Summary: 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.
