Medicare Transaction System

By the year 2000, Medicare, the nation's largest health insurer, expects to process more than 1 billion claims and pay $288 billion in benefits annually. To keep up, Medicare plans to spend $1 billion to replace nine separate automated processing systems with the Medicare Transaction System (MTS). MTS is intended to improve customer service; cut administrative and operating costs; strengthen controls over claims processing; improve contractor oversight; better protect against waste, fraud, and abuse; and accommodate managed care and other alternative payment methodologies. However, since GAO issued its first analysis in 1992, project costs have soared from $151 million to $1 billion. GAO concludes that the benefits of MTS will not be realized unless the Health Care Financing Administration (HCFA) overcomes serious management and technical weaknesses in three areas. First, HCFA needs to greatly improve management of its interim Medicare processing environment. Second, MTS should be better managed as an investment. HCFA has not followed practices that are essential if management is to make informed technology investment decisions, including preparing a valid cost-benefit analysis and considering viable alternatives. Third, HCFA has not adequately applied sound systems development practices necessary to reduce risk.

GAO noted that: (1) in an attempt to achieve some savings before MTS is fully operational, HCFA is now undertaking several actions to prepare for the interim operating environment while simultaneously continuing its development of the final system; (2) one interim step involved selecting one system from the initial 9 systems to process claims for Medicare part A and another for part B; (3) a second planned step entailed cutting the number of processing sites to about 20 nationwide; (4) HCFA then planned to move data processing from these 20 consolidated sites to 2 planned MTS processing sites in mid-1998; (5) during this interim period, HCFA is also relying on its contractors to revise their systems to accommodate year-2000 processing; (6) HCFA announced that following a recent management review, it was redirecting its software development contractor to focus solely on MTS' managed care module; (7) while reaffirming its faith in MTS as the best information technology to take Medicare into the next century, HCFA officials said that they will use this time to examine alternative methods for achieving their MTS goals; (8) HCFA has approached managing the environment in which it will operate for the next 3 years without adequate planning; (9) at a minimum, a schedule and estimate of resources required for transition to the interim environment, details defining contractor responsibilities, and an approach for tackling the potentially complex year-2000 issue are needed to guide HCFA's activities; (10) in such a risky environment, it is especially important that HCFA develop specific performance measures against which the interim systems can be assessed; (11) GAO also sees unnecessary risk in HCFA's reliance on its Medicare contractors to address the year-2000 issue; (12) the timing of HCFA's transition strategy makes the claims-processing contractors' task even more challenging; (13) according to HCFA's estimate, MTS will not be fully operational, at the earliest, for at least 3 years; (14) during that period, hundreds of billions of dollars will have been spent on Medicare claims; (15) HCFA's decision to establish two MTS claims-processing sites and a data operations and analysis center was made with inadequate analyses and consistent senior-level involvement in major decisions is still lacking; (16) HCFA is not ensuring that sound systems-development practices are followed; (17) HCFA has not developed plans critical to systems success, has not managed its schedule well, and has not adequately monitored its contractor's software development strategy; and (18) HCFA has not implemented a concerted program to minimize risk.