Status of the Medicare transaction system : the health care financing administration's planned data system to control fraud/abuse : joint hearing before the Subcommittee on Government Management, Information, and Technology, and the Subcommittee on Human Resources and Intergovernmental Relations of online

\ STATUS OF THE MEDICARE TRANSACTION SYS-
i TEM: THE HEALTH CARE HNANCING ADMINIS-

TRATION'S PLANNED DATA SYSTEM TO
CONTROL FRAUD/ABUSE



Y 4.G74/7:M 46/16

Status of the tledicare Transaction... ^"^ Apj'M'/^

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

AND THE

SUBCOMMITTEE ON HUMAN RESOURCES
AND INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON GOVERNMENT

REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



NOVEMBER 16, 1995



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

JUAI2 3




U.S. GOVERNMENT PRINTING OFFICE
37-395 WASHINGTON : 1997



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-054168-9



\ STATUS OF THE MEDICARE TRANSACTION SYS-
> TEM: THE HEALTH CARE HNANCING ADMINIS-

TRATION'S PLANNED DATA SYSTEM TO
CONTROL FRAUD/ABUSE



Y 4.G74/7:M 46/16

Status of the fledicare Transaction... ^"^ A'RT'M'P

BEFORE THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,
INFORMATION, AND TECHNOLOGY

AND THE

SUBCOMMITTEE ON HUMAN RESOURCES
AND INTERGOVERNMENTAL RELATIONS

OF THE

COMMITTEE ON GOVERNMENT

REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



NOVEMBER 16, 1995



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




U.S. GOVERNMENT PRINTING OFFICE
37-395 WASHINGTON : 1997



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-054168-9



COMMITTEE ON GOVERNME>rr REFORM AND OVERSIGHT



WILLIAM F. CLINGER, Jr., Pennsylvania, Chairman



BENJAMEM A. GILMAN, New York
DAN BURTON, Indiana
J. DENNIS HASTERT, IlUnois
CONSTANCE A. MORELLA, Maryland
CHRISTOPHER SHAYS, Connecticut
STEVEN SCHIFF, New Mexico
ILEANA ROS-LEHTINEN, Florida
WILLIAM H. ZELIFF, Jr., New Hampshire
JOHN M. McHUGH, New York
STEPHEN HORN, California
JOHN L. MICA, Florida
PETER BLUTE, Massachusetts
THOMAS M. DAVIS, Virginia
DAVID M. McINTOSH, Indiana
JON D. FOX, Pennsylvania
RANDY TATE, Washington
DICK CHRYSLER, Michigan
GIL GUTKNECHT, Minnesota
MARK E. SOUDER, Indiana
WILLIAM J. MARTINI, New Jersey
JOE SCARBOROUGH, Florida
JOHN B. SHADEGG, Arizona
MICHAEL PATRICK FLANAGAN, lUinois
CHARLES F. BASS, New Hampshire
STEVEN C. LaTOURETTE, Ohio
MARSHALL "MARK" SANFORD, South

Carohna
ROBERT L. EHRLICH, Jr., Maryland



CARDISS COLLINS, lUinois
HENRY A. WAXMAN, California
TOM LANTOS, California
ROBERT E. WISE, Jr., West Virginia
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
JOHN M. SPRATT, Jr., South CaroUna
LOUISE McINTOSH SLAUGHTER, New

York
PAUL E. KANJORSKI, Pennsylvania
GARY A CONDIT, Cahfomia
COLLIN C. PETERSON, Minnesota
KAREN L. THURMAN, Florida
CAROLYN B. MALONEY, New York
THOMAS M. BARRETT, Wisconsin
GENE TAYLOR, Mississippi
BARBARA-ROSE COLLINS, Michigan
ELEANOR HOLMES NORTON, District of

