HCFA cancels pact; rethinks MTS program

After spending $43 million over the past three years to design a new system to process medical bills for the Medicare program, the Health Care Financing Administration (HCFA) last month suspended a prime contracting arrangement with GTE Government Systems Corp. and acknowledged it is not sure how to proceed with the troubled program.

HCFA's decision comes after years of struggling to design the Medicare Transaction System (MTS), which the agency envisioned as one megasystem that would replace nine computer systems the agency now uses to process medical bills for the $280 billion Medicare program.

"We are proceeding with caution," said a source at the Department of Health and Human Services, who requested anonymity. "We are going to consult with concerned members of Congress and experts at the [General Accounting Office] regarding what our next steps should be. But right now we don't know what to do. We are evaluating the situation."

One option HCFA is considering is to award several contracts to vendors to do specific jobs rather than award the entire contract to one vendor, sources speculated. "Awarding several contracts will help because it will show success sooner," said John Amrhein, HCFA's contracting officer for MTS operating sites. "There will be specific goals and accomplishments that we can point to on a step-by-step basis. That could not have happened under GTE because the contract was for an entire package for which you were not required to see anything for three years."

In 1994 HCFA awarded a $19 million contract to GTE to design the MTS software, which the agency hoped also would help detect and deter the billions of dollars in fraud and abuse in Medicare, which serves as the federal health program for the elderly.

In April HCFA ordered GTE to stop work on all but one of MTS' six software platforms for 90 days because the company had missed deadlines. The agency then extended the stop-work order until Aug. 15.

On Aug. 18 HCFA abruptly canceled the contract and the hardware portion of MTS. The program originally was to consolidate Medicare's nine processing systems - scattered among 60 sites and operated by 70 contractors - into one system. GTE was hired to design the claims processing system and evaluate the hardware platforms for MTS. In July the House passed an appropriations bill for HHS that terminated funding for MTS because HCFA had not yet determined how to reconfigure MTS to address "management shortcomings and poor contractor performance."

"We certainly regret that HCFA had decided to terminate the contract," said Robert Doolittle, GTE's public affairs manager. "Each system, for the most part, was developed independently of one another, and there were challenges in documenting those systems to begin with and in developing the systems requirements following documentation, so it was a fairly complex program."Doolittle said GTE, which was to have completed its work in 2000, will be "wrapping up" its tasks for the agency during the remainder of the year.

The withdrawal of GTE's software development contract and the subsequent halt of MTS' hardware operations is the latest twist in the ongoing saga of MTS. For years, Congress and GAO have criticized MTS for cost overruns and lack of a system design. During the latest congressional hearing held in May, GAO told the House Government Management and Information Technology Subcommittee and the House Human Resources Subcommittee that the $151 million system would cost nearly $1 billion to develop.

Joel Willemssen, director of information resources management issues at GAO and one of the sharpest MTS critics, said, "Given the problems we surfaced, [the cancellation] is no surprise. Clearly, the way this project was headed, with all the many risks and the cost escalation, HCFA probably felt that it had little choice but to do something fairly dramatic."

While HCFA goes back to the drawing board, House members are considering wholesale changes to MTS. Lawrence Halloran, staff director of the House Human Resources Subcommittee, said he does not believe Congress supports an MTS centralized claims processing program.

"I can't say that the Congress is committed to an MTS," he said. "Congress is committed to a program of integrity and provider standardization."

Halloran also noted that with commercial technology now available, HCFA should consider different options. "I think we are ignoring the obvious advantages of some of today's technology by saying that all the processing has to be done in one place," he said. "If you can buy off-the-shelf software that does the processing of claims efficiently, then maybe you don't have to have a centralized system."