Deparment of Health and Human Services


OFFICE 

INSPECTOR GENERAL


INDIAN HEALTH SERVICE


MEDICARE AND MEDICAID PAYMENTS


MAAGE:MNT ADVISORY REPORT


t.IlVJCE$. 

Richard P. Kusserow 

INSPECTOR GENERAL 

"0 MAY 1991 

;clt""Ia 
Deparment of Health and Human Services


OFFICE 

INSPECTOR GENERAL


INDIAN HEALTH SERVICE


MEDICARE AND MEDICAID PAYMENTS


MAAGEMENT ADVISORY REPORT


~ St.IlV'CES . 

Richard P. Kusserow 

INSPECTOR GENERAL 

'0 + OEI-07-89-00941 

;clt"dla 
EXECUTIVE SUMMARY


PURPOSE 

To assess the appropriateness of retaning or elimnating the Indian Health Service (lS) 

multi-year account now that all of the IHS hospita facilties have met the Health Ca Financing 

Admnistration (HCFA) requirements for parcipation in the Medcar and Medcaid Progrs. 

BACKGROUND 

Cunnt legislation requires that Medcar and Mecaid payments due to ms hospitas be held 

by the Secrta ofDHHS in the Secretar spial fund acount and use by hi exclusively 

for makng improvements in hospita facilties that ar necssar to achieve compliace with 

HCFA' s conditions of parcipation. The legislation provide for the speia fund account only 

until such time that the Secrta certfied that substatially all of the il facties have met 

these conditions and standads. rns reuirs that paymnts due ms hospita facilties be routed 

by the Medicar Fiscal Intennedar and the Medcaid State Agencies thugh IHS Centr 

Offce, which in tu "apportons" the funds to IHS ara offces for distrbution to the individual 

rns hospitas.


FINDINGS 

Substantially all of the rns hospital facilties have met the HCFA conditions of 

parcipation since 1981. In fact, at the tie of our review, all of them met those 

conditions. 

The "Indian Health Car Improvement Act" contiues to pennt Medcar and Medcaid 

monies to be deposited into the Secretar s special fund account even though all of these 

facilties have met the HCF A conditions of parcipation. 

The Secrta s special fund account for Medcar and Medcaid payments is vulnerable to 

abuse. 

RECOMMENDATIONS 

The IHS should phase out the Secretar s special fund account and expetio sly develop 

methods and procedurs by which all IHS hospitas can diectly receive and account for 

the use of Medicare and Medicaid funds. 

The IHS should seek legislation to expand the demonstrtion progr authorize by 

Public Law 100-713 to a more representative sample ofmS facilties and to modfy the 

restrctions imposed on the use of these funds. 
.................. ...................................................... ............ .................................................................. ........... 

TABLE OF CONTENTS


EXECUTIVE SUMMARY 

INRODUCTION.................................................................................................... ..


Purpose.............. .............................................. .....................................................


Background.................. ........................................ ...... ..........................................


FINDINGS .............................. 


REC 0 MMEND A TI 0 NS .............. 


DISCUSSION .......... 


CO MMENTS...................... .................................... ........ 


APPENDICES 

APPENDIX A: ASMB Comments................................................................. A­


APPEND IX B: HCFA Comments ...................................................................


APPENDIX C: PHS Comments .....................................................................

INTRODUCTION


PURPOSE 

To assess the appropriateness of retaning or eliminatig the Indian Health Servce (lS)

facilties multi-year account now that substatially all of the IHS hospita facilties have met the 

Health Cae Financing Admnistrtion (HCFA) reuirments for parcipation in the Medcar 

and Medicaid programs. 

BACKGROUND 

On September 30, 1976, Public Law 94-437, Indan Health Care Improvement Act was 

enacted by Congress. This law mad an exception to Sections 1395f(c) and 1395n(d), which 

prohibits payment of Medicar and Medcaid monies for tratment provide in Fedray owned 

hospita and skied nuring facilties. The law reuirs Medcar contrtors to deposit 

Medicare and Medcaid funds, which ar claied by ilS facilties, into the Secta spal fund account which is to be used to make improvements in its facilties. The funds deposited 

durng one fiscal year can be used durng that year and durg tWo succeeg year for expenses 

related to achieving and maintaing HCFA's stadads for prvider parcipation. The law 

furer provides under subsection (c) that the restrctions impose concering the collection and 

use of these funds would cease to apply once the Secta detenes and certfies that 

substatially all of the ilS hospitas and skilled nuring facilties ar in compliance with 

requirements and conditions as specifed under Title xv and XI for Medca and Medcaid 

parcipation. 

On Januar 4, 1975, Public Law 93-638, Indian SelfDetermnation and Edationa Assistance 

Act was enacted by Congrss. Congressional fmdings, as state in Section 2(a)(1), ar that "the 

prolonged Federa domination of Indian servce progr has served to reta rather than 

enhance the progress of Indian people and their communities by depriving Indians of the 

opponunity to develop leadership skills crcial to the realzation of self-goverent, and has 

denied to the Indian people an effective voice in the planning and implementation of program 

for the benefit of Indians which ar responsive to the tre nee of the Indian communities. 

On November 23, 1988 Public Law 100-713, Indian Health Care Amendents of 1988", was 

enacted by Congress. This law authorize ilS hospitas to collect tratment charges frm 

private insurce companies. Furer, this law authorize the establishment of a demonstrtion 

progr, beginning in October 1991 and ending September 30, 1995, in which four ilS hospita 

facilties, operatig under contract by Indian trbes or Alaka Native organizations,'would 

directly bil and receive reimbursement frm Medcar, Medcaid and third par insurce 

sources. The goal of this demonstrtion progr is to detennne if these ilS hospitas 

capable of biling, receiving and accounting for the use of these funds without 

direct IHS Headquarer s intervention, which is in accordce with the Indian Self 

Determination and Educational Assistance Act , Public Law 93-638, reauthorize as Public Law 
100-472. Upon conclusion of the progr, the Secta wil repon to Congrss concerning 

whether dict biling and reimburment should be expanded to other IHS hospita facilties 

which are operated under contrt. 