Columbia
JAMES P. MORAN, Virginia
GENE GREEN, Texas
CARRIE P. MEEK, Florida
CHAKA FATTAH, Pennsylvania
BILL BREWSTER, Oklahoma
TIM HOLDEN, Pennsylvania



BERNARD SANDERS, Vermont

(Independent)

James L. Clarke, Staff Director

Kevin Sabo, General Counsel

Judith McCoy, Chief Clerk

Bub Myers, Minority Staff Director



Subcommittee on Government Management, Information, and Technology



STEPHEN HORN,
MICHAEL PATRICK FLANAGAN, IlUnois
PETER BLUTE, Massachusetts
THOMAS M. DAVIS, Virginia
JON D. FOX, Pennsylvania
RANDY TATE, Washington
JOE SCARBOROUGH, Florida
CHARLES F. BASS, New Hampshire



California, Chairman
CAROLYN B. MALONEY, New York
MAJOR R. OWENS, New York
JOHN M. SPRATT, Jr., South Carolina
PAUL E. KANJORSKI, Pennsylvania
COLLIN C. PETERSON, Minnesota
TIM HOLDEN, Pennsylvania



Ex Officio

WILLIAM F. CLESTGER, Jr., Pennsylvania CARDISS COLLINS, lUinois
J. Russell George, Staff Director
Mark Uncapher, Professional Staff Member

Andrew G. Richardson, Clerk
David McMillen, Minority Professional Staff



(II)



Ill

Subcommittee on Human Resources and Intergovernmental Relations

CHRISTOPHER SHAYS, Connecticut, Chairman

MARK E. SHOUDER, Indiana EDOLPHUS TOWNS, New York

STEVEN SCHIFF, New Mexico TOM LANTOS, California

CONSTANCE A. MORELLA, Maryland BERNARD SANDERS, Vermont (Ind.)

THOMAS M. DAVIS, Virginia THOMAS M. BARRETT, Wisconsin

DICK CHRYSLER, Michigan GENE GREEN, Texas

WILLIAM J. MARTINI, New Jersey CHAKA FATTAH, Pennsylvania

JOE SCARBOROUGH, Florida HENRY A. WAXMAN, California
MARSHALL "MARK" SANFORD, South
Carolina

Ex Officio

WILLIAM F. CLINGER, Jr., Pennsylvania CARDISS COLLINS, Illinois
Lawrence J. Halloran, Staff Director
Kate Hickey, Professional Staff Member
Robert Newman, Professional Staff Member

Thomas M. Costa, Clerk
Cherri Branson, Minority Professional Staff



CONTENTS



Page

Hearing held on November 16, 1995 1

Statement of:

Huntzinger, George, CSC, Healthcare Systems, Inc.; Gary Rudin, EDS,
corporate vice president. Health Care Group; Thomas Owens, GMIS,
Inc., accompanied by John Kelly, M.D., Ph.D., chief medical officer

and senior vice president. Clinical Information Services 86

Reilly, Frank, Director, Information Resources Management/Health, Edu-
cation and Human Services, General Accounting Office, and Chris-
topher Hoenig, Director, Information Resources Management/Policies
and Issues, General Accounting Office, accompanied by Helen Lew
and L.J. Latham, Accounting Information Management Division, GAO . 45

Vladeck, Bruce, Administrator, Health Care Financing Administration 9

Walton, Carol, Director, Bureau of Program Operations, Health Care
Financing Administration, accompanied by Jared Adair, MTSI Program

Manager, HCFA 139

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

dinger, Hon. WiUiam F., a Representative in Congress from the State

of Pennsylvania, prepared statement of 5

Green, Hon. Gene, a Representative in Congress from the State of Texas,

prepared statement of 28

Horn, Hon. Stephen, a Representative in Congress from the State of
California:
Organizational chart for MTS, list of HCFA staff" associated with

