INDIAN HEALTH 

SERVICE

Capping Payment 

Rates for Nonhospital 

Services Could Save 

Millions of Dollars for 

Contract Health 

Services

Report to Congressional Addressees

April 2013

GAO-13-272

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-272, a report to 

congressional addressees

April 2013

INDIAN HEALTH SERVICE 

Capping Payment Rates for Nonhospital Services 

Could Save Millions of Dollars for Contract Health 

Services 

Why GAO Did This Study

IHS 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 external providers. 

Hospitals are required to accept 

Medicare rates from federal and tribal 

CHS programs, while physicians and 

other nonhospital providers are paid at 

either billed charges or negotiated, 

reduced rates. The Patient Protection 

and Affordable Care Act requires GAO 

to compare CHS program payment 

rates with those of other public and 

private payers. GAO examined (1) how 

payments to physicians by IHS’s 

federal CHS programs compare with 

what Medicare and private health 

insurers would have paid for the same 

services, (2) physicians’ perspectives 

about how a cap on payment rates

could affect them, (3) hospitals’ 

perspectives about how the MLR 

requirement affected them, and (4) IHS 

and tribal officials’ perspectives about 

the MLR requirement and a potential 

cap on nonhospital services. GAO 

compared 2010 physician claims data 

for federal CHS programs with the 

Medicare Physician Fee Schedule and 

claims from private insurers. GAO also 

spoke to a nongeneralizable sample of 

10 physicians and 9 hospitals that 

interacted frequently with IHS and 

spoke to IHS and tribal officials where 

these providers practiced.

What GAO Recommends

Congress should consider capping 

CHS program payments for 

nonhospital services, including 

physician services, at rates 

comparable to other federal programs.

Should Congress cap payments, we 

recommend HHS direct IHS to monitor 

access to care.

What GAO Found

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

programs primarily paid physicians at their billed charges, which were 

significantly higher than what Medicare and private insurers would have paid for 

the same services. IHS’s policy states that federal CHS programs should 

purchase services from contracted providers at negotiated, reduced rates. 

However, of the almost $63 million that the federal CHS programs paid for 

physician services provided in 2010, they paid about $51 million (81 percent) to 

physicians at billed charges and about $12 million (19 percent) to physicians at 

negotiated, reduced rates. Payments for other types of nonhospital services 

followed similar trends, with about $40 million out of $52 million (77 percent) paid 

at billed charges. GAO estimated that IHS’s federal CHS programs paid two 

times as much as what Medicare would have paid and about one and a quarter 

times as much as what private insurers would have paid for the same physician 

services provided in 2010. If federal CHS programs had paid Medicare rates for 

these services, they could have used an estimated $32 million in savings to pay 

for many of the services that IHS is unable to fund each year. Savings for the 

overall CHS program may be even higher, as this analysis does not include other 

types of nonhospital services or the CHS program funding that goes to tribal CHS 

programs, which the Department of Health and Human Services’ (HHS) Office of 

Inspector General found also paid for nonhospital care above Medicare rates.

Although the 10 physicians GAO interviewed were among those most frequently 

paid by federal CHS programs, 8 said their CHS program payments constituted 

10 percent or less of their total payments. Some physicians identified ways that 

capping CHS program payments for nonhospital services, including physician 

services, at Medicare rates could benefit the CHS program and physician 

practices. However, other physicians were concerned that reducing payment 

rates to Medicare levels could negatively affect their practices.

Seven of nine hospitals GAO interviewed said the Medicare-like rates (MLR) 

required by statute had little negative effect, generally because they already had 

contracts with the CHS program to be paid Medicare rates. While two hospitals 

previously paid by the CHS program at or near billed charges said they were 

financially affected by the MLR requirement, both said it had not affected their 

delivery of care to CHS program patients.

IHS and tribal officials GAO interviewed said the MLR requirement for hospital 

services generated savings that allowed CHS programs to expand access to 

health care. They said that a cap on nonhospital service payments, including 

physician services, could have benefits and challenges. Most IHS officials 

indicated that it was unlikely they could negotiate many more contracts. Some 

tribal officials said that some physicians might think Medicare rates were too low 

and decide to no longer accept tribal patients, although they agreed that a cap at 

these rates could save money. IHS officials noted, however, that they would not 

be able to implement a cap for nonhospital services, including physician services, 

unless the agency received explicit statutory authority to do so.

HHS stated in its comments that it concurred with GAO’s conclusions and 

recommendation and added that imposing a cap at Medicare rates would allow 

IHS to fund additional services.

View GAO-13-272. For more information, 

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

kingk@gao.gov.
Page i GAO-13-272 IHS Contract Health Payments

Letter 1 

Background 9

IHS’s Federal CHS Program Primarily Paid Physicians at Their 

Billed Charges, Which Were Significantly Higher than What 

Medicare and Private Insurers Would Have Paid 18

Most Physicians We Interviewed Said CHS Program Payments 

Were a Small Part of Their Total Payments and Cited Both 

Advantages and Concerns about Capping Payments at Medicare 

Rates 29

Most Hospitals We Interviewed Indicated Little Negative Effect 

from the Current MLR Requirement, as They Already Had CHS 

Program Contracts to Be Paid at Medicare Rates 34

IHS and Tribal Officials Said the MLR Requirement Allowed Them 

to Expand Access and Said That a Similar Cap for Nonhospital 

Services Could Have Similar Benefits 37

Conclusions 42

Matter for Congressional Consideration 43

Recommendation for Executive Action 43

Agency Comments and Our Evaluation 43

Appendix I Comments from the Department of Health and Human 

Services 46

Appendix II GAO Contact and Staff Acknowledgments 48

Table

Table 1: Savings for IHS’s Federal CHS Programs Due to Physician 

Contracts for Services Provided in 2010, by Area Office 23

Figures

Figure 1: Counties Designated as CHS Delivery Areas (CHSDA) in 

the 12 IHS Areas 10

Figure 2: Overview of IHS’s Process for Determining CHS Program 

Payments 12

Figure 3: Total Payments by IHS’s Federal CHS Programs for 

Services Provided in 2010 14

Contents 
Page ii GAO-13-272 IHS Contract Health Payments

Figure 4: Total Payments Made by IHS’s Federal CHS Programs to 

Contracted and Noncontracted Physicians and All Other 

Nonhospital Providers for Services Provided in 2010 19

Figure 5: Contracted and Noncontracted Physicians Paid by IHS’s 

Federal CHS Programs for Services Provided in 2010, by 

Area Office 21

Figure 6: Comparison of Payments from IHS’s Federal CHS 

Programs with Medicare Rates for Physician Services 

Provided in 2010 26

Figure 7: Comparison of Payments from IHS’s Federal CHS 

Programs with Private Insurance Rates for Physician 

Services Provided in 2010 28

Abbreviations

BCBSNM BlueCross BlueShield of New Mexico

CAH critical access hospital

CHEF Catastrophic Health Emergency Fund

CHS contract health services

CHSDA CHS Delivery Area

CMS Centers for Medicare & Medicaid Services

DOD Department of Defense

EMTALA Emergency Medical Treatment and Active Labor Act

HHS Department of Health and Human Services

IHS Indian Health Service

MedPAC Medicare Payment Advisory Commission

MLR Medicare-like rates

OIG Office of Inspector General

VA Department of Veterans Affairs

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Page 1 GAO-13-272 IHS Contract Health Payments

United States Government Accountability Office

Washington, DC 20548

April 11, 2013

Congressional Addressees

The Indian Health Service (IHS), an agency within the Department of 

Health and Human Services (HHS), is charged with providing health care 

services to the approximately 2.1 million American Indians and Alaska 

Natives who are members or descendants of federally recognized tribes.1

These services are provided through direct care at federally or tribally 

operated facilities—such as hospitals and health centers. When services 

are unavailable at these facilities, the facilities may use IHS contract 

health services (CHS) program funds to pay for patients to obtain 

services from external providers, including hospitals and office-based 

physicians. The CHS program at each individual facility may be federally 

or tribally operated and is responsible for managing program funds. 

However, our prior work has found that available CHS program funds 

have not been sufficient to ensure access to care for American Indians 

and Alaska Natives.2 In 2005, we reported that the CHS program was not 

able to pay for all eligible services, and that these gaps sometimes 

resulted in diagnosis and treatment delays that could exacerbate the 

severity of a patient’s condition and thus the need for more intensive 

treatment.3 Since then, funding for the CHS program has increased from 

$498 million in fiscal year 2005 to almost $845 million in fiscal year 2012. 

