Background

IHS oversees the CHS program through 12 area offices. The federally  and tribally operated facilities in each of these areas use CHS program  funds to purchase health care services from external hospitals,  physicians, and other providers. Medicare-participating hospitals are  required to accept CHS program patients at rates no higher than the rates  paid by the Centers for Medicare & Medicaid Services’ (CMS) Medicare  program, while federal and tribal CHS programs pay physicians and other  nonhospital providers at either their billed charges or at reduced rates an  IHS area office or tribal CHS program negotiates with them. Other federal  health care programs—administered by the Department of Defense  (DOD) and the Department of Veterans Affairs (VA)—have adopted  Medicare rates as the basis for their standard payment rate for both  hospital and nonhospital services.

		CHS Program Organization

IHS manages the CHS program through a decentralized system of 12  area offices, which oversee individual CHS programs in 35 states where  many American Indian and Alaska Native communities are located. (See  fig. 1 for a map of the counties IHS designates as CHSDAs. Residence in  these counties is generally a requirement for obtaining contract health  services.) About 46 percent of CHS program funds are distributed by IHS  to federal CHS programs, and the other 54 percent to tribal CHS  programs. Tribal CHS programs must meet the same statutory and  regulatory requirements as federal CHS programs, but they are not  generally subject to the same policies, procedures, and reporting  requirements established for federal CHS programs.
Funds permitting, federal and tribal facilities use CHS program funds to  pay for eligible patients to receive services from external providers if the  services are not available at IHS-funded facilities. The services  purchased include hospital, specialty physician, outpatient, laboratory,  dental, radiology, pharmacy, and transportation services. Patients must  meet certain requirements to have their services paid for by the CHS  program. For example, patients must be members of federally recognized  tribes and live in specific areas. If these requirements are met, CHS  program committees at each federal or tribal facility evaluate the medical  necessity of each patient case and assign it a priority level. Facilities  first pay for the highest priority services. If there are other health care  resources available to the patient, such as Medicare, Medicaid, or private  health insurance, these resources must first be used to pay for services  before the CHS program covers any remaining costs because the CHS  program is generally the payer of last resort.once the service has been approved and the care provided, providers  obtain payment for CHS program services by sending their claims to  IHS’s fiscal intermediary, BlueCross BlueShield of New Mexico  (BCBSNM). BCBSNM processes claims for all of the federal CHS  programs. The tribal CHS programs process their own claims or contract  with a fiscal intermediary of their choosing; a small number of tribal  programs contract with BCBSNM.

		CHS Program Payment Rates

The rate that a CHS program pays a provider is determined by several  factors, including whether the provider is a hospital subject to MLR  reimbursement or the provider has negotiated reduced payment rates  with IHS or the tribe. (See fig. 2.) CHS program payments for hospital  services—inpatient and outpatient services provided in Medicare- participating hospitals—are subject to the MLR requirement. IHS  generally calculates the MLR using the same methodology that Medicare  uses to pay its claims, so the amount the CHS program pays for a service  generally equals the amount that Medicare would pay the hospital for that  same service. CHS program payments to providers for nonhospital  services—including services provided by hospital- and office-based  physicians—are not subject to the MLR requirement. Each CHS  program pays these providers at their billed charges unless the IHS area  office has negotiated with the provider for a reduced rate. Each IHS area  office can negotiate contracts with the providers that serve the CHS  programs in its geographic area. Tribally operated facilities are  independent and may negotiate their own contracts with providers.  However, IHS officials said that when they negotiate with providers, they  may ask those providers to honor the negotiated rates when they interact  with tribal CHS programs.
In 1986, IHS issued a policy advising area offices to negotiate rates no   In discussing the need for the policy, IHS  higher than Medicare rates.noted that paying providers for CHS program services at billed charges  resulted in a depletion of funding that often required the postponement of  needed care for American Indians and Alaska Natives. The agency also  noted that IHS should not pay more than other federal agencies for the  same services. The agency recommended that area offices identify and  prioritize high-volume providers with whom to negotiate lower rates. In  addition, the agency indicated that contracts negotiated with providers for  payments at rates higher than those paid by Medicare, such as a discount  off billed charges or a percentage above Medicare rates, would be  approved by IHS on a case-by-case basis. Further, the agency stated that  CHS programs should only use providers that do not have a contract with  the CHS program in two situations: if a patient needs emergency care  and if the patient’s health requires that the services be rendered by a  noncontract provider. However, IHS has since stated it has not been  possible to negotiate contracts with each of the providers that the CHS  program uses because of limitations in area office contracting staff and  some providers not being willing to enter into a contract.