MTS, and 1994-95 time line for MTS 38

Prepared statement of 3

Huntzinger, George, CSC, Healthcare Systems, Inc., prepared statement

of 89

Owens, Thomas, GMIS, Inc., prepared statement of 117

Reilly, Frank, Director, Information Resources Management/Health, Edu-
cation and Human Services, General Accounting Office, and Chris-
topher Hoenig, Director, Information Resources Management/Policies

and Issues, General Accounting Office, prepared statement of 50

Rudin, Gary, EDS, corporate vice president. Health Care Group, prepared

statement of 104

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

Prepared statement of 8

Prepared statement of the American Medical Association 68

Towns, Hon. Edolphus, a Representative in Congress from the State

of New York, prepared statement of 34

Vladeck, Bruce, Administrator, Health Care Financing Administration,

prepared statement of 13

Walton, Carol, Director, Bureau of Program Operations, Health Care
Financing Administration:

Information concerning automated systems 149

Information concerning Medicare 142

Information concerning new technology 152

(V)



STATUS OF THE MEDICARE TRANSACTION
SYSTEM: THE HEALTH CARE FINANCING
ADMINISTRATION'S PLANNED DATA SYSTEM
TO CONTROL FRAUD/ABUSE



THURSDAY, NOVEMBER 16, 1995

House of Representatives, Subcommittee on Gov-
ernment Management, Information, and Tech-
nology; JOINT WITH the Subcommittee on Human
Resources and Intergovernmental Relations,
Committee on Government Reform and Oversight,

Washington, DC.

The subcommittees met, pursuant to notice, at 10 a.m., in room
2154, Rayburn House Office Building, Hon. Stephen Horn (chair-
man of the Subcommittee on Grovemment Management, Informa-
tion, and Technology) presiding.

Present: Representatives Horn, Shays, Fox, dinger, Maloney,
Souder, Morella, Towns, and Green.

Staff" present: Subcommittee on Human Resources and Intergov-
ernmental Relations: Lawrence J. Halloran, staff" director/counsel;
Kate Hickey and Bob Newman, professional staff" members; Thom-
as Costa, clerk; Government Management, Information, and Tech-
nology Subcommittee: J. Russell George, staff" director/counsel;
Mark Uncapher, professional staff" member and counsel; Andrew G.
Richardson, clerk; David McMillen and Cherri Branson, minority
professional staff"; and Elisabeth Campbell, minority staff" assistant.

Mr. Horn. A quorum being present, this joint session of the Sub-
committees on Government Management, Information, and Tech-
nology and on Human Resources and Intergovernmental Relations
will come to order.

This hearing will be a review of the information and data sys-
tems that support America's Medicare Program. Today, approxi-
mately 70 different claims-processing contractors are using any of
nine separate independently designed private automation systems,
in order to compute and pay the hospital or doctor bills of people
covered by Medicare.

The Health Care Financing Administration, part of the Depart-
ment of Health and Human Services, has been working since 1992
on a single new Government system called the Medicare Trans-
action System, or MTS. We are told the new system would replace
the nine diff"erent private systems in use today.

If all goes as planned, we can expect the MTS to lead to a more
efficient Medicare service, simpler paperwork, and faster coordina-
tion among the many benefit insurers. The General Accounting Of-

(1)



fice is not so sure it will turn out that way, unless several far-
reaching recommendations are adopted and implemented.

Together our two subcommittees will try to fmd out where the
real truth lies. We need now to improve existing processes and soft-
ware routines in order to help Medicare do a better job of detecting
and preventing fraud. Introduction of innovative software into the
Medicare claims processing system is essential.

Our witnesses today come from the Health Care Financing Ad-
ministration and its task force for the New Medicare Transaction
System; from the General Accounting Office and from three private
sector companies involved with health care automated systems.

Ladies and gentlemen, we thank you all for joining us. We look
forward to your testimony.

It is now my pleasure to yield to the chairman of the full commit-
tee, Mr. Clinger of Pennsylvania, for an opening statement.

