During recent congressional questioning, Rep. Stephen Horn, R-Calif., asked a federal General Accounting Office official whether HCFA may be headed down the same path as the Internal Revenue Service and the Federal Aviation Administration. The two agencies combined cost taxpayers $8 billion in failed computer systems, Horn noted.

"We are concerned that we do see certain similarities,'' said Joel C. Willemssen, the GAO director who delivered testimony on a just-released report on HCFA during a House joint hearing May 16.

The report focuses on HCFA's Medicare Transaction System and the agency's approach to the year 2000 software compatibility glitch. Those problems may combine to create a billion-dollar information technology blunder - one on par with technology fiascos at the IRS and the FAA, according to federal documents and recent congressional testimony.

HCFA planned to have the MTS system running by 1999, but year 2000 complications and other problems have cast a shadow on any optimism of a smooth transition into the next century. The MTS estimated price tag has ballooned from $151 million in 1992 to $1 billion today.

HCFA is one of many federal agencies struggling with the year 2000 dilemma in which date-coded software may cause critical computer disruptions after the turn of the century. An updated estimate on the federal fix-it cost for year 2000 is expected in upcoming weeks.

The joint hearing was held before both the House Human Resources and the House Government Management, Information and Technology Oversight subcommittees. HCFA is expected to update elected leaders within the next several months on the agency's progress in addressing the concerns. The agency is working with the Information Technology Resources Board, a group of federal employees with expertise in systems design, to assess the MTS project.

A highly critical GAO report released at the hearing portrays HCFA as an agency mired in short-sighted planning and execution with respect to the MTS project and year 2000 conversion. HCFA oversees the Medicare program, which, as the nation's largest health insurer, serves 38 million Americans with $200 billion in annual disbursements.

Already, a prime contractor has been caught in the crossfire over the MTS project. HCFA announced on April 4 that it had issued a 90-day, stop-work order for GTE Corp., the Stamford, Conn.-based software developer for MTS. GTE increasingly slipped behind schedule and appeared headed for significant cost overruns, according to HCFA records. HCFA is reassessing the system's development and evaluating GTE's future role with the project, the records state.

Congressional elected leaders scrutinized both HCFA's year 2000 plan and the MTS system at the recent hearing.

"Which [GAO report] was more critical: the IRS or HCFA's?'' asked Rep. Carolyn B. Maloney, D-N.Y.

"I'd say they're both in the same ballpark,'' said GAO's Willemssen.

While saying that the GAO report overstates his agency's mismanagement, HCFA administrator Bruce Vladeck, conceded that MTS has turned out to be a large project to swallow.

"The development and implementation of MTS, without disrupting service to beneficiaries, is the single largest task HCFA has attempted,'' Vladeck testified. "When the work on this system began, we did not fully understand the enormity of what we were undertaking. It is an exceedingly complex task.''

HCFA failed to adequately plan the execution of the MTS project, while addressing year 2000 issues, without interrupting the claims workload, the GAO report states. HCFA has not closely monitored contractors to ensure their systems will be year 2000 compliant, nor has it demanded any certification of year 2000 compatibility guarantees, the report states.

To further complicate matters, those contractors lack much incentive to make year 2000 adjustments because MTS will eliminate a need for their services, Willemssen testified.

HCFA officials' cost estimates and benefit projections for MTS were also shaky and appear to conflict with federal procurement reform mandates, Willemssen said. Without MTS, HCFA projected in 1993 that costs per claim would increase steadily. But from 1994 to 1996, those costs decreased, and HCFA's projections were found to be off by as much as 43 cents per claim. HCFA officials failed to consider alternatives to MTS, such as system upgrades, as required by the federal Office of Management and Budget, the report states.

Vladeck has defended the nearly sevenfold increase in the estimate cost of MTS to nearly $1 billion by saying the early $151 million figure was "a beginning, best guess to get the project under way.'' At that stage, it was impossible to put an accurate price on the system, which grew in complexity during the last three years.

While the stop-work order is in effect, GTE's progress on the project is far from $38.7 million in wasted money, he said. The company has completed systems specifications for handling managed care payments, enrollments, data security and other needs. If the contract is terminated, HCFA would own all of the completed work. The original estimated value of GTE's six-year, one-year option contract was $19 million.

Irving Zaks, vice president and general manager of GTE Government Systems' information systems division, said his company "has not been perfect'' in facing the MTS project's significant challenges.

Since the 1960s, he said, the Medicare claim framework evolved into a staggeringly complicated and often fractured computer-dependent collection of systems. Adding to the frustration was the computers' reliance on obsolete COBOL language. All of this added to the cost increase.

"Along the way, we continued to scratch our heads, saying the requirements can't be as big as they are,'' Zaks said.

A year ago, Vladeck spoke before a crowd of retirees and touted MTS - an information management plan intended to reduce Medicare billing fraud and save taxpayers $200 million a year. MTS would mean "less paperwork and confusion'' by unifying a system currently supported by nine computer systems and 70 private companies spread along 45 far-flung sites, Vladeck said.