warning letters 

going back a couple years from the IV&Vs noting there were some 

problems. At what point did HCFA realize that the contract had incurred substantial cost overrun? Whom did you advise at that 

point? 

Mr. VLADECK. I think we really began to identify problems in the 

cost part of the contract probably in early 1995, and—or mid-1995, 

62

and we began at that point to discuss with them modifications of 

the project to talk about reallocation of responsibilities on the requirements between ourselves and them. 

We didn’t really get to beginning to discuss a renegotiation of the 

contract relative to these cost issues and so forth until the very 

early part of 1996, and we then spent about the first half of 1996 

in negotiations with them over modifications to the contract. 

During that period of time, I guess some of the other folks involved in information technology management within HHS were 

aware of that. I don’t know the extent to which they shared that 

with folks in OMB. 

In addition, at some point in the spring or summer of 1996, the 

GAO became aware of it as part of our discussions with them as 

they were conducting their reviews of the project management. 

Mr. DAVIS OF VIRGINIA. OK, I think my time is up. Mr. Chairman, I yield back. 

Mr. HORN [presiding]. Thank you very much. 

You might have discussed this when I was out of the room voting, but let me pursue this since I have read your statement. I’m 

curious, in the 90-day review during which the Health Care Financing Administration is reviewing its options for MTS, will you 

be considering both the cost and the savings associated with each 

option? 

Mr. VLADECK. We will be, although the issue on the savings is 

less a question of estimating what the savings might be as when 

they will be attainable. 

The real complicated part of a cost-benefit analysis on the MTS 

has to do with the timing of incurring of expenditures as opposed 

to the realization of savings. I don’t think we will be making a lot 

of effort to re-estimate what the steady State level of savings is at 

completion of the project. The question will be trying to estimate 

when those savings streams will become available in terms of development options. 

Mr. HORN. I don’t know if you were in the room when I asked 

the General Accounting Office the degree to which commercial software that insurance use to check some of their bills against particular operations—let’s say you have got a kidney operation; there 

are certain characteristics of that before, during, and after. Would 

it have been better if your administration had taken a look at those 

existing commercial software packages? 

Mr. VLADECK. Well, as the witness for the General Accounting 

Office said, we are testing one package in Iowa at the moment. I 

would like to amend slightly what he said about that, however. 

The problem we have had using the commercial software, which 

is the problem we anticipated, is that we have to modify the commercial software to meet Medicare rules. These are not arbitrary 

software requirements or computer programming rules, these are 

statutory or regulatory coverage rules which are part of the Medicare program which, in many instances, are different from those 

that apply to private health insurers. 

So while it is, in a sense, an off-the-shelf product, it turns out 

it requires a significant amount of customization in order to be consistent with Medicare rules and policies. That process is just about 

63

complete, as I understand it, and we will begin the test and ought 

to have results from it in the next 3 to 6 months. 

Again, that is one particular example of the software, but it is 

also being used with one particular existing standard system of 

software, and the extent to which we would have to customize it 

again to apply it to existing systems is one that we are now looking 

at but about which I can’t yet give you an answer. 

Mr. HORN. On the 90-day review process, if a less ambitious option could achieve a substantial portion of the savings, would this 

90-day review result in such a finding? 

Mr. VLADECK. Absolutely. 

Mr. HORN. When will you share the analysis of costs and savings 

with our respective subcommittees and any other authorization 

committees of the Congress, as well as with the General Accounting Office? 

Mr. VLADECK. We expect this process to be completed in about 

the first 10 days to 2 weeks of the month of July, and within 10 

days to 2 weeks of the completion of the process we would expect 

to be in the committee’s offices reviewing our analyses with your 

staff and whoever else wanted to participate. 

Mr. HORN. Well, I thank you, and I’m delighted to yield 10 minutes to the ranking Democratic member on the full committee, and 

I am sure he has a number of questions. 

Mr. WAXMAN. Thank you. 

With all the problems you have experienced with MTS, are you 

still convinced MTS is the right thing to do? And can we still expect a system that will bring the benefits you hope for in finding 

fraud and abuse and making the Medicare system work the way 

we want it to work? 

Mr. VLADECK. Mr. Waxman, we have no question, based on some 

of our custom-tailored additional expenditures we have had to 

make, for example, as part of Operation Restore Trust, where we 

have had to take Part A data and Part B data from a State and 

merge it with Medicaid data at enormous expenditure, but once we 

had that merged data base, we were able to do a number of really 

neat things in terms of detecting fraud and abuse. 

So if we ever get our system to the point where we have on-line 

A and B and can integrate it with data from other entities, such 

as Medicaid, we know, based on our experience from the past couple of years, that will have an enormous benefit on behalf of the 

program integrity side. 

But I want to emphasize as well, because it tends to be overlooked, that there are very, very important customer service implications for this as well, some of which have very programmatic savings, and I would like to give my favorite example, if I can. 

As all of you know, the nightmare associated with every Medicare beneficiary is the shopping bag full of pieces of paper, each of 

which says, ‘‘This is not a bill,’’ which are the explanation of Medicare benefits which we now mail out every time we process a claim 

to every beneficiary and which then often, depending on the supplemental or medigap insurance the beneficiary has, generates two 

or three additional pieces of paper in correspondence with the supplemental. 

64

We are already field testing what we call a Medicare Summary 

Notice, which is a single one- or two-page document modeled on the 

credit card or department store monthly billing statement, which 

can incorporate all of the claims information that a beneficiary has 

in a given month. 

Now, for Medicare only because our ability to electronically integrate the supplemental carriers is limited, but when MTS is up 

and running we will be able to have that integrated file for both 

Parts A and B and supplemental insurance. Our beneficiaries will 

get a single statement every month of the claims that have been 

incurred, what we paid, what their co-payment obligations might 

be, what their supplemental carrier paid, and so forth. 

We think that will be an enormous improvement in terms of customer service. Not inconsequently, at the price of 32 cents postage 

if we are mailing 300 million of these statements a year to beneficiaries, as opposed to 1 billion EOMBs a year, we are saving a 

couple million dollars in postage as a result of that improvement 

in our capability. 

So that’s one example on the customer service side. There are 

major, major customer service implications. Everything is in place 

except the underlying data processing capability at the moment. 

Mr. WAXMAN. And, of course, if you are able to have a computer 

system track fraud and abuse of the system, that can also lead to 

enormous savings of dollars, because I think a lot goes to fraud and 

abuse in the system. 

Mr. VLADECK. Our actuaries have estimated conservatively that 

the ability of the kind of data base that MTS would permit, as well 

as being able to plug in commercial fraud detection software, conservatively, would save us in program expenses and trust fund outlays half a billion dollars a year every year after the implementation of this system. 

Mr. WAXMAN. Thank you. 

Looking at the existing law where you have 40 different processing sites you have to pay if there is any termination of a contract, have you looked at any recommendations for us that would 

help you hold down some of the costs? 

Mr. VLADECK. Well, as you know, Mr. Waxman, as part of the 

health insurance portability legislation last year, we were given 

new contracting authority relative to the program integrity functions in the Medicare contracting system which also gave us some 

new ability to reach out to new kinds of contractors and establish 

relationships with those contractors under general Federal procurement law rather than under special title 18 provisions. 

