United States General Accounting Office

GAO Testimony

Before the Subcommittee on Human Resources,

Committee on Government Reform and Oversight, House

of Representatives

For Release on Delivery

Expected at 10:00 a.m.

Tuesday, March 18, 1997

DEPARTMENT OF HEALTH

AND HUMAN SERVICES

Management Challenges and

Opportunities

Statement of Richard L. Hembra

Assistant Comptroller General

Health, Education, and Human Services Division

GAO/T-HEHS-97-98

Department of Health and Human Services:

Management Challenges and Opportunities

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to discuss the challenges facing the

Department of Health and Human Services (HHS) in carrying out its

mission effectively and cost-efficiently.

A department of the size and complexity of HHS deserves careful oversight.

It is one of the largest federal departments: in fiscal year 1996, HHS had

budget outlays of $319.8 billion and a workforce of over 57,000. HHS is the

largest grant-making agency in the federal government, providing

approximately 60,000 grants per year. Its Medicare program is the nation’s

largest health insurer, annually handling more than 800 million claims;

Medicare alone spends far more than most cabinet departments. (See fig.

1.) The Food and Drug Administration’s (FDA) activities to regulate the

safety of food and cosmetics and the safety and effectiveness of drugs and

medical devices affect products representing $.25 out of every $1 in U.S.

consumer spending.

Figure 1: Budget Outlays of the Four

Largest Federal Agencies, FY 1996 400

300

200

100

0

Social


Security


Administration

Department


of


Defense

Department


of


Agriculture

Department of


Health and


Human Services

375.2

Dollars (in Billions)

285.8

54.3

319.8

Medicare


174.2

Other


53.6

Medicaid


92.0

Note: The Department of the Treasury’s budget outlay was $364.6 billion; however, $344 billion of

that total was interest on the public debt.

Page 1 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

Moreover, HHS’ many missions affect the health and well-being of every

person in the country. HHS provides health insurance for about one in

every five Americans, including elderly and disabled people and poor

children. Its agencies ensure the safety of food, drugs, and medical

devices; help to contain the outbreak of infectious diseases; conduct

groundbreaking medical research on curing and preventing disease;

provide health care services to populations, such as Native Americans,

who might otherwise lack such services; provide income support for

needy children and families; and support many services to help elderly

people remain independent.

Over the years, GAO, the Inspector General (IG), and others have examined

programs and suggested numerous improvements for many HHS programs.

Today, however, I would like to highlight three challenges HHS faces in

meeting its mission. These challenges focus on core problems that often

obstruct HHS’ effective functioning. By successfully addressing these

underlying problems, HHS will be much better positioned to manage its

responsibilities effectively and efficiently and to assure the Congress and

the American people that it is fulfilling its vital missions.

In summary, the first challenge HHS faces is its ability to define its mission,

objectives, and measures of success and increase its accountability to

taxpayers. Because of the size and scope of its mission and the resulting

organizational complexity, managing and coordinating HHS’ programs so

that the public gets the best possible results are especially difficult. The

Department has eleven operating divisions responsible for more than 300

diverse programs. HHS has not always succeeded in managing the wide

range of activities its agencies carry out or fixing accountability for

meeting the goals of its mission. Another complicating factor is that HHS

needs to work with the governments of the 50 states and the District of

Columbia to implement its programs, in addition to thousands of privatesector grantees. Developing better ways of managing is essential if HHS is

to meet its goals.

The 1993 Government Performance and Results Act (GPRA), 1990 Chief

Financial Officers Act, and Government Management Reform Act of 1994

now require federal agencies to be more accountable for the results of

their efforts and their stewardship of taxpayer dollars. GPRA presents HHS

with opportunities to bring discipline to management of all levels of the

Department, define the types of information it needs to implement and

assess its programs, and identify ways to progress toward accomplishing

its goals. GPRA also poses a challenge to HHS, however, because meeting the

Page 2 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

law’s requirements to prepare strategic plans, design performance

measures, and assess and report on program accomplishments will not be

an easy task. Similarly, HHS has found it difficult to develop the financial

information necessary to permit an audit of its financial statements.

The second challenge confronting HHS—one that it shares with most other

federal agencies—is ensuring that it has the information systems it needs

to manage and evaluate its programs and to track its progress in meeting

performance goals. Managers must have reliable information both to

implement their programs in a way that best serves the public and to

assure the American people that federal programs are performing

responsibly and well. This is especially challenging for the Department

because it relies so much on contractors, grantees, and state and local

governments as its information partners.

Finally, HHS’ responsibilities require it to constantly combat fraud, waste,

abuse, and mismanagement. HHS has several programs that are vulnerable

to such exploitation. For example, the size and nature of Medicare, which

accounts for over half of HHS’ total budget, make this program particularly

vulnerable. HHS needs to be vigilant now and in the future because its

programs will probably continue to be the targets of fraud and abuse and

because waste and mismanagement can have such serious effects on

taxpayers and program beneficiaries.

Scope of HHS’

Responsibilities

Makes Coordination

and Accountability

Difficult

The sheer size and complexity of HHS’ responsibilities create unique

challenges. HHS comprises several large agencies, each of which manages a

number of programs, whose many parts also must be administered. (See

fig. 2.) For example, the $10.2 billion National Institutes of Health (NIH) is

only one of the agencies in the Public Health Service (PHS), yet NIH includes

17 separate health institutes, the National Library of Medicine, and the

National Center for Human Genome Research.1

 The Health Care Financing

Administration (HCFA) administers the Medicare and Medicaid programs,

as well as several quality-of-care programs such as those authorized by the

Clinical Laboratory Improvement Amendments of 1988. The

Administration for Children and Families (ACF) is responsible for about 60

programs, including the new federal-state welfare program; child support

enforcement; and Head Start, which alone serves about 800,000 children.