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



ONE HUNDRED FOURTH CONGRESS

Congrt£(g of ttje Winittti States

^oMt of i&tpresentatibett

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

2157 Ravburn House Office Building

Washington. DC 20515-6143



SOUTH c.pocN. Opening Statement by nmpenm^<t

' ' "' ~ The Honorable Stephen Horn, Chairman "^!^::;SiSl

Subcommittee on Government Management,

Information and Technology

November 16th, 1995

A quorum being present, this joint session of the Subcommittees on
Government Management, Information and Technology and on Human
Resources and Intergovernmental Relations will come to order. This hearing
will be a review of the information and data systems that support America's
Medicare program. Today approximately seventy different claims-processing
contractors are using any of nine separate independently-designed private
automation systems, in order to compute and pay the hospital or doctor bills
of people covered by Medicare.

The Health Care Financing Administration, part of the Department of
Health and Human Services, has been working since 1992 on a single new
Government system, called the Medicare Transaction System, or M-T-S. We
are told the new system would replace the nine different private systems in
use today. If all goes as planned we can expect the M-T-S to lead to more
efficient Medicare service, simpler paperwork, and faster coordination among
the many benefit insurers. The General Accounting Office is not so sure it
will turn out that way, unless several far-reaching recommendations are
adopted and implemented. Together our two subcommittees will try to find
out where the real truth lies.

We need now to improve existing processes and software routines in
order to help Medicare do a better job of detecting and preventing fraud.
The introduction of innovative software into the Medicare claims processing
system is essential.

Our witnesses come from the Health Care Financing Administration
and its task force for the new Medicare Transaction System; from the
General Accounting Office; and from three private-sector companies involved
with health care automated systems.

Ladies and gentlemen, we thank you all for joining us, and we look
forward to your testimony.

It is my pleasure now to yield to my co-chair, the distinguished
representative from Connecticut, the Honorable Christopher Shays.

5



Mr. Clinger. Thank you very much, Mr. Chairman.

I want to thank you and Chairman Shays for holding this joint
hearing this morning. Medicare needs assistance to avoid bank-
ruptcy, and I want to commend you both for focusing on the finan-
cial system that manages this very vast system that we have.

The General Accounting Office has estimated that 10 percent of
health care spending in this country is consumed by fraud and
abuse. Congress is currently undertaking a historic effort to restore
fiscal soundness to the Medicare Program.

An essential component of any reform package must be a strong
antifraud program. We are here today to find out if the MTS sys-
tem fits that bill.

The Medicare Program cannot sustain unlimited losses to fraud
and abuse. Rather it demands an aggressive approach to curb such
activities. The Medicare Program cannot continue losing money
hand over fist.

As we balance the budget, all of us need to work together to es-
tablish a zero tolerance for fraud. The current claims processing op-
eration involving dozens of fiscal intermediaries and carriers, al-
lows what is estimated to be up to $26 billion to be siphoned away
from medical care into the pockets of unscrupulous providers.

Having an organized method of tracking the more than 800 mil-
lion Medicare claims which are filed each year is an attractive idea.
The HCFA has initiated the Medicare Transaction System with the
goal of preserving the security of these claims.

At a hearing held earlier before Congressman Shays' subcommit-
tee on June 15 of this year, testimony was given on the importance
of the MTS to detect and curb abuses within the overall Medicare
system. I would judge that everyone in this room would agree that
current fraud and abuse controls have been proven to be inad-
equate. The system really is too easy to crack, too easy to take ad-
vantage of, too easy to bilk.

However, before the MTS system has even had a chance to be
implemented, concerns have been brought before this committee
about the direction that HCFA is taking this program at the
present time. You have already seen a midstream revision of HCFA
development requirements for the MTS and a rollback in the date
these requirements are to be completed.

I am also concerned with the potential for cost overruns in the
system. The MTS already carries a proposed price tag of $127 mil-
lion, I understand, and the GAO has reported that the costs of the
MTS will probably be significantly higher than that. But today's
testimony will be, I am sure, instructive in judging whether the
proposed MTS system is going to effectively serve its intended pur-
pose or whether this procurement is as problem-riddled as some
suggest.