We are learning how to use those authorities at the moment, and 

if we have the kind of experience we look to have, then I think we 

would probably want to be back to you to talk about further 

changes in the law as relates to Medicare contractors. 

Mr. WAXMAN. Mr. Chairman, we are serving a very important 

purpose for the Congress, and that is oversight over taxpayers’

money, and we have seen in a number of different instances, where 

we have attempted to move into huge computer systems, a lot of 

money spent without much gain for it. And we are serving an important purpose, and GAO is being very helpful to us in analyzing 

how well we are doing in this regard. 

65

I hope that, Dr. Vladeck, this will be a very constructive way for 

us to all figure out the best way to come to the realization of a system that will accomplish what could be so important for Medicare, 

the integrity of the Medicare program and the benefit to the Medicare beneficiaries to get the kind of information that we hope the 

system will provide. 

It is a frustration for all of us to see, like in the IRS and other 

areas, high hopes not being realized. So any suggestions you have 

or talking to GAO could recommend to us, I know the chairman of 

our subcommittee—and I want to work with him—wants to be as 

helpful and constructive as he possibly can. 

I thank you, Mr. Chairman, for your leadership for holding this 

hearing and yielding the time to me, which I yield back to you. 

Mr. HORN. I thank the gentleman, and we are delighted you 

could come to the hearing. 

I yield to the gentleman from Texas. 

Mr. SESSIONS. Good morning—I guess it is afternoon already. 

When you haven’t had lunch yet, you tend to call it morning. 

I would like to direct you to page 4, and I will be candid with 

you, I have not had an opportunity to read or review this. It is just 

now evidently available today. But it talks about results in brief, 

and I am not going to ask you to defend or deny anything that is 

here but, rather, to discuss it with some objectivity if you could. 

In particular, I would like to take you to the second paragraph, 

and I will read: ‘‘Further, HCFA is relying on its Medicare systems 

contractors to assess, plan, and implement essential changes for 

the year 2000 issue, but it is not closely monitoring these critical 

activities or receiving certifications or assurances from contractors 

that the problems will be corrected.’’

Mr. VLADECK. Mr. Sessions, as I think I said earlier, we found 

much in the GAO report quite helpful, but I am frankly—this particular assertion I frankly find kind of puzzling, because I believe—

and maybe it has to do with the time of when the GAO looked at 

particular parts of our system—we are, in fact, monitoring the 

work that our contractors are doing on addressing the year 2000 

problems on a quarterly basis. We are checking their testing of 

some of the new code they are writing and so forth. 

I think there are many legitimate criticisms of us in the course 

of this report, and I think some of the broader questions that the 

GAO raises are recommendations that they make about the way in 

which we manage the transition of our current system to a future 

system. We have very much taken them to heart. 

But I almost feel a little bit of a catch–22 on this particular criticism, if I may, for the following reason. One of the reasons we have 

always said we need an MTS system is because we have all these 

different software systems out there which we don’t own, and some 

of which are proprietary. Part B bills are paid in some parts of the 

country by proprietary systems the Government doesn’t even own. 

Once we have MTS, we will have a system, and after the next crisis is after the year 2000 crisis, we will have one set of software 

under the Government’s ownership and the Government’s control, 

and we can bring in all kind of folks to look at that and work on 

that and fix the system once. 

66

Under the existing systems, we have these eight sets of software, 

some of them proprietary, each of them customized, which are 

owned by our contractors or shared contractor providers, and each 

of them needs to be rewritten. That’s sort of a demonstration of 

why we need MTS. 

But the fact is, we are sitting on the process of the actual lineby-line code writing that the contractors are doing. We have provided them additional budget dollars with which to do it; we are 

auditing those expenditures; and, again, of all the assertions in the 

GAO report, this is the one where I think we would most take 

issue with the facts. 

Now, again, they have been working on this a long time, and 

there may be a timing issue. 

Mr. SESSIONS. Well, the reason why I bring this up, this is, as 

you know, the Y2K problem; and it is universal, it is not you; it 

is a show-stopper. Are you telling me that you have your hands 

around the project, that at the year 2001 you are not going to have 

a show-stopping incident within this system? 

Mr. VLADECK. Well, I have learned never to say ‘‘never.’’ We have 

a plan for the claims process, and we have a number of other 

projects, Y2K updates as well, and we are working on it and have 

a detailed plan for working on it. But basically we are not under 

as much scrutiny on some of those. 

Mr. SESSIONS. You are not under scrutiny or not putting your 

contractors under—— Mr. VLADECK. We are not putting ourselves under as the contractors on the basic claims processing. 

So 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 achieved, accomplished, 

those changes. 

I have a high degree of confidence that we will be there with 

some time to spare, but we have left in a cushion because nothing 

ever goes perfectly, and for a problem of this magnitude we want 

to know that we have thoroughly tested it, and we will have a 

number of months to find and test the glitch that will undoubtedly—I have a paper here, we’re talking about the actual rewriting 

of 12 to 15 million—more than that, something like 20 million lines 

of code, of software code. And again, we have detailed work plans 

for that. We think we have identified the lines of code that need 

to be rewritten. We have budgets and plans to do that over the 

next what would be 19 months. 

But we are going to extensively test all that revised software 

after it has been rewritten, and, with 20 million lines of code, 

somebody is going to mess up somewhere, and we will find things 

in the testing process. But we will find that in late 1998, early 

1999, not on December 31. 

Mr. SESSIONS. Or at least that’s your plan. 

Mr. VLADECK. That’s our hope and plan. 

Mr. SESSIONS. For the sake of my discussion here, trying to be 

a reasonable and logical person, could you please, within a reasonable time after going back to your office, please respond back to 

67

this paragraph, this last statement. You are saying to me that you 

don’t really know when the GAO looked at that and received that 

snapshot of an idea. You now think you are beyond that. Obviously, 

GAO is going to come and comment on this. I would like to have 

your latest analysis that you could have provided them had they 

done this snapshot today that simply addresses not the larger picture but the smaller issues and how you would have responded. 

Mr. VLADECK. We will be happy to. 

Mr. SESSIONS. It will avoid me getting into things you have corrected as opposed to beating you up—you get my point. 

Mr. VLADECK. Yes. 

Mr. HORN. If the gentleman would cite the reference? 

Mr. SESSIONS. We were on page 4, Mr. Chairman, the GAO report, May 1997 Medicare Transaction System, MTS. Sir, I am on 

the second paragraph, the last—— Mr. HORN. Begins: ‘‘The risks associated...’’ Mr. SESSIONS. It does. The sentence that I am after: ‘‘Further, 

HCFA is relying on...’’ And if you like, I will provide that in 

writing. 

Mr. HORN. Without objection, that exchange of letters will go into 

the record at this point. 

Mr. SESSIONS. Thank you, Mr. Chairman. 

Mr. VLADECK. We will do that. 