		Federal CHS Program Payments for Services Provided in 2010

For services provided in calendar year 2010, IHS’s federal CHS programs  paid $262.8 million to 6,113 providers for services for 66,750 patients. Of  these payments, federal CHS programs paid $104.0 million (about   40 percent of total payments) for hospital services where the CHS  program was the primary payer and about $114.7 million (about   44 percent of total payments) for nonhospital services where the CHS  program was the primary payer. Of these payments for nonhospital  services, the federal CHS programs paid $62.5 million (about 55 percent)  for hospital- and office-based physician services. (See fig. 3.)
CMS uses Medicare payment methodologies that take many factors, such  as the type and location of service delivery, into account when calculating  hospital and physician payments for a given service. CMS periodically  reassesses the specific Medicare payment rates to adjust for increases in  the cost of delivering care. The Medicare Payment Advisory Commission  (MedPAC) has stated that the goal of Medicare payment policy should be  to keep payment rates low enough to ensure efficient use of taxpayer  funds, but high enough to ensure that patient access to care is not  negatively affected by reduced provider participation.$549 billion in 2011 for care provided to Medicare’s almost 49 million  beneficiaries.
In fiscal year 2010, DOD offered health care to over 9.5 million eligible beneficiaries  through TRICARE. Under TRICARE, eligible beneficiaries may obtain care either from  military hospitals and clinics, referred to as military treatment facilities, or from civilian  providers. with Medicare, which VA described as the federal government’s standard  for purchasing care from private-sector providers.
We and MedPAC have reported that Medicare beneficiaries have  generally experienced few problems accessing physician services,  although access problems may exist in certain situations. For example,  in 2009, we reported that the percentage of Medicare beneficiaries who  reported major difficulties accessing specialty care was the same for  those living in urban areas and in rural areas in 2008—2.1 percent. We  also noted that the number of physicians billing Medicare for services had  increased between 2000 and 2007, suggesting that more physicians were  generally willing to accept Medicare patients. Some studies have found  that access-to-care problems may exist for certain types of Medicare  beneficiaries, such as those in fair or poor health, racial minorities, or  those living in the most remote areas. However, studies have also  suggested that factors other than payment rates, such as physician  capacity to accept patients and travel time, are important influences on  patient access to care. With respect to DOD’s TRICARE program, we  have reported that reimbursement rates and provider shortages in some  locations have hindered access to care. Additional studies by DOD have  cited reimbursement rates as the primary reason civilian providers may  be unwilling to accept TRICARE beneficiaries as patients.
DOD and VA have each made modifications to their payment  methodologies in an attempt to address concerns about access to care.  For example, both agencies pay higher rates in Alaska because of  concerns that providers would not accept their beneficiaries at Medicare  rates. In contrast to the Medicare rates it pays elsewhere, in Alaska, VA  and DOD pay providers using separate payment methodologies. In prior  reviews of DOD’s program, we have noted that there is little evidence  these increased payments improved patient access to care. We noted  that increased payment rates do little to address more systemic causes of  limited access, such as scarcity of physicians and patient transportation  difficulties.
We have also noted that the potential for payment rate changes to affect  patient access to care points to the need to monitor beneficiary access.   This type of monitoring is conducted by some federal agencies paying  providers at Medicare rates. For example, as part of its monitoring, CMS  conducts annual surveys of Medicare beneficiaries to assess their  satisfaction with care and their ability to access health care. Additionally,  in fiscal year 2004, in response to concerns about certain TRICARE  beneficiaries’ access to care from civilian providers, the Congress  directed DOD to monitor access through a survey of civilian providers.
As these concerns continued, DOD was further directed in fiscal year  2008 to conduct annual surveys of both beneficiaries and civilian  providers to determine the adequacy of access to health care and mental  health care providers for certain beneficiaries.

	IHS’s Federal CHS Program Primarily Paid Physicians at Their Billed Charges, Which Were Significantly Higher than What Medicare and Private Insurers Would Have Paid

More than 80 percent of IHS’s federal CHS program payments to  physicians for services provided in 2010 were paid to noncontracted  physicians at billed charges, rather than to contracted physicians at  negotiated, reduced rates. IHS’s federal CHS program payments to these  physicians were significantly higher than what we estimate Medicare and  private insurers would have paid for these same services.

		IHS’s Federal CHS Program Paid More than 80 Percent of Total Payments to Physicians at Billed Charges for Services Provided in 2010

