oversight

Indian Health Service: Action Needed to Ensure Equitable Allocation of Resources for the Contract Health Service Program

Published by the Government Accountability Office on 2012-06-15.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States Government Accountability Office

GAO                          Report to Congressional Addressees




June 2012
                             INDIAN HEALTH
                             SERVICE
                             Action Needed to
                             Ensure Equitable
                             Allocation of
                             Resources for the
                             Contract Health
                             Service Program


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GAO-12-446
                                                June 2012

                                                INDIAN HEALTH SERVICE
                                                Action Needed to Ensure Equitable Allocation of
                                                Resources for the Contract Health Service Program
Highlights of GAO-12-446, a report to
congressional addressees




Why GAO Did This Study                          What GAO Found
IHS, an agency in the Department of             The Indian Health Service’s (IHS) allocation of contract health services (CHS)
Health and Human Services (HHS),                funds varied widely across the 12 IHS geographic areas. In fiscal year 2010,
provides health care to American                CHS funding ranged from nearly $17 million in one area to more than $95 million
Indians and Alaska Natives. When                in another area. Per capita CHS funding for fiscal year 2010 also varied widely,
care at an IHS-funded facility is               ranging across the areas from $299 to $801 and was sometimes not related to
unavailable, IHS’s CHS program pays             the areas’ dependence on CHS inpatient services, as determined by the
for care from non-IHS providers if the          availability of IHS-funded hospitals. The allocation pattern of per capita CHS
patient meets certain requirements and          funds has been generally maintained from fiscal year 2001 through fiscal year
funding is available. The Patient
                                                2010. This is due to the reliance on base funding—which incorporates all CHS
Protection and Affordable Care Act
                                                funding from the prior year to establish a new base each year—and accounts for
requires GAO to study the
administration of the CHS program,
                                                the majority of funding. In fiscal year 2010, when CHS had its largest program
including a focus on the allocation of          increase and base funding was the smallest proportion of funding for any year,
funds. IHS uses three primary methods           base funding still accounted for 82 percent of total CHS funds allocated to areas.
to determine the allocation of CHS              Further, allocations of program increase funds are largely dependent on an
funds to the 12 IHS geographic area             estimate of CHS service users that is imprecise. IHS counts all users who
offices: base funding, which accounts           obtained at least one service either funded by CHS or provided directly from an
for most of the allocation; annual              IHS-funded facility during the preceding 3-year period. This count therefore
adjustments; and program increases,             includes an unknown number of individuals who received IHS direct care only
which are provided to expand the CHS            and who had not received contract health services.
program. GAO examined (1) the extent
to which IHS’s allocation of CHS                IHS has taken few steps to evaluate funding variation within the CHS program
funding varied across IHS areas, and            and IHS’s ability to address funding variations is limited by statute. IHS officials
(2) what steps IHS has taken to                 told GAO that the agency has not evaluated the effectiveness of base funding
address funding variation within the            and the CHS Allocation Formula. Without such assessments, IHS cannot
CHS program. GAO analyzed IHS                   determine the extent to which the current variation in CHS funding accurately
funding data, reviewed agency                   reflects variation in health care needs. While IHS has formed a workgroup to
documents and interviewed IHS and               evaluate the existing formula for allocating program increases, the workgroup
area office officials.                          recommended, and the Director of IHS concurred, that the CHS Allocation
                                                Formula for distributing program increases would not be evaluated until at least
What GAO Recommends                             2013. The workgroup members maintained that the CHS program had only
GAO suggests that Congress consider             begun receiving substantial increases in fiscal years 2009 and 2010, and the full
requiring IHS to develop and use a              impact of these increases needed to be reviewed before making
new method to allocate all CHS                  recommendations to change the formula. However, GAO found that IHS has
program funds to account for variations         used the formula to allocate program increases, at least in part, in 5 years since
across areas, notwithstanding any               2001. GAO also concluded that, because of the predominant influence of base
restrictions now in federal law. GAO            funding and the relatively small contribution of program increases to overall CHS
also recommends, among other things,            funding, it would take many years to achieve funding equity just by revising the
IHS use actual counts of CHS users in           methods for distributing CHS program increase funds. Further, federal law
methods for allocating CHS funds.               restricts IHS’s ability to reallocate funding, specifically limiting reductions in
HHS concurred with two of GAO’s                 funding for certain tribally-operated programs, including some CHS programs,
recommendations, but did not concur             and imposing a congressional reporting requirement for proposed reductions in
with the recommendation to use actual           base funding of 5 percent or more. According to IHS officials, no such IHS
counts of CHS users. GAO believes               proposal to reallocate base funding has ever been transmitted to the Congress.
that its recommendation would provide
a more accurate count of CHS users.
View GAO-12-446. For more information,
contact Kathleen M. King at (202) 512-7114 or
kingk@gao.gov.

                                                                                         United States Government Accountability Office
Contents


Letter                                                                                      1
              Background                                                                   5
              IHS’s Allocation of CHS Funds Has Varied across IHS Areas                   15
              IHS Has Taken Few Steps to Address the Funding Variation within
                the CHS Program                                                           21
              Conclusions                                                                 24
              Matter for Congressional Consideration                                      25
              Recommendations for Executive Action                                        25
              Agency Comments and Our Evaluation                                          26

Appendix I    Comments from the Department of Health and Human
              Services                                                                    29



Appendix II   GAO Contact and Staff Acknowledgments                                       32



Table
              Table 1: CHS Funding Allocated to IHS Area Offices, Fiscal
                       Year 2010                                                          16


Figures
              Figure 1: Counties in the 12 IHS Areas                                        7
              Figure 2: IHS’s Primary Methods of Determining the Allocation of
                       CHS Funds to the Area Offices                                      11
              Figure 3: Total CHS Funds Allocated to IHS Area Offices, Fiscal
                       Years 2001 through 2010                                            15
              Figure 4: Per Capita CHS Funding in Constant Dollars, Fiscal Years
                       2001 and 2010, by Area                                             19
              Figure 5: Allocation of CHS Funds, Fiscal Year 2010                         20




              Page i                                GAO-12-446 Contract Health Service Funding
Abbreviations

CHS               Contract Health Services
HHS               Department of Health and Human Services
IHS               Indian Health Service



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Page ii                                        GAO-12-446 Contract Health Service Funding
United States Government Accountability Office
Washington, DC 20548




                                   June 15, 2012

                                   Congressional Addressees

                                   Adequate access to health care services for American Indians and Alaska
                                   Natives, including equitable access to care for those living in different
                                   geographic areas, has been a long-standing concern. 1 The Indian Health
                                   Service (IHS) within the Department of Health and Human Services
                                   (HHS) is the federal agency overseeing health care services to
                                   approximately 1.9 million American Indians and Alaska Natives. Direct
                                   care services are those provided directly at hospitals, health centers, or
                                   health stations that may be federally or tribally operated 2 and are located
                                   in 12 federally designated geographic areas overseen by IHS area
                                   offices. 3 When services are not accessible or available at an IHS or tribal
                                   facility, IHS or the tribes may purchase them from other providers through
                                   the Contract Health Services (CHS) program. The CHS program is
                                   administered at the local level by individual CHS programs generally
                                   affiliated with IHS-funded facilities in each area. 4 These individual CHS
                                   programs may be federally or tribally operated.