1

Budget outlay for fiscal year 1996.

Page 3 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

Figure 2: HHS’ Major Operating Divisions

Agency for


Health Care


Policy and


Research


(AHCPR)*

Office


of the


Secretary

Administration


for Children


and Families


(ACF)

Administration


on


Aging


(AoA)

Health Care


Financing


Administration


(HCFA)

Centers for


Disease Control


and Prevention


(CDC)*

Agency for


Toxic Substances


and


Disease Registry


(ATSDR)*

Food and


Drug


Administration


(FDA)*

Health Resources


and Services


Administration


(HRSA)*

Indian


Health


Service


(IHS)*

National


Institutes of


Health


(NIH)*

Substance


Abuse and


Mental Health


Services


Administration


(SAMHSA)*

Note: Operating divisions marked with an asterisk are part of PHS.

This array of interrelated activities and responsibilities makes it especially

important for HHS managers to work together to address the Department’s

overarching program goals. HHS must improve coordination and

accountability among its own agencies as well as work successfully with

other federal agencies with related responsibilities, state and local

governments, and private-sector grantees.

Page 4 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

Better Internal and

External Coordination

Could Improve Program

Results and More

Efficiently Use Federal

Funds

Coordination among HHS programs with related responsibilities is essential

to efficiently and effectively meet program goals. Moreover, many

programs under HHS share goals with or relate closely to programs

administered by other federal agencies. In addition to coordinating the

activities of its own agencies, HHS must also coordinate its efforts with

these other agencies. Furthermore, a number of HHS programs, including

Medicaid and the welfare block grants, require both federal and state

involvement. Therefore, HHS must work with all the state governments—

and at times local jurisdictions—to coordinate implementation of these

programs.

One program area that requires HHS to focus on both internal and external

coordination is alcohol and other drug abuse treatment and prevention.

Several years ago, we reported that abuse of alcohol and other substances

was a leading cause of death and accidents among Indian people.2

 Yet HHS

agencies responsible for research and services for preventing and treating

substance abuse—the National Institute on Alcohol Abuse and

Alcoholism, the National Institute on Drug Abuse, and the Substance

Abuse and Mental Health Services Administration (SAMHSA)—had no

process to link their expertise with that of the Indian Health Service (IHS),

the agency charged with improving the health of American Indians and

Alaskan Natives. We recommended that IHS and the other HHS agencies

work together to develop a plan to address substance abuse-related

problems among these people. It wasn’t until 1996, however, that HHS had

developed and implemented such a plan for interagency collaboration on

planning, research, evaluation, and training. Although long overdue, this

plan should help HHS strategically allocate limited federal resources to

address a major public health problem in IHS service areas.

Programs addressing alcohol and other drug abuse issues involve not only

several HHS agencies—including SAMHSA, NIH, ACF, and the Centers for

Disease Control and Prevention—but also 15 other federal agencies. These

include the Departments of Veterans Affairs, Education, Housing and

Urban Development, and Justice.3 HHS also administers 58 programs that

address the problems of at-risk and delinquent youths. An additional 73

programs focused on such youths involve 15 other federal Departments

2

Indian Health Service: Basic Services Mostly Available; Substance Abuse Problems Need Attention

(GAO/HRD-93-48, Apr. 9, 1993).

3

Drug and Alcohol Abuse: Billions Spent Annually for Treatment and Prevention Activities

(GAO/HEHS-97-12, Oct. 8, 1996).

Page 5 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

and agencies, including the Departments of Justice, Education, Labor,

Agriculture, and Housing and Urban Development.4

Accountability for Meeting

Program Goals Needs

More Emphasis

In addition to complicating coordination efforts, the size and scope of HHS’

responsibilities also challenge the Department’s ability to maintain

accountability for meeting its mission goals. We have reported an example

of this difficulty concerning the Rural Health Clinic (RHC) program, which

is administered by HCFA.

5

 Established two decades ago by federal law, the

program allows RHCs to receive higher Medicare and Medicaid

reimbursement to support health care professionals, including nurse

practitioners and physician assistants, in underserved areas. The program

was designed to improve access to health care in areas too sparsely

populated to sustain a physician practice. RHC program goals are similar to

those of many programs in the Health Resources and Services

Administration (HRSA), the HHS agency charged with ensuring that

underserved and other vulnerable populations receive quality health care.

HCFA has relied on HRSA criteria for identifying geographic areas where

providers could qualify for higher Medicaid or Medicare payments under

RHC. As the program has grown, however, neither HCFA nor HRSA has been

held accountable for ensuring that its resources have been directed at

improving access in rural, underserved areas.

In our review of 144 RHCs in four states, some clinics clearly improved

access in rural underserved areas; however, many clinics were in more

populated areas that already had well-developed health care delivery

systems. Nevertheless, once certified, all RHCs are eligible for the higher

reimbursements, even after they may no longer be located in rural or

underserved areas. These higher reimbursements continue indefinitely

because neither HCFA nor HRSA routinely recertifies the geographic area or

the provider as eligible for such reimbursements. The RHC program is

adrift, in part because neither HCFA nor HRSA has accepted responsibility

for routinely measuring or monitoring the RHC program’s results.

In administering programs that are the joint responsibility of the state and

federal governments or that involve many local grantees, HHS must

continually balance program flexibility with oversight and maintaining

program controls. A case in point is Head Start, which was designed to

4

At-Risk and Delinquent Youth: Multiple Federal Programs Raise Efficiency Questions

(GAO/HEHS-96-34, Mar. 6, 1996).