More than 80 percent of IHS’s federal CHS program payments to  physicians for services provided in 2010 were paid to noncontracted  physicians at billed charges, rather than to contracted physicians at  negotiated, reduced rates. With the exception of uninsured patients, who  are expected to pay providers at billed charges, other public and private  payers typically pay providers at lower rates.$62.5 million that federal CHS programs paid physicians, they paid about  $50.5 million (about 81 percent) to noncontracted physicians at billed  charges and about $12.1 million (19 percent) to contracted physicians at  negotiated, reduced rates. IHS’s federal CHS program payments to other   However, of the   types of nonhospital providers for services provided in 2010 showed  similar trends. Specifically, the federal CHS programs paid $40.3 million  out of a total of $52.1 million (77 percent) to other noncontracted  nonhospital providers at billed charges and about $11.8 million (about   23 percent) to other contracted nonhospital providers at negotiated,  reduced rates. (See fig. 4.)
While IHS’s policy states that CHS programs should purchase services  from contracted providers in most situations, a significant majority of  physicians paid by federal CHS programs for services provided in 2010  did not have contracts. Specifically, of the 3,531 total physicians paid by  federal CHS programs for services provided in 2010, 3,085 were  noncontracted physicians paid at billed charges and 516 were contracted  physicians paid at negotiated, reduced rates for at least some of their  services. Although IHS’s policy also states that contracting efforts  should be focused on high-volume providers, the majority of these high- volume providers did not have contracts. For example, on the basis of the  number of services provided, about 78 percent of the top 25 percent of  physicians did not have contracts, nor did about 74 percent of the top   5 percent of physicians. In addition, an examination of the data by area  office showed that noncontracted physicians constituted the majority of  paid physicians in all IHS areas. Specifically, for each of the 10 IHS areas  with federally operated CHS programs, noncontracted physicians  constituted more than two-thirds of all physicians paid for services  provided in 2010. (See fig. 5.) For all other nonhospital providers, the  numbers of contracted and noncontracted providers showed similar  trends. Specifically, of the 3,590 other nonhospital providers paid for  services provided in 2010, 3,145 other nonhospital providers did not have  contracts and were paid at billed charges and 507 other nonhospital  providers did have contracts and were paid at negotiated, reduced rates  for at least some of their services.
For those physicians whom IHS’s federal CHS programs paid under  contracts for reduced rates, the programs achieved significant savings  relative to the physicians’ billed charges. Specifically, the federal CHS  programs paid about $12.1 million for these services, which represented  an estimated $16.7 million (58 percent) in savings, relative to the  physicians’ billed charges. The percentage of savings was fairly  consistent across the IHS area offices. The savings attributed to  physician contracts ranged from 50.4 percent in the Aberdeen and  Albuquerque Areas to 69.1 percent in the Phoenix Area. (See table 1.)  IHS’s federal CHS programs’ savings from contracts with other  nonhospital providers showed similar trends, achieving estimated savings  of 68 percent, or $25.3 million, relative to billed charges.
IHS’s federal CHS program payments to physicians for services provided  in 2010 were higher than what we estimate Medicare and private insurers  would have paid for these same services. These higher payments  resulted from payments federal CHS programs made to noncontracted  physicians at billed charges, as the CHS program generally paid  contracted physicians at rates similar to Medicare.
IHS’s federal CHS programs paid, in total, two times what we estimate  Medicare would have paid for the same physician services provided in  2010. Specifically, of the $62.5 million in total payments for services  provided in 2010, the federal CHS programs could have saved an  estimated $31.7 million if they paid physicians what Medicare would have  paid for the same services. The federal CHS programs could have used  these savings to pay for more than double the number of physician  services they provided in 2010—approximately 253,000 additional  physician services (based on an average Medicare rate of $125 per IHS  physician service). Further, savings for the overall CHS program may be  even higher, as this analysis does not include payments for other types of  nonhospital services paid by the federal CHS programs, as well as  payments by tribally operated CHS programs, which receive over half of  annual CHS program funding and have also been found to pay for  nonhospital services above the Medicare rates. For example, a 2009  OIG report found that there was no difference between federally and  tribally operated CHS programs in terms of the percentages of  nonhospital claims paid above Medicare rates. It estimated that  federally and tribally operated CHS programs could have saved almost  half of total spending on nonhospital services if nonhospital payments  were capped at Medicare rates. This suggests that both federally and  tribally operated CHS programs are likely to achieve significant savings if  they paid physicians and other nonhospital providers according to what  Medicare would have paid for the same services. The potential for  savings is particularly significant in light of the CHS program’s inability to  pay for all needed services.
IHS’s federal CHS programs paid physicians at rates that were higher  than Medicare rates because they primarily paid physicians at their billed  charges. Services provided by noncontracted physicians accounted for  approximately $30.5 million of the $31.7 million in estimated total savings  (96 percent) for the federal CHS programs. Specifically, the federal CHS  programs paid noncontracted physicians a total of about $50.5 million at  billed charges, which was two and a half times what we estimate  Medicare would have paid for the same services (about $20 million). (See  fig. 6.)
Most, but not all, payments to contracted physicians were similar to what  Medicare would have paid. Federal CHS programs paid contracted  physicians about $12.1 million for services provided in 2010 and these  payments to contracted physicians accounted for approximately   $1.2 million of the $31.7 million in estimated total savings (about   4 percent). The federal CHS programs’ contracts with physicians were  sometimes for negotiated rates that exceeded what Medicare would have  paid. Specifically, slightly over one-third of total payments to contracted  physicians were higher than what we estimate Medicare would have paid.  However, most payments to contracted physicians were equal to or lower  than what we estimate Medicare would have paid.

	Most Physicians We Interviewed Said CHS Program Payments Were a Small Part of Their Total Payments and Cited Both Advantages and Concerns about Capping Payments at Medicare Rates

Most of the 10 physicians whom we interviewed indicated that the CHS  program represented a small portion of their practice and was not a  significant source of revenue. The physicians identified advantages of  capping CHS program payments for nonhospital services, including  physician services, at Medicare rates, but also expressed concerns about  the effect of such a cap on their finances.