                                   1
                                    For example, see GAO, Indian Health Service: Health Care Services Are Not Always
                                   Available to Native Americans, GAO-05-789 (Washington, D.C.: Aug. 31, 2005); and
                                   Examining Tribal Programs and Initiatives Proposed in the President’s Fiscal Year 2011
                                                                                        th
                                   Budget, Before the Committee on Indian Affairs, 111 Congress 10 (2010) (statement of
                                   Yvette Roubideaux, Director, Indian Health Service).
                                   2
                                    Under the Indian Self-Determination and Education Assistance Act, as amended,
                                   federally recognized Indian tribes can enter into self-governance compacts or self-
                                   determination contracts with the Secretary of HHS to take over administration of IHS
                                   programs provided for the benefit of Indians and because of their status as Indians and
                                   previously administered by IHS on their behalf. Self-governance compacts allow tribes to
                                   consolidate and assume administration of all programs, services, activities, and
                                   competitive grants administered by IHS, or portions thereof, while self-determination
                                   contracts allow tribes to assume administration of a program, programs, or portions
                                   thereof. See 25 U.S.C. §§ 450f(a) (self determination contracts), 458aaa-4(b)(1) (self-
                                   governance compacts).
                                   3
                                    IHS’s 12 areas are Aberdeen, Alaska, Albuquerque, Bemidji, Billings, California,
                                   Nashville, Navajo, Oklahoma City, Phoenix, Portland, and Tucson.
                                   4
                                    For purposes of this report, we use the term “individual CHS program” to refer to an
                                   organizational unit that IHS calls an “operating unit,” “service unit,” or “facility.”




                                   Page 1                                         GAO-12-446 Contract Health Service Funding
Funding for the CHS program increased from $498 million in fiscal year
2005 to $779 million in fiscal year 2010. CHS funds are allocated to each
of the 12 area offices, which then allocate those funds to about 66
individual federally administered CHS programs and about 177 individual
tribally operated CHS programs. 5 IHS allocates the majority of CHS funds
to the IHS area offices as “base funding,” in which the IHS area offices
distribute to each individual CHS program the same amount of CHS funds
as they did in the previous year. 6 Since the 1980s, we have reported that
IHS’s base funding method contributes to funding disparities and
inequities. For example, in 1982, we recommended that IHS abandon its
reliance on base funding in order to distribute its funds more equitably;
IHS did not agree with the recommendation. 7 Similarly, in 1991, we
suggested that the Congress should consider requiring IHS to distribute
its funds with methods that give greater weight to measures of need; the
Congress has not acted on our suggestion. 8

Some IHS areas and individual CHS programs have the resources to
support more health care services than others. For example, in a recent
report we found that some federal CHS programs we surveyed were able
to pay for all eligible CHS services in fiscal year 2009, while other
programs reported that they were unable to fund even all of the highest-
priority services for the full fiscal year. 9 Similarly, IHS has found
substantial differences across areas with its own measure of health care



5
 Congress has placed restrictions on the requirements that agencies may impose
on tribes carrying out self-determination contracts or self-governance compacts.
(See 25 U.S.C. §§ 450k(a) (self-determination contracts) and 458aaa-16 (self-governance
compacts.) Consequently, tribally operated CHS programs are not generally subject to the
same policies, procedures, and reporting requirements as federal CHS programs.
6
 Federally operated CHS programs receive allocations of funds which authorize
obligations and tribally operated CHS programs receive lump sum payments. In this
report, we refer to both these allocations and these payments as distributions of funds by
the area offices.
7
 GAO, Indian Health Service Not Yet Distributing Funds Equitably Among Tribes,
GAO/HRD-82-54 (July 2, 1982).
8
 GAO, Indian Health Service: Funding Based on Historical Patterns, Not Need,
GAO/HRD-91-5 (Feb. 21, 1991).
9
 We also found that IHS did not have accurate data on deferrals and denials for CHS
services from which to estimate funding needs for the CHS program. GAO, Indian Health
Service: Increased Oversight Needed to Ensure Accuracy of Data for Estimating Contract
Health Services, GAO-11-767 (Washington, D.C.: Sept. 23, 2011).




Page 2                                         GAO-12-446 Contract Health Service Funding
resources, the Federal Disparity Index. The index is intended to estimate
health care resources available from all sources (including other sources
of health care funding such as private health insurance and Medicare or
Medicaid) and account for differences in health care needs across the
areas. In fiscal year 2010, the index estimated that resources available in
the most well-resourced of its 12 areas, relative to their need, were nearly
50 percent higher than in the least-resourced area and that the most well-
resourced individual CHS programs had resources more than three times
greater than that of the programs with the least resources.

In 2001, the Director of IHS commissioned a CHS workgroup to develop a
CHS formula to allocate funding increases above base funding amounts
equitably across IHS areas according to variations in need (such as
health care costs and access to services) across individual CHS
programs. This workgroup reported a wide range in dependence on CHS
for IHS-funded medical services among IHS areas. It cited examples of
two areas in which CHS eligible patients were totally reliant on CHS for
inpatient care, 10 and two additional areas where CHS eligible patients had
very limited direct care options for inpatient services. In contrast, IHS
officials reported that as few as 10 percent of potential CHS users
actually used CHS services in two other areas.

The Patient Protection and Affordable Care Act required GAO to examine
the administration of the CHS program, including the allocation of funds. 11
Based on discussions with the committees of jurisdiction, we agreed to
focus on IHS’s allocation of CHS program funds to IHS area offices. In
this report, we examined (1) the extent to which IHS’s allocation of CHS
funding varied across IHS areas, and (2) what steps IHS has taken to
address funding variation within the CHS program.

To determine the extent to which CHS funding changed over time, we
obtained and analyzed CHS allocation data from IHS for fiscal years 2001
through 2010. To determine the extent to which the IHS funding allocation
varied across IHS areas, we obtained and analyzed CHS and direct care



10
 These two areas do not have an inpatient IHS hospital.
11
  Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 10221, 124 Stat.
119, 935 (2010) (enacting S. 1790 as reported by the S. Comm. on Indian Affairs of the
                                                                   th
Senate in December 2009 into law with amendments); S. 1790, 111 Cong. §§ 137, 199
(as reported by S. Comm. on Indian Affairs. Dec. 16, 2009).