However, we recently reported that the CHS programs at federal and 

tribal facilities continue to be unable to pay for all eligible services.4

 

1

IHS defines an Indian tribe as any Indian tribe, band, nation, group, Pueblo, or 

community, including any Alaska Native village or Native group, which is federally 

recognized as eligible for the programs and services provided by the United States to 

Indians because of their status as Indians.

2

The CHS program is funded through the annual appropriations process and must operate 

within the limits of its appropriations. Appropriations to IHS for the CHS program are 

apportioned by the Office of Management and Budget, allotted to area office directors, and 

further distributed through allowances to federal CHS programs or payments to tribal CHS 

programs.

3

GAO, Indian Health Service: Health Care Services Are Not Always Available to Native 

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

4

GAO, Indian Health Service: Increased Oversight Needed to Ensure Accuracy of Data 

Used for Estimating Contract Health Service Need, GAO-11-767 (Washington, D.C.: 

Sept. 23, 2011).

 
 

Page 2 GAO-13-272 IHS Contract Health Payments

This inability to pay for all eligible care underscores the need for the 

agency to maximize its use of resources, and thus attention has been 

paid to the rates the CHS program pays external providers. Providers set 

billed charges—the amounts they bill before any negotiated rates are 

applied—but the payments they receive vary by payer. Historically, the 

CHS program paid providers for services at either their billed charges or 

at lower rates negotiated with the providers. In comparison, Medicare and 

private insurance are two of the largest sources of revenue for many 

providers.5 Medicare pays providers according to a formula that includes 

several factors, such as geographic location, and private insurers typically 

have contractual arrangements with providers under which they negotiate 

lower payment rates for services on behalf of their members or 

beneficiaries. In 1986, IHS issued a policy stating that it should not 

contract to pay more for services than other federal programs and that it 

would contract to purchase services only with providers that agreed to 

accept negotiated rates no higher than those paid by Medicare,6 which 

covered almost 49 million people in 2011. The policy also stated that it 

should only use noncontracted providers in certain situations. However, in 

1999, HHS’s Office of Inspector General (OIG) reported that the CHS 

program continued to pay most providers at rates that were higher than 

those paid by Medicare.7

In 2003, the Congress established a payment rate cap on CHS program 

payments for hospital services so the program could use the resulting 

savings to expand patient access to care. Specifically, the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 required 

that Medicare-participating hospitals accept patients of both federally and 

It also reported that, because of the nature of 

care provided (often specialty or emergency services), IHS was not 

always able to consider costs when purchasing services from providers 

and that, because of the voluntary nature of the policy, many providers 

did not respond to IHS’s requests to negotiate reduced rates.

 

5

Medicare is the federal government’s health insurance program for individuals aged 65 

and older and for individuals with certain disabilities or end-stage renal disease.

6

51 Fed. Reg. 23,540 (June 30, 1986). The policy stated that while tribal programs were 

encouraged to adopt cost-containment measures, the policy applied only to federal CHS 

programs.

7

Department of Health and Human Services, Office of Inspector General, Review of the 

Indian Health Service’s Contract Health Services Program (Washington, D.C.: Jan. 21, 

1999).
 

Page 3 GAO-13-272 IHS Contract Health Payments

tribally operated CHS programs and accept payment at no more than 

Medicare rates—referred to as Medicare-like rates (MLR)—for services 

provided.8 IHS implemented this MLR requirement in July 2007. This 

requirement did not apply to physician services, including those provided 

in hospitals, or to services by providers at other nonhospital service 

locations.9

In a September 2009 follow-up report, the OIG found that about 

71 percent of payments for nonhospital claims were paid at rates higher 

than the Medicare rates.

For care in these other settings, physicians and other 

nonhospital providers would continue to be paid at either their billed 

charges or at negotiated rates below their billed charges.

10

The Patient Protection and Affordable Care Act requires GAO to study the 

amounts paid for health care furnished by providers under the CHS 

program, including a comparison with the rates paid by other public and 

private payers.

It also reported that both federal and tribal 

CHS programs faced challenges trying to negotiate lower rates with 

providers, especially in rural areas with few providers. On the basis of 

these results, the OIG recommended that IHS seek legislative authority to 

cap CHS program payments for nonhospital providers. In a September 

2009 study, IHS estimated that from fiscal years 2006 through 2008, 

federal CHS programs paid a total of about $195 million to nonhospital 

providers, which was about $85 million more than if these services had 

been paid at the Medicare rates. As of January 2013, IHS had not 

addressed the OIG’s recommendation to seek legislative authority to cap 

CHS program payments to nonhospital providers.

11

 

8

Pub. L. No. 108-173, § 506, 117 Stat. 2066, 2294-95 (2003).

To respond to this mandate, this report examines 

9

Other nonhospital providers, for which the MLR requirement does not apply, include 

independent laboratories, ambulatory surgical centers, and independent ambulance 

providers.

10Department of Health and Human Services, Office of Inspector General, IHS Contract 

Health Services Program: Overpayments and Potential Savings (Washington, D.C.: 

September 2009).

11This work was also identified in a March 2009 request from the Senate Committee on 

Indian Affairs and individual members prior to the enactment of the Patient Protection and 

Affordable Care Act, which provided for the enactment of the Indian Health Care 

Improvement Reauthorization and Extension Act of 2009. See Pub. L. No. 111-148, 

§ 10221, 124 Stat. 119, 935 (2010) (enacting S. 1790, as reported by the Committee on 

Indian Affairs in the Senate in December 2009, into law with amendments); S. 1790, 111th 

Cong. § 199 (2009).
 

Page 4 GAO-13-272 IHS Contract Health Payments

(1) how payments to physicians by IHS’s federal CHS programs compare 

with what Medicare and private health insurers would have paid for the 

same services, (2) physicians’ perspectives about how a federally 

required cap on payment rates could affect them, (3) hospitals’ 

perspectives about how the MLR requirement has affected them, and 

(4) IHS and tribal perspectives about the effect of the MLR requirement 

on hospitals and the potential effect of a MLR requirement on nonhospital 

services. 

To examine how payments to physicians by IHS’s federal CHS programs 

compare with what Medicare and private health insurers would have paid 

for the same services, we obtained paid federal CHS program claims 

from IHS for health care services provided in calendar year 2010, the 

most recent year for which the most complete data were available. These 

claims data did not include claims paid by tribal CHS programs.12 We 

examined payments for physician and other nonhospital services, which 

were not subject to the MLR requirement. We excluded services for which 

the patient had another form of insurance, because the CHS program is 

generally a payer of last resort and the federal CHS programs’ payments 

would have reflected only the remaining balances after payments from 

the primary payers. There were 372,840 nonhospital services where 

federal CHS programs were the primary payer; payments for these 

services constituted about 44 percent of total payments for all services 

provided by federal CHS programs in 2010. From this group of 

nonhospital services, we isolated physician services. Specifically, we 

excluded nonhospital services that were not covered by the 2010 

Medicare Physician Fee Schedule.13

 

12The federal CHS programs account for approximately 46 percent of total CHS program 

payments, and their claims are administered by a single fiscal intermediary that contracts 

with IHS. We did not examine claims data from the tribal CHS programs, which account 

for the remaining 54 percent of total CHS program payments. Tribal CHS programs 

operate their programs independently and do not use a single fiscal intermediary.

We also excluded services provided 

by anesthesiologists because the information collected by IHS about 

these services did not contain all of the information necessary to 

13The Medicare Physician Fee Schedule contains fees for each of over 7,000 physician 

services, such as office visits, surgical procedures, and tests. Each service is identified by 

a single billing code from the Healthcare Common Procedure Coding System, which is a 

standardized coding system that physicians use to bill for procedures provided in the 

delivery of health care. A single claim may contain multiple services. Other nonhospital 

services, such as ambulatory surgical center services, are priced by Medicare using 

different methodologies.
 

Page 5 GAO-13-272 IHS Contract Health Payments

determine comparable Medicare rates. There were 246,273 remaining 

physician services where federal CHS programs were the primary payer, 

constituting about 24 percent of total payments for all services provided 

by federal CHS programs in 2010.

14 For each physician service, we 

compared the CHS program payment amount to the corresponding rate 

on the 2010 Medicare Physician Fee Schedule. When determining the 

Medicare rates, we priced the services as they were identified in the CHS 

program claims and we did not independently verify the accuracy or 

completeness of the CHS program claim information.15 As Medicare 

does, we adjusted the payment rate for a given service according to the 

physician’s geographic location and the service setting, such as whether 

the service was provided in a hospital or a physician’s office.16

 

14These physician services comprised about 55 percent of the nonhospital services for 

which the CHS program was the primary payer.

