INDIAN HEALTH 

SERVICE

Action Needed to 

Ensure Equitable 

Allocation of 

Resources for the 

Contract Health 

Service Program

Report to Congressional Addressees

June 2012

GAO-12-446

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United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-446, a report to 

congressional addressees

June 2012

INDIAN HEALTH SERVICE 

Action Needed to Ensure Equitable Allocation of 

Resources for the Contract Health Service Program

Why GAO Did This Study

IHS, an agency in the Department of 

Health and Human Services (HHS), 

provides health care to American 

Indians and Alaska Natives. When 

care at an IHS-funded facility is 

unavailable, IHS’s CHS program pays 

for care from non-IHS providers if the 

patient meets certain requirements and 

funding is available. The Patient 

Protection and Affordable Care Act 

requires GAO to study the 

administration of the CHS program, 

including a focus on the allocation of 

funds. IHS uses three primary methods 

to determine the allocation of CHS 

funds to the 12 IHS geographic area 

offices: base funding, which accounts 

for most of the allocation; annual

adjustments; and program increases, 

which are provided to expand the CHS 

program. GAO examined (1) the extent 

to which IHS’s allocation of CHS 

funding varied across IHS areas, and 

(2) what steps IHS has taken to 

address funding variation within the 

CHS program. GAO analyzed IHS 

funding data, reviewed agency 

documents and interviewed IHS and 

area office officials.

What GAO Recommends

GAO suggests that Congress consider 

requiring IHS to develop and use a

new method to allocate all CHS 

program funds to account for variations 

across areas, notwithstanding any 

restrictions now in federal law. GAO 

also recommends, among other things, 

IHS use actual counts of CHS users in 

methods for allocating CHS funds.

HHS concurred with two of GAO’s 

recommendations, but did not concur 

with the recommendation to use actual 

counts of CHS users. GAO believes 

that its recommendation would provide 

a more accurate count of CHS users.

What GAO Found

The Indian Health Service’s (IHS) allocation of contract health services (CHS) 

funds varied widely across the 12 IHS geographic areas. In fiscal year 2010, 

CHS funding ranged from nearly $17 million in one area to more than $95 million 

in another area. Per capita CHS funding for fiscal year 2010 also varied widely, 

ranging across the areas from $299 to $801 and was sometimes not related to 

the areas’ dependence on CHS inpatient services, as determined by the 

availability of IHS-funded hospitals. The allocation pattern of per capita CHS 

funds has been generally maintained from fiscal year 2001 through fiscal year 

2010. This is due to the reliance on base funding—which incorporates all CHS 

funding from the prior year to establish a new base each year—and accounts for 

the majority of funding. In fiscal year 2010, when CHS had its largest program 

increase and base funding was the smallest proportion of funding for any year, 

base funding still accounted for 82 percent of total CHS funds allocated to areas. 

Further, allocations of program increase funds are largely dependent on an 

estimate of CHS service users that is imprecise. IHS counts all users who 

obtained at least one service either funded by CHS or provided directly from an 

IHS-funded facility during the preceding 3-year period. This count therefore 

includes an unknown number of individuals who received IHS direct care only 

and who had not received contract health services. 

IHS has taken few steps to evaluate funding variation within the CHS program 

and IHS’s ability to address funding variations is limited by statute. IHS officials 

told GAO that the agency has not evaluated the effectiveness of base funding 

and the CHS Allocation Formula. Without such assessments, IHS cannot 

determine the extent to which the current variation in CHS funding accurately 

reflects variation in health care needs. While IHS has formed a workgroup to 

evaluate the existing formula for allocating program increases, the workgroup 

recommended, and the Director of IHS concurred, that the CHS Allocation 

Formula for distributing program increases would not be evaluated until at least 

2013. The workgroup members maintained that the CHS program had only 

begun receiving substantial increases in fiscal years 2009 and 2010, and the full 

impact of these increases needed to be reviewed before making 

recommendations to change the formula. However, GAO found that IHS has 

used the formula to allocate program increases, at least in part, in 5 years since 

2001. GAO also concluded that, because of the predominant influence of base 

funding and the relatively small contribution of program increases to overall CHS 

funding, it would take many years to achieve funding equity just by revising the 

methods for distributing CHS program increase funds. Further, federal law 

restricts IHS’s ability to reallocate funding, specifically limiting reductions in 

funding for certain tribally-operated programs, including some CHS programs, 

and imposing a congressional reporting requirement for proposed reductions in 

base funding of 5 percent or more. According to IHS officials, no such IHS 

proposal to reallocate base funding has ever been transmitted to the Congress.

View GAO-12-446. For more information, 

contact Kathleen M. King at (202) 512-7114 or 

kingk@gao.gov.
Page i GAO-12-446 Contract Health Service Funding

Letter 1 

Background 5

IHS’s Allocation of CHS Funds Has Varied across IHS Areas 15

IHS Has Taken Few Steps to Address the Funding Variation within 

the CHS Program 21

Conclusions 24

Matter for Congressional Consideration 25

Recommendations for Executive Action 25

Agency Comments and Our Evaluation 26

Appendix I Comments from the Department of Health and Human 

Services 29

Appendix II GAO Contact and Staff Acknowledgments 32

Table

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

Year 2010 16

Figures

Figure 1: Counties in the 12 IHS Areas 7

Figure 2: IHS’s Primary Methods of Determining the Allocation of 

CHS Funds to the Area Offices 11

Figure 3: Total CHS Funds Allocated to IHS Area Offices, Fiscal 

Years 2001 through 2010 15

Figure 4: Per Capita CHS Funding in Constant Dollars, Fiscal Years 

2001 and 2010, by Area 19

Figure 5: Allocation of CHS Funds, Fiscal Year 2010 20

Contents
Page ii GAO-12-446 Contract Health Service Funding

Abbreviations

CHS Contract Health Services

HHS Department of Health and Human Services

IHS Indian Health Service

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Page 1 GAO-12-446 Contract Health Service Funding

United States Government Accountability Office

Washington, DC 20548

June 15, 2012

Congressional Addressees

Adequate access to health care services for American Indians and Alaska 

Natives, including equitable access to care for those living in different 

geographic areas, has been a long-standing concern.1 The Indian Health 

Service (IHS) within the Department of Health and Human Services 

(HHS) is the federal agency overseeing health care services to 

approximately 1.9 million American Indians and Alaska Natives. Direct 

care services are those provided directly at hospitals, health centers, or 

health stations that may be federally or tribally operated2 and are located 

in 12 federally designated geographic areas overseen by IHS area 

offices.3 When services are not accessible or available at an IHS or tribal 

facility, IHS or the tribes may purchase them from other providers through 

the Contract Health Services (CHS) program. The CHS program is 

administered at the local level by individual CHS programs generally 

affiliated with IHS-funded facilities in each area.4

 

1

For example, see GAO, Indian Health Service: Health Care Services Are Not Always 

Available to Native Americans, 

These individual CHS 

programs may be federally or tribally operated.

