Health Hazards

ary Christoph, chief information officer of the Health Care Financing Administration, has a simple plan for 1999: Keep the doors open. No lofty hopes for shiny new computers to better track Medicare expenditures, no dreams of bringing on new information systems staff with 21st-century skills, no goals of meeting statutory requirements to change the way the agency's computers dole out money to health care providers. Those things have to wait.

Christoph is focused on solving a nasty year 2000 problem that threatens to knock out the agency's ability to do business. He has information technology staff and contractors toiling away to fix HCFA's aging computer systems, with 50 million lines of code to renovate and test and more than 200,000 data exchanges to coordinate.

Christoph would love to consolidate the disparate contractor-run systems, which don't communicate and make data collection a nightmare. Eventually, he hopes to have just two payment systems, one for hospital insurance and one for physician services. He would love to buy modern computers. He would be thrilled to finish making systems changes required by the 1997 Balanced Budget Act to extend the life of Medicare's reserve funds.

But if Christoph doesn't devote himself and his staff to Y2K concerns, the systems paying Medicare's bills would fail and beneficiaries would suffer.

"The Y2K problem presents one of the greatest information systems challenges since the inception of the Medicare program," Christoph says. "Year 2000 activities must take precedence over other projects that require changes to computer and information systems. Postponing other projects is necessary to focus resources and 'freeze' systems so essential systems work can be done."

HCFA is the world's largest health care provider, processing 900 million Medicare and Medicaid claims a year for 75 million beneficiaries. HCFA's 4,000 employees rely on 22,000 contractor employees to help run Medicare, while state governments handle the day-to-day management of Medicaid. The agency was established in 1977 as the check-writing machine for the two mammoth health programs. In 1997, Congress also gave HCFA responsibility for the State Children's Health Insurance Program, aimed at expanding health care coverage for poor children. During the past few years, HCFA has been transforming itself from a mere bill payer into a service provider with the power to influence the health care market and improve Medicare beneficiaries' satisfaction.

Transforming a Tortoise

But that corporate vision is just beginning to take hold at the agency. Unfortunately, while private health insurance companies respond rapidly to change and pioneer new ways of keeping people healthy, HCFA moves like a tortoise.

As HCFA Administrator Nancy-Ann Min DeParle attempts to make the agency more responsive, the agency's financial managers are trying to catch a runaway finance system that makes erroneous payments totaling $20 billion a year. The human resources office is
attempting to compete with higher-paying health insurers for health care specialists. And CIO Christoph is eyeing faster, better, younger computer systems.

But it's not easy to turn a tortoise into a hare. Even by federal standards, the agency's information technology, capital asset and financial management systems look like wrinkled, old reptiles. Results-based management, which led the health insurance industry to create health maintenance organizations in the 1980s, is just beginning to sink in at HCFA.

One bright spot for the agency is in human resources management, where good labor-management relations and employees' strong commitment to the Medicare and Medicaid programs keep morale high. Even so, skills needed for the future are in short supply.

Year 2000 Troubles

Beginning in 1994, HCFA attempted to modernize its outdated computer systems by developing a new Medicare Transaction System. Three and a half years and $80 million later, the agency canceled the Medicare Transaction System development contract. What did HCFA get for its time and money? "A huge learning experience about the difficulty of acquiring such a large system under a single contract and a better understanding of the requirements for developing a Medicare claims processing system," Joel Willemssen, a General Accounting Office auditor, said at a September 1997 congressional hearing on the system's failure.

In that same month, HCFA hired Los Alamos National Laboratory's Christoph as the agency's first chief information officer. He was brought on to pick up the pieces of the Medicare Transaction System and find a way to consolidate the agency's still disparate and antiquated systems. Within a few months, however, Christoph learned he would need to spend the next two years grappling with Y2K. "Y2K efforts have bled off staff who would otherwise have been deployed to further HCFA's IT management renovation efforts," Christoph says, adding that Y2K is also draining funds for upgrading desktop computers.

HCFA has become the poster child for Y2K woes. In his first speech on the Y2K problem, President Clinton singled out HCFA as an example of what a monumental task the millennium conversion is for all large organizations. HCFA has dedicated teams of employees to Y2K fixes, brought federal programmers back from retirement to help, hired contractors to verify fixes and created a special contingency planning unit to prepare for paying beneficiaries' bills in the event of systems failures. HCFA also is dogging Medicare contractors to get their systems fixed. Despite the effort, many observers cast doubts on HCFA's chances of keeping all its systems running past Dec. 31, 1999.

"It is highly unlikely that all of the Medicare systems will be compliant in time to ensure the delivery of uninterrupted benefits and services into the year 2000," GAO reported in September.

HCFA may show up the doomsayers, however. In a December report on Y2K efforts, the Office of Management and Budget applauded HCFA for completing initial renovations on all 25 of its internal systems, although only five of those systems had passed through all testing, validation and implementation phases of the Y2K process. None of the 75 external systems upon which HCFA relies were ready yet, though three-quarters of them had been renovated.

$20 Billion Target

While HCFA's IT staffers are grappling with the effects of a four-digit number, 2000, agency financial managers are focused on the number 20 billion. That's the number of dollars HCFA overpaid to health care providers in fiscal 1997, the HHS inspector general estimates. HCFA officials don't disagree.

The inspector general says the causes of the improper HCFA payments could range from mistakes to outright fraud. HCFA needs to improve controls on its computer systems to flag improper Medicare claims, better manage its contractors and develop better ways to identify and deal with improper payments, Inspector General June Gibbs Brown said last April.