Page 3                                       GAO-12-446 Contract Health Service Funding
funding allocation data from IHS for fiscal years 2001 and 2010. For these
years, we also obtained IHS’s active user population estimates, which
IHS defines as all individuals who received at least one direct care or
contract care inpatient stay, outpatient, ambulatory, or dental care service
during the preceding 3-year period. We used these data to calculate per
capita CHS and direct care funding for each of the IHS areas. To examine
IHS efforts to address funding variations within the CHS program, we
reviewed IHS documents and interviewed IHS, area and tribal officials
familiar with IHS efforts to address CHS funding variations. To determine
the reliability of the data provided by IHS, we reviewed IHS summary
CHS allocation reports for fiscal years 2001 through 2010 and data on the
IHS user population used during fiscal years 2001 and 2010, and
examined consistency in terms of base funding and the application of
program increases. We also discussed the data with IHS officials, and
discussed CHS data with officials from six IHS area offices. 12 We
determined that the IHS data were sufficiently reliable for our purposes.

To address the extent to which funding varied and what steps IHS has
taken to address that variation, we also reviewed IHS policies and
procedures in its Indian Health Manual for monitoring the allocation of
CHS program funds to area offices and then to individual CHS programs.
The Indian Health Manual is the reference for IHS employees regarding
IHS-specific policy and procedural instructions for the delivery of health
care services to American Indians and Alaska Natives. 13 We compared
these policies and procedures to the standards described in Standards for
Internal Control in the Federal Government and Internal Control
Management and Evaluation Tool. 14 We reviewed documents and
interviewed IHS headquarters officials about how base funding was



12
  We selected a judgmental sample of six IHS areas using a combination of criteria such
as high and low per capita CHS funding, active user population, total CHS funding, and
proportion of individual CHS programs with access to hospitals, and geographic location.
We selected the Billings, California, Nashville, Navajo, Oklahoma, and Portland area
offices for interviews.
13
  Part 2, Chapter 3 of the Indian Health Manual contains IHS’s policies and procedures for
implementing the CHS program.
14
  GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
(Washington, D.C.: Nov. 1999) and Internal Control Management and Evaluation Tool,
GAO-01-1008G (Washington, D.C.: Aug. 2001). Internal control is synonymous with
management control and comprises the plans, methods, and procedures used to meet
missions, goals, and objectives.




Page 4                                        GAO-12-446 Contract Health Service Funding
             allocated to area offices and individual CHS programs for fiscal years
             2001 through 2010, how the CHS Allocation Formula was applied, and
             how IHS oversees the allocation of CHS funds. We also interviewed
             officials from six selected area offices about their methods for allocating
             CHS funds to individual CHS programs, oversight of allocations, and
             reporting of final allocations to IHS.

             We conducted this performance audit from December 2010 to June 2012
             in accordance with generally accepted government auditing standards.
             Those standards require that we plan and perform the audit to obtain
             sufficient, appropriate evidence to provide a reasonable basis for our
             findings and conclusions based on our audit objectives. We believe that
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             Federal and tribal CHS programs in each of IHS’s 12 areas pay for
Background   services from external providers if services are not available directly
             through IHS-funded facilities, if patients meet certain requirements, and if
             funds are available. IHS uses three primary methods—base funding,
             annual adjustments, and program increases—to allocate CHS funds to
             the area offices.




             Page 5                                  GAO-12-446 Contract Health Service Funding
CHS Program      IHS administers contract health services through 12 IHS area offices,
Administration   which include all or part of 35 states where many American Indian and
                 Alaska Natives reside. (See fig. 1.) IHS uses CHS funds to pay for
                 services from a variety of health care providers, including hospital- and
                 office-based providers. 15 IHS, among other things, sets program policy for
                 and allocates CHS program funds to the area offices. The area offices
                 distribute funds to individual federally operated and tribally operated CHS
                 programs that purchase contract care services from outside providers. 16
                 There can be multiple individual CHS programs within an area. Tribes
                 currently administer 177 of the 243 (73 percent) individual CHS programs
                 and receive about 54 percent of IHS’s funding for CHS. In addition to
                 receiving federal funding through IHS, the tribes may provide
                 supplemental funds to the CHS programs they administer. 17




                 15
                   The CHS program can purchase a wide range of health care services, including hospital
                 care, specialty physician services, outpatient care, laboratory, dental, radiology,
                 pharmacy, and transportation services.
                 16
                   Area offices are also responsible for monitoring the CHS programs, establishing
                 procedures within the policies set by IHS, and providing CHS programs with guidance and
                 technical assistance.
                 17
                   Unlike federal CHS programs, tribal CHS programs are able to supplement their CHS
                 program funds with reimbursements from Medicare, Medicaid, and private insurance for
                 services provided at tribal health care facilities. Tribal CHS programs may also
                 supplement their CHS funding with tribal funds earned from tribal businesses or
                 enterprises. Medicare is the federal government’s health care insurance program for
                 individuals aged 65 and older and for individuals with certain disabilities or end-stage renal
                 disease. Medicaid is a jointly funded federal-state health care program that covers certain
                 low-income individuals and families.




                 Page 6                                          GAO-12-446 Contract Health Service Funding
Figure 1: Counties in the 12 IHS Areas




                                         Patients must meet certain eligibility, administrative, and medical priority
                                         requirements to have their services paid for by the CHS program.
                                         Generally, to be eligible to receive services through the CHS program,
                                         patients must reside on a reservation or within a reservation’s federally
                                         established CHS Delivery Areas and be members of a tribe or tribes
                                         located on that reservation or maintain close economic and social ties



                                         Page 7                                  GAO-12-446 Contract Health Service Funding
with that tribe or tribes. 18 In addition, if there are alternate health care
resources available to a patient, such as Medicaid and Medicare, these
resources must pay for services first because the CHS program is
generally the payer of last resort. 19 If a patient has met these
requirements, a program committee (often including medical staff), which
is part of the local CHS program, evaluates the medical necessity of the
service. IHS has established four broad medical priority levels of health
care services eligible for payment, 20 and each area office is required to
establish priorities that are consistent with these medical priority levels.
Because IHS typically does not have enough funds to pay for all CHS
services requested, federal CHS programs pay first for emergency and
acutely urgent medical care to the extent funds are available. They may
then pay for all or only some of the lower-priority services they fund, funds
permitting. Tribal CHS programs must use medical priorities when making
funding decisions, but unlike federal CHS programs, they may develop a
system that differs from the set of priorities established by IHS.

There are two primary paths through which patients may have their care
paid for by the federal CHS program. 21 First, a patient may obtain a
referral from a provider at an IHS-funded health care facility to receive
services from an external provider. That referral is submitted to the CHS
program for review. If the patient meets the requirements and the CHS
program has funding available, the services in the referral are approved
by the CHS program and a purchase order is issued to the external
provider and sent to IHS’s fiscal intermediary. Once the patient receives
the services from the external provider, that provider obtains payment for



18
  See 42 C.F.R. § 136.23 (2011). The eligibility requirements for the contract care
services are stricter than for direct care services. Generally, persons of Indian descent
who belong to their Indian community are eligible for direct care services. See 42 C.F.R.
§ 136.12 (2011).
19
  See 42 C.F.R. § 136.61 (2011). There are certain exemptions to the CHS program’s
designation as a payer of last resort. For example, certain tribally funded insurance plans
are not considered alternate resources and the CHS program must pay for care before
billing the tribally funded insurance plan. See 25 U.S.C. § 1621e(f).
20
  IHS has a fifth category medical priority level for excluded services that cannot be paid
for with CHS program funds, such as cosmetic plastic surgery.
21
  This describes the process by which IHS pays for services through federally operated
CHS programs. Tribally operated CHS programs are not generally subject to the same
policies, procedures, and reporting requirements as federal CHS programs. See 25 U.S.C.
§§ 450k(a), 458aaa-16.