GAO-05-789 (Washington, D.C.: Aug. 31, 2005); and 

Examining Tribal Programs and Initiatives Proposed in the President’s Fiscal Year 2011 

Budget, Before the Committee on Indian Affairs, 111th Congress 10 (2010) (statement of 

Yvette Roubideaux, Director, Indian Health Service).

2

Under the Indian Self-Determination and Education Assistance Act, as amended, 

federally recognized Indian tribes can enter into self-governance compacts or selfdetermination contracts with the Secretary of HHS to take over administration of IHS 

programs provided for the benefit of Indians and because of their status as Indians and 

previously administered by IHS on their behalf. Self-governance compacts allow tribes to 

consolidate and assume administration of all programs, services, activities, and 

competitive grants administered by IHS, or portions thereof, while self-determination 

contracts allow tribes to assume administration of a program, programs, or portions 

thereof. See 25 U.S.C. §§ 450f(a) (self determination contracts), 458aaa-4(b)(1) (selfgovernance compacts).

3

IHS’s 12 areas are Aberdeen, Alaska, Albuquerque, Bemidji, Billings, California, 

Nashville, Navajo, Oklahoma City, Phoenix, Portland, and Tucson.

4

For purposes of this report, we use the term “individual CHS program” to refer to an 

organizational unit that IHS calls an “operating unit,” “service unit,” or “facility.” 

 
 

Page 2 GAO-12-446 Contract Health Service Funding

Funding for the CHS program increased from $498 million in fiscal year 

2005 to $779 million in fiscal year 2010. CHS funds are allocated to each 

of the 12 area offices, which then allocate those funds to about 66 

individual federally administered CHS programs and about 177 individual 

tribally operated CHS programs.5 IHS allocates the majority of CHS funds 

to the IHS area offices as “base funding,” in which the IHS area offices 

distribute to each individual CHS program the same amount of CHS funds 

as they did in the previous year.6 Since the 1980s, we have reported that 

IHS’s base funding method contributes to funding disparities and 

inequities. For example, in 1982, we recommended that IHS abandon its 

reliance on base funding in order to distribute its funds more equitably; 

IHS did not agree with the recommendation.7 Similarly, in 1991, we 

suggested that the Congress should consider requiring IHS to distribute 

its funds with methods that give greater weight to measures of need; the 

Congress has not acted on our suggestion.8

Some IHS areas and individual CHS programs have the resources to 

support more health care services than others. For example, in a recent 

report we found that some federal CHS programs we surveyed were able 

to pay for all eligible CHS services in fiscal year 2009, while other 

programs reported that they were unable to fund even all of the highestpriority services for the full fiscal year.9

 

5

Congress has placed restrictions on the requirements that agencies may impose 

on tribes carrying out self-determination contracts or self-governance compacts. 

(See 25 U.S.C. §§ 450k(a) (self-determination contracts) and 458aaa-16 (self-governance 

compacts.) Consequently, tribally operated CHS programs are not generally subject to the 

same policies, procedures, and reporting requirements as federal CHS programs.

Similarly, IHS has found 

substantial differences across areas with its own measure of health care 

6

Federally operated CHS programs receive allocations of funds which authorize 

obligations and tribally operated CHS programs receive lump sum payments. In this 

report, we refer to both these allocations and these payments as distributions of funds by 

the area offices.

7

GAO, Indian Health Service Not Yet Distributing Funds Equitably Among Tribes, 

GAO/HRD-82-54 (July 2, 1982).

8

GAO, Indian Health Service: Funding Based on Historical Patterns, Not Need, 

GAO/HRD-91-5 (Feb. 21, 1991).

9

We also found that IHS did not have accurate data on deferrals and denials for CHS 

services from which to estimate funding needs for the CHS program. GAO, Indian Health 

Service: Increased Oversight Needed to Ensure Accuracy of Data for Estimating Contract 

Health Services, GAO-11-767 (Washington, D.C.: Sept. 23, 2011).
 

Page 3 GAO-12-446 Contract Health Service Funding

resources, the Federal Disparity Index. The index is intended to estimate 

health care resources available from all sources (including other sources 

of health care funding such as private health insurance and Medicare or 

Medicaid) and account for differences in health care needs across the 

areas. In fiscal year 2010, the index estimated that resources available in 

the most well-resourced of its 12 areas, relative to their need, were nearly 

50 percent higher than in the least-resourced area and that the most wellresourced individual CHS programs had resources more than three times 

greater than that of the programs with the least resources.

In 2001, the Director of IHS commissioned a CHS workgroup to develop a 

CHS formula to allocate funding increases above base funding amounts 

equitably across IHS areas according to variations in need (such as 

health care costs and access to services) across individual CHS 

programs. This workgroup reported a wide range in dependence on CHS 

for IHS-funded medical services among IHS areas. It cited examples of 

two areas in which CHS eligible patients were totally reliant on CHS for 

inpatient care,10

The Patient Protection and Affordable Care Act required GAO to examine 

the administration of the CHS program, including the allocation of funds.

and two additional areas where CHS eligible patients had 

very limited direct care options for inpatient services. In contrast, IHS 

officials reported that as few as 10 percent of potential CHS users 

actually used CHS services in two other areas.

11

To determine the extent to which CHS funding changed over time, we 

obtained and analyzed CHS allocation data from IHS for fiscal years 2001 

through 2010. To determine the extent to which the IHS funding allocation 

varied across IHS areas, we obtained and analyzed CHS and direct care 

Based on discussions with the committees of jurisdiction, we agreed to 

focus on IHS’s allocation of CHS program funds to IHS area offices. In 

this report, we examined (1) the extent to which IHS’s allocation of CHS 

funding varied across IHS areas, and (2) what steps IHS has taken to 

address funding variation within the CHS program.

 

10These two areas do not have an inpatient IHS hospital.

11Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 10221, 124 Stat. 

119, 935 (2010) (enacting S. 1790 as reported by the S. Comm. on Indian Affairs of the 

Senate in December 2009 into law with amendments); S. 1790, 111th Cong. §§ 137, 199 

(as reported by S. Comm. on Indian Affairs. Dec. 16, 2009).
 

