Department of Health and Human Services: Management Challenges and Opportunities

Published by the Government Accountability Office on 1997-03-18.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Subcommittee on Human Resources,
                          Committee on Government Reform and Oversight, House
                          of Representatives

For Release on Delivery
Expected at 10:00 a.m.
Tuesday, March 18, 1997
                          DEPARTMENT OF HEALTH
                          AND HUMAN SERVICES

                          Management Challenges and

                          Statement of Richard L. Hembra
                          Assistant Comptroller General
                          Health, Education, and Human Services Division

Department of Health and Human Services:
Management Challenges and Opportunities

                                       Mr. Chairman and Members of the Subcommittee:

                                       I am pleased to be here today to discuss the challenges facing the
                                       Department of Health and Human Services (HHS) in carrying out its
                                       mission effectively and cost-efficiently.

                                       A department of the size and complexity of HHS deserves careful oversight.
                                       It is one of the largest federal departments: in fiscal year 1996, HHS had
                                       budget outlays of $319.8 billion and a workforce of over 57,000. HHS is the
                                       largest grant-making agency in the federal government, providing
                                       approximately 60,000 grants per year. Its Medicare program is the nation’s
                                       largest health insurer, annually handling more than 800 million claims;
                                       Medicare alone spends far more than most cabinet departments. (See fig.
                                       1.) The Food and Drug Administration’s (FDA) activities to regulate the
                                       safety of food and cosmetics and the safety and effectiveness of drugs and
                                       medical devices affect products representing $.25 out of every $1 in U.S.
                                       consumer spending.

Figure 1: Budget Outlays of the Four
Largest Federal Agencies, FY 1996        400    Dollars (in Billions)

                                         300                            285.8                           Other






                                                Social             Department    Department          Department of
                                                Security           of            of                  Health and
                                                Administration     Defense       Agriculture         Human Services

                                       Note: The Department of the Treasury’s budget outlay was $364.6 billion; however, $344 billion of
                                       that total was interest on the public debt.

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Department of Health and Human Services:
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Moreover, HHS’ many missions affect the health and well-being of every
person in the country. HHS provides health insurance for about one in
every five Americans, including elderly and disabled people and poor
children. Its agencies ensure the safety of food, drugs, and medical
devices; help to contain the outbreak of infectious diseases; conduct
groundbreaking medical research on curing and preventing disease;
provide health care services to populations, such as Native Americans,
who might otherwise lack such services; provide income support for
needy children and families; and support many services to help elderly
people remain independent.

Over the years, GAO, the Inspector General (IG), and others have examined
programs and suggested numerous improvements for many HHS programs.
Today, however, I would like to highlight three challenges HHS faces in
meeting its mission. These challenges focus on core problems that often
obstruct HHS’ effective functioning. By successfully addressing these
underlying problems, HHS will be much better positioned to manage its
responsibilities effectively and efficiently and to assure the Congress and
the American people that it is fulfilling its vital missions.

In summary, the first challenge HHS faces is its ability to define its mission,
objectives, and measures of success and increase its accountability to
taxpayers. Because of the size and scope of its mission and the resulting
organizational complexity, managing and coordinating HHS’ programs so
that the public gets the best possible results are especially difficult. The
Department has eleven operating divisions responsible for more than 300
diverse programs. HHS has not always succeeded in managing the wide
range of activities its agencies carry out or fixing accountability for
meeting the goals of its mission. Another complicating factor is that HHS
needs to work with the governments of the 50 states and the District of
Columbia to implement its programs, in addition to thousands of private-
sector grantees. Developing better ways of managing is essential if HHS is
to meet its goals.

The 1993 Government Performance and Results Act (GPRA), 1990 Chief
Financial Officers Act, and Government Management Reform Act of 1994
now require federal agencies to be more accountable for the results of
their efforts and their stewardship of taxpayer dollars. GPRA presents HHS
with opportunities to bring discipline to management of all levels of the
Department, define the types of information it needs to implement and
assess its programs, and identify ways to progress toward accomplishing
its goals. GPRA also poses a challenge to HHS, however, because meeting the

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                     Management Challenges and Opportunities

                     law’s requirements to prepare strategic plans, design performance
                     measures, and assess and report on program accomplishments will not be
                     an easy task. Similarly, HHS has found it difficult to develop the financial
                     information necessary to permit an audit of its financial statements.

                     The second challenge confronting HHS—one that it shares with most other
                     federal agencies—is ensuring that it has the information systems it needs
                     to manage and evaluate its programs and to track its progress in meeting
                     performance goals. Managers must have reliable information both to
                     implement their programs in a way that best serves the public and to
                     assure the American people that federal programs are performing
                     responsibly and well. This is especially challenging for the Department
                     because it relies so much on contractors, grantees, and state and local
                     governments as its information partners.

                     Finally, HHS’ responsibilities require it to constantly combat fraud, waste,
                     abuse, and mismanagement. HHS has several programs that are vulnerable
                     to such exploitation. For example, the size and nature of Medicare, which
                     accounts for over half of HHS’ total budget, make this program particularly
                     vulnerable. HHS needs to be vigilant now and in the future because its
                     programs will probably continue to be the targets of fraud and abuse and
                     because waste and mismanagement can have such serious effects on
                     taxpayers and program beneficiaries.

                     The sheer size and complexity of HHS’ responsibilities create unique
Scope of HHS’        challenges. HHS comprises several large agencies, each of which manages a
Responsibilities     number of programs, whose many parts also must be administered. (See
Makes Coordination   fig. 2.) For example, the $10.2 billion National Institutes of Health (NIH) is
                     only one of the agencies in the Public Health Service (PHS), yet NIH includes
and Accountability   17 separate health institutes, the National Library of Medicine, and the
Difficult            National Center for Human Genome Research.1 The Health Care Financing
                     Administration (HCFA) administers the Medicare and Medicaid programs,
                     as well as several quality-of-care programs such as those authorized by the
                     Clinical Laboratory Improvement Amendments of 1988. The
                     Administration for Children and Families (ACF) is responsible for about 60
                     programs, including the new federal-state welfare program; child support
                     enforcement; and Head Start, which alone serves about 800,000 children.