Page 8                                          GAO-12-446 Contract Health Service Funding
                       the services in the approved referral by sending a claim to IHS’s fiscal
                       intermediary. Second, in the case of an emergency, the patient may seek
                       care from an external provider without first obtaining a referral. Once that
                       care is provided, the external provider must send the patient’s medical
                       records and a claim for payment to the CHS program. 22 At that time, the
                       CHS program will determine if the patient met the necessary program
                       requirements and if CHS funding is available for a purchase order to be
                       issued and sent to the fiscal intermediary. As in the earlier instance, the
                       provider obtains payment by submitting a claim to IHS’s fiscal
                       intermediary.

                       In addition to funds appropriated annually for CHS, IHS also distributes
                       funds to individual CHS programs from the Indian Health Care
                       Improvement Fund, designed to reduce disparities and resource
                       deficiencies at the local level as measured by IHS’s Federal Disparity
                       Index. 23 However, because these funds may be used to pay for either
                       contract care or direct care services, it is possible that they may not
                       finance contract care services in some programs. Further, this fund is
                       small compared to both CHS and direct care funding. For example, in
                       fiscal year 2010, funds distributed from the Indian Health Care
                       Improvement Fund equaled about 6 percent of the CHS funding level, or
                       about 2 percent of the funding level for direct care services. IHS has
                       reported on a number of data limitations related to the current formula
                       used to distribute funds from the Indian Health Care Improvement Fund. 24


Methodology for        IHS uses three primary methods—base funding, annual adjustments, and
Allocating CHS Funds   program increases—to determine the allocation of CHS funds to the IHS
                       area offices, which then distribute the funds to individual CHS programs. 25


                       22
                         IHS expects the external provider to seek reimbursement from any alternate resources
                       available to the patient before submitting a claim for payment to the CHS program.
                       23
                        See 25 U.S.C. § 1621.
                       24
                        Indian Health Service, “A technical evaluation of the Indian Health Care Improvement
                       Fund methodology and data” (Mar. 2010).
                       25
                         IHS may also allocate funds from the Indian Health Care Improvement Fund that may be
                       used for CHS services. In addition, each annual CHS appropriation identifies an amount
                       for the Catastrophic Health Emergency Fund—a fund that IHS administers to reimburse
                       CHS programs for their expenses from high-cost medical cases. See 25 U.S.C. § 1621a.
                       IHS also reserves a small portion of CHS funds to pay the fiscal intermediary and for
                       unanticipated events.




                       Page 9                                       GAO-12-446 Contract Health Service Funding
(See fig. 2.) IHS uses these methods sequentially. Base funding is the
amount of CHS funds that equal the total amount of all CHS funds that
each area received in the prior fiscal year. When appropriations for CHS
are higher than the amount needed for base funding, IHS uses national
measurements of population growth and inflation to determine annual
funding adjustments. Each IHS area office receives the same percentage
increase for the annual adjustments. Since 2001, when IHS has also
received additional funding for what it refers to as “program increases,”
IHS has used the CHS Allocation Formula to determine how to allocate
those program increases to the 12 area offices. According to IHS officials,
IHS established the CHS Allocation Formula in part to ensure that
American Indians and Alaska Natives had equitable access to contract
health funds. The Allocation Formula is based on a combination of
factors, including variations in the number of people using health care
services, geographic differences in the costs of purchasing health care
services, and access to IHS or tribally operated hospitals.




Page 10                               GAO-12-446 Contract Health Service Funding
Figure 2: IHS’s Primary Methods of Determining the Allocation of CHS Funds to the Area Offices




Base Funding                            Most CHS funding, which IHS refers to as “base funding,” is allocated
                                        based on past funding history. Each year, each of the 12 IHS area offices
                                        receives an allocation of base funding equal to the total amount of all
                                        CHS funds they received the previous fiscal year. According to IHS, base
                                        funding is intended to maintain existing levels of patient care services in
                                        all areas. Because of adjustments or funding increases that are received
                                        in most years, a new level of base funding is created in those years. IHS
                                        officials have told us they do not know the exact origins of the base
                                        funding policy, but that it dates back to the 1930s, when the health
                                        programs were under the Bureau of Indian Affairs. In 1954, Congress
                                        transferred responsibility for the maintenance and operation of hospitals




                                        Page 11                                    GAO-12-446 Contract Health Service Funding
                     and health facilities for Indians from the Bureau of Indian Affairs in the
                     Department of the Interior to what is now IHS in HHS. 26

Annual Adjustments   When appropriations for CHS are above the previous fiscal year’s level,
                     IHS allocates each area office an additional amount to adjust for overall
                     population growth and inflation. The population growth funding
                     adjustment is based on national population increases determined by the
                     U.S. Census Bureau with annual adjustments made for changes based
                     on state birth and death data provided by the National Center for Health
                     Statistics. The inflation adjustment is based on the prevailing Bureau of
                     Labor Statistics’ Consumer Price Index for medical costs. IHS gives each
                     area the same percentage increase to its base funding regardless of any
                     population growth or cost-of-living differences among areas. 27 Typically,
                     IHS receives increases in CHS funding that are large enough that the
                     agency can allocate at least some for annual adjustments, even if not the
                     full amount. The funding adjustments for population growth and inflation
                     provided to the area offices are incorporated into the next year’s base
                     funding.

Program Increases    Additionally, in years when sufficient funding is available, IHS allocates an
                     amount known as a program increase to each IHS area office using the
                     CHS Allocation Formula, which it established in consultation with the
                     tribes in 2001. IHS headquarters determines the amount allocated to an
                     area office by applying two factors to the individual CHS programs served
                     by that office: the cost adjustment factor, and the access to care factor.
                     IHS determines both factors separately for each individual CHS program,
                     and both are dependent on IHS’s determination of the active user
                     population.

                     •    The active user population provides an adjustment to account for
                          variations across individual CHS programs in the number of people
                          using health care services. The active user population is determined
                          by counting the number of individuals who obtained direct care
                          services, contract care services, or dental services in the prior



                     26
                       The Transfer Act of 1954, Law of Aug. 5, 1954, ch. 658 (codified at 42 U.S.C. § 2001,
                     et seq.).
                     27
                       In fiscal year 2009, each individual CHS program received a 1.5 percent adjustment for
                     population growth and a 3.8 percent adjustment for inflation. In fiscal year 2010, those
                     adjustments were 1.5 percent and 3.3 percent, respectively.