The inspector general also noted in her 1997 audit that HCFA "relies on a complex system of reporting and ad hoc reports to accumulate data for financial reporting." Preparing statements is a burden for HCFA, the IG found, because staff must manually reconcile data. In fiscal 1996, the first year the IG reviewed HCFA's financial statements, the auditors issued a disclaimer, which meant HCFA's financial documents were in too much disarray to be useful. In 1997, HCFA received a qualified opinion, a sign the agency is getting its financial house in order.

HCFA Chief Financial Officer Elizabeth Cusick has set her sights on getting the agency its first clean audit opinion in 2000. She also plans to make financial reports more useful to agency decision-makers, so they can make better investment decisions. Both goals require upgraded computer systems, which means HCFA's $20 billion problem, like other management priorities, takes a back seat to HCFA's year 2000 problem.

Overworked, Underpaid

HCFA did not go through a massive downsizing in the 1990s as some other federal agencies did. The agency's personnel declined from 4,236 positions in 1993 to 4,187 today. At the same time, almost 40 percent of the agency's workforce turned over between 1992 and 1997 as many long-time employees retired. The chance to hire new blood to help the agency grapple with the rapid changes in the health care industry has been good, managers say, but it has highlighted the difficulties managers face in bringing on top-notch employees.

George Jacobs, associate regional administrator for HCFA's division of health plans and providers in the Atlanta region, recently tried to hire four new managed care professionals. The candidates were excellent, but he lured only one of them to HCFA. "We just couldn't meet the salary demands," Jacobs says. He hopes to get authority to offer the jobs at a higher General Schedule grade.

Managers have felt the squeeze in other ways over the past few years. Vice President Al Gore's National Performance Review motivated HCFA to cut its middle-management ranks almost in half, expanding supervisors' span of control from 1 to 5.5 to 1 to11. Managers now have little time for professional development and little time to develop future managers. "I don't have as much opportunity to put people in junior management positions," says Jacobs. "With managers' span of control much wider, the leap from being a non-manager to a manager is greater than it used to be."

While the rank-and-file workers feel overworked too, they generally enjoy good relations with management. AFGE Local 1923 represents HCFA employees at headquarters and in the field. Union officials are generally pleased with the partnership arrangement management has worked out with them. Joe Flynn, the union's principal officer at headquarters, points to an "extended career ladder" initiative as an example of the fruits of good labor-management relations. Under the initiative, administrative employees start out as GS-5. When they attain certain levels of performance, managers can promote them to GS-7 and later to GS-9 without creating a vacancy and inviting outside applicants to compete for the vacancy. "Employees compete against the work rather than other employees," Flynn says. "If you meet the performance indicators, your supervisor can go ahead and non-competitively promote you."

HCFA managers use a pass-fail performance evaluation system rather than the five-tier scale managers in other agencies typically use. Both managers and employees say the pass-fail system allows managers to spend more time on assisting poor performers than on wrangling with good employees over whether they should have received a 4 or a 5 on the rating scale.

Steep Learning Curve

In 1999, HCFA for the first time will rate the entire agency's performance against pre-set measures. HCFA's first annual performance plan under the Government Performance and Results Act lists 22 measures of effectiveness. The performance plan shows that HCFA is just beginning to figure out how to measure what effect the agency has on senior citizens' health. Only nine of the 22 goals attempt to directly quantify beneficiary health and satisfaction. Those nine--improved access to care for poor beneficiaries, improved beneficiary satisfaction, decreased use of physical restraints in nursing homes, improved laboratory testing accuracy, more influenza vaccinations, more mammogram screenings, increased health plan choice, fewer uninsured children and monthly Medicare summary notices--fail to paint a full picture of HCFA's effectiveness. Three of the measures have no baseline with which to gauge improvements.

Having the right information to make decisions is an ongoing problem at HCFA, GAO reported in February 1998. "Because senior managers do not appear to be adequately informed about the status of the range of Medicare activities or associated resource needs, HCFA's senior decision-makers cannot determine whether resources are adequate or properly distributed and which activities could be at risk of neglect," GAO said.

Only in the latter half of this decade has HCFA begun trying to catch up with private insurers, who have long sought to balance costs with quality of care, developing performance measures for their plans and surveying customers to learn what services they expected. "They're on a steep learning curve. HCFA has been a bill-payer, and now we're asking it to behave like a purchaser, which is a very different role," says Marion Ein Lewin, an analyst with the Institute of Medicine, a component of the National Academy of Sciences. "HCFA is trying to get up to speed as fast as it can."

HCFA laid the foundation for change when it reorganized in 1997. Former Administrator Bruce Vladeck started the reorganization, which divided HCFA into three divisions: the Center for State Operations, the Center for Health Plans and Providers, and the Center for Beneficiary Services. It was the first time HCFA had a single office focused on beneficiaries.

The reorganization coincided with passage of the Balanced Budget Act, which laid in HCFA's lap 350 tasks, most with deadlines within one year. A year earlier, Congress had given HCFA the job of monitoring and enforcing private health plan portability. On top of that, the Y2K problem began to rear its ugly head. HCFA staff haven't had time to think about much beyond those legislative and technology requirements, DeParle says.

Lynn Etheredge, a former Office of Management and Budget analyst who now works as a HCFA consultant, says the key to improving Medicare is helping HCFA employees develop the skills necessary for the agency to survive in a highly competitive, rapidly changing health industry. Even then, it will take 10 years to 20 years for HCFA to become the market-driven health care provider its leaders envision, he says.

Despite its challenges, HCFA continues to provide more than $360 billion a year in health services to 75 million Americans while spending less than 3 percent of expenditures on administrative costs. "Either we're doing a hell of a job, we're either one hell of an efficient agency, or a lot of stuff isn't getting done," says union official Flynn.

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