                      Budget outlay for fiscal year 1996.

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                                                         Department of Health and Human Services:
                                                         Management Challenges and Opportunities

Figure 2: HHS’ Major Operating Divisions

                                                                     of the

            Administration              Administration             Health Care               Agency for                 Centers for
             for Children                    on                     Financing                Health Care              Disease Control
            and Families                   Aging                  Administration              Policy and              and Prevention
                (ACF)                      (AoA)                     (HCFA)                   Research                    (CDC)*

    Agency for                 Food and             Health Resources               Indian                    National                 Substance
 Toxic Substances                Drug                 and Services                 Health                  Institutes of              Abuse and
        and                  Administration          Administration                Service                    Health                Mental Health
 Disease Registry               (FDA)*                  (HRSA)*                    (IHS)*                     (NIH)*                   Services
    (ATSDR)*                                                                                                                        Administration

                                                         Note: Operating divisions marked with an asterisk are part of PHS.

                                                         This array of interrelated activities and responsibilities makes it especially
                                                         important for HHS managers to work together to address the Department’s
                                                         overarching program goals. HHS must improve coordination and
                                                         accountability among its own agencies as well as work successfully with
                                                         other federal agencies with related responsibilities, state and local
                                                         governments, and private-sector grantees.

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Better Internal and       Coordination among HHS programs with related responsibilities is essential
External Coordination     to efficiently and effectively meet program goals. Moreover, many
Could Improve Program     programs under HHS share goals with or relate closely to programs
                          administered by other federal agencies. In addition to coordinating the
Results and More          activities of its own agencies, HHS must also coordinate its efforts with
Efficiently Use Federal   these other agencies. Furthermore, a number of HHS programs, including
Funds                     Medicaid and the welfare block grants, require both federal and state
                          involvement. Therefore, HHS must work with all the state governments—
                          and at times local jurisdictions—to coordinate implementation of these

                          One program area that requires HHS to focus on both internal and external
                          coordination is alcohol and other drug abuse treatment and prevention.
                          Several years ago, we reported that abuse of alcohol and other substances
                          was a leading cause of death and accidents among Indian people.2 Yet HHS
                          agencies responsible for research and services for preventing and treating
                          substance abuse—the National Institute on Alcohol Abuse and
                          Alcoholism, the National Institute on Drug Abuse, and the Substance
                          Abuse and Mental Health Services Administration (SAMHSA)—had no
                          process to link their expertise with that of the Indian Health Service (IHS),
                          the agency charged with improving the health of American Indians and
                          Alaskan Natives. We recommended that IHS and the other HHS agencies
                          work together to develop a plan to address substance abuse-related
                          problems among these people. It wasn’t until 1996, however, that HHS had
                          developed and implemented such a plan for interagency collaboration on
                          planning, research, evaluation, and training. Although long overdue, this
                          plan should help HHS strategically allocate limited federal resources to
                          address a major public health problem in IHS service areas.

                          Programs addressing alcohol and other drug abuse issues involve not only
                          several HHS agencies—including SAMHSA, NIH, ACF, and the Centers for
                          Disease Control and Prevention—but also 15 other federal agencies. These
                          include the Departments of Veterans Affairs, Education, Housing and
                          Urban Development, and Justice.3 HHS also administers 58 programs that
                          address the problems of at-risk and delinquent youths. An additional 73
                          programs focused on such youths involve 15 other federal Departments

                           Indian Health Service: Basic Services Mostly Available; Substance Abuse Problems Need Attention
                          (GAO/HRD-93-48, Apr. 9, 1993).
                           Drug and Alcohol Abuse: Billions Spent Annually for Treatment and Prevention Activities
                          (GAO/HEHS-97-12, Oct. 8, 1996).

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                             and agencies, including the Departments of Justice, Education, Labor,
                             Agriculture, and Housing and Urban Development.4

Accountability for Meeting   In addition to complicating coordination efforts, the size and scope of HHS’
Program Goals Needs          responsibilities also challenge the Department’s ability to maintain
More Emphasis                accountability for meeting its mission goals. We have reported an example
                             of this difficulty concerning the Rural Health Clinic (RHC) program, which
                             is administered by HCFA.5 Established two decades ago by federal law, the
                             program allows RHCs to receive higher Medicare and Medicaid
                             reimbursement to support health care professionals, including nurse
                             practitioners and physician assistants, in underserved areas. The program
                             was designed to improve access to health care in areas too sparsely
                             populated to sustain a physician practice. RHC program goals are similar to
                             those of many programs in the Health Resources and Services
                             Administration (HRSA), the HHS agency charged with ensuring that
                             underserved and other vulnerable populations receive quality health care.
                             HCFA has relied on HRSA criteria for identifying geographic areas where
                             providers could qualify for higher Medicaid or Medicare payments under
                             RHC. As the program has grown, however, neither HCFA nor HRSA has been
                             held accountable for ensuring that its resources have been directed at
                             improving access in rural, underserved areas.

                             In our review of 144 RHCs in four states, some clinics clearly improved
                             access in rural underserved areas; however, many clinics were in more
                             populated areas that already had well-developed health care delivery
                             systems. Nevertheless, once certified, all RHCs are eligible for the higher
                             reimbursements, even after they may no longer be located in rural or
                             underserved areas. These higher reimbursements continue indefinitely
                             because neither HCFA nor HRSA routinely recertifies the geographic area or
                             the provider as eligible for such reimbursements. The RHC program is
                             adrift, in part because neither HCFA nor HRSA has accepted responsibility
                             for routinely measuring or monitoring the RHC program’s results.