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Mr. SESSIONS. One last point, if I could. Further on page 4—you 

probably could draw the conclusion that I read to page 4—there is, 

two paragraphs down: ‘‘MTS is not being adequately managed as 

an investment.’’ And then last, further down: ‘‘Also since 1992, 

when the first analysis was completed, the total cost of the project 

has increased from $151 million to about $1 billion.’’

Can you please simply give me some comment on that, those two 

thought-processes? 

Mr. VLADECK. Yes, sir. If I can do the second one first? 

Mr. SESSIONS. Please. 

Mr. VLADECK. I think if you look at the sentence immediately following the $151 to $1 billion, you will see the inference which we 

would certainly strongly support that the difference between the 

$151 million and the $1 billion is partially an apples and oranges 

problem. That is to say, the $151 million dollars estimate in 1992 

was not inclusive of the actual physical facilities for the operation 

of MTS nor for the transition of contractors and the costs associated with closeout costs and other Government obligations that are 

associated with such transitions. Those were clearly not part of the 

$151 million; they are part of the $1 billion. 

Having said that, I think it is also true and fair to say that our 

conception of what the system is in 1997 is very different from 

what it was in 1992. But I would also say that one of the things 

for which we specifically contracted was for a design and specification of the system, and that was produced for us by GTE in late 

1994 or early 1995. On the basis of that, we have been able to 

make much more informed estimates. 

On the issue of managing as an investment, I think the detail 

of that that is described elsewhere in the report by GAO really has 

to do with sort of a systematic evaluation of risk and mitigation 

strategies, and, consistent with this notion of investment strategies, some of the legislation that Congress has enacted in the last 

couple years such as the Clinger-Cohen Act, the Office of Budget 

has established a set of eight principles by which to lay out the criteria by which to establish whether a project meets appropriate investment management criteria. 

And we have, I believe in our letter to Mr. Shays, included a copy 

of a letter to the Office of Management and Budget, in which we 

describe the extent to which we believe we are or are not meeting 

those eight principles. We have a way to go on some of the components of it, but we are clearly moving toward a State, once we have 

the revised project plan, when we will be able to meet all eight of 

those criteria. Clearly, that is something we need to do that we 

have not adequately done in the past, but we will be doing over the 

next several months. 

Mr. SESSIONS. Mr. Chairman, I have exceeded my time. Thank 

you. 

Mr. HORN. If you have a followup question or anything, feel free 

to ask it? 

Mr. SESSIONS. Well, the followup question I guess I would really 

have is: It seems like what you are attempting to describe to me 

is that the original configuration, perhaps the original contract, the 

architecture, the design and plan of that has changed multiple 

72

times, and now you are attempting to retrofit, and that that is why 

you are having trouble? 

Mr. VLADECK. No. I think it is fair to say two things. We largely 

acknowledge when we let the contract that well, we could specify 

what we wanted the final system to do. We didn’t know what it 

would look like in terms of how many hardware sites we would 

need, how many, what kind of telecommunications we would need, 

how much software would need to be written, and so forth, and a 

large part of what we have paid GTE for is that design of a system, 

which we didn’t have when we started. We specified what we wanted the system to be able to do, but we didn’t know what it would 

look like. 

The other thing that has changed, though—— Mr. SESSIONS. You did not know what you were asking for? 

Mr. VLADECK. No. We knew what we were asking. We specifically communicated with GTE to design a system that would be capable of achieving certain objectives and performing certain functions. That’s what the first part of the GTE contract was about. 

Once we got that systems design and began to put it in place, 

there was one other very significant change, and that was, as a result of our experience with GTE, our advice from our independent 

verification and validation contractor, the advice from GAO, the advice from this subcommittee and others, were very concerned that 

the plan that we developed to implement this system was a socalled ‘‘big bang’’ plan. It relied on putting a lot of pieces together 

that were all new, all at the same time, and having a new system 

that was up and running and you would flick a switch and leave 

the old system and move into the new system. 

Having a new system that was up and running, and you would 

flick a switch and leave the old system moving into the new system, and we were advised by lots of folks that that was not a prudent strategy, that that increased the risk of total failure, and it 

increased the risk of spending too much money. So beginning last 

summer, we modified the strategy to, in the terms the computer 

folks used, reduce concurrency and make the implementation plan 

more chunky, and we are still very much in the process of seeing 

if we can continue to break it down into even smaller pieces, which 

are less dependent on one another, and it is, in the political sense, 

instead of going for the whole thing at once, we are in a much more 

incremental strategy at the moment. 

Mr. SESSIONS. And now someone is finding fault with that. 

Mr. VLADECK. If I understand what GAO is saying, they are saying we are not yet being incremental enough and saying we need 

to look at some even more incrementalist options. 

Mr. SESSIONS. So too big a bite, you can’t swallow what you 

chewed; is that the philosophy? 

Mr. VLADECK. I think that is a fair way to characterize it; yes, 

sir. 

Mr. SESSIONS. Thank you. 

Mr. HORN. I thank the gentleman for that very penetrating series of questions. 

Now let me just ask a few closing questions. The rest we will 

have staff exchange with you. You are still under oath when you 

answer those. 

73

Let me start out with, to what extent is the Health Care Financing Administration still dependent on the computer systems of the 

Social Security Administration for any of its eligibility determinations or anything else that it relates to that? 

Mr. VLADECK. The Social Security Administration still has responsibility for actually doing the initial eligibility determination, 

and enrollment of Medicare beneficiaries, and changes in enrollment status, such as changes in marital status or changes in—or 

deaths of a beneficiary are still generally coming to the system 

through Social Security. We are on a dedicated line, a data-centerto-data-center, data exchange with Social Security, and we do 

maintain beneficiary records for the Medicare program. But much 

of the input into that record system, the great bulk of the input, 

comes on a tape-to-tape basis, essentially from Social Security, and 

comes through the Social Security computer systems. 

Mr. HORN. So, conceivably, if they solve the Y2K or year 2000 

problem, you wouldn’t be at fault on failing to have the proper eligibility data because presumably they have been working on this 

problem since 1989 and are ahead of every other agency on that. 

Mr. VLADECK. Well, we do maintain our own file with our own 

software associated with the file. It’s not just a copy of theirs, and 

so we have our own obligation for our own beneficiary records to 

make sure that all potential year 2000 risks have been addressed. 

We can’t pawn it off on them. 

Mr. HORN. Now on that year 2000 risk, if I read in the GAO report, on page 27, on March 26, 1997, the Health Care Financing 

Administration asked its Medicare contractors to provide an inventory of the Medicare applications affected by the year 2000 change 

and their schedules for converting, replacing or eliminating these 

systems. Then it says, a little further down, on April 22, 1997, at 

the conclusion of our review, the Health Care Financing Administration provided us with information regarding a technical work 

group, which is to identify and resolve any year 2000 technical 

issues. However, this work group, which was established on January 10, 1997, had not yet discussed or resolved any technical 

issues. 

Now, do you think our pace is appropriate to get this—in other 

words, I am wondering how seriously do you take this problem? 