We have conducted discussions with offcias of IHS, the Joint Commssion on Accrtation of 

Health Ca Organizations (JCAHO), HCFA, and the Fiscal Intennedar for IHS Medcar 

claims, Blue Cross of New Mexico, concerning the rns hospitas ' certcation status, the 

deficiencies identified in these facilties and the routing of Medcar and Medcaid payments. In 

addition, previous government repons addressing Medcar and Medcaid funding to ilS 

hospita facilties were analyze. We have also contated Congressional sta to obtan the 

legislative history of Public Law 94-437 and Public Law 100-713. 
FINDINGS


Substantially all of the IHS hospitalfacilities have met the HCFA condions of parcipatn since 1981. In fact, at the time of our review, al of them met those condtions. 

The Genera Accounting Offce issued a letter repott, number B-211198, Subject: 

Medicare/Medicaid Fund Can Be Better Used To Correct Deficiencies in Indian Health 

Service Facilities" (GAO HRD-83-22), date August 16, 1983. In this document, the GAO 

advised the Secrta, that as of September 30, 1981, all of the rns facilties met the Medicare 

and Medicaid stadas, and that the Medicar and Medcaid funds were now being used to 

corrct stafmg deficiencies and to fund maintenance of the hospita facilties and equipment. 

The llS records establish that the majority of the rns hospitas were certed for Medcar and 

Medicaid parcipation in 1977, and that the last IHS hospita was certfied for Medcar and 

Medicaid parcipation in December 1983. All but tWo of the IHS hospitas ar accrte by the 

JCAHO. The remaning tWo facilties ar certed by the HCFA. It should be note that rns 

does not operate any skilled or intennedate car nuring facilties. 

The uindian Healh Care Improvement Act" continues to permit Mediare and Mediaid 

monies to be deposited into the Secretary s special fund account even though all of these 

facilitis have met the HCFA conditions for partcipaton. 

1395qq(a) is an exception to the prohibitions contaned in Sections 42 D. Title 42 C. 

1395f(c), and 1395n(d), which prohibited the issuance of Medcar and Medcaid payments to 

Federa facilties. Subsection (c) of this Title dited that Medcar and Medcaid payments be 

placed in a special fund and used for the exclusive purose of makg any improvements as may 

be needed to achieve compliance with the applicable Medcar and Medcaid conditions and 

requirements. This section of the law is operative only unti such time that substatially al of 

the rns facilties have met these conditions and stada. Once the Secta determes and 

certfies that the rns facilties have met these conditions and requirments, the facilties would 

then be eligible to receive payments diectly from the Medcare and Medicaid progrs. These 

funds would then be available for payment of operating expenses. 

However, even though all the IHS facilties meet Medcar conditions and stadas, the 

Secreta has not officially detennined and certed that this is the case. As a result, the 

Medicare and Medicaid funds continue to be deposited into the Secrta s speia fund account 

instead of being sent dictly to the IHS hospitas which provided the car and biled the 

Medicare and Medicaid programs.


The IHS records establish that in Fiscal Year 1989, the Medcar progr issued payments for 

tratments at IHS hospitas totalling $35, 103,789 and Medcaid payments were mae which 

totalled $39,716,363. The total Medicar and Medcaid reimbursement was $74 820, 152. 
The Secretar s special fund account for Mediare and Mediaid payments is vulnerable to 

abuse. 

The Secta s special fund account is vulnerable to abuse due to the legislative provision that 

allows the funds to be used over the cour of th fiscal years. Evidence of the vulnerabilty of 

this fund to abuse was reently uncovere by our offce. In one Ara Offce, we found that in 

excess of $2 millon of funds appropriated for Indian youth alcoholism progrs under Public 

Law 99-570 were apparntly divened to the Medcar and Medcaid facilties fund for the 

purose of caring over unspent progr funds into the next fiscal year. Without this diversion 

these funds would have revert to the Treasury. We have referred this situation to our Offce of 

Audit Services for furer review. 
RECOMMENDATIONS


The IRS should phase out the Secretary s speciafund account and expeditiously develop 

methods and procedures by which all IRS hospital can directly receive and account for the 

use of Medicare and Medicaidfunds. This can be accomplished by: 

The Assistant Secretar for Health developing and implementig appropriate accounting 

systems at all hospitals to bil, receive and account for the expenditure of Medicare and 

Medicaid funds. 

ilS should initiate action to develop appropriate accountig systems for use by al IHS 

hospitals. In addition, the IHS should establish appropriate audit controls and oversight to 

assure that the monies received and expended by the individual hospitas are utilzed in accordance with legal requirements. 

For those facilities, which are so small that it is not economically feasible to have accounting staf on site to implement this recommendation, an alternative would be to establish 

the responsibilty for accounting and expenditure control at the area offce rather than at 

the hospital facility. 

The HCFA Administrtor, in cooperation with the Assistat Secrtar for Health, preparng 

documents for the Secretar to offcially detennne and certfy that substantialy all of the 

IHS hospita facilties ar in compliance with the HCFA conditions for parcipation in the 

Medicare and Medicaid programs. 

This determination and cenification wil remove the restrctions on the dict payment and 

use of Medicar and Medicaid monies by ilS hospital facilties, as contaned in Title 

c. Section 1395qq(c). With the restrctions removed, individual IHS hospitas could 

be placed into direct payment when IHS has notified HCFA that appropriate accountig 

systems and audit controls are in place. 