                             In administering programs that are the joint responsibility of the state and
                             federal governments or that involve many local grantees, HHS must
                             continually balance program flexibility with oversight and maintaining
                             program controls. A case in point is Head Start, which was designed to

                              At-Risk and Delinquent Youth: Multiple Federal Programs Raise Efficiency Questions
                             (GAO/HEHS-96-34, Mar. 6, 1996).
                              Rural Health Clinics: Rising Program Expenditures Not Focused on Improving Care in Isolated Areas
                             (GAO/HEHS-97-24, Nov. 22, 1996).

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ensure maximum local autonomy. The accountability structure for
overseeing the program is not conducive to strong internal controls. For
example, although all Head Start programs are governed by a single set of
performance standards, these standards are largely self-enforcing.
Grantees report annually on the extent to which they have complied with
the performance standards. Although HHS does have a triennial monitoring
system, several HHS IG reports have raised questions about accountability
in Head Start. For example, a May 1993 report found significant
differences between the number of services grantees reported they had
provided and the number they had actually documented in their files. The
IG also found that grantee files and records were often incomplete,
inconsistent, and hard to review.6

The Medicaid program provides another example of the balancing act
between flexibility and accountability. Federal statutes and regulations
give states substantial flexibility in designing and administering their
Medicaid programs. HCFA is authorized to provide states with even greater
latitude by waiving certain statutory requirements. Such waivers permit
states, for example, to provide managed care services or home and
community-based service alternatives to long-term care. Although HCFA
performs structural reviews of waiver programs during the planning stage,
as programs are implemented and continue to operate, problems have
developed in some states. Flexibility can be positive for beneficiaries as
well as the states; however, HCFA’s ongoing monitoring and oversight are
important to ensure the appropriate use of federal funds. The need for
accountability will be even more pronounced if the need for waivers to
enroll beneficiaries in managed care is eliminated, as the President has
proposed in his fiscal year 1998 budget.

With welfare reform, though states have more flexibility, HHS’ important
responsibilities continue. The recent welfare reform law replaces Aid to
Families With Dependent Children with block grants to states, a program
known as Temporary Assistance for Needy Families (TANF).7 The law has
fundamentally changed HHS and state responsibilities in providing income
support to needy families. States may design and implement their own
assistance programs within federal guidelines, and HHS has a broad range
of responsibilities for ensuring accountability from the states. Some of
these duties include setting standards for states to earn performance

 Evaluating Head Start Expansion Through Performance Indicators, HHS Office of the Inspector
General, OEI-09-91-00762 (May 1993) and Summarization of Concerns With the Financial Management
Systems and Control Structures Found at Head Start Grantees, HHS Office of the Inspector General,
A-17-93-00001 (Sept. 1993).
 The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, P.L. 104-193.

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                          bonuses that reward them for achieving program goals, monitoring work
                          participation rates, and ensuring that states maintain spending for poor
                          families. Although the law has explicitly limited HHS’ power to regulate the
                          states’ implementation of the law and reduced the federal welfare
                          workforce, HHS must enforce certain aspects of the law.

                          The complexity of HHS’ responsibilities makes it especially important for
GPRA and Related          the Department to integrate program goals and activities at a departmental
Legislation Provide       planning level. As we have just pointed out, the Department needs to
Framework for             become more accountable for its responsibilities. Concerned that federal
                          agencies such as HHS have not always effectively managed their activities
Improved Program          to ensure accountability, the Congress has created a legislative framework
Performance, Cost         to address long-standing management challenges throughout the federal
                          government. The centerpiece of this framework is GPRA. Other elements
Savings, and              include the Chief Financial Officers Act and the Government Management
Accountability            Reform Act. These laws respond to the need for appropriate, reliable
                          information for executive branch and congressional decision-making.8

                          HHS  is in the process of implementing these laws, which combine to
                          provide a useful framework for developing (1) fully integrated information
                          about HHS’ mission and strategic priorities, (2) performance data to
                          evaluate the achievement of those goals, and (3) accurate and audited
                          financial information about the costs of achieving mission goals. The type
                          of strategic planning and performance measurement GPRA requires is
                          familiar to HHS. Some agencies in HHS have experimented—some very
                          successfully—with results-oriented management. HHS, however, has not
                          had experience with the type of far-reaching, coordinated reform required
                          by GPRA.

HHS Faces Opportunities   GPRA provides HHS with a good opportunity to improve program
and Challenges in         performance. Under GPRA, every major federal agency—and in many cases,
Complying With GPRA       bureaus in each agency—must now ask some basic questions: What is our
                          mission? What are our goals and how will we achieve them? How can we
Requirements              measure our performance? How will we use that information to improve?
                          GPRA forces federal agencies to shift their focus from such traditional
                          concerns as staffing and activity levels to a single overriding concern:

                           Managing for Results: Using GPRA to Assist Congressional and Executive Branch Decisionmaking
                          (GAO/T-GGD-97-43, Feb. 12, 1997).

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                          Specifically, GPRA directs agencies to consult with the Congress and obtain
                          the views of other stakeholders and to clearly define their missions. It also
                          requires them to establish long-term strategic goals as well as annual goals
                          linked to the strategic goals. Agencies must then measure their
                          performance according to their goals and report to the President and the
                          Congress on their success. In addition to ongoing performance monitoring,
                          agencies are expected to identify performance gaps in their programs and
                          to use information from these evaluations to improve programs.9

                          Meeting the GPRA requirements will challenge HHS for several reasons.
                          Some of HHS’ major programs have never been fully responsible for
                          measuring and improving program performance. For example, the
                          Medicaid program has historically paid claims for medical services and
                          paid limited attention to monitoring program results for the majority of
                          beneficiaries. Other HHS functions, such as those related to research, are
                          not as conducive to results-based management as others are. In addition,
                          because many HHS programs are operated by states, localities, or
                          nongovernmental organizations, HHS agencies will have to develop a way
                          to make their many partners accountable for program results. Moreover,
                          the data necessary for meaningful performance measurement may not be
                          currently available or may not be comparable from state to state. The
                          immense changes spurred by recently enacted welfare reform also add to
                          the complexity of HHS’ task. Nonetheless, GPRA could greatly improve HHS
                          performance—a vital goal when resources are limited and public demands
                          are high.