Mr. VLADECK. Again, I think there is some confusion in this report, and I would have to double-check. There are two processes 

going on. One is the year 2000 work that our contractors are doing 

and have been doing for more than the past year. The second is our 

in-house year 2000 work, and which I believe that the technical 

work group referred to in the last paragraph of this session largely 

refers to our in-house systems, not to the basic Medicare claims 

processing systems. That is the work group that was established on 

January 10. It replaced several earlier staff efforts that had been 

going on since 1996 on the year 2000 issues and has taken responsibility for the in-house software. 

But the contractor software, we have been working with the contractors since 1996 to do year 2000 in the claims processing software, and we are monitoring that on a quarterly basis. The March 

26 request is a routine quarterly reporting request. 

74

The independent validation question, we will ourselves be doing 

validations. We have not identified a third-party contractor to do 

the work of our Medicare contractors, but on the basis of the GAO’s 

recommendation, that is something we ought to look at. 

Mr. HORN. So presumably, your contractors, if they do not meet 

that Y2K criteria, would not have earned their payment; is that the 

way the contract is written? 

Mr. VLADECK. We would be in a position to withhold funding 

from them, yes. 

Mr. HORN. You could withhold funding. 

Mr. VLADECK. On an issue of this sort, again, we will be testing 

at the very end of 1998 and 1999, in early 1999, whether they have 

achieved those changes, and I would suggest that if there are contractors, by which—by the first quarter of 1999 or the year 2000 

are not compliant, we would probably seek to move the work to 

compliant contractors rather than hold our breath and hope they 

would fix it in a remaining period of time. 

Mr. HORN. So this committee I cited is really more interested in 

the in-house conversion. 

Mr. VLADECK. That is correct. 

Mr. HORN. To what extent—let’s say, how many lines of—millions of lines of code has been gone over, or has anything happened 

on your in-house system that would give us sort of a good feeling 

when we leave for lunch that something has happened in this? 

Mr. VLADECK. I regret, I actually saw last week the latest report 

of our task force, which had the number, both the total number of 

lines of code that had been identified as requiring modification and 

the lines that had been rewritten to date, and I don’t remember 

those numbers. I would be happy to supply them to you as part of 

the supplemental material. 

Mr. HORN. It will be at this point in the record, not wherever 

that other thing is. 

Mr. VLADECK. Wherever it is, we will have it for you. 

[The information referred to follows:]

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Mr. HORN. So I am wondering, is there anything else that should 

be done by your agency, that you feel should be done as the Chief 

Administrator, to make sure that both the in-house and the contractor Y2K approaches are moving along in a timely way? 

One of our real concerns is that a lot of people aren’t going to 

discover that the efforts they have made are going nowhere until 

late 1998, maybe late 1999, and the resources cost of hiring the 

people that know what they are doing are going to be sky high because everybody will suddenly have awakened, and then they will 

have a problem. 

So we are trying to get the Federal executive branch and the Office of Budget and Management to take the lead in this on behalf 

of the President, get them moving in some steady way so we don’t 

have them yelling and screaming about Congress, you have to appropriate something here. The Director of the Budget, Dr. Raines, 

and I agree, this ought to be reprogrammed money. We shouldn’t 

be wasting the year up here going through an authorization and 

an appropriations process. We should be doing the end of the year 

money, which happens in every agency, and if they don’t, there is 

something wrong with the administration, and put that to work on 

where the critical problems are. 

This is a critical problem, and I must say, my other 434 colleagues in the House will be delighted when you get these systems 

because we would probably have to double our field in the district 

offices just to handle the complaints, and yours is obviously the one 

our citizens care about the most. 

Mr. VLADECK. Let me just say that we, in fact, began by reprogramming fiscal 1996 money to support the initiation of this 

work with our contractors. We have 1997 money, but I would also 

be unable to resist, Mr. Chairman, the plug that in the President’s 

1998 budget request for HCFA, we have identified $10 million for 

the in-house data systems for year 2000 reprogramming work that 

we think is not otherwise available within the budget request, and 

since you have given me the opportunity, I feel I should note that 

for the record. 

Mr. HORN. And since I am going to give you a further opportunity, since you are under oath, and it is a question you now have 

to respond to—you couldn’t before the budget is released—what did 

you ask for? 

Mr. VLADECK. We got what we asked for. 

Mr. HORN. You asked for $10 million, and you got it? 

Mr. VLADECK. That’s correct. 

Mr. HORN. From a recommendation of the President? 

Mr. VLADECK. That is correct. 

Mr. HORN. So that is part of the $2.3 billion, which is, frankly, 

underfunded, probably, because they don’t have the analysis. It’s 

like this whole discussion. The planning work hasn’t been done, the 

analysis hasn’t been done, it is just rhetoric flying around, and 

until it gets done, we won’t know. 

I suspect it is going to be closer to $10 billion now. Cortner and Associates said it would be a $30 billion problem. I always thought 

that was a little high. But I think as we get into it, the Pentagon 

alone might have $5 billion of that, and there is certainly $1 billion 

of the current $2.3, and they testified before us that they hadn’t 

77

even gotten into the analysis yet where you would look at the number of the lines of code that you have to deal with. So unless the 

gentleman from Texas has any further questions, I will excuse you. 

Mr. SESSIONS. Sir, just a statement, and I do want to end it because I want to go to lunch, also. I think that what we are really 

trying to say is that you are the person with your hand on the 

wheel. You have come to us today and said you have confidence in 

what is going on. That is slightly different than what we may be 

looking at and observing in this GAO report that you think you 

have addressed some of those things more near term. We are deeply interested in your success, and if we have communicated that to 

you today, that is important. 

Likewise, I think what the chairman has said, maybe not point 

blank, is if in your evaluation you run into trouble, please do not 

wait for us to call you. We would like for you to notify this body. 

Our chairman is among the best in Congress, and we can deal with 

problems if you spot them to us early. It becomes more problematic 

the longer you wait. 

Mr. VLADECK. I hear that loud and clear, and I appreciate it. 

Mr. SESSIONS. Thank you, sir. 

Mr. VLADECK. I appreciate it very much. 

Mr. HORN. Well, what Mr. Sessions has said is very well said, 

and I thank him for his generosity. In a previous incarnation, 32 

years ago, when I was the assistant to the Republican Whip of the 

Senate, Senator Kuchel of California, I happened to be on the 

Medicare drafting team and worked closely with Wilbur Cohen, 

who was the inspiration for all this. And you have one of the toughest jobs in Government, but one of the most important, because 

what Medicare has done is make this a far different Nation than 

it would have been without Medicare. Just think of what we could 

not have done and accomplished without Medicare basically. 

Mr. VLADECK. We have a strong sense of responsibility about 

that, and we really do appreciate the involvement of the subcommittee in helping us through some of these things. We will provide you with the supplementary material you have requested, and 

we will be regularly in touch about the MTS issue in general and 

about the Y2K issue specifically, and we appreciate it very much. 

Mr. HORN. Well, we thank you very much for coming and appreciate what you and your staff have done in the presentation. 

We will now go to the third panel. Mr. Zaks and Mr. Burton. 

Gentlemen, if you will raise your right hands? 

[Witnesses sworn.] 

