Development and Organization of the Health Care Financing Administration

Published by the Government Accountability Office on 1977-07-21.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUME

02852 - [A20932071

Development and Organization of the Health Care Financing
Administration. Jujy 21, 1977. 29 pp.
Testimony before the. Senate Committee on Finance: Health
Subcommittee; by Gregory J. Ahart, Director, Human Resources

Issue Area: Personnel Management and Compensation (300); Health
    Programs (1200).
Contact: Human Resources Div.
Budget Function: Health: General Health Financing Assistance
     (555); General Government: Central Personnel Management
Organization Concerned: Health Care Financing Administration.
Congressional Relevance: Senate Committee on Finance: Health
Authority: Social Security Act, sec. 1817. ocial Security Act,
    sec. 1841.

          The reoLjanization cf the Health Care Firanc'ng
Administration (HCFA) within the Departtent of Health,
Education, and Welfare (HEW), which hs resulted in the
placement of edicaid, Medicare, and quality and standards
primrily under the direction cf one agency head, should result
in imprcved management of the programs through better
coordination c efforts and exchange of infoiwation. The
organizational structure, including the authorization of
snopcific supergrade positions, is stil3 dev2loping. HCFA
requests nor supergrade ard xecutive level staff have been cut
in haif since the initial proposal, ad some reductions have
occurred sine the Subcommittee on Health questioned the    atter.
The continued split between  the Public Health Service and HCFA
can b expected to esult ii problems with respect to the
administration and management of the health financing programs
authorized by the Social Security Act. TLsre is evidence of
duplication and overlapping of staff activities in functional
statements issued by HCFA and other elements of HEW. However,
most of these duplications were in the area of planning or
carrying out evaluations, studies, and research where the
identification of precise duplication based on broad functional
statements is difficult. The primary areas where real
consolidation has occurred are in program integrity and the
administration of standards and provider certifications. Little
has occurred in other consolidation of edicaid and Hedicare
functions presumably because of the major differences in the
legislation for the two programs. (SC)
                             United States   aneral Accounting Office
      f)                            Washington, D.C.    20548

Nra                                                  FOR RELEASE ON DELIVERY
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                                                     Thursday, July 21, 1977

                                          Statement of
                                   Gregory J. hart, Director
                                    Human Resources Division
                                           before the
                                    Subcommittee on Health
                                      Committee on Finance
                                      United States Senate
                               Development and Organization of the
                              Health Care Financing Administration

           Mr. Chairman and Members of the Subcommittee:
                We are pleased to appear here today to discuss the results of our
           review of the development and organization of the Health Care Financing
           Administration (HCFA) in the Department of ealth, Education, and Welfare
                The Subcommittee asked us to determine if the organization of HCFA
           had resulted in
                --proliferation of supergrades,
                --fragmentation of authority and responsibility, and
                --proliferation and possible overlapping of staff activities.
                We discussed the objectives and effects of the reorganization with
           high-ranking HEW headquarters officials, some regional office personnel,
           and with representatives of the Office of Management and Budget and the
           Civil Service Commission. We reviewed available documentation of staffing
           patterns--numbers, grade-levels, and position descriptions--before and

after the creation of HCFA.    We also discussed the effects of staffing
patterns with Civil Service Commission officials.
     One problem we had in conducting our review was that not all of the
decisions relating to HCFA's   rganization had been made at the time HCFA
was considered as operational on June 20, 1977,     Thus, its organization
is in a constant state of flux with changes in the organizational elements'
responsibilities occurring almost daily,
     On March 8, 1977, HEW Secretary Joseph A. Califano, Jr. announced a
series of reorganization initiatives designed tn (1)strealine HEW opera-
tions, (2)improve delivery of services, and (3)reduce opportunities for
fraud and abuse.
     lo accomplish these goals, the t'EW consolidated the educational loan
programs within the Office of Education and disestablished the Social and
Rehabilitation Service (SRS) transferring SRS's income security ptogrcn
(aid to families with dependent children) and related activities to the
Social Security Administration (SSA), SRS's social services program to the
Office of Human Development OHD), and SRS's medical assistance program
(Medicaid) to the newly established HCFA.    In addition to Medicaid, HCFA
was given responsibility for administering the Medicare program which was
transferred from SSA, and the standards, certification, and professional
standards review organization (PSRO) programs which were transferred from
the Public Health Service (PHS).
     Basically, HCFA received the program responsibilities and most of the
personnel of fine organizational components, (1)SSA's Bureau of Health