                     Page 12                                       GAO-12-446 Contract Health Service Funding
     3 years. This active user population is then used as a multiplier for the
     cost adjustment and access to care factors.

•    The cost adjustment factor provides an adjustment to account for
     geographic differences in the costs of purchasing health care
     services. It is based on a price index derived from the American
     Chamber of Commerce Researchers Association Regional Cost of
     Living index, which provides regional comparative costs for inpatient
     and outpatient services. 28 The price index for each CHS program is
     multiplied by the active user population for each program to determine
     the value of the cost adjustment factor.

•    The access to care factor provides an additional increase only for
     those individual CHS programs that do not have access to an IHS or
     tribally operated hospital. 29 IHS area officials determine if individual
     CHS programs meet two qualifying criteria for this factor: (1) the
     individual CHS program has no IHS or tribally operated hospital with
     an average daily patient load of five or more, and (2) the individual
     CHS program does not have an established referral pattern to an IHS
     or tribally operated hospital within the area. 30 These additional funds
     are allocated to each program where there is no access to an IHS or
     tribally operated hospital in an amount proportional to the cost
     adjustment factor.

To allocate the program increase funding, IHS first designates 75 percent
of the funds for increases based on the cost adjustment factor at each
individual CHS program and 25 percent of the funds for the increases
based on the access to care factor at each individual CHS program. IHS
then totals the program increases for the individual CHS programs and
allocates that total amount to the IHS area offices. Program increases
allocated using the CHS Allocation Formula become part of the area
offices’ base funding for the next fiscal year.



28
  According to IHS officials, the American Chamber of Commerce Researchers
Association index is used in the formula because it is maintained independently and
includes data for between 270 and 350 geographical areas.
29
  Some areas have no or limited access to IHS or tribally operated hospitals so they need
to purchase more services through the CHS program.
30
  IHS officials reported that an established referral pattern means that more than
50 percent of inpatient admissions go to an IHS or tribally operated hospital.




Page 13                                        GAO-12-446 Contract Health Service Funding
                          IHS used the CHS Allocation Formula to allocate program increases in
                          fiscal years 2001, 2002, and 2008 through 2010. 31 In each of those years,
                          IHS informed the IHS area offices of the total amounts of program
                          increase funds to be allocated to the offices and the dollar values that IHS
                          calculated under that formula for each individual CHS program in their
                          areas. To specifically address health care needs in local communities,
                          IHS permits area offices, in consultation with the tribes, to distribute
                          program increase funds to local CHS programs using criteria other than
                          the CHS Allocation Formula. Because these adjustments are made at the
                          individual CHS program level, they do not affect future base funding
                          which is determined at the area level.


Allocation of CHS Funds   Funds allocated to the IHS area offices through base funding, annual
                          adjustments, and program increases have increased substantially over
                          the past 10 years. In fiscal year 2001, area offices received just over
                          $386 million; in fiscal year 2010, they received just over $715 million in
                          CHS funds. 32 (See fig. 3.)




                          31
                            In fiscal years 2001 and 2002, IHS used the CHS Allocation Formula to distribute only
                          part of the funds it received for program increases since the formula was new.
                          32
                            Allocations to area offices are the amounts of IHS’s annual CHS appropriations
                          distributed to 12 IHS area offices at the beginning of each fiscal year. Funds allocated to
                          area offices each year total slightly less than the amount appropriated because a portion
                          of each annual CHS appropriation is identified for the Catastrophic Health Emergency
                          Fund or reserved by IHS to pay for the fiscal intermediary and for unanticipated events.




                          Page 14                                         GAO-12-446 Contract Health Service Funding
                             Figure 3: Total CHS Funds Allocated to IHS Area Offices, Fiscal Years 2001 through
                             2010




                             Note: Allocations to area offices are the amounts of IHS’s annual appropriations allocated to 12 IHS
                             area offices. Because a portion of each annual CHS appropriation is identified for the Catastrophic
                             Health Emergency Fund or reserved by IHS to pay the fiscal intermediary and for unanticipated
                             events, funds allocated to area offices each year total slightly less than the amount appropriated.




                             IHS’s allocation of CHS funds has varied widely across IHS area offices,
IHS’s Allocation of          and IHS’s method of allocating CHS funds has maintained those funding
CHS Funds Has                differences. Moreover, the CHS Allocation Formula for determining
                             program increases uses imprecise counts of CHS users.
Varied across IHS
Areas
IHS’s Allocation of CHS      CHS funding varied widely across IHS area offices in fiscal year 2010.
Funds Varied Widely          Total CHS funding for fiscal year 2010 ranged across the 12 area offices
across IHS Areas in Fiscal   from nearly $17 million to more than $95 million. There were also
                             substantial ranges in base funding, annual adjustments, and the program
Year 2010                    increase. For fiscal year 2010, base funding ranged from nearly
                             $15 million to nearly $76 million, annual adjustments ranged from less
                             than $1 million to more than $3 million, and the program increases ranged




                             Page 15                                             GAO-12-446 Contract Health Service Funding
                                         from around $1.5 million to more than $16 million across the area offices.
                                         (See table 1.)

Table 1: CHS Funding Allocated to IHS Area Offices, Fiscal Year 2010

                       Funds allocated to area offices, in dollars, for fiscal year 2010
                                                                                                                                    Per capita
                                                                                                                                     total CHS
                                                                                                                IHS active            funding,
                                                          a                                                              b                    c
Area               Base funding   Total adjustments            Program increase         Total CHS funding      user count           in dollars
Oklahoma            $75,827,291              $3,323,888                 $16,114,000           $95,265,179           318,923                $299
Navajo               69,437,474               3,090,855                   12,458,000           84,986,329           242,331                  351
Phoenix              51,570,656               2,278,464                     9,200,000          63,049,120           159,166                  396
Albuquerque          29,830,959               1,327,724                     6,023,000          37,181,683             85,946                 433
Bemidji              41,868,282               1,865,264                     8,631,000          52,364,546           102,782                  509
California           31,420,785               1,400,292                     7,952,000          40,773,077             78,682                 518
Alaska               63,065,563               2,808,647                     9,907,000          75,781,210           138,298                  548
Nashville            24,243,805               2,012,527                     3,899,000          30,155,332             51,491                 586
Aberdeen             67,932,811               3,026,350                     7,949,000          78,908,161           121,903                  647
Tucson               14,805,851                658,487                      1,522,000          16,986,338             25,562                 665
Portland             69,230,127               3,001,723                   10,985,000           83,216,850           104,097                  799
Billings             49,214,400               2,193,163                     5,360,000          56,767,563             70,863                 801
                                         Source: GAO analysis of IHS allocation data.
                                         a
                                          Total adjustments include the inflation and population growth annual adjustments plus other
                                         adjustments IHS made.
                                         b
                                          IHS uses the IHS active user count to determine the allocation of program increases. The IHS active
                                         user count includes all individuals who received at least one direct care or contract care inpatient stay
                                         or outpatient, ambulatory, or dental care service during the preceding 3-year period. For fiscal year
                                         2010, IHS used its count of active users from fiscal year 2009 because that was the most recent year
                                         for which data were available.
                                         c
                                          Per capita funding is based on the IHS active user count.


