III. Organization of National Academy Effort

The Academy will establish a five-man panel to plan, organize and conduct the Academy's activities in the project. This panel will include at least three members of the Academy. Panel members, from the Academy or outside of the Academy, will be selected on the basis of individual abilities, general administrative knowledges, and broad social and administrative interests. The panel will include individuals who are experienced and interested in the relationship between the private and public sectors and the use of private contractors in the public service. Specialists in medical care administration will not be included on the premise that representation of specialized interests or points of view would inhibit establishment of the best rapport and work relationships among all parties. Technical specialists will, however, be called on for assigned tasks as the need arises. Panel members will commit a substantial portion of time to the project over the next several years.

The panel will function as a working entity rather than a body acting primarily to observe, comment and advise. Meetings of the full panel, for assessment of work status and redirection of efforts, will be held several times during the year and will last for as much as three days each.

In addition to panel meetings and structured work assignments with responsible officials and organizational entities in both the public and private sectors, the panel will spend a substantial part of its time in informal work relationships with staff involved in the Medicare program. This will include on-site visits to intermediary and carrier organizations, providers of service, and day-to-day dealings with SSA executives and staff. The purpose of these visits will be to develop an understanding of operational methods and problems, to relate these to successful administrative practice in other endeavors, and to develop information and judgments for fruitful lines of study and for recommended lines of action. Over time, individual members of the panel will be given the responsibility to focus on specific issue areas or functional parts of the project. Thus, by way of example, one of the members may apply himself to the auditing process as it affects incentives to improved contract administration. The panel will be assigned a member of the Academy staff for support activities. He will spend approximately three-fourths of his time on the panel in the preparation of materials, reports, and on a day-to-day basis to facilitate its activities. He will be responsible for administering the activities of the panel and for day-to-day liaison and work with SSA staff assigned to the project.

IV. Program of Academy Activities

The program contemplated by the Social Security Administration and the National Academy is projected, at this stage, in general terms for a period of three years, beginning in fiscal year 1971. The details of activities will be further specified in initial planning meetings of SSA officials and the Academy panel; these plans will be periodically reviewed and adjusted in other such joint meetings. At the end of three years, the Medicare program situation and the assistance rendered by this project

arrangement will be reviewed and consideration given to the possibility of further joint work by SSA and the Academy.

Such project areas as the following will be identified and structured as work efforts: (1) on-going analysis of SSA/contractor relationships (including involvements of other DHEW components), with reports on findings and recommendations published at appropriate times; (2) analysis of the role of SSA's On-Site Representatives, other techniques and devices used to measure and to optimize contractor performance, and regionalization of Medicare activities; (3) exploration of the roles of senior SSA officials in relationships with private contractors; (4) examination of the question of cost incentives and cost reduction; (5) consideration of alternatives to contract cancellation for improving contractor performance; and (6) exploration and possible testing of alternatives to the present structure of administration.

Other areas in which projects may be developed and specified are the quality and quantity of information flow within SSA and between SSA and contractors, its use for evaluation and decision-making, and its responsiveness as a system to anticipating and preventing crises; various facets of the operations of the Bureau of Health Insurance, particularly in policy formulation; and SSA staffing policies and practices and possibilities of organizational exchanges of personnel.

A special technique to improve working relationships will be two "residential" conferences, one each in fiscal years 1972 and 1973. These will be organized and planned by the National Academy, with SSA assistance, to bring senior executives and staff of SSA and its private contractors together and involve them jointly in the activities of the Academy panel. Issues will be presented and discussed in a context designed to promote a commonality of goals and a mutual pursuit of objectives in the public interest. Meetings will include approximately thirty individuals from the various organizations concerned and will be of two weeks duration. Each will address some specific set of Medicare problems with the dual goals of programming action on the issues and developing a team approach to solutions. Plans and agenda for the meetings will be based on preceding efforts to identify divergent values and define corrective lines of approach.

The Academy will also undertake a modest teaching and research program. Its purpose will be to strengthen the community of interests between graduate schools and those responsible for administering the Medicare program. It is considered quite important to develop liaison and a dialogue with the academic world. The Academy will therefore attempt to interest a small number of faculty and graduate students in the way in which the Medicare program is or could be implemented, looking to the benefit that could accrue from research undertaken particularly in administrative behavior and organizational communication. This activity will center around a graduate student summer internship program and the support of a small amount of faculty research.

V. National Academy/SSA Relationships

Formal liaison of the panel of the National Academy will be with the Commissioner of Social Security, the Deputy Commissioner, the Assistant Commissioner for Administration and the Director of the Bureau of Health Insurance. Policy determinations and overall planning to determine and to adjust the course of project activities will be made through interaction at this level. Major problems that may develop and significant recommendations will also be considered by the panel with this group of SSA officials. The panel will publish annually a report to the Commissioner describing activities and findings, and making appropriate recommendations.

The panel will make itself available to the Commissioner and these other senior SSA executives to make sure that panel members understand their objectives and problems, and to advise and comment on Medicare administrative policies and their translation into action programs. In this role, they will act not only to give counsel but also to develop ways to assist in achieving a broader understanding and acceptance of the policies established by SSA senior executives. From time to time, the panel as a whole may meet with other SSA officials and staff to consider with them various problems or lines of thought and possible action.

The Social Security Administration will establish a permanent group to work as appropriate with the Academy panel on programs and projects. It will in addition, make such administrative arrangements as may be necessary and provide appropriate administrative support to the panel. The head of this work group will act as the dayto-day SSA liaison representative with the Chairman of the panel and the Academy's staff representative.