Mr. HORN. The clerk will note both witnesses have affirmed, and 

on our agenda here, first, you, Mr. Zaks. 

First, Irving Zaks, vice president and general manager of the information systems division of GTE. I come from an area where 

GTE served, and we are very glad to have you here. 

STATEMENTS OF IRVING ZAKS, VICE PRESIDENT AND GENERAL MANAGER, INFORMATION SYSTEMS DIVISION, GTE; 

AND BRUCE BURTON, VICE PRESIDENT, INTERMETRICS SYSTEMS SERVICES CORP. 

Mr. ZAKS. Thank you, Mr. Chairman. I have a statement, which, 

with your permission, I will submit in its entirety for the record. 

78

Mr. HORN. Right. At this point it is inserted in full, and if you 

would like to summarize your statement, we will appreciate that. 

Mr. ZAKS. Thank you. 

Mr. Chairman and other members of the subcommittees, thank 

you for inviting me to appear before you today. As you know, GTE 

is a system design contractor to the Health Care Financing Administration on the MTS program. In my position as vice president, I 

am responsible for all Medicare Transaction System program activities at GTE. We are pleased and proud to be part of the MTS 

development team. 

I believe you invited me here today because you wish to realistically assess the MTS program’s present status and learn from our 

experiences to date. So I will begin by saying that, yes, the MTS 

program has had many significant challenges, and GTE has not 

been perfect in helping HCFA overcome some of them. There are 

several factors which account for the present condition of the program. Those factors must be considered as you review the program’s progress and influence its future. 

First, consider that MTS is one of the most complex system development programs ever undertaken by Government or the private sector. The 14 Part A and Part B claims processing systems 

being replaced were conceived and developed when the science of 

computer programming was in its infancy. The systems were developed independently from one another. They operate on different 

hardware platforms, and they are poorly documented. 

Second, our inability to accurately predict the complexity of those 

systems during our proposal development activities for this program led us to underestimate the level of effort and time required 

to develop the new system. As our understanding of the requirements generation activity matured, the time and cost required to 

complete it has increased, and the resulting schedule has extended. 

Third, as you are aware, interpretations of the rules that govern 

Medicare claims vary from State to State. Establishing a set of 

common interpretations that apply nationwide and then identifying 

exceptions to those rules, which the new MTS system must also accommodate, has been and continues to be a major challenge. This 

is probably the most significant cost-growth factor, solidifying a 

common set of interpretations as a baseline requirement set from 

which to proceed with the design. This has been a much slower 

process than anticipated. 

These three factors are the primary causes for the cost growth 

and schedule slippage that other witnesses have described today. 

Despite these challenges, we have made much progress in conceiving, designing, planning and implementing major portions of 

the system. The first component, release 1, is scheduled for delivery in June 1998. Release 1 will be a significant achievement. Not 

only will it enable HCFA to improve service to Medicare beneficiaries, release 1 will incorporate security features to protect the 

privacy of beneficiary records, and it will provide a platform upon 

which HCFA can build future functionality. 

It is true that everyone involved in the MTS program wishes that 

more progress had been made to this point, but in my opinion, the 

investment made to date, the work and the accomplishments which 

79

are behind us on the MTS program, are well worth the savings 

that will be realized when the system is completed. 

As industry and Government’s understanding and the use of 

technology improves, we will envision better ways of delivering 

service to the citizens of this country. There will be more instances 

like this one where we will be forced to pause, rethink and reconceive projects based on what we discover in the systems being replaced. We, industry and Government, will get better at it every 

time, but there are certain learning experiences that cannot be 

avoided. I truly believe that the requirements generation process of 

this program has been one of them. 

Mr. Chairman and members of the committee, thank you for 

your time and consideration. I will be happy to answer any questions you may have at this time. 

[The prepared statement of Mr. Zaks follows:]

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Mr. HORN. Thank you very much for your statement, and we now 

turn to Dr. Bruce Burton, the vice president of the Intermetrics 

System Services Corp. Welcome. 

Mr. BURTON. Thank you. Mr. Chairman and members of the subcommittee, I am pleased to participate in this joint subcommittee 

hearing today to discuss—— Mr. HORN. You might want to get that microphone a little closer 

to you and bring it down a little. Those are awful microphones, and 

neither of your companies had anything to do with them, I am 

sure. 

Mr. BURTON. I can assure you. 

We are submitting the statement summarizing our role as the 

independent verification and validation contractor in support of the 

Health Care Financing Administration’s development of the MTS. 

I am also prepared to answer any questions from the background 

regarding our efforts. 

In order to provide you some background on Intermetrics, we are 

a 28-year-old software company with over 500 software systems 

professional, with approximately $55 million in annual revenues. 

We are headquartered in Burlington, MA, and we have 11 operating offices throughout the United States located near major customers, including approximately 150 personnel in the Washington 

metropolitan area. 

For over 25 years, Intermetrics has provided IV&V services to 

major customers, and in addition to HCFA, our current customers 

for IV&V services include NASA for IV&V of the space shuttle, 

space station, critical ground systems and robotics spacecraft; Immigration and Naturalization Service; the U.S. Army; and more recently, the U.S. Postal Service. 

In addition, Intermetrics provides year 2000 verification and validation support in the financial services arena. Our work on the 

MTS IV&V contract emphasizes MTS software life cycle product 

evaluation and MTS technical support. The IV&V contract 

deliverables include a monthly progress report of the IV&V effort, 

the MTS contract reports to HCFA through the HCFA IV&V 

project officer who is responsible as the technical monitor of the 

contract. To facilitate communication, senior management from 

Intermetrics frequently meets with senior management at HCFA. 

Going on to our view of the MTS project. Intermetrics began its 

IV&V of the MTS contract approximately 3 months after contract 

award to the MTS design contractor. One of the IV&V’s early findings was the risk inherent in the design contractor’s decision to 

abandon the analysis approach that was described in the original 

proposal and to replace that analysis approach with processes that 

eventually resulted in inefficient production of system requirements, and these requirements had been of an uneven quality. 

After a set of top-level system requirements were developed, 

IV&V advised the HCFA MTS management staff to move toward 

a multiple release strategy and to prioritize the releases. This was 

adopted by HCFA, and it’s reflected in the design contractor’s contract in mid-1996. IV&V recommended that HCFA focus the design 

contractor on the early MTS releases, institute an MTS program 

management matrix program, and initiate a contingency planning 

process. HCFA, in collaboration with the design contractor, decided 

86

to move ahead with the parallel release strategy in concert with 

adopting IV&V’s risk management techniques of the metrics-based 

oversight program and contingency planning. 

Based on the design contractor’s schedule and cost performances 

identified by the metrics program, HCFA issued a 90-day stop-work 

order to the design contractor on April 4. During this 90-day period, HCFA with IV&V input, as well as others, will reassess the 

design contractor’s future role and evaluate MTS development alternatives and select a preferred solution. IV&V agrees with 

HCFA’s actions. 

In conclusion, the MTS project is complex, and it will require 

substantial management attention always to keep it on track. 

