**CONTRACT HEALTH SERVICES**

+---------------+------------+------------+------------+------------+
|               | 2002       | 2003       | 2004       | Increase   |
|               |            |            |            |            |
|               | Actual     | P          | Estimate   | or         |
|               |            | resident's |            | Decrease   |
|               |            |            |            |            |
|               |            | Budget     |            |            |
+---------------+------------+------------+------------+------------+
| BA            | \$4        | \$4        | \$4        | +\$        |
|               | 60,776,000 | 68,130,000 | 93,046,000 | 24,916,000 |
+---------------+------------+------------+------------+------------+
| FTE           | 2          | 2          | 2          | 0          |
+---------------+------------+------------+------------+------------+
|               |            |            |            |            |
+---------------+------------+------------+------------+------------+
| Gen. Med &    |            |            |            |            |
| Surg.         |            |            |            |            |
+---------------+------------+------------+------------+------------+
| Hos           | 248        | 244        | 232        | -12        |
| pitalization: |            |            |            |            |
| ADPL          |            |            |            |            |
+---------------+------------+------------+------------+------------+
| Ambulatory    |            |            |            |            |
| Care:         |            |            |            |            |
+---------------+------------+------------+------------+------------+
| Outpatient    | 507,305    | 492,700    | 510,640    | +17,940    |
| Visits        |            |            |            |            |
+---------------+------------+------------+------------+------------+
| Patient &     |            |            |            |            |
| Escort        |            |            |            |            |
| Travel:       |            |            |            |            |
+---------------+------------+------------+------------+------------+
| One Way Trips | 37,007     | 35,947     | 37,738     | +1,791     |
+---------------+------------+------------+------------+------------+
| Dental        | 61,678     | 60,926     | 61,604     | +678       |
| Services      |            |            |            |            |
+---------------+------------+------------+------------+------------+

**[PURPOSE AND METHOD OF OPERATION]{.underline}**

The Indian Health Service (IHS) Contract Health Services (CHS) program
supplements the health care resources available to eligible American
Indian and Alaska Native people with the purchase of medical care and
services outside the IHS direct care system. The CHS funds are used in
situations where: 1) no IHS direct care facility exists, 2) the direct
care element is incapable of providing the required emergency and/or
specialty care, 3) the direct care element has an overflow of medical
care workload, and 4) to supplement alternate resources. The IHS
purchases the needed basic health care services from private local and
community health care providers that include hospital care, physician
services, outpatient care, laboratory, dental, radiology, pharmacy,
dental, and transportation services such as ground and air ambulance.
The CHS program supports the provision of care in IHS and tribally
operated facilities by contracting health care services that would
otherwise not be available.

The CHS program is administered through 12 IHS Area Offices that consist
of 155 IHS and tribally operated service units. The facilities include
two major IHS operated medical centers and one tribally operated medical
center; however most of the IHS and tribally operated facilities are
small rural community hospitals and health centers that provide basic
primary care services. Because not all tribes have access to IHS or
tribally operated facilities health care services are limited and there
is an increasing demand for CHS to access needed health care. With the
increasing costs of pharmaceuticals and medical care, as well as the
growing population, there is a high demand from all Areas on the CHS
program to provide the needed health care.

The CHS budget also includes a Catastrophic Health Emergency Fund (CHEF)
of up to \$15,000,000 intended to protect the daily administration of
local CHS operating budgets from overwhelming expenditures for certain
high cost cases. Accessing the CHEF program requires meeting a
threshold, that is based on the annual change in the consumer price
index mandated by Congressional legislation. In FY 2002, the threshold
was \$21,700 and the \$15 million CHEF budget provided funding for more
than 700 high cost cases in amounts ranging from \$1,000 to \$375,000
per case. Not all requests for CHEF were funded in FY 2002, an
additional 600 cases requiring \$12 Million was not funded. These
amounts had to be absorbed by the local CHS budgets.

In addition, the IHS fiscal intermediary (FI) contract with Blue
Cross/Blue Shield of New Mexico provides not only a mechanism of payment
for services purchased in the private sector, but also ensures that
payments are made accurately and timely according to contractual
requirements and maintains a centralized medical and dental claims
reimbursement system. The FI process functions within the CHS program
and the IHS payment policy and meets the standards of the medical
industry. In addition to providing payments to vendors, the FI provides
program support services that collects, compiles, organizes workload and
financial data, and generates statistical reports to the IHS that
support the administration of CHS programs.

During the FY 2004 reporting period, the IHS will have improved the
level of CHS procurement of inpatient and outpatient hospital services
for routinely used providers to at least 90 percent of the total dollars
paid to contract providers. The IHS may never contract services at the
100 percent level because not all hospital service rates can be
negotiated or paid at reduced rates. Many of the facilities utilized are
in rural areas and sometimes only one hospital within a vicinity and
they are not always willing to offer discounts to the IHS. The 90
percent level of procuring inpatient and outpatient facility services to
routinely used providers is significant in regard to the total dollars
paid to contract providers.