5

Rural Health Clinics: Rising Program Expenditures Not Focused on Improving Care in Isolated Areas

(GAO/HEHS-97-24, Nov. 22, 1996).

Page 6 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

ensure maximum local autonomy. The accountability structure for

overseeing the program is not conducive to strong internal controls. For

example, although all Head Start programs are governed by a single set of

performance standards, these standards are largely self-enforcing.

Grantees report annually on the extent to which they have complied with

the performance standards. Although HHS does have a triennial monitoring

system, several HHS IG reports have raised questions about accountability

in Head Start. For example, a May 1993 report found significant

differences between the number of services grantees reported they had

provided and the number they had actually documented in their files. The

IG also found that grantee files and records were often incomplete,

inconsistent, and hard to review.6

The Medicaid program provides another example of the balancing act

between flexibility and accountability. Federal statutes and regulations

give states substantial flexibility in designing and administering their

Medicaid programs. HCFA is authorized to provide states with even greater

latitude by waiving certain statutory requirements. Such waivers permit

states, for example, to provide managed care services or home and

community-based service alternatives to long-term care. Although HCFA

performs structural reviews of waiver programs during the planning stage,

as programs are implemented and continue to operate, problems have

developed in some states. Flexibility can be positive for beneficiaries as

well as the states; however, HCFA’s ongoing monitoring and oversight are

important to ensure the appropriate use of federal funds. The need for

accountability will be even more pronounced if the need for waivers to

enroll beneficiaries in managed care is eliminated, as the President has

proposed in his fiscal year 1998 budget.

With welfare reform, though states have more flexibility, HHS’ important

responsibilities continue. The recent welfare reform law replaces Aid to

Families With Dependent Children with block grants to states, a program

known as Temporary Assistance for Needy Families (TANF).7

 The law has

fundamentally changed HHS and state responsibilities in providing income

support to needy families. States may design and implement their own

assistance programs within federal guidelines, and HHS has a broad range

of responsibilities for ensuring accountability from the states. Some of

these duties include setting standards for states to earn performance

6

Evaluating Head Start Expansion Through Performance Indicators, HHS Office of the Inspector

General, OEI-09-91-00762 (May 1993) and Summarization of Concerns With the Financial Management

Systems and Control Structures Found at Head Start Grantees, HHS Office of the Inspector General,

A-17-93-00001 (Sept. 1993).

7

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104-193.

Page 7 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

bonuses that reward them for achieving program goals, monitoring work

participation rates, and ensuring that states maintain spending for poor

families. Although the law has explicitly limited HHS’ power to regulate the

states’ implementation of the law and reduced the federal welfare

workforce, HHS must enforce certain aspects of the law.

GPRA and Related

Legislation Provide

Framework for

Improved Program

Performance, Cost

Savings, and

Accountability

The complexity of HHS’ responsibilities makes it especially important for

the Department to integrate program goals and activities at a departmental

planning level. As we have just pointed out, the Department needs to

become more accountable for its responsibilities. Concerned that federal

agencies such as HHS have not always effectively managed their activities

to ensure accountability, the Congress has created a legislative framework

to address long-standing management challenges throughout the federal

government. The centerpiece of this framework is GPRA. Other elements

include the Chief Financial Officers Act and the Government Management

Reform Act. These laws respond to the need for appropriate, reliable

information for executive branch and congressional decision-making.8

HHS is in the process of implementing these laws, which combine to

provide a useful framework for developing (1) fully integrated information

about HHS’ mission and strategic priorities, (2) performance data to

evaluate the achievement of those goals, and (3) accurate and audited

financial information about the costs of achieving mission goals. The type

of strategic planning and performance measurement GPRA requires is

familiar to HHS. Some agencies in HHS have experimented—some very

successfully—with results-oriented management. HHS, however, has not

had experience with the type of far-reaching, coordinated reform required

by GPRA.

HHS Faces Opportunities

and Challenges in

Complying With GPRA

Requirements

GPRA provides HHS with a good opportunity to improve program

performance. Under GPRA, every major federal agency—and in many cases,

bureaus in each agency—must now ask some basic questions: What is our

mission? What are our goals and how will we achieve them? How can we

measure our performance? How will we use that information to improve?

GPRA forces federal agencies to shift their focus from such traditional

concerns as staffing and activity levels to a single overriding concern:

results.

8

Managing for Results: Using GPRA to Assist Congressional and Executive Branch Decisionmaking

(GAO/T-GGD-97-43, Feb. 12, 1997).

Page 8 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

Specifically, GPRA directs agencies to consult with the Congress and obtain

the views of other stakeholders and to clearly define their missions. It also

requires them to establish long-term strategic goals as well as annual goals

linked to the strategic goals. Agencies must then measure their

performance according to their goals and report to the President and the

Congress on their success. In addition to ongoing performance monitoring,

agencies are expected to identify performance gaps in their programs and

to use information from these evaluations to improve programs.9

Meeting the GPRA requirements will challenge HHS for several reasons.

Some of HHS’ major programs have never been fully responsible for

measuring and improving program performance. For example, the

Medicaid program has historically paid claims for medical services and

paid limited attention to monitoring program results for the majority of

beneficiaries. Other HHS functions, such as those related to research, are

not as conducive to results-based management as others are. In addition,

because many HHS programs are operated by states, localities, or

nongovernmental organizations, HHS agencies will have to develop a way

to make their many partners accountable for program results. Moreover,

the data necessary for meaningful performance measurement may not be

currently available or may not be comparable from state to state. The

immense changes spurred by recently enacted welfare reform also add to

the complexity of HHS’ task. Nonetheless, GPRA could greatly improve HHS

performance—a vital goal when resources are limited and public demands

are high.

