U.S. GOVERNMENT PRINTING OFFICE

60–933 CC WASHINGTON : 1999

OVERSIGHT OF THE YEAR 2000 PROBLEM: THE

Y2K STATUS OF THE DEPARTMENT OF HEALTH

AND HUMAN SERVICES

HEARING

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

FEBRUARY 26, 1999

Serial No. 106–45

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

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

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JOHN T. DOOLITTLE, California

HELEN CHENOWETH, Idaho

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

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

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

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

JUDY BIGGERT, Illinois

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

BONNIE HEALD, Professional Staff Member

MASON ALINGER, Clerk

MICHELLE ASH, Minority Counsel

FAITH WEISS, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on February 26, 1999 ....................................................................... 1

Statement of:

DeParle, Nancy-Ann, Administrator, Health Care Financing Administration; and John J. Callahan, Chief Information Officer, Department

of Health and Human Services .................................................................... 54

Willemssen, Joel C., Director, Civil Agencies Information Systems, General Accounting Office .................................................................................. 5

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

Callahan, John J., Chief Information Officer, Department of Health and

Human Services:

Chronology of reengineered payment management system ................... 100

HHS’s total Y2K costs ............................................................................... 102

Information concerning cost of payment management system .............. 108

Information concerning cost of secondary system .................................. 109

Information concerning the original payment management system ..... 109

Information concerning total revenue ..................................................... 109

Prepared statement of ............................................................................... 76

DeParle, Nancy-Ann, Administrator, Health Care Financing Administration:

Letter dated January 12, 1999 ................................................................. 103

Prepared statement of ............................................................................... 57

Willemssen, Joel C., Director, Civil Agencies Information Systems, General Accounting Office:

Information concerning HHS’s payment management system .............. 48

Prepared statement of ............................................................................... 7

(1)

OVERSIGHT OF THE YEAR 2000 PROBLEM:

THE Y2K STATUS OF THE DEPARTMENT OF

HEALTH AND HUMAN SERVICES

FRIDAY, FEBRUARY 26, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 9 a.m., in room

2154, Rayburn House Office Building, Hon. Stephen Horn (chairman of the subcommittee) presiding.

Present: Representatives Horn, Morella, Biggert, and Turner.

Also present: Representive Gordon.

Staff present: J. Russell George, staff director and chief counsel;

Matt Ryan, senior policy director; Bonnie Heald, director of information, and professional staff member; Mason Alinger, clerk; Paul

Wicker, Kacey Baker, and Richard Lukas, interns; Michelle Ash

and Faith Weiss, minority counsels; Ellen Rayner, minority chief

clerk; and Jean Gosa and Earley Green, minority staff assistants.

Mr. HORN. The Subcommittee on Government Management, Information, and Technology will come to order.

There are only 308 days left to reassure American citizens that

the computer systems, those that are critical to our lives, are year

2000 compliant. Unfortunately, even today, many private organizations and governmental entities are only now recognizing the potential severity of this problem. Some are just starting to fix their

systems, leaving little, if any, time for one of the most important

aspects of this effort—adequate testing.

The problem is real, the consequences serious, and the deadline

is unmovable.

The House Subcommittee on Government Management, Information, and Technology has focused on the potential problem since

early 1996. On Monday, our subcommittee issued its seventh report

card, which showed considerable improvement throughout the Federal Government. However, much work still remains. We will continue to steadfastly monitor the Federal Government’s year 2000

readiness and sternly prod those departments and agencies that

lag behind.

Today we will hear about the status of year 2000 technology initiatives at the Department of Health and Human Services [HHS],

and one of its key components, the Health Care Financing Administration, otherwise known as HCFA.

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Since November, and as shown in our most recent report card,

HHS has reported substantial improvement in making its mission

critical systems year 2000 compliant. Currently, HHS reports that

about 83 percent of its mission critical systems are compliant, due

in large part to HCFA’s reported increase in mission critical system

compliance. We look forward this morning to learning how HHS

righted itself in grappling with its year 2000 issues.

In addition, we will hear from the General Accounting Office,

Congress’ auditing arm on program and money, which has been

doing outstanding work for this subcommittee over the last 3 years

on this issue.

The Department of Health and Human Services provides vital

services to the American public, ranging from health care and food

safety to AIDS research. In addition, the Health Care Financing

Administration approves more than $300 billion annually in medical bills for over 72 million of America’s most vulnerable citizens,

the elderly, the poor and the sick. But will these payments continue on January 1st? How year 2000 ready is HCFA and how

ready are the numerous health care contractors and providers involved in Medicare?

Finally, how prepared are the States for providing Medicaid services to the nearly 35 million people who otherwise could not afford

to seek medical help. No Federal entity is an island unto itself and

no Federal entity can be complacent regardless of its Y2K status

until its partner organizations, in this case the doctors, hospitals

and the State and local governments, are also adequately prepared

for the new millennium. HHS is also responsible for processing

about $170 billion a year in Federal grants through its large payment management system. This centralized system processes most

Federal assistance grants, including block grants, to over 20,000 recipient accounts. For example, this system processes 98 percent, or

about $95 billion, of the Federal Government’s share of Medicaid

grants. The big concern for us in Congress is that this critically important system is not yet year 2000 compliant.

I look forward to delving into these and other highly important

issues this morning. I welcome today’s witnesses and look forward

to their testimony.

We have a total of three witnesses for this hearing and we are

going to start with panel one, being Joel Willemssen, the Director

of Civil Agencies, Information Systems, General Accounting Office.

Panel two will then come up, John J. Callahan, the Chief Information Officer for the Department of Health and Human Services, and

Nancy-Ann DeParle, Administrator of HCFA.

I would now like to yield to Mr. Gordon, the ranking member on

the Committee on Technology of the House Committee on Science.

The gentleman from Tennessee.

Mr. GORDON. Thank you, Mr. Chairman. I have a constituent at

home by the name of Barbara Mandrell. She had a song a few

years ago entitled, ‘‘I Was Country Before Country Was Cool’’ and

let me just say that Steve Horn has been singing the problem of

Y2K long before it was cool, and we owe you a debt of gratitude

in raising this awareness in our country. I was with the EU last

week and I was dismayed when we talked with many of their parliamentarians that for some reason they think that this problem is

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going to go away. I want to thank you for putting this country on

notice, and I think your report cards help us all to better focus.

Mr. HORN. I now yield for an opening statement to a new Member from Illinois, the vice chairman of the Subcommittee on Government Management, Information, and Technology, Mrs. Biggert.

Mrs. BIGGERT. Thank you, Chairman Horn. You always start on

time to the very minute, and we always appreciate that. This certainly is an important issue and I look forward to the testimony.

I think that—how many days do we have now, about 310?

Mr. HORN. 308.

Mrs. BIGGERT. So the year 2000 is not going to wait and I look

forward to these hearings. And I think that the more hearings that

we have, the more education that we have on this issue, the more

that we raise the consciousness of the American people and the importance for all industry, government, local government and Federal Government and State government, to really assure us that we

are going to be ready for the year 2000.

Thank you.

Mr. HORN. Thank you. And we now have as our first witness and

I think you all know the routine. All of the subcommittees of the

Government Reform Committee swear in all witnesses, and we will

start with you, Mr. Willemssen.

[Witness sworn.]

Mr. HORN. The clerk will note that the witness affirmed and we

will begin with this overview and then ask panel two to join us and

have their testimony, and then it will be essentially a dialog of the

committee and the witnesses.

Let me just withhold, the distinguished ranking member from

Texas, Mr. Turner, is here. Do you have an opening statement? He

is always a constructive member of this committee.

Mr. TURNER. Thank you, Mr. Chairman. I want to thank you,

first of all, for holding this hearing, both you and Chairwoman

Morella have been active in leadership in this area.

We are here to discuss the efforts of the Department of Health

and Human Services to resolve the year 2000 problem. In September 1998, the General Accounting Office reported that HCFA

and its contractors were behind schedule in testing, repairing, and

implementing the systems that support Medicare. At that time, the

GAO concluded that it was highly unlikely that the Medicare systems would be compliant in time to ensure uninterrupted delivery

of benefits and services.

Even as recently as February of this year we have learned that

only 54 of the 78 contractor systems were compliant and 5 of these

24 noncompliant systems were more than 2 months behind schedule. We have additionally learned that while HCFA’s contractors

have made progress, seven are at risk of missing the federally imposed March 31st deadline.

In addition, HCFA has been in the process of determining whether to update its current payment management system or to use a

new system. The payment management system processes about

$170 billion annually or about 75 percent of all Federal grant and

aid programs, and HCFA has chosen to update and maintain this

system through the year 2000. Given the time spent in making this

determination, Y2K efforts to test this system did not begin until

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later than expected, and HCFA will be conducting tests next

month.

Further, the ability of HCFA’s computers to communicate with

non-Federal computers is a very serious concern. HCFA communicates with hospitals, physicians, State governments, and its own

contractors on a daily basis, and if problems arise in these nonFederal systems, the communication efforts of HCFA will be adversely impacted.

Another area of concern is the area of medical equipment. It

bears mentioning that the Food and Drug Administration has a

number of Y2K concerns relating to medical equipment, and as of

January 12th, only 1,438 of the 1,932 targeted manufacturers had

submitted Y2K data on their biomedical equipment to the Federal

Y2K Biomedical Equipment Clearinghouse.

What this means to the American people is that there are still

a number of products about which there is not sufficient information to know its Y2K status. A further concern is the fact that the

majority of manufacturers are not affirmatively notifying users

that potential problems may exist in their equipment.

One solution will be to require the manufacturers to notify the

device users, including hospitals and nursing homes, of other potential Y2K problems. Still further, there is concern that many consumers may attempt to hoard prescription drugs at the turn of the

century, and given the brief shelf life of some prescription medications, the FDA must create contingency plans for potential drug

shortages.

Before we move into January 2000, it will certainly be necessary

to find a solution to the problem of shortages of prescription drugs.

One of HHS’s largest problems is the readiness of State governments which administer the various HHS programs. As you know,

States administer Federal benefits pursuant to Medicare, child

care, food stamps, and other government programs. The recipients

of these benefits are often the elderly or the disabled who will have

limited financial resources or single mothers struggling to make

ends meet.

That is why I know that HHS will take the issues of State readiness very seriously, and I am encouraged to hear that HCFA is

taking steps to identify and work with those States that have been

identified as being the furthest behind. State readiness for Y2K is

a critical concern and one that HCFA should be following closely.

Also appearing most susceptible to disruptions are the inner city

municipal hospitals and the rural health care providers. Given

their geographic locations, rural providers often do not have the resources of larger institutions, and I am particularly interested in

hearing what HCFA is doing to ensure that the Y2K concerns of

our rural health care providers are being adequately addressed.

I come from a rural district, and I know that rural hospitals and

rural health care providers need to be confident that HCFA will reimburse them for their services in a timely manner. HCFA has assured us if a claim gets into the processing system, it will get paid.

However, Medicare claims are submitted to HCFA contractors either through independent billing agents or directly by providers. A

claim is only considered in HCFA’s system once it is received by

the contractor, and I would like to hear more today about how we

5

can ensure that these billing agents and these independent providers, such as rural hospitals, will be compliant so that the providers can be certain that they will be paid.

I realize there is much in the system that is out of the direct control of HCFA, but I think it is HCFA’s responsibility to be sure that

those independent contractors are adequately preparing for Y2K.

Mr. Chairman, thank you again for having this hearing. This is

probably one of the most critical hearings that we have had and

with an agency that you and I both know has probably had more

problems than most of the agencies that we have had before this

committee.

Mr. HORN. I thank the gentleman from Texas and since I grew

up in rural America on a farm, I share your views. Thank you.

Now, Mr. Willemssen. I think all of the members of the committee know this gentleman. He has done a splendid job in his role

with his team over at the General Accounting Office as Director of

Civil Agencies Information Systems, and when we have held hearings throughout the country, Mr. Willemssen has been there with

the opening statement and we welcome you today.