HHS Has Experience With   HHS is familiar with the kind of results-oriented management promoted by
Results-Based             GPRA. Healthy People 2000, PHS’ national public health initiative that seeks
Management Reforms        to improve the health of all Americans, exemplifies an HHS results-based
                          management effort. In consultation with HHS stakeholders, other
                          government agencies, and the public health community, PHS developed a
                          series of outcome-based public health goals and measures.

                          The Congress has incorporated Healthy People 2000 objectives into
                          national legislation. Under the Maternal and Child Health Program, for
                          example, HHS is required to report on the states’ progress toward meeting
                          the maternal and child health objectives in Healthy People 2000. The broad
                          acceptance by the public health community of certain measures developed

                           Executive Guide: Effectively Implementing the Government Performance and Results Act
                          (GAO/GGD-96-118, June 1996) and GAO/T-GGD-97-43, Feb. 12, 1997.

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for these reports has encouraged states and localities to create
comparable databases and to mobilize to meet program goals.

When it passed GPRA, the Congress understood that most agencies would
need to make fundamental management changes to implement this law
properly and that these changes would not come quickly or easily. To
facilitate this process, GPRA included a pilot phase during which federal
agencies could gain experience in implementing key parts of the law to
provide valuable lessons for the rest of the government.

The Office of Management and Budget (OMB) designated about 70 pilot
tests in 26 federal entities for performance planning and reporting. Two
pilots were in HHS’ jurisdiction: one in ACF’s Office of Child Support
Enforcement (OCSE) and the other in FDA’s Prescription Drug User Fee
Program. The pilots helped OCSE and FDA identify and move toward
performance goals. OMB based its selection of OCSE in part on OCSE’s
previous efforts to develop a 5-year strategic plan; its ability to quantify
program goals, such as child support collections; and the involvement of
state and local governments as key program administrators. In
October 1996, we reported that OCSE’s GPRA pilot had made progress in
redirecting its management of the child support enforcement program
toward results.10 For example, OCSE approved national goals and objectives
focused on key program outcomes such as increasing the number of
paternities established, support orders obtained, and collections received.
At the time of our review, OCSE and the states had begun to develop
performance measures as statistical tools for measuring state progress
toward meeting program goals.

A second HHS GPRA pilot involves the Prescription Drug User Fee Act of
1992 (PDUFA), which allows FDA to collect user fees from drug companies
seeking approval to market drugs. The law dedicates the revenues to
expediting FDA’s reviews of human drug applications. The act established
time-specific performance goals to be met by the end of fiscal year 1997.
To satisfy these objectives, FDA consulted with its stakeholders to
determine appropriate performance indicators and target levels and
developed output-oriented performance goals. In its Fourth Annual
Performance Review, for fiscal year 1996, FDA reported that the PDUFA
program had exceeded its performance goals, improving the speed and
efficiency of the drug review process.

 Child Support Enforcement: Reorienting Management Toward Achieving Better Program Results
(GAO/HEHS/GGD-97-14, Oct. 25, 1996).

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Status of HHS’ GPRA   GPRA  requires that federal agencies develop strategic plans for a period of
Implementation        at least 5 years and submit them to the Congress and OMB no later than
                      September 30, 1997. These plans must include the agency’s mission
                      statement; identify the agency’s long-term strategic goals; and describe
                      how the agency intends to meet these goals through its activities and its
                      human, capital, information, and other resources.

                      GPRA also requires agencies to submit an annual performance plan to OMB;
                      the first plans are due in the fall of 1997. The annual performance plan
                      should directly link the strategic goals in the agency’s strategic plan to
                      managers’ and employees’ daily activities. This plan should include the
                      annual performance goals for the agency’s programs as listed in the
                      budget, a summary of the necessary resources to conduct these activities,
                      the performance measures that will gauge the progress toward those
                      goals, and a discussion of how the performance information will be

                      Although governmentwide implementation of GPRA has not yet officially
                      begun, HHS is working with OMB to meet its deadlines for submitting its
                      strategic plan and first annual performance plan. HHS officials have
                      acknowledged, however, that the Department, “must confront some
                      fundamental issues that are central to the successful implementation of
                      GPRA in HHS over the next year. At a minimum, there remains an enormous
                      amount of work to be done.”11 HHS officials do expect to meet the
                      September deadlines, however, for both strategic and performance plans,
                      they said. HHS has drafted its strategic plan, but it is not yet ready for
                      public release.

                      Strategic plans must consider the views of the Congress and other
                      stakeholders. To ensure that these views are considered, GPRA requires
                      agencies to consult with the Congress and solicit stakeholders’ views as
                      they develop their plans. The Department plans to begin congressional
                      consultations in April and to send 200 to 300 stakeholders copies of the
                      draft strategic plan in June, HHS officials said. HHS currently plans to
                      release the draft plan to the public on the Internet.

                      HHS operating divisions are now developing performance plans, which
                      should include performance measures and objectives linked to data
                      systems. To prepare for the development of GPRA’s annual performance
                      plans, HHS officials asked each of its operating divisions to provide

                         Integrating Performance Measurement Into the Budget Process, Subcommittee Report of HHS’ Chief
                      Financial Officers Council, GPRA Implementation Committee (Washington, D.C.: Jan. 21, 1997).

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                       performance objectives and measures for at least one program activity.
                       Officials also asked operating divisions to describe their strategies for
                       aggregating program activities for their performance plans for the fiscal
                       year 1999 budget. Last summer, OMB reported that the performance
                       measurement aspects of GPRA pose the greatest challenge to HHS. At the
                       beginning of this calendar year, however, even the agencies most
                       advanced in their GPRA preparations had not yet finished developing
                       performance measures. Nor had many programs taken the next steps to
                       relate the appropriate performance objectives and measures to the
                       resources needed to accomplish program strategies.