		Physicians We Interviewed Said CHS Program Payments Were Generally Less than 10 Percent of Their Total Practice Payments and Were Often at Medicare Rates

According to most of the 10 physicians whom we interviewed, the CHS  program represented a small portion of their practice. All of the physicians  we interviewed were among federal CHS programs’ top 25 percent of  physicians in terms of their volume of paid services in 2010. However,   8 of the 10 physicians said total CHS program payments constituted   10 percent or less of the total payments they received from all payers.  The remaining 2 physicians said the CHS program accounted for a larger  portion of their total payments. For example, payments from the CHS  program constituted 39 percent of total payments for 1 physician who was  located on a reservation. Payments from the CHS program to the other  physician, who was located near three reservations, constituted 15 to   20 percent of total payments.
The 10 physicians we interviewed were divided between those who were  paid above Medicare rates by the CHS program and those who were paid  at or below Medicare rates. According to IHS 2010 claims data, federal  CHS programs paid the 10 physicians we interviewed a total of about  $990,000. Four of the 10 physicians had a contract with the CHS program  and were paid at or below Medicare rates.with IHS saved the program about 60 percent relative to the physicians’  billed charges, which is comparable to the federal CHS programs’  percentage of estimated savings across all physician contracts in that  year. The other 6 physicians were paid by the CHS program at billed  charges that were higher than Medicare rates. For example, 1 physician  said he was paid at 133 percent of Medicare rates and another said he  was paid at 250 percent of Medicare rates.
In terms of other payers, most physicians we interviewed said they  received the majority of their payments from Medicare and Medicaid.  Eight of the 10 physicians said their payments from Medicare and  Medicaid were close to 50 percent or more of their total payments, private insurance and self-pay patients constituting most of their  remaining payments. Two of these 8 said that, respectively, they received  50 percent and 75 percent of their total payments from Medicare alone.  The remaining 2 of the 10 physicians said they received the majority of  their total payments from private insurance or self-pay patients. All   10 physicians reported that they are accepting new patients from all  payers, including Medicare and the CHS program.
Medicaid physician fees vary by state, but are generally less than the fees paid by  Medicare in that state. See Stephen Zuckerman, Aimee Williams, and Karen Stockley,  “Trends in Medicaid Physician Fees, 2003-2008,” Health Affairs, vol. 28, no. 3 (2009).

		Physicians We Interviewed Identified Both Advantages and Concerns with Capping CHS Program Payments at Medicare Rates

The 10 physicians we interviewed identified advantages of capping CHS  program payments for nonhospital services, including physician services,  at Medicare rates, but also expressed concerns about the effect of such a  cap on their finances. The 4 physicians who were already getting paid at  or below Medicare rates, as well as 4 of the other physicians who were  getting paid at higher billed charges, said such a cap would have little or  no effect on their practices. Two of these physicians noted that there  would be little effect because the CHS program is a small percentage of  their practice. The remaining 2 of these 10 physicians, who were paid at  higher billed charges, cited concerns that a cap could affect their finances  or patient access to care.
Six of the physicians we interviewed, three of whom were paid at or below  Medicare rates, said they would support a cap on CHS program  payments for nonhospital services, including physician services, at  Medicare rates and provided various rationales for their support. For  example, one physician said that capping CHS program payments for  nonhospital services at the Medicare rates is a “good idea” that would  save IHS money. This physician expected that capping the CHS program  payments would allow him to substantially decrease the time his practice  spends negotiating with different CHS programs, especially the numerous  tribal CHS programs in his area. Others noted that Medicare rates are  nearly universally accepted by physicians and, therefore, physicians are  familiar with the Medicare Physician Fee Schedule. One of these  physicians added that paying physicians according to Medicare rates  would allow all physicians to receive payment under a consistent  methodology. Another physician said he negotiated a contract with the  CHS program for lower, Medicare rates because, in his opinion, IHS  should not be paying physicians at billed charges that are higher than the  rates paid by Medicare. A physician paid by the CHS program at billed  charges higher than Medicare agreed that Medicare rates were  appropriate. He said that he is already receiving Medicare rates for many  patients because the majority of his work is done in a hospital and many  patients needing his services are older. Further, one physician noted that  such a cap could increase his practice’s CHS program payment, as he  currently receives Medicare Physician Fee Schedule rates from the CHS  program, but a cap on payments for nonhospital services could allow him  to be paid at the higher cost-based reimbursement that he receives from  Medicare.
Four of the physicians we interviewed, three of whom said they were paid  by the CHS program at billed charges higher than Medicare, did not  support such a cap and expressed varying concerns about its effect on  their finances and patient access to care. Specifically, two physicians  noted that if their CHS program payments were capped at Medicare rates  and Medicare rates were reduced in the future, this could have a  significant adverse financial effect on their practices.  One physician said  that reducing his rates to Medicare levels would not allow him to cover his  practice’s costs, as his billed charges are 133 percent of Medicare rates  and CHS program payments represented 39 percent of his practice. Two  physicians also indicated that certain specialists might be particularly  affected by a cap at Medicare rates. For example, one physician noted  that there have been significant reductions in Medicare rates for certain  cardiology services in recent years. The other physician said that an  orthopedic practice in his area that had previously contracted with a CHS  program decided to stop accepting tribal patients at Medicare rates. Two  physicians also noted they use the higher payments from the CHS  program and private payers to compensate for their payments from  Medicare and Medicaid, which they indicated do not cover their costs for  providing care.
Three physicians who did not support a cap on CHS program payments  for nonhospital services, including physician services, at Medicare rates  said they would support a rate cap set at a higher payment rate than  Medicare but lower than billed charges. Two of the physicians suggested  a cap set at a percent of their billed charges, while the third suggested a  cap set at 125 to 133 percent of the Medicare rates.
The Medicare Physician Fee Schedule is updated annually under the sustainable  growth rate system, with the intent of limiting the total growth in Medicare spending for  physician services over time. Because of rapid growth in Medicare spending for physician  services, the sustainable growth rate has called for fee reductions since 2002. However,  the Congress has averted such fee reductions for 2003 through 2013. Under current law,  Medicare’s fees to physicians are scheduled to be reduced by about 27 percent in 2014.  See 42 U.S.C. § 1395w-4(d).
When we asked physicians if they had any concerns unrelated to CHS  program payment rates but that have had a financial effect on their  practice, all 10 cited challenges processing their CHS program payment  requests or receiving timely claims payment. The physicians said, for  example, that to receive payment from the CHS program they spent a  disproportionate amount of time, relative to other payers, gathering  paperwork in support of payment requests or monitoring the progress of  those requests. Specifically, 1 physician indicated that she received the  same rates as Medicare for the CHS program, but her claims processing  costs for the CHS program were significantly higher than for Medicare.  Physicians’ concerns about claims administration echoed those that we  heard from physicians as part of a 2011 report examining the CHS  program.

