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Testimony on Management Improvement at DHHS by Kevin L. Thurm
Deputy Secretary
U.S. Department of Health and Human Services

Before the House Committee on Appropriations, Subcommittee on Labor, Health and Human Services,and Education
April 9, 1997

Mr. Chairman and Members of the Subcommittee:

Good morning, Mr. Chairman and members of the Subcommittee. I am Kevin L. Thurm, Deputy Secretary of the Department of Health and Human Services. I am pleased to be here today to describe several important management improvement efforts underway in the Department of Health and Human Services and to discuss, along with my colleagues here at the table, some broader topics of interest to the Committee.

Mr. Chairman, our Department is playing a leading role in the Administration's plan to put our Federal budget in the black. But we are doing much more than that. When we target our resources responsibly and innovatively, when we team up with our private and public partners, and when we act as savvy managers, the Federal government can help lead the way in creating a stronger and healthier nation.

I am proud to say that under Secretary Shalala's leadership, we have taken a tough new approach to management -- an approach that is designed to accomplish two goals: improve our efficiency and improve the health and economic well-being of the American people. This new way of doing business includes three essential elements:

First, we are choosing priorities where we can make a real difference and focusing on the only bottom line that matters: results. We believe that our success should be measured against the yardstick of steady, broad-based improvements in the health and economic well-being of individuals, families and communities in this country, and advances in medical and public health science that benefit the entire world.

Second, we use the tools established by the Congress to better manage the Department and to ensure accountability for program results from a variety of stakeholders.

And third, we have found new ways of doing business. Here's how we're doing that: we've reached across the artificial lines that too often impeded us in the past and instead worked collaboratively -- not just within the Federal government, but with the states, businesses, non-profits, and other leaders across the nation.

OPERATION RESTORE TRUST

Operation Restore Trust (ORT) is an example of how we are identifying priority areas where we can make a difference and cooperating across organizations to ensure that we achieve desired results. ORT is an ambitious interdisciplinary project in which federal and state agencies join to fight fraud, waste, and abuse in health agencies, nursing homes, and the medical equipment and supply industry. With strong Secretarial support, the two-year demonstration project targeted five states which account for about 40 percent of the Nation's Medicare and Medicaid beneficiaries. Teams of investigators, auditors, and other professionals were assembled from the Office of the Inspector General, the Health Care Financing Administration, the Administration on Aging's ombudsman program, the Department of Justice, and the states. We also enlisted the support and participation of the public and the industries that the initiative targets. As of February 1997, 69 criminal convictions, 61 civil actions, and 50 current indictments have been obtained under Operation Restore Trust. In addition, 177 fraudulent or abusive providers have been excluded. The Inspector General has identified a total of almost $132 million in fines, recoveries, settlements, and civil monetary penalties owed the federal government. The project has resulted in numerous inspection and audit reports and proposals to change policies to correct systemic weaknesses.

This interagency and interdisciplinary approach to enforcement is a model that exemplifies the kind of coordinated planning program required by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to control health care fraud and abuse. ORT has shown how cooperation between departments, agencies, and all levels of government can increase overall effectiveness. Under HIPAA, HHS will continue the activities piloted in ORT, such as the use of state survey nurses in detecting fraud and the training of state Aging Ombudsmen in fraud detection. Under ORT, the Department has also developed a tracking and monitoring system that allows for the tracking of accounts receivable owed to the federal government and actual collections received.

MANAGING FOR RESULTS

HHS is committed to improving program accountability and information through aggressive implementation of the Government Performance and Results Act (the Results Act) beginning with the formulation of our strategic plan. We have completed a draft HHS strategic plan and will begin consulting shortly with our partners, stakeholders and Congress. Initially we will mail the plan to over 500 national constituent organizations and Indian tribes and ask for their views on the draft plan. Subsequently, we will hold a series of meetings with key groups to review and discuss the plan. We are also sending the draft plan to our appropriate Congressional committees and anticipate a productive dialogue and exchange with the committees on the plan. Simultaneously, our Regional Directors will be consulting with state and local organizations and constituencies in their regions. After we have completed our consultations sometime in early June, we will analyze the views and incorporate them as appropriate in the development of a final strategic plan. A final version of the plan will be submitted to Congress as required by September 30.

The Results Act will be a powerful tool as we strive to manage for results at HHS. We have already applied the concepts of the Results Act last year as part of our FY 1998 budget process when 12 Operating Divisions submitted performance plans for at least one program -- one year ahead of schedule. In all, 24 performance plans were submitted and were an additional source of useful information. HHS program managers benefited from the effort to identify what constitutes success in our programs. We see improved communication with program partners and stakeholders, such as states, local governments and tribes, and this is key to the success of our programs. This process has taught our program managers that, while the performance concepts the Results Act espouses are simple, the implementation of these concepts is not. As we improve the usefulness of program performance information in this iterative process, we will increasingly use these results to make program and budget decisions.