Required Financial     To provide decisionmakers with reliable, consistent financial data on the
Statement Audits Are   operations of federal agencies, the Government Management Reform Act
Ongoing at HHS         of 1994 requires each department and major independent agency to submit
                       to OMB an audited agencywide financial statement beginning in fiscal year
                       1996. The magnitude of this task for HHS is extraordinary. HHS expenses
                       exceed $300 billion a year. Over 80 percent of this amount was spent by
                       HCFA, primarily for the Medicare and Medicaid programs. Although the IG
                       tried to audit HCFA’s financial statements in prior years, the IG could not
                       express an opinion on the reliability of these statements primarily because
                       of inadequate supporting documentation for reported amounts. HHS and
                       HCFA management are working to resolve these issues so that an audit can
                       be performed.

                       The current HHS-wide financial statement audit is designed to follow up on
                       previously reported issues and to address whether program expenditures,
                       such as Medicare benefit payments, complied with laws and regulations
                       and were properly reported. In addition, the audits will evaluate the
                       effectiveness of the agency’s related internal controls. The IG will report
                       the results of this audit when it is completed.

                       Nothing is more crucial to effectively managing an enterprise of HHS’ size
Reliable and           and scope than accurate information about programs and their effects.
Comprehensive          The desire of the American people for accountable government, expressed
Management             in the GPRA’s mandate for measurable performance goals, underscores the
                       critical need for accurate information. In recognition of the importance of
Information Systems    agencies’ properly managing their information systems, the Congress
Crucial to HHS’        passed the Paperwork Reduction Act of 1995 to guide them in this effort.
                       The law addresses the acquisition and management of information
Success                resources by federal agencies. The Clinger-Cohen Act of 1996 elaborates

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                            on requirements that promote the use of information technology to better
                            support agencies’ missions and to improve program performance. Among
                            these acts’ provisions are requirements that agencies set goals, measure
                            performance, and report on progress in improving the efficiency and
                            effectiveness of information management generally—and, specifically, the
                            acquisition and use of information technology.

                            Because HHS’ responsibilities involve large health insurance programs,
                            extensive grant-making activities, and vital regulatory responsibilities, the
                            Department must use effective information systems. To implement its
                            programs and meet its responsibilities successfully, HHS must have access
                            to data that are both reliable and appropriate to the task. Without such
                            data, HHS cannot inform the Congress or the American people of its
                            progress toward meeting its performance goals. Creating and
                            implementing the sophisticated systems that will give HHS managers the
                            data they need, however, present another major challenge. Because
                            several important HHS programs, including Medicaid and TANF, are joint
                            federal-state efforts, the current lack of comparable data across states
                            increases the difficulty of obtaining timely and reliable data.

HCFA Needs Better           Medicaid, a joint federal-state program administered by HCFA, provides
Information About           health coverage for 36 million low-income people, including 17.6 million
Enrollees and Services to   children. Medicaid also pays for nursing home coverage for low-income
                            elderly and other vulnerable members of society, accounting for almost
Manage Medicaid Program     half of total national spending for nursing home care. The Medicaid
                            program’s federal fiscal year 1996 expenditures totaled about $92 billion,
                            with state expenditures totaling about $68 billion.

                            Despite Medicaid’s magnitude, the federal government has only limited
                            data on its results, and the accuracy of these data is questionable. Using
                            information supplied by the states, HCFA creates a statistical report that has
                            data about beneficiaries served, their eligibility categories, types of
                            services they received, and vendor payments. HCFA also generates a regular
                            financial report. The usefulness of both of these reports, however, is
                            compromised by problems with the state data’s accuracy and consistency.
                            Some of these problems stem from collecting data from 50 states and the
                            District of Columbia, which do not all use identical definitions for data
                            categories. Another problem is the difficulty of relating the information
                            that is in these two reports. Problems in data quality and in the ability to
                            link data across data sources make it difficult for HCFA and others to
                            analyze and evaluate Medicaid’s results. For example, HCFA’s Medicaid

                            Page 13                                                      GAO/T-HEHS-97-98
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                           managed care program has been plagued by duplicate reporting on the
                           number of enrollees. Having an inaccurate count from the states makes it
                           difficult to assess the effect of managed care on Medicaid expenditures.

                           Some of Medicaid’s long-standing data problems could worsen because of
                           the program’s growing reliance on managed care to provide health
                           services to beneficiaries. The proportion of Medicaid beneficiaries
                           enrolled in managed care, as reported by HCFA, quadrupled from about
                           10 percent in 1991 to about 40 percent in 1996. Because Medicaid pays
                           many managed care organizations a defined fee for providing a range of
                           services, HCFA usually lacks the detailed utilization data available under
                           fee-for-service billing. This, in turn, makes evaluating the program’s
                           success even more difficult.

Welfare Reform Presents    The new welfare reform law gives HHS new administrative and oversight
HHS With Many              responsibilities, the performance of which will rely on state-provided data.
Information Challenges     One of HHS’ major new administrative requirements is for the child support
                           enforcement program. Using state-provided data, HHS is to establish a
                           national directory of newly hired employees and registry of child support
                           orders to strengthen child support enforcement. Another information
                           management challenge for HHS is ensuring that the states provide
                           comparable and reliable data to help it fulfill its oversight responsibilities
                           under the new legislation. HHS will need such information to ensure that
                           states are enforcing the federal 5-year time limit on receiving welfare
                           benefits, meeting minimum work participation rates, and maintaining a
                           certain level of welfare spending. Enforcing this limit, for example, will be
                           difficult because information on the total amount of time someone has
                           received welfare is often unavailable in a state, let alone across states. In
                           addition, HHS will need to collect state data to assess penalties and provide
                           performance bonuses. With the increased flexibility of states in designing
                           their programs, obtaining comparable and reliable data to assess the effect
                           of welfare reform on children and families could be difficult for HHS.