HHS Has Experience With

Results-Based

Management Reforms

HHS is familiar with the kind of results-oriented management promoted by

GPRA. Healthy People 2000, PHS’ national public health initiative that seeks

to improve the health of all Americans, exemplifies an HHS results-based

management effort. In consultation with HHS stakeholders, other

government agencies, and the public health community, PHS developed a

series of outcome-based public health goals and measures.

The Congress has incorporated Healthy People 2000 objectives into

national legislation. Under the Maternal and Child Health Program, for

example, HHS is required to report on the states’ progress toward meeting

the maternal and child health objectives in Healthy People 2000. The broad

acceptance by the public health community of certain measures developed

9

Executive Guide: Effectively Implementing the Government Performance and Results Act

(GAO/GGD-96-118, June 1996) and GAO/T-GGD-97-43, Feb. 12, 1997.

Page 9 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

for these reports has encouraged states and localities to create

comparable databases and to mobilize to meet program goals.

When it passed GPRA, the Congress understood that most agencies would

need to make fundamental management changes to implement this law

properly and that these changes would not come quickly or easily. To

facilitate this process, GPRA included a pilot phase during which federal

agencies could gain experience in implementing key parts of the law to

provide valuable lessons for the rest of the government.

The Office of Management and Budget (OMB) designated about 70 pilot

tests in 26 federal entities for performance planning and reporting. Two

pilots were in HHS’ jurisdiction: one in ACF’s Office of Child Support

Enforcement (OCSE) and the other in FDA’s Prescription Drug User Fee

Program. The pilots helped OCSE and FDA identify and move toward

performance goals. OMB based its selection of OCSE in part on OCSE’s

previous efforts to develop a 5-year strategic plan; its ability to quantify

program goals, such as child support collections; and the involvement of

state and local governments as key program administrators. In

October 1996, we reported that OCSE’s GPRA pilot had made progress in

redirecting its management of the child support enforcement program

toward results.10 For example, OCSE approved national goals and objectives

focused on key program outcomes such as increasing the number of

paternities established, support orders obtained, and collections received.

At the time of our review, OCSE and the states had begun to develop

performance measures as statistical tools for measuring state progress

toward meeting program goals.

A second HHS GPRA pilot involves the Prescription Drug User Fee Act of

1992 (PDUFA), which allows FDA to collect user fees from drug companies

seeking approval to market drugs. The law dedicates the revenues to

expediting FDA’s reviews of human drug applications. The act established

time-specific performance goals to be met by the end of fiscal year 1997.

To satisfy these objectives, FDA consulted with its stakeholders to

determine appropriate performance indicators and target levels and

developed output-oriented performance goals. In its Fourth Annual

Performance Review, for fiscal year 1996, FDA reported that the PDUFA

program had exceeded its performance goals, improving the speed and

efficiency of the drug review process.

10Child Support Enforcement: Reorienting Management Toward Achieving Better Program Results

(GAO/HEHS/GGD-97-14, Oct. 25, 1996).

Page 10 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

Status of HHS’ GPRA

Implementation

GPRA requires that federal agencies develop strategic plans for a period of

at least 5 years and submit them to the Congress and OMB no later than

September 30, 1997. These plans must include the agency’s mission

statement; identify the agency’s long-term strategic goals; and describe

how the agency intends to meet these goals through its activities and its

human, capital, information, and other resources.

GPRA also requires agencies to submit an annual performance plan to OMB;

the first plans are due in the fall of 1997. The annual performance plan

should directly link the strategic goals in the agency’s strategic plan to

managers’ and employees’ daily activities. This plan should include the

annual performance goals for the agency’s programs as listed in the

budget, a summary of the necessary resources to conduct these activities,

the performance measures that will gauge the progress toward those

goals, and a discussion of how the performance information will be

verified.

Although governmentwide implementation of GPRA has not yet officially

begun, HHS is working with OMB to meet its deadlines for submitting its

strategic plan and first annual performance plan. HHS officials have

acknowledged, however, that the Department, “must confront some

fundamental issues that are central to the successful implementation of

GPRA in HHS over the next year. At a minimum, there remains an enormous

amount of work to be done.”11 HHS officials do expect to meet the

September deadlines, however, for both strategic and performance plans,

they said. HHS has drafted its strategic plan, but it is not yet ready for

public release.

Strategic plans must consider the views of the Congress and other

stakeholders. To ensure that these views are considered, GPRA requires

agencies to consult with the Congress and solicit stakeholders’ views as

they develop their plans. The Department plans to begin congressional

consultations in April and to send 200 to 300 stakeholders copies of the

draft strategic plan in June, HHS officials said. HHS currently plans to

release the draft plan to the public on the Internet.

HHS operating divisions are now developing performance plans, which

should include performance measures and objectives linked to data

systems. To prepare for the development of GPRA’s annual performance

plans, HHS officials asked each of its operating divisions to provide

11Integrating Performance Measurement Into the Budget Process, Subcommittee Report of HHS’ Chief

Financial Officers Council, GPRA Implementation Committee (Washington, D.C.: Jan. 21, 1997).

Page 11 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

performance objectives and measures for at least one program activity.

Officials also asked operating divisions to describe their strategies for

aggregating program activities for their performance plans for the fiscal

year 1999 budget. Last summer, OMB reported that the performance

measurement aspects of GPRA pose the greatest challenge to HHS. At the

beginning of this calendar year, however, even the agencies most

advanced in their GPRA preparations had not yet finished developing

performance measures. Nor had many programs taken the next steps to

relate the appropriate performance objectives and measures to the

resources needed to accomplish program strategies.