	Most Hospitals We Interviewed Indicated Little Negative Effect from the Current MLR Requirement, as They Already Had CHS Program Contracts to Be Paid at Medicare Rates

Officials from most of the nine hospitals that we interviewed indicated that  the MLR requirement has had little or no financial effect on their  hospital. They said the CHS program accounted for a small percentage  of their total payments. Officials from eight of the nine hospitals said the  program accounted for between 0.02 and 10 percent of their total  payments;accounted for about 14 percent of its total payments.   officials from the other hospital said the CHS program  Officials from seven of the nine hospitals noted that the CHS program  already paid them at Medicare rates prior to implementation of the MLR  requirement. Of these seven, officials from five hospitals said the  implementation of the MLR requirement has had little or no financial effect  on their hospital. Officials from the other two of the seven hospitals did  not experience a change in rates from the implementation of MLR, but  they had concerns with Medicare payment rates in general, saying they  do not cover their hospital’s costs of providing patient services. For each  of the two hospitals, officials said that the Medicare program accounted  for a larger portion of their payments than the CHS program—29 percent  and 28 percent, while the CHS program accounted for 0.02 percent.
Officials from two hospitals indicated that the MLR requirement reduced  their payment rate. Officials from one of these hospitals said that, prior to  the implementation of the MLR requirement, the hospital had a contract to  be paid by the CHS program at 90 percent of its billed charges; an official  from the other hospital said the CHS program had paid it at 100 percent  of its billed charges. The official described these previous rates as  “ridiculous” because no other payer they interacted with paid such high  rates. Officials from both hospitals indicated that they are now paid at  MLRs. Officials from both of these hospitals noted that they see most  CHS program patients through the emergency room and their hospital  has an obligation under the Emergency Medical Treatment and Active  Labor Act (EMTALA) to treat them regardless of their ability to pay.  Officials from one of the hospitals that did not experience a decrease in  rates also noted its EMTALA obligation in the context of access to care.
Medicare designates some small, rural hospitals as CAHs, which allows them to be paid  at higher rates under a different payment methodology. not have the funding flexibility to settle with hospitals if the interim report  is later determined to need adjustment.
While the implementation of the MLR requirement had little financial effect  on most of the hospitals that we interviewed, officials from all nine  hospitals cited other factors that affected the payments they received  from the CHS program. For example, officials from seven hospitals said  they experienced problems having claims paid in a timely way by the  CHS program or that they spent more staff time processing CHS program  claims than they did for other payers. hospitals added that they were negatively affected when IHS made the  decision to close the emergency room in local IHS facilities because this  resulted in an increased patient load that placed greater pressure on their  emergency rooms.
We previously reported that a selection of hospital and office-based providers described  similar burdens resulting from their interactions with the CHS program, including  challenges in determining patient eligibility for CHS payment of services, in obtaining CHS  payment, and in receiving communications on CHS policies and procedures from IHS  related to payment. See GAO-11-767.

	IHS and Tribal Officials Said the MLR Requirement Allowed Them to Expand Access and Said That a Similar Cap for Nonhospital Services Could Have Similar Benefits

IHS and tribal officials we interviewed said that setting payments for  hospital services at MLRs (as required by statute) allowed the CHS  program to reduce payments and expand access to care. They also  agreed that a cap on payments to nonhospital providers, including  physicians, could have similar benefits, although some officials noted that  these benefits may not be achieved by all CHS programs.

