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1998-05-12 15:23:42


Medicare's Contractors Are Dead if Their Vendors Miss the Deadline



A spokesman for Blue Cross, a Medicare payments contractor, told a House Ways & Means subcommittee that there is no reason to change the law that protects the 70 contractors from sanctions from the Medicare hierarchy.

At that same meeting, a Medicare spokesman said that Medicare wants the law changed so that Medicare can force the contractors to get y2k compliant.

Neither spokesman said the obvious: there is no way on earth that they can get Medicare's computers compliant.

The contractors cannot guarantee compliance of their vendors. This is a familiar and legitimate refrain. It is another reason why y2k is a systemic problem.

The contractors want more money from the government. This is a constant refrain of every group that comes before Congress. This is why politicians don't trust "sky is falling" scenarios. Unfortunately, the sky really is falling this time.

So, what the contractors want is more money from government but no new controls. Who doesn't?

What we see here is a system of delegated responsibility, also known as blame-shifting. Medicare (HCFA) could not get its in-house system up and running. President Clinton vetoed the whole project in the fall of 1997. Medicare, which had shafted the 70 contractors, promising to fire them all in 2000, now wants more control over them.

The contractors, none of which claims to be compliant, want more control over their vendors. They are helpless to meet the deadline if their vendors don't make it, too. "Since Medicare contractors cannot force third-party vendors to become compliant by a certain date, contractors would be in no position to ensure full compliance."

The vendors, who are not under anyone's legal control, are not saying anything to anyone. Their lawyers have spoken. The lawyers understand the Bible: "A prudent man concealeth knowledge" (Proverbs 12:23a).

The chain of authority is a long line of dominoes. It will begin to topple in 1999.

Meanwhile, visualize a circle with a million people, all pointing a finger at the next one, and saying, "He has to get compliant before I can."

The y2k problem is systemic. It cannot be fixed.

* * * * * * * *

Statement of Mary Nell Lehnhard Senior Vice President, Policy and Representation, Blue Cross and Blue Shield Association

Testimony Before the Subcommittee on Oversight of the House Committee on Ways and Means

Hearing on the Year 2000 Computer Problem

May 7, 1998 The Medicare program is administered through a successful partnership between private industry and the Health Care Financing Administration (HCFA). Since 1965, Blue Cross and Blue Shield Plans have played a leading role in administering the program. . . .

My testimony today focuses on one of our next major challenges assuring that Year 2000 computer adjustments are made accurately and in accordance with the timetable set out by HCFA. . . .

Year 2000 compliance is a top priority for Medicare contractors. Despite the real challenges, let me assure you that Medicare contractors are working toward becoming compliant on a timetable that will meet HCFA's deadline of December 31, 1998, which is two months earlier than the government-wide target date set by Office of Management and Budget (OMB). . . .

Last fall, HCFA sent all Medicare contractors a contract amendment intended to assure Year 2000 compliance. The proposed amendment required Medicare contractors to be Year 2000 compliant by December 31, 1998 two months ahead of other government contractors. The amendment also defined HCFA's expectations of Medicare contractors with regard to Year 2000 compliance. . . .

BCBSA pointed out that it would be impossible to provide HCFA the assurances for Year 2000 compliance that the contract amendment would have required because "full" compliance depends on other businesses. Examples of other businesses that contractors will depend on for compliance are manufacturers of microchips, banks, and the claims systems that are owned and maintained by doctors' offices and hospitals. The problem is that all of these entities are following varying compliance dates. If any one of these other entities has a later compliance date, then the Plan cannot be in "full" compliance. Since Medicare contractors cannot force third-party vendors to become compliant by a certain date, contractors would be in no position to ensure full compliance. A decision about compliance by the Securities and Exchange Commission (SEC) illustrates and adds to the problem we are raising. A recent SEC policy statement said that it is impossible for any entity to represent that it has achieved full Year 2000 compliance before January 1, 2000. Contractors would essentially be put in the position of forcing the compliance of public entities that have different timetables for compliance. This could pose significant problems. Based on our legal interpretation of the amendment, even if our claims processing activities were compliant, we could have been considered noncompliant if, for example, our maintenance company for the elevators in a building we rent failed to assure compliance by December 31, 1998.

The amendment also would have required that contractors certify the compliance of all vendors. Certification is a specific procedure that creates a civil or criminal liability for contractors if the information is incorrect. Certification of Year 2000 compliance would have required contractors to know all the facts about any entity that has any kind of relationship with the contractor (e.g., all subcontractors in a building rented or owned by the contractor, all vendors and all vendor subcontractors). Contractors would be subject to civil and criminal penalties if they certified compliance and were not in compliance through circumstances beyond their control. There are circumstances where contractors have to certify the validity of information (e.g., financial statements). These are, however, situations where contractors are familiar with and know all the facts. But it is an unacceptable level of liability for us to certify that everyone contractors have a relationship with is Year 2000 compliant. . . .

First, there has been a significant change in direction in how contractors are to proceed in assuring millenium compliance. Originally, many of the system changes that are necessary for compliance would have been accomplished by the conversion of all Medicare contractors to the Medicare Transaction System (MTS). As you know, the MTS initiative was dropped last year. As a result, contractors had to make significant changes that, in the absence of MTS, they would have been working on for some time. . . .

The second issue is funding. We anticipate Year 2000 compliance to be very costly, but funding has not yet been available to contractors to cover their expenses. As a result, contractors have had to reallocate funding from other important activities on a temporary basis. . . .

We are very pleased that Congress included in the FY 1998 supplemental appropriation bill reprogramming of $20 million to cover millenium costs. But given the high costs of compliance, we believe more funding is necessary. . . .

In addition to pursuing amendments to the contracts, HCFA is also seeking legislative authority to dramatically restructure the Medicare contracting process. This effort to make broad changes in contract authority is not a new initiative. But most recently, HCFA has been arguing that this contractor reform is necessary to assure compliance.

Given our efforts to work cooperatively with HCFA on this issue and the broad authority HCFA already has under current contracts, we are disappointed and perplexed about why it is linking contractor reform legislation with Year 2000 compliance.

Contractor reform would not improve the Year 2000 problem. . . .

Importantly, HCFA already has broad authority to sanction contractors that are not in compliance. HCFA can replace or terminate contractors for poor performance, including non-compliance for Year 2000. . . .

Taken together these reform provisions would give HCFA the authority to cast out with no recourse Medicare contractors that have served the country faithfully for over 30 years, without stating the plan for future Medicare contractor administration. What will it look like? Who will HCFA contract with? What experience will they have? How will service to beneficiaries and providers improve? This authority and the possibility of an unplanned, behind-closed-doors use of it would impede Medicare contracting for many years to come. . . .

Congress should reject HCFA's use of year 2000 compliance as a reason for legislating far-reaching changes to the Medicare contractor program. Contractor reform raises fundamental issues and implications for the Medicare program. In fact, contractor reform could introduce change, confusion and diversion of resources at a time when experience and focus is important.


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