While IV&V acknowledges that the MTS will not achieve its initial 

schedule or cost objectives, we believe that HCFA is exercising good 

management judgment in focusing the design contractor on the 

first MTS release and reviewing their alternative MTS development options. 

Finally, IV&V is optimistic. We believe that the original MTS 

goals can be successfully achieved through HCFA evaluation and 

selection of alternatives during this 90-day period. This implementation of a revised plan will most likely be on a different schedule 

and cost, but we also believe that the benefit of a good return on 

this investment can be achieved. 

Mr. HORN. Thank you very much. 

[The prepared statement of Mr. Burton follows:]

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Mr. HORN. Let me begin, if I might, with questions for you, Dr. 

Burton. At what point did Intermetrics realize that the project may 

have been poorly defined, and what recommendations did you 

make? 

Mr. BURTON. Well, we did see that early on in the first year or 

two of the program, that some of the infrastructure that typically 

is in place in programs like this was not currently available, and 

we initiated efforts with HCFA to start working on that infrastructure. 

Mr. HORN. Let me ask you, Mr. Zaks, have you been with this 

project from the beginning? 

Mr. ZAKS. Not from the very beginning. I came on in October 

1995. 

Mr. HORN. Dr. Burton, to whom were those reports given? 

Mr. BURTON. Those reports were given to the technical monitor 

of the project. 

Mr. HORN. And that was an official of the Health Care Financing 

Administration? 

Mr. BURTON. Right. That would be the technical monitor. 

Mr. HORN. Who was it at that time? 

Mr. BURTON. At that time, that was Mr. Larry Pratt. 

Mr. HORN. And what was your feeling; did you do these quarterly, or was there a set contractual requirement as to when you 

reported, or how did that work? 

Mr. BURTON. We report on a monthly basis, and they were included as part of that monthly report. 

Mr. HORN. What is the single most important factor, do you 

think, that will assure the success of the MTS project? 

Mr. BURTON. I really believe that it will be in a thorough assessment of the options going forward, combined with a good set of sort 

of development processes that will be associated with that selected 

alternative. 

Mr. HORN. The reverse: What is the single most significant factor 

that can contribute to the failure of the project? 

Mr. BURTON. I think that the single issue that could most contribute to the failure of the project would be to not formally accept 

the requirements, the system requirements, and then baseline 

those and put them under some form of requirements management. 

Mr. HORN. What is your evaluation of the leadership of this 

project over the period with which you have dealt with it? 

Mr. BURTON. One, let me make a caveat here, is that as part of 

IV&V, it is generally our responsibility to evaluate the products 

that are associated with the development contractor. My own assessment of the leadership that is associated with the HCFA management on the project is that they were inexperienced, but that 

they understood that, and so they weren’t afraid to ask for help. 

So they have help from IV&V, and I know they have sought help 

as well as they have come to grips with the complexity of the 

project from other sources as well. 

Mr. HORN. Was Intermetrics involved in the evaluation process 

and the resulting decision to place a stop-work order on the GTE 

contract, and what recommendations did you make? 

Mr. BURTON. Absolutely. We made a series of recommendations, 

and those were implemented in short order by HCFA. 

94

Mr. HORN. Now, is Intermetrics also involved in the current 

Health Care Financing Administration re-evaluation of the GTE 

contract as they explore other options? 

Mr. BURTON. Yes, we are. 

Mr. HORN. What is your role in that? 

Mr. BURTON. Right now what we have done is that we have 

helped HCFA come up with some of the different alternatives in 

going forward. Our role will include working with HCFA to select 

the optimal path. 

Mr. HORN. In terms of Intermetrics opinion, what factors do you 

and your staff think contributed to the slippage in the deliverable 

schedule, and the cost overruns associated with GTE’s work on the 

MTS project? 

Mr. BURTON. Well, I think it was a combination of the system 

being more complex than people had earlier anticipated, combined 

with the concurrency of the work. So when you look at it, when 

people had multirelease strategy, where they had multiple things 

being done at the same time, that also is impacted by the current 

difficulty of getting qualified IT personnel—there is a tremendous 

crunch for those kinds of people—have all combined to contribute 

to the schedule and cost difficulties of the program. 

Mr. HORN. Did you see any portions of this project, either initially, as it was designed, if there was that design, or partway 

through as they got to be more familiar with some of the problems 

that would face them, did you see any relationship to the type of 

material that already exists in some of the private commercial sectors, and did you feel that should have been adopted rather than 

maybe reinvent the wheel? 

Mr. BURTON. We have, in specific instances, on an informal basis, 

have worked with GTE wherever we could see that perhaps something could be done with COT Software to let them know about 

that. I can’t remember any specific instances where it was raised 

as a major issue, though, on the program. 

Mr. HORN. Why were certain risk factors deleted from your reports to the Health Care Financing Administration before these 

risks had been fully addressed by the Health Care Financing Administration? Why did you delete those risk factors? 

Mr. BURTON. I am actually uncertain about that. 

Mr. HORN. Well, was this done at the beginning level of the report, the technical staff down below, or was it done at higher levels 

or what? 

Mr. BURTON. OK. Let me confer here with one of my co-workers 

if I could? 

Mr. HORN. Sure. Please do. Take your time. 

Mr. BURTON. I don’t know specifically which issue that you are 

referring to. 

Mr. HORN. Let me give you one. As I understand it, in May 1995, 

Intermetrics identified the lack of a software development plan as 

a risk and later removed it from the monthly report. 

Mr. BURTON. Right. I think that that was based on an examination of GTE processes and development practices, and what we 

were shown was a variety of document and processes that they did 

have. So while they did not have a single software development 

95

plan, they did have documented practices they were using on the 

project. 

Mr. HORN. If you could go back and do some of the things over, 

what would you do? 

Mr. BURTON. Well, I do concur with my colleagues at the GAO, 

where they said that perhaps it might make sense to split the contract initially up and separate the requirements generation from 

the development of the system. 

Mr. HORN. I don’t know if you were in the room when I said earlier, we have been through the FAA experience, $4 billion down the 

drain, first year in Congress in 1993, and I have held hearings on 

some of the aspects of it. We have the $4 billion of the Internal 

Revenue Service down the drain, and I have asked the question, 

can’t we learn some of the problems at the $4 million mark or the 

$40 million mark or the $400 million mark? Do we really have to 

go to $4 billion? Now, I am hoping this one doesn’t get to the $4 

billion point where we don’t know what we are doing. 

So what has Intermetrics been involved in analyzing some of the 

other projects, and are there any others that have had the difficulty this one has had? GAO does a fine job of telling us what the 

best practices are, and I have always felt, whether you are talking 

in science or social science, we ought to give rewards for the people 

who write books on failures because that is the way we advance. 

Yet, few people want to write books on failures, unless it is a huge 

financial success when you are destroying somebody or whatever; 

but, we can learn a lot from failure. So what has Intermetrics 

learned over the years in terms of your collective memory that 

would be helpful in this situation? 