		IHS and Tribal Officials We Interviewed Said the MLR Requirement Allowed Them to Reduce Payments to Hospitals and Expand Access to Care

IHS and tribal officials we interviewed said that the implementation of the  MLR requirement in 2007 allowed the CHS program to reduce payments  for hospital services. Although IHS officials told us that prior to the  implementation of the MLR requirement, area offices had negotiated to  pay many hospitals at Medicare rates, officials we interviewed from four  of the six area offices noted that some hospitals were unwilling to  negotiate reduced rates and therefore were paid at billed charges. The  MLR requirement required these hospitals to accept Medicare rates. IHS  officials noted that tribally operated CHS programs likely experienced  more savings from the MLR requirement than federally operated CHS  programs because tribally operated CHS programs were generally less  successful at negotiating contracts with hospitals for reduced rates.  Officials from three tribes, for example, told us that they had difficulty  negotiating for reduced rates with hospitals and the MLR requirement  enabled them to pay lower rates than they had been able to negotiate.  Overall, the tribal officials we interviewed agreed that the MLR  requirement benefited tribal programs by allowing them to achieve  savings. IHS officials also indicated that the MLR requirement allowed  them to devote less staff time to negotiating contracts for hospital  services at lower rates. One tribal official also noted that her tribe had  already successfully contracted with hospitals for Medicare rates, but said  that the MLR requirement allowed the tribe to save the time and staff  resources it had spent negotiating contracts.
IHS and tribal officials indicated that reduced payments from the MLR  requirement allowed the CHS program to expand access to care. For  example, officials from two area offices said that the lower rates from the  implementation of the MLR requirement have allowed some federal CHS  programs that could previously only fund high-priority (priority level I)  cases to now fund both priority level I and priority level II cases—cases  that would have previously been deferred or denied. IHS officials  indicated that the lower payment rates paid to providers under the MLR  requirement have also allowed IHS to sustain the Catastrophic Health  Emergency Fund (CHEF) longer than it could prior to the implementation  of MLR because the higher payment rates would deplete the fund earlier  in the fiscal year. They said that IHS is now able to reimburse CHS  programs for more high-cost medical cases under CHEF than it could  prior to the implementation of the MLR requirement. In addition, IHS  officials said that, prior to the implementation of the MLR requirement,  hospitals were not required to accept IHS patients and would sometimes  turn them away in nonemergency situations. As part of the MLR  requirement, Medicare-participating hospitals are required to accept IHS  patients at the MLR rates, which IHS officials said has expanded access  to care for IHS patients.
IHS and tribal officials we interviewed did not identify any ongoing  challenges with patient access to care related to implementation of the  MLR requirement. Officials from three area offices said that they were not  aware of any challenges resulting from the implementation of the MLR  requirement, although officials from the other three area offices and some  tribal officials said that there were some initial challenges. They said that  some hospitals initially refused to accept the new rates, so CHS program  staff may have had to spend time educating them about the new  requirement. They noted that the hospitals eventually accepted the  required rates and it did not negatively affect patient access to care.

		IHS and Tribal Officials Described Challenges Contracting with Nonhospital Providers for Reduced Rates and Said That a Cap at Medicare Rates Could Be Beneficial, despite Certain Concerns