The Assistant Secretar for Health, in cooperation with the Assistant Secretar for Management and Budget, eliminating the Secretar s special fund account into which Medicar 

and Medicaid payments are now deposited. The account could be phased out over several 

years. As each hospita or area office developed acceptable financial management 

capabilties, it could directly receive and use for operating expenses those Medicare and 

Medicaid payments which it collected. However, Medicare and Medicaid funds collected 

by those hospitals or area offices not yet capable of managig them could be deposited 

into the Secreta s special fund account to be maaged as currently done by IHS. Ultimately all hospitals or area offces would maage their own Medicar and Medicaid 

funds and the multi year account would be eliminated entiely. 
In eliminating the Secreta s Special fund account, the caning-over of funds would be 

governed by standad GAO fmancial management priciples, which depend on "purpose 

of use" and canover procedures (e.g. capita funds can be cared over). 

We recommend accomplishing the above four steps within five years. 

We believe that the ilS should expeditiously begin implementing the preceding 

recommendation. However, if this is not possible: 

IHS should seek legislation to expand the demonstration program authorized by Public Law 

100-713 to a more representative sample of IHS facilities and to modify the restrctions 

imposed on the use of these funds. 

The demonstration progr authorized by Public Law 100-713 authorized no more than four 

IRS facilities to receive dict Medicare and Medicaid reimbursement and to utilize these funds 

for facility improvements in order to meet and mainta HCFA's conditions for parcipation. 

This demonstrtion progr could be expanded to include facilties of varous bed sizes and to 

detennine the tye of accountig system and audit contrls that are best suited for use in smaller 

and larger facilties. 

The demonstration project could be expanded to include IHS facilties that parcipate in either 

the Medicare and/or the Medicaid program. Funher, the demonstration program should be 

modified to allow the use of Medicare and Medicaid funds for facilty operating expenses other 

than those related to maintaining HCFA' s conditions for parcipation. This would be in line with 

payments made to other federally supponed providers such as community health centers and 

migrant health centers. 
DISCUSSION


The proposal: 

is consistent with the goals of the Indian Self Determnation and Educational 

Assistance Act; 

would provide an incentive for IHS hospital facilities to aggressively pursue 

collection of Medicare, Medicaid, and third part payments since they would be 

allowed to retain and use these fu; 

would eliminate an accounting structure which is vulnerable to abuse; and, 

would promote the development offinancial management systems and exertise 

necessary for IHS hospitals to achieve greater management effectiveness. 

The proposal would allow funds now being exclusively tagete to mata Medcar and 

Medicaid certcation reuirments to be used for operating expenses. Ths would not 

jeopardize the certfication of the hospitas, since the Serce Unit Dirto would be responsible 

for ensurng that within annual funds available, includig reimburements, mataing Medcar 

and Medicaid progr accredtation would be his or her fU't prorty. Funds nee for ths 

purose would be reuested thugh the norm appropriations proess and would be subject to 

the usual oversight of the Deparental, OMB, and congrssional budget proesses. Ths would 

likely result in grater accountabilty and promote mor effective certcation progr. 

Overal, we believe that the Secrta s special fund for reeipt of Medcar and Medcai 

payments has served its original purose of briging IH facilties up to Medcar certcation 

stadards. Now rns is faced with new challenges in it s hospita progr. Among them ar: 

the effective collection of thir par payments (includig both private insurce and Medcar 

and Medicaid payments); the development of effective financial management and accountig 

systems in the hospitals and area offces; and promoting self determnation of Indi trbes. The 

fmancial management strctue established for past year' problems is inappropriate to tackle the 

new ones. 
COMMENTS


We received comments to the dr of this repon frm the Assistat Secreta for Management 

and Budget (ASMB), the Assistat Secta for Health (ASH), and the Admistrtor for the 

Health Care Financing Admnistrtion (HCFA). Based on these comments, we have 

appropriate changes to this repone These comments ar included in Appendices A-C of this 

repone 

The ASMB supponed the 010 findings, but recommende that we expand our descrption of the 

proposal (page 6) to clary that our proposal would alow funds now being exclusively tageted 

to mainta Medicar and Medicaid certfication reuirments to be used for other operatig 

expenses. They also suggested we clarfy that the Service Unit Director of the facilty would 

continue to be responsible for assurng that the IHS facilty met and maintaned Medcar and 

Medicaid progr accrtation. 

We agre with their comments and have incorporated this language in the repone 

The HCFA fully support the 010 recommendations of this report, but noted that they would 

need additional fundig to cover the costs associated with the certfication, audit and other 

adinistrative costs for HCFA and Medcar contrctors to perfonn nee reviews of IHS 

hospita facilties. 

The PHS did not concur with the 010 reommendations. 

PHS believes that the present system, in which Medcar and Medicaid funds ar retued to the 

Areas that provided the services and ar earked only to elimnate deficiencies in each health 

care facilty, has worked well and they see no clinical or admnistrtive advantage to changing 

the system. They estimate that implementation of our recommendations would reuir at least 

10 additional employees at each hospita to perfonn fmancial and certfication functions. 

The PHS also believes that the recommendations would crate accounting diculties. They cite 

that the process of biling and collection is contiuous. Collections received late in the fiscal 

year, if not expended, would reven to Treasur and would not be available to meet payrll costs 

for those staf funded by this activity. Since this is a cash account, adequate funds must be 

cared forward into the next fiscal year to meet payrll costs for at least th pay perod. 

The PHS also did not concur with our recommendation to expand demonstrtion progrs. 