Insurance, (2)the Division of Health Insurance Studies in SSA's Office of
Research and Statistics, (3)PHS's Bureau of Quality Assurance, (4)PHS's
Office of Long-Term Care, and (5)SRS's Medical Services Administration.
HCFA also received about half of SRSts support and staff personnel to per-
form similar functions for HCFA.
     As a result of these transfers of functions, HCFA is now responsible
for administering both Medicare and Medicaid and most of the activities
which support these two programs. Medicare and Medicaid are similar in
many respects, but also differ significantly.   For example, both programs
usually use the same health fciliry standards and certification programs,
Medicaid paymerts are limited to Medicare's reimbursement rates, and both
proyrams contract extensively with private companies for claims processing
functions. However, Medicare is a Federal program with uniform eligibility
and reimbursement criteria nationwide while Medicaid is basically a State
pr;ai in which the Federal Government sets broad policy and participates
in program costs with State governments setting all or some of the eligibi-
lity and reimbursement standards.   Thus, there is one Medicare program but
53 Medicaid programs.
     The Secretary said an immediate benefit of consolidating Medicare
 and Medicaid would be an energetic program of reviews to determine major
 abuses in health care financing programs. He said that hundreds of millions
 of dollars may be saved through a vigorous program of reviews, audits, and
 investigations to detect fraud, abuse, and overpayments, Another benefit,
 he said, would be the simplification and strengthening of health policy

     We will now address the iscues contained inthe Subcommittee's request
0r June 14, 1977.
     T,e Subcommittee's letter to us asked a number of questions relating
to the supergrade structure of HCFA.
     We believe that the issue of supergrade positions can be viewed from
two perspectives.
     --If the establishment of HCFA is viewed as essentially the
       merging of four operational components and one staff
        component, then there has been an increase n the number
        of requested supergrades. However, this increase has been
        somewhat reduced since the Subcommnittee   questioned the

        issue and the increase could well be reduced further based
        on Civil Service Commission review of the supergrade
      --()n the other hand if the establishment of HCFA is viewed as
        an integral part of ';he dissolution of the Social and
        Rehabilitation Service--which is the hard reality to the
        people most directly involved--then itcould be argued
        that there could be a net reduction in the number of
        supergrades; however, ifthe Congress passes legislation
        protecting the grades of individuals from adverse actions
        resulting from reorganizations then the argument for this
        second view should be modified. In any eveat, we believe
        either view is defensible depending upon the perspective.

     The first proposal we were able to idenfity relating to the number of
superrrade positions (GS-16-18) for HCFA was one for 49 supergrade and
executive level positions (including 10 regional administrators) submitted
to HEW's Acting Deputy Assistant Secretary for Management on or about
April 8, 1977, in response to the Acting Deputy Assistant Secretary's
request for information with which to prepare HEW's annual request for
supergrade positions. The 4 positions, according to one official, was
arrived at by looking at the positions author'zed such other ederal agencies
as SRS and the old Office of Economic Opportcnity.     No analysis of avail-
able supergrade positionsand of workload was made to determine HCFA's needs
for supergrades and the list of 49 was characterized by an official as a
"wish list".   The Acting Deputy Assistant Secretary rejected this list.
     When the Secretary testified before the Subcommittee on June 7, 1977,
itwas contenplated that HCFA would have 21 supergrades in its headquarters
and possibly at, additional 5 in its regional offices. At that time, HCFA
was also requesting 3 executive level psitions.      The organization as
contemplated about that time is shown on chart number 1.
     Since the Secretary's testimony, the number of supergrades being
requested by HCFA has been reduced by one, 'he number of executive level
positions has been redured by one, and the grade level of four positions
have been reduced, for example from GS-18 to GS-17. The following table
gives by grade the number of executive and supergrade positions requested
for HCFA headquarters as of April 8, June 2, and July 11.

                     Number requested       Nuiber requested     Number requested
                     as of April 8          as of June 2         as of July 11
Level IV                   1                      1                    1
Level V                    2                      2                    1
GS-18                      7                      5                    4A/
GS-17                     10                      8                    8
GS-16                     19                      8                    8
   Total                  39                     24                   22A/
 a/One of the GS-18 positions is that of Deputy Administrator for Operations.
   We have been iformed that the Administrator does not contemplate fill-
   ing this position at this time.
Lowering of the supergrade levels will make it more difficult to request
additional supergrad? positions in the future without first justifying the
upgrading of the lowered positions.
        In addition to the supergrade positions for FCFA headquarters, requests
were also made for regional office supergrades.       As of April 8, 10 regional
office supergrades were being requested. This was reduced to 5 as of
June 2. As of July 11, the Under Secretary had notified HCFA that HEW had
approved 5 regional supergrades ut thait, since supergrade resources were
not available, HCFA could not proceed with attempting to obtain authoriza-
tion for the positions from the Civil Service Commission until further
     Mr. Chairman, if the Subcommittee desires, we can provide a list of
the executive positions as proposed April 8. We can also provide a list
as proposed as of June 2, and as they were proposed July 11 along with the
names of the individuals acting in these positions and their former grades