STATEMENT OF JOEL C. WILLEMSSEN, DIRECTOR, CIVIL

AGENCIES INFORMATION SYSTEMS, GENERAL ACCOUNTING

OFFICE

Mr. WILLEMSSEN. Thank you, Mr. Chairman. I will briefly summarize the readiness of HHS to address the Y2K issue, and in particular focus on HCFA and Medicare, and then on the Payment

Management System.

First regarding HCFA and Medicare Y2K, we originally reported

our concerns with this nearly 2 years ago and at that time the level

of HCFA management attention on Y2K was minimal. Instead

much of the agency’s system focus was on a failed effort known as

the Medicare Transaction System which was intended to replace

existing part A and part B core computing systems.

As we have previously testified, this effort was terminated after

about $80 million was spent and not one line of software had been

delivered. It is important to keep that history in mind as we now

look at the large challenge that HCFA faces in addressing Y2K.

We reported last fall that with its very late start on Y2K, HCFA

faced the prospect of having too much to do in too little time. Many

of the basic Y2K management practices that we would have expected to have seen were not there. Our conclusions and recommendations to the Administrator reflected our concern about the

high level of risk facing HCFA. HCFA has been responsive to our

recommendations and the Administrator is to be commended for

making Y2K the agency’s top priority and directing a number of actions to more effectively direct the project. Among these many actions has been an important commitment to business continuity

and contingency planning to ensure that in the event of system

failures, beneficiaries will still receive care and providers will be

paid. Despite its progress, we still have serious concerns with

where HCFA is with Medicare and Y2K.

First, HCFA’s reported external systems progress on Y2K is

highly overstated. HCFA and HHS recently reported that 54 contractor systems were compliant as of December 31st. In fact none

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of these 54 should have been considered compliant. All had important exceptions, some of them very significant.

According to HCFA officials they reported these systems as compliant because the qualifications were minor problems that should

not take much time to address. This is at variance with the report

of HCFA’s independent verification and validation contractor on

about February 16th. At that time the contractor found the qualifications to be critical, most requiring a major to moderate level of

effort to resolve.

Among the other issues that HCFA needs to address: One, HCFA

still lacks an integrated schedule that lays out a critical path for

the most important tasks that have to be done.

Two, HCFA has thousands of data exchanges that remain to be

remediated and tested.

Three, HCFA faces a tremendous amount of testing for the remainder of this year, testing both at a system level, for changes to

resolve the existing qualifications, as well as other legislatively

mandated changes that will go into effect. All of that testing will

ultimately determine whether HCFA’s systems are indeed compliant. Given the magnitude of the challenge that HCFA faces, it is

absolutely critical that the Administrator sustain her commitment

to complete and test business continuity and contingency plans so

that if system failures occur, HCFA will be positioned with backup

plans.

Next, let me turn briefly to HHS’s Payment Management System

and the Program Support Center. As noted, a key activity for this

center is providing grant payments totaling over $165 billion annually to about 20,000 recipient organizations. The payment management system is instrumental to making sure those payments are

made. However, the system is not yet Y2K compliant and it is unclear at this point when it will be. In 1995 there was an effort

begun to replace the existing system with a new state-of-the-art

system that was expected to be Y2K compliant and operational by

October 1997. However, since its inception, that planned system replacement has encountered problems and as a result is still not

operational. We understand that the Program Support Center has

contracted with a company to conduct an analysis of whether to

rely on the replacement system as the year 2000 solution or rely

on their existing system and remediate and test that. Regardless

of the outcome of that analysis, and I believe that HHS may be

providing the results today, there will be a tremendous amount of

work remaining to make sure, whether the existing system or replacement system is the solution, that is indeed Y2K compliant.

That concludes a summary of my statement. I would be pleased to

address any questions that you have.

[The prepared statement of Mr. Willemssen follows:]

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Mr. HORN. I thank the gentleman. I note that the chairman of

the Subcommittee on Technology of the House Committee on

Science has joined us and before we begin the questioning, if the

gentlewoman from Maryland would like to make an opening statement.

Mrs. MORELLA. Thank you, Mr. Chairman. You invited me to

participate in this hearing and I appreciate it very much. It is part

of our ongoing series of meetings that we have had, and briefings,

to make sure that all agencies recognize the urgency and the time

limits on correcting the year 2000 computer problem, computer

glitch, mother of all computer glitches. Certainly my hope is that

given what we understand from the General Accounting Office

about the serious difficulties that HCFA is experiencing with Y2K

that we can spur the agency to undertake the dramatic actions that

are needed to ensure that the population who receive over $170 billion annually of Medicare and Medicaid assistance, that their elderly, disabled and indigent benefits continue uninterrupted.

Last September GAO reported that ‘‘HCFA and its contractors

were severely behind schedule in the repairing, testing, in the implementing of its mission critical systems that support Medicare.’’ And the General Accounting Office also noted that ‘‘due to the complexity and magnitude of the problem and HCFA’s late start, its

progress in repairing mission critical Medicare systems is far behind schedule.’’ I know that HCFA disputes some of the General Accounting Office’s conclusions. I know that both HHS and HCFA have demonstrated a great deal of progress in this last quarter, so I look forward to continuing the dialog and hearing our other witnesses and

questioning Mr. Willemssen.

Thank you very much, Mr. Chairman.

Mr. HORN. I thank the gentlewoman. We will begin with the

questioning for 5 minutes alternating between the majority and minority side. There are not too many questions to ask the General

Accounting Office. We will then move to panel two and have Mr.

Willemssen rejoin the panel at the end and have some more questioning.

Let me yield the chairman’s time to the vice chairman of the

committee, Mrs. Biggert, the gentlewoman from Illinois.

Mrs. BIGGERT. Thank you, Mr. Chairman.

Mr. Willemssen, in the Department’s quarterly report to the Office of Management and Budget, the Health Care Financing Administration [HCFA], reported that 54 of its 78 external mission

critical systems were year 2000 compliant. However, in your testimony you said that none of these 54 external mission critical systems are completely compliant because they have important qualifications or exceptions associated with them. Do you think that

these qualifications are important and if so, why?

Mr. WILLEMSSEN. Yes, we do think the qualifications are important. The essence of making systems Y2K compliant is in part

making sure that they are forward date tested so that dates such

as January 1, 2000, February 29, 2000 will indeed work as intended and therefore within that testing it is important that those

kinds of issues have been fully resolved. At this point they have

not. Also, as of December 31st, the evidence we saw was that all

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of these 54 had important qualifications requiring some amount of

effort in order to resolve. If indeed they involved minor effort, I

would have expected that they would have been fully resolved and

tested over the last 2 months. In fact they have not. They continue

to be outstanding. So although some resolution has taken place,

they still all need to be tested. HCFA is making excellent progress

but not as much progress as is reflected in those statistics.

Mrs. BIGGERT. In your opinion then would you say that HCFA

is trying to gain the system, trying to improve its grade by overstating the Y2K compliance?

Mr. WILLEMSSEN. I would say that HCFA is under tremendous

pressure to do the best job possible on Y2K. The Administrator has

made it the top priority. There are a lot of people at HCFA working

very hard, as are many contractors. I guess it is subject to interpretation what they saw with the February 16th independent verification and validation contractor’s report that they could possibly

consider the system substantially compliant, and therefore close

enough, let’s call that compliant.

We differ with that view. We thought those exceptions were significant enough that those systems should not be considered compliant at that point in time.

Mrs. BIGGERT. Thank you. Then turning to the Health and

Human Services Payment Management System which processes

about $170 billion a year in Federal grant payments, of concern is

that HHS has been trying to develop a new Payment Management

System since 1995, as you mentioned, but with little success, but

it is also still renovating the current system to try to make it Y2K

compliant. Is the current system year 2000 compliant now?

Mr. WILLEMSSEN. No. We have not seen the test results for the

existing system demonstrating that it is indeed compliant, and I

believe HHS will be talking about that a little bit today about

whether they are going to rely on the existing system or the replacement system. But the evidence that we have seen is that no,

that it is not compliant at this point in time.

Mrs. BIGGERT. How about by March 31, 1999 which is the President’s deadline?

Mr. WILLEMSSEN. In discussions over the last few days with

some of the key officials within HHS, at least one official maintained that he thought it would be compliant by March 31st. I believe HHS may be amending that in testimony today to possibly

being a few months later.

Mrs. BIGGERT. Since—how about the new system, will it be ready

by March 31st then? If it is, what are they going to do with the

old system?

Mr. WILLEMSSEN. This is an issue that several agencies have encountered. The difference with HHS is that this is a bit late to be

encountering this, and in some cases agencies decide on a dual

track approach. That is, let’s continue with the replacement system

but with the risk involved with that replacement system of being

delivered so late, we need to go into the existing system just in case

and remediate and test that one so in the event the replacement

does not get in in time, we have this one to fall back on. We would

not disagree with that kind of approach overall.

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Mrs. BIGGERT. OK. How much then is the Department spending

to develop the new system and to fix the existing system to make

it Y2K compliant?

Mr. WILLEMSSEN. We do not have up-to-date information on the

cost that we have gathered over the last couple of days, but we can

supply the information for the record.

Mr. HORN. We will insert that at this point in the record.

[The information referred to follows:]

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Mrs. BIGGERT. Thank you.

Mr. HORN. I defer the questioning to Mr. Turner, the ranking

member of this subcommittee.

Mr. TURNER. Thank you, Mr. Chairman.

I would like to inquire a little bit into—HCFA has a unique problem in that it deals with a lot of folks that it doesn’t have direct

control over, such as its contractors and the States. What is the

hammer in terms of legal control that HCFA has over its independent contractors to be sure that they get their systems in compliance, or are we just hoping that they will?

Mr. WILLEMSSEN. I think it is an excellent point that you raise.

It is one of the unique challenges that HCFA faces that many other

organizations don’t, in that they have to apply tremendous pressure on the contractors to get these systems compliant.

One of the excellent steps that they have taken is hiring the

independent verification and validation contractor to go in and help

them make sure that the systems are compliant, and I think that

contractor has shown some definite value over the last few months.

But I think the legal issues, I won’t pretend to know them inside

and out, but there are apparently some legal impediments that the

Administrator may be more attuned to speak toward. I know the

administration has put forward some contractor reform legislation

that it believes will in part assist them in that area.

Mr. TURNER. So we really don’t know if a contractor who is supposed to be sending out these payments to all of these providers,

if they are not ready on January 1st and their systems go down,

we don’t really know if the Federal Government and HCFA can

hold them legally responsible for those noncompliant acts or whether we can hold them liable for damages? Do we even know what

we can do if a contractor does not get in a situation where they are

compliant?

Mr. WILLEMSSEN. With that legal question I would prefer to

defer to the Administrator since I do not know the legal intricacies

that well in terms of what the Federal Government can and cannot

do.

Mr. TURNER. Another similar issue is the one that you described

regarding the new system that was going to handle the payment

management system, the computer that apparently was acquired

and put in place or attempted to be put in place I believe you said

in 1997. Now they have decided well, that is not Y2K compliant so

we are going to stay with the old system through 2000. Who provided that system, and do we know if there were representations

made at the time to HCFA that was going to be Y2K compliant?

Mr. WILLEMSSEN. The documentation that we got from HHS indicated that Y2K would not be an issue once the new system went

in. Among the problems—I don’t have the contractor names at my

disposal—but among the issues that came up is HHS decided to go

with another contractor after the initial contractor because of some

of the problems that they were experiencing and the initial contractor not being able to meet the schedule. So for implementation

of the system, HHS went with a second contractor to do that.

Mr. TURNER. To put in the new system?

Mr. WILLEMSSEN. Yes, to implement that new system.

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Mr. TURNER. Do we know if that contractor represented that that

system they were providing to HCFA was going to be Y2K compliant?

Mr. WILLEMSSEN. We can look—once we get the documents from

HHS, we can look at the contractual language to see if indeed the

standard Y2K compliance language was in there. The timing of

that would be—it may or may not have been. We will look at that

for you, though. There was some standard governmentwide Y2K

compliance language that was pulled together over a year ago now,

so it would be interesting in terms of that particular contract to see

if that language has been put in or potentially an amendment put

into the contract subsequent to its initial award.