                                         Because total funding may reflect variations in the size of the population
                                         of IHS areas, we also examined per capita funding for fiscal year 2010
                                         using IHS’s count of active users from the most recent year for which data
                                         were available. 33 Per capita CHS funding for fiscal year 2010 varied



                                         33
                                           Per capita funding is based on IHS’s count of active users in fiscal year 2009 (the most
                                         recent year for which data were available), which includes all individuals who received at
                                         least one direct care, contract care, or dental care service during the preceding 3-year
                                         period.




                                         Page 16                                               GAO-12-446 Contract Health Service Funding
widely, ranging across the area offices from $299 to $801. In addition, per
capita CHS funding was sometimes not related to areas’ dependence on
CHS for the provision of IHS-funded inpatient services. For example,
California received a level of per capita funding that was in the lower half
of the range for all areas, while American Indians and Alaska Natives in
that area rely entirely on CHS for their IHS-funded inpatient services
because there are no IHS or tribally operated hospitals. Similarly, the
Bemidji area depends almost entirely on CHS for its IHS-funded inpatient
services, yet received levels of per capita CHS funding that were in the
lower half of the range of CHS funding for all areas.

Because CHS funds are used to purchase services not accessible or
available through the direct care program, we compared patterns of
funding for the direct care program and the CHS program across areas.
On average, areas were allocated about three times as much in per
capita direct care funding as they were in per capita CHS funding. We
also found that, in general, the areas that were allocated higher amounts
of per capita direct care funding were also allocated higher amounts of
per capita CHS funding, and those areas that were allocated lower
amounts of per capita direct care funding were also allocated lower
amounts of per capita CHS funding. The notable exceptions were Alaska,
which was allocated much more in per capita direct care funding than
average, and Portland and Tucson, which were allocated much less in
per capita direct care funding than average. Alaska was allocated per
capita direct care funding ($3,340) that was about six times more than its
per capita CHS funding ($548) and was the highest per capita direct care
funding of all the areas, nearly double that of the area with the second
highest per capita funding (Nashville, $1,869). Direct care funding for
Alaska reflects the unique health care challenges that Alaska faces due to
its remoteness and vast distances, which result in some of the highest
costs for health care services in the United States. In contrast, the lower
per capita direct care allocations to Tucson and Portland were somewhat
offset by relatively higher levels of per capita CHS funding. Tucson was
allocated the lowest per capita direct care funding ($1,324) but it received
the third highest per capita CHS funding ($664). Similarly, Portland’s per
capita direct care funding ($1566) was relatively low, but its per capita
CHS funding ($799), was the second highest.

In addition to variation in funding across IHS area offices, variation in
funding may exist among individual CHS programs within area offices of
which IHS headquarters is not aware. Some IHS area offices use
methods other than the CHS Allocation Formula to distribute CHS
program increases and IHS does not require the area offices to report


Page 17                                GAO-12-446 Contract Health Service Funding
                          these variations to headquarters. As a result, IHS may not be able to
                          appropriately oversee agency operations. According to Standards for
                          Internal Controls in the Federal Government, agency managers should
                          establish appropriate and clear policies and procedures for internal
                          reporting relationships that effectively provide managers with the
                          information they need to carry out their job responsibilities. The standards
                          further state that an agency must have reliable and timely
                          communications relating to internal events to run and control its
                          operations. IHS allows area offices, in consultation with the tribes, to
                          distribute program increase funds to local CHS programs using different
                          criteria than the CHS Allocation Formula to meet health care needs in
                          local communities, but does not require that the areas inform IHS
                          headquarters. By not requiring area offices to report to IHS headquarters
                          about deviations in funding, IHS is not meeting internal control standards.
                          For example, IHS headquarters officials identified two area offices that
                          have used alternate methods to distribute CHS program increases to
                          local CHS programs. We identified a third area that used alternative
                          methods that IHS was not aware of, specifically using the count of actual
                          CHS users at each individual CHS program.


IHS’s Methods of          The allocation pattern of per capita CHS funds has been generally
Allocating CHS Funds      maintained over the 10-year period that we examined. Those areas that
Have Maintained Funding   had the highest and the lowest levels of per capita CHS funding in fiscal
                          year 2001 generally also had the highest and lowest levels of per capita
Differences               CHS funding in fiscal year 2010. (See fig. 4.)




                          Page 18                                GAO-12-446 Contract Health Service Funding
Figure 4: Per Capita CHS Funding in Constant Dollars, Fiscal Years 2001 and 2010, by Area




                                         Note: Per capita funding is based on IHS’s count of active users which includes all individuals who
                                         received at least one direct care, contract care, or dental care service during the preceding 3-year
                                         period.


                                         Base funding, which is based solely on funding from the prior year,
                                         accounts for the great majority of CHS funds and therefore maintains any
                                         funding variations. For example, in fiscal year 2010, the year in which IHS
                                         received its largest program increase, base funding accounted for
                                         82 percent of total CHS funds allocated to IHS area offices. (See fig. 5 for
                                         the allocation of funds in fiscal year 2010.) Annual adjustments for
                                         population growth and inflation are made as a percentage of base funding
                                         that is the same for all areas and therefore do not affect funding
                                         variations. Further, program increase funds allocated through the CHS
                                         Allocation Formula are not large enough to alter funding variations
                                         because they have been a relatively small proportion of the CHS funds
                                         that area offices receive. For example, in fiscal year 2010, CHS Allocation
                                         Formula funds amounted to about 14 percent of total CHS funding.
                                         Therefore, any variations in the original base funding amounts allocated
                                         to the areas are perpetuated since the occasional program increases are
                                         not sufficiently large to be able to close that gap.



                                         Page 19                                              GAO-12-446 Contract Health Service Funding
                         Figure 5: Allocation of CHS Funds, Fiscal Year 2010




The CHS Allocation       The CHS Allocation Formula IHS uses to allocate CHS program
Formula Uses Imprecise   increases to IHS area offices is largely dependent on an estimate of
Counts of CHS Users to   active users that is imprecise, even though IHS considers population
                         estimates to be a critical factor in allocating CHS funds. In 2010, IHS’s
Allocate CHS Program     Data/Technical Workgroup noted that the active user population is not a
Increases                precise measure of American Indians and Alaska Natives eligible for CHS
                         services. 34 The CHS Allocation Formula allocates funds based on counts
                         of all users who had at least one direct care or contract care inpatient
                         stay, or obtained at least one outpatient, ambulatory, or dental service
                         during the preceding 3-year period. The active user estimates that IHS
                         used to allocate program increases therefore included an unknown
                         proportion of patients who had not received contract health services, but
                         rather had received only direct care services. IHS has acknowledged that
                         its method of counting active users for the CHS Allocation Formula does
                         not measure the number of people who actually received CHS services,
                         nor does it measure the number of people who are eligible for CHS
                         services. Because the active user population is used to determine




                         34
                          The Data/Technical Work Group was formed to evaluate allocation of The Indian Health
                         Care Improvement Fund and reported its findings in March 2010.