and positions.   The organ'zation as contemplated on July 11, 1977, is
shown on chart number 2.
     When HCFA requested the supergrade and executive level positions, it
did not provide the Acting Assistant Secretary for Personnel Administration
with proposed staffing charts, evaluation statements, position descriptions,
Or justifications for the supergrade positions. The Acting Assistant
Secretary requires these documents in rder to obtain CSC approval for the
allocations of the supergrade positions. Therefore, as of July 11, 1977,
no supergrade positions had been authorized for HCFA.
     As of March 9, 177, there were 13 supergrade positions authorized
for the 5 operating agencies being merged. Overall the net difference
between these 13 supergrade positions   including one vacancy) and the 20
positions currently requested for HCFA represents a Deputy Director for
Operations which the Administrator does not contemplate filling at this
time, an actuary position for which there is some question as to whether
the fuction will remain with SSA, a position for the consolidation of the
Program Integrity Fnction, and an additional supergrade position for the
PSRO function. According to HEW, the remaining 3 additional supergrades
represent staff and support supergrade positions in the parent organizations
of the 5 units which should now be allocated to HCFA to perform its staff
and support functions.   Since the documentation supporting the request for
the supergrade positions was not available, we made no further inquiries
into the matter pending submission of the justification! to the Office of

the Secretary and then to the Civ'l Srvice Comnission.    It should be
noted that CSC will have to review and approve the positions before they
can be authorized y HCFA.
     Of the 22 supergrade and executive level positions being requested by
HCFA, 16 are line positions and 6 are staff positions.    In comparison,
SRS had 1 executive level and 11 supergrade line positions. and 5 staff
supergrade   positions.
     Six HEW interviewers we interviewed expressed_ocerrhat           _
the HCFA organizational structure was designed to accommodate pre-existing
grade Etructures, protect grade levels for aHm, :,eP   below the supergrade
level, and/or to provide for future expansion of te number of supergrades.
These concerns were based on what these HEW officials perceived as
unnecessary layering of supervisory positions, expanded numbers of offices
and divisions below the primary executive positions. and and/or broad
functional statements for organizational elements. Tle officials also saw
these as possible structural problems which could inhibit policy making
and decision making in HCFA.
     Additionally, it has been pointed out to us thatif the Administration's
legislative proposal pertaining to owngrading reultingr from reorganization
is enacted, it could result in HCFA having more supergrade employees than
;+ has supergrade positions.   This could result t ause the proposal would
protect employees from being downgraded because of reorganizations and HCFA
has several nonsupergrades acting in supergrade positions while several
supergrade employees are not acting in supergrade positions.

     Also, we noted that CSC has extended to December 31, 1979, the time
HEW has to comply with the HEW classification reviews from February 1974
through 1976; including those for SRS,which reported significant overgrad-
ing of positions in grades below the supergrade level.   Thus, those SRS
employez. transferred from SRS to HCFA and to other organizatiorns can already
have their' grades protected for 2-1/2 years. Also, if H.R. 6953 is enacted,
employees whose ositvrns were overgraded and the positions subsequently
reduced, would retain their grade-level   or as long as they stayed in the
downgraded position. When they left the position, the new employee would
be at the reduced grade.
     As of July !1, 1977, no position management studies had been
conducted in HCFA to ensure proper position alignments or to assess      to'~en-
tial impact of supergrades and supervisory positions on other pos-tions
in the HCFA organization. Additionally, no manpower analyses or work
measurement studies have been initiated, ap.hough HCFA plans to initiate
a manpower analysis of the Office of Personnel in the nea   future.   No
technical assistance relarting to supergrade positions has been requested
from or provided by the Assistant Secretary for-Personnel Administration
to assure that all procedures prescribed by the Civil Service Commission
have been appropriately followed.
     If the merger of the five units is viewed as part of the disestablishment
of SPS, the number of headquarter supergrades has been reduced by one,
calculated as follows:

                                Before reor.ani:ation
Organizations.                                  ;.uthorized supergrades
SRS (including Medical Service,
     Administration)                                        16
Bureau of Health Insurance (SSA)                             6
Office of Research and Stat'istics (SSA)                     1
Bureau of Quality Assuran-e (PHS)                            2
OffiCe .of-Long-Term Care (PHS)                              1
        Total                                               U'

                            After reorganization
Organizations                                      Requested suerrades
HCFA                                                         20
SSA                                                           2
OHD                                                           3
     In addition, SRS had eight regional office GS-16 supergrade positions
at the tine of the reorganization of which two were vacant. HCFA is
presently reqesrting five regional positions at the GS-16 level, but as
noted previously, action to reqv;st authorization from the Civil Service
Commission has been held in abeyance.