We are moving forward from the pilot phase to implementing the Results Act for ALL of our programs. We face a significant challenge in implementing the Results Act in such a decentralized and diverse Department as HHS. To meet this challenge, we have taken a flexible approach and have chosen to implement the Results Act "at the grass roots" in our Operating Divisions at the program level. This approach, while flexible, stresses first having the programs and partners deciding what they want to achieve and then using performance information to determine actual program results. We fully expect our Operating Divisions to have complete Results Act information within tograms achieve their goals.

IMPLEMENTATION OF THE CHIEF FINANCIAL OFFICERS ACT

Mr. Chairman, HHS accounts for approximately 20 percent of the Federal budget, with $327 billion in expenditures in FY 1996. Managing resources of this magnitude is a serious responsibility, and improving financial management is a top priority at HHS. Through the innovative use of technology, continuous improvement of our financial systems and financial reporting, and through new business policies that move us toward more competitive, market- oriented organizations, HHS is strengthening its financial management to meet the challenges of the years ahead.

The implementation of the Chief Financial Officers (CFO) Act has significantly strengthened the Department's financial management. The scope of HHS' financial statement audits was expanded for FY 1996 to include virtually all of our accounts. In April, we expect to receive the final audit opinions for ACF, FDA, HRSA, IHS, and SAMHSA. HCFA's final audit opinion is expected in June. Substantial audit work was also performed at NIH and CDC, and we have received drafts of those reports to management. We also had audit work performed to evaluate the internal controls of several systems at the Program Support Center which provide accounting and other administrative services to other Operating Divisions. The audit of those systems revealed strong internal controls in those "shared systems."

Under the CFO 5-Year Plan, HHS has continued to make grograms achieve their goals.

IMPLEMENTATION OF THE CHIEF FINANCIAL OFFICERS ACT

Mr. Chairman, HHS accounts for approximately 20 percent of the Federal budget, with $327 billion in expenditures in FY 1996. Managing resources of this magnitude is a serious responsibility, and improving financial management is a top priority at HHS. Through the innovative use of technology, continuous improvement of our financial systems and financial reporting, and through new business policies that move us toward more competitive, market- oriented organizations, HHS is strengthening its financial management to meet the challenges of the years ahead.

The implementation of the Chief Financial Officers (CFO) Act has significantly strengthened the Department's financial management. The scope of HHS' financial statement audits was expanded for FY 1996 to include virtually all of our accounts. In April, we expect to receive the final audit opinions for ACF, FDA, HRSA, IHS, and SAMHSA. HCFA's final audit opinion is expected in June. Substantial audit work was also performed at NIH and CDC, and we have received drafts of those reports to management. We also had audit work performed to evaluate the internal controls of several systems at the Program Support Center which provide accounting and other administrative services to other Operating Divisions. The audit of those systems revealed strong internal controls in those "shared systems."

Under the CFO 5-Year Plan, HHS has continued to make great strides in this area:

  • The Department increasingly uses more electronic methods through which to conduct day-to-day business and improve its program management. In FY 1996, for example, funds were transferred electronically for 90 percent of employee salary payments and for 99 percent of grants payments, totaling over $170 billion, for HHS and other agencies we service through cross-servicing arrangements.

  • We have fully automated the vaccine purchases in the Vaccines for Children Program. In FY 1996, we placed 8,742 electronic delivery orders for $361.5 million. In a typical month, we also processed 1,700 invoices electronically for $5 million, thus hastening assistance to children and providing companies with faster payments.

  • Last year, the use of the government credit card for making small purchases increased throughout HHS: sales volume exceeded $38 million - compared to $25 million in FY 1995 -- on more than 100,000 transactions. Our travel management system reduced paperwork and staff time through the automation of travel authorizations and advances and voucher preparation and payments. The system is being expanded to process items such as local travel payments and transit subsidy payments.

  • We are developing a centralized grants tracking system covering $139 billion in HHS grant awards. By consolidating grants information from HHS' major grants information systems and financial systems, this new system will be able to analyze trends in historical grants data; support development of a grants performance measurement system; and respond quickly and accurately to information requests.

  • HHS will be implementing new cost accounting standards to enhance the linkage of program performance measures with financial statements. This will enable us to meet the requirements of the Federal Accounting Standards Advisory Board (FASAB) and the Federal Financial Management Improvement Act of 1996.