We also 

compared the CHS program payments for physician services with those 

of private insurers. To estimate the rates that private insurers paid, we 

obtained the Truven Health Analytics MarketScan® Commercial Claims 

and Encounters Database, which contains claims paid by 100 insurers 

and includes enrollees located in 50 states in 2010. To account for any 

variation in payments due to geographic location, we compared only 

those physician services from the federal CHS program claims data that 

were provided in the same county as those in the private insurance 

claims data. Of the 246,273 total physician services in the federal CHS 

15In addition, when pricing these services, we applied Medicare payment modifiers that 

were also used by IHS’s fiscal intermediary when paying contracted physicians at 

Medicare rates. These modifiers included modifiers for the technical and professional 

components, as well as modifiers for assistant at surgery, bilateral surgery, and cosurgeon. In addition, we applied Medicare’s diagnostic imaging adjustment, which requires 

that payment for certain imaging services under the Medicare Physician Fee Schedule not 

exceed what Medicare pays for these services performed in hospital outpatient 

departments. We did not apply Medicare policies that aim to reduce inappropriate 

payments, such as those developed by the National Correct Coding Initiative, Medicare 

incentive payments, such as bonuses for services provided in a Health Professional 

Shortage Area, or Medicare coverage policies, such as national coverage determinations.

16IHS’s claims processing system does not collect the information necessary for us to 

determine whether a physician service should be paid at facility (such as a hospital) or 

nonfacility (such as a physician’s office) Medicare rates. When paying contracted 

physicians at Medicare rates, IHS categorizes all physician claims as nonfacility, even if 

they were provided in a facility. Therefore, we used a combination of other variables to 

approximate whether the service was provided in a facility. This methodology may not 

have identified all facility claims. Since Medicare generally pays less for services provided 

in a facility, our estimate of what Medicare would have paid for these same services may 

be higher than we would have estimated if this information were available.
 

Page 6 GAO-13-272 IHS Contract Health Payments

program claims data, we identified 231,099 (about 94 percent) services 

that were paid for by private insurers in the same counties. For each 

county, we calculated an average rate paid by private insurers for a 

service and compared that average rate with the federal CHS programs’ 

payment for that service. We priced the services as they were identified in 

the CHS program and private insurer claims and we did not 

independently verify the accuracy or completeness of either payer’s claim 

information. We assessed the reliability of IHS’s federal CHS program 

claims data, the Medicare Physician Fee Schedule data, and the Truven 

Health Analytics MarketScan® Commercial Claims and Encounters 

Database by reviewing documentation and discussing the database with 

knowledgeable officials. We also performed data reliability checks, such 

as examining the data for missing values and obvious errors, to test the 

internal consistency and reliability of the data. After taking these steps, 

we determined the data were sufficiently reliable for our purposes.

To examine physicians’ perspectives about how a federally required cap 

on payment rates could affect them, we interviewed a sample of 10 

physicians paid by federal CHS programs for services provided in 2010.17

To identify physicians located on or near reservations, we limited our 

selection to those physicians located in counties designated by IHS as 

CHS Delivery Areas (CHSDA).18 Of these, to ensure that our sample was 

geographically diverse and contained physicians who interacted 

frequently with federal CHS programs, we divided the physicians into 

groups according to their urban or rural location19

 

17For the purpose of these interviews, the term “physician” refers to an entity, rather than 

an individual. The entities that we selected using CHS program claims data could have 

been a single physician or a physician group. After we initially contacted the selected 

entity, we were directed to the most appropriate individual to interview about payment 

issues. These identified individuals included the physician, the physician’s billing staff, or 

administrative staff.

and identified the top 

25 percent of physicians according to their volume of paid CHS program 

services provided in 2010. This gave us a list of 101 rural physicians and 

a list of 757 urban physicians who interacted the most frequently with 

18Residence in a CHSDA is generally a requirement for individuals to have their services 

paid through the CHS program. (See fig. 1 for a map of counties designated by IHS as 

CHSDAs.)

19We identified counties as urban or rural according to the U.S. Department of 

Agriculture’s rural-urban continuum coding system. Specifically, we defined urban 

counties as those with a population of 20,000 or more. We defined rural counties as those 

with a population of less than 20,000.
 

Page 7 GAO-13-272 IHS Contract Health Payments

federal CHS programs. From each list, we selected 4 rural physicians and 

6 urban physicians, 2 of whom we selected from among the top 5 percent 

of each list on the basis of their claims volume.20 The physicians we 

interviewed represented a range of specialties, including radiology, 

cardiology, ophthalmology, surgery, and primary care. Of the 10 

physicians we selected, 5 worked in group practices, 3 in solo practices, 1 

was a rural health clinic, and 1 was a billing-services company that 

provided those services to the selected physician and more than 60 other 

clients. Given the small number of physicians in our sample and our 

process for selecting them, the results from these interviews are not 

generalizable to all physicians interacting with the CHS program. We 

asked physicians a standard set of open-ended questions and did not 

independently validate their reported experiences.21

To examine hospitals’ perspectives about how the MLR requirement has 

affected them, we interviewed officials from a sample of 10 hospitals that 

were paid by federal CHS programs for services provided in 2010. As 

with our selection of physicians, we limited our selection to those 

hospitals located in CHSDAs and divided the hospitals into groups 

according to their urban or rural location.22

 

20We planned to select 5 physicians from each list. Because of a low response rate 

among rural physicians, we ultimately interviewed 4 rural physicians and 6 urban 

physicians.

Then, we identified the top 

25 percent of hospitals according to their volume of paid CHS program 

services provided in 2010. This gave us a list of 27 rural hospitals and a 

list of 34 urban hospitals that interacted the most frequently with federal 

CHS programs. From each list, we selected 5 hospitals, 2 of which we 

selected from among the top 5 percent of each list on the basis of their 

claims volume. At each hospital, we interviewed officials identified as 

knowledgeable about that hospital’s finances and interactions with CHS 

programs. While we interviewed 10 hospitals, we reported on the 

perspectives of 9 because the officials at 1 hospital had limited 

21Although these physicians were selected on the basis of their interactions with federally 

operated CHS programs, their comments could pertain to either federal or tribal CHS 

programs, as some physicians interacted with both types of programs and we did not ask 

them to differentiate between program type during the interviews.

22We identified counties as urban or rural according to the U.S. Department of 

Agriculture’s rural-urban continuum coding system. Specifically, we defined urban 

counties as those with a population of 20,000 or more. We defined rural counties as those 

with a population of less than 20,000.
 

Page 8 GAO-13-272 IHS Contract Health Payments

experience with CHS programs. Given the small number of hospitals in 

our sample and our process for selecting them, the results from these 

interviews are not generalizable to all hospitals interacting with CHS 

programs. We asked hospitals a standard set of open-ended questions 

and did not independently validate their reported experiences.23

To examine IHS and tribal perspectives about the effect of the MLR 

requirement on hospitals and the potential effect of a MLR requirement on 

nonhospital services, we interviewed IHS area office officials to obtain 

their perspectives on payment rates, patient access to care, and rate 

negotiation efforts. We selected the six area offices—Aberdeen, 

Albuquerque, Bemidji, Billings, Navajo, and Oklahoma City—from which 

our interviewed hospitals and physicians received payment for the 

majority of the services they provided to the federal CHS programs in 

2010.24

We conducted this performance audit from November 2011 to April 2013 

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.

These six area offices represented 84 percent of payments by 

federal CHS programs in 2010. We also interviewed tribal officials, 

including representatives of tribal CHS programs, from several of these 

areas and the California area, where all CHS programs are tribally 

operated. Given the small number of tribal officials in our sample and our 

process for selecting them, the results from these interviews are not 

generalizable to all tribes interacting with CHS programs. We asked the 

tribal and IHS area office officials a standard set of open-ended questions 

and did not independently validate their reported experiences.

 

23Although these hospitals were selected on the basis of their interactions with federally 

operated CHS programs, their comments could pertain to either federal or tribal CHS 

programs, as some hospitals interacted with both types of programs and we did not ask 

them to differentiate between program type during the interviews.

24IHS’s 12 area offices are Aberdeen, Alaska, Albuquerque, Bemidji, Billings, California, 

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

Page 9 GAO-13-272 IHS Contract Health Payments

IHS oversees the CHS program through 12 area offices. The federally 

and tribally operated facilities in each of these areas use CHS program 

funds to purchase health care services from external hospitals, 

physicians, and other providers. Medicare-participating hospitals are 

required to accept CHS program patients at rates no higher than the rates 

paid by the Centers for Medicare & Medicaid Services’ (CMS) Medicare 

program, while federal and tribal CHS programs pay physicians and other 

nonhospital providers at either their billed charges or at reduced rates an 

IHS area office or tribal CHS program negotiates with them. Other federal 

health care programs—administered by the Department of Defense 

(DOD) and the Department of Veterans Affairs (VA)—have adopted 

Medicare rates as the basis for their standard payment rate for both 

hospital and nonhospital services.