IHS and tribal officials said CHS programs experienced challenges  contracting for negotiated rates with nonhospital providers. Five of the six  IHS area offices that we interviewed acknowledged that they were  unlikely to be able to negotiate with many additional providers. Officials  from all six area offices described their efforts to contract with any known  nonhospital providers, which included sending contract documentation to  frequently used providers or new providers in their areas. However,  officials from three area offices noted that many providers do not respond.  Officials from two area offices said that there can be challenges  negotiating contracts in rural areas served by a single physician who may  have little incentive to negotiate a reduced rate. Area office officials also  noted that certain physician subspecialties, such as those providing  services for cancer or kidney disease, tend to be more resistant to  negotiating contracts. The officials said that this could be because these  physicians see fewer CHS program patients or because the physicians  believe that the lower rate would not cover their cost of doing business.  These challenges are not new for the CHS program. For example, in  1991, IHS stated that it had not been possible for the program to contract   The  with each of the 4,600 professionals that it used on a regular basis.agency noted that it had experienced difficulty negotiating contracts  because many providers were unwilling to contract and the area offices  lacked the resources necessary to negotiate contracts. Tribal officials  described similar challenges related to contracting. In addition, some  tribal officials noted that nonhospital providers are particularly hesitant to  negotiate contracts because of a history of problems getting paid in a  timely way by the CHS program.
Officials from all six of the area offices said that a cap on nonhospital  services, including physician services, at Medicare rates would reduce  payments to providers and they believed that the overall effect for the  CHS program would be positive. Officials from all six area offices  specifically cited the resulting financial savings from the cap and indicated  that this would allow the CHS programs to pay for more care. Officials  from four area offices noted that a cap would be particularly beneficial in  lowering the cost of certain high-cost nonhospital services, such as  cancer treatments, dialysis, and air ambulance services. Officials from  some of these areas said that providers of these services have been less  likely to negotiate contracts. IHS headquarters also identified these same  services as high-volume and high-cost services that could benefit from a  rate cap. Officials from two area offices added that a cap based on an  established fee schedule would help standardize the rates that CHS  programs pay physicians, which would make it easier for programs to  estimate their spending. Officials from one area office indicated that it  was time consuming to identify physicians and attempt to negotiate  contracts for lower rates, and a cap would eliminate the need for these  efforts. However, IHS headquarters officials told us that they would not  be able to implement a cap for nonhospital services, including physician  services, unless the agency received explicit statutory authority to do so,  because the current law requiring MLRs is limited to hospital services.
The other two area offices indicated that they did not expect a cap on nonhospital  services to create any problems with patient access to care.
Medicare payment rates using the different payment methodologies used  by CMS. BCSBNM officials also noted that a cap on nonhospital  providers would require them to implement changes to their payment  system to track and collect additional claims data. Officials from one  area office noted that the added complexity could be especially  challenging for tribal CHS programs that do not contract with a fiscal  intermediary to process their claims. Similarly, officials from one tribal  area indicated that it was difficult for some tribes to learn how to calculate  hospital rates when the MLR requirement was implemented, and they  expected that calculating rates for nonhospital services would be more  challenging.
The tribal officials that we interviewed agreed that a cap on payments for  nonhospital services, including physician services, could reduce CHS  program payments to providers and achieve savings, although some  officials noted that these benefits may not be achieved by all CHS  programs. Some tribal officials indicated that a cap on nonhospital  services at Medicare rates could save them money. For example, officials  from one tribe said that, because individual providers had been unwilling  to contract with them, they contract with a private insurer to utilize the  rates that insurer has negotiated with providers. However, the tribal  officials noted that the insurer’s negotiated rates are still higher than  Medicare rates, so capping CHS program payments for nonhospital  services at Medicare rates would allow the tribe to further lower its rates  without having to contract with the private insurer. They indicated that  these savings would allow them to expand patient access to care.  However, officials from some tribes worried that a cap could result in  access-to-care problems if physicians decided to stop seeing CHS  program patients because of the lower payment rates. For example, tribal  officials from one area noted that, while a cap could be beneficial for the  general CHS program, it could lead to problems for certain tribes. They  said that some physicians serving a large, rural tribe in their area had  already chosen not to participate in Medicare because of the low payment  rates. IHS headquarters officials noted that they had heard similar  concerns during their discussions with tribal officials, although the tribal  officials had generally been supportive of a cap to reduce CHS program  payments for nonhospital services, including physician services.
IHS officials indicated that it would be important to monitor patient access  to care if CHS program payment rates for nonhospital services were  changed. The officials said that IHS currently tracks the number of  individuals who are unable to have care funded by the CHS program  because, for example, of a lack of funding. However, it does not have a  mechanism, such as a survey, to obtain information about patient access  to care and physicians’ willingness to accept CHS program payments.  They said that IHS would likely be able to monitor these issues if  mechanisms were put in place prior to any changes in payment rates.

	Conclusions

IHS’s CHS program serves as an important resource for American Indian  and Alaska Native patients who need health care services that are not  available in federal and tribal facilities. However, most federally and  tribally operated CHS programs are unable to pay for all needed services,  which underscores the need for them to maximize the care they can  purchase within available funding. The 2007 implementation of the MLR  requirement for hospitals allowed IHS and tribes to reduce the cost of  hospital services and use those savings to pay for more care. Nonhospital  services, including physician services, were not included in the scope of  the MLR requirement, and the CHS program continues to rely on the  ability of area offices to negotiate contracts with individual providers for  reduced rates that are lower than billed charges. Since 1986, IHS policy  has stated that area offices should attempt to negotiate with providers at  rates that are no higher than Medicare rates, and IHS officials we  interviewed described time-consuming efforts to establish such contracts.  However, in 2010, IHS still primarily paid nonhospital providers, including  physicians, at their billed charges. Our findings, which indicate that IHS  could have saved an estimated $32 million out of the $62.5 million that  federally operated CHS programs spent on physician services provided in  2010, are consistent with a 2009 OIG report and a 2009 internal IHS  study. If trends in payments for other types of nonhospital services and  the tribal CHS programs are similar to the payments for the federal CHS  program physician services that we examined, we estimate that savings  from capping all nonhospital services paid by federal and tribal CHS  programs at Medicare rates could be significantly higher. These savings  could be used to pay for some of the many services that the CHS  program is unable to fund each year.
As a steward of public resources, IHS is responsible and accountable for  using taxpayer funds efficiently and effectively. Despite the OIG’s 2009  recommendation that IHS seek legislative authority to cap CHS program  payments for nonhospital providers, including physicians, the agency has  not pursued that authority. As a consequence, while other major federal  health care payers have based their payment methodologies on  Medicare, IHS still pays significantly higher billed charges for many  services. Setting CHS program physician and other nonhospital payments  at rates consistent with Medicare and the rates of these other federal  agencies would enable IHS to achieve needed savings that could be used  to expand patient access to health care. Moreover, given the possibility  that a change in payment rates could affect access to care in certain  areas, it is important that IHS put mechanisms in place to monitor patient  access to care to assess how new payment rates may benefit or impede  the availability of care.

	Matter for Congressional Consideration

Congress should consider imposing a cap on payments for physician and  other nonhospital services made through IHS’s CHS program that is  consistent with the rates paid by other federal agencies.