  • As we work to ensure the effectiveness of our dollars, HHS has long been committed to recovering all debts owed to us in a timely and efficient manner. Indeed, we consider debt management to be one of the cornerstones in our responsibilities to the public that the funds we disburse are spent and accounted for properly. HHS' debt management practices have provided additional protection to the federal government through our active assessment of late payment charges on interest, administrative cost charges, and additional penalties on debts that are not timely paid. Our collection methods are constantly reviewed for both effectiveness and cost, with many debts referred to private collection agencies and credit bureaus. This year we will expand participation in the Tax Refund Offset Program and work with Treasury to improve collection programs and tools under the Debt Collection Improvement Act of 1996. We hope to see the Program Support Center become a Treasury designated Debt Collection Center this year.

    In our continued efforts to be more accountable to Congress and the taxpayers for the dollars entrusted to us, as well as being responsive to the new requirements under the Government Management Reform Act, we plan to publish the first HHS Annual Accountability Report early this summer. One of its most important components will be the first-ever Department-wide audited financial statements. The report will also contain excerpted information from several other financial management and related reports. In the Accountability Report, we plan to link program, financial, and budget information and the application of cost accounting standards to our programs will provide important information about the cost of our programs, and will also help us to improve our financial reporting. We plan to explain where the money came from, where it went, and what we did to make sure it was spent effectively. As the Results Act performance reports for all of our programs are developed, we will have more information for future accountability reports to help us answer the real "bottom line" question: How can our dollars best be spent to ensure America's health and support its human needs?

    As you can see, the Department is firmly committed to a vital and progressive financial management program, while meeting the challenges of a reduced workforce, tighter budgets, greater information needs and the advancements in technology.

    CROSS SERVICING AND FRANCHISING

    We have further improved our operations by moving toward more competitive, market-oriented organizations. We've created an innovative new Operating Division in the Department - the Program Support Center - whose sole purpose is to provide administrative services on a fee-for-service basis to customers throughout HHS and other federal agencies. The PSC combines the administrative service activities formerly located in the Office of the Secretary and funded under the OS Working Capital Fund -- with activities formerly in the Office of the Assistant Secretary for Health, the Food and Drug Administration, the Health Resources and Services Administration, and the Indian Health Service -- and funded by the PHS Service and Supply Fund.

    In addition to HHS offices and agencies, PSC customers include 12 other executive departments, 12 independent federal agencies, and the General Accounting Office. This agency is internally financed; under this arrangement, fees and service levels are approved by a Board of Directors consisting of representatives of both customers and service providers. This customer-driven Board provides an incentive for competitive pricing of quality services over the long term.

    Along with all of these changes that are unique to HHS, we have continued to work toward implementation of government-wide improvements through our participation in cross-servicing arrangements with other federal agencies and in other interagency initiatives.

    In accordance with the Government Performance and Results Act, for example, the HRSA Division of Federal Occupational Health has been approved by OMB as a franchise fund pilot. Franchising is the application of competition and marketing principles to the delivery of common administrative services. FOH is an excellent candidate for franchising because it has been in head-to-head competition with the private sector for some time and is a leader in federal cross-servicing with interagency agreements involving over 160 federal departments and agencies with projected annual expenditures and reimbursements of $100 million in FY 1996. FOH has been successful in retaining 97 percent of its customer base over the most recent four-year period (1992-1996).

    YEAR 2000 CONVERSION

    Secretary Shalala and the HHS Chief Information Officer (CIO) have made the Year 2000 conversion issue a top priority. The CIOs in the HHS Operating Divisions are responsible for developing and organizing their respective conversion plans. The HHS CIO has personally met, and will continue to meet regularly, with each Operating Division CIO individually to determine their progress and problems. All Operating Divisions have determined the criticality of their systems and what they intend to do to make them Year 2000 compliant. Six Operating Divisions will be fully compliant by the end of 1997, one by 1998, and the rest by the end of the first quarter 1999.

    There are three primary issues affecting HHS' conversion efforts: reliable budget figures, interfaces with external systems, and warranties to ensure compliance for all purchases of hardware and software.

    • Budget Estimates-- HHS estimates that its conversion costs over the next three years (FY 1997-FY 2000) will be $90.7 million, with HCFA ($31.5 million), NIH ($25.3 million), and CDC ($14.3 million) responsible for the bulk (78%) of the costs. Conversion costs for the other Operating Divisions are estimated to be relatively small. Most of HHS' conversion activities are currently being absorbed within the Operating Divisions' existing budgets through reallocation of funds. The exception is HCFA. In the FY 1998 budget request before the Committee, the Department has requested $15 million for HCFA to implement the necessary system changes to accommodate the millennium date changes to internal systems.

