Medicare's Prognosis

Nancy Ann Min DeParle doesn't mince words about the Year 2000 problem. "It's our number one agency priority, period," says DeParle, head of the Health Care Financing Administration (HCFA), which runs Medicare.

Medicare reimbursements make up nearly half the cash flow of the average hospital, a flow that could halt for weeks if HCFA's effort fails--and Rep. Stephen Horn, R-Calif., chairman of the Science Technology Subcommittee, recently gave the agency's Y2K effort an F.

HCFA chief information officer Gary Christoph says Horn's methodology hides significant progress. But he declines to give a different grade.

The reason: the crushing complexity of HCFA computing. After years of growth, and despite repeated attempts at simplification, the agency still has six claims-processing systems administered by more than 70 private-sector contractors. "The underlying computer base is so poor," a Democratic staffer groaned, "that different parts of the program can't talk to each other."

And it is not just the machines that have trouble talking. Another Capitol Hill staffer likens HCFA's relationship with its contractors to "a bad divorce."

Last November, HCFA proposed requiring contractors to make the necessary Year 2000 fixes by the end of this year or risk losing future contracts.

Most contractors balked, including the Blue Cross and Blue Shield Association, whose members process more than two-thirds of all Medicare claims for HCFA, a part of the Health and Human Services Department (HHS). "The amendment, our attorneys felt, would have held us liable for products and services by companies we cannot control," said Harvey Friedman, the Blues' vice president for Medicare.

One industry source said the agency's attitude toward contractors seemed to be, "By God, they're gonna fix this, and off with their heads if they don't. ... [But] the situation has improved." In April, HCFA admitted the necessity of revisions. It is currently considering a counterproposal from the Blues.

But fighting has erupted on a second front: Capitol Hill. HCFA and the White House want legislation to reform Medicare contracting. "Right now," explained Christoph, "it's very hard . . . to either give incentives or to have penalties."

"It's a red herring," the Blues' Friedman scoffed. Allan Richards, who coordinates a working group of non-Blues contractors, agreed: "We don't see any connection between contractor reform and Y2K. . . . This is probably the third Congress they've sent it up, and it's virtually the same [proposal]."

Now, with the millennium looming, Congress seems more sympathetic. But even DeParle admits time is running out: "If we could have gotten [contract reform] in '93, when we first proposed it, it would have made a difference, but it's more of a long-term goal. . . . It's probably unlikely that we'll get it this year."

So what's Plan B? In Richards's words: "Drop everything." HHS is transferring funds from other agencies to pump up HCFA's Y2K effort. And this spring, HCFA put on hold its latest attempt to simplify its maze of systems.

Given this single-minded effort, Richards said, "I think that everybody's gonna make it. . . . It's more an issue of, to what extent you have to drop everything else." Overall, "the status was not as bad as they thought it was."

The potential proof that Y2K is survivable? As first reported by the The (New Orleans) Times-Picayune, when Louisiana got a new computer system in May, doctors were warned to expect a two-week delay in payments. It lasted a month. "For some of them," Floyd Buras, president of the Orleans Parish Medical Society, told National Journal, "that was starting to cause a cash-flow crisis, where they couldn't make payroll."

After the initial finger-pointing, HCFA invoked existing procedures to advance stopgap payments to them.