Required Financial

Statement Audits Are

Ongoing at HHS

To provide decisionmakers with reliable, consistent financial data on the

operations of federal agencies, the Government Management Reform Act

of 1994 requires each department and major independent agency to submit

to OMB an audited agencywide financial statement beginning in fiscal year

1996. The magnitude of this task for HHS is extraordinary. HHS expenses

exceed $300 billion a year. Over 80 percent of this amount was spent by

HCFA, primarily for the Medicare and Medicaid programs. Although the IG

tried to audit HCFA’s financial statements in prior years, the IG could not

express an opinion on the reliability of these statements primarily because

of inadequate supporting documentation for reported amounts. HHS and

HCFA management are working to resolve these issues so that an audit can

be performed.

The current HHS-wide financial statement audit is designed to follow up on

previously reported issues and to address whether program expenditures,

such as Medicare benefit payments, complied with laws and regulations

and were properly reported. In addition, the audits will evaluate the

effectiveness of the agency’s related internal controls. The IG will report

the results of this audit when it is completed.

Reliable and

Comprehensive

Management

Information Systems

Crucial to HHS’

Success

Nothing is more crucial to effectively managing an enterprise of HHS’ size

and scope than accurate information about programs and their effects.

The desire of the American people for accountable government, expressed

in the GPRA’s mandate for measurable performance goals, underscores the

critical need for accurate information. In recognition of the importance of

agencies’ properly managing their information systems, the Congress

passed the Paperwork Reduction Act of 1995 to guide them in this effort.

The law addresses the acquisition and management of information

resources by federal agencies. The Clinger-Cohen Act of 1996 elaborates

Page 12 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

on requirements that promote the use of information technology to better

support agencies’ missions and to improve program performance. Among

these acts’ provisions are requirements that agencies set goals, measure

performance, and report on progress in improving the efficiency and

effectiveness of information management generally—and, specifically, the

acquisition and use of information technology.

Because HHS’ responsibilities involve large health insurance programs,

extensive grant-making activities, and vital regulatory responsibilities, the

Department must use effective information systems. To implement its

programs and meet its responsibilities successfully, HHS must have access

to data that are both reliable and appropriate to the task. Without such

data, HHS cannot inform the Congress or the American people of its

progress toward meeting its performance goals. Creating and

implementing the sophisticated systems that will give HHS managers the

data they need, however, present another major challenge. Because

several important HHS programs, including Medicaid and TANF, are joint

federal-state efforts, the current lack of comparable data across states

increases the difficulty of obtaining timely and reliable data.

HCFA Needs Better

Information About

Enrollees and Services to

Manage Medicaid Program

Medicaid, a joint federal-state program administered by HCFA, provides

health coverage for 36 million low-income people, including 17.6 million

children. Medicaid also pays for nursing home coverage for low-income

elderly and other vulnerable members of society, accounting for almost

half of total national spending for nursing home care. The Medicaid

program’s federal fiscal year 1996 expenditures totaled about $92 billion,

with state expenditures totaling about $68 billion.

Despite Medicaid’s magnitude, the federal government has only limited

data on its results, and the accuracy of these data is questionable. Using

information supplied by the states, HCFA creates a statistical report that has

data about beneficiaries served, their eligibility categories, types of

services they received, and vendor payments. HCFA also generates a regular

financial report. The usefulness of both of these reports, however, is

compromised by problems with the state data’s accuracy and consistency.

Some of these problems stem from collecting data from 50 states and the

District of Columbia, which do not all use identical definitions for data

categories. Another problem is the difficulty of relating the information

that is in these two reports. Problems in data quality and in the ability to

link data across data sources make it difficult for HCFA and others to

analyze and evaluate Medicaid’s results. For example, HCFA’s Medicaid

Page 13 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

managed care program has been plagued by duplicate reporting on the

number of enrollees. Having an inaccurate count from the states makes it

difficult to assess the effect of managed care on Medicaid expenditures.

Some of Medicaid’s long-standing data problems could worsen because of

the program’s growing reliance on managed care to provide health

services to beneficiaries. The proportion of Medicaid beneficiaries

enrolled in managed care, as reported by HCFA, quadrupled from about

10 percent in 1991 to about 40 percent in 1996. Because Medicaid pays

many managed care organizations a defined fee for providing a range of

services, HCFA usually lacks the detailed utilization data available under

fee-for-service billing. This, in turn, makes evaluating the program’s

success even more difficult.

Welfare Reform Presents

HHS With Many

Information Challenges

The new welfare reform law gives HHS new administrative and oversight

responsibilities, the performance of which will rely on state-provided data.

One of HHS’ major new administrative requirements is for the child support

enforcement program. Using state-provided data, HHS is to establish a

national directory of newly hired employees and registry of child support

orders to strengthen child support enforcement. Another information

management challenge for HHS is ensuring that the states provide

comparable and reliable data to help it fulfill its oversight responsibilities

under the new legislation. HHS will need such information to ensure that

states are enforcing the federal 5-year time limit on receiving welfare

benefits, meeting minimum work participation rates, and maintaining a

certain level of welfare spending. Enforcing this limit, for example, will be

difficult because information on the total amount of time someone has

received welfare is often unavailable in a state, let alone across states. In

addition, HHS will need to collect state data to assess penalties and provide

performance bonuses. With the increased flexibility of states in designing

their programs, obtaining comparable and reliable data to assess the effect

of welfare reform on children and families could be difficult for HHS.

FDA Needs to Improve Its

System for Monitoring

Medical Device Problems

Another possible problem in managing information systems is a failure to

use the information appropriately to advance program goals. We recently

reported on such a problem concerning FDA’s medical device adverse

event reporting system, used to gather information about problems with

marketed medical devices.12 Medical devices range in complexity from

12Medical Device Reporting: Improvements Needed in FDA’s System for Monitoring Problems With

Approved Devices (GAO/HEHS-97-21, Jan. 29, 1997).