                                                     positions at the time
       SRS was authorized i6 headquarters supergrade
                     Of these, 4 were vacant.  We have been informed by HEW
it   was abolished.
                                       HEW agencies or resigned as follows:
that 12 incumbents have been placed in
       --3 assigned to HCFA,
       --3 assigned to Office of Human Development,
       --1 assigned to SSA.
       --1 detailed to the Office of the Inspector
                                                   Secretarv for
       --1 detailed to the Office of the Assistant
         Management and Bu.get,

        --1 detailed to the Office of Education,
        --1 detailed to HCF, and
        --1 is Boo longer with HEW.
                                               has been assigned to SSA.
 Also, one of the vacant slipergrade positions

                                            several questions relating to
      The Subcommittee's letter to us asked
                                         responsibility for HCFA programs.
 possible fragmentation of authority and
As you requested, we interviewed key HEW personnel about this.    We also
reviewed available documentation including approved and draft functional
statements and delegations of authority.
     Most of the officials we talked with felt that the HCFA organization
would result in better management of Medicare and Medicaid programs through
enhanced and speedier policy and decision making.   These;improveients were
attributed by the officials to the following factors:
     --One agency head is now responsible for the operation of Medicare,
       Medicaid, standards and certification, and quality assurance
       whereas three agency heads were formerly responsible for these
    -- For the Medicaid and quality assurance program, the number of
       bureaucratic layers dnd coordination points through which decisions
       had to pass before they were finalized has been reduced.
    --Headquarter's offices now believe they have direct line authority
       over their re;ional office counterparts   thereby ensuring more
       uniform policy interpretation and guidance to agencies and indi-
       viduals external to HCFA.
    --The program integrity functions of Medicare and Medicaid have
      been consolidated which should result in better interchange of
       information and techniques between the programs,
    --The consolidation of the standards and quality of care programs with
      the financ'ng programs in one agency should improve and help make
      uniform the application of quality assurance programs.

     Overall, the officials we interviewed believed that the operation of
and policy and decision making for the HCFA programs should be enhanced.
The exception was the hospital insurance portion of Medicare whisn most
felt was already well managed and operating efficiently.     Most officials
stated that some of Medicare's effectiveness in policy making and operations
might be lost because of ne reorganization.      On the other hand, the
officials also generally agreed that the other programs would benefit by
drawing on Medicare's management capabilities.
     Although the officials almost unanimously agreed that the reorganization
would improve the management of the health financ;ng programs, they did see
several problem areas that could develop. Their views and other information
we have gathered relating to these possible problem areas follows.
PSRO and Standards Policy/Operation Split
     The reorganization resulted in HCFA having responsibility for operating
the PSRO and standards program while PHS retained responsibility for setting
policy for these programs.   The Secretary in his testimony before this
Subcommittee on June 7 gale his rationale for this split. He said that he
did not believe he had actually separated policy from operations but rather
the intent of the reorganization was to "***retain some element of quality
control within the Office of the Assistant Secretary for Health" because
PHS "has some programs over which it has control that need quality
control"--for example, HMOs and community health centers--and because
"the broad medical doctor input was important to have on a continuing basis
into [HCFA]."   Some officials told us that another reason the Secretary

 took this action was to assure the Assistant Secretary for Health would have
 an important role in national health insurance and to retain certain
 personnel expertise in PHS.
     The Office of Quality Standards is the PHS element that will provide
quality assurance policy guidance to HCFA. The functional statement for
this office was dated June 19, 1977, and ublished in the Federal Register
on June 28, 1977. The notice in the Federal Register said that PHS's
Bureau of Quality Assurance was abolished and all its functions, except
for issues relating to coverage of specific procedures and provider pro-
ficiency testing, were transferred to HCFA.   The notice also established
the Office of Quality Standards.  Its functional statement states that it
provides policy guidelines to HCFA for developing and applying health care
standards and that itwill review and clear all HCFA regulations in the
areas of standards and quality assurance. We interpret this to mean that
PHS has retained policy control over the standards and PSRC areas since
office that provides policy guidance and then reviews and clears regulations
in effect sets the policy.  We also noted that HCFA was not given the oppor-
tunity to comment on the final form of this functional st:.tement before
it was published. We understand that the Secretary has since asked for
for HCFA comments on it.
     All the HCFA officials we interviewed said they thought problems
would arise because of the policy/operation split in the standards and
PSRO programs.  The degree of perceived problems ranged from minor to major
One PHS official also foresaw major problems.