Page 4 GAO-12-446 Contract Health Service Funding

funding allocation data from IHS for fiscal years 2001 and 2010. For these 

years, we also obtained IHS’s active user population estimates, which 

IHS defines as all individuals who received at least one direct care or 

contract care inpatient stay, outpatient, ambulatory, or dental care service 

during the preceding 3-year period. We used these data to calculate per 

capita CHS and direct care funding for each of the IHS areas. To examine 

IHS efforts to address funding variations within the CHS program, we 

reviewed IHS documents and interviewed IHS, area and tribal officials 

familiar with IHS efforts to address CHS funding variations. To determine 

the reliability of the data provided by IHS, we reviewed IHS summary 

CHS allocation reports for fiscal years 2001 through 2010 and data on the 

IHS user population used during fiscal years 2001 and 2010, and 

examined consistency in terms of base funding and the application of 

program increases. We also discussed the data with IHS officials, and 

discussed CHS data with officials from six IHS area offices.12

To address the extent to which funding varied and what steps IHS has 

taken to address that variation, we also reviewed IHS policies and 

procedures in its Indian Health Manual for monitoring the allocation of 

CHS program funds to area offices and then to individual CHS programs. 

The Indian Health Manual is the reference for IHS employees regarding 

IHS-specific policy and procedural instructions for the delivery of health 

care services to American Indians and Alaska Natives.

We 

determined that the IHS data were sufficiently reliable for our purposes.

13 We compared 

these policies and procedures to the standards described in Standards for 

Internal Control in the Federal Government and Internal Control 

Management and Evaluation Tool.

14

 

12We selected a judgmental sample of six IHS areas using a combination of criteria such 

as high and low per capita CHS funding, active user population, total CHS funding, and 

proportion of individual CHS programs with access to hospitals, and geographic location. 

We selected the Billings, California, Nashville, Navajo, Oklahoma, and Portland area 

offices for interviews.

We reviewed documents and 

interviewed IHS headquarters officials about how base funding was 

13Part 2, Chapter 3 of the Indian Health Manual contains IHS’s policies and procedures for 

implementing the CHS program.

14GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: Nov. 1999) and Internal Control Management and Evaluation Tool, 

GAO-01-1008G (Washington, D.C.: Aug. 2001). Internal control is synonymous with 

management control and comprises the plans, methods, and procedures used to meet 

missions, goals, and objectives.
 

Page 5 GAO-12-446 Contract Health Service Funding

allocated to area offices and individual CHS programs for fiscal years 

2001 through 2010, how the CHS Allocation Formula was applied, and 

how IHS oversees the allocation of CHS funds. We also interviewed 

officials from six selected area offices about their methods for allocating 

CHS funds to individual CHS programs, oversight of allocations, and 

reporting of final allocations to IHS.

We conducted this performance audit from December 2010 to June 2012 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Federal and tribal CHS programs in each of IHS’s 12 areas pay for 

services from external providers if services are not available directly 

through IHS-funded facilities, if patients meet certain requirements, and if 

funds are available. IHS uses three primary methods—base funding, 

annual adjustments, and program increases—to allocate CHS funds to 

the area offices.

Background 
 

Page 6 GAO-12-446 Contract Health Service Funding

IHS administers contract health services through 12 IHS area offices, 

which include all or part of 35 states where many American Indian and 

Alaska Natives reside. (See fig. 1.) IHS uses CHS funds to pay for 

services from a variety of health care providers, including hospital- and 

office-based providers.15 IHS, among other things, sets program policy for 

and allocates CHS program funds to the area offices. The area offices 

distribute funds to individual federally operated and tribally operated CHS 

programs that purchase contract care services from outside providers.16

There can be multiple individual CHS programs within an area. Tribes 

currently administer 177 of the 243 (73 percent) individual CHS programs 

and receive about 54 percent of IHS’s funding for CHS. In addition to 

receiving federal funding through IHS, the tribes may provide 

supplemental funds to the CHS programs they administer.17

 

15The CHS program can purchase a wide range of health care services, including hospital 

care, specialty physician services, outpatient care, laboratory, dental, radiology, 

pharmacy, and transportation services.

16Area offices are also responsible for monitoring the CHS programs, establishing 

procedures within the policies set by IHS, and providing CHS programs with guidance and 

technical assistance.

17Unlike federal CHS programs, tribal CHS programs are able to supplement their CHS 

program funds with reimbursements from Medicare, Medicaid, and private insurance for 

services provided at tribal health care facilities. Tribal CHS programs may also 

supplement their CHS funding with tribal funds earned from tribal businesses or 

enterprises. Medicare is the federal government’s health care insurance program for 

individuals aged 65 and older and for individuals with certain disabilities or end-stage renal 

disease. Medicaid is a jointly funded federal-state health care program that covers certain 

low-income individuals and families.

CHS Program 

Administration 
 

Page 7 GAO-12-446 Contract Health Service Funding

Figure 1: Counties in the 12 IHS Areas

Patients must meet certain eligibility, administrative, and medical priority 

requirements to have their services paid for by the CHS program. 

Generally, to be eligible to receive services through the CHS program, 

patients must reside on a reservation or within a reservation’s federally 

established CHS Delivery Areas and be members of a tribe or tribes 

located on that reservation or maintain close economic and social ties 
 

Page 8 GAO-12-446 Contract Health Service Funding

with that tribe or tribes.18 In addition, if there are alternate health care 

resources available to a patient, such as Medicaid and Medicare, these 

resources must pay for services first because the CHS program is 

generally the payer of last resort.19 If a patient has met these 

requirements, a program committee (often including medical staff), which 

is part of the local CHS program, evaluates the medical necessity of the 

service. IHS has established four broad medical priority levels of health 

care services eligible for payment,20

There are two primary paths through which patients may have their care 

paid for by the federal CHS program.

and each area office is required to 

establish priorities that are consistent with these medical priority levels. 

Because IHS typically does not have enough funds to pay for all CHS 

services requested, federal CHS programs pay first for emergency and 

acutely urgent medical care to the extent funds are available. They may 

then pay for all or only some of the lower-priority services they fund, funds 

permitting. Tribal CHS programs must use medical priorities when making 

funding decisions, but unlike federal CHS programs, they may develop a 

system that differs from the set of priorities established by IHS.

21

 

18See 42 C.F.R. § 136.23 (2011). The eligibility requirements for the contract care 

services are stricter than for direct care services. Generally, persons of Indian descent 

who belong to their Indian community are eligible for direct care services. See 42 C.F.R. 

§ 136.12 (2011).

First, a patient may obtain a 

referral from a provider at an IHS-funded health care facility to receive 

services from an external provider. That referral is submitted to the CHS 

program for review. If the patient meets the requirements and the CHS 

program has funding available, the services in the referral are approved 

by the CHS program and a purchase order is issued to the external

provider and sent to IHS’s fiscal intermediary. Once the patient receives 

the services from the external provider, that provider obtains payment for 

19See 42 C.F.R. § 136.61 (2011). There are certain exemptions to the CHS program’s 

designation as a payer of last resort. For example, certain tribally funded insurance plans 

are not considered alternate resources and the CHS program must pay for care before 

billing the tribally funded insurance plan. See 25 U.S.C. § 1621e(f).