IHS manages the CHS program through a decentralized system of 12 

area offices, which oversee individual CHS programs in 35 states where 

many American Indian and Alaska Native communities are located. (See 

fig. 1 for a map of the counties IHS designates as CHSDAs. Residence in 

these counties is generally a requirement for obtaining contract health 

services.) About 46 percent of CHS program funds are distributed by IHS 

to federal CHS programs, and the other 54 percent to tribal CHS 

programs. Tribal CHS programs must meet the same statutory and 

regulatory requirements as federal CHS programs, but they are not 

generally subject to the same policies, procedures, and reporting 

requirements established for federal CHS programs.25

 

25Under the Indian Self-Determination and Education Assistance Act, as amended, 

federally recognized Indian tribes can enter into self-determination contracts or selfgovernance compacts with the Secretary of Health and Human Services to take over 

administration of IHS programs for Indians because of their status as Indians 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 throughout IHS, or portions thereof, that are carried out for the benefit of 

Indians because of their status as Indians. Self-determination contracts allow tribes to 

assume administration of a program, programs, or portions thereof. See 25 U.S.C. 

§§ 450f(a) (self-determination contracts), 458aaa-4(b)(1) (self-governance compacts).

Background 

CHS Program Organization
 

Page 10 GAO-13-272 IHS Contract Health Payments

Figure 1: Counties Designated as CHS Delivery Areas (CHSDA) in the 12 IHS Areas

Notes: While CHSDAs are typically counties, the city of Elton, Louisiana is also designated as a 

CHSDA in the Nashville area. Information is as of January 2013.

Funds permitting, federal and tribal facilities use CHS program funds to 

pay for eligible patients to receive services from external providers if the 

services are not available at IHS-funded facilities. The services 
 

Page 11 GAO-13-272 IHS Contract Health Payments

purchased include hospital, specialty physician, outpatient, laboratory, 

dental, radiology, pharmacy, and transportation services. Patients must 

meet certain requirements to have their services paid for by the CHS 

program. For example, patients must be members of federally recognized 

tribes and live in specific areas. If these requirements are met, CHS 

program committees at each federal or tribal facility evaluate the medical 

necessity of each patient case and assign it a priority level.26 Facilities 

first pay for the highest priority services. If there are other health care 

resources available to the patient, such as Medicare, Medicaid, or private 

health insurance, these resources must first be used to pay for services 

before the CHS program covers any remaining costs because the CHS 

program is generally the payer of last resort.27 For federal CHS programs, 

once the service has been approved and the care provided, providers 

obtain payment for CHS program services by sending their claims to 

IHS’s fiscal intermediary, BlueCross BlueShield of New Mexico 

(BCBSNM). BCBSNM processes claims for all of the federal CHS 

programs. The tribal CHS programs process their own claims or contract 

with a fiscal intermediary of their choosing; a small number of tribal 

programs contract with BCBSNM.

The rate that a CHS program pays a provider is determined by several 

factors, including whether the provider is a hospital subject to MLR 

reimbursement or the provider has negotiated reduced payment rates 

with IHS or the tribe. (See fig. 2.) CHS program payments for hospital 

services—inpatient and outpatient services provided in Medicareparticipating hospitals—are subject to the MLR requirement. IHS 

generally calculates the MLR using the same methodology that Medicare 

uses to pay its claims, so the amount the CHS program pays for a service 

 

26IHS has established four broad medical priority levels of health care services eligible for 

payment and a fifth for excluded services that cannot be paid for with CHS program funds. 

Priority level I services are the highest priority services and include emergent/acutely 

urgent care services, such as trauma care, acute/chronic renal replacement therapy, 

obstetrical delivery, and neonatal care.

27See 25 U.S.C. §§ 1621e, 1623; 42 C.F.R. § 136.61. 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. The CHS program must also pay 

for care provided to eligible American Indians and Alaska Natives before the crime victim 

compensation program, a federal program that provides compensation to victims and 

survivors of criminal violence.

CHS Program Payment 

Rates
 

Page 12 GAO-13-272 IHS Contract Health Payments

generally equals the amount that Medicare would pay the hospital for that 

same service. CHS program payments to providers for nonhospital 

services—including services provided by hospital- and office-based 

physicians—are not subject to the MLR requirement.28

Figure 2: Overview of IHS’s Process for Determining CHS Program Payments

Each CHS 

program pays these providers at their billed charges unless the IHS area 

office has negotiated with the provider for a reduced rate. Each IHS area 

office can negotiate contracts with the providers that serve the CHS 

programs in its geographic area. Tribally operated facilities are 

independent and may negotiate their own contracts with providers. 

However, IHS officials said that when they negotiate with providers, they 

may ask those providers to honor the negotiated rates when they interact 

with tribal CHS programs.

In 1986, IHS issued a policy advising area offices to negotiate rates no 

higher than Medicare rates.29

 

28Other types of nonhospital services include those provided by independent laboratories, 

free-standing ambulatory surgical centers, and independent ambulance providers.

In discussing the need for the policy, IHS 

noted that paying providers for CHS program services at billed charges 

resulted in a depletion of funding that often required the postponement of 

needed care for American Indians and Alaska Natives. The agency also 

noted that IHS should not pay more than other federal agencies for the 

2951 Fed. Reg. 23,540 (June 30, 1986).
 

Page 13 GAO-13-272 IHS Contract Health Payments

same services. The agency recommended that area offices identify and 

prioritize high-volume providers with whom to negotiate lower rates.30 In 

addition, the agency indicated that contracts negotiated with providers for 

payments at rates higher than those paid by Medicare, such as a discount 

off billed charges or a percentage above Medicare rates, would be 

approved by IHS on a case-by-case basis. Further, the agency stated that 

CHS programs should only use providers that do not have a contract with 

the CHS program in two situations: if a patient needs emergency care 

and if the patient’s health requires that the services be rendered by a 

noncontract provider. However, IHS has since stated it has not been 

possible to negotiate contracts with each of the providers that the CHS 

program uses because of limitations in area office contracting staff and 

some providers not being willing to enter into a contract.31

For services provided in calendar year 2010, IHS’s federal CHS programs 

paid $262.8 million to 6,113 providers for services for 66,750 patients. Of 

these payments, federal CHS programs paid $104.0 million (about 

40 percent of total payments) for hospital services where the CHS 

program was the primary payer and about $114.7 million (about 

44 percent of total payments) for nonhospital services where the CHS 

program was the primary payer.32 Of these payments for nonhospital 

services, the federal CHS programs paid $62.5 million (about 55 percent) 

for hospital- and office-based physician services.33

 

30Indian Health Manual, ch. 5, Acquisition Management, pt. 5, Management Services.

(See fig. 3.)

3156 Fed. Reg. 10,566 (Mar. 13, 1991).

32Federal CHS programs paid the remaining $44.1 million (about 17 percent of total 

payments) for hospital and nonhospital services where the CHS program was not the 

primary payer. CHS program patients may qualify for other forms of insurance and, as the 

CHS program is the payer of last resort, the program is sometimes not the primary payer. 

However, the majority of payments from federal CHS programs to providers are for 

services for which the CHS program is the primary payer.

33We isolated physician services by excluding other nonhospital services that were not 

covered by the 2010 Medicare Physician Fee Schedule. We also excluded services 

provided by anesthesiologists.

Federal CHS Program 

Payments for Services 

Provided in 2010
 

Page 14 GAO-13-272 IHS Contract Health Payments

Figure 3: Total Payments by IHS’s Federal CHS Programs for Services Provided in 

2010

Note: In the figure, the sum of the payments for the “other nonhospital services” and the “physician 

services” does not total to $114.7 million because of rounding.

CMS uses Medicare payment methodologies that take many factors, such 

as the type and location of service delivery, into account when calculating 

hospital and physician payments for a given service.34

 

34About one-quarter of Medicare beneficiaries are covered by Medicare Advantage, rather 

than the traditional Medicare program. Under Medicare Advantage, CMS provides private 

insurance plans with a monthly amount per beneficiary that is adjusted to reflect 

beneficiary health status.