Because of the increased demand for CHS, the IHS must rely on the strict
adherence to the specific CHS guidelines to ensure that the most
effective use of CHS dollars are attained. To operate within its limited
appropriations, the CHS programs must rely on these specific regulations
relating to eligibility, notification, and residency as well as the
medical priority rating system. These requirements enable the CHS
program to provide services throughout the year and results in
authorizing care at restricted levels, in a rationed health care system.
Because past Congressional appropriations have not included funds for
medical inflation and population growth the amount of services that can
be acquired with CHS funds continues to decline. Many needed health care
services are denied and deferred causing a rise in the number of appeals
and inquiries from patients, providers, and Congress. Because CHS
funding is not sufficient there are no resources available for health
education, preventive services, and marketing.

**[ACCOMPLISHMENTS]{.underline}**

The CHS will continue to enforce its regulations by requiring to the
strict adherence to the use IHS medical priority system to assure that
persons with the most urgent need receive services and that all
alternate resources including IHS and tribal facilities be utilized
first prior to expending CHS funds. Beyond these built-in requirements,
IHS is making all efforts to assure that the CHS program receives the
best price available from routine providers. To that end, the CHS
program seeks to ensure that contracts or rate quote agreements provide
reduced rates to IHS and its patients for routinely used hospitals and
has succeeded at the 90 percent level.

#### 

#### **[PERFORMANCE MEASURES]{.underline}**

The Contract Health Services budget contributes to the accomplishment of
the following FY 2004 performance measures:

[Indicator 2:]{.underline} During FY 2004, increase the proportion of
I/T/U clients with diagnosed diabetes that have demonstrated improved
glycemic control by 2% over the FY 2003 level.

[Indicator 3:]{.underline} During FY 2004, increase the proportion of
I/T/U clients with diagnosed diabetes who have achieved blood pressure
control standards by 2% over the FY 2003 level.

[Indicator 4]{.underline}: During FY 2004, increase the proportion of
I/T/U clients with diagnosed diabetes assessed for dyslipidemia (i. e.,
LDL cholesterol) by 2% over the FY 2003 level.

[Indicator 5]{.underline}: During FY 2004, increase the proportion of
I/T/U clients with diagnosed diabetes assessed for nephropathy by 2%
over the FY 2003 level.

[Indicator 7]{.underline}: During FY 2004, maintain the proportion of
eligible women who have had a Pap screen within the previous three years
at the FY 2003 levels.

[Indicator 8]{.underline}: During FY 2004, maintain mammography
screening at the FY 2003 rate.

[Indicator 24]{.underline}: During FY 2004:

a\. increase the rates for all recommended immunizations for American
Indian and Alaska Native children ages 3‑27 months by 2% over the FY
2003 rates

b\. establish baseline rates for recommended immunizations for American
Indian and Alaska Native children 19‑35 months.

[Indicator 25]{.underline}: In FY 2004, maintain the FY 2003 rate for
influenza vaccination levels among non-institutionalized adults age 55
years and older.

[Indicator 26]{.underline}: In FY 2004, maintain the FY 2003 rate for
pneumococcal vaccination levels among non-institutionalized adults age
65 years and older.

Following are the funding levels for the last 5 fiscal years:

+--------------------+-----------------------------------+-------------+
| # **Year**         | **[Funding]{.underline}**         | **[FTE]{.u  |
|                    |                                   | nderline}** |
+--------------------+-----------------------------------+-------------+
| 1999               | \$385,801,000                     | 0           |
+--------------------+-----------------------------------+-------------+
| 2000               | \$406,756,000                     | 0           |
+--------------------+-----------------------------------+-------------+
| 2001               | \$445,773,000                     | 0           |
+--------------------+-----------------------------------+-------------+
| 2002               | \$460,776,000                     | 2           |
+--------------------+-----------------------------------+-------------+
| 2003               | \$468,130,000                     | 2           |
+--------------------+-----------------------------------+-------------+

**[RATIONALE FOR BUDGET REQUEST]{.underline}**

**TOTAL REQUEST** \-- The request of \$493,046,000 and 2 FTE is an
increase of \$24,916,000 over the FY 2003 President's Budget request of
\$468,130,000 and 2 FTE. The increase includes the following:

Program Increase: +\$24,916,000

The additional funds will address issues of inequity and disparities of
health by off setting the high cost of medical inflation and population
growth. This increase will support services and treatment from the
private sector for diabetes, cancer, heart disease, injuries, mental
health, domestic/community/family abuse/violence, maternal and child
health, elder care, refractions, ultrasound examinations, physical
therapy, dental hygiene, and elective orthopedic services to mention
some examples of cases. Also, funding will be used to provide costs for
patient and escort travel services for children, handicapped persons,
and the elderly requiring the assistance of family members and residing
in remote areas.