MMIS PROGRAMS WERE PROMOTED WITH SUBSTANTIAL FEDERAL FUNDING IN THE EARLY 1970'S TO SPOT MEDICAL SERVICE PATTERNS AMONG MEDICAID PROVIDERS AND BENEFICIARIES AND MONITOR CLAIMS PROCESSING IN ORDER TO IDENTIFY AREAS OF POSSIBLE FRAUD AND PROGRAM DEFECTS. THE MMIS CONCEPT IS GOOD AND COULD RESULT IN CONSIDERABLE SAVINGS, BUT THE SYSTEM ALSO HAS POTENTIAL FOR ABUSE BECAUSE WINNING CONTRACTORS SOMETIMES BECOME FISCAL AGENTS FOR STATE MEDICAID AGENCIES. THE DEPARTMENT OF HEALTH, EDUCATION, AND WELFARE (HEW) CERTIFIED MMIS PROGRAMS IN 11 STATES BY 1976, AND SEVERAL STATES PLAN TO DEVELOP MMIS PROGRAMS. THE OIS IS RESPONSIBLE FOR APPROVING STATE PROPOSALS FOR MMIS BEFORE FEDERAL FUNDS ARE ALLOCATED. A REVIEW SHOWED THAT THE OIS DID NOT HAVE THE NECESSARY FINANCIAL DATA TO MANAGE ITS PROGRAM PROPERLY AND DID NOT VERIFY WHETHER STATES WERE USING THE SOPHISTICATED DATA GENERATED BY MMIS. THE SENATE SUBCOMMITTEE WAS CONCERNED WITH THE OIS BECAUSE IT WOULD PLAY A MAJOR ROLE IN A NATIONAL HEALTH INSURANCE PROGRAM. AN EXAMINATION OF TWO DECISIONS MADE BY THE OIS IN WASHINGTON AND TEXAS REVEALED QUESTIONABLE COMPETITIVE PROCEDURES AND FRAGMENTATION OF COMPUTER SYSTEMS WITHIN ONE STATE. THE OIS APPROVED TWO MMIS PROGRAMS IN TEXAS, CONTRARY TO THE RECOMMENDATIONS OF AN HEW EVALUATIVE TEAM, AND SET A PRECEDENT FOR FRAGMENTED SYSTEMS WHICH INCREASE FEDERAL COSTS. THE INVESTIGATORS BELIEVED THAT CHARLES CUBBLER, AN HEW OFFICIAL, STRONGLY INFLUENCED THE TEXAS DECISION. APPENDED EXHIBITS INCLUDE FEDERAL REGULATIONS ON MMIS FUNDING, A BACKGROUND PAPER ON MMIS PREPARED BY THE LIBRARY OF CONGRESS, AND CORREPSONDENCE BETWEEN THE COMMITTEE AND HEW. (MJM)