CMS periodically 

reassesses the specific Medicare payment rates to adjust for increases in 

the cost of delivering care. The Medicare Payment Advisory Commission 

(MedPAC) has stated that the goal of Medicare payment policy should be 

to keep payment rates low enough to ensure efficient use of taxpayer 

funds, but high enough to ensure that patient access to care is not 

Access to Care through 

Other Federal Programs 

That Purchase Health Care 

at Medicare Rates
 

Page 15 GAO-13-272 IHS Contract Health Payments

negatively affected by reduced provider participation.35

Other federal health care programs also use these Medicare 

methodologies as the basis for the rates they pay providers. For example, 

reimbursement rates for civilian providers under TRICARE, DOD’s health 

care program, are generally limited to Medicare rates.

Overall, CMS paid 

$549 billion in 2011 for care provided to Medicare’s almost 49 million 

beneficiaries.

36 Beginning in 

fiscal year 1991, in an effort to control costs, the Congress directed DOD 

to gradually implement this methodology by lowering its reimbursement 

rates to Medicare amounts by no more than 15 percent each year, and 

current law requires DOD to use Medicare payment methodologies to the 

extent practicable.37 Prior to this, DOD payment rates were, on average, 

50 percent higher than Medicare rates. In addition, VA has implemented a 

similar rate cap to lower costs for services from non-VA providers.38 VA 

pays for hospital and physician services at Medicare rates, and beginning 

in February 2011, in an effort to help contain costs, the agency required 

that Medicare rates be used to pay for other types of nonhospital 

services, such as laboratory, home health, and hospice services.39 VA 

anticipated that payment at Medicare rates for these other nonhospital 

services would save it more than 50 percent relative to its current 

payments. In issuing the final rule describing this change,40

 

35Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment 

Policy (Washington, D.C.: March 2012).

the agency 

indicated that a goal of the rate cap was to align its payment structure 

36In fiscal year 2010, DOD offered health care to over 9.5 million eligible beneficiaries 

through TRICARE. Under TRICARE, eligible beneficiaries may obtain care either from 

military hospitals and clinics, referred to as military treatment facilities, or from civilian 

providers.

37See 10 U.S.C. §§ 1079(h), (j), 1086(f), (g). 

38See 38 C.F.R. § 17.56. VA spent approximately $45 billion in fiscal year 2010 to provide 

health care to about 5 million veterans. Of this, approximately $4 billion was paid to nonVA providers, generally for services that were not available at VA facilities.

39Prior to this change, VA paid Medicare rates for hospital services and physician services 

covered by rates listed on the Medicare Physician Fee Schedule for participating 

physicians. The agency now pays Medicare rates for nonhospital services covered by 

other Medicare payment methodologies, such as Ambulatory Surgical Center Payment 

and the Clinical Laboratory Fee Schedule. If VA has negotiated a specific amount with a 

provider, VA will pay that amount instead of Medicare rates.

4075 Fed. Reg. 78,901 (Dec. 17, 2010) (amending 38 C.F.R. §§ 17.52, 17.56).
 

Page 16 GAO-13-272 IHS Contract Health Payments

with Medicare, which VA described as the federal government’s standard 

for purchasing care from private-sector providers.

We and MedPAC have reported that Medicare beneficiaries have 

generally experienced few problems accessing physician services, 

although access problems may exist in certain situations.41 For example, 

in 2009, we reported that the percentage of Medicare beneficiaries who 

reported major difficulties accessing specialty care was the same for 

those living in urban areas and in rural areas in 2008—2.1 percent. We 

also noted that the number of physicians billing Medicare for services had 

increased between 2000 and 2007, suggesting that more physicians were 

generally willing to accept Medicare patients. Some studies have found 

that access-to-care problems may exist for certain types of Medicare 

beneficiaries, such as those in fair or poor health, racial minorities, or 

those living in the most remote areas.42 However, studies have also 

suggested that factors other than payment rates, such as physician 

capacity to accept patients and travel time, are important influences on 

patient access to care.43 With respect to DOD’s TRICARE program, we 

have reported that reimbursement rates and provider shortages in some 

locations have hindered access to care.44

 

41See, for example, GAO, Medicare Physician Services: Utilization Trends Indicate 

Sustained Beneficiary Access with High and Growing Levels of Access in Some Areas of 

the Nation, 

Additional studies by DOD have 

cited reimbursement rates as the primary reason civilian providers may 

be unwilling to accept TRICARE beneficiaries as patients.

GAO-09-559 (Washington, D.C.: Aug. 28, 2009); GAO, Medicare Physician 

Services: Use of Services Increasing Nationwide and Relatively Few Beneficiaries Report 

Major Access Problems, GAO-06-704 (Washington, D.C.: July 21, 2006); and Medicare 

Payment Advisory Commission, Report to the Congress: Medicare and the Health Care 

Delivery System (Washington, D.C.: June 2012).

42See, for example, GAO-06-704 and Medicare Payment Advisory Commission, Report to 

the Congress: Medicare and in Rural America (Washington, D.C.: June 2001).

43Medicare Payment Advisory Commission, Report to the Congress: Medicare and in 

Rural America and Center for Studying Health System Change, Physician Acceptance of 

New Medicare Patients Stabilized in 2004-05 (Washington, D.C.: January 2006).

44See, for example, GAO, Defense Health Care: TRICARE Multiyear Surveys Indicate 

Problems with Access to Care for Nonenrolled Beneficiaries, GAO-13-364 (Washington, 

D.C.: April 2, 2013); GAO, Defense Health Care: Access to Civilian Providers under 

TRICARE Standard and Extra, GAO-11-500 (Washington, D.C.: June 2, 2011) and 

Defense Health Care: Across-the-Board Physician Rate Increases Would be Costly and 

Unnecessary, GAO-01-620 (Washington, D.C.: May 24, 2001).
 

Page 17 GAO-13-272 IHS Contract Health Payments

DOD and VA have each made modifications to their payment 

methodologies in an attempt to address concerns about access to care. 

For example, both agencies pay higher rates in Alaska because of 

concerns that providers would not accept their beneficiaries at Medicare 

rates. In contrast to the Medicare rates it pays elsewhere, in Alaska, VA 

and DOD pay providers using separate payment methodologies.45 In prior 

reviews of DOD’s program, we have noted that there is little evidence 

these increased payments improved patient access to care.46 We noted 

that increased payment rates do little to address more systemic causes of 

limited access, such as scarcity of physicians and patient transportation 

difficulties.47

We have also noted that the potential for payment rate changes to affect 

patient access to care points to the need to monitor beneficiary access.48

This type of monitoring is conducted by some federal agencies paying 

providers at Medicare rates. For example, as part of its monitoring, CMS 

conducts annual surveys of Medicare beneficiaries to assess their 

satisfaction with care and their ability to access health care. Additionally, 

in fiscal year 2004, in response to concerns about certain TRICARE 

beneficiaries’ access to care from civilian providers, the Congress 

directed DOD to monitor access through a survey of civilian providers.49

 

45Under the VA Alaska Fee Schedule the amount paid in Alaska for each service is 

90 percent of the average amount VA actually paid in Alaska for the same services in 

fiscal year 2003, adjusted annually for inflation. In 2003, VA had been paying providers in 

Alaska at about 75 percent of their billed charges. DOD calculated that, on average in 

2006, VA reimbursement rates in Alaska were 35 percent higher than DOD rates and 

73 percent higher than Medicare rates. Therefore, in 2007, DOD increased its payment 

rates in Alaska to bring them in line with those paid by VA.

46GAO-11-500 and GAO-01-620. 

47In recognition of these challenges, a task force consisting of members from several 

agencies—including DOD, VA, CMS, and IHS—has examined how federal agencies with 

responsibility for health care services in Alaska are meeting the needs of Alaskans. In 

September 2010, the task force issued its report recommending that, among other things, 

federal agencies should support the development of a uniform provider payment rate for 

similar services for Medicare, DOD, and VA. See Report to Congress of the Interagency 

Access to Health Care in Alaska Task Force (Sept. 17, 2010).

48GAO-09-559 and GAO, End-Stage Renal Disease: CHS Should Monitor Access to and 

Quality of Dialysis Care Promptly after Implementation of New Bundled Payment System, 

GAO-10-295 (Washington, D.C.: Mar. 31, 2010).

49See Pub. L. No. 108-136, § 723, 117 Stat. 1392, 1532-34 (2003), and S. Rep. No. 108-

46, at 330 (2003).
 