Page 14 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

simple tongue depressors to heart pacemakers. The reporting system

enables FDA and the medical device industry to work together to take

corrective action on device problems and, when appropriate, to alert the

public to potentially hazardous devices to prevent injury or death.

FDA has not systematically acted to ensure that the reported problems have

received prompt attention and appropriate resolution. As a result, FDA’s

adverse event reporting system has not always provided the intended early

warning about problem medical devices. Because the increased volume of

adverse event reports resulting from changes in the law made it difficult

for FDA to process and review reports in a timely manner, the agency chose

to give priority to death and serious injury reports. As result, FDA delayed

processing and reviewing almost 50,000 malfunction reports for nearly 2

years. Malfunction reports are essential in alerting FDA to potentially

serious device problems before they result in death or serious injury.

Moreover, although FDA contends that it notifies manufacturers and user

facilities about imminent hazards and industrywide safety concerns, it

does not routinely document the corrective actions it takes—or those

taken by manufacturers—to address reported medical device problems. As

a result, it is unclear how manufacturers and FDA have responded to device

problems reported by user facilities. Feedback to medical device users

could increase knowledge about medical device performance, improve

patient safety awareness, and help users make purchase decisions. FDA,

however, does not routinely communicate the results of analyses of

medical device problems and corrective actions to the medical device user

facility community.

Implementation of

Medicare Claims

Processing System at Risk

Finally, another information management challenge facing HHS involves

the Medicare program, which accounts for over half of HHS’ annual budget.

An important initiative to improve Medicare claims processing activity

could create problems if it is not carefully implemented. To better protect

Medicare from fraud and abuse, HCFA has begun to acquire a new claims

processing system, the Medicare Transaction System (MTS). HCFA expects

MTS to replace the nine different processing systems it currently uses by

the year 2000. We have previously reported on the benefits and risks

associated with this effort.13 The intent of using a single automated system

is to allow HCFA to improve administrative efficiency, better manage

contractors, and place greater emphasis on safeguarding program dollars

13High-Risk Series: Medicare (GAO/HR-97-10, Feb. 1997) and Medicare: New Claims Processing System

Benefits and Acquisition Risks (GAO/HEHS/AIMD-94-79, Jan. 25, 1994).

Page 15 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

and improving beneficiary and provider service. In response to some of

the risks we identified, HCFA revised its initial approach for developing and

installing MTS, reducing the potential for problems stemming from

large-scale system failures. We also reported on risks related to difficulties

in defining the system’s requirements, inadequate investment analysis, and

significant schedule problems. HCFA is working on these concerns. We plan

to continue evaluating HCFA’s efforts on this important initiative.

Another critical task for HCFA involves revising computerized systems to

accommodate dates beyond the year 1999. This year 2000 problem stems

from the common practice of abbreviating years by their last two digits.

Thus, miscalculations in all kinds of activities—such as benefit

payments—could occur because the computer system would interpret “00”

as 1900 instead of the year 2000. HHS, along with other agencies that

maintain time-based systems, must develop strategies to resolve this

potential problem in the near future.

Safeguarding

Vulnerable Programs

Requires Constant

Vigilance and

Innovation

With HHS’ broad range of programs, large number of grantees and

contractors, huge volume of vendor payments, and millions of

beneficiaries, the Department must always be vigilant in protecting its

programs from fraud, abuse, mismanagement, and waste. The sheer dollar

size of HHS’ programs makes them attractive targets, and the consequences

can be severe. HHS needs to improve its processes for identifying and

preventing fraud, abuse, mismanagement, and waste and maintain

constant vigilance in the future. The Medicare program offers an example

of how important such efforts are.

One of the long-standing management challenges HHS faces is safeguarding

Medicare, the government’s second largest social program. Medicare

provides health insurance for 37 million elderly and disabled Americans;

federal Medicare expenditures were $174 billion in fiscal year 1996.

Medicare’s expansive size and mission make it vulnerable to exploitation.

That wrongdoers continue to find ways to dodge safeguards illustrates the

dynamic nature of fraud and abuse and the need for constant vigilance and

increasingly sophisticated ways to protect the program.

Both the Congress and HCFA have made important legislative and

administrative changes to address chronic payment safeguard problems.

Because of the hundreds of billions of dollars at stake, however, the

government must exercise unflagging oversight and effective management

for the foreseeable future to protect Medicare from waste, fraud, abuse,

Page 16 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

and mismanagement. Two factors heighten the continuing need to control

claims fraud and abuse in Medicare. First, although growth in Medicare

costs has moderated somewhat in the last 2 years, many believe even this

lower growth rate cannot be sustained. Second, the Medicare trust fund

that pays for hospital and other institutional services is expected to be

depleted within the next 5 years.

Infusion of Resources and

Leadership From HCFA

Should Help Lessen

Vulnerabilities of Medicare

Fee-for-Service Program

HCFA administers Medicare largely through a structure of claims

processing contractors. Medicare contractors—insurance companies such

as Blue Cross and Blue Shield—use federal funds to pay health care

providers and beneficiaries and are reimbursed for their administrative

expenses. HCFA has largely delegated its effort to guard against

inappropriate payments to these contractors, giving them broad discretion

in acting to protect Medicare program dollars. As a result, significant

variations exist in contractors’ implementation of Medicare’s payment

safeguard policies.

A pattern of unstable funding for antifraud and abuse activities since 1989

has made it more difficult to guard the large Medicare program. For

example, although the number of Medicare claims climbed 70 percent—to

822 million—between 1989 and 1996, resources committed to claims

review, without adjusting for inflation, grew less than 11 percent during

that period. Passage of the Health Insurance Portability and Accountability

Act of 1996 adds new funds to fight fraud and abuse starting in 1997, but

this additional funding will still leave per claim safeguard funding in 2003

at about one-half the 1989 level, after adjusting for inflation.