20IHS has a fifth category medical priority level for excluded services that cannot be paid 

for with CHS program funds, such as cosmetic plastic surgery.

21This describes the process by which IHS pays for services through federally operated 

CHS programs. Tribally operated CHS programs are not generally subject to the same 

policies, procedures, and reporting requirements as federal CHS programs. See 25 U.S.C. 

§§ 450k(a), 458aaa-16.
 

Page 9 GAO-12-446 Contract Health Service Funding

the services in the approved referral by sending a claim to IHS’s fiscal 

intermediary. Second, in the case of an emergency, the patient may seek 

care from an external provider without first obtaining a referral. Once that 

care is provided, the external provider must send the patient’s medical 

records and a claim for payment to the CHS program.22

In addition to funds appropriated annually for CHS, IHS also distributes 

funds to individual CHS programs from the Indian Health Care 

Improvement Fund, designed to reduce disparities and resource 

deficiencies at the local level as measured by IHS’s Federal Disparity 

Index.

At that time, the 

CHS program will determine if the patient met the necessary program 

requirements and if CHS funding is available for a purchase order to be 

issued and sent to the fiscal intermediary. As in the earlier instance, the 

provider obtains payment by submitting a claim to IHS’s fiscal 

intermediary.

23 However, because these funds may be used to pay for either 

contract care or direct care services, it is possible that they may not 

finance contract care services in some programs. Further, this fund is 

small compared to both CHS and direct care funding. For example, in 

fiscal year 2010, funds distributed from the Indian Health Care 

Improvement Fund equaled about 6 percent of the CHS funding level, or 

about 2 percent of the funding level for direct care services. IHS has 

reported on a number of data limitations related to the current formula 

used to distribute funds from the Indian Health Care Improvement Fund.24

IHS uses three primary methods—base funding, annual adjustments, and 

program increases—to determine the allocation of CHS funds to the IHS 

area offices, which then distribute the funds to individual CHS programs.25

 

22IHS expects the external provider to seek reimbursement from any alternate resources 

available to the patient before submitting a claim for payment to the CHS program.

23See 25 U.S.C. § 1621.

24Indian Health Service, “A technical evaluation of the Indian Health Care Improvement 

Fund methodology and data” (Mar. 2010).

25IHS may also allocate funds from the Indian Health Care Improvement Fund that may be 

used for CHS services. In addition, each annual CHS appropriation identifies an amount 

for the Catastrophic Health Emergency Fund—a fund that IHS administers to reimburse 

CHS programs for their expenses from high-cost medical cases. See 25 U.S.C. § 1621a. 

IHS also reserves a small portion of CHS funds to pay the fiscal intermediary and for 

unanticipated events. 

Methodology for 

Allocating CHS Funds
 

Page 10 GAO-12-446 Contract Health Service Funding

(See fig. 2.) IHS uses these methods sequentially. Base funding is the 

amount of CHS funds that equal the total amount of all CHS funds that 

each area received in the prior fiscal year. When appropriations for CHS 

are higher than the amount needed for base funding, IHS uses national 

measurements of population growth and inflation to determine annual 

funding adjustments. Each IHS area office receives the same percentage 

increase for the annual adjustments. Since 2001, when IHS has also 

received additional funding for what it refers to as “program increases,” 

IHS has used the CHS Allocation Formula to determine how to allocate 

those program increases to the 12 area offices. According to IHS officials, 

IHS established the CHS Allocation Formula in part to ensure that 

American Indians and Alaska Natives had equitable access to contract 

health funds. The Allocation Formula is based on a combination of 

factors, including variations in the number of people using health care 

services, geographic differences in the costs of purchasing health care 

services, and access to IHS or tribally operated hospitals.
 

Page 11 GAO-12-446 Contract Health Service Funding

Figure 2: IHS’s Primary Methods of Determining the Allocation of CHS Funds to the Area Offices

Most CHS funding, which IHS refers to as “base funding,” is allocated 

based on past funding history. Each year, each of the 12 IHS area offices 

receives an allocation of base funding equal to the total amount of all 

CHS funds they received the previous fiscal year. According to IHS, base 

funding is intended to maintain existing levels of patient care services in 

all areas. Because of adjustments or funding increases that are received 

in most years, a new level of base funding is created in those years. IHS 

officials have told us they do not know the exact origins of the base 

funding policy, but that it dates back to the 1930s, when the health 

programs were under the Bureau of Indian Affairs. In 1954, Congress 

transferred responsibility for the maintenance and operation of hospitals 

Base Funding
 

Page 12 GAO-12-446 Contract Health Service Funding

and health facilities for Indians from the Bureau of Indian Affairs in the 

Department of the Interior to what is now IHS in HHS.26

When appropriations for CHS are above the previous fiscal year’s level, 

IHS allocates each area office an additional amount to adjust for overall 

population growth and inflation. The population growth funding 

adjustment is based on national population increases determined by the 

U.S. Census Bureau with annual adjustments made for changes based 

on state birth and death data provided by the National Center for Health 

Statistics. The inflation adjustment is based on the prevailing Bureau of 

Labor Statistics’ Consumer Price Index for medical costs. IHS gives each 

area the same percentage increase to its base funding regardless of any 

population growth or cost-of-living differences among areas.27

Additionally, in years when sufficient funding is available, IHS allocates an 

amount known as a program increase to each IHS area office using the 

CHS Allocation Formula, which it established in consultation with the 

tribes in 2001. IHS headquarters determines the amount allocated to an 

area office by applying two factors to the individual CHS programs served 

by that office: the cost adjustment factor, and the access to care factor. 

IHS determines both factors separately for each individual CHS program, 

and both are dependent on IHS’s determination of the active user 

population.

Typically, 

IHS receives increases in CHS funding that are large enough that the 

agency can allocate at least some for annual adjustments, even if not the 

full amount. The funding adjustments for population growth and inflation 

provided to the area offices are incorporated into the next year’s base 

funding.

• The active user population provides an adjustment to account for 

variations across individual CHS programs in the number of people 

using health care services. The active user population is determined 

by counting the number of individuals who obtained direct care 

services, contract care services, or dental services in the prior 

 

26The Transfer Act of 1954, Law of Aug. 5, 1954, ch. 658 (codified at 42 U.S.C. § 2001, 

et seq.).

27In fiscal year 2009, each individual CHS program received a 1.5 percent adjustment for 

population growth and a 3.8 percent adjustment for inflation. In fiscal year 2010, those 

adjustments were 1.5 percent and 3.3 percent, respectively.