Page 18 GAO-13-272 IHS Contract Health Payments

As these concerns continued, DOD was further directed in fiscal year 

2008 to conduct annual surveys of both beneficiaries and civilian 

providers to determine the adequacy of access to health care and mental 

health care providers for certain beneficiaries.50

More than 80 percent of IHS’s federal CHS program payments to 

physicians for services provided in 2010 were paid to noncontracted 

physicians at billed charges, rather than to contracted physicians at 

negotiated, reduced rates. IHS’s federal CHS program payments to these 

physicians were significantly higher than what we estimate Medicare and 

private insurers would have paid for these same services.

More than 80 percent of IHS’s federal CHS program payments to 

physicians for services provided in 2010 were paid to noncontracted 

physicians at billed charges, rather than to contracted physicians at 

negotiated, reduced rates. With the exception of uninsured patients, who 

are expected to pay providers at billed charges, other public and private 

payers typically pay providers at lower rates.51

 

50See Pub. L. No. 110-181, § 711(a), 122 Stat. 3, 190-191 (2008). DOD was directed to 

conduct these annual surveys from fiscal year 2008 through 2011. The agency has since 

been directed to continue these annual surveys of beneficiaries and civilian providers 

through 2015. See Pub. L. No. 112-81, § 721(a), 125 Stat. 1298, 1479 (2011). 

However, of the 

$62.5 million that federal CHS programs paid physicians, they paid about 

$50.5 million (about 81 percent) to noncontracted physicians at billed 

charges and about $12.1 million (19 percent) to contracted physicians at 

negotiated, reduced rates. IHS’s federal CHS program payments to other 

51Some research indicates that uninsured patients rarely pay billed charges, and amounts 

charged to them may be heavily discounted based on charity care or other reduced 

payment programs. See GAO, Health Care Price Transparency: Meaningful Price 

Information Is Difficult for Consumers to Obtain Prior to Receiving Care, GAO-11-791

(Washington, D.C.: Sept. 23, 2011) and Mark Merlis, “Health Care Price Transparency

and Price Competition,” National Health Policy Forum (Mar. 28, 2007).

IHS’s Federal CHS 

Program Primarily 

Paid Physicians at 

Their Billed Charges, 

Which Were 

Significantly Higher 

than What Medicare 

and Private Insurers 

Would Have Paid

IHS’s Federal CHS 

Program Paid More than 

80 Percent of Total 

Payments to Physicians at 

Billed Charges for Services 

Provided in 2010
 

Page 19 GAO-13-272 IHS Contract Health Payments

types of nonhospital providers for services provided in 2010 showed 

similar trends. Specifically, the federal CHS programs paid $40.3 million 

out of a total of $52.1 million (77 percent) to other noncontracted 

nonhospital providers at billed charges and about $11.8 million (about 

23 percent) to other contracted nonhospital providers at negotiated, 

reduced rates. (See fig. 4.)

Figure 4: Total Payments Made by IHS’s Federal CHS Programs to Contracted and Noncontracted Physicians and All Other 

Nonhospital Providers for Services Provided in 2010

Note: In the figure, the sum of the payments for contracted and noncontracted physicians does not 

total $62.5 million because of rounding.

While IHS’s policy states that CHS programs should purchase services 

from contracted providers in most situations, a significant majority of 

physicians paid by federal CHS programs for services provided in 2010 

did not have contracts. Specifically, of the 3,531 total physicians paid by 

federal CHS programs for services provided in 2010, 3,085 were 

noncontracted physicians paid at billed charges and 516 were contracted 

physicians paid at negotiated, reduced rates for at least some of their 
 

Page 20 GAO-13-272 IHS Contract Health Payments

services.52 Although IHS’s policy also states that contracting efforts 

should be focused on high-volume providers, the majority of these highvolume providers did not have contracts. For example, on the basis of the 

number of services provided, about 78 percent of the top 25 percent of 

physicians did not have contracts, nor did about 74 percent of the top 

5 percent of physicians. In addition, an examination of the data by area 

office showed that noncontracted physicians constituted the majority of 

paid physicians in all IHS areas. Specifically, for each of the 10 IHS areas 

with federally operated CHS programs, noncontracted physicians 

constituted more than two-thirds of all physicians paid for services 

provided in 2010.53 (See fig. 5.) For all other nonhospital providers, the 

numbers of contracted and noncontracted providers showed similar 

trends. Specifically, of the 3,590 other nonhospital providers paid for 

services provided in 2010, 3,145 other nonhospital providers did not have 

contracts and were paid at billed charges and 507 other nonhospital 

providers did have contracts and were paid at negotiated, reduced rates 

for at least some of their services.54

 

52The total number of unique physicians is 3,531. However, 70 contracted physicians 

were also paid at billed charges for some services and are included in the totals for both 

the contracted and noncontracted physicians. For example, a physician may have 

negotiated with IHS to provide a specific service at a contracted rate, but all other services 

provided by the physician were paid at billed charges.

53Fifty-nine contracted physicians and 376 noncontracted physicians were paid for 

services by more than one area office. For example, some physicians practiced in a 

geographic area that serves federal CHS programs in multiple IHS areas.

54The total number of unique other nonhospital providers was 3,590. However, 62 

contracted providers were also paid at billed charges for some services and are included 

in the totals for both the contracted and noncontracted providers. For example, a provider 

may have negotiated with IHS to provide a specific service at a contracted rate, but all 

other services provided by the provider were paid at billed charges. In addition, 1,833 of 

the 3,590 providers of other nonhospital services also provided physician services that 

were covered by the Medicare Physician Fee Schedule. These providers are therefore 

also included in the total number of physicians.
 

Page 21 GAO-13-272 IHS Contract Health Payments

Figure 5: Contracted and Noncontracted Physicians Paid by IHS’s Federal CHS Programs for Services Provided in 2010, by 

Area Office

a

Fifty-nine contracted physicians and 376 noncontracted physicians were paid for services by more 

than one area office. For example, some physicians practiced in a geographic area that serves 

federal CHS programs in multiple IHS areas. The California and Alaska areas are not included in this 

figure because they include only tribally operated CHS programs.

b

For those physicians whom IHS’s federal CHS programs paid under 

contracts for reduced rates, the programs achieved significant savings 

relative to the physicians’ billed charges. Specifically, the federal CHS 

programs paid about $12.1 million for these services, which represented 

an estimated $16.7 million (58 percent) in savings, relative to the 

Seventy of the contracted physicians were also paid at billed charges for some services. For 

example, a physician may have negotiated with IHS to provide a specific service at a contracted rate, 

but all other services provided by the physician were paid at billed charges. These 70 physicians are 

included in the totals for both the contracted and noncontracted physicians.
 

Page 22 GAO-13-272 IHS Contract Health Payments

physicians’ billed charges.55 The percentage of savings was fairly 

consistent across the IHS area offices. The savings attributed to 

physician contracts ranged from 50.4 percent in the Aberdeen and 

Albuquerque Areas to 69.1 percent in the Phoenix Area. (See table 1.) 

IHS’s federal CHS programs’ savings from contracts with other 

nonhospital providers showed similar trends, achieving estimated savings 

of 68 percent, or $25.3 million, relative to billed charges.56

 

55Officials from IHS’s fiscal intermediary said that, to help them determine IHS’s savings 

due to contracts, they encourage contracted physicians to bill federal CHS programs at 

their full billed charges, and then the federal CHS programs pay the providers according to 

their contracted rates. However, some contracted physicians instead bill federal CHS 

programs according to their contracted rates. In the 2010 claims data, 204 out of 516 

contracted physicians billed the federal CHS programs at the same rate they were paid 

under their contract and received payments from IHS totaling $512,915.Therefore, our 

estimate of $16.7 million in physician contract savings, which is the difference between the 

physicians’ billed charges and the payments received, may underestimate IHS’s total 

savings due to contracts with physicians.

56Officials from IHS’s fiscal intermediary said that, to help them determine IHS’s savings 

due to contracts, they encourage other nonhospital providers with contracts to bill federal 

CHS programs at their full billed charges and then the federal CHS programs pay the 

nonhospital providers according to their contracted rates. However, some nonhospital 

providers with contracts instead bill federal CHS programs according to their contracted 

rates. In the 2010 claims data, 164 out of 507 contracted nonhospital providers billed the 

federal CHS programs at the same rate they were paid under their contract and received

payments from IHS totaling $4,160,153. Therefore, our estimate of $25.3 million in 

nonhospital provider contract savings, which is the difference between the providers’ billed 

charges and the payments received, may underestimate IHS’s total savings due to

contracts with other types of nonhospital providers.
 