The inadequate funding of Medicare’s claims scrutiny activities has hurt

contractors’ efforts to review the medical necessity of services billed to

the program. For example, we reported in 1996 that because of the small

number of claims selected for review, home health agencies billing for

noncovered services were less likely to be caught than was the case 10

years earlier.14 Besides covering so few claims, paper reviews of home

health claims are simply limited in their ability to detect claims for

noncovered care. In the case of a large home health organization we

investigated, claims passed review scrutiny even for visits never made

because company staff allegedly falsified medical records.

14Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16,

Mar. 27, 1996).

Page 17 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

As we noted in many reports and testimonies in recent years, HCFA has not

aggressively managed the Medicare claims processing function. HCFA has

not taken a leadership role, for example, in managing how contractors

select the criteria used to identify claims that may not be eligible for

payment or in helping contractors with this task. The agency has not

systematically aggregated information on contractors’ medical policies or

their related use of prepayment screens. As a result, HCFA has not

adequately assessed the relative performance of contractors or helped

share with all contractors the experience of some in using effective claims

screening controls. One of our studies revealed, for example, that 10 of 17

contractors reviewed lacked screens for echocardiography, Medicare

payments for which exceeded those for any other diagnostic test in fiscal

year 1994 and which increased in use nationwide by over 50 percent

between 1992 and 1994.15 We estimated that Medicare could have denied at

least $10.5 million in echocardiography payments made in 1993 if just

seven contractors that did not screen for these procedures had applied the

medical necessity screens used by other contractors.

Legislative and Other

Initiatives Improve HCFA’s

Ability to Fight Fraud and

Abuse

The 1996 Health Insurance Portability and Accountability Act will

gradually increase the funding for pursuing health care fraud and abuse,

including HCFA’s audit and related activities. For fiscal year 1997, the act

boosts the claims processing contractors’ budget for program safeguard

activities 10 percent over 1996; by 2003, the level will be 80 percent higher

than for 1996.

Operation Restore Trust is an antifraud initiative involving three HHS

agencies—the IG, HCFA, and the Administration on Aging—and the

Department of Justice and various state and local agencies. This effort

currently targets Medicare abuse and misuse in five states that together

account for over one-third of all Medicare beneficiaries and focuses on

fast-growing services: home health care, nursing homes, and medical

equipment and supplies. In its first year, Operation Restore Trust reported

recovering $42.3 million in inappropriate payments. It also resulted in

many convictions, fines, and exclusions of fraudulent providers. IG

officials believe that the major achievement of this initiative will be

continued coordination of the participating agencies and greater

awareness of the effectiveness of constant vigilance.

15Medicare: Millions Can Be Saved by Screening Claims for Overused Services (GAO/HEHS-96-49,

Jan. 30, 1996).

Page 18 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

The Health Insurance Portability and Accountability Act has built upon

Operation Restore Trust by establishing a program run jointly by the

Departments of Justice and HHS to coordinate federal, state, and local law

enforcement efforts against fraud in Medicare and other health care

programs. The program also establishes a national health care fraud data

collection program, specifies health care fraud as a separate criminal

offense, and increases criminal penalties.

HCFA has taken other actions to improve Medicare’s fraud detection

activities. These include efforts to adopt fraud and abuse detection

software and to reduce Medicare’s vulnerability to abusive billing as well

as to prevent fraudulent or excluded providers from continuing to bill the

program. For example, HCFA will assign new identification numbers—

National Provider Identifiers—to every provider and supplier in the

Medicare program and require the use of these numbers for billing

purposes. The numbers assigned to providers and suppliers are unique and

will identify them throughout their Medicare participation.

HCFA Could Reduce Costs

of Medicare Managed Care

Program

Programs can also be vulnerable to excess payments because the method

for setting prices is flawed. An example of this is the process for setting

rates for Medicare risk-contract health maintenance organizations (HMO).

Our recent studies have revealed shortcomings in Medicare’s risk-contract

program that affect both taxpayers and beneficiaries. Because of

difficulties in establishing capitation rates, Medicare pays some HMOs too

much each year, needlessly spending at least hundreds of millions of

dollars a year from the program’s trust funds. HMOs tend to attract

Medicare beneficiaries whose need for care when joining is low. Although

the payment formula includes a crude risk adjustor to correct for this

tendency, it is not precise enough to account for its full effect.16 The

Physician Payment Review Commission recently estimated that annual

excess payments to HMOs nationwide could total $2 billion.

A second problem with Medicare’s risk-contract program is that HCFA has

neither adequately enforced nor made beneficiaries aware of HMOs’

compliance with federal standards. We have reported on the need for HCFA

to more actively serve beneficiaries enrolling in HMOs.17 HCFA conducted

16Medicare HMOs: HCFA Could Promptly Reduce Excess Payments by Improving Accuracy of County

Payment Rates (GAO/T-HEHS-97-82, Feb. 27, 1997).

17Medicare: Increased HMO Oversight Could Improve Quality and Access to Care (GAO/HEHS-95-155,

Aug. 3, 1995) and Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO

Performance (GAO/HEHS-97-23, Oct. 22, 1996).

Page 19 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

only paper reviews of HMOs’ quality assurance plans. Moreover, the agency

was reluctant to act against HMOs that used abusive sales practices, unduly

delayed appeals of decisions to deny coverage, or exhibited patterns of

poor-quality care.