Mr. TURNER. I would certainly hope as late a date as 1997, 1998,

when all of this occurred, that that language would have been in

there.

Mr. WILLEMSSEN. 1997, from a governmentwide perspective generally speaking that language may not have existed. It was still

being debated during most of that year.

Mr. TURNER. We are having a lot of hearings on Y2K liability,

and I think sometimes as we discuss that subject we fail to remember that the Federal Government itself may be a potential plaintiff

making claims against contractors who have failed in a legal duty

to provide systems that are Y2K compliant.

If you looked at HCFA’s serious problems from the perspective

of those contractors, when we say that there are serious noncompliance problems, give us an example of something you found that you

are calling a serious noncompliant problem?

Mr. WILLEMSSEN. One thing in looking at the seriousness of the

issue is the tremendous complexity of the entire claims processing

process and it involves so many players with so many individual

systems and so many data exchanges that you have to look at it

as a building block type of approach. Each of those individual components we first have to get compliant. And once we have ascended

that mountain, then we have to look at it from an end to end process involving multiple systems and data flows and making sure

that that process end to end is compliant, and that is one of the

primary reasons for our concern about the high risk at HCFA. It

is not that they are not doing what they can, it is that there is a

relatively limited amount of time left to get it all done.

Mr. TURNER. Thank you, Mr. Chairman.

Mr. HORN. Thank you. I now yield 5 minutes to the gentlewoman

from Maryland for questioning.

Mrs. MORELLA. Thank you, Mr. Chairman.

We rely very heavily on the General Accounting Office and we

thank you very much for doing the kind of reporting and the investigative work that helps us move forward. I can’t think of anything

more important than Medicare and Medicaid and then the whole

medical field when it comes to compliance of Y2K.

I am kind of—I had a concern very much about those many contractors who are out there and how you pull it together. But I am

also concerned as I look at the testimony or the statement that

came, the GAO report, that deals with Medicaid specifically, the

fact that HCFA distributed a survey to all of the States to ascertain their background on Y2K compliance, and they then decided

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they would rely on because they didn’t feel that this was accurate

enough or complete enough, rely on onsite contractor visits to ascertain accurate Medicaid systems status. They then go on to say

that some States appeared to make progress in the 6 months since

the survey that had been made, but many of the others—four

States made progress, three States remained the same. This says

something about the monitoring and a whole question about what

more needs to be done, how do we get a handle on this because

again of the end to end and the many connections that have to be

made for total compliance and reliability. I ask you—would you like

to comment on it?

Mr. WILLEMSSEN. Yes. Medicaid systems overall are of great concern. When we issued our report last year on State human services

systems, the compliance rate that we saw for Medicaid systems nationwide was only about 16 percent of all of those Medicaid systems

self reported to us by States. So that definitely was of concern.

HCFA has taken some excellent steps since then. Part of that

being hiring a contractor to go out and do on-site visits to see if

the States are making the progress that they need to. HCFA’s intent is to go to all States and then for those States deemed at risk,

to have followup visits.

We think those are excellent steps that need to be taken, but

overall Medicaid has a long ways to go. These are not simple systems that are going to need to be made compliant. HCFA is taking

some aggressive steps to try to assist, and again they are to be

commended for doing that.

Mrs. MORELLA. So basically what HCFA has done is hired contractors to go——

Mr. WILLEMSSEN. To see how the States are doing.

Mrs. MORELLA. Do you feel that HCFA is going to be able to

meet that March 31st deadline for compliance before the end-to-end

testing begins, in all candor?

Mr. WILLEMSSEN. I doubt that they will be able to make the

March 31st deadline from the perspective that we would see all

those systems renovated and tested and certified compliant. I don’t

think that they will be able to make the March 31st deadline.

Mrs. MORELLA. What do you think the consequences will be and

what do you think we should do about it?

Mr. WILLEMSSEN. The consequences of that are that the additional—as you mentioned the end to end testing, the period for that

will get squeezed tighter; and, therefore, the thoroughness and

depth of that testing will not be as much. HCFA has made an excellent commitment toward the need to put together contingency

plans so that they have backup.

Mrs. MORELLA. I would assume that contingency plans are already there and have been worked on. Am I assuming too much?

Do they not have contingency plans?

Mr. WILLEMSSEN. They are aggressively working on those plans

currently.

Mrs. MORELLA. Which means that they do not have them yet?

Mr. WILLEMSSEN. Their timetable I believe is to have them done

and tested I believe by approximately the end of June, so that will

give them some time. From a governmentwide perspective, that is

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not out of the realm of what the deadline should be for doing that.

That is pretty good.

Mrs. MORELLA. Do you see something more that Congress can do

to encourage, forge, require? What else can we do? These are systems that so many people statistically, as we have mentioned, are

affected by?

Mr. WILLEMSSEN. One, it is important to continue to have this

kind of oversight on a critical program such as this to keep up to

date on what kind of progress and impediments there are for Medicare.

Second, I think you should also ask the question of HCFA, what

do you need from us? What is getting in your way? Whether it is

some of the legal issues that we discussed earlier, that contractor

reform is necessary because we can’t get the contractors to do what

we tell them if indeed that is the case. I think that is a very useful

question to ask of HCFA also.

Mrs. MORELLA. Thank you, Mr. Willemssen. My time is up.

Mr. HORN. Thank you very much. I now yield to the ranking

member of the House Science Subcommittee on Technology, Mr.

Gordon of Tennessee.

Mr. GORDON. Thank you, Mr. Chairman.

Welcome, Mr. Willemssen. I want to thank you and the General

Accounting Office for the important role that you have played in

the oversight and watchdog of all of these agencies. As I think you

just mentioned, the more oversight, the more we can talk about

this and bring it out, the better off we are.

Let me ask you, do you feel that Congress has provided adequate

funds or enough funds for HCFA to maximize their effort to correct

this problem?

Mr. WILLEMSSEN. I am not aware at HCFA or actually any other

agency where they have made requests for funds for Y2K and those

requests have been denied.

So again an extremely useful question to ask of HCFA, do you

need more resources, more funds because at many of the hearings

that I have testified at, that is a common question asked of many

agencies. If you need more resources, please tell us and we will do

what we can.

As you know, last year the Congress passed a $3.35 billion emergency fund so that agencies such as HCFA and others could tap

into that fund if indeed they needed those additional resources.

Mr. GORDON. Thank you. I will ask that question later.

Let me ask you also, Chairman Horn’s report card I think has

been helpful in trying to raise awareness of the problem. If you had

your own report card and you were grading the focus and the attention that HCFA is placing on this problem, what grade would

you give?

Mr. WILLEMSSEN. If we were grading in terms of the current

focus of what HCFA is placing on this problem, given that the Administrator has named it her No. 1 priority and given that many

of her staff are working on it, it is hard to give less than a top

grade given where the priority stands within HCFA and given the

kind of progress they have made since our September report.

Mr. GORDON. Thank you, Mr. Chairman.

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Mr. HORN. We are now going to bring forward the second panel.

We are going to swear them in and then Mr. Gordon will have the

honor of introducing the members.

[Witnesses sworn.]

Mr. HORN. The clerk will note that both witnesses have affirmed

the oath, and I yield to Mr. Gordon to introduce the panel.

Mr. GORDON. Thank you, Mr. Chairman. We have all sat through

a number of hearings with well-informed witnesses, but you don’t

really know them, I don’t think that their testimony is as real

sometimes, so I want you to get to know these two folks a little bit

better.

First, John Callahan. Dr. John Callahan and I first met almost

20 years ago when he served as a very Yankee chief of staff to a

very southern Senator and even with that impediment he did a

very good job partly because there are a lot of lawyers around here,

but not too many doctors or PhDs.

Mr. HORN. Will the gentleman yield. When I hear that I am reminded of the great line of William White, who covered the Senate

for the New York Times, who said, ‘‘The Senate is the South’s revenge on the North for having lost the Civil War.’’

Mr. GORDON. Well, John did a good job there. And then he went

over to Assistant Secretary in HHS. When there became an opening at Social Security, they needed somebody to fill in, and John

went over and did a very competent job of being the acting Director

of Social Security; and now he has become at HHS an Assistant

Secretary and John, I am glad you are here.

And Nancy-Ann DeParle is a good friend from home, an old

friend from home. And let me tell you about Nancy-Ann. She grew

up with her mother in Rockwood, TN, and Rockwood is just about

as tough as the name sounds. Nancy-Ann was fortunate enough to

get a scholarship to go to the University of Tennessee and I think

UT feels it was a good investment because Nancy-Ann became the

first woman student body president of their 20,000-plus campus in

its almost 200-year history, and became a Rhodes Scholar and went

on to Yale, graduated with honors from law school and turned

down offers all around the country to come home, and I am glad

she did.

After she got home and she was trying to pay off some bills, our

Governor asked her to be his commissioner for human services, and

Nancy-Ann really didn’t have any background in the health care

area, but she knew how to get things done. So she became the

youngest and the shortest member of Governor Border’s cabinet, instituted a number of new information systems that tremendously

reduced the error rate in food stamps and the welfare program,

went back to the private sector and then Leon Panetta gave her a

call and said we hope you will come to OMB to head up our health

care area. She did, did a very good job and then was appointed the

Director of HCFA.

And it was interesting at the time she got that appointment

Chairman Morella and I had our first hearing on the Y2K problem,

and so I wrote Nancy and said we just had this hearing, and I

think there is a potential for a real problem and you ought to check

HCFA and see what is being done.

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She called me later, somewhat frustrated that virtually nothing

had been done. I don’t think there is a conversation that we have

had since then that we haven’t discussed her focus. And with all

of them, the new responsibilities that Congress has placed on

HCFA, Nancy-Ann has made this her first priority. I know that

daily she works at it and worries about it and tries to get a handle

on it.

I am glad that she is here to give us her experiences, and I have

to say that really Nancy-Ann to me epitomizes all that is best

about the American dream in this country.

Mr. HORN. We thank you for that delightful introduction and we

thank the witnesses for being with us. However you would like to

proceed, please do.

STATEMENTS OF NANCY-ANN DEPARLE, ADMINISTRATOR,

HEALTH CARE FINANCING ADMINISTRATION; AND JOHN J.

CALLAHAN, CHIEF INFORMATION OFFICER, DEPARTMENT

OF HEALTH AND HUMAN SERVICES

Ms. DEPARLE. Thank you, Chairman Horn, Congressman Turner,

and distinguished committee members. We appreciate the opportunity to be here today to talk about the progress of the Health

Care Financing Administration in meeting the year 2000 challenge.

I have with me Dr. Gary Christoph who I brought in from Los Alamos National Laboratory a year ago to lead our information technology efforts.

We have a great deal to do, Mr. Chairman, but we are making

good progress and we will be ready well before January 1, 2000.

Our main job is financing the health care for Medicare beneficiaries. We can assure that our claims processing and payment

systems work and that doctors and hospital bills will get paid, but

continuity of care depends on much more. Doctors, hospitals and

other providers must ensure that they are also ready. We are

therefore engaging in an unprecedented outreach effort to help our

partners reach their responsibilities.

Just 2 months ago I personally wrote each and every one of the

1.3 million health care providers in the country who work in the

Medicare program to make sure that they were aware of this problem and to give them information about what they needed to do to

be fixing it, and we will also be doing special outreach to critical

access providers and Medicare sole providers to make sure that

they are ready.

We have aggressively attacked our part of the problem, and I

have to say to Congressman Gordon, it seems like it has been

about 10 years since we had that conversation, but you are exactly

right. It is my No. 1 priority. We have to continue to retest systems

and refine contingency plans, but I do think that we have come a

long way since I became Administrator.

To get to this point, we had to make some difficult decisions, including delaying implementation of some of the Balanced Budget

Act provisions and I want to thank the committee for your leadership and support in helping us make those decisions. We did reach

a significant milestone in December when we reported that all 25

internal mission critical systems are now compliant, and those include the systems, Congresswoman Biggert, that pay Medicaid

55

claims and managed care claims. They are the systems under our

direct control. And, Mr. Chairman, you and I had a conversation

about the complexity of this, and you remembered from your experience on the Senate side how Medicare was set up with all of the

different contractors around the country, and that has been a big

part of our problem, as has been noted this morning.