Page 23 GAO-13-272 IHS Contract Health Payments

Table 1: Savings for IHS’s Federal CHS Programs Due to Physician Contracts for Services Provided in 2010, by Area Office

For physicians paid under contract

Area office

Billed charges 

(dollars) a Amount paid (dollars)

Contract savingsb Contract savings as a percentage 

(dollars) of billed charges (percent)

Aberdeen $5,632,186 $2,793,323 $2,838,863 50.4%

Albuquerque 2,437,173 1,208,701 1,228,472 50.4

Bemidji 229,611 90,449 139,162 60.6

Billings 5,786,494 2,541,273 3,245,221 56.1

Nashville 121,592 48,460 73,132 60.1

Navajo 2,441,217 1,002,058 1,439,159 59.0

Oklahoma City 7,894,724 2,878,731 5,015,993 63.5

Phoenix 1,887,211 582,920 1,304,291 69.1

Portland 487,192 199,078 288,114 59.1

Tucson 1,824,129 732,603 1,091,526 59.8

Total $28,741,530 $12,077,596 $16,663,934 58.0%

Source: GAO analysis of IHS data.

Notes: Dollar values may not add to the total because of rounding.

a

The California and Alaska areas are not included in this table because they include only tribally 

operated CHS programs.

b

Officials from IHS’s fiscal intermediary said that, to help them determine IHS’s savings due to 

contracts, they encourage contracted physicians to bill federal CHS programs at their full billed 

charges and then the federal CHS programs pay the providers according to their contracted rates. 

However, some contracted physicians instead bill federal CHS programs according to their contracted 

rates. In the 2010 claims data, 204 out of 516 contracted physicians billed the federal CHS programs 

at the same rate they were paid under their contract and received payments from IHS totaling 

$512,915. Therefore, our estimate of $16.7 million in physician contract savings, which is the 

difference between the physicians’ billed charges and the payments received, may underestimate 

IHS’s total savings due to contracts with physicians.

IHS’s federal CHS program payments to physicians for services provided 

in 2010 were higher than what we estimate Medicare and private insurers 

would have paid for these same services. These higher payments 

resulted from payments federal CHS programs made to noncontracted 

physicians at billed charges, as the CHS program generally paid 

contracted physicians at rates similar to Medicare.

IHS’s federal CHS programs paid, in total, two times what we estimate 

Medicare would have paid for the same physician services provided in 

2010. Specifically, of the $62.5 million in total payments for services 

provided in 2010, the federal CHS programs could have saved an 

estimated $31.7 million if they paid physicians what Medicare would have 

paid for the same services. The federal CHS programs could have used 

IHS’s Federal CHS 

Programs Paid Physicians 

More than What Medicare 

and Private Health 

Insurers Would Have Paid 

for the Same Services
 

Page 24 GAO-13-272 IHS Contract Health Payments

these savings to pay for more than double the number of physician 

services they provided in 2010—approximately 253,000 additional 

physician services (based on an average Medicare rate of $125 per IHS 

physician service). Further, savings for the overall CHS program may be 

even higher, as this analysis does not include payments for other types of 

nonhospital services paid by the federal CHS programs, as well as 

payments by tribally operated CHS programs, which receive over half of 

annual CHS program funding and have also been found to pay for 

nonhospital services above the Medicare rates.57 For example, a 2009 

OIG report found that there was no difference between federally and 

tribally operated CHS programs in terms of the percentages of 

nonhospital claims paid above Medicare rates.58

IHS’s federal CHS programs paid physicians at rates that were higher 

than Medicare rates because they primarily paid physicians at their billed 

charges. Services provided by noncontracted physicians accounted for 

approximately $30.5 million of the $31.7 million in estimated total savings 

It estimated that 

federally and tribally operated CHS programs could have saved almost 

half of total spending on nonhospital services if nonhospital payments 

were capped at Medicare rates. This suggests that both federally and 

tribally operated CHS programs are likely to achieve significant savings if 

they paid physicians and other nonhospital providers according to what 

Medicare would have paid for the same services. The potential for 

savings is particularly significant in light of the CHS program’s inability to 

pay for all needed services.

 

57The proportion of payments for other types of nonhospital services that were paid at 

billed charges was similar to physician services. Although we did not compare payments 

for other types of nonhospital services to Medicare rates, if we assume payment trends for 

these services are similar to physician services, we estimate that federal CHS programs 

could have saved an additional $26.4 million for services provided in 2010. In addition, 

tribal CHS programs receive about 54 percent of CHS program funds and IHS officials 

have indicated that tribes have been less likely than federal CHS programs to contract 

with providers for reduced rates. If we assume that contracting and payment trends for 

tribal CHS programs are similar to federal CHS programs, we estimate that tribal CHS 

programs could have saved an additional $68.2 million for services provided in 2010 if 

their physician and other nonhospital services were paid at Medicare rates. Therefore, 

we estimate that federal and tribal CHS programs could have saved a total of about 

$126.4 million if all physician and other nonhospital services provided in 2010 were paid at 

Medicare rates.

58See Department of Health and Human Services, Office of Inspector General, IHS 

Contract Health Services Program: Overpayments and Potential Savings (September 

2009).
 

Page 25 GAO-13-272 IHS Contract Health Payments

(96 percent) for the federal CHS programs. Specifically, the federal CHS 

programs paid noncontracted physicians a total of about $50.5 million at 

billed charges, which was two and a half times what we estimate 

Medicare would have paid for the same services (about $20 million). (See 

fig. 6.)

Most, but not all, payments to contracted physicians were similar to what 

Medicare would have paid.59

 

59We considered IHS payment amounts that were within 10 percent of the Medicare rates 

to be similar to the Medicare rates.

Federal CHS programs paid contracted 

physicians about $12.1 million for services provided in 2010 and these 

payments to contracted physicians accounted for approximately 

$1.2 million of the $31.7 million in estimated total savings (about 

4 percent). The federal CHS programs’ contracts with physicians were 

sometimes for negotiated rates that exceeded what Medicare would have 

paid. Specifically, slightly over one-third of total payments to contracted 

physicians were higher than what we estimate Medicare would have paid. 

However, most payments to contracted physicians were equal to or lower 

than what we estimate Medicare would have paid.
 

Page 26 GAO-13-272 IHS Contract Health Payments

Figure 6: Comparison of Payments from IHS’s Federal CHS Programs with Medicare 

Rates for Physician Services Provided in 2010

Notes: We analyzed IHS claims data and data from the Medicare Physician Fee Schedule. In the 

figure, the sum of the CHS program payments made under contract and at billed charges does not 

total $62.5 million because of rounding.

IHS’s federal CHS programs also paid more than what we estimate 

private insurers would have paid for the same physician services provided 

in 2010. Specifically, federal CHS programs paid about one and a quarter 

times what we estimate private insurers would have paid for the same 

services provided in 2010. Of those physician services for which 

comparable services were available at the county level in the private 

insurance data, the federal CHS programs paid about $51.5 million and 

private insurers would have paid an estimated $41.5 million, a difference 
 

Page 27 GAO-13-272 IHS Contract Health Payments

of $10.0 million.60

 

60To account for any variation in payments due to geographic location, we compared only 

those physician services from the federal CHS program claims data that were provided in 

the same county as those in the private insurance claims data. Therefore, of the 

246,273 total physician services in the CHS program data, we identified 231,099 (about 

94 percent) services that were provided by private insurers in the same counties. We were 

unable to compare physician services for $11.0 million in payments from the federal CHS 

programs’ claims to the private insurance claims because these services were not 

provided in the same county.

(See fig. 7) Similar to what we found in the Medicare 

comparison, most of this difference was attributable to those services for 

which the federal CHS programs paid noncontracted physicians at 

billed charges—rates that are higher than the rates paid by private 

insurers. Overall, these payments to noncontracted physicians totaled 

$41.2 million, which was more than one and a half times as much as the 

estimated $27.3 million that private insurers would have paid for these 

same services. However, in contrast to what we found in our Medicare 

comparison, when federal CHS programs were able to negotiate reduced 

rates with physicians, these rates were lower than what private insurers 

would have paid. Specifically, CHS program payments to contracted 

physicians totaled $10.3 million, while private insurers would have paid an 

estimated $14.2 million for these same services. This is because most of 

the federal CHS programs’ payments to contracted physicians were paid 

at or below Medicare rates, which are typically lower than rates paid by 

private insurers.
 

Page 28 GAO-13-272 IHS Contract Health Payments

Figure 7: Comparison of Payments from IHS’s Federal CHS Programs with Private 

Insurance Rates for Physician Services Provided in 2010

Note: To account for any variation in payments due to geographic location, we compared only those 

physician services from the federal CHS program claims data that were provided in the same county 

as those in the private insurance claims data. Therefore, of the 246,273 total physician services in the 

CHS program data, we identified 231,099 (about 94 percent) services that were provided by private 

insurers in the same counties. We were unable to compare physician services for $11.0 million in 

payments from the federal CHS programs’ claims to the private insurance claims because these 

services were not provided in the same county.
 