FDA Needs to Improve Its   Another possible problem in managing information systems is a failure to
System for Monitoring      use the information appropriately to advance program goals. We recently
Medical Device Problems    reported on such a problem concerning FDA’s medical device adverse
                           event reporting system, used to gather information about problems with
                           marketed medical devices.12 Medical devices range in complexity from

                            Medical Device Reporting: Improvements Needed in FDA’s System for Monitoring Problems With
                           Approved Devices (GAO/HEHS-97-21, Jan. 29, 1997).

                           Page 14                                                                    GAO/T-HEHS-97-98
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                            simple tongue depressors to heart pacemakers. The reporting system
                            enables FDA and the medical device industry to work together to take
                            corrective action on device problems and, when appropriate, to alert the
                            public to potentially hazardous devices to prevent injury or death.

                            FDA has not systematically acted to ensure that the reported problems have
                            received prompt attention and appropriate resolution. As a result, FDA’s
                            adverse event reporting system has not always provided the intended early
                            warning about problem medical devices. Because the increased volume of
                            adverse event reports resulting from changes in the law made it difficult
                            for FDA to process and review reports in a timely manner, the agency chose
                            to give priority to death and serious injury reports. As result, FDA delayed
                            processing and reviewing almost 50,000 malfunction reports for nearly 2
                            years. Malfunction reports are essential in alerting FDA to potentially
                            serious device problems before they result in death or serious injury.

                            Moreover, although FDA contends that it notifies manufacturers and user
                            facilities about imminent hazards and industrywide safety concerns, it
                            does not routinely document the corrective actions it takes—or those
                            taken by manufacturers—to address reported medical device problems. As
                            a result, it is unclear how manufacturers and FDA have responded to device
                            problems reported by user facilities. Feedback to medical device users
                            could increase knowledge about medical device performance, improve
                            patient safety awareness, and help users make purchase decisions. FDA,
                            however, does not routinely communicate the results of analyses of
                            medical device problems and corrective actions to the medical device user
                            facility community.

Implementation of           Finally, another information management challenge facing HHS involves
Medicare Claims             the Medicare program, which accounts for over half of HHS’ annual budget.
Processing System at Risk   An important initiative to improve Medicare claims processing activity
                            could create problems if it is not carefully implemented. To better protect
                            Medicare from fraud and abuse, HCFA has begun to acquire a new claims
                            processing system, the Medicare Transaction System (MTS). HCFA expects
                            MTS to replace the nine different processing systems it currently uses by
                            the year 2000. We have previously reported on the benefits and risks
                            associated with this effort.13 The intent of using a single automated system
                            is to allow HCFA to improve administrative efficiency, better manage
                            contractors, and place greater emphasis on safeguarding program dollars

                             High-Risk Series: Medicare (GAO/HR-97-10, Feb. 1997) and Medicare: New Claims Processing System
                            Benefits and Acquisition Risks (GAO/HEHS/AIMD-94-79, Jan. 25, 1994).

                            Page 15                                                                     GAO/T-HEHS-97-98
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                      and improving beneficiary and provider service. In response to some of
                      the risks we identified, HCFA revised its initial approach for developing and
                      installing MTS, reducing the potential for problems stemming from
                      large-scale system failures. We also reported on risks related to difficulties
                      in defining the system’s requirements, inadequate investment analysis, and
                      significant schedule problems. HCFA is working on these concerns. We plan
                      to continue evaluating HCFA’s efforts on this important initiative.

                      Another critical task for HCFA involves revising computerized systems to
                      accommodate dates beyond the year 1999. This year 2000 problem stems
                      from the common practice of abbreviating years by their last two digits.
                      Thus, miscalculations in all kinds of activities—such as benefit
                      payments—could occur because the computer system would interpret “00”
                      as 1900 instead of the year 2000. HHS, along with other agencies that
                      maintain time-based systems, must develop strategies to resolve this
                      potential problem in the near future.

                      With HHS’ broad range of programs, large number of grantees and
Safeguarding          contractors, huge volume of vendor payments, and millions of
Vulnerable Programs   beneficiaries, the Department must always be vigilant in protecting its
Requires Constant     programs from fraud, abuse, mismanagement, and waste. The sheer dollar
                      size of HHS’ programs makes them attractive targets, and the consequences
Vigilance and         can be severe. HHS needs to improve its processes for identifying and
Innovation            preventing fraud, abuse, mismanagement, and waste and maintain
                      constant vigilance in the future. The Medicare program offers an example
                      of how important such efforts are.

                      One of the long-standing management challenges HHS faces is safeguarding
                      Medicare, the government’s second largest social program. Medicare
                      provides health insurance for 37 million elderly and disabled Americans;
                      federal Medicare expenditures were $174 billion in fiscal year 1996.
                      Medicare’s expansive size and mission make it vulnerable to exploitation.
                      That wrongdoers continue to find ways to dodge safeguards illustrates the
                      dynamic nature of fraud and abuse and the need for constant vigilance and
                      increasingly sophisticated ways to protect the program.

                      Both the Congress and HCFA have made important legislative and
                      administrative changes to address chronic payment safeguard problems.
                      Because of the hundreds of billions of dollars at stake, however, the
                      government must exercise unflagging oversight and effective management
                      for the foreseeable future to protect Medicare from waste, fraud, abuse,

                      Page 16                                                      GAO/T-HEHS-97-98
                              Department of Health and Human Services:
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                              and mismanagement. Two factors heighten the continuing need to control
                              claims fraud and abuse in Medicare. First, although growth in Medicare
                              costs has moderated somewhat in the last 2 years, many believe even this
                              lower growth rate cannot be sustained. Second, the Medicare trust fund
                              that pays for hospital and other institutional services is expected to be
                              depleted within the next 5 years.