VI. Arrangements for Funding

The preliminary estimate for the contract cost of the project over a period of threeyears is approximately $275,000. This is spread as follows for each of the years: $75,000; $100,000, $100,000. SSA intends to pursue the project by single fiscal year contracts with the National Academy, making a first contract for fiscal year 1971 in the amount of approximately $75,000.

Beyond fiscal year 1971, the Academy proposes some funding from other sources to emphasize the fiscal independence of the Academy as well as its impartiality of judgment. SSA is in agreement with the value and purpose of this approach. It is therefore planned to "step fund" the project, with SSA providing 60 percent of the contract cost in fiscal year 1972, and 30 percent in fiscal year 1973. The Academy and SSA will approach philanthropic foundations to seek the additional funds. Several of the private groups involved in Medicare may be interested in making small contributions to the project as a sign of support. If so, they will be included.

Mr. TRESNOWSKI. I am delighted to have you introduce the National Academy's report. We feel it was a fair study. There were certainly some very distinquished people on that panel, it was chaired by a gentleman who is now with the General Accounting Office. One of the critical findings of the National Academy was with regard to the evolution of the contractual relationship. In the recommendations, it said that if the parties to the contract stay on their current course, that is the negotiation process, there will be a continuing period of accommodation and what will happen is the Government will lose the advantages that they hope to gain by contracting with the private sector, that is the Government will take away the private contractors' managerial ability which raises the question of the continued use of the private sector.

In any case, as I said, both that group and the Perkins committee urged that the Government place increasing reliance on standards and results when they work with the contractors. The NAPA panel called for giving carriers an early and more significant role in establishing policy and in formulating administrative procedures.

The Perkins committee reported that with the development of better evaluation criteria and performance incentives, SSA should reduce its role in carrier decisionmaking and rely on its capacity to test carrier performance by results. In turn, the committee said the carriers should and would accept increased accountability.

Mr. STARK. Did SSA not say much more needs to be done to improve the criteria for evaluating overall carrier performance, and would you say that you now have adequate criteria to evaluate and rank intermediaries' plans?

Mr. TRESNOWSKI. I think, Mr. Chairman, this has probably been the area that you could point to as the greatest deficiency in the program. After 10 years, there are no universally acceptable criteria. Mr. STARK. Do you rank now?

Mr. TRESNOWSKI. From the Blue Cross Association point of view, we have done extensive work on that.

Mr. STARK. Could you submit to us a list which would show which are your best intermediaries and which are the worst and show us how you rank those?

[See material at end of hearing.]

Mr. TRESNOWSKI. Right. I would like to submit it in the context in which we have developed it. I do not mean to get technical but if I may for a minute explain what we have developed: The information that comes out of the Social Security Administration, whether you are looking at cost, cost distributions or productivity, are gross numbers, They simply say, "here they are top to bottom." We did what in the jargon is known as a regression analysis. That is to say examined the variables that are involved in performance and you will look at those things that impact them. We found three things that caused the variation. One, difference in cost of living by part of the country, the second had to do with the density of providers, that is, if you have all of your providers on one area versus say the State of Texas, that impacts your costs, and the third variable was bill mix, meaning if you have, as you pointed out before, more skilled nursing bills and so on. If you take those three factors as legitimate reasons for variation and you adjust your numbers, then you can weight the data. Now, that

is the process we went through. We took 14 indexes, such as cost, productivity, delays in processing, turn-around times, and so on, and we weighted them for these factors, Now, based upon that, we were able to bring those numbers down about 30 percent. That range is within essentially one standard deviation of the average. Now, our focus in that instance is not on who is high and who is low, our focus is on who exceeds that range.

What we say is within that range, there is a normal distribution; anybody exceeding that, it has to be inefficiency or at least a question is raised.

Mr. STARK. Could I get a copy of those indexes and the factors that you used? I assume, and I noticed in your report, that quite often there is a constant dollar reference in there to the cost-of-living adjustment, which I am not sure about. I would like to know if these indexes have ever been applied and the same criteria applied to other intermediaries when you rank them. I guess that is what I was saying earlier. If we applied these same criteria to "Travelers" or to the others then the system might not be as different as you indicate.

Mr. TRESNOWSKI. It has been available to the Social Security Administration. They have certainly looked at it at length. I will submit to you the full statement of what I have just given you in very brief form and the distributions that result from that. I would say the Social Security Administration has asked for a request for a proposal from outside contractors to develop a system along these lines.

Mr. STARK. I would just say the Social Security Administration has to be so inept in dealing with data processing, the SSI program just indicates their almost total inability to deal with numbers beyond 10 with their shoes and socks on. That could use some outside help. I would hope that your developing programs of this type might set a good standard for us.

Mr. TRESNOWSKI. I certainly think that I would characterize them as much more sophisticated than that. They have been very much involved in our development of this. But in any case, it is a badly needed thing that should be pursued.

As I indicated in reply to a question, you got me a bit ahead of my remarks, BCA has developed these performance ranges and weighted statistical indicators. We have used them essentially as a management tool in order to focus what resources we had on our most critical problems. In any case, the standards used by BCA have gone to cost and productivity and we have been able to save the Government and the taxpayers a great deal of money. Our emphasis is on management skills and this will continue to be a prime factor in BCA's work with the plans to bring the organization to an even greater sense of public accountability.

Those are the highlights of my report. More information, of course, is in the detailed report I submitted for the record. That would conclude my formal comments.

Mr. STARK. Thank you very much. I have some more questions that I would like to deal with.

One of the problems that has come up and brought a lot of public attention to the medicare program is the question of excessive management costs. Although we hear they are now being corrected, they