They point out that the demonstration program was designed for the express pur of allowing 

trbally contrcted program to diectly bil and receive payments. These trbal contrt 

progrs have accounting systems and other fiscal contrls in place. On the other hand, rns 

facilties (operated by the Service Units) do not have separte accounting functions and canot 

meet Treasur and OAO requirments. PHS believes it would be counterprouctive and not cost 

effective to instal these accountig functions and fiscal contrls at local IHS-operated hospitas 

and facilties. 
OIG RESPONSE TO PHS COMMENTS 

We continue to support our reommendations. 

The cunnt system which permts nonnal approprations to rns and provides for a Secta 

special fund account bre arficial distinctions which impai the implementation of sound 

accounting, recordkeeping and management pratices. 

Restrctions that ar imposed o. the use of the Secta spial fund account hampes the 

abilty of PHS to plan and maage its progrs. These restrctions make it dicult for PHS to 

utilize these funds to respond to shortalls in IRS health progr. For example at the FY 1990 

Select Commttee on Indian Affais Budget Hearg, the Dirtor of the Indian Health Service 

testified that the IHS projecte a shortal for the il in FY 1989. Based on ths testiony, 

Congrss provided $14 millon above the Prsident s budget reommendation. At that tie (F 

1990), the Secrta s speial fund had a carover of $12,698,360. 

We believe that flexibilty is neeed in the use of Medcar and Medcaid reimburements so that 

ilS can fulf11 their mission of providing health car to Native Amricans. 

As far as accounting capabilties ar concerned the PHS cortive action for the High Risk 

Area: Management of the Indian Health Service (PHS-89-0J-HR)" cite in the Federal 

Managers Financial Integrity Act Report to the President and Congress date Decmber 1990, 

item 7, (pages 18- 19), appear to agr with our position that accounting functions and fiscal 

controls should be implemented at the local hospita level. IRS appropriations for FY 1991 

included $2 millon to implement this policy. 
APPENDIX A


ASMB COMMENTS 
\.

,. :. /:, . . , . . .

DEPARTMENT OF HEALTH !1 HUMAN SERVICES Office of the Secretary 

Washington . D. C. 020' 

OCT 2 5 1390 

MEMORANDUM TO THE INSPECTOR GENERAL
 Attn: Alan Levine . 

From . Kevin E. Moley 1-: ' oJ Assistant Secretary for ' Kanagement and Budget 

subj ect : OIG Management Advisory Report: "Indian Health Service 

-- Medicare and Medicaid Payments, " OEI-07-B9-00941


We have reviewed the OIG Management Advisory Report on IRS


Medicare and Medicaid Payments and fully support the findings, 

with one exception. We would propose that the first paragraph in


the Discussion section (page 6) be revised to read:

The proposal would allow funds now being exclusively targeted


to maintain Medicare and Medicaid certificatio requirements to be used for other operating expenses. This would not 

jeopardize the certification of hospitals, since the Service


Uni t Director would be responsible for ensuring that wi thin 

annual funds available, including reimbursements, maintaining


Medicare and Medicaid program accreditation would be his or


her first priority.


We support removing the current restrictions imposed on Medicare


and Medicaid funds, however, we believe we should extend


flexibility on the use of all funds -- both appropriations and


reimbursements -- rather than imposing a different set of


restrictions, as the OIG is proposing. Currently, approximately 

$65 million of Medicare and Medicaid collections are used


annually to fund staff positions, equipment, and some facility


structural improvements which are considered essential to


maintaining accreditation standards. We believe that the way the


management report proposal is drafted, all funds necessary for 

maintaining accreditation would be interpreted by the IHS and the 

Tribes as coming solely from annual appropriations. 

We prefer to lift administrative limitations. This should permit


Service Unit Directors to manage health care delivery within a


combined annual budget allocation, including direct


appropriations and reimbursements. Since collections would be 

retained by the billing facility, a strong incentive would exist


for maintaining accreditation so as not to lose the abi 1 i ty to 

bill Medicare, Medicaid, and other third party insurers for services. After meeting and maintaining standards of 

participation, any remaining funds could be used by a Se rv ice 

unit Director to expand programs and services to its serv ice 

population without jeopardizing accreditation, or qual i ty 


care. 
APPENDIX 


HCFA COMMENTS 
DEPARTMENT OF HEALTH II HUMAN SERVICE Financing Administraon 

DEe 3 Memorandum 

Date Gai R. Wilensky, Ph..t:rJ 

From dm;n; trtor 

OIG Management Advisory Report: "Indian Health Servce-Medicae and Subject Medicad Payments , OEI-07-89-00941 

The Inpector Genera 

Offce of the Secrta 

We have revewed the subject report which concern the appropriteness retaig or eliating the Indian Health Servce (ll) facities' multi- year account 

now that substatialy ail of the IHS hospital facities meet the Health Cae 

Financing Admitrtion (HCF A) requiements for parcipation in the Medicae 

and Medicad progr. 

The report recommends that the HCF A clm;ni trtor, in cooperation with the 

Assistant Secreta for Health prepare documents for the Secreta to offcialy determe and cert that substatilly al of the IH hospita facities are 

compliance with the HCF A conditions for parcipation in the Medicae and 

Medicad progrms. HCF A concurs with this recommendation. HCF A also 

encourages IRS to establish a review sytem immediately upon the adoption of any 

phase-in plan of direct payment to IHS hospitals to ensure that funding is stil used 

to maitain the certification status of the IHS facilties durg the OIG's S-year 

plan. 

Should the recommended action be implemented, the IRS hospitals would be 

subject to the same audit and reimbursement guidelines cuently in effect for other 

Medicare hospitals. Additional funding to cover the certifcation, audit and other 

administrarie costs for the IHS hospitals has not been included in our budget 

requests to date, and would require additional funds for the Medicare contractors 

involved. 