One of the first things that I did when I got to HCFA was sit

down with Joel Willemssen and Gene Dodaro from GAO to ask

them what I needed to do, and they made a couple of recommendations. One was to amend the contracts that we have with our contractors to require them to be compliant by the end of December

of last year. That turned out to be more difficult than it sounds.

The contractors initially said no, they were not going to sign it.

They testified to the Ways and Means Committee that they didn’t

think that I had the authority to require that, and, in fact, under

the contracts that Medicare has that are different than any other

government contracts, there have been questions about the authority that the Secretary and I have to hold them compliant for things

like this. But we did in fact succeed in getting a contract amendment. And by the end of December 31, 1998 we had certified that

78 of the external mission critical systems had been renovated, in

other words the 50 million lines of code had been repaired, and 54

had been self-certified as compliant. That meant that they had

completed three levels of testing by December 31, 1998.

Let me stress that self-certification does not mean that our work

is finished. It does mean that the software has been renovated and

tested and that those systems were able to process and pay claims

with future dates.

We have greatly appreciated, and I have personally benefited

greatly from, the diligence of GAO in advising us on this project.

But as you heard this morning, there is a difference of opinion between us and our colleagues at GAO on the exact nature and extent of the qualifications that we received with the self-certifications from the contractors.

And I want to note that there has been some discussion of our

December submission and I brought with me just the pages that

relate to this, from a letter to you in early February that contained

4 or 5 pages of what the qualifications were on the 24 contractors

that we did not accept. The GAO believes that all of the qualifications should have been removed before certifications were accepted.

We believe that the qualifications that we allowed were minor and

don’t go to the heart of the claims processing, and as I said, we outlined each and every contractor that we thought had a problem

that was significant enough that we were not going to accept their

certification.

I directed our staff to be very conservative. With all respect to

you, Mr. Chairman, I care about your grade, but I care much more

about making sure that the systems are renovated and tested properly and there is no disruption in services. I was not looking to increase my grade. I was looking to be as conservative as we could

be. We went on-site at all of these places. We didn’t just look at

the paper qualifications. And we believe that these contractors

have made the kind of progress that we needed to note to you at

that time.

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We are continuing to closely monitor this situation and we have

established a war room in our Baltimore headquarters. We have

special teams of people who have been asked to leave their homes

and work at these contractors so that I know, frankly, on day-today basis what is actually happening on the ground. And we are

developing comprehensive business continuity and contingency

plans in case any unforeseen problems arise. We are through our

third draft of our proposed plan, and we plan to have that done in

June.

The GAO and our IV&V contractor have identified essential work

that remains for all of our systems to be millennium-ready, and we

agree with the GAO that one of the most critical tasks is testing

our many data exchanges to make sure that all of our interdependent systems function together properly.

We also have to continue end to end testing from the point of

claim submission to the point of sending a payment instruction to

a bank and printing a notice to a beneficiary. And we have to continue working with providers, and this is the area where Congress

can help us the most.

After I wrote a letter to each and every one of the providers, I

also sent every Member of Congress a copy of that letter and asked

for you to help us. We have speakers available to go out to your

districts and meet with providers. We will do whatever will help.

We are also meeting with providers here and with the trade associations, and we want to get out across the country.

The good news is that we have given providers a deadline by

when they have to submit compliant claims, and many of them are

already doing so. About 98 percent of the submitters who submit

on the part B side are submitting compliant claims right now. And

on the part A side, from December to January, it increased by

about 30 percent. We are at 58 percent there.

So that is the good news, but we also are going beyond current

industry practice on testing and everything else. We are now instructing our contractors across the country to begin testing with

those providers around the country who want to submit future date

claims to test that.

We hope that will build provider confidence. If they want to test

claims, they can do so. For especially critical systems, we are going

another level beyond the GAO’s guidance by having the independent contractor perform independent tests in isolated future

date environments.

We also have to finish, test and refine our contingency plans and

we are doing that in accordance with the GAO’s advice.

In short, Mr. Chairman, we have much more to do and we fully

expect that there may be bumps in the road, but I want to assure

you that we are committed to doing everything we have to do. This

is our No. 1 priority. All of this would have been a lot harder without your leadership, Mr. Chairman, and without Congress’ support,

and I want to thank you for that as well as for the hard work that

our colleagues at GAO continue to do on our behalf, and I am

happy to answer your questions.

[The prepared statement of Ms. DeParle follows:]

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Mr. HORN. I will turn to Mr. Callahan.

Mr. CALLAHAN. Thank you, Chairman Horn, Congressman Turner, and other distinguished members of the subcommittee.

I am pleased to appear before you today to testify about the Department’s efforts to make its payment management system Y2K

compliant. I am also accompanied today by Dr. Neil Stillman, who

is the Deputy CIO of the Department, and Jeanette Clay, who is

the Chief Information Officer for the Program Support Center.

I would like to echo Nancy-Ann DeParle’s statement about the

committee. Clearly sometimes even though these sessions may appear to be a bit painful, clearly when we reach January 1, 2000

and we succeed, in no small measure a good deal of the credit will

go to you personally and to the members of your committee for asking us to be as diligent as we can be on the Y2K effort.

The payment management system, which is the subject of the

hearing today, is run by the Program Support Center of the Department, not by HCFA; it is run by the Program Support Center.

This serves 20,000 grantees across the Nation and it is a historically sound and successful grants payment system. Indeed, in its

more than 30 years of operation, it has only been down for one-half

day during the blizzard of 1996.

I will say this, since not many people know about the payment

management system. It serves 20,000 grantees. It makes 260,000

payments a year or about 1,000 payments a day. $165 billion a

year goes through that system, and what happens in this system

is States, for example, with regard to their grants which go

through the system, draw down grants daily and most of the other

grantees draw down their grant allocations every 2 weeks. In essence, it is a just in time grant payment system. This system, as

it currently operates, saves the Federal Government $60 million a

year as a result of adhering to the Cash Management Improvement

Act.

But as with any businesslike process, the Department of Health

and Human Services is committed to making continuous improvements in the payment management system. That is why we engaged beginning in 1994 in the process of developing as a business

solution the fourth major system development of this system since

its inception in 1969. Yet in this particular case of reengineering,

obviously we have to be fully cognizant of the need to make a new

payments management system Y2K compliant.

Therefore, in November 1998 we followed a parallel track of remediating the older legacy code, the current payment management

system, to be year 2000 compliant as a contingency while at the

same time continuing on a business solution to develop a fourth

generation rebuild of the payment management system.

Obviously given the decision at that time to look into following

a dual track, we obtained the expert advice of the Avistar Corp. to

assess the risk of completing the new system development, the

fourth system rebuild of testing, the testing and implementation of

the current system, the remediation of the legacy code with an eye

toward achieving a low risk Y2K compliant payment management

product in the shortest possible time. The report has been delivered

to us by the Avistar Corp. this week. We will provide this to the

committee in its entirety.

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Based on that recent report that we have received from the

Avistar Corp., we plan to proceed immediately with the testing and

implementation of the renovated legacy based payment management system. We expect this system to be Y2K compliant; that is,

renovated, remediated, tested and implemented by June 1999.

At the same time, and this again comes from the recommendation of the Avistar report, outside of this development effort, and

not to complicate this decision, we will devote additional staff and

resources to achieve the goal of having in place hopefully before the

end of the calendar year a fourth generation Y2K reengineered

PMS system. But I will emphasize to the committee we will not follow that second track and in any way that would jeopardize getting

at the fastest possible date a Y2K compliant payment management

system.

We would hope to achieve obviously the best possible outcome of

having two Y2K compliant payment management systems that

could be available for operation in the year 2000 and at some point

when we have a fully operational Y2K reengineered payment management system, we will operate that in place of the current system.

With regard to contingency planning, the Program Support Center, as is the case with all of our agencies, including HCFA, have

supplied—at least I think most of them are up to their second

drafts of their business continuity in their contingency plans, and

we will be testing and implementing those contingency plans

throughout the year. We believe that the contingency plan that is

put forward to us is imminently practicable on the part of the Program Support Center and that the plans will ensure that the

20,000 grantees that we now service across the government, including HHS, will receive the Federal funds that they are due for their

prior year and fiscal year 2000 appropriations.

We pledge to you on behalf of the Secretary, the Deputy Secretary and myself and the Program Support Center that our customers, our grant customers, will be paid in full and on time. You

have our word on that.

Thank you, and I would be happy to answer any questions that

you may wish to pose to me.

[The prepared statement of Mr. Callahan follows:]

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Mr. HORN. Thank you. We are going to ask Mr. Willemssen to

rejoin the panel. And we will begin the questioning, and the General Accounting Office is free to comment on all the questions and

answers as we go through this. We appreciate the testimony both

of you have given. It clears up some of the matters.

Let me start the questioning, if I might, and yield myself 5 minutes of time here. First, I would like to ask the Administrator, in

your testimony you state that 17 of the 54 compliant systems are

highly compliant and the other 34 require a moderate level of effort

to resolve any remaining issues. Is that correct?

Ms. DEPARLE. Yes, sir, that’s based on our IV&V contractor’s assessment. And then yesterday our staff on the government management group personally met with your staff.

Mr. HORN. Now, your staff stated yesterday that all 54 compliant

systems required only minimal effort to complete the remaining

issues. And I guess the question is, what’s the definition of compliant? How do we know when we are complete here? What kind of

testing has gone on?

Ms. DEPARLE. Well, what we mean when we talk about compliance is that all mission critical—I guess it has four steps, all mission critical, local source code, software and hardware used to support the system were renovated and Y2K compliant. Second, that

the individual contractor had completed unit testing, integrated

testing, system testing and end-to-end testing on the front ends

and the shared system software interfaces.

Third, that the entire system had been future date tested using

a combination of future dates simulation and in a separate future

date tested environment. That’s the so-called hard IPL. And they

have to have completed and reviewed output from claims cycles

during hard IPLs for at least two future dates for the recertification in July. We are going to require them to test more future

dates, but for this initial certification it was just two.

In fact, Mr. Chairman, there were a couple who turned in certifications to us, and when we checked on-site they hadn’t done those

tests, so we took them out.

And, finally, they have to ensure that all mission critical business functions would be Y2K compliant by verifying and, where appropriate, testing the readiness of all mission critical hardware,

software, commercial off-the-shelf software facilities and vendors

used to support such functions.

And that last area is one area I would like to just point to, because one of the differences between us and GAO is that there are

some contractors who had some COTS software, commercial offthe-shelf software, that was not tested and was not Y2K compliant.

But in their qualifications to me, which I held up a while ago what

we had sent to the committee, the contractor identified that. And

we checked it to see whether or not it was mission critical; and if

it wasn’t we went ahead and accepted their certification.

Now, by this July, when all of that other testing is done, everything is going to have to work, no ifs, ands or buts. But we felt that

was a minor qualification at this point. And I think—Mr.

Willemssen and I have discussed this, and I think from the GAO’s

perspective, they think all that should have been done in December. So I think that’s the issue.

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Mr. HORN. Well, on that very point, you’ve given a definition of

compliant and the Office of Management and Budget on behalf of

the President also has a definition, and the General Accounting Office has a definition. And I guess I would ask, Mr. Willemssen, as

you listen to this discussion, are they compliant in terms of OMB

standards and GAO standards?

Mr. WILLEMSSEN. Well, what HHS has put in their report, the

quarterly report to OMB, is that they would provide a description

of the progress on their systems being consistent with the CIO

counsel’s best practices guide and GAO’s assessment guide. So from

a criteria perspective, given that statement, we used our guide as

a measure of whether those systems were compliant.

The Administrator is correct, much of that computer date testing

was done. Having it done and then resolving the problems resulting from that testing are two different matters. We expect the resolution of problems emanating from testing to also be done prior to

deeming a system compliant. In many cases that has not yet been

done.