Mr. BURTON. Well, one of the things that we have learned in this 

kind of an effort is how important it is to be vigorous about good 

risk management; that is, that the systems are uniformly more 

complicated than we expect when we get into them. There are a 

million ways that things can go wrong, and being constantly vigilant about that and having good plans for dealing with those and 

contingencies for dealing with those just seems to be a recurring 

factor in different systems, in fact, most of the major system development efforts that we see. There is not anything that is uncommon in the work we see either on the Government side or, in fact, 

on the commercial side. Many of the same difficulties we see, we 

see in commercial companies as well. 

Mr. HORN. Have you been involved with either the FAA or the 

IRS contract in anyway? 

Mr. BURTON. Yes. Intermetrics worked with the Volpe National 

Transportation System to do a special assessment on the AAs. 

Mr. HORN. For the FAA? 

Mr. BURTON. For the FAA. 

Mr. HORN. Where are we on that, by the way? I lost track. I am 

off the Aviation Subcommittee now. 

Mr. BURTON. I think they completely restructured the program 

and are now going at it through a different approach. 

Mr. HORN. But we still haven’t delivered anything to the field, 

have we? 

Mr. BURTON. I am actually uncertain about that. 

96

Mr. HORN. I just wondered because last time I was in the tower 

at Los Angeles International, they were still using Post-It notes on 

the windows, and since I have flown out of there a few hundred 

times, I would always like to know the Post-It is stuck in the right 

place. And they don’t make a mistake with it, but it would be nice 

to have some screens that you could count on. 

Let me ask you a few questions, Mr. Zaks. At what point did 

GTE realize they would be unable to complete the requirements of 

the original contract of the initial amount of $19 million? 

Mr. ZAKS. I would say, Mr. Chairman, that about 18 months into 

the contract, it was obvious with a lot of the moneys having been 

spent still in requirements analysis, and requirements themselves 

having grown substantially, that once we got the design and test, 

we would be in a position where additional funding would have to 

be made available. 

Mr. HORN. And just for the record, was GTE ever involved in the 

FAA or the IRS situation? 

Mr. ZAKS. No, Mr. Chairman. 

Mr. HORN. Where would you rank this particular contract among 

the many contracts of a similar nature that GTE has handled? 

What was your biggest one before this? 

Mr. ZAKS. Well, we have had several scores of large software developments, and, as with every contractor, you have your successes, 

and you have those that you would rather not talk about. 

The difference between those and this one, I think, is simply the 

inability to get your arms around either the documentation or the 

code to sit and use the traditional analysis tools or possibly new 

analysis tools, to really solidify the requirements, so comparisons 

are difficult to make. 

I don’t know much about the details of the FAA problem. I think 

the IRS problems were very similar, that the code was just unavailable and unavailable to actually analyze. 

Mr. HORN. Well, sometimes, as you know, the problem comes 

with the agency involved where they haven’t thought through their 

systems in a logical way, which is what one translates into software. Now, was any of that a problem, or were you given a fairly 

logical system that made some sense? 

Mr. ZAKS. I think in fairness, there certainly was a system out 

there that was doing the job. The tools, if they were available, or 

the documentation to have given a contract the warrant, and I 

think that HCFA did the best they could in letting in RFP, that 

they felt was going to permit the development of this system. 

And I guess I would like to add, Mr. Chairman, with the requirements analysis process that we have finally, if you will, agreed to, 

and we did have a couple of false starts, I think we have made significant progress at the time of the stop work. We are certainly 

well along the way on release 2 requirements. I cannot blame 

HCFA at all for having taken the action they did, but I don’t think 

it has been wasted. A lot of the moneys we have expended to date 

is really trying to figure out a process to deal with this lack of hard 

assets that you can really analyze. 

Mr. HORN. Well, I will ask you the same question I asked Dr. 

Burton. In essence, when did you realize, and if you had to go back, 

would you do something different than what you did? We all learn 

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from these things. What do you wish you had done earlier; is there 

something that stands out that you can help others down the line 

that will go through this same process? 

Mr. ZAKS. I think, you know, hindsight being 20/20. 

Mr. HORN. Well, if we don’t do it, we won’t advance the rest of 

the operation. 

Mr. ZAKS. I think that the major difficulty that both, I think, 

GTE, HCFA or any IV&V contractor shared was really a need to 

get out and make decisions on these business rules. We have heard 

a lot about the business rules. We should have gotten the best we 

could, get them really in a disciplined fashion to go through them. 

And one of the things that some of the commercial houses do, they 

don’t count their failures, but they certainly count their successes, 

is get third parties to arbitrate, people who have no interest, all 

right, to just arbitrate what the requirements ought to be and arbitrate that process. So it is something that certainly ought to be 

evaluated, and there are a lot of commercial, you know, industry 

has been doing that for some time. The statistics on the failures 

versus the successes obviously is unknown. 

Mr. HORN. Does a lot of this get down to on-the-job management 

and making the decisions that say, hey, we have got to cut it off 

right here? And we might be a generation behind as a result of 

that decision, but we might be two generations ahead if we don’t 

do this, because time keeps moving along and we don’t play catchup. Sometimes we try to do that catch-up or make an end run on 

skipping a beat somewhere that leads us into these morasses, if 

you will, which is usually funded by money, that go nowhere. 

So I am just curious about, in a technical world, what you are 

dealing with there. We have room management that can pull together a lot of these very bright people that have a lot of wonderful 

ideas. But, somebody has got to make a decision and say, OK, we 

are going to go this way now, and I am sorry, but we can’t take 

the last 20 ideas on this subject, we have one we can run with that 

will solve the problem. 

Mr. ZAKS. I think that certainly would have helped us get 

through a requirements generation phase. The caution there is that 

the mistakes that would be made, and there would be some, would 

have to be caught during an extensive test program. But getting 

80 percent of the requirements down in a finite period of time 

would certainly be a bit of damage. 

Mr. HORN. Well, we have touched on the next question a little, 

but I am going to ask it anyhow. Given GTE’s experience and 

working on other information technology projects in a design, planning, implementation role, what is unique about the Medicare 

claims processing system that affects GTE’s ability to meet the contractual requirements? Is there something unique about that system? 

Mr. ZAKS. I think, again, the snowballing effect of not having requirements on the size of the design, the size of the test program, 

the size of the deployment, I mean, is directly related. So unless 

you can get through a design baseline that can size all the requirements, that is really, in this case, what I would attribute our troubles to. 

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Mr. HORN. I think you are absolutely right on that, and the fault 

comes in the administration of the agency not following the guidelines that are both in law, in OMB regulation. I would think in certain planning design phases, one should be going through to think 

through these implications so that when a contract is awarded, everybody is up to speed on the environment one faces. And I don’t 

know if you heard some of this discussion or you had a chance to 

look at the GAO report that came out today. That is certainly a 

point they are trying to make in their recommendations to the Secretary of Health and Human Services as to what she ought to do 

to direct the Health Care Financing Administration to go back and 

do a few of these basic things they should have done to start with. 

I don’t know if that is fair or not fair, but that is why we have 

hearings. 