ThinK you for the opportunity to review and comment on thi fial repone 

Please advise us whether you agree with our position on the report 

recommendation at your earliest convenience. 
APPENDIX 


PHS COMMENTS


C - 1

:

, 

-:tL PDIG -:'z 

Memorandum 

4 155


Cate 

From As s i s tan t S e c r t a I' y for Rea 1 t h 

Sui;j PHS Co m= e : s on 0 f f ice 0 f s p e c tor G en era 1 (0 I G) Ma nag m e Advisory Re?ort " Indian Health Senrice--Medicare and Madica Payments 

Inspe:::or Gene:-al, OS 

Attached ara t:Je PHS comments .on the subj ect OIG manage::e ad'; i s 0 ry report. 

d 0 not con i t h the r e ? 0 r t - S r e co mm end a t ion s t h a : e I S s ould (1) phase out the multi-year facilities account deve::? me: ods and proced res by wh ch all Indian Eeal:h Ser7i:e (: 5) hos?i:als n di:-ec:ly receive and a::o n: fo:- t:Je use 0: M:dicare and Medicaid f nds, a d (2) see i s l a : i = n to t :J e demo n s t :- a t ion pro g r a au: her i zed b y 1 e e x ? a n
 Public ta 100-713 to a more representative sa ?le 0: facilities anc modify the restrictions i posed on the use 0: ese ::::::5. 

wit h I' e gar: to t h e fir s : r e c 0 mm end a t ion, the D H H S He a It h Ac:o n:ing 5yste= and its subsystems , currently in place greatly fa:ili:ate the nd control bet een hospitals and IE5


Area O::i::s and meets the require ents of Office of Managemen: 

and Budge: Cir:ular A-34 Instructions on Budget Execution.
 Medicare a c Medicaid funds a:e deposited into the multi-year s?e:ial a::ou t in accordance with appropriate statutes and a?prop:-ia:io:l acts. All funds collected from Medicare and Medicaid a=e returned to the IRS Area Office which collects the = and are g e n era 11 y ex? end e d b e S e rv ice Un i t t h a: 

provided the se:-vices. Y t 

Regarding the second recommendation , the demonstration program was designed to allow tribally contracted programs to directly


bill and receive payments. Progr ms that are contracted under the authority of Public La 93-638 have accounting systems and other fis cal trols in place which are aaequate for a proper s te ardshi? of Federal funds. IRS facilities which are 

ope=ated by IES do not have separate accounting syste s and


cannot meet the requirements of the Treasury and General
 Accounting Office to handle funds and comply with other


financial management requirements. We believe it would be
 counterproductive and not cost effective to institute this 

local IRS ope ated hospital or facility.
 l)e 

FEE 1 1991 6. Iv 

OFFiCE Of o. Ma son, M. D . , Dr. P . R . 

INSPECTOR GENE:\At: Attach::en= 
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PU-.cIC Eu..TH SERVICE CO ..NTS ON 

TEE OFFICE OF INSPECTOR G ' S NT JJVISORY REPOR


" I u IJ.. 1l.:..T5 SERVICE-!--EDID.RE Jo_ ..DIO_ID NTS " 

OEI-07-89-00941 

General Comments 

e rec= encation to have e Sec=eta=- cete Indian Esal 
 rvice (IES) hospitals a=e L substantial ccmDlia=ce e re ents and c:nditions ef T tle X-vIII and- Ti tle XIX of a positive step for 

e Sccial Secu=itv Act, while en e su=face 

e IES, may not be e best interest of


the Jo_ce::c:"r. The dete::ation of substantial cOI!:;lie."'ce of IES hospi tals - will rEmove e restrictions en t e di= ayment and use ef Medi a=e and Medicaid monies by IES facilities , as
 contained in Title 42 U. , section 1395 (c). Wi i:ns .removed pos ibl at some Medica=e and 

Mec runes would be a 7erte to ot er IES p== s c= t


e 1ES a ual a= =ia icn would bE red csd ac=== clv. 

der t s present syst Medica=e d Medicaid me iss c=llec sd y I=5 a=e utilized to c===ec de=iciencies 

c;-_ nis =ative e =ellence. 

c:.. - 'c 

fu. ds c=llec =d f=c= Me ca== c Medicaid a=e ret ==e to t ea whic c=llec == a 

c;e e==.ll:-- e:c e!:c.e.:: in t:.e S=:=Tice ur:it t::a.t t:.e 

ss:=.. ics.= . :f=="T:: 

The rscc daticn to phase out e m l ti-year facilities accou=t 

-c,--d develop met ods a d procedu,=es y which all IES J. ..- 1: vc"'.; 'Uc";; J." J."' .L (1) =c:...'-

....c.- ..---- --- .Q"; :o' ti_-'- - (2) c...c.ncor ""c""- ..__-Io o I. - P-__ C__ 10 ac_..un.._"'g -ys..== c:- ..- .."la 10 _c._ Extre!!elv well. 
 IES hos"Oitals c4l_sntl-"r use 
 E ES Eealt

c::ou. c Svsts! which is ene of
 e most sc'Chisticated a.'"C fle ible systems in use, to ccrrectly bill d collec Medicare and Medicaid fu.'"c.s. These funds' are de'Cosited in a multi-year accOw accord ce wi law and reguiation and prevent collecticns received late in e fiscal yea=, if not e ended, from reverting to the T=easu-


We believe the present system, L which Medicare and Medicaid 

funds are promptly and accu=ately collected and retu--ned to 


eas a t provided the services and are ea. ked only to elima te deficiencies in each health care facility, has worked well and we see no clinical or admistrative advantage to changing the system. 