Annual Adjustments

Program Increases
 

Page 13 GAO-12-446 Contract Health Service Funding

3 years. This active user population is then used as a multiplier for the 

cost adjustment and access to care factors.

• The cost adjustment factor provides an adjustment to account for 

geographic differences in the costs of purchasing health care 

services. It is based on a price index derived from the American 

Chamber of Commerce Researchers Association Regional Cost of 

Living index, which provides regional comparative costs for inpatient 

and outpatient services.28 The price index for each CHS program is 

multiplied by the active user population for each program to determine 

the value of the cost adjustment factor.

• The access to care factor provides an additional increase only for 

those individual CHS programs that do not have access to an IHS or 

tribally operated hospital.29 IHS area officials determine if individual 

CHS programs meet two qualifying criteria for this factor: (1) the 

individual CHS program has no IHS or tribally operated hospital with 

an average daily patient load of five or more, and (2) the individual 

CHS program does not have an established referral pattern to an IHS 

or tribally operated hospital within the area.30 These additional funds 

are allocated to each program where there is no access to an IHS or 

tribally operated hospital in an amount proportional to the cost 

adjustment factor.

To allocate the program increase funding, IHS first designates 75 percent 

of the funds for increases based on the cost adjustment factor at each 

individual CHS program and 25 percent of the funds for the increases 

based on the access to care factor at each individual CHS program. IHS 

then totals the program increases for the individual CHS programs and 

allocates that total amount to the IHS area offices. Program increases 

allocated using the CHS Allocation Formula become part of the area 

offices’ base funding for the next fiscal year.

 

28According to IHS officials, the American Chamber of Commerce Researchers 

Association index is used in the formula because it is maintained independently and 

includes data for between 270 and 350 geographical areas.

29Some areas have no or limited access to IHS or tribally operated hospitals so they need 

to purchase more services through the CHS program.

30IHS officials reported that an established referral pattern means that more than 

50 percent of inpatient admissions go to an IHS or tribally operated hospital.
 

Page 14 GAO-12-446 Contract Health Service Funding

IHS used the CHS Allocation Formula to allocate program increases in 

fiscal years 2001, 2002, and 2008 through 2010.31 In each of those years, 

IHS informed the IHS area offices of the total amounts of program 

increase funds to be allocated to the offices and the dollar values that IHS 

calculated under that formula for each individual CHS program in their 

areas. To specifically address health care needs in local communities, 

IHS permits area offices, in consultation with the tribes, to distribute 

program increase funds to local CHS programs using criteria other than 

the CHS Allocation Formula. Because these adjustments are made at the 

individual CHS program level, they do not affect future base funding 

which is determined at the area level.

Funds allocated to the IHS area offices through base funding, annual 

adjustments, and program increases have increased substantially over 

the past 10 years. In fiscal year 2001, area offices received just over 

$386 million; in fiscal year 2010, they received just over $715 million in 

CHS funds.32

 

31In fiscal years 2001 and 2002, IHS used the CHS Allocation Formula to distribute only 

part of the funds it received for program increases since the formula was new.

(See fig. 3.)

32Allocations to area offices are the amounts of IHS’s annual CHS appropriations 

distributed to 12 IHS area offices at the beginning of each fiscal year. Funds allocated to 

area offices each year total slightly less than the amount appropriated because a portion

of each annual CHS appropriation is identified for the Catastrophic Health Emergency 

Fund or reserved by IHS to pay for the fiscal intermediary and for unanticipated events.

Allocation of CHS Funds
 

Page 15 GAO-12-446 Contract Health Service Funding

Figure 3: Total CHS Funds Allocated to IHS Area Offices, Fiscal Years 2001 through 

2010 

Note: Allocations to area offices are the amounts of IHS’s annual appropriations allocated to 12 IHS 

area offices. Because a portion of each annual CHS appropriation is identified for the Catastrophic 

Health Emergency Fund or reserved by IHS to pay the fiscal intermediary and for unanticipated 

events, funds allocated to area offices each year total slightly less than the amount appropriated. 

IHS’s allocation of CHS funds has varied widely across IHS area offices, 

and IHS’s method of allocating CHS funds has maintained those funding 

differences. Moreover, the CHS Allocation Formula for determining 

program increases uses imprecise counts of CHS users.

CHS funding varied widely across IHS area offices in fiscal year 2010. 

Total CHS funding for fiscal year 2010 ranged across the 12 area offices 

from nearly $17 million to more than $95 million. There were also 

substantial ranges in base funding, annual adjustments, and the program 

increase. For fiscal year 2010, base funding ranged from nearly 

$15 million to nearly $76 million, annual adjustments ranged from less 

than $1 million to more than $3 million, and the program increases ranged 

IHS’s Allocation of 

CHS Funds Has 

Varied across IHS 

Areas 

IHS’s Allocation of CHS 

Funds Varied Widely 

across IHS Areas in Fiscal 

Year 2010
 

Page 16 GAO-12-446 Contract Health Service Funding

from around $1.5 million to more than $16 million across the area offices. 

(See table 1.)

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

Funds allocated to area offices, in dollars, for fiscal year 2010

Area Base funding Total adjustments Program increase a Total CHS funding

IHS active 

user count

Per capita 

total CHS 

funding, 

in dollars b c

Oklahoma $75,827,291 $3,323,888 $16,114,000 $95,265,179 318,923 $299

Navajo 69,437,474 3,090,855 12,458,000 84,986,329 242,331 351

Phoenix 51,570,656 2,278,464 9,200,000 63,049,120 159,166 396

Albuquerque 29,830,959 1,327,724 6,023,000 37,181,683 85,946 433

Bemidji 41,868,282 1,865,264 8,631,000 52,364,546 102,782 509

California 31,420,785 1,400,292 7,952,000 40,773,077 78,682 518

Alaska 63,065,563 2,808,647 9,907,000 75,781,210 138,298 548

Nashville 24,243,805 2,012,527 3,899,000 30,155,332 51,491 586

Aberdeen 67,932,811 3,026,350 7,949,000 78,908,161 121,903 647

Tucson 14,805,851 658,487 1,522,000 16,986,338 25,562 665

Portland 69,230,127 3,001,723 10,985,000 83,216,850 104,097 799

Billings 49,214,400 2,193,163 5,360,000 56,767,563 70,863 801

Source: GAO analysis of IHS allocation data.

a

Total adjustments include the inflation and population growth annual adjustments plus other 

adjustments IHS made.

b

IHS uses the IHS active user count to determine the allocation of program increases. The IHS active 

user count includes all individuals who received at least one direct care or contract care inpatient stay 

or outpatient, ambulatory, or dental care service during the preceding 3-year period. For fiscal year 

2010, IHS used its count of active users from fiscal year 2009 because that was the most recent year 

for which data were available.

c

Per capita funding is based on the IHS active user count.