And I will again repeat, if these issues were considered minor as

of December 31st, then one would expect 2 months later, February

26th, that those issues would have been resolved. We haven’t seen

evidence that they have been resolved and tested so that those systems can be deemed compliant at this point in time.

Mr. HORN. Well, let me ask the Administrator. Are you aware of

the lag there, despite the fact that those look like minor bits of the

glitch and not major?

Ms. DEPARLE. Yes, sir, I am. And in fact, Mr. Willemssen and

his colleagues spent a couple of hours with us on Monday going

through all of this to make sure we understood it, and on those

specific examples that he cites, I don’t know if it’s in this testimony, but it’s one that he discussed. The Florida shared system,

which is one of our biggest systems, there were a couple of issues

in their report that in fact they have corrected—they corrected as

of January 29th. Those were qualifications that they identified to

us and then they corrected and we do have evidence of that. So,

I asked Dr. Christoph about this yesterday, just to be sure, and he

advises me that these things have been corrected.

Mr. HORN. Thank you. Since we have a visiting Subcommittee on

Technology, I’m going to yield to the chair of that subcommittee,

and then to Mr. Turner on our committee and then to Mr. Gordon

on that committee. So the gentlewoman from Maryland, who is

chairman of the Subcommittee on Technology.

Mrs. MORELLA. Thank you. Thank you, Mr. Chairman. The question I want to ask has to do with personnel, since so much of Y2K

compliance relies on people. I mean it’s so intensive in terms of

labor. And since there are really so few who may know COBOL and

may know that system, et cetera, could you give me a candid analysis of how personnel fits into the compliance strategy? And I’m

asking you, do you have trouble with recruiting people?

Have you had to rely more than you’ve ever thought on contractors and subcontractors because of that? Are you losing some people who may have seniority or expertise? I know this is a tough

question with many implications, but I would really like your candid assessment of it.

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Mr. CALLAHAN. Congresswoman Morella, let me make a brief

comment and defer to HCFA Administrator DeParle. You’re absolutely correct that the human resource dimension is the critical element of getting this Y2K compliant problem solved. It is a difficult

problem. Certainly the people that are working on it in the agencies, whether that be at HCFA or Program Support Center, support

and deserve our commendation for the long hours that they are

putting in and the efforts they are making.

The Department of Health and Human Services was the first

agency to go to the Office of Personnel Management and ask for an

amendment to the law to rehire annuitants that were familiar with

the Y2K problem that had worked at these agencies and could

come back and help us in this effort without losing their annuity.

As you know, given your experience, if you rehire they—we’ve hired

approximately 54 reemployed annuitants. HCFA has taken the

lead. I think they have over 50 of those, and the Program Support

Center has brought back a person.

So we took the initiative as a department to go out and seek

those qualified employees to come back and help us, and they have.

Ms. DEPARLE. I would say, though, just to add a little bit to this,

from speaking to our contractors around the country, the 60 contractors who operate these 78 systems that we’ve been talking

about this morning, they have had difficulty as well in hiring and

retaining the kind of personnel that is needed.

And it is something that I think as we get closer and closer to

the deadline, one of the concerns I have when we talk about what

the challenges are out there, not even just for our contractors, because they’ve known about this for a year, and they’ve been working, but for some of the providers like the ones Congressman Turner talked about, if they haven’t already started, they’re going to

have trouble finding people who can do this work. And that’s something I’ve been concerned about.

Mrs. MORELLA. Have you been losing people because of the lure

of higher salaries in the private sector?

Ms. DEPARLE. Hardly a week goes by that I don’t have one of my

senior people in the information services area approached, and I

suspect Mr. Willemssen has the same experience, because they do

have such valuable expertise. We have been lucky in that our folks

feel very committed to this project and seeing it through and are

patriotic about it, I think.

Mrs. MORELLA. Has any of the work been sent offshore?

Ms. DEPARLE. Well, HCFA has a long history of public/private

partnerships from the inception of the Medicare program. For 34

years, we have worked through contractors. There are only 4,000

people working in Baltimore, there are 25,000 people working at

these contractors. So we’ve always had an imbalance, if you will,

with most of our work in this area really being done offsite.

So, we were already using contractors, and I think as Mr.

Willemssen pointed out, there’s a sense, on this particular project,

that contractors are helpful, because they can come in and look

over your shoulder, and that’s what the IV&V contractor, that GAO

advised us to get, has been doing.

Mrs. MORELLA. Is there anything we can do to help with regard

to contractors?

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Ms. DEPARLE. Yes.

Mrs. MORELLA. I would imagine the data exchange law that

passed would have been of some assistance in terms of freeing up

some of the chilling effect of just sharing information?

Ms. DEPARLE. I think it helped. And as I mentioned before, one

of the first things I did was ask contractors to sign an amendment

to their contract requiring them to be compliant. And I was

rebuffed pretty strongly for about 6 months. And then after Congress passed the law, they became more willing to do it. Because

one of their concerns had been what if the power systems fail or

what if things beyond our control failed, and you helped with that.

I should note, too, Congresswoman, you asked me about work offshore, and we don’t have anyone working offshore.

Mrs. MORELLA. No, the contractors may and do, whatever, but

you don’t.

Mr. Willemssen, would you like to comment on that whole concept of personnel?

Mr. WILLEMSSEN. A couple points I will make. First is to echo

what Dr. Callahan said is one of the best things that the executive

branch did was OPM allowing retired retirees to come back without

a reduction in their annuity. That’s something we have supported

for some time. That was an excellent move. Many agencies, including HHS, have taken advantage of that. Second, in a report we did

last year in the personnel area, we did see quite a bit of anecdotal

evidence throughout the government that, indeed, there were people leaving for higher salaries.

There wasn’t any systemic analysis done, but clearly it was an

issue that was coming up. Third, as we move into 1999 the issue

will become less about finding people who can fix the code, so to

speak, and more about people who have an excellent understanding

of end-to-end testing and contingency planning, and I think those

kinds of resources will increasingly be in short supply.

Mrs. MORELLA. I want to thank you all and thank you for working together. I think this is critically important, and I hope that

you will continue to see us as an important part of working together with you. Thank you.

Thank you, Mr. Chairman.

Mr. HORN. I thank the gentlewoman, and I now yield to the

ranking member on the Government Management, Information,

and Technology Subcommittee, Mr. Turner of Texas.

Mr. TURNER. Thank you, Mr. Chairman. Administrator DeParle,

I want to ask you first to kind of go back with me a little bit. I

know that much of the work that you’ve done trying to become Y2K

compliant has been very, very costly.

From your perspective, has the agency been provided sufficient

funds to put you in the position to be Y2K compliant?

Ms. DEPARLE. Yes, sir. And I want to thank the members of the

committee who have supported us and the Secretary, last year

when we realized after getting the IV&V contractor that we had 50

million lines of code to renovate, instead of what they originally

thought, which was 20 million. We needed some money fast. And

the Secretary did something that was very difficult. She basically

tapped funding from other agencies in the Department to come up

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with $40 million, so that we could have right then and go ahead

and get the contractors to hire people to do this work.

It would have been harder if we had had to wait for the emergency supplemental to get that done. And so there’s been complete

support for this throughout the administration and from the Congress.

Mr. TURNER. Inasmuch as you’ve had sufficient funds to pursue

Y2K compliance, what are the reasons then for the delay in the implementation of the Balanced Budget Act?

Ms. DEPARLE. Well, it’s a matter of the complexity of some of the

changes that were made in the Balanced Budget Act. We’ve implemented, I think, almost 200 of the more than 300 provisions that

were in the Balanced Budget Act. But there are a few provisions

that are extremely complicated, like developing new payment

methodologies for home health agencies and for rehabilitation hospitals and for outpatient departments of hospitals. Our IV&V contractor, AverStar, came to me last April or May, I think it was, and

made the strong recommendation that we stop that work, that we

not proceed with trying to make those changes, because it’s one

thing to make them on paper, in the law, up here and for us to

write the regulation and the policy.

But when you have to start implementing those changes into the

software—and you had these contractors who were trying to renovate and test the 50 million lines of code at the same time that

they’re trying to implement complicated software changes—our

IV&V contractor told me in no uncertain terms that that would not

be a prudent thing to do. So we had to stop that work. We’re going

to resume it as soon as it is feasible after January 1, 2000. And

I hope we will be close to being on track. But I felt I had no choice,

because this had to be the No. 1 priority.

Mr. TURNER. Well, as you know, there’s been quite a few hardships created, particularly in the home health area in recent

months, and it seems to me that what you’re telling us is that it

was your concern about the ability of some of the contractors to

perform both tasks; that is, to be able to implement the new requirements of the Balanced Budget Act and to be Y2K compliant,

that caused you to make that decision.

Ms. DEPARLE. That’s right. And at the point in time that we

were—and I think you’ve heard from our colleagues at the GAO

about the—from the chairman himself. There’s nothing that can

change this deadline of January 1, 2000. And even with more

money, we couldn’t necessarily be sure that we were going to get

the work done at the level and the quality that it needed to be

done. So, I was faced with a choice of do I want to be sure that

we’re paying claims January 1, 2000, or do I want to get these

extra things done.

And that was a hard choice. But as I said, I felt I had no choice.

I had to be sure we were going to have our systems ready.

Mr. TURNER. Did the law itself impose deadlines upon you that

you, in effect, did not comply with or was this within the discretion

of the agency?

Ms. DEPARLE. The law itself imposed deadlines in two or three

areas. In the home health area, the Congress, once we had informed the authorizing committees, last summer made some

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changes in the home health interim payment system to try to correct some of the problems that had occurred from that and also extended the deadline. The original deadline was October 1, 1999 to

implement this new prospective payment system.

And, in fact, before we even started on it, as you may recall,

there was some doubt about whether it could be implemented so

quickly and the Congress included in the law an automatic 15 percent reduction for the home health agencies in the event that we

did not implement. And so last summer, what the Congress did,

was decide to change that. And they extended for another year the

implementation. It’s now October 1, 2000, and we’re on track to

meet that.

Mr. TURNER. I might ask, Mr. Willemssen, if you had any oversight over that particular decision, and did you concur with the decision that was made?

Mr. WILLEMSSEN. I would want to emphasize one point that the

Administrator made, any time that additional changes are made to

the software, if indeed that system has been deemed compliant,

HCFA and the contractor will have to go back in and retest and

recertify that the changes that were made have not changed the

system in such a way that it was now not year 2000 compliant. So

that adds an incredible extra amount of effort beyond what would

otherwise have to be done.

Mr. TURNER. My time is about to expire. Thank you, Mr. Chairman.

Mr. HORN. The gentleman from Tennessee, Mr. Gordon.

Mr. GORDON. Thank you, Mr. Chairman. One of the common denominators that I see between Federal agencies and the private

sector in the Y2K problem is no matter how well the agency or a

corporation might get their act together, they’re still somewhat hostage to vendors and providers. So I guess, Administrator DeParle,

no matter how good a job that you might do with your agency, you

know, how much at risk are you with these vendors and providers,

and what can be done, and where does that stand?

Ms. DEPARLE. Well, with vendors that we deal with in Baltimore,

we will make sure that they’re either Y2K compliant or that we

have a contingency plan in place to get around them. But the area

that I’m most concerned about now, as we begin to see daylight on

finishing our work and getting that done with the contractors, is

what about all of these providers.

And as I said, we took the unprecedented step of writing a letter

directly to all of them. We do not usually do that. Normally, the

contractors deal with the providers, because that’s where the

claims come in. We do not deal with them directly. But we have

been trying to be much more aggressive than we ordinarily would,

because I’m worried some of them will wait until the last minute

and try to make these changes and they will not be able to do it.

Even if I’m sitting there and my contractors are ready to pay

claims, they will not be able to generate a claim. I think, as I said

earlier, the good news is that based on what we know so far, we

set a deadline. We started telling them a year and a half ago that

they had to be able to submit claims in an eight digit format so

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ant, and we have extended the deadline a couple times. The deadline is now April of this year.