Infusion of Resources and     HCFA administers Medicare largely through a structure of claims
Leadership From HCFA          processing contractors. Medicare contractors—insurance companies such
Should Help Lessen            as Blue Cross and Blue Shield—use federal funds to pay health care
                              providers and beneficiaries and are reimbursed for their administrative
Vulnerabilities of Medicare   expenses. HCFA has largely delegated its effort to guard against
Fee-for-Service Program       inappropriate payments to these contractors, giving them broad discretion
                              in acting to protect Medicare program dollars. As a result, significant
                              variations exist in contractors’ implementation of Medicare’s payment
                              safeguard policies.

                              A pattern of unstable funding for antifraud and abuse activities since 1989
                              has made it more difficult to guard the large Medicare program. For
                              example, although the number of Medicare claims climbed 70 percent—to
                              822 million—between 1989 and 1996, resources committed to claims
                              review, without adjusting for inflation, grew less than 11 percent during
                              that period. Passage of the Health Insurance Portability and Accountability
                              Act of 1996 adds new funds to fight fraud and abuse starting in 1997, but
                              this additional funding will still leave per claim safeguard funding in 2003
                              at about one-half the 1989 level, after adjusting for inflation.

                              The inadequate funding of Medicare’s claims scrutiny activities has hurt
                              contractors’ efforts to review the medical necessity of services billed to
                              the program. For example, we reported in 1996 that because of the small
                              number of claims selected for review, home health agencies billing for
                              noncovered services were less likely to be caught than was the case 10
                              years earlier.14 Besides covering so few claims, paper reviews of home
                              health claims are simply limited in their ability to detect claims for
                              noncovered care. In the case of a large home health organization we
                              investigated, claims passed review scrutiny even for visits never made
                              because company staff allegedly falsified medical records.

                               Medicare: Home Health Utilization Expands While Program Controls Deteriorate (GAO/HEHS-96-16,
                              Mar. 27, 1996).

                              Page 17                                                                    GAO/T-HEHS-97-98
                             Department of Health and Human Services:
                             Management Challenges and Opportunities

                             As we noted in many reports and testimonies in recent years, HCFA has not
                             aggressively managed the Medicare claims processing function. HCFA has
                             not taken a leadership role, for example, in managing how contractors
                             select the criteria used to identify claims that may not be eligible for
                             payment or in helping contractors with this task. The agency has not
                             systematically aggregated information on contractors’ medical policies or
                             their related use of prepayment screens. As a result, HCFA has not
                             adequately assessed the relative performance of contractors or helped
                             share with all contractors the experience of some in using effective claims
                             screening controls. One of our studies revealed, for example, that 10 of 17
                             contractors reviewed lacked screens for echocardiography, Medicare
                             payments for which exceeded those for any other diagnostic test in fiscal
                             year 1994 and which increased in use nationwide by over 50 percent
                             between 1992 and 1994.15 We estimated that Medicare could have denied at
                             least $10.5 million in echocardiography payments made in 1993 if just
                             seven contractors that did not screen for these procedures had applied the
                             medical necessity screens used by other contractors.

Legislative and Other        The 1996 Health Insurance Portability and Accountability Act will
Initiatives Improve HCFA’s   gradually increase the funding for pursuing health care fraud and abuse,
Ability to Fight Fraud and   including HCFA’s audit and related activities. For fiscal year 1997, the act
                             boosts the claims processing contractors’ budget for program safeguard
Abuse                        activities 10 percent over 1996; by 2003, the level will be 80 percent higher
                             than for 1996.

                             Operation Restore Trust is an antifraud initiative involving three HHS
                             agencies—the IG, HCFA, and the Administration on Aging—and the
                             Department of Justice and various state and local agencies. This effort
                             currently targets Medicare abuse and misuse in five states that together
                             account for over one-third of all Medicare beneficiaries and focuses on
                             fast-growing services: home health care, nursing homes, and medical
                             equipment and supplies. In its first year, Operation Restore Trust reported
                             recovering $42.3 million in inappropriate payments. It also resulted in
                             many convictions, fines, and exclusions of fraudulent providers. IG
                             officials believe that the major achievement of this initiative will be
                             continued coordination of the participating agencies and greater
                             awareness of the effectiveness of constant vigilance.

                              Medicare: Millions Can Be Saved by Screening Claims for Overused Services (GAO/HEHS-96-49,
                             Jan. 30, 1996).

                             Page 18                                                                     GAO/T-HEHS-97-98
                           Department of Health and Human Services:
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                           The Health Insurance Portability and Accountability Act has built upon
                           Operation Restore Trust by establishing a program run jointly by the
                           Departments of Justice and HHS to coordinate federal, state, and local law
                           enforcement efforts against fraud in Medicare and other health care
                           programs. The program also establishes a national health care fraud data
                           collection program, specifies health care fraud as a separate criminal
                           offense, and increases criminal penalties.

                           HCFA  has taken other actions to improve Medicare’s fraud detection
                           activities. These include efforts to adopt fraud and abuse detection
                           software and to reduce Medicare’s vulnerability to abusive billing as well
                           as to prevent fraudulent or excluded providers from continuing to bill the
                           program. For example, HCFA will assign new identification numbers—
                           National Provider Identifiers—to every provider and supplier in the
                           Medicare program and require the use of these numbers for billing
                           purposes. The numbers assigned to providers and suppliers are unique and
                           will identify them throughout their Medicare participation.

HCFA Could Reduce Costs    Programs can also be vulnerable to excess payments because the method
of Medicare Managed Care   for setting prices is flawed. An example of this is the process for setting
Program                    rates for Medicare risk-contract health maintenance organizations (HMO).
                           Our recent studies have revealed shortcomings in Medicare’s risk-contract
                           program that affect both taxpayers and beneficiaries. Because of
                           difficulties in establishing capitation rates, Medicare pays some HMOs too
                           much each year, needlessly spending at least hundreds of millions of
                           dollars a year from the program’s trust funds. HMOs tend to attract
                           Medicare beneficiaries whose need for care when joining is low. Although
                           the payment formula includes a crude risk adjustor to correct for this
                           tendency, it is not precise enough to account for its full effect.16 The
                           Physician Payment Review Commission recently estimated that annual
                           excess payments to HMOs nationwide could total $2 billion.