	Recommendation for Executive Action

Should the Congress decide to cap payments for physician and other  nonhospital services made through IHS’s CHS program, we recommend  that the Secretary of Health and Human Services direct the Director of  IHS to monitor CHS program patient access to physician and other  nonhospital care in order to assess how any new payment rates may  benefit or impede the availability of care.

	Agency Comments and Our Evaluation

We provided a draft of this report to HHS for review and received written  comments, which are reprinted in appendix I. HHS agreed with our  conclusions and our recommendation. Specifically, HHS indicated that  implementing a cap on CHS program payments to physicians and other  nonhospital services at Medicare rates would enable the CHS program to  fund additional services. HHS also indicated that monitoring patient  access to care in light of any payment changes is essential to providing  high-quality health care to American Indians and Alaska Natives.
We are sending copies of this report to the Secretary of Health and  Human Services 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 staff 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 this report. GAO staff who made major contributions to this report are  listed in appendix II.

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

Appendix II: GAO Contact and Staff Acknowledgments

	GAO Contact

	Staff Acknowledgments

In addition to the contact name above, Catina Bradley, Assistant Director;  Julianne Flowers; William Hadley; Sarah-Lynn McGrath; Lisa Motley;  Laurie Pachter; and Michael Rose made key contributions to this report.

Summary:
Why GAO Did This Study

Indians and Alaska Natives. When care at an IHS-funded facility is unavailable, IHS's CHS program pays for care from external providers. Hospitals are required to accept Medicare rates from federal and tribal CHS programs, while physicians and other nonhospital providers are paid at either billed charges or negotiated, reduced rates. The Patient Protection and Affordable Care Act requires GAO to compare CHS program payment rates with those of other public and private payers. GAO examined (1) how payments to physicians by IHS's federal CHS programs compare with what Medicare and private health insurers would have paid for the same services, (2) physicians' perspectives about how a cap on payment rates could affect them, (3) hospitals' perspectives about how the MLR requirement affected them, and (4) IHS and tribal officials' perspectives about the MLR requirement and a potential cap on nonhospital services. GAO compared 2010 physician claims data for federal CHS programs with the Medicare Physician Fee Schedule and claims from private insurers. GAO also spoke to a nongeneralizable sample of 10 physicians and 9 hospitals that interacted frequently with IHS and spoke to IHS and tribal officials where these providers practiced.

What GAO Found

The Indian Health Service's (IHS) federal contract health services (CHS) programs primarily paid physicians at their billed charges, which were significantly higher than what Medicare and private insurers would have paid for the same services. IHS's policy states that federal CHS programs should purchase services from contracted providers at negotiated, reduced rates. However, of the almost $63 million that the federal CHS programs paid for physician services provided in 2010, they paid about $51 million (81 percent) to physicians at billed charges and about $12 million (19 percent) to physicians at negotiated, reduced rates. Payments for other types of nonhospital services followed similar trends, with about $40 million out of $52 million (77 percent) paid at billed charges. GAO estimated that IHS's federal CHS programs paid two times as much as what Medicare would have paid and about one and a quarter times as much as what private insurers would have paid for the same physician services provided in 2010. If federal CHS programs had paid Medicare rates for these services, they could have used an estimated $32 million in savings to pay for many of the services that IHS is unable to fund each year. Savings for the overall CHS program may be even higher, as this analysis does not include other types of nonhospital services or the CHS program funding that goes to tribal CHS programs, which the Department of Health and Human Services' (HHS) Office of Inspector General found also paid for nonhospital care above Medicare rates.
Although the 10 physicians GAO interviewed were among those most frequently paid by federal CHS programs, 8 said their CHS program payments constituted 10 percent or less of their total payments. Some physicians identified ways that capping CHS program payments for nonhospital services, including physician services, at Medicare rates could benefit the CHS program and physician practices. However, other physicians were concerned that reducing payment rates to Medicare levels could negatively affect their practices.
Seven of nine hospitals GAO interviewed said the Medicare-like rates (MLR) required by statute had little negative effect, generally because they already had contracts with the CHS program to be paid Medicare rates. While two hospitals previously paid by the CHS program at or near billed charges said they were financially affected by the MLR requirement, both said it had not affected their delivery of care to CHS program patients.
IHS and tribal officials GAO interviewed said the MLR requirement for hospital services generated savings that allowed CHS programs to expand access to health care. They said that a cap on nonhospital service payments, including physician services, could have benefits and challenges. Most IHS officials indicated that it was unlikely they could negotiate many more contracts. Some tribal officials said that some physicians might think Medicare rates were too low and decide to no longer accept tribal patients, although they agreed that a cap at these rates could save money. IHS officials noted, however, that they would not be able to implement a cap for nonhospital services, including physician services, unless the agency received explicit statutory authority to do so.
HHS stated in its comments that it concurred with GAO's conclusions and recommendation and added that imposing a cap at Medicare rates would allow IHS to fund additional services.

What GAO Recommends

Congress should consider capping CHS program payments for nonhospital services, including physician services, at rates comparable to other federal programs. Should Congress cap payments, we recommend HHS direct IHS to monitor access to care.