And there’s been some complaining, but from what we’re seeing,

the compliance is really jumping up. So I’m hoping that is a good

sign that providers will be ready. But I continue to share Congressman Turner’s concern that there are going to be providers out

there whose awareness is not what it should be and that they’re

not going to be ready. And from the standpoint of our beneficiaries

that is what concerns me.

Mr. GORDON. You know, any time you deal with a complex problem, you have to have priorities. And I think that it’s wise as it— within this problem to establish, as has been, so-called critical or

noncritical missions. And we mostly talked about the critical missions. Tell me a little bit about the noncritical missions. You know,

what are some of the things that may not get done because you can

only do so much, and what impact are you going to have?

Ms. DEPARLE. Well, for example, I mentioned that in December

we finished renovating and testing all of our 25 mission-critical internal systems, the ones that we operate in Baltimore. And those

include systems like the one that makes Medicaid payments to the

States and the one that makes managed care payments to managed care organizations for Medicare. It did not include some other

systems that we are in the process of renovating now, and I believe

we’re going to make the March deadline on those. But there are

things like surveys that we do of beneficiaries and other sorts of

software that we maintain to keep data on beneficiaries.

Those things would be of a lower priority as we move toward

what are our essential missions. And that’s sort of how we’ve done

our contingency planning, focusing on what are our essential missions. For example, what has to happen on day one to keep our

business functioning. There will be things such as beneficiary education and things like that, that might not happen if we are in a

contingency mode for some reason.

Mr. GORDON. OK, thank you.

Mr. HORN. Now, I yield 5 minutes to the vice chairman of the

Subcommittee on Government Management, Information, and

Technology, Mrs. Biggert of Illinois.

Mrs. BIGGERT. Thank you, Mr. Chairman. Ms. DeParle, it seems

like you’ve got an awful lot to accomplish here, and you have made

this your top priority and are working very hard to accomplish it.

Are you still able to do business as usual and really, you know,

continue with what you are working on, such as Medicare, Medicaid plus program and things like that? Do you have enough personnel to continue on your regular scope of business?

Ms. DEPARLE. Well, there’s no question that we’re stretched. And

for example, on the ones that you raised and on the many other

things that we’re doing, the other Medicaid tasks, Medicare, beneficiary education, we’re probably not doing as much on those as we

would have been. It is not because those staff are working in information systems and making the renovations or overseeing that, but

because we’ve had to deploy staff to go out to contractors and oversee their work.

And we have a lot of staff working right now, I think maybe almost 100 people of our 4,000 are working virtually full-time, on

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contingency planning because we have to get that done by March.

So I think it has probably slowed down progress in other areas.

You heard the questions that Congressman Turner asked me

about the Balanced Budget Act. When you make something your

top priority, it means that you’re probably diverting attention from

other things. I think we’re getting our essential missions accomplished despite that. But there’s no question that Y2K has been

something that we had to put our full focus on. And certainly in

the information systems area, which is one of this committee’s interests, Dr. Christoph I brought from the Los Alamos National

Laboratory to help us develop a new information technology infrastructure, which is something that we need.

That isn’t what he’s been doing. He has spent his full time working on managing this Y2K project, because this is what we had to

get done.

Mrs. BIGGERT. Thank you. Then you, in your testimony, talked

about the States, as well as providers, but the State as the provider, and said you don’t really have the authority to demand that

they are compliant. But you’re working with them. Are there any—

well, are you working with the States really to educate them on

this as a top priority, and what else can be done to ensure then

that the State systems will not fail?

Ms. DEPARLE. Well, we are working with the States, and we

started that well over a year ago by sending them the GAO’s guidelines on what they should be doing. But last summer, I became

concerned about where the States were, because we were getting

self-reported data from them that didn’t give me confidence that

they were all sufficiently on top of it. The GAO was also looking

at it and was getting similar data that they reported to the Congress in November.

So we ended up hiring an IV&V contractor to go out to the States

to investigate how they were doing. There are two main systems

that they operate that are critical to Medicaid. One is their eligibility system, and the other is their—what’s called their MMIS,

their Medicaid Management Information System. And we have

sent independent contractors out to—I think we’ve been to 16

States now, and it will be 20 by the end of the month and by April

we will have been to all 50 States—to just investigate how they’re

doing.

We’re working directly with them, sending them the results in

the same way that GAO would send us the results, giving them an

opportunity to comment, but we’re going to aggressively identify

the problems there. We’re also asking to see their contingency

plans.

And by the way, we pay for this. You should know that Congress,

through the Medicaid program will pay for States’ remediation efforts, 75 percent, as well as if they had wanted to hire IV&V contractors, you would have paid for that. And we urged them to do

it. Most of them weren’t doing it, which is why we decided to do

it ourselves.

Mrs. BIGGERT. Are there other working groups, like say as

groups of hospitals, are you getting together with them to discuss

the problems?

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Ms. DEPARLE. Yes. We’re meeting on a biweekly basis with all

the different trade associations in town that deal with health, and

I’ve met personally with the State Medicaid directors, with the hospitals, with the managed care plans. We’ve had hundreds of meetings with them about this.

Mrs. BIGGERT. Is that a definite structure that’s set up and when

did that start to occur?

Ms. DEPARLE. It started, I want to say, in earnest in late spring

or summer of last year—the outreach effort—and has been continuing, as I said, on a biweekly basis since then.

Mr. CALLAHAN. I might add, if I could on that, John Koskinen,

who is the President’s special advisor in year 2000, has asked all

the various Federal agencies to share various sector groups. The

health—the overall health and the human services sector group is

shared by the Deputy Secretary in our department, Kevin Thurm,

and as Nancy Ann has mentioned, we do have periodic meetings

with the health care sector, not just hospitals, but, for example, at

a recent meeting with the pharmaceutical association, the drug

stores, the Veterans Administration, et cetera. So we’re actively

reaching out to them to get their best information possible as to the

Y2K situation.

Mrs. BIGGERT. Just one last question. GAO talked about every

time there’s a change or someone is not in compliance then it has

to be retested and reworked. What time do you envision that you

would be able to test every system and if it works, and if it doesn’t,

will you still have enough time to rework it? Is that like October?

Ms. DEPARLE. We plan to complete our end-to-end testing by the

end of October. And in July, we’re going to freeze all of our systems, in other words, not make any other changes that would require another whole round of testing. But he’s exactly right, that’s

been one of the complications of what we do, because so much of

what we do involves making updates and changes and that kind

of thing. And if you’re doing that, it interferes with the work you

need to do to make sure everything is compliant.

Mrs. BIGGERT. Thank you very much. Thank you, Mr. Chairman.

Mr. HORN. Thank you. We will now start on round two of 5 minutes apiece. I would like to just clarify what’s compliant and what

isn’t.

Mr. Secretary, as I look at what the whole department submitted, they said there was a dramatic 34 percent increase this

quarter. And I’m just curious, I think it was made up of 96 critical

mission systems, as I recall, and then the question would be, is the

Medicare 54 part of the 96?

Mr. CALLAHAN. Yes, I believe it is, sir.

Mr. HORN. OK. Then the question gets down, Mr. Willemssen, do

you think their view of compliance and the General Accounting Office’s view of compliance, do you think we’re on the same wavelength or is there a discrepancy here?

Mr. WILLEMSSEN. We definitely have a discrepancy on those 54

systems.

Mr. HORN. And what do you think has to be done to make them

come into compliance?

Mr. WILLEMSSEN. We not only have to go in and change the software to deal with the problems that have been identified, but you

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also then have to test that those changes have fixed the problems

that were previously identified. And that—we haven’t seen that

evidence for those 54 yet.

Mr. HORN. Any reaction of both the Administrator and the Secretary?

Ms. DEPARLE. Well, I think part of what Mr. Willemssen is talking about is, as auditors, the GAO relies on the paper trail, and

they looked at the self certifications that we got at the end of December, and they were looking at the paper trail. The qualifications

that were given to us were worded quite broadly. They were written by lawyers. That shouldn’t surprise me, since I’m the one who

started this by saying I wanted a contract amendment. But what

I think the GAO wants to see is paper evidence again that they can

rely on to say that those things have happened, and I think we

should get the GAO that.

Mr. HORN. Well, as you know, the basis for judgment both by the

executive branch and the legislative branch is the fact that we deal

with self-reported data, and that’s why we try to clarify when we

get into one of these things as to the degree of progress a particular

department is making, such as Health and Human Services. We

want to figure out what’s backing those numbers, and is there an

agreement on definitions so we’re all singing from the same hymn

book and that we don’t have dissidents, we have harmony, and

that’s why we’re fishing to see if, indeed, we really have had more

systems comply in this last round that we’ve reported on last week.

And I take it you agree that there’s still a lot of work to be done

to make them really compliant?

Ms. DEPARLE. Well, actually on a couple of systems that the

GAO has expressed concerns about, and I mentioned the one in

Florida. We believe we’ve given them the documentation that

should have satisfied them.

And just to follow your point, Mr. Chairman, I also don’t want

to rely just on paper, because I learned very quickly that wasn’t

good enough, and that’s why I asked a number of our employees

to leave their home base to go to Little Rock, AR and Richmond,

VA and places where they don’t live, to be onsite with these contractors to make sure what the contractors were telling us was

what was happening.

So we have more thorough information than anyone else does

about this. But having said that, you know Mr. Willemssen has

been very helpful to us, and I trust his assessment of this. And I

want to make sure that—I don’t have any interest in relying on

something that isn’t accurate. So I want to make sure that the

GAO is satisfied.

Mr. HORN. Well, may I suggest that both the General Accounting

Office and your agency, HCFA, agree on a pattern of testing just

to solve this problem and make sure everybody is talking the same

language?

I want to move on now, Mr. Callahan, to an area in which you

are involved. Very few of the departments merged the Chief Information Officer role with the Assistant Secretary for Management.

How did that happen in HHS?

Mr. CALLAHAN. Mr. Chairman, you and I have had some previous

discussions on this. We are a very centralized—we have a very cenVerDate 11-MAY-2000 10:33 Mar 08, 2001 Jkt 010199 PO 00000 Frm 00100 Fmt 6633 Sfmt 6602 E:\HEARINGS\60933 pfrm08 PsN: 60933
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tralized management system at headquarters in HHS. For example, I am the Assistant Secretary of Management and Budget,

Chief Information Officer. I’m also the Chief Financial Officer.

There are days when I probably wish I could shed some of those

responsibilities.

Mr. HORN. But don’t you need somebody else to work 18 hours

a day, 7 days a week?

Mr. CALLAHAN. Let me say this, I don’t do it all myself obviously,

but we have able Deputies, Deputy CIO Dr. Stillman, et cetera.

But the key point here is we are able to move very, very quickly

on behalf of the Secretary and the Deputy Secretary to make those

decisions, I think, which help the Y2K situation. For example, in

the area that Administrator DeParle mentioned last year, HCFA

indicated that they needed an additional $40 million on an urgent

basis. Because I’m the Assistant Secretary of Management and

Budget and work with the Secretary and execute the authority we

have to transfer up to 1 percent of our appropriations among accounts, we were able to execute that and do it in record time so

that in essence we met that deadline. I dare say that other departments would not have been able to do it as quickly or as effectively

as we did. So there are benefits in centralization.

Mr. HORN. Well, there’s also when we could get two other fine

people like you working on various aspects, both the financial and

the information side, it seemed to me we would make a little more

progress, because this is just a heavy job, you all know that.

Mr. CALLAHAN. Yes, sir.

Mr. HORN. And Treasury did the same thing, and Treasury has

got major problems I think because of that, where they didn’t have

a new business and focus of energy in an area to straighten it up.

I will get back to a few other questions later. But let me now yield

to Mrs. Morella, the gentlewoman from Maryland.

Mrs. MORELLA. Thank you. You know, one of the concerns with

regard to this computer glitch is how the public is going to react.

I mean attitude, whether it’s going to be panic, whether it’s going

to be a laissez-faire concept that we don’t have to worry about anything. I always say it’s between Chicken Little and Pollyanna, in

terms of where we should be. But how are you communicating with

the public to assuage concerns that people may have—and that I

think will be exacerbated as we get closer to the date and you’re

hearing more and more about Y2K. I mean Steve and I were involved in this 3 years ago as we started, but only now are people

beginning to realize, you know, Mark Gordon and others, are beginning to realize that this is a situation where we can’t have a continuing resolution.