Because there se s to be a very sianificant difference of


opinion, we would be pleased to meet with appropriate eIG . s aff 

and PHS/IHS staff to discuss and elaborate on the PHS pOS.:t on these very important issues. 
 _  ::..  .; , ;.. .... .. . .. .: .. .. ( ;. .. .. ., , 

Page 2


OIG Recommendation 

TE XES ''O UL PEA OCl 1! H!TI- FACJITIES ACCDrJ AN EIEDITIOUSLY DEVP J!ODS AN PROCEURS BY WHCH.A XES 

HOSFIV..S O.. DIRc:Y RECEIV AN ACCOUN FOR TE USE OF MEIC.u: .7.. HEICA FTS. THS QN BE ACCDMLISZ BY: 

sistant Secretary for Health developing an entincr a Dro riate account cr S7st s at
 all pitals to bIll, - receive and acc;un for the e:q?encitu=e of Medicare and Me icaid funds.


e IES should initiate action to develop appropriate ac== tin systems for use by 
 all IES hospitals. ition the IES should establish a Drc riate audit 

=ls and oversi ht to assure t- t. e monies receive


d ex ended by t. e - individual hos i tals are utilized L 

-- .. W_ I.,o. - c:- r:: e_.l.s. 

Fe= t cse facilities which are so s all t. at it is net 

Ec= cmicallv feasible to have ac= tinc: sta== en site t 

is recc endation, alte ative would
 e t= J. .J. --

'V-:--- ----- c_---_ o- a.. 1. e a_ e- c_ "-tw...,-.-

-=-=; c c- ------- 1.;Jc:_.I .-.


.1.; I.':-

PES COr..:ents 

We do ne conc Tbe IES operatec hos itals currently use the

F-=S EE=.lth Accounting System. This syste! wit. its subsystems is c e cf the mest sophisticated and flexible syst in use.


Ove= $20 billion a year in EES obligations 
 d e enditures a=s


==s ly eing proc=sse This system has been used to

co==sc ly bill and collect nearly $75 million of Mecicare anc 

Medicaid funds in FY 1989. The recommendation that IES
 ini tia t action to develop appropriate accounting syst s for
 use by all IES hospitals therefore, nei er necessar-I no= cost effective. 

The reccmmendation states at each hos ital should receive and


disburse the receit:ts. In order to conrlv with ent Tre=.su=-J d General Accounting Office 
eo ) regulations 


addi tio al posi tions would be requed for additional fince officers d certifying officers. These additional positions combined with the madated internal controls would' be requed for a proper separation of duties. The Division of Fiscal
 Services , Health Resources and Services Admistration, estimates that up to 10 full-tiJe employees would be required


to perfc the required services at each hospital that are now


being performed at the Area Offices.

..:.. .;; ; ,; , , ; , ...; .... .. .. .. .,; .,... .. .. .. ::.._::..; :__ .. .. 

Page 3


We believe this s unecessary because Area Offic s presently pe:!foDI t. e ove=s ght and have in place the audit: ccn:ols 

assure a y funds received are expended in accordance with legal
 requr ents. The EES Health AccountLTIg System aIe. its subsyst s, cuently in place, greatly fac litate the fund 

cont=ol between hos i tals and Area Off ces and t. e cversiaht of 

this pa=t of financIal management at hospitals, clinics and
 Area Offices. The system meets the rs re!Ients of t. e Office 

of Mana ement and Budget Ci=c lar A-34 " Inst ion on Budget Execution (OMB) 

OIG Recommendation 

The ECFA ACmnistrator, in coo eration wi sist 

Seo=eta 1 for Healt. , prepare documents for e Seoreta 

C.1 ..;.o:.. of t. e IES hospital facilities a.e in ccmplia:ce with 

con ticns for ici;a in e M= =a== 

r-w -

c.ete nation c. ce ification will r cve t:e

r=- ,-- .1C --_ on- n c: n- c._--_.. payme._ .,Q,.. ,. .. a...c. u-.,c: c.. ._ .: 7w-.-; -..- -.­ c.:_ .;c: 

caid monies bv IES hos ital facilities, as c=nta
 i- 1.-- -- .-". , -C_,-- C'C" 

.: '-_w - nc. 'c 'I_.. c.- c-;-

nto wI. .J- nen 

p=opriate acoounting systems and au 

""c i t controls are place. 

PES COIrl!ents 

We de net concu=. The Direotor, IES has the dele


authori tv for e manacrement and o eration of e Me icare and 

Medica - portions of Sections 401 and 402 of e Inc.i Eealth Care :=ovement Act and, as such, is e off cial authorized


to make the determ; nation of substantial com liance with the Act. Eeoause of is delegation, the Director, IES, is the 

appropriate official to prepare any documentation for the 

Secreta=-1, ERS, that would certify substantial compliance as


defined in Sections 401 and 402 of P . L. 94-437, Indi Health 

Care Improvement Act. Therefore Admnistrator of the Health Care 

we do not agree that the ancina st=ation

(ECFA) should prepare documents to fo liy certify at IES


facilities are in compliance with the conditions for
 participation. 

In order to better understand the PHS posi tion reg2. ing the


issue of detexmning that IBS facilities are in substantial
 compliance, the following info ation s subtted:
     ..,....,  ;   ..,  .. ....... ... . . : : ..,. 

Page 4


(1 ) Lecris la ti ve arund 

P . L. 94-437 - Indian Hea th Care Drovement Ac 

aut. orizec IR to bill and collect frcm Medicare 

and Mecicaid.


Funds collected are to be placed a special


fund to l:e used for the p ose of i:provement:s 

necessar.f to ach.eve complia,"'lce with c::nditions 

and requirements of Tit es 18 and 19. 