Clearly, if we can really get a handle on what appears to be mas-
sive waste, fraud, and abuse in this system, that would mean much
less pressure to reduce services that are desperately needed. So I
commend you, Chairman Horn and Chairman Shays for the over-
sight you are providing in this very, very critical area.

[The prepared statement of Hon. William F. Clinger follows:]



ONE HUNDRED FOUBTH CONGBESS

Congresffi of t\)t Winiitti ^tatfg

^}ouit of i^cprrsfcntatibcd

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

2157 Rayburn House Office Building

Washington, DC 20515-6143



Opening Statement

Chairman William F. Ciinger, Jr.,

Joint Hearing on Oversight and Review

of Medicare Information and Data Systems

November 16, 1995



Good Morning. I would like to thank Chairman Shays and Chairman Horn
for holding this joint hearing. Medicare needs assistance to avoid bankruptcy, and
I commend them for focusing on the financial system that manages it.

The General Accounting Office estimates that ten percent of health care
spending in this country is consumed by fraud and abuse. Congress is currently
undertaking an historic effort to restore fiscal soundness to the Medicare program.
An essential component of any reform package must be a strong anti-fraud
program. We're here today to find out if the MTS system fits that bill.

The Medicare program cannot sustain unlimited losses to fraud and abuse,
rather it demands an aggressive approach to curb such activities. The Medicare
program cannot continue losing money hand over fist. As we balance the budget,
all of us must work together and establish a zero tolerance for fraud.

The current claims processing operation, involving dozens of fiscal
intermediaries and carriers, allows $26 billion to be siphoned away from medical
care into the pockets of unscrupulous providers. Having an organized method of
tracking the more than 800 million Medicare claims filed each year is an attractive
idea. The Health Care Financing Administration has initiated the Medicare
Transaction System with the goal of preserving the security of these claims.



Continued



At a hearing before Chairman Shays' subcommittee on June fifteenth of this
year, testimony was given on the importance of the MTS to detect and curb abuses
of Medicare. I think that everyone in this room will agree that current fraud and
abuse controls are inadequate. The system is too easy to crack.

However, before the MTS has even had a chance to be implemented,
concerns have been brought before this committee about the direction that HCFA
is taking this program. We have already seen a midstream revision of HCFA
development requirements for the MTS, and a rollback in the date these
requirements are to be completed.

I am also concerned with the potential for cost overruns. The MTS already
carries a proposed price tag of $127 million, and the GAO has reported that the
costs of the MTS will probably be significantly higher.

Today's testimony will be instructive in judging whether the proposed MTS
system is going to effectively serve its intended purpose or whether this
procurement is as problem riddled as some suggest. I commend Chairman Horn
and Chairman Shays for the oversight they are providing.



Mr. Horn. Thank you very much, Mr. Chairman.

I am putting in the record at this point the statement of Rep-
resentative Christopher Shays, the chairman of the Subcommittee
on Human Resources and Intergovernmental Relations. It v^ill be
without objection put in the record.

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



ONE HUNDRED FOUHTVI CONGRESS

Congrcgg of tf)e Winittt States

J^ousc of ^Xcprescntatibcs

COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT

2157 Ravburn House Office Building

Washington, DC 20515-6143

SUBCOMMITTEE ON HUMAN RESOURCES

AND INTERGOVERNMENTAL RELATIONS

Christopher Shays. Connecttcul

Chairman
Room B-372 Ravburn Building _

Washington, DC 20515 MtouTY-iroias-sosi

Tel 202 225 2548
Fax: 202 225-2382



Statement of Rep. Christopher Shays
November 16, 1995

The development of the Medicare Transaction System (MTS) by the Health Care Finance
Administration (HCFA) raises important questions about the acquisition and use of computer
technology in government health programs. Our subcommittees meet today to assess the MTS
development process, and to measure the promise of the MTS against its anticipated performance.