Do you have a responsibility to communicate, to establish information lines, again, to assuage concerns that your recipients,

whether it’s agencies, States, individuals, are experiencing or will

experience?

Mr. CALLAHAN. Congresswoman Morella, we absolutely have that

responsibility, and we have that responsibility in the context, as

you know, of working with John Koskinen under the President’s

Y2K Conversion Council. He has made it clear that one part of his

efforts in terms of advising the President and the general public is

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to give periodic reports to the President and the general public

about our Y2K readiness and our ability to meet the Y2K situation.

As Administrator DeParle mentioned, she’s worked—she sent out

nearly 1.25 million letters to the providers, hospitals, doctors, et

cetera, who have to on their own, as you know, they have to work

hard to meet their side of the Y2K question. We intend to obviously

offer this committee and the public as much information as we can

as to the situation with regard to Y2K readiness. So you’re absolutely right. We have that responsibility, and we will exercise that.

Mrs. MORELLA. Would any of you like to comment on it?

Ms. DEPARLE. Just one more comment. Another thing we’ve been

doing more recently in this health care sector group that I mentioned that’s working together with the various hospital, doctor and

other groups, rural providers and others, on outreach is our first

level of reaching out to the actual providers themselves, to make

sure they’re ready, because that’s the best risk mitigation strategy

you can have is to make sure they’re ready.

But we do think the next step is to work together to reassure the

public, and we think that’s something that we should do as an

agency and as a department with the providers. So, for example,

we’ve been working with the drug companies on how we will reassure the public on those issues and the Deputy Secretary of the department is leading that effort. We’re working with the hospitals

on how we will reassure the public about their readiness. So that’s

sort of the next step of this.

Mr. WILLEMSSEN. If I may make two points, one general and one

a little bit more specific. The general point is the best way to combat public panic is with hard data, and the Federal Government is

obviously in the lead on that and has been for some time. Federal

agencies can provide data on where they’re at, and they will have

organizations such as GAO coming in and looking at where they’re

at, and making assessments of that. So I think to the extent that

we can put the data out there, that will help combat the fear.

Second, and a little bit more specific to HCFA, a hearing like this

obviously airs that HCFA has some issues and some challenges

ahead and that there is a high possibility that there will be some

system failures. But to the extent that HCFA can demonstrate

through the remainder of this year that the excellent efforts it will

have done in the contingency planning area, it can then say even

if we do have some system failures, don’t worry, because we have

some backup plans in place to make sure that providers are paid

and services are still provided.

Mrs. MORELLA. I see a role for public service announcements,

maybe some other kind of simple mailer to people to just say we

are working on it, we will be all right. We will have perhaps, at

most, some inconveniences, but we want you to know that blah,

blah, blah, because I’m hearing more and more from people, will

my Social Security check be out there. We say, oh, yes, they started

in 1989 and they’re doing very well and then you get into the other

areas.

They also want to know what should they ask, you know, particularly in the medical field. I just think all of us, whether it’s

done through agency by agency, I think there should be a strategy

for communicating with the public.

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Mr. CALLAHAN. I do know, as I’m sure you’re aware, that the

FTC, for example, has omnibus Y2K consumer Website where—— Mrs. MORELLA. Yes.

Mr. CALLAHAN [continuing]. If you as a consumer want to know

about your microwave, or whatever it is you want to know about,

you can get into that, and they will try to provide you the best answers as possible. As does SBA, for example, with small businesses.

Mrs. MORELLA. They have their Website, I know. And the other

day I was at an event for Red Cross. Red Cross has a wonderful

little pamphlet for consumers, for constituents, what should you

ask, what should you know, what is Y2K, done very simply, nothing complicated. But it gives a feeling that we know something

about it and we will have a part to play and ultimately people are

working on it, it will be OK.

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

Mr. HORN. Thank you. Now I yield 5 minutes to questioning to

the ranking member of the Government Management, Information,

and Technology Subcommittee, Mr. Turner of Texas.

Mr. TURNER. Dr. Callahan, you mentioned that you’re having to

operate both computer systems for the payment management systems for the year 2000. The old system has been updated and you

still got the new system you’re bringing on line.

Mr. CALLAHAN. I might correct that. Let me—I don’t want to interrupt, but that’s not quite precise, but I will—— Mr. TURNER. Go ahead, if I misstated it.

Mr. CALLAHAN. Actually the reengineered payment management

system, which is the one that we want to put in place of the existing system, is not operational. This was brought about as a business decision starting in 1994. A basic decision was made that we

should have a new payment management system, and we will provide you a chronology of what’s happened with regard to that system.

[The information referred to follows:]

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Mr. CALLAHAN. It was our intention—we had hoped that that

new system would be fully in place by December 1998 and Y2K

compliant. Obviously, it was built to be Y2K compliant. But it was

scheduled to be in place and operational by December 1998 and

then we would be able to replace the current system.

During the latter part of 1998, as we were looking at it, we understood that there may be slippages. So we then in November

1998 with our current system—that’s the system that operates, it’s

ongoing today and it does all of these things that I mentioned earlier—we said we have to go back and look at its code and remediate

its legacy code to be Y2K compliant.

We did that in November; the code has been fully remediated,

the code itself and the current operating system is Y2K compliant.

But it has to go through further testing and certification through

an independent contractor. At that time we also contracted with

the Avistar Corp. and said, look, this is where we are, we’ve got

to remediate it, we want to do two things. We want to be Y2K compliant as fast as possible, and then, second, we want to have for

the future as a business case a better payment management system.

They looked at where we were, both on the remediation of the

legacy code system and this new reengineered payment management system, and gave us the report which basically says what you

should do is, first of all, devote all of your current efforts between

now, and they estimate June and they have a detailed timeline, et

cetera, to make sure that the current system which you’ve remediated, the legacy code system, will be fully Y2K compliant.

However, at the same time or after, as you finish that up, you

should not forego developing a new reengineered system. They felt

that the code that we had developed in that, not all were hardware,

not all were conversions, et cetera, that it was a good business case

to continue to proceed with. But they said, you can’t do that at the

same time you’re doing all of this repair to the current system. But

they said don’t give up on the business case, but put it second.

That’s exactly what we intend to do, so that we will have a Y2K

compliant system by June, the current system, and then hopefully,

if everything works out right, we will have a second system that

will be Y2K compliant. But, obviously, we would not move into that

second system until, unless and until, it can be proven that there

will be no disruption in service.

And, again, we think the report that Avistar gave us was an excellent roadmap. It will be provided to GAO. It’s candid. It says

this is where you’ve been, and this is where you should go, and we

intend to follow that as a roadmap and again we will provide it to

the committee, and we will hold ourselves to the milestones that

are provided in this independent report.

Mr. TURNER. I only raised it because it seems to me to be a very

obvious example of how costly Y2K compliance has become, because you never would have tried to remediate the legacy system

had we not been faced with Y2K.

Mr. CALLAHAN. Absolutely.

Mr. TURNER. It might be interesting if you could share with us,

if you have an estimate, of how much Y2K is going to end up costing the Department of Health and Human Services.

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[The information referred to follows:]

Mr. CALLAHAN. I can get you all the detailed fiscal information

for the record.

Mr. HORN. We will put that in the record at this point.

Mr. CALLAHAN. Last year’s emergency appropriation for Y2K was

$3.2 billion, the Department request under that emergency supplemental $285.3 million. We have received those requests, and indeed we received another $93 million fairly recently which HCFA

has requested for its second installment of emergency money.

So at this point, we are approximately for 1999 around $372 million, with obviously the lion’s share of that being allocated to

HCFA for its work on its internal and external systems. That is the

top priority of the Department.

Mr. TURNER. One final question I want to ask Ms. DeParle. I

know that you have made efforts to notify the providers, and you

have sent out over 1 million letters to the providers. In fact, I don’t

know, Mr. Chairman, if we have that in the record or not.

Mr. HORN. Two million.

Mr. TURNER. It might be nice to place that letter in the record.

Mr. HORN. Without objection.

Ms. DEPARLE. It also went out to every Member of Congress.

[The information referred to follows:]

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Mr. HORN. Let me say, if I might, to my colleague, if you want

a Member of Congress to read it, put on it ‘‘personal and confidential’’ and it will go in. Otherwise it is in the box of junk mail. I am

one of the rare ones that reads all of that stuff every 2 weeks.

Ms. DEPARLE. It came out in early January, so I was hoping

maybe during the recess there would be a little more time to look

at things. I was hoping some of you might use that information in

your newsletters that I know you send to district folks.

Mr. TURNER. I see my time has expired. One subject I wanted to

touch upon briefly, I wanted to get your assessment of the risk that

we face in the biomedical equipment area. I know you have made

some efforts to try to get the biomedical equipment manufacturers

to notify all the providers regarding Y2K problems. But how do you

personally assess that risk? That is one that greatly concerns me,

particularly being from a rural area, where we have a lot of old

equipment in rural hospitals. What is your assessment and what

do you think you can still do to minimize that?

Ms. DEPARLE. I have focused on the claims processing and payment systems. That is what the Health Care Financing Administration does. I think Dr. Callahan can give you a better answer on

that.

Mr. CALLAHAN. The Federal Food and Drug Administration is

the agency within the Department that has to take that task on

you are so concerned about. I do know they have been requested

by the full committee for a variety of questions and answers related

to the biomedical situation that those will be forthcoming, I believe

in the next day or so, and we would like to provide those to you

for the record.

Let me say in general, however, the FDA has moved aggressively, along with other partners in the government, the Veterans

Administration and others, to put up on a Website the Y2K compliance aspects of biomedical devices.

But in addition, what is also important, Congressman Turner, as

you know, is that each hospital and health care provider that has

biomedical equipment has to go in and do an inventory of that

equipment. They have to know what equipment they have on hand.

For example, the Indian Health Service, under the jurisdiction of

the Department, has completed its total inventory, as I understand

it, of all the biomedical equipment that they have in their hospitals. They are matching that information against the FDA

Website and working, again, with an independent contractor to determine what of that biomedical equipment is not Y2K compliant,

and then they are moving immediately to buy or replace that biomedical equipment.

I just mention this, because this gets back to the point that Administrator DeParle mentioned. It is absolutely essential that the

hospitals and the clinics and our community health centers, and

again our Indian Health Service, for example, get out there and do

this work themselves.

We cannot, the Federal Government, cannot go in and do an inventory for them. They have to do it. Once they do it, we feel we

will have sufficient information against which they can assess their

biomedical situation.

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Second, they have to get with their vendors too. They have to say

I have this biomedical equipment, get on the phone with the vendors and ask is this Y2K compliant. I would ask them to test it.

So it is a big job, and we have a central role to play in it, but it

is also important for the providers to do their work.

Mr. TURNER. Thank you.

Mr. HORN. Now I yield 5 minutes to the vice chairman of the

Subcommittee on Government Management, Information, and

Technology, Mrs. Biggert of Illinois.

Mrs. BIGGERT. Thank you, Mr. Chairman.

Ms. DeParle, do you think that there is any concern on the part

of providers that liability issues are impacting their progress, or either whether they are going to work harder to comply or whether

just not to do anything, and that they might not have the same liability? Is this an issue? Are they concerned about liability because

of failures of the programs?

Ms. DEPARLE. Well, we have been mainly relying on outside assessments that have been done of provider readiness. There is a

group called RX 2000 that we commissioned to do a study. The Inspector General at our Department has also done a targeted study

of Medicare providers that I think she will be releasing shortly.

I don’t know if that issue has come to the forefront as much as

I do have some anecdotal evidence that some providers have been

concerned. As I mentioned to the chairman, it was an issue for me

personally about our contractors when I first said I wanted the contractors to sign a contract amendment.

There is a lot of concern, there has been a lot of concern about

liability. I hear it from, for example, managed care plans that I

have talked to, that they are concerned about—we have asked

them to sign a contract amendment certifying they are going to be

ready to pay managed care payments. Some of them are concerned

about it.