HCFA also misses an opportunity to supplement its regulatory efforts by not

sufficiently informing Medicare beneficiaries about competing HMOs. For

example, HCFA does not provide beneficiaries with any of the comparative

consumer guides that the federal government and other employer-based

health insurance programs routinely distribute to employees and retirees.

Public disclosure of information, such as comparative disenrollment rates,

could help beneficiaries choose among competing HMOs and encourage

HMOs to better market their plans and serve enrollees.

Most recent legislative proposals to reform Medicare would expand the

program’s use of prepaid health plans, which illustrates the importance of

addressing these issues. Risk-contract HMOs currently enroll about 10

percent of Medicare’s beneficiaries, and such enrollment has grown

rapidly. In just 2 years—between August 1994 and August 1996—the

number of risk HMOs nationwide rose from 141 to 229 and enrollment grew

by over 80 percent, from about 2.1 million to 3.8 million beneficiaries. The

Congressional Budget Office projects that, under one Medicare reform

scenario that would encourage beneficiaries to join HMOs, enrollment in

risk HMOs and other prepaid plans could grow to 25 percent of all

beneficiaries by 2002. If HCFA does not correct its rate setting and

standards enforcement problems, these proposals could actually increase

Medicare costs rather than control cost growth as intended.

In conclusion, although our reviews and studies and those of others have

found problems with HHS’ many programs, we recognize the difficulties

that HHS faces in managing a large and diverse array of activities.

Considering, however, the extent to which the American people rely on

HHS for essential services and support, it is critical for the Department to

focus on achieving its many missions as effectively and efficiently as

possible. GPRA provides HHS with an excellent opportunity to orient its

management toward producing the results its programs are intended to

achieve and to engage in regular self-assessment. As you know, we have

already committed to working with the Congress as it reviews draft and

final HHS strategic and performance plans and other submissions under

GPRA. We urge the administration and the Congress to use this opportunity

Page 20 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

to provide the kind of continual oversight needed for a department of HHS’

size, diversity, vulnerability, and importance.

Mr. Chairman, this concludes my prepared statement. I will be happy to

answer any questions that you or members of the Subcommittee might

have.

Contributors For more information on this testimony, please call William Scanlon,

Director, Health Financing and Systems, (202) 512-4561; Bernice

Steinhardt, Director, Health Services Quality and Public Health,

(202) 512-6543; or Jane Ross, Director, Income Security, (202) 512-7215.

Page 21 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

Page 22 GAO/T-HEHS-97-98
Department of Health and Human Services:

Management Challenges and Opportunities

Page 23 GAO/T-HEHS-97-98
Related GAO Products

Medicare Home Health Care Benefit (GAO/HEHS-97-70R, Feb. 11, 1997).

FDA’s Mammography Inspections: While Some Problems Need Attention,

Facility Compliance Is Growing (GAO/HEHS-97-25, Jan. 27, 1997).

Skilled Nursing Facilities: Approval Process for Certain Services May

Result in Higher Medicare Costs (GAO/HEHS-97-18, Dec. 20, 1996).

Public Health: A Health Status Indicator for Targeting Federal Aid to

States (GAO/HEHS-97-13, Nov. 13, 1996).

Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed

Care (GAO/HEHS-96-184, Sept. 17, 1996).

Medicaid: Oversight of Institutions for the Mentally Retarded Should Be

Strengthened (GAO/HEHS-96-131, Sept. 6, 1996).

Medicare: Early Resolution of Overcharges for Therapy in Nursing Homes

Is Unlikely (GAO/HEHS-96-145, Aug. 16, 1996).

Medicaid Managed Care: Serving the Disabled Challenges State Programs

(GAO/HEHS-96-136, July 31, 1996).

Medicaid: Waiver Program for Developmentally Disabled Is Promising But

Poses Some Risks (GAO/HEHS-96-120, July 22, 1996).

Health Insurance for Children: Private Insurance Coverage Continues to

Deteriorate (GAO/HEHS-96-129, June 17, 1996).

Medicaid Funding Formula Changes (GAO/HEHS-96-164R, June 10, 1996).

Practice Guidelines: Managed Care Plans Customize Guidelines to Meet

Local Interests (GAO/HEHS-96-95, May 30, 1996).

Federal Personnel: Issues on the Need for the Public Health Service’s

Commissioned Corps (GAO/GGD-96-55, May 7, 1996).

FDA Approval: Review Time Has Decreased in Recent Years (GAO/PEMD-96-1,

Oct. 20, 1995).

(108319) Page 24 GAO/T-HEHS-97-98
Ordering Information

The first copy of each GAO report and testimony is free.

Additional copies are $2 each. Orders should be sent to the

following address, accompanied by a check or money order

made out to the Superintendent of Documents, when

necessary. VISA and MasterCard credit cards are accepted, also.

Orders for 100 or more copies to be mailed to a single address

are discounted 25 percent.

Orders by mail:

U.S. General Accounting Office

P.O. Box 6015

Gaithersburg, MD 20884-6015

or visit:

Room 1100

700 4th St. NW (corner of 4th and G Sts. NW)

U.S. General Accounting Office

Washington, DC

Orders may also be placed by calling (202) 512-6000 

or by using fax number (301) 258-4066, or TDD (301) 413-0006.

Each day, GAO issues a list of newly available reports and

testimony. To receive facsimile copies of the daily list or any

list from the past 30 days, please call (202) 512-6000 using a

touchtone phone. A recorded menu will provide information on

how to obtain these lists.

For information on how to access GAO reports on the INTERNET,

send an e-mail message with "info" in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov

PRINTED ON RECYCLED PAPER
United States

General Accounting Office

Washington, D.C. 20548-0001

Official Business

Penalty for Private Use $300

Address Correction Requested

Bulk Rate

Postage & Fees Paid

GAO

Permit No. G100