     Several HCFA officials said that to leave the National PSRO Council
in PHS while transferring PSRO operations to HCFA would impede policy
making and one said it "flies in the face of Senator Talmadge's amendment."
The Council is responsible for advising the Secretary on policy matters
pertaining to the PSRO programs providing for the development and distri-
bution of informtion to PSROs and State-wide PSRO Councils, and reviewing
regional norms of medical care used by PSROs.   PHS officials said that
some of the National PSRO Council members felt the Council should be
transferred to HCFA.   The PHS officials also said that the Americal Medical
Association and several other provider groups wanted the Council to stay
under the jurisdiction of PHS,
     One PHS official stated that "Senator Talmadge's concerns over the
reorganization are correct because the reorganization is not going to do
anything to improve the way in which standards are developed."
     Most of the PHS officials and one HCFA official said that they
believed only minor problems, if any, would be caused by the split in policy
and operational responsibility for standards and PSROs. They said three
factors would alleviate the problems;
     --The points of view will now be limited to two organizations
       (PHS and HCFA) whereas before often three points of view
       existed (PHS, SSA, and SRS).
     --PHS will only be involved in broad, long-range policy, primarily
      involving medical issues, and not operational policy.
     --PHS and HCFA personnel have close working relationships and will
       work out most problems informally,

However, all these officials agreed that there is a large "grey area"
between what is definitely operating policy and definitely broad policy and
that no"formal system for determining when PHS will become involved in
policy questions has been developed. These officials also agreed that they
were largely depending on the informal organizational or interpersonal
relationships to alleviate any problems that might arise.
     Inour reviews of PSRO program, we have generally found that the
track record for program effectiveness has not been good where there is
policy setting responsibility without the commensurate line authority to
follow through and implement such policies,   Specifica'6y, our work in the
PSrO progr m area before the reorganization, -hen PHS had PSRO policy and
direction responsibility but SSA and SRS dictated to a great extent program
implementation, showed numerous problems in getting the program moving.
My testimony before the Subcommittee on Oversight, House Committee on Ways
and Means, on April 4, 1977, which we can provide for the record, listed
a number of problems and gave some examples of the problems caused by this
Role of Commissioner of Social Security
As Secretary of BoarFd of Trustees of
the Medicare Trust Funds
     Under sections 1817 and 1841 of the Social Security Act, the
Commissioner of Social Security has been designated as the Secretary of
the Boards of Trustees of the two Medicare Trust Funds.   Accordingly, the
annual Trust Fund reports required by law, including statements of the
actuarial status of the Trust Funds, have been prepared under the direction
of SSA's Office of the Actuary.

     With the transfer-of responsibility for managing the Medicare program
from the Commissioner of Social Security to the Administrator of HCFA, we
believe t is important that the role of the Commissioner--particularly in
the area of providing the actuarial expertise for estimating disbursements
from the Trust Funds should be clarified.   Because the functional statement
of HCFA's 'ffice of Policy, Planning, and Research assumes that HCFA will
haie its own actuarial cpability, although there is some question as to
whether itwill retain this function, we are concerned about the duplica-
tion or overlapping of the actuarial functions unless the Commissioner's
responsibilities are clarified.
     One alternative would be a statutory change which would    signate the

Administrator of HCFA as the Secretary of the Medicare Boards df Trustees.
Policy Development Within HCFA
     Some of the officials we interviewed believe that problems could
arise from HCFA's crganizational structure for policy development. Their
main concern was that the responsibility for policy deve.opment was .ot
clearly deliniated between the staff and line offices. Itwas generally
agreed that the staff offices would not get involved in operational-type
policy but would instead concentrate on long range policy issues. However,
it was recognized that many policy questions are not clearly either opera-
tional or long range issues. No formal system has been devised to determine
which policies will require staff input and which will not, Most of the
officials believed this could be worked out through an informal system.