I think that the work that this committee and the Congress have

done in trying to alleviate some of those concerns has helped, but

I think it is still an issue out there.

Mrs. BIGGERT. Thank you. I might ask Mr. Callahan too, as far

as the payment management system, are there implications with

the contractor departments. You do all this for all the different

Federal agencies like the Department of Labor and NASA. Are

there implications for them as well as if there are payments within

your payment management system?

Mr. CALLAHAN. Again, a couple of points. We are very confident

that, given the information I have mentioned to you earlier, we will

be fully compliant with the legacy payment management system in

June of this year. At the same time, we will also, as we have, we

will provide you with the contingency plans that will ensure that

all the grantees, whether they are in our own Department or out

in the States or localities, will receive their money on time.

There may be an issue, for example, on a contingency plan, as

I mentioned to you earlier since the payment management system

is just in time payment, if you will. It helps prevent a float. That

is, we don’t give money to the States that they don’t spend that we

could have earned interest on.

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But obviously, if we get to a point where we have to have some

contingency plans and maybe deliver payments in less than just in

time, we may have to suggest waiving some of the provisions of the

Cash Management Act. But I think we will know exactly once the

2000 appropriations are passed exactly what all these agencies will

need by way of grants, and we will make sure that they get those

grants.

Mrs. BIGGERT. Thank you. Mr. Willemssen, do you see this as a

growing concern?

Mr. WILLEMSSEN. Yes. It has been a growing concern. It is a concern that was attempted to be addressed with the Readiness Disclosure Act that was passed late last year. I think this spring there

will have to be a reassessment of the success of that act, and if indeed it has allowed more disclosure of information. One thing we

will be particularly looking at is Mr. Koskinen’s early April report

on the readiness of all the key sectors in our country. To the extent

that we begin to see much more detailed rich data on the readiness

of those sectors, I think that can be used as a measure of the success of that act. To the extent we do not see that, then I think

there will need to be a reassessment of whether additional legislative action is necessary.

Mrs. BIGGERT. Thank you. Thank you, Mr. Chairman.

Mr. HORN. Thank you. I want to go to a very broad question, and

I need to know who is the senior one in chronology in the Department. Mr. Secretary, when did you join HHS?

Mr. CALLAHAN. I joined in May 1995 and was confirmed in August 1995.

Mr. HORN. Well, you are all innocent, but I am going to put the

question anyhow. Social Security realized there was a real problem

with the year 2000 back in 1989. When we were drafting Medicare,

Social Security was the model which was used to draft Medicare.

The Secretary was involved, the Commissioner of Social Security.

Social Security in the sixties was regarded as the best managed

agency in Washington, DC. I think it still has a lot of that reputation.

But I am curious if maybe you just know anecdotally, when Social Security, which was then under HHS, started doing this, why

wasn’t there somebody in Medicare, and this is long before the current Administrator’s tenure, but why didn’t somebody say gee, we

ought to do that too?

Mr. CALLAHAN. Well, I can’t answer that question directly and

fully, but let me offer one observation. Social Security and HCFA

are really two different organizations, as you know.

Mr. HORN. Right.

Mr. CALLAHAN. Social Security, to their credit, retains a large direct service delivery structure through their offices, they retain

probably one of the best information technology work forces inside

their agency. I had the pleasure of working with them. They are

first rate people, and there is a critical mass of information technology people that enables them to get the good marks that you

give them.

HCFA, on the other hand, has to rely, as Administrator DeParle

has said, on contractors to do a lot of their work. This was something that was established in legislation, and, as you know, we

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have had discussions about the relationship between HCFA and its

contractors. So I would just say they were two different organizations.

I would also offer the observation that Social Security had the

structure and critical mass of people to succeed at a quicker rate

on this, no matter when the decision was made, than possibly the

Health Care Financing Administration, with no disrespect to the

current Administrator or previous Administrators.

Mr. HORN. Let me just try to focus in now, just to get in one

place in the record the legacy payment management system. As I

understand it, in November 1998 you said you would think the

code was all remediated by that time, and I think you said they

would be year 2000 compliant by June 1999.

I guess I would ask the question of how much did the original

system, which is still there until assured of the secondary system,

reengineered though it might be to see that that is compliant, what

are we talking about in dollars?

Mr. CALLAHAN. We have spent, it is my understanding, to remediate the code on the legacy-based system, that we have spent

$850,000 on that remediation. We have now, on the basis of that,

the Avistar report, which we are giving to the committee today, indicates with that code, that remediated code in place, they have

given us the milestones and the particulars to go through the remaining processes to make sure it is certified and implemented,

and they estimate that it will take until June for us to do that.

Mr. HORN. So the total cost, how about the total cost of the payment management system?

Mr. CALLAHAN. The other system, the reengineered payment system that we want to eventually get to——

Mr. HORN. Well, are you saying that the total cost of the original

system that you are still working with, you are saying that is

$850,000? It sounds a little low to me.

Mr. CALLAHAN. That system has been in operation for a long period of time.

Mr. HORN. What, 10 years?

Mr. CALLAHAN. I am not exactly sure, but probably at least 10

years, or at least a large number of years. So there has been no

structural work on that other than it operates on a day-to-day

basis. But when we get to the situation of having the concern that

the reengineered payment management system would not make

the Y2K deadline, we went back and looked at that legacy code and

had it remediated, and that has been remediated. That cost us

$850,000 to do that.

Mr. HORN. OK. But that is not the original cost of the system.

Mr. CALLAHAN. No. The original cost of that system, I will have

to get that information for the record.

[The information referred to follows:]

The PMS system was developed over a five year period from 1979–1984 at a cost

of approximately $8 million.

The exact cost to have the factory remediate the legacy code was $594,323.

Mr. HORN. If you could. What I am going to leave open is the

questions we asked about this now and since you just gave us the

document today, questions that we will send down to you and we

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will put without objection, the whole bunch at the end of the hearing. But we will have it in one place.

So now that we have got the secondary system that you are going

to move to when you can be assured that it is compliant, what is

the estimated cost on that?

Mr. CALLAHAN. We will supply that for the record, but to date

we have spent $6.7 million on that since 1994.

[The information referred to follows:]

The estimated cost to have the system deployable is $10 million (in round numbers) and includes the $6.7 million already expended.

Mr. HORN. Since 1994. That is the secondary system.

Mr. CALLAHAN. Yes.

Mr. HORN. OK. Now, was your original payment management

system approved by the appropriate authorization committee and

appropriations subcommittee?

Mr. CALLAHAN. I will have to get that information for the record.

[The information referred to follows:]

PMS was not the ‘‘original’’ grants payment system in HHS. It was a third-generation system preceded by the Departmental Federal Assistance Financing System

(DFAFS) and the NIH Grants Payment System (GPS). The GPS originated in the

sixties and operated with funds appropriated for normal administrative activities.

Therefore, there was no formal request of special appropriated funds for a ‘‘new’’

system. The funds for the PMS upgrade were included in our budget requests and

were appropriated accordingly.

Mr. HORN. I take it you billed your customers to try to cover the

cost?

Mr. CALLAHAN. Yes.

Mr. HORN. What kind of money are we talking about?

Mr. CALLAHAN. You mean our annual inflow?

Mr. HORN. What is your annual revenue for serving people in the

rest, the executive branch?

Mr. CALLAHAN. I will get that for the record, the actual dollar,

but I will tell you the fees for this are extremely low, because in

essence we provide not only the just in time service, but we reconcile the accounts so there is no Cash Management Improvement

Act problems. That is, the agency doesn’t have to pay interest to

the States or vice versa.

[The information referred to follows:]

The total revenue for FY98 was $9,076,927.

Mr. HORN. There is $170 million a year flowing through that system, is that correct?

Mr. CALLAHAN. $165, I think it is, or $170. I will get the precise

amount.

[The information referred to follows:]

The precise number is $165,710,740,000 or 166 billion.

Mr. HORN. OK. Have you kept those records? Is that part of your

accounting system?

Mr. CALLAHAN. Yes.

Mr. HORN. Now, how different is it or how similar is it to the Financial Management Service within the Department of the Treasury and the center in New Orleans of the Department of Agriculture that some other departments use?

110

Mr. CALLAHAN. Vis-a-vis the Treasury system, it has additional

functionalities, the current system and the future system have

functionalities like Cash Management Improvement Act capabilities that the Treasury system does not have. There are other agencies right now that, for example, the Department of Education has

its own grant payment management system. The Council of Chief

Financial Officers has in response to State officials who don’t like

all these different grant payment systems working, recommended

that only two systems be used, the Treasury ASAP system and the

HHS payment management system. So we have gone out and

worked with each of the agencies. They will be making their

choices over time.

So at some point down the line, it appears that there will be only

two payment management systems run by the Federal Government, the Treasury system and our system.

Mr. HORN. Now, the Treasury system runs the Social Security

checks, is that not correct?

Mr. CALLAHAN. Social Security—— Mr. HORN. Financial Management Service.

Mr. CALLAHAN. Yes, that goes to the Financial Management

Service. I am not sure that is ASAP, which is their grant payment

system. I have to check on that.

Mr. HORN. I am just curious. So each Cabinet Secretary has a

right to make a choice as to where they will get the best service?

Mr. CALLAHAN. Yes.

Mr. HORN. Is some of that related to the actual cost?

Mr. CALLAHAN. Yes.

Mr. HORN. Are you the cheapest deal in town?

Mr. CALLAHAN. We think we are the best deal in town.

Mr. HORN. I know you think you are the best. The most reasonable rate that you charge.

Mr. CALLAHAN. Right.

Mr. HORN. Well, we are interested in that, just to make sure it

is on line. We are interested in the compliant bit, and I think if

you can all agree on what is the appropriate test, we will know in

the next round if something really was remediated.

Mr. CALLAHAN. Yes, sir.

Mr. HORN. Let me just make a few comments. We have had some

very fine testimony this morning that has clarified a number of

things for us. The fact is, millions of American citizens rely on

Health and Human Services and your very critical services. We all

know that Medicare is just one of the key things in this society.

When you think back what this country would be like if we hadn’t

had Medicare established in 1965, you would realize that this is

one of the major laws of the 20th century.

We are going to continue to monitor the Department’s progress

to develop the new system on the legacy system, and we will maybe

have a future hearing on all of those types of operations in the executive branch.

However, I remain concerned about the Health Care Financing

Administration’s external mission critical systems that were recently reported as being 2000 compliant. I am assuming GAO and

you will get agreement on this by the next round, because to me

‘‘compliant’’ means compliant, not compliant with qualifications.

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But I thank you both from the Department for your testimony,

and I thank the General Accounting Office and all of your associates for your testimony. I think we are making progress as a result

of the cooperation we have had within the executive branch and

with GAO. I think this morning, however, we still have a lot to do,

and that from some of the questions Mrs. Morella asked it is really

a thing that both the legislative branch and executive branch have

to do, which is get the word out to the people, so we don’t have a

lot of corner cutters and book writers that are trying to scare the

living daylights out of the American public.

This is a solvable problem. You have shown, even though you

have come to this late, but you certainly turned a lot of that agency

around in terms of getting the remediation underway, and we appreciate that. That good word needs to go out. The more TV shows,

radio shows, Q and A you can answer, and I know that is tough,

that is very important, because every little bit helps.

If there are no further questions from any of my colleagues, with

that, this hearing is adjourned.

The staff list I will put in the record. Just for the record, J. Russell George, the staff director and chief counsel; Matt Ryan, to my

left, senior policy director; Bonnie Heald, director of information;

Mason Alinger, clerk; Paul Wicker, Kacey Baker and Richard

Lukas, interns; Michelle Ash, minority counsel; Faith Weiss, minority professional staff member and counsel; Earley Green, minority

staff ssistant; and then the court reporters, Doreen Dotzler, Cindy

Sebo and Bob Cochran, who is faithfully writing down to the last

second.

Thank you, Bob.

[Whereupon, at 11:10 a.m., the subcommittee was adjourned.]

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