Because total funding may reflect variations in the size of the population 

of IHS areas, we also examined per capita funding for fiscal year 2010 

using IHS’s count of active users from the most recent year for which data 

were available.33

 

33Per capita funding is based on IHS’s count of active users in fiscal year 2009 (the most 

recent year for which data were available), which includes all individuals who received at 

least one direct care, contract care, or dental care service during the preceding 3-year 

period.

Per capita CHS funding for fiscal year 2010 varied 
 

Page 17 GAO-12-446 Contract Health Service Funding

widely, ranging across the area offices from $299 to $801. In addition, per 

capita CHS funding was sometimes not related to areas’ dependence on 

CHS for the provision of IHS-funded inpatient services. For example, 

California received a level of per capita funding that was in the lower half 

of the range for all areas, while American Indians and Alaska Natives in 

that area rely entirely on CHS for their IHS-funded inpatient services 

because there are no IHS or tribally operated hospitals. Similarly, the 

Bemidji area depends almost entirely on CHS for its IHS-funded inpatient 

services, yet received levels of per capita CHS funding that were in the 

lower half of the range of CHS funding for all areas.

Because CHS funds are used to purchase services not accessible or 

available through the direct care program, we compared patterns of 

funding for the direct care program and the CHS program across areas. 

On average, areas were allocated about three times as much in per 

capita direct care funding as they were in per capita CHS funding. We 

also found that, in general, the areas that were allocated higher amounts 

of per capita direct care funding were also allocated higher amounts of 

per capita CHS funding, and those areas that were allocated lower 

amounts of per capita direct care funding were also allocated lower 

amounts of per capita CHS funding. The notable exceptions were Alaska, 

which was allocated much more in per capita direct care funding than 

average, and Portland and Tucson, which were allocated much less in 

per capita direct care funding than average. Alaska was allocated per 

capita direct care funding ($3,340) that was about six times more than its 

per capita CHS funding ($548) and was the highest per capita direct care 

funding of all the areas, nearly double that of the area with the second 

highest per capita funding (Nashville, $1,869). Direct care funding for 

Alaska reflects the unique health care challenges that Alaska faces due to 

its remoteness and vast distances, which result in some of the highest 

costs for health care services in the United States. In contrast, the lower 

per capita direct care allocations to Tucson and Portland were somewhat 

offset by relatively higher levels of per capita CHS funding. Tucson was 

allocated the lowest per capita direct care funding ($1,324) but it received 

the third highest per capita CHS funding ($664). Similarly, Portland’s per 

capita direct care funding ($1566) was relatively low, but its per capita 

CHS funding ($799), was the second highest.

In addition to variation in funding across IHS area offices, variation in 

funding may exist among individual CHS programs within area offices of 

which IHS headquarters is not aware. Some IHS area offices use 

methods other than the CHS Allocation Formula to distribute CHS 

program increases and IHS does not require the area offices to report 
 

Page 18 GAO-12-446 Contract Health Service Funding

these variations to headquarters. As a result, IHS may not be able to 

appropriately oversee agency operations. According to Standards for 

Internal Controls in the Federal Government, agency managers should 

establish appropriate and clear policies and procedures for internal 

reporting relationships that effectively provide managers with the 

information they need to carry out their job responsibilities. The standards 

further state that an agency must have reliable and timely 

communications relating to internal events to run and control its 

operations. IHS allows area offices, in consultation with the tribes, to 

distribute program increase funds to local CHS programs using different 

criteria than the CHS Allocation Formula to meet health care needs in 

local communities, but does not require that the areas inform IHS 

headquarters. By not requiring area offices to report to IHS headquarters 

about deviations in funding, IHS is not meeting internal control standards. 

For example, IHS headquarters officials identified two area offices that 

have used alternate methods to distribute CHS program increases to 

local CHS programs. We identified a third area that used alternative 

methods that IHS was not aware of, specifically using the count of actual 

CHS users at each individual CHS program.

The allocation pattern of per capita CHS funds has been generally 

maintained over the 10-year period that we examined. Those areas that 

had the highest and the lowest levels of per capita CHS funding in fiscal 

year 2001 generally also had the highest and lowest levels of per capita 

CHS funding in fiscal year 2010. (See fig. 4.)

IHS’s Methods of 

Allocating CHS Funds 

Have Maintained Funding 

Differences
 

Page 19 GAO-12-446 Contract Health Service Funding

Figure 4: Per Capita CHS Funding in Constant Dollars, Fiscal Years 2001 and 2010, by Area

Note: Per capita funding is based on IHS’s count of active users which includes all individuals who 

received at least one direct care, contract care, or dental care service during the preceding 3-year 

period.

Base funding, which is based solely on funding from the prior year, 

accounts for the great majority of CHS funds and therefore maintains any 

funding variations. For example, in fiscal year 2010, the year in which IHS 

received its largest program increase, base funding accounted for 

82 percent of total CHS funds allocated to IHS area offices. (See fig. 5 for 

the allocation of funds in fiscal year 2010.) Annual adjustments for 

population growth and inflation are made as a percentage of base funding 

that is the same for all areas and therefore do not affect funding 

variations. Further, program increase funds allocated through the CHS 

Allocation Formula are not large enough to alter funding variations 

because they have been a relatively small proportion of the CHS funds 

that area offices receive. For example, in fiscal year 2010, CHS Allocation 

Formula funds amounted to about 14 percent of total CHS funding. 

Therefore, any variations in the original base funding amounts allocated 

to the areas are perpetuated since the occasional program increases are 

not sufficiently large to be able to close that gap.
 

Page 20 GAO-12-446 Contract Health Service Funding

Figure 5: Allocation of CHS Funds, Fiscal Year 2010

The CHS Allocation Formula IHS uses to allocate CHS program 

increases to IHS area offices is largely dependent on an estimate of 

active users that is imprecise, even though IHS considers population 

estimates to be a critical factor in allocating CHS funds. In 2010, IHS’s 

Data/Technical Workgroup noted that the active user population is not a 

precise measure of American Indians and Alaska Natives eligible for CHS

services.

34

 

34The Data/Technical Work Group was formed to evaluate allocation of The Indian Health 

Care Improvement Fund and reported its findings in March 2010.