    • Interfaces with External Systems -- The Department is working with the National Association of State Information Resources Executives (NASIRE) to ensure state Year 2000 compliance. The strategy for dealing with issues related to interfaces with external systems varies by Operating Division:

    • CDC has developed a compliant data format for data exchange with its external partners but has also developed a process by which they intercept any noncompliant or compliant but still incompatible data and make it compatible with their own.

    • formats that their external partners must use if they wish to exchange data with them.

    • HCFA has ensured that the Common Working File, the Medicare Part A and Part B contractor systems have been fully funded to enable them to complete their millennium changes. (Part B standard systems were funded for analysis and will be fully funded for changes soon.)

    • Warranties - Most information resources management and procurement officials are using Year 2000 compliance and warranty language in existing contracts and new procurement requests for proposals and purchase orders. Programming contracts have been modified to include this language. Future acquisitions of commercial software products will include similar terms and conditions of Year 2000 compliance and warranty.
    QUALITY OF WORK LIFE

    Our employees are our most valuable resource and a major reason for our success. We need their dedication, commitment, and creativity now more than ever. In late December 1996, the Secretary launched her Quality of Work Life Strategy. The Quality of Work Life Strategy has three objectives: improve employee satisfaction; strengthen workplace learning; and better manage ongoing change and transition. We believe that when we meet these objectives, individual and organizational performance will improve and we will provide even better service to our customers and partners. To meet these objectives and achieve these outcomes, the Department will:

    • reconfirm our commitment to streamline and modernize without involuntary separations;

    • establish a model work and family center at headquarters to coordinate work and family programs and serve as a catalyst for improving work and family programs across the department

    • increase our investment in workplace learning;

    • improve skills of our managers and supervisors, including their ability to manage change and transition; -

    • organizational effectiveness and the quality of work life; and

    • ask the HHS Union-Management Partnership Council to serve as the steering group for implementation of the Quality of Work Life Strategy and to report annually on the status of the quality of work life of HHS employees.

    The Secretary has designated the week of May 12th as Quality of Work Life Week, during which she will communicate with each HHS employee -personally via satellite, video-conference, or video tape -- concerning her vision and overarching goals for the Department, challenges facing us, and actions taken or underway to improve the quality of work life. For example, the Department has now discontinued the use of sequential sign-in/sign-out time- keeping procedures. As part of Quality of Work Life Week, we will conduct Departmental forums on topics such as change and transition management and family-friendly work arrangements.

    In keeping with the President's commitment to the American people to reinvent and reshape the size of government, the Department has continued to streamline organizational structures and focus our efforts on reducing employment while preserving the resources necessary to carry out our missions. The Department as a whole ended FY 1996 at a comparable level of 57,629 FTE, which is 1,600 FTE under the budget target for the year. Since FY 1993, the Department has reduced staffing levels by approximately 7,600 FTE, or 12 percent. As we struggle to meet budget targets, we will be looking for innovative ways of financing our streamlining plans for this and future years.

    Our efforts have led to better service to our customers, reduced bureaucracy and red tape, increased flexibility in the administration of our programs, and internal changes that help the Department work better to save taxpayer dollars. For example, as a result of a recent study of our data processing centers, we are consolidating our data operations, resulting in an expected savings of $57.3 million over five years.

    FY 1998 DEPARTMENT MANAGEMENT BUDGET REQUEST

    The FY 1998 budget request for Departmental Management includes approximately $172 million in appropriated funds -- $24.3 million (or 13 percent) below the comparable FY 1997 funding. The DM components directly administer programs providing legal services, appellate reviews, and adjudication in support of all HHS Operating Divisions and assist the Secretary in providing executive leadership over the organizations, programs, and activities of the Department. In addition, the new Office of Public Health and Science advises the Secretary on public health and science issues; provides senior professional leadership in the Department on population-based public health and clinical preventive services; provides leadership on cross-cuffing Departmental public health and science initiatives; directs the program offices within OPHS; and, at the direction of the Secretary, provides assistance in managing the implementation of Secretarial decisions for the PHS Operating Divisions. This request includes $3.4 million in payroll and other administrative increases offset by $27.8 million in reductions in the Office of Emergency Preparedness and for one-time funding approved by the Congress in FY 1997 for extramural construction grants in the Office of Minority Health and for a study on the effects of medical savings accounts. This funding level will support 1,159 FTE -- the same level as FY 1997.

    Mr. Chairman, I want to thank this committee for providing us the flexibility contained in the FY 1997 appropriations bill and to assure you that the Secretary intends to exercise that flexibility with due diligence. I will be happy to answer any questions that you may have about these issues or other topics of interest to the Committee.

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