                           A second problem with Medicare’s risk-contract program is that HCFA has
                           neither adequately enforced nor made beneficiaries aware of HMOs’
                           compliance with federal standards. We have reported on the need for HCFA
                           to more actively serve beneficiaries enrolling in HMOs.17 HCFA conducted

                            Medicare HMOs: HCFA Could Promptly Reduce Excess Payments by Improving Accuracy of County
                           Payment Rates (GAO/T-HEHS-97-82, Feb. 27, 1997).
                              Medicare: Increased HMO Oversight Could Improve Quality and Access to Care (GAO/HEHS-95-155,
                           Aug. 3, 1995) and Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO
                           Performance (GAO/HEHS-97-23, Oct. 22, 1996).

                           Page 19                                                                     GAO/T-HEHS-97-98
Department of Health and Human Services:
Management Challenges and Opportunities

only paper reviews of HMOs’ quality assurance plans. Moreover, the agency
was reluctant to act against HMOs that used abusive sales practices, unduly
delayed appeals of decisions to deny coverage, or exhibited patterns of
poor-quality care.

HCFA  also misses an opportunity to supplement its regulatory efforts by not
sufficiently informing Medicare beneficiaries about competing HMOs. For
example, HCFA does not provide beneficiaries with any of the comparative
consumer guides that the federal government and other employer-based
health insurance programs routinely distribute to employees and retirees.
Public disclosure of information, such as comparative disenrollment rates,
could help beneficiaries choose among competing HMOs and encourage
HMOs to better market their plans and serve enrollees.

Most recent legislative proposals to reform Medicare would expand the
program’s use of prepaid health plans, which illustrates the importance of
addressing these issues. Risk-contract HMOs currently enroll about 10
percent of Medicare’s beneficiaries, and such enrollment has grown
rapidly. In just 2 years—between August 1994 and August 1996—the
number of risk HMOs nationwide rose from 141 to 229 and enrollment grew
by over 80 percent, from about 2.1 million to 3.8 million beneficiaries. The
Congressional Budget Office projects that, under one Medicare reform
scenario that would encourage beneficiaries to join HMOs, enrollment in
risk HMOs and other prepaid plans could grow to 25 percent of all
beneficiaries by 2002. If HCFA does not correct its rate setting and
standards enforcement problems, these proposals could actually increase
Medicare costs rather than control cost growth as intended.

In conclusion, although our reviews and studies and those of others have
found problems with HHS’ many programs, we recognize the difficulties
that HHS faces in managing a large and diverse array of activities.
Considering, however, the extent to which the American people rely on
HHS for essential services and support, it is critical for the Department to
focus on achieving its many missions as effectively and efficiently as
possible. GPRA provides HHS with an excellent opportunity to orient its
management toward producing the results its programs are intended to
achieve and to engage in regular self-assessment. As you know, we have
already committed to working with the Congress as it reviews draft and
final HHS strategic and performance plans and other submissions under
GPRA. We urge the administration and the Congress to use this opportunity

Page 20                                                     GAO/T-HEHS-97-98
               Department of Health and Human Services:
               Management Challenges and Opportunities

               to provide the kind of continual oversight needed for a department of HHS’
               size, diversity, vulnerability, and importance.

               Mr. Chairman, this concludes my prepared statement. I will be happy to
               answer any questions that you or members of the Subcommittee might

               For more information on this testimony, please call William Scanlon,
Contributors   Director, Health Financing and Systems, (202) 512-4561; Bernice
               Steinhardt, Director, Health Services Quality and Public Health,
               (202) 512-6543; or Jane Ross, Director, Income Security, (202) 512-7215.

               Page 21                                                    GAO/T-HEHS-97-98
Department of Health and Human Services:
Management Challenges and Opportunities

Page 22                                    GAO/T-HEHS-97-98
Department of Health and Human Services:
Management Challenges and Opportunities

Page 23                                    GAO/T-HEHS-97-98
Related GAO Products

              Medicare Home Health Care Benefit (GAO/HEHS-97-70R, Feb. 11, 1997).

              FDA’s Mammography Inspections: While Some Problems Need Attention,
              Facility Compliance Is Growing (GAO/HEHS-97-25, Jan. 27, 1997).

              Skilled Nursing Facilities: Approval Process for Certain Services May
              Result in Higher Medicare Costs (GAO/HEHS-97-18, Dec. 20, 1996).

              Public Health: A Health Status Indicator for Targeting Federal Aid to
              States (GAO/HEHS-97-13, Nov. 13, 1996).

              Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed
              Care (GAO/HEHS-96-184, Sept. 17, 1996).

              Medicaid: Oversight of Institutions for the Mentally Retarded Should Be
              Strengthened (GAO/HEHS-96-131, Sept. 6, 1996).

              Medicare: Early Resolution of Overcharges for Therapy in Nursing Homes
              Is Unlikely (GAO/HEHS-96-145, Aug. 16, 1996).

              Medicaid Managed Care: Serving the Disabled Challenges State Programs
              (GAO/HEHS-96-136, July 31, 1996).

              Medicaid: Waiver Program for Developmentally Disabled Is Promising But
              Poses Some Risks (GAO/HEHS-96-120, July 22, 1996).

              Health Insurance for Children: Private Insurance Coverage Continues to
              Deteriorate (GAO/HEHS-96-129, June 17, 1996).

              Medicaid Funding Formula Changes (GAO/HEHS-96-164R, June 10, 1996).

              Practice Guidelines: Managed Care Plans Customize Guidelines to Meet
              Local Interests (GAO/HEHS-96-95, May 30, 1996).

              Federal Personnel: Issues on the Need for the Public Health Service’s
              Commissioned Corps (GAO/GGD-96-55, May 7, 1996).

              FDA Approval: Review Time Has Decreased in Recent Years (GAO/PEMD-96-1,
              Oct. 20, 1995).

(108319)      Page 24                                                    GAO/T-HEHS-97-98
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