The CHS Allocation Formula allocates funds based on counts 

of all users who had at least one direct care or contract care inpatient

stay, or obtained at least one outpatient, ambulatory, or dental service 

during the preceding 3-year period. The active user estimates that IHS 

used to allocate program increases therefore included an unknown 

proportion of patients who had not received contract health services, but 

rather had received only direct care services. IHS has acknowledged that 

its method of counting active users for the CHS Allocation Formula does 

not measure the number of people who actually received CHS services, 

nor does it measure the number of people who are eligible for CHS 

services. Because the active user population is used to determine 

The CHS Allocation 

Formula Uses Imprecise 

Counts of CHS Users to 

Allocate CHS Program 

Increases
 

Page 21 GAO-12-446 Contract Health Service Funding

program increases, any inaccuracies in that number potentially could 

contribute to variation not linked to actual use of CHS services.

While IHS has an information technology system that could produce 

actual counts of CHS users, IHS officials do not believe that the data in 

the system are complete or that areas collect these data in the same way. 

This system contains separate tabulations of users of direct care 

services, contract care services, and dental care services. However, IHS 

officials told us that they do not provide guidance to area offices on how 

to record data on active CHS user counts. Nevertheless, officials from 

one area told us that one of their statisticians separated out the CHS 

users from the active user population count identified by IHS for 2 recent 

years and found that the CHS user count is about half of the active user 

population count. Without accurate data, it is not possible for IHS to know 

if the proportion of actual CHS users is consistent across areas.

IHS has taken few steps to evaluate the funding variations within the CHS 

program. In addition, IHS’s ability to address funding variations is limited 

by statute.

IHS has taken few steps to evaluate the funding variations within the CHS 

program. IHS officials told us that they have not evaluated the 

effectiveness of base funding and the CHS Allocation Formula in meeting 

the health care needs of American Indians and Alaska Natives across the 

IHS areas and they do not plan to do so with respect to the determination 

of base funding amounts. Without such assessments, IHS cannot 

determine the extent to which the current variation in CHS funding reflects 

variation in health care needs. According to Standards for Internal 

Controls in the Federal Government, agency managers should compare 

actual performance to planned or expected results throughout the 

organization and analyze significant differences. Further, the standards 

specify that activities need to be established to monitor performance 

measures and indicators.

35

 

35

IHS has not developed policies and 

GAO/AIMD-00-21.3.1.

IHS Has Taken Few 

Steps to Address the 

Funding Variation 

within the CHS 

Program 

IHS Has Taken Few Steps 

to Evaluate the Funding 

Variations within the CHS 

Program
 

Page 22 GAO-12-446 Contract Health Service Funding

procedures in the Indian Health Manual for its headquarters and field staff 

employees on how to conduct assessments of the CHS program funding 

methodologies, nor has it included goals, measures, and time frames for 

assessing the CHS program funding allocation performance within areas, 

which would potentially help IHS and the area offices identify and allocate 

CHS program funds to areas and local CHS programs with the greatest 

need.

In March 2010, the Director of IHS formed the Director’s Workgroup on 

Improving CHS to review tribal input to improve the CHS program, to 

evaluate the existing formula for allocating program increases using the 

CHS Allocation Formula, and to recommend improvements in the way 

CHS business operations are conducted. The workgroup members 

agreed that their recommendations would apply only to program 

increases and not to base funding. In February 2011, the Director of IHS 

reported that she concurred with the four recommendations made by the 

workgroup in October 2010.

• The workgroup recommended that a technical subcommittee be 

created and charged with calculating the current CHS need and 

estimates of future CHS need. Such information would be essential to 

understanding the variation in CHS funding. However, we previously 

reported that IHS data on denials and deferrals that IHS used to 

estimate program need are incomplete and inconsistent.36

• The workgroup recommended convening 12 Area Work Sessions to 

review and make recommendations about current CHS policies and 

procedures, which would then be used to revise the CHS chapter of 

the Indian Health Manual, specifically relating to issues of evaluating 

the cost of care and communication of CHS program requirements, 

among others. These sessions have been completed and the 

workgroup is developing a summary report.

• The workgroup recommended that an evaluation of the current CHS 

Allocation Formula be postponed until at least fiscal year 2013. The 

workgroup members said that the CHS program had only begun 

receiving substantial increases in fiscal years 2009 and 2010, and the 

full impact of these increases needed to be reviewed before making 

recommendations to change the formula. In contrast, we found that 

 

36GAO-11-767. 
 

Page 23 GAO-12-446 Contract Health Service Funding

IHS has used the formula to allocate program increases, at least in 

part, in 5 years since 2001. Members of the workgroup we interviewed 

told us that outcome measures for the evaluation have not yet been 

defined. As part of this recommendation, they also suggested that a 

subcommittee be created to review the CHS Allocation Formula for 

equity across areas. An IHS representative to the workgroup told us 

that the recommendations of the subcommittee will not be considered 

by the full committee until the review of equity is complete.

• The workgroup recommended that the inpatient and outpatient 

components of the Consumer Price Index be used for any new CHS 

program increases that IHS may receive for fiscal year 2013 and 

beyond.

Members of the 2010 Director’s Workgroup we spoke with expressed 

concern that the CHS Allocation Formula does not differentiate between 

large and small hospitals when determining the access to care factor, 

although the workgroup did not make a recommendation concerning this 

issue. Specifically, programs with access to small hospitals with minimal 

services do not receive an adjustment for access to care, and are 

therefore treated similarly to programs with access to large medical 

centers where a range of specialty care services may be available. As a 

result, the CHS Allocation Formula does not equitably compensate for 

limitations in hospital access. When the CHS Allocation Formula was 

created in 2001, its developers noted that the access to care factor 

should be refined to better reflect the complexities of the IHS system of 

health care. IHS has neither refined nor made any change to the way that 

access to care is defined.

Federal law restricts IHS’s ability to reallocate funding should the agency 

desire to do so. Specifically, IHS officials identified two statutory 

provisions that limit IHS’s ability to adjust funding allocations. The Indian 

Self-Determination and Education Assistance Act currently prohibits 

reductions in funding for certain tribally operated programs, including 

IHS’s Ability to Address 

Funding Variations Is 

Limited by Statute
 

Page 24 GAO-12-446 Contract Health Service Funding

some CHS programs, except for limited circumstances.37 In addition, the 

Indian Health Care Improvement Act imposes a congressional reporting 

requirement for proposed reductions in base funding for any recurring 

program, project, or activity of a service unit of 5 percent or more.38

IHS officials have told us that areas and tribes have resisted changes to 

the current funding allocation methods, particularly base funding, as 

consistent funding allows the areas and tribes to plan and manage their 

resources. However, minutes from a 2010 session of the Director’s 

workgroup show that not all tribes agree with the CHS Allocation Formula 

and that some workgroup members said that the current CHS Allocation 

Formula was not sufficiently equitable. Concerns about IHS’s funding 

methods are longstanding. For example, in 1982, we concluded that 

IHS’s practice of funding programs based on the previous year’s funding 

level caused funding inequities and that IHS did not distribute funds to the 

neediest programs in fiscal year 1981.