     Another possible problem area in policy development rised by HCFA
officials was the role of the Office of the Executive Secrtariat. This
office will receive and review all policy issues going to the Administrator.
Its activities are supposed to ensure that all points of view within HCFA
are presented and all pertinent issues raised. Also, the Executive
Secretariat will be the point within HCFA of final review and clearance
for policies and regulations. The Acting Executive Secretary viewed this
review and clearance process as primarily editorial, but with some degree
of substantive review. Earlier proposals relating to the functions of the
Executive Secretariat saw its function as one of substantive review and
formal clearance. HCFA officials expressed concerns that the Executive
Secretariat might evolve into something with the powers envisioned for
the Office in early versions of its functions. The officials felt that
such an evolved organization would greatly impede and hinder HCFA policy
HCrA Communications
     Historically, the Medicare and Medicaid program heads have been able
to issue instructions and communications to carriers, intermediaries, and
States.  While the draft delegations of authority transfer all of the
authority of the old agency head positions to the HCFA bureau heads, some
of the HCFA officials we interviewed expressed concern that this may not
ultimately be the case. These officials attributed their concerns to the
lact that HCFA was considering using an overall directive system which could
affect the authority of the Program heads to issue instructions,

     Also, prior to the reorganizatica, the BHI Director was authorized
to develop and sign correspondence to members of Congress and the public.
However, under the reorganization it appears that the Office of the
Executive Scretaridt, through which all correspondence flows, will make
the determination of where incoming correspondence is distributed and who
will sign outgoing correspondence.   This would seem to limit the authority
of the program heads in the correspondence area.
Employee Union Concerns
     The president of the union which had the bargaining rights for SRS,
Local 41 of the American Federation of Government Employees, sent us a
letter, along with a number of documents, i which the union's concerns
regarding the reorganization were expressed. Through the letter and dis-
cussions with Local 41 officials we were informed that the union believes
HEW had violated the union contract and CSC regulations by not consulting
and negotiating with the union concerning employee's rights   nder the
reorganization and that the reorganization had resulted in fragmentation
of responsibility in the automated management iformation system approval
process for welfare programs.
     Regarding management information systems, the union pointed out that
whereas SRS had consolidated the approval process for such systems for
AFDC, Medicaid, and social services in one office (the Office of Information
Systems), the approval process was now split three ways: (1)SSA for AFDC
systems, (2)HCFA for Medicaid systems, and (3)OHD for~social systems.
The union expressed the view that this would cause hardships on the States
and long delays in obtaining system, approval since often all three types

of management information systems are combi:'.    in one but would have to
be sent to three gencies.
     Mr. Chairman, if the Subcommittee wishes, we will proviCe the letter
from the President of Local 41 for the record.
     Mr. Chairman, your letter to us also posed several questions regarding
proliferation and possible overlapping of staff activities.     Mcre specifi-
cally, we were requested to identify any evidence of duplication or over-
lapping of stated functions between HCFA's organizational elements and other
similar HEW organizational elements, as well as to identify any evidence of
duplication or overlap between the various offices and bureaus within the
Health Care Financing Administration.     As you requested, we reviewed func-
tional statements of all HCFA and of other relevant HEW organizational
components   Many of the HCFA functional statements have not been approved
and were, therefore, still craft documents.
Evidence of Overlapping of Functions
Between Organizational Components of
ICFA and Other Organizations;Within HEW
     In:.addition to the question of whether the actuarial expertise should
be with the Commissioner of Social Security as Secretary of the Boards of
Trustees of the Medicare Trust Funds, or with the Administrator of HFA as
operating head of the Medicare program, we observed the following examples
where the language of the functional statements of HCFA organizational
components were similar to the stated functions of other organizations.

1. The Deputy Assistant Secretary for Planning and Evaluation      Health)
   has a Division of Health Financing and Cost Analysis which
   is charged with performing quantitative studies and evaluations
   of Medicare and Medicaid including formulating and analyzing
   alternative legislative proposals, and evaluating the efficiency
   of existing and potential programs in terms of costs, effective-
   ness, and economic impact.

   HCFA's Office of Policy, Planning and Research has an Office of
   Legislative 'lanning which also develops and evaluates recommenda-
   tions cone:rning legislative proposals for changes in health
   care financing.   Its Office of Research is supposed to direct the
   development and conduct of research concerning the impact of
   Medicare and Medicaid on the health care industry, program bene-
   ficiaries, and providers.    Its Office of Policy Analysis is supposed
   to direct evaluations aimed at assessing the effectiveness of the
   Medicare and Medicaid programs and policies.

2. The National Center for Health Statistics includes a Health
   Economics-Analysis Branch in its Division of Analysis which
   is-'charged with conducting analysis of the supply and demand
  for health services, factors effecting costs and the impact of
  costs on the availability of supply and the characteristics of
  demands and the impact of financing arrangements.    HCFA's Office
  of Policy, Planning, and Research includes a Division of Economic

        Analysis which is supposed to conduct research on factors which
        affect the demand and spply of health care services.