                         Page 20                                     GAO-12-446 Contract Health Service Funding
                            program increases, any inaccuracies in that number potentially could
                            contribute to variation not linked to actual use of CHS services.

                            While IHS has an information technology system that could produce
                            actual counts of CHS users, IHS officials do not believe that the data in
                            the system are complete or that areas collect these data in the same way.
                            This system contains separate tabulations of users of direct care
                            services, contract care services, and dental care services. However, IHS
                            officials told us that they do not provide guidance to area offices on how
                            to record data on active CHS user counts. Nevertheless, officials from
                            one area told us that one of their statisticians separated out the CHS
                            users from the active user population count identified by IHS for 2 recent
                            years and found that the CHS user count is about half of the active user
                            population count. Without accurate data, it is not possible for IHS to know
                            if the proportion of actual CHS users is consistent across areas.


                            IHS has taken few steps to evaluate the funding variations within the CHS
IHS Has Taken Few           program. In addition, IHS’s ability to address funding variations is limited
Steps to Address the        by statute.
Funding Variation
within the CHS
Program
IHS Has Taken Few Steps     IHS has taken few steps to evaluate the funding variations within the CHS
to Evaluate the Funding     program. IHS officials told us that they have not evaluated the
Variations within the CHS   effectiveness of base funding and the CHS Allocation Formula in meeting
                            the health care needs of American Indians and Alaska Natives across the
Program                     IHS areas and they do not plan to do so with respect to the determination
                            of base funding amounts. Without such assessments, IHS cannot
                            determine the extent to which the current variation in CHS funding reflects
                            variation in health care needs. According to Standards for Internal
                            Controls in the Federal Government, agency managers should compare
                            actual performance to planned or expected results throughout the
                            organization and analyze significant differences. Further, the standards
                            specify that activities need to be established to monitor performance
                            measures and indicators. 35 IHS has not developed policies and


                            35
                             GAO/AIMD-00-21.3.1.




                            Page 21                                GAO-12-446 Contract Health Service Funding
procedures in the Indian Health Manual for its headquarters and field staff
employees on how to conduct assessments of the CHS program funding
methodologies, nor has it included goals, measures, and time frames for
assessing the CHS program funding allocation performance within areas,
which would potentially help IHS and the area offices identify and allocate
CHS program funds to areas and local CHS programs with the greatest
need.

In March 2010, the Director of IHS formed the Director’s Workgroup on
Improving CHS to review tribal input to improve the CHS program, to
evaluate the existing formula for allocating program increases using the
CHS Allocation Formula, and to recommend improvements in the way
CHS business operations are conducted. The workgroup members
agreed that their recommendations would apply only to program
increases and not to base funding. In February 2011, the Director of IHS
reported that she concurred with the four recommendations made by the
workgroup in October 2010.

•     The workgroup recommended that a technical subcommittee be
      created and charged with calculating the current CHS need and
      estimates of future CHS need. Such information would be essential to
      understanding the variation in CHS funding. However, we previously
      reported that IHS data on denials and deferrals that IHS used to
      estimate program need are incomplete and inconsistent. 36

•     The workgroup recommended convening 12 Area Work Sessions to
      review and make recommendations about current CHS policies and
      procedures, which would then be used to revise the CHS chapter of
      the Indian Health Manual, specifically relating to issues of evaluating
      the cost of care and communication of CHS program requirements,
      among others. These sessions have been completed and the
      workgroup is developing a summary report.

•     The workgroup recommended that an evaluation of the current CHS
      Allocation Formula be postponed until at least fiscal year 2013. The
      workgroup members said that the CHS program had only begun
      receiving substantial increases in fiscal years 2009 and 2010, and the
      full impact of these increases needed to be reviewed before making
      recommendations to change the formula. In contrast, we found that


36
    GAO-11-767.




Page 22                                  GAO-12-446 Contract Health Service Funding
                               IHS has used the formula to allocate program increases, at least in
                               part, in 5 years since 2001. Members of the workgroup we interviewed
                               told us that outcome measures for the evaluation have not yet been
                               defined. As part of this recommendation, they also suggested that a
                               subcommittee be created to review the CHS Allocation Formula for
                               equity across areas. An IHS representative to the workgroup told us
                               that the recommendations of the subcommittee will not be considered
                               by the full committee until the review of equity is complete.

                           •   The workgroup recommended that the inpatient and outpatient
                               components of the Consumer Price Index be used for any new CHS
                               program increases that IHS may receive for fiscal year 2013 and
                               beyond.

                           Members of the 2010 Director’s Workgroup we spoke with expressed
                           concern that the CHS Allocation Formula does not differentiate between
                           large and small hospitals when determining the access to care factor,
                           although the workgroup did not make a recommendation concerning this
                           issue. Specifically, programs with access to small hospitals with minimal
                           services do not receive an adjustment for access to care, and are
                           therefore treated similarly to programs with access to large medical
                           centers where a range of specialty care services may be available. As a
                           result, the CHS Allocation Formula does not equitably compensate for
                           limitations in hospital access. When the CHS Allocation Formula was
                           created in 2001, its developers noted that the access to care factor
                           should be refined to better reflect the complexities of the IHS system of
                           health care. IHS has neither refined nor made any change to the way that
                           access to care is defined.


IHS’s Ability to Address   Federal law restricts IHS’s ability to reallocate funding should the agency
Funding Variations Is      desire to do so. Specifically, IHS officials identified two statutory
Limited by Statute         provisions that limit IHS’s ability to adjust funding allocations. The Indian
                           Self-Determination and Education Assistance Act currently prohibits
                           reductions in funding for certain tribally operated programs, including




                           Page 23                                 GAO-12-446 Contract Health Service Funding
              some CHS programs, except for limited circumstances. 37 In addition, the
              Indian Health Care Improvement Act imposes a congressional reporting
              requirement for proposed reductions in base funding for any recurring
              program, project, or activity of a service unit of 5 percent or more. 38 IHS
              officials told us that no such proposal to reallocate base funding has been
              transmitted to the Congress.