The special fund shall cease to apply wh the Sec:reta-ry, EE, dete es that substa."ltially all hos itals and ski led nu=sina facilities are


L"l c iia."lce.

The stat-:te states that e.y pa:fents received 

shall not l:e used L"l dete g a? :r::priaticns for heal re a."l ser7ices t= I 

P . L. 94- 43i states at re u=s e!lt f=cm 

Medicare. ar MeCicaid shall l:e used t= 

..u.=-- c--.. 1 = ..1. -- nc. t:r 

'.c: c.. 0.1 1 025 c; c--..- n -c:.;-- continue a=tici;ation i. ca== wc ld l:e contincrent on meetina 
 sta."ldards - t


amendment requres medicare pa:fents to 


a=kec for use in meeting and maintainL
 medicare sta."ldards. 

Senate Re?o 100-508, page 22, states " Given past Admnistration attempts to offset 


program decreases wi amcu. ts collected from 

Medi care a."'c. Medi caid re u=s S!Ien t t.i.e 

Comm ttee wishes to mae clear t. a t the 

authori tv to collect reimursements from 

Medicare- and Medicaid programs is conditioned upon such f ds being used only for
 e purose authorized L"l the Act, that is to achieve and 

maL tain c::mDliance with accreditation standards. II .. 

( 2) Joint Commssion on L e Ac:reditation of Healt. care 

Orcranizations 

IRS was directed bv e Concress to see.1c Joint 

Commssion accreditation rather than rely upon HCF 

certification. At the outset only 22 IES hospital! 
  ;.. ....,. . 

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Page 5


were accredited. Through a long process, IES has
 attaed accreditation of all its hospi als except one. At the prese:t tie there are 42 hos:;itals accredi ted and one at is certizied by EC?A. 

The IE is justly proud of ths accomplis ent. It has been no s ll task to ac:cmDlish 
 s feat. It is 2."' acccm'Clishment that is a d.iect rsscl-: of t. 

targetec and directed use of e funds c= tained 

the Secretary' s special fun


Joint Commssion standards are on a con 

oversight, assessment and direct actions relative to


patient care standards for all aspects of cirect


atient and outpatient care. This L"'cl ces t. various ancilla=-.i (laboratory, pha::c-.f) c.""C support services (biomedical services, fire safety c::ce 

en::orcS!ent). T1ls also L'rc.l c.es c:aily 
 .:ali ty

nc. n. 

..7' r"""" 1 c., .; c =ft 

c.- 1 c"" 4. .. ..- '-..-- - 1.;- J:; .; C!lc - Wo_""- sin le event, l:ut rather a dyn c precess L whic there is a constant 
 "'covering of c:eficienc es whic ""Co;' - - "0= i -

--1 ; -..1 -- ...1';-_.1: c,. ,.. c:-

0:- a!.c. ..i -- a_,,_- .:.._0.._- .". p_ 

hospi tals, as all other accredi hospi tals
 count , have many cited Tye One deficiencies whic ire cor=ection before nex-: s yey by 


Joint Commssion.


Failure t:: co==ec vce One
 e=iciencies c result in loss of Joint Commssion ac:rs tation which w then cause the facili tv to lose its Medica=e and 

icaid provider status and us lose its ability to
 1:e paid for e services providec. At t. e present

all Medicare and Medicaid monies collected are


=ked and utilized to correct these deficiencies


and maintain each hos i tal at the hicrhest level of clinical and admnistrative excellence. stated 

earlier, if IES hospitals are dete
 ed to 1:e substantial com-cliance with the reourements 2.'rd condi tions of Title XVIII and Title XIX of the Social Security Act, it 
 is possible that some MeCicare and


Medicaid funds could be diverted to other IES programs, or tha t the IES anual appropr tion would be reduced accordL"'gly. 

Standards are dynamc and eve: changing representig changes in the delivery of health care. These chancres must be addressed if ras facili ties are to 
.. ... 

Page 6


retain their accred. tad status. Loss of the d.ected 

na t e of the Medicare and Medicaid funCia would have untowa effect on the IE hea2t. care deli very s tem.

we agree at substatially all rES facilities have 

met the HCFA conditions for paricipation .i Medica=e 

or ac:=edi tation by e Joint commssion since 1981 ane at all 43 hospitals now meet ese conditions.

o hospitals are ac:=edi tad by the Joint 

CoIIssion and one is certified by RCFA. However, while we are justly proud of our facilities'


accreditation status, we must acknowledge the fact


that ey must maintain the accredited status if t."lev 

are to continue paricipation in both the Medicare ­

and Medicaid program. The maintenance of the


ac:=eCi ted status is mandatory if e facilities are


to c:ntL ue to receive pa:r.ents from each roq=am. 

we have stated .i 
 ast b dqet ents and also 

conqressicnal test ony, this ac:=mpl.ishm t is 

one of great importance to t.;.e L":S a. d also to the 

The . r=_ r..e - acc -1.--.. =-i

status of IES facilities is a feat of which IES 

ely roud and justifiably so. This feat has 

bee ac:=mplished as a direct res lt of e ta=;ete

anc. Cirected use of the Medicare d Medicaid funds. 

The S has grave concexn t. at if t. e Sec=et ' s ecial f is abolished, the f c.s ll be directed to general operating expenses. This action, while 

c=es:ti.'"g flexibili ty, would c.epri ve the clincal 

manat=ers of t.;.e one tool that they have to meet 

spec al funding needs to correct deficiencies

main ain ac:reditation of 
 ;.e facilities. The

ac:=editation of the facilities and mai. tenance of Medicare standards is one of the best 
 dications to

ass =e that t."'e highest quality of health care is bei c rendered. To do less would be not meetina

IES aoal and mission. It is for these reasons that


we telieve 
 at abolishing the Sec=eta- s special


fund is not in the best interest of IHS. 