Our hearings on waste, fraud and abuse in the Medicare and Medicaid programs pointed to
the increasing sophistication and staggering costs of the rip-offs that take ten cents, or more, of
every federal health care dollar. We need equally sophisticated tools to safeguard the integrity of
federal health care spending.

The MTS is intended to be such a tool. Through the centralized processing and automated
review of claims data, HCFA hopes to capture efficiencies and discern violations that elude the
current multi-contractor system. HCFA's own work to standardize billing identification numbers
for vendors of durable medical equipment demonstrates the potential of this more imified
technological approach.

But will the MTS deliver the benefits of advanced data processing to Medicare, or will it
succumb to the delays and design flaws that often doom government computer acquisitions to early
obsolescence? Are the goals, deadlines and cost estimates for the MTS realistic? Are important
opportunities to enhance Medicare being missed while HCFA pins all its hopes on MTS?

These are the questions we asked our witnesses to address today. I look forward to their
testimony.



Mr. Horn. We have a tradition in this committee, Mr. Vladeck,
of swearing in all witnesses, and if you would rise and raise your
right hand.

[Witness sworn.]

Mr. Horn. Thank you very much.

The clerk will note that the witness affirmed.

You have one of the most difficult jobs in Government, Mr.
Vladeck. Thirty-five — thirty years ago, I guess it was, I was on the
drafting team for Medicare when I was a Senate staff member.

Mr. Vladeck. I know who to hold responsible now.

Mr. Horn. Well, I want to see what our craftsmanship did. I
merely give you one thing to cogitate on and that is our projections
of hospital bills per day were $40 a day, skilled nursing home bills
per day were $20 a day and we only know of one city with home
care and that was Detroit, and that was $10 a day. So you see we
have come a long way. But we welcome you here and we look for-
ward to your testimony.

Mr. Vladeck is the administrator of the Health Care Financing
Administration that pays the bills on Medicare.

STATEMENT OF BRUCE VLADECK, ADMINISTRATOR, HEALTH
CARE FINANCING ADMINISTRATION

Mr. Vladeck. Thank you very much, Mr. Chairman.

I very much appreciate the opportunity to appear before this
hearing today and to talk about what I believe you have already
correctly identified as one of the most important initiatives in the
history of the management of the Medicare Program.

The Medicare Transaction System, or MTS, will provide state-of-
the-art information management for Medicare and its beneficiaries
in the 21st century. It will give beneficiaries, providers, as well as
us, the information we need to deal with the changing program and
with increasingly complex health care systems.

I should note at the outset that HCFA is already a leader in
some aspects of the electronic automated management of health in-
surance. We are the world leader in electronic data interchange.
We process a higher proportion of our claims electronically than
any other major insurance operation in the world and we admin-
ister the claims payments side of the Medicare Program for less
than 1 percent of benefit costs.

In the early part of this decade, however, in the face of increas-
ing workloads and limited administrative budgets, as well as our
projections as to what the future would hold, we concluded that not
only did we need to further lower our administrative costs, but that
we had to substantially improve the quality of our services to our
beneficiaries.

In addition, we recognized that the health care system is chang-
ing rapidly and that a growing proportion of our beneficiaries
would not be served in traditional fee-for-service kinds of arrange-
ments; so that we needed an information system that could accom-
modate the full range of choices beneficiaries would have.

To address all of these issues, we undertook the work to develop
the Medicare Transaction System, which is the heart of an infor-
mation management strategy to improve services to beneficiaries
and providers, to better manage Medicare Program expenditures,



10

to significantly upgrade our tools for combating fraud and abuse
and to integrate the basic data systems for fee-for-service, capitated
and partially capitated services under the Medicare Program.

In developing the MTS, we have three major goals in mind: First,