              IHS officials have told us that areas and tribes have resisted changes to
              the current funding allocation methods, particularly base funding, as
              consistent funding allows the areas and tribes to plan and manage their
              resources. However, minutes from a 2010 session of the Director’s
              workgroup show that not all tribes agree with the CHS Allocation Formula
              and that some workgroup members said that the current CHS Allocation
              Formula was not sufficiently equitable. Concerns about IHS’s funding
              methods are longstanding. For example, in 1982, we concluded that
              IHS’s practice of funding programs based on the previous year’s funding
              level caused funding inequities and that IHS did not distribute funds to the
              neediest programs in fiscal year 1981. 39


              There are wide variations in CHS funding across the 12 IHS areas, and
Conclusions   these variations are largely maintained by IHS’s long-standing use of the
              base funding methodology. IHS officials are unable to link variations in
              funding levels to any assessment of health care need. As we have
              reported in the past and found once again in this evaluation, IHS’s
              continued use of the base funding methodology undermines the equitable
              allocation of IHS funding to meet the health care needs of American
              Indians and Alaska Natives. Program increases for the CHS program
              over the years have not significantly altered variations across the areas,
              primarily because they are too small to have a strong impact on overall
              funding. Funds from the Indian Health Care Improvement Fund, designed


              37
                The Indian Self-Determination and Education Assistance Act expressly prohibits
              reductions in funding in subsequent years once a required funding amount for a contract
              or compact is established, except for specified circumstances relating to a reduction in
              appropriations, congressional directive, tribal authorization, change in the amount of pass-
              through funds, or the completion of the activity for which funds were provided. 25 U.S.C.
              § 450j-1(b)(2) (relating to self-determination contracts). 25 U.S.C. § 458aaa-7(d)(1)(C)(ii)
              (relating to self-governance compacts).
              38
               25 U.S.C. § 1680g.
              39
               GAO/HRD-82-54.




              Page 24                                        GAO-12-446 Contract Health Service Funding
                      to reduce funding disparities, also have had little impact because they are
                      relatively small and not targeted solely for the CHS program. Further,
                      federal law restricts IHS’s ability to reallocate funding, principally by
                      prohibiting reductions for certain tribally operated CHS programs, which
                      account for more than half of total CHS funding. IHS also may be
                      unaware of additional variation in funding across individual CHS
                      programs because it does not require that area offices notify IHS
                      headquarters when they choose different funding methodologies than
                      those suggested by headquarters.

                      IHS can improve the equity of how it allocates program increase funds to
                      areas through improvements in its implementation of the CHS Allocation
                      Formula, primarily by using counts of actual CHS users rather than by
                      using the current method of estimating the number of overall IHS users,
                      which now includes patients who never used a CHS service, and by
                      refining the access to care factor to account for differences in available
                      health care services at IHS and tribally operated facilities. However,
                      because of the predominant influence of base funding and the relatively
                      small contribution of program increases to overall CHS funding, it would
                      take many years to achieve funding equity just by revising the methods
                      for distributing CHS program increase funds.


                      In order to ensure an equitable allocation of CHS program funds, the
Matter for            Congress should consider requiring IHS to develop and use a new
Congressional         method to allocate all CHS program funds to account for variations across
                      areas that would replace the existing base funding, annual adjustment,
Consideration         and program increase methodologies, notwithstanding any restrictions
                      currently in federal law.


                      To make IHS’s allocation of CHS program funds more equitable, we
Recommendations for   recommend that the Secretary of Health and Human Services direct the
Executive Action      Director of the Indian Health Service to take the following three actions for
                      any future allocation of CHS funds:

                      •   require IHS to use actual counts of CHS users, rather than all IHS
                          users, in any formula for allocating CHS funds that relies on the
                          number of active users;




                      Page 25                                GAO-12-446 Contract Health Service Funding
                     •   require IHS to use variations in levels of available hospital services,
                         rather than just the existence of a qualifying hospital, in any formula
                         for allocating CHS funds that contains a hospital access component;
                         and

                     •   develop written policies and procedures to require area offices to
                         notify IHS when changes are made to the allocations of funds to CHS
                         programs.

                     HHS reviewed a draft of this report and provided written comments, which
Agency Comments      are reprinted in appendix I. In its comments, HHS concurred with two of
and Our Evaluation   our recommendations and did not concur with one recommendation. HHS
                     did not comment on our general findings or our conclusion that IHS’s use
                     of the base funding methodology has led to long-standing inequities in the
                     distribution of CHS funds.

                     HHS concurred with our recommendation that IHS use variations in levels
                     of available hospital services to allocate CHS funds. HHS noted that the
                     IHS Director’s Workgroup on Improving CHS will review the formula and
                     make recommendations in fiscal year 2013. HHS also concurred with our
                     recommendation to develop written policies to require area offices to
                     notify IHS when changes are made in the allocations of funds to CHS
                     programs. HHS noted that guidance requiring areas to report these
                     changes to IHS headquarters will be added to the CHS manual; however,
                     the agency did not specify a date for doing so.

                     HHS did not concur with our recommendation that it should require IHS to
                     use actual counts of CHS users, rather than all IHS users, in any formula
                     for allocating CHS funds that relies on the number of active users. HHS
                     stated that IHS’s combined count of all users of IHS direct care services
                     and CHS users is intended to reflect the health care needs of those
                     eligible for CHS services. However, as we reported, IHS’s own
                     Data/Technical Workgroup found that the current IHS active user count
                     does not measure the number of people who are eligible for CHS
                     services, in part because not all users of IHS direct care services are
                     eligible for CHS services. Further, as HHS acknowledged in its
                     comments, the current count of active users also does not reflect those
                     who actually received CHS services. Because CHS program increases
                     are intended to reflect variations in the numbers of CHS users among
                     areas, we continue to believe that IHS should use counts of actual CHS
                     users in determining program increases.




                     Page 26                                GAO-12-446 Contract Health Service Funding
We are sending copies of this report to the Secretary of Health and
Human Services, Director of the Indian Health Service, appropriate
congressional committees, and other interested parties. In addition, the
report is available at no charge on the GAO website at
http//www.gao.gov.

If you or your staffs have any questions about this report, please contact
me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of the report. GAO staff who made major contributions to this report are
listed in appendix II.




Kathleen M. King
Director, Health Care




Page 27                               GAO-12-446 Contract Health Service Funding
List of Addressees

The Honorable Daniel K. Akaka
Chairman
The Honorable John Barrasso
Ranking Member
Committee on Indian Affairs
United States Senate

The Honorable Don Young
Chairman
The Honorable Dan Boren
Ranking Member
Subcommittee on Indian and Alaska Native Affairs
Committee on Natural Resources
House of Representatives

The Honorable Jeff Bingaman
The Honorable Tim Johnson
The Honorable Lisa Murkowski
The Honorable John Thune
United States Senate




Page 28                             GAO-12-446 Contract Health Service Funding
Appendix I: Comments from the Department
             Appendix I: Comments from the Department of
             Health and Human Services



of Health and Human Services




             Page 29                                       GAO-12-446 Contract Health Service Funding
Appendix I: Comments from the Department of
Health and Human Services




Page 30                                       GAO-12-446 Contract Health Service Funding
Appendix I: Comments from the Department of
Health and Human Services




Page 31                                       GAO-12-446 Contract Health Service Funding
Appendix II: GAO Contact and Staff
                            Appendix II: GAO Contact and
                            Staff Acknowledgments



Acknowledgments

                  Kathleen M. King, Director, (202) 512-7114 or kingk@gao.gov
GAO Contact
                  In addition to the contact named above, Martin T. Gahart (Assistant
Staff             Director), George Bogart, Carolyn Feis Korman, and Laurie Pachter made
Acknowledgments   key contributions to this report.




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