     3. In addition to sponsoring or conducting reimbursement
        sutdies--which many components of HEW are involved in--the
        National Center for Health Services Research is responsible
        for analyzing alternatives for national health insurance, testing
        different options ano evaluating the impact of different
        approaches.   HCFA's Office of Policy,     inning,.and Research
        is charged ith developing and maintaining a simulation model
        to assess the economic impact of national health insurance
Evidence of Overlapping of Functions
Between Organizational Components
 ithfin HCFA

     We observed the following examples in the functional statements of
various HCFA organizational components inwhich there were marked similar-
ities in stated functions.
     1. End-State Renal Disease - The 1972 amendments extended Medicare
coverage to insured individuals and their dependents who are afflicted with
end-stage renal disease.     Currently, about 36,000 people are receiving
Medicare benefits totaling about $600 million annually.
     In addition to Medicare operating and policy divisions involved in
the day-to-day development of cst report forms and overseeing the payment
of bills for renal disease services by intennediaries and carriers, at
lease four HCFA or PHS offices (Medicare's Division of Special Operations;

the Office of Policy, Planning, and Research'.s Division of Health Systems
and Special Studies; the Bureau of Health Standards and Quality's End-
Stage Renal Disease Staff; and PHS's Office of Quality Standards) have
responsibility for studying, monitoring, coordinating, or directing this
     2. Reimbursement Studies - The HCFA's Office of Reimbursement Practices
(and Cost Containment) is charged with the responsibility for examining
and studying existing and proposed .reimbursement policies utilized by the
various HCFA programs.   Additionally, it is anticipated that this Office
will carry out cost containment functions if Congress passes the proposed
cost containment legislation.   This office is also charged with examining
and ascertaining potential alternatives for reimbursement mechanisms and
processes, as well as analyzing the impact of these alternatives on the
health care community and on the objectives and financing of programs. This
Office, as of uly 8, 1977, had no staff.
     Inaddition to the Office of Reimbursement Practices (and Cost Contain-
ment) which has line responsibility for studying reimbursement policies,
HCFA's Office of Policy, Planning, and Research, with staff responsibility
for studying reimbursement policies, has five organizational components
which perform reimbursement studies.    More specifically, this policy group's
Office of Demonstrations and Evaluations houses four of these organizational
components--i.e., the Division of Long-Term Care Experimentation, Division
of Hospital Experimentation, Division of Health Systems and Special Studies,
and the Division of Evaluation, All four divisions study alternative reim-
bursement mechanisms and the achievement of cost containment and cost effective

alternatives.   There also is a separately identifiable unit, the Division
of Reimbursement Studies, in the Office of Research which assesses the
implications of alternative reimbursement methods for providers (including
hospitals, long-term care facilities, ambulatory care centers,
physicians, physician extenders, etc.)     All five divisions are charged
with making recommendations for modification of existing program reimburse-
ment policy and legislation.
     Inaddition to these organizational components, HCFA's Medicare Bureau
contains a unit, the Division of Provider and Medical Services Policy, which
also evaluates and studies reimbursement policies of provider services under
Part B, including those for services provided by HMOs, Group Prepaid Prac-
tice Plans, and ambulatory care centers.
     3. Systems Development Pertaining to Measuring and Analyzing
Fraud and Abuse - The Office of Program Integrity in HCFA is charged with
planning, administering, and assessing programs designed to prevent fraud
and abuse in the Medicare and Medicaid programs.     It develops and applies
systems designed to measure and analyze the level and nature of improper
expenditures attributable to fraud and abuse.
     However, there are two organizational elements in HCFA's Office of
Policy, Planning, and Research which are expected to perform similar func-
tions.   The Division of Statistical Methods is charged with the function
of carrying out sample surveys dealing with overpayments and fraud cases.
Additionally, the Division of Health Systems and Special Studies directs
the development of cross-cutting special studies in the minimization of
fraud and abuse.

     4. Personnel Management - The functions for HCFA's Office of Personnel
include providing the overall directions for the following personnel
management activities: recruitment and placement, employee and labor rela-
  ~ns, employee development and training, and special employee development
-. civities.   However, two HCFA program bureaus apparently are charged with
Performing the same functions.
     The Medicare Bureau's Office of Central Operations includes a Division
of Management which is expected to conduct a manpower management program
encompassing recruitment and placement, employee development, fair employ-
ment, and employee-management relations and to direct and implement the
Bureau's training program for employee development.     Similarly, the functions
:o be performed by the Health Standards and Quality Bureau's Office of
Program Support include providing the administrative services in personnel
management and acquiring and allocating staff resources,
Are There Opportunities to Combine
or Consolidate An ofthe Offices or
Divisions of the New Organization?
     Based on our analysis of proposed statements of functions for HCFA,
we believe that tnere are at least five opportunities for combining func-
tions or consolidating organizational components.     Specifically, these
opportunities are:
     1. End-Stage Renal Disease - The statement of function for the End-
Stage Renal Disease Staff identifies 10 functions and activities which may
be categorized into 3 major areas--i.e., (1) planning and special studies
(2)operations such as monitoring performance and operating a medical
information system, and (3) quality assurance.

