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  Hurdles in Medicare's Race for Y2K Fix

By Stephen Barr
Washington Post Staff Writer
Monday, January 4, 1999; Page A17

At the start of 1994, Medicare officials thought they had found a solution to many of the program's computer problems, including the worrisome Year 2000 glitch. A new, superior system would allow Medicare to switch its focus from paying doctor and hospital claims to meeting the challenges of a changing health care economy, officials said.

But the computer system--a 10-year, billion-dollar project called the Medicare Transaction System--was never built. It faltered because of poor management, schedule delays and cost overruns, congressional investigators found. After spending $50 million, the Clinton administration killed the project in August 1997.

The Health Care Financing Administration, which oversees Medicare, has been playing catch-up on the so-called millennium bug ever since. Other agencies, including the Defense Department and Internal Revenue Service, also have scrambled to fix their computers for the 2000 date conversion.

Congressional and industry critics have been skeptical of the government's ability to beat the Jan. 1, 2000, deadline because of past problems with computer modernization.

The skepticism seemed to apply to HCFA. Focused on the computer modernization project for too long, the agency was off to a late start mobilizing for Year 2000 repairs. The agency also was coming off a tough reorganization that led to morale problems.

In addition, there was change at the top of HCFA. In autumn 1997, Nancy-Ann Min DeParle, who had been in charge of federal health programs at the Office of Management and Budget, became the new administrator.

The prospect that the Year 2000 glitch, popularly known as Y2K, could disrupt or paralyze Medicare pushed virtually every other issue off DeParle's desk.

"I think the turning point was, for me, when I got here and realized that not much had been done at all. And I was terrified, frankly, about the prospect of how much had to be done," she said.

The scope of the repair job quickly grew. DeParle learned that HCFA's staff had earlier overlooked about 20 million lines of computer code. Only after bringing in a consultant did HCFA discover it had 49 million lines to sift through for Y2K problems.

The Year 2000 problem stems from the use in many computer systems of a two-digit dating system that assumes the first two digits of the year are 1 and 9, a convention adopted years ago when coding space was at a premium. Without reprogramming, the systems will recognize "00" not as 2000 but as 1900, which could cause systems to shut down or malfunction.

By the summer of 1998, HCFA's technical problems became political problems. In July, DeParle told a House Ways and Means subcommittee that Medicare claims payments could be delayed if the agency's computer systems were not Y2K ready. Without repairs to the computers and related data exchange systems, HCFA said, hospitals might face cash-flow problems, benefit enrollment systems could malfunction and the elderly and disabled might be denied treatment if eligibility questions were not resolved.

Congressional Republicans, in particular, were angered to learn that Medicare would miss several statutory deadlines set out as part of the balanced-budget agreement because of Y2K problems. One of those changes, to start in 1999, would have reduced the amounts that elderly patients pay for hospital outpatient services.

HCFA, meanwhile, had joined the Defense Department at the top of the White House Y2K worry list. The General Accounting Office, in a report issued in September 1998, said HCFA was "severely behind schedule." The GAO added, "It is highly unlikely that all of the Medicare systems will be compliant in time to ensure the delivery of uninterrupted benefits and services into the year 2000."

As the nation's largest health care insurer, Medicare serves about 40 million Americans--providing coverage to persons 65 and over and to the disabled. It pays about $200 billion in benefits, using seven standard processing systems that handle about 800 million claims each year for about 1 million hospitals, doctors and medical equipment suppliers.

DeParle, from almost the start, pushed HCFA computer experts and the 70 contractors that operate 78 different Medicare payment systems to step up the pace of their repair work. Many contractors are insurance companies, like Blue Cross and Blue Shield, and DeParle's tough stance caused some tension.

Some contractors did not like the tone of a November 1997 DeParle memo that elevated the importance of their Y2K repair effort. Failure might be grounds for dismissal and "successful completion of millennium compliance will be a strong determination in awarding other lines of Medicare business in the future," it said.

DeParle told the contractors to finish their Y2K work by the end of 1998, even though the White House had set a government-wide deadline of March 31, 1999.

"We had such a massive undertaking that I thought it was prudent to hold ourselves to an earlier date so that we'd have plenty of time to fix any problems if they occurred," DeParle said.

Last week, DeParle said the Y2K push was paying off. The 25 most critical computer systems operated by HCFA have been renovated, tested and validated by outside experts, she said. Medicare contractors have finished work on 95 percent of their software code, and DeParle said she expected most contractors to report soon that they have finished a third round of testing to ensure that systems will operate smoothly in 2000.

One contractor that also maintains software for seven other contractors lags on Y2K repairs, however. As a group, they process about 15 percent of Medicare claims and HCFA computer experts are closely monitoring the repair effort.

Still, DeParle said, "I'm increasingly optimistic that we are going to not only meet the March 31 deadline but beat it."

This year, HCFA plans to divert its energies into developing 50 to 60 backup plans for 275 business functions and transactions that underpin Medicare. The agency also plans to spend more time working with states on potential Y2K problems involving systems for Medicaid, which provides health benefits to the poor.

Although HCFA computer experts do not anticipate large-scale problems, they expect that the Y2K bug, in some fashion, will erode Medicare operations.

Most health care providers file electronic claims, but a surge in paper claims next year could create backlogs. HCFA officials also worry that rural and inner-city hospitals, which started late on Y2K, may not have the staff or money to fix their systems.

Part of the agency's contingency planning will look at how to reroute Medicare claims if a contractor has computer problems or loses power or even phone service.

Much of the Y2K repairs at HCFA have been organized by Gary G. Christoph, who joined the agency shortly after DeParle. Christoph, who spent 15 years at the Los Alamos National Laboratory, became HCFA's first chief technology information officer.

How much HCFA's Y2K effort will cost is unclear. The agency, a part of the Health and Human Services Department, estimates the Year 2000 fixes will cost nearly $632 million under its "most likely" scenario. A more pessimistic scenario adds another $123 million.

If anything major goes wrong later this year or next, HCFA could need an extra $500 million to ensure that Medicare keeps operating, according to internal estimates.

HCFA's critics plan to review the agency's status in early 1999. Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Special Committee on Aging, plans to have GAO investigators look at whether the Y2K fixes ensure that the agency and its contractors will be able to process claims from start to finish in 2000.

DeParle said part of HCFA's past management problems can be attributed to "a wide chasm" between the staff that ran and operated agency programs and the staff that developed policy proposals.

"There's still a chasm, because I preside over the disagreement sessions," DeParle said. "That is where the policy people want to do something and the systems people say we can't do it because of Y2K.

"But they're working together now and they are speaking the same language, more or less. And that wasn't happening before. So if you want to look at sort of a silver lining here, that's one of them."

© Copyright 1999 The Washington Post Company

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