OIG Recc endation 

The Assistant Secretary for Health, in cooperation with the sistant Secretary for agement and Budget,
 elL nating the multi-year facilities account into which Medicare d Medicaid payments are now deposited.

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c:::ulc The ec=oun e phasec cu eve: several yea= 

eac hcs or a:sa ofiica cevelo ec accs 

maa ent ca.:abili i=s, It could

si7e a:lc, use r OFe= g e ses these Medicarg and 

.:::a.ic: pa:l!e!l':~ which c::llec-:sc. Ecweve:, 1!s ca:e 

' V "! c '" ="a \... hcs 1. " -2 "1 

ci=i:es nc yet c :pe.le ci ma'"egin,; em coclc: be 

c:s-:cs:. ":ac i:1':: e mc1-:-vea= ac=::'t 't t: be menac a.s 

:'-'2 t: """'2i ""_..(8- - =-0:: .l 

.. v=-,..:
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e mul:i-yea: ac==un would be el :latsci ent =17. end 

We =soommenc ac= lis tls wi
 -:h ; n 5 yea=s. 

PES C::mmer.ts 

o nc-: c:::nc= . -rlle === pr:ac-:.;cal =easc:rs t: mci: i: i.s We 

-:rI -'2 enc: -..._w

- ; -0 w . 

e=s c: S C a c=s = C 

t:-'="""::: -=_t---"c:- ,i. m",= d'- -- .""-:""--


a: a t= tase. e a

..-- w-

.'t- 1T- ­Co .. 


- 'o - w.. 


=i= a: S 2 a::==: s17 =se ac=i 


$15 mill.icn. 

5 . at cve= t e pa: =n 3 Rec=mms=ca ces nc =;cc :e

c.::-o: .. ::u--1:": -F-- 'MC"::,.2--= 

c. :ma hos rn.-- w.-- - ---

=eoC - """I'' - M": tn- - i. - cne c.::- .. c=- -'w ..\o:...uc: ..c: 

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icn of e "Anti-Ce=i=i=n
 II lscal17 a=:c icnec i a v =l;

.:i==me!l-::S mC! ' be f.::unc! Q!E Ci=C' l:.= :No. A- I!::ese ==


!:lst::..c'tion er. -E1:d;et E:tsc: icn. 

Tb.e eli.:la .;cr. c:: m1.1ti- ea= au-: o:i"t-" for t. e e= endit=e c: 

f'"nc.s will rgsult i:l the i:s:3 cf f j,ds - collected. late eac:, 

the las 30 to
 scal vsa=. Fer t csa f ncs ccllsc ed wi q t. = fisc l vsa=, the
 =ocsss of
 60 C;7S. cf 


ior.ment ane. t:e
 f'l=- e!: == est.:j,q - e."'c, :r csi v:.q an ap:;o

allccat or. of f cs t= A=eas 
 d Ser7ics Ur ts will mcs

c::r:a. l V' rss'tl-: in oe lcs:s oi fiIc. if all f-:c's must. be 

s!=en - t. e fiscal year i."l which they e.-a collec-ed. 

Ccnc=ess :sc= i%e is issue
 d established the multi-


ac:cunts . 1=5 cees not wish to lose a:.1Y f-.c.s. MeClca:s anc: 

icai s ccllects must have , at a mi um, t. e ibili 
Page 8


to be used for one-full fiscal year beyond the year in which
 they were collected. 

The process of billing and collection s contiuous.


Collections received late in the fiscal year, if not expended
 would revert to 
 reasur and would not be available to meet payroll costs for those staf funded by ths act vi ty. Since this is a ,cash account, adeqte funds mut be caried forAa 

into the next fiscal year to meet payrll costs fer at least 

thee pay periods. his buffer is imo -at because the costs 

of payroll are fixed and the flow of collectons is vaiable.


A disru'Ction of health ca would be the inevitale resul t of 

furlough or te:cation of staff caused by a lack of funds to meet pay=oll costs. 

Medicare and Medicaid funds are deposited into t. e multi-year s'Cecial account in accordance with the statute and
 aD'CrotJriation acts. 
 he OM atJtJortions ths. authoritY to 

as - caile!i for by t. e public law- appropriating t. f':"la.s for t."l5 

operations of t.?Je IES. All func: collected from Mec..icare and 

Medicaic. are retu- ed to the Area Office which collec-:s then c."ld are generally expended by the Service trn! t a t provided 

the services.


OIG Reccmrendation 

TE ms SiOUL &J: LEGI5LON TO PROG A1JORIZED BY PUBC LAIOO-71.3 

.. TH DEHONSTRON ro A HOR 

RERES -AIV SHLE OF II FACIITS AN ro HODIF TH

RESTRCTIONS D!OSED ON TH USE OF THSE FTS. 

PHS Comments


We do not concur. We question the appropriateness of seekig legislation to expand t.?Je demonstration prograJ authorized by 

P. L. 100-713. he demonstration program was designed for the 

expres s purose of allowing tribally contrcted pro am to 

directly bill and receive payments. Program tht are contracted under authority of P. L. 93-638 have accou-"ltig systems in place and have other fiscal controls which meet all
 requirements. IES facilities (those operated by the Service 

Uni t) do not have separate accountig functions and canot meet 

the requirements of the Treasur and GAD to handle funds and 


other accounting functions. As we have stated elsewhere in


these comments 1 it would be counterproductive and 
 ot cost


effective to institute ths action at the local IES-operated 

hospi tal or facili ty.