     In view of the three categories of functions in this organizational
component and since other HCFA and PHS components are involved in these
three types of functions, we believe that such a component could be abolished
and its functions be transferred to HCFA components whose mission statement
indicate they are doing the same thing--i.e., the planning and studying
functions should be transferred to the Office of Policy, Planning, and
Research, all operational functions transferred to the Medicare Bureau, and
all quality assessment functions be combined with the Health Standards and
Quality Bureau's regular quality control functions.
     2. Reimbursement Studies - Because the functional statements indicate
that there are six other components of HCFA engaged in reimbursement studies
and because the Office of Reimbursement Practices had no staff assigned as
of July 8, 1977, we believe that the organization could be abolished pend-
ing legislative action to establish a cost containment program for hospitals
at which time a separate organizational unit reporting directly to the HCFA
Administrator would probably be justified to plan and implement such a new
program to minimize disturbing ongoing operations.    Also, the functional
statement -.or the Medicare Bureau's Division of Provider and Medical Services
should be revised to eliminate the reimbursement studies function.
     3. Surveys and Studies Pertaining to raud and Abuse - Since the
functions for program integrity have been centralized in the Office of
Program Integrity, we feel that the sample survey and speciae studies func-
tions related to fraud and abuse, which are currently located in the Office
of Policy, Planning, and Research should be eliminated, since the Office of
Program Integrity is already supposed to be performing these functions.

    4. Personnel Management - Based on our discussion with HCFA officials
and relevant documents, we understand that the functions for personnel
management are to be centralized in the Office of Personnel.    However, our
observation of functional statements for two bureaus--i.e., Medicare and
Health Standards and Quality--indicate that the two bureaus are sharing the
personnel management functions of the Office of Personnel. While we have
no particular preference on the issue of centralization or decentralization
of personnel activities, it seems it should be one way or the other.
     5. Office of Policy, Planning, and Research - As indicated by the chart,
this organization of about 200 people primarily consisting of the nucleus
of one division of SSA's Office of Research and Statistics, now includes
6 offices and 12 divisions.   We believe various consolidations could be
made particularly at the division level to eliminate apparent overlapping of
functions and to avoid the appearance that the Office has been structured
to accommodate a particular GS grade structure.
     In summary, we believe that the following overall conclusions can
be drawn from our limited review.
     --Because the organizational structure including the authorization
       of specific supergrade positions is still developing, it is hard
       to draw any hard and fast conclusions. Nevertheless, HCFA's requests
       for numbers of supergrade and executive level staff has been
       cut in half since the initial proposal and some reductions have
       occurred since the Subcommittee questioned the matter.

     --Many of the HCFA and PHS officials we interviewed foresaw problems
       with the continued split between PHS and HCFA with respect to
       administering or managing the Health Financing programs authorized
       by the Social Security Act.   In fact most acknowledged that the
       formal structure would not resolve the prior problems but that
       they were assuming that informal arrangements and the goodwill of
       the people involved would overcome those difficulties.   However,
       the manner in which the PHS functional statement of June 19, 1977,
       was published--without formal or informal comment or concurrence
       from HCFA--raises questions as to the validity of this assumption.
     --We can see evidence of duplication and overlapping based on HCFA
       functional statements and those of other _,lements of HEW.   Most,
       however, were in the area of planning or carrying out evaluations,
       studies and research where the identification of precise duplica-
       tion    based on broad functional statements is very difficult.
       We have identified specific boxes on HCFA's organization chart
       which could be consolidated or eliminated and we have communicated
       our conclusions to HCFA management.
     --Finally, the primary areas where real consolidation has occurred
       is in program integrity and the administration of standards nd
       provider certifications.   Little other consolidation of Medicaid
       and Medicare functions has occurred , presumably because of the
       major differences in the legislation for the two programs.
    Overall, we believe that just the fact that Medicare, Medicaid, and
quality and standards have been placed primarily under the direction of one

agency head should result in improved management of the programs through
better coordination of efforts and exchange of information. Hopefully,
HCFA's organization as presently conceived, and as itwill evolve over the
years, will add to and not detract from this basic plus for program manage-