Mr. ZAKS. I guess a comment, Mr. Chairman, is that I am certain 

if HCFA management recognized the severity of this requirement 

shortfall, they probably would have taken a different course. I 

guess it was Mr. Willemssen this morning that talked to a separate 

requirements contract should have been left prior to a design contract. It is very nice to say that today, and that probably is something they would have chosen, but I think in their defense, they 

didn’t know either just how difficult the requirements would be. 

Mr. HORN. Is GTE planning a software capability maturity evaluation performance goal on the MTS software development team as 

part of your MTS improvement plan, and if so, when will it be 

done? 

Mr. ZAKS. GTE as a matter of course is dedicated and committed 

to achieving SEI level three maturity by the end of 1998. We have 

a program that has been in place since 1992. We would have no 

problem with being audited or having a body come in and validate 

that program. 

Mr. HORN. Since GTE did not know the current level of its software development capability for the MTS team, what is GTE doing 

to mitigate the risks of being at an undefined level of technical capability? 

Mr. ZAKS. Let me say, Mr. Chairman, the part of GTE that is responsible for designing and developing this code is our GTE Data 

Services Division. They have had a process in place for years. They 

have been following it probably for two decades. If we who are familiar with SEI go in and analyze what they are and make an assessment, we would probably assess some of their KPAs, key process areas, as very close to three, some in the two plus range. But 

in their defense, as a group, and being an industrial base primarily, they had a process. They adhere to a process every day. 

They were just unfamiliar with SEI. They are familiar with it now, 

and I would not at all be concerned with that group being audited 

by people coming in. 

Mr. HORN. Can you describe for the committee the Health Care 

Administration management leadership information resources that 

were available to the GTE team within the MTS project so that 

communication about evolving requirements was facilitated, what 

was it like? 

Mr. ZAKS. I think that the management team understood, certainly made the decisions. I think that along the way we were all 

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sort of, I might say, scratching our heads saying that the requirements can’t continue to be the size they are. 

And so I think that it has taken some time for them to make 

some significant—take some significant actions. We began to provide metrics in excruciating detail in the September timeframe, the 

September/October timeframe. If one looks at the metrics associated with release 1, where we have gone beyond requirements, they 

are pretty much on track. If one looks at release 2, we had the 

same problem, so I think that is the decisiveness that HCFA management showed. 

Mr. HORN. As I understand it, from the General Accounting Office’s point of view initially, GTE was meeting with a rather diffuse 

group of the Health Care Financing Administration staff who really 

weren’t in management positions that would facilitate change and 

decisionmaking. Is that true? 

Mr. ZAKS. I would say that for the first 6 to 8 months or so, it 

was difficult to get some decisions out of—— Mr. HORN. What kind of a group do you deal with now? 

Mr. ZAKS. We deal with a more senior group, a group of people 

that really feel empowered to make those decisions, and they are 

doing that. That is why I think—— Mr. HORN. Without objection, there will be an exhibit prepared 

by staff in the record as to who you met with first and who you 

are meeting with now, just to give a history of this situation. 

Mr. ZAKS. OK. 

[The information referred to follows:]

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Mr. HORN. I am curious what difficulties GTE experienced in 

dealing with and responding to the shifting requirements as the design and development process matured. 

Mr. ZAKS. I think that the—it wasn’t so much the shifting requirements as much as it was the different approach that we took 

to it. Initially, we looked at the business rules and we tried to get 

down to some very specific—almost down to data element levels. It 

made it very difficult for HCFA management to review, and really, 

even though at the time they demanded that level, you could not 

take a step back and say, is this really the business rule. We were 

down to the ones and zeros. We had some difficulty getting back 

up to a level where I think we could characterize the business 

rules, and allow HCFA or management to then make the decision 

based on their adequacy. 

Mr. HORN. Do you feel that basically the requirements were poorly defined when you began this, and they got better as a result of 

frustration and experience? 

Mr. ZAKS. I think the ability to establish the baseline, to establish what we consider the as is, one of the present set of rules that 

have to be accommodated post-MTS being turned over is where we 

spent a difficult amount of time. I think people within HCFA had 

a very good vision as to where they wanted to go in services, but 

we needed the baseline to actually have a system that we could actually use. 

Mr. HORN. Well, that leads into one of my last questions. This 

is an ultimate question. If Health Care Financing Administration 

staff had frozen its requirements at some point in the past, could 

GTE have done a far better job in producing the system? 

Mr. ZAKS. Mr. Chairman, there really were no concise set of requirements to freeze. Let me see if I can characterize it a bit differently. For managed care, one of the issues earlier for managed 

care, it was relatively easy to get through the requirements. The 

reason for that is twofold. A, we had the code that we could analyze, and we had the people that were available that could very 

easily sit and as part of the JAD——

Mr. HORN. Do you want to translate? 

Mr. ZAKS. Joint analysis development, where you actually sit 

with your folks and bring that vision to a set of requirements that 

can be implemented. We did that, and we did that in a reasonable 

amount of time, and now we can go off and design. 

So it is not that they didn’t have a set of—it is not that they 

didn’t freeze a set of requirements. I really don’t think they had a 

set of requirements to give us. That is what we have been generating. 

Mr. HORN. The last question to you is complexity of the existing 

systems. What has been the most challenging aspect of the NTA’s 

project for GTE? What do you think has been the most challenging? 

Mr. ZAKS. I think it is really a matter of getting the as is, the 

fee-for-service requirements down into a set of integrated requirements that we can go off and use as a baseline to improve. 

Mr. HORN. OK. Let me ask a P.S. Do either one of you want to 

comment on the testimony you have heard from the other one, just 

to close out the record? Do you have any comment to Intermetrics 

and vice versa? 

108

Mr. BURTON. No. 

Mr. HORN. We try to give everybody a fair shot. 

Mr. ZAKS. No, I don’t believe so. 

Mr. HORN. OK. We thank you very much for your testimony. It 

has been most helpful. And maybe when we pull all these experiences together, we will all have learned a lot to save the Government more money in how we go about this in the future. 

I want to thank a number of people that helped prepare this 

hearing. J. Russell George, the staff director for the Government 

Management, Information, and Technology Subcommittee; Larry 

Halloran, staff director for the Human Resources Subcommittee. 

Put your hand up, Larry. You are going to become world famous 

as a result of this hearing. Mark Uncapher on my left, the counsel 

who prepared the hearing for us on the Government Management 

Subcommittee; and Marcia Sayer, professional staff member, 

Marcia. Thank you all. 

Andrea Miller, our clerk down at the end, who keeps things rolling. And our friends over here who have enjoyed this hearing, 

David McMillen, professional staff member; Mark Stephenson; and 

Jean Gosa. Where is Jean? There you are down there. 

And if we missed a few there, why, you are going to have to work 

with our staff to fill in the record. 

And Vicky Stallsworth, Tracy Petty and Katrina Wright. They 

are our court reporters. 

So thank you very much, and with that, this session is over. 

Thank you very much. 

[Whereupon, at 2:24 p.m., the subcommittees were adjourned.] 

[Note.—The GAO Report entitled, ‘‘Medicare Transaction System—Success Depends Upon Correcting Critical Managerial and 

Technical Weaknesses,’’ can be found in subcommittee files.] 

[Additional information submitted for the hearing record follows:]

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