IHS 

officials told us that no such proposal to reallocate base funding has been 

transmitted to the Congress.

39

There are wide variations in CHS funding across the 12 IHS areas, and 

these variations are largely maintained by IHS’s long-standing use of the 

base funding methodology. IHS officials are unable to link variations in 

funding levels to any assessment of health care need. As we have 

reported in the past and found once again in this evaluation, IHS’s 

continued use of the base funding methodology undermines the equitable 

allocation of IHS funding to meet the health care needs of American 

Indians and Alaska Natives. Program increases for the CHS program 

over the years have not significantly altered variations across the areas, 

primarily because they are too small to have a strong impact on overall 

funding. Funds from the Indian Health Care Improvement Fund, designed 

 

37The Indian Self-Determination and Education Assistance Act expressly prohibits 

reductions in funding in subsequent years once a required funding amount for a contract 

or compact is established, except for specified circumstances relating to a reduction in 

appropriations, congressional directive, tribal authorization, change in the amount of passthrough funds, or the completion of the activity for which funds were provided. 25 U.S.C. 

§ 450j-1(b)(2) (relating to self-determination contracts). 25 U.S.C. § 458aaa-7(d)(1)(C)(ii) 

(relating to self-governance compacts).

3825 U.S.C. § 1680g.

39GAO/HRD-82-54. 

Conclusions 
 

Page 25 GAO-12-446 Contract Health Service Funding

to reduce funding disparities, also have had little impact because they are 

relatively small and not targeted solely for the CHS program. Further, 

federal law restricts IHS’s ability to reallocate funding, principally by 

prohibiting reductions for certain tribally operated CHS programs, which 

account for more than half of total CHS funding. IHS also may be 

unaware of additional variation in funding across individual CHS 

programs because it does not require that area offices notify IHS 

headquarters when they choose different funding methodologies than 

those suggested by headquarters.

IHS can improve the equity of how it allocates program increase funds to 

areas through improvements in its implementation of the CHS Allocation 

Formula, primarily by using counts of actual CHS users rather than by 

using the current method of estimating the number of overall IHS users, 

which now includes patients who never used a CHS service, and by 

refining the access to care factor to account for differences in available 

health care services at IHS and tribally operated facilities. However, 

because of the predominant influence of base funding and the relatively 

small contribution of program increases to overall CHS funding, it would 

take many years to achieve funding equity just by revising the methods 

for distributing CHS program increase funds.

In order to ensure an equitable allocation of CHS program funds, the 

Congress should consider requiring IHS to develop and use a new 

method to allocate all CHS program funds to account for variations across 

areas that would replace the existing base funding, annual adjustment, 

and program increase methodologies, notwithstanding any restrictions 

currently in federal law.

To make IHS’s allocation of CHS program funds more equitable, we 

recommend that the Secretary of Health and Human Services direct the 

Director of the Indian Health Service to take the following three actions for 

any future allocation of CHS funds:

• require IHS to use actual counts of CHS users, rather than all IHS 

users, in any formula for allocating CHS funds that relies on the 

number of active users;

Matter for 

Congressional 

Consideration 

Recommendations for 

Executive Action
 

Page 26 GAO-12-446 Contract Health Service Funding

• require IHS to use variations in levels of available hospital services, 

rather than just the existence of a qualifying hospital, in any formula 

for allocating CHS funds that contains a hospital access component; 

and

• develop written policies and procedures to require area offices to 

notify IHS when changes are made to the allocations of funds to CHS 

programs.

HHS reviewed a draft of this report and provided written comments, which 

are reprinted in appendix I. In its comments, HHS concurred with two of 

our recommendations and did not concur with one recommendation. HHS 

did not comment on our general findings or our conclusion that IHS’s use 

of the base funding methodology has led to long-standing inequities in the 

distribution of CHS funds.

HHS concurred with our recommendation that IHS use variations in levels 

of available hospital services to allocate CHS funds. HHS noted that the 

IHS Director’s Workgroup on Improving CHS will review the formula and 

make recommendations in fiscal year 2013. HHS also concurred with our 

recommendation to develop written policies to require area offices to 

notify IHS when changes are made in the allocations of funds to CHS 

programs. HHS noted that guidance requiring areas to report these 

changes to IHS headquarters will be added to the CHS manual; however, 

the agency did not specify a date for doing so.

HHS did not concur with our recommendation that it should require IHS to 

use actual counts of CHS users, rather than all IHS users, in any formula 

for allocating CHS funds that relies on the number of active users. HHS 

stated that IHS’s combined count of all users of IHS direct care services 

and CHS users is intended to reflect the health care needs of those 

eligible for CHS services. However, as we reported, IHS’s own 

Data/Technical Workgroup found that the current IHS active user count 

does not measure the number of people who are eligible for CHS 

services, in part because not all users of IHS direct care services are 

eligible for CHS services. Further, as HHS acknowledged in its 

comments, the current count of active users also does not reflect those 

who actually received CHS services. Because CHS program increases 

are intended to reflect variations in the numbers of CHS users among 

areas, we continue to believe that IHS should use counts of actual CHS 

users in determining program increases.

Agency Comments 

and Our Evaluation
 

Page 27 GAO-12-446 Contract Health Service Funding

We are sending copies of this report to the Secretary of Health and 

Human Services, Director of the Indian Health Service, appropriate 

congressional committees, and other interested parties. In addition, the 

report is available at no charge on the GAO website at 

http//www.gao.gov.

If you or your staffs have any questions about this report, please contact 

me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of the report. GAO staff who made major contributions to this report are 

listed in appendix II.

Kathleen M. King

Director, Health Care
Page 28 GAO-12-446 Contract Health Service Funding

List of Addressees

The Honorable Daniel K. Akaka

Chairman

The Honorable John Barrasso

Ranking Member

Committee on Indian Affairs

United States Senate

The Honorable Don Young

Chairman

The Honorable Dan Boren

Ranking Member

Subcommittee on Indian and Alaska Native Affairs

Committee on Natural Resources

House of Representatives

The Honorable Jeff Bingaman

The Honorable Tim Johnson

The Honorable Lisa Murkowski

The Honorable John Thune

United States Senate
Appendix I: Comments from the Department of 

Health and Human Services 

Page 29 GAO-12-446 Contract Health Service Funding

Appendix I: Comments from the Department 

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

Health and Human Services

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

Health and Human Services

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

Staff Acknowledgments

Page 32 GAO-12-446 Contract Health Service Funding

Kathleen M. King, Director, (202) 512-7114 or kingk@gao.gov

In addition to the contact named above, Martin T. Gahart (Assistant 

Director), George Bogart, Carolyn Feis Korman, and Laurie Pachter made 

key contributions to this report.

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(290894)
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