Page 29 GAO-13-272 IHS Contract Health Payments

Most of the 10 physicians whom we interviewed indicated that the CHS 

program represented a small portion of their practice and was not a 

significant source of revenue. The physicians identified advantages of

capping CHS program payments for nonhospital services, including 

physician services, at Medicare rates, but also expressed concerns about 

the effect of such a cap on their finances.

According to most of the 10 physicians whom we interviewed, the CHS 

program represented a small portion of their practice. All of the physicians 

we interviewed were among federal CHS programs’ top 25 percent of 

physicians in terms of their volume of paid services in 2010. However, 

8 of the 10 physicians said total CHS program payments constituted 

10 percent or less of the total payments they received from all payers.61

The 10 physicians we interviewed were divided between those who were 

paid above Medicare rates by the CHS program and those who were paid 

at or below Medicare rates. According to IHS 2010 claims data, federal 

CHS programs paid the 10 physicians we interviewed a total of about 

$990,000. Four of the 10 physicians had a contract with the CHS program

The remaining 2 physicians said the CHS program accounted for a larger 

portion of their total payments. For example, payments from the CHS 

program constituted 39 percent of total payments for 1 physician who was 

located on a reservation. Payments from the CHS program to the other 

physician, who was located near three reservations, constituted 15 to 

20 percent of total payments.

 

61CHS program-eligible patients may have constituted a greater proportion of physicians’ 

patient mix than patients whose services were paid for by the CHS program, as some 

CHS program patients have other forms of insurance, including Medicare, Medicaid, and 

private insurance, which would have served as the primary payer.

Most Physicians We 

Interviewed Said CHS 

Program Payments 

Were a Small Part of 

Their Total Payments 

and Cited Both 

Advantages and 

Concerns about 

Capping Payments at 

Medicare Rates

Physicians We Interviewed 

Said CHS Program 

Payments Were Generally 

Less than 10 Percent of 

Their Total Practice 

Payments and Were Often 

at Medicare Rates
 

Page 30 GAO-13-272 IHS Contract Health Payments

and were paid at or below Medicare rates.62

In terms of other payers, most physicians we interviewed said they 

received the majority of their payments from Medicare and Medicaid. 

Eight of the 10 physicians said their payments from Medicare and 

Medicaid were close to 50 percent or more of their total payments,

These physicians’ contracts 

with IHS saved the program about 60 percent relative to the physicians’ 

billed charges, which is comparable to the federal CHS programs’ 

percentage of estimated savings across all physician contracts in that 

year. The other 6 physicians were paid by the CHS program at billed 

charges that were higher than Medicare rates. For example, 1 physician 

said he was paid at 133 percent of Medicare rates and another said he 

was paid at 250 percent of Medicare rates.

63 with 

private insurance and self-pay patients constituting most of their 

remaining payments. Two of these 8 said that, respectively, they received 

50 percent and 75 percent of their total payments from Medicare alone. 

The remaining 2 of the 10 physicians said they received the majority of 

their total payments from private insurance or self-pay patients. All 

10 physicians reported that they are accepting new patients from all 

payers, including Medicare and the CHS program.64

 

62Of the four physicians who contracted with IHS to be paid at or below Medicare rates, 

some provided a small number of services that were paid by the CHS program at billed 

charges.

63Medicaid physician fees vary by state, but are generally less than the fees paid by 

Medicare in that state. See Stephen Zuckerman, Aimee Williams, and Karen Stockley, 

“Trends in Medicaid Physician Fees, 2003-2008,” Health Affairs, vol. 28, no. 3 (2009).

64This is consistent with findings from MedPAC that most physicians are accepting new 

patients, although fewer physicians are accepting new Medicaid patients than Medicare 

and privately insured patients. In addition, MedPAC reported that physicians in rural areas 

were more likely than those in urban areas to accept new patients of all insurance types 

and physicians who classified themselves in surgical or medical specialties were more 

likely than primary care physicians to accept new Medicare and privately insured patients. 

Medicare Payment Advisory Commission, Report to the Congress: Medicare Payment 

Policy. 
 

Page 31 GAO-13-272 IHS Contract Health Payments

The 10 physicians we interviewed identified advantages of capping CHS 

program payments for nonhospital services, including physician services, 

at Medicare rates, but also expressed concerns about the effect of such a 

cap on their finances. The 4 physicians who were already getting paid at 

or below Medicare rates, as well as 4 of the other physicians who were 

getting paid at higher billed charges, said such a cap would have little or 

no effect on their practices. Two of these physicians noted that there 

would be little effect because the CHS program is a small percentage of 

their practice. The remaining 2 of these 10 physicians, who were paid at 

higher billed charges, cited concerns that a cap could affect their finances 

or patient access to care.

Six of the physicians we interviewed, three of whom were paid at or below 

Medicare rates, said they would support a cap on CHS program 

payments for nonhospital services, including physician services, at 

Medicare rates and provided various rationales for their support. For 

example, one physician said that capping CHS program payments for 

nonhospital services at the Medicare rates is a “good idea” that would 

save IHS money. This physician expected that capping the CHS program 

payments would allow him to substantially decrease the time his practice 

spends negotiating with different CHS programs, especially the numerous 

tribal CHS programs in his area. Others noted that Medicare rates are 

nearly universally accepted by physicians and, therefore, physicians are 

familiar with the Medicare Physician Fee Schedule. One of these 

physicians added that paying physicians according to Medicare rates 

would allow all physicians to receive payment under a consistent 

methodology. Another physician said he negotiated a contract with the 

CHS program for lower, Medicare rates because, in his opinion, IHS 

should not be paying physicians at billed charges that are higher than the 

rates paid by Medicare. A physician paid by the CHS program at billed 

charges higher than Medicare agreed that Medicare rates were 

appropriate. He said that he is already receiving Medicare rates for many 

patients because the majority of his work is done in a hospital and many 

patients needing his services are older. Further, one physician noted that 

such a cap could increase his practice’s CHS program payment, as he 

currently receives Medicare Physician Fee Schedule rates from the CHS 

program, but a cap on payments for nonhospital services could allow him 

Physicians We Interviewed 

Identified Both Advantages 

and Concerns with 

Capping CHS Program 

Payments at Medicare 

Rates
 

Page 32 GAO-13-272 IHS Contract Health Payments

to be paid at the higher cost-based reimbursement that he receives from 

Medicare.65

Four of the physicians we interviewed, three of whom said they were paid 

by the CHS program at billed charges higher than Medicare, did not 

support such a cap and expressed varying concerns about its effect on 

their finances and patient access to care. Specifically, two physicians 

noted that if their CHS program payments were capped at Medicare rates 

and Medicare rates were reduced in the future, this could have a 

significant adverse financial effect on their practices.66

Three physicians who did not support a cap on CHS program payments 

for nonhospital services, including physician services, at Medicare rates 

said they would support a rate cap set at a higher payment rate than 

Medicare but lower than billed charges. Two of the physicians suggested 

a cap set at a percent of their billed charges, while the third suggested a 

cap set at 125 to 133 percent of the Medicare rates.

One physician said 

that reducing his rates to Medicare levels would not allow him to cover his 

practice’s costs, as his billed charges are 133 percent of Medicare rates 

and CHS program payments represented 39 percent of his practice. Two 

physicians also indicated that certain specialists might be particularly 

affected by a cap at Medicare rates. For example, one physician noted 

that there have been significant reductions in Medicare rates for certain 

cardiology services in recent years. The other physician said that an 

orthopedic practice in his area that had previously contracted with a CHS 

program decided to stop accepting tribal patients at Medicare rates. Two 

physicians also noted they use the higher payments from the CHS 

program and private payers to compensate for their payments from 

Medicare and Medicaid, which they indicated do not cover their costs for 

providing care.

 

65This physician said he provides care in rural health clinics, which are paid by Medicare 

on the basis of their costs. The physician said these cost-based payments are three times 

higher than the Medicare Physician Fee Schedule payments he receives from the CHS 

program.

66The Medicare Physician Fee Schedule is updated annually under the sustainable 

growth rate system, with the intent of limiting the total growth in Medicare spending for 

physician services over time. Because of rapid growth in Medicare spending for physician 

services, the sustainable growth rate has called for fee reductions since 2002. However, 

the Congress has averted such fee reductions for 2003 through 2013. Under current law, 

Medicare’s fees to physicians are scheduled to be reduced by about 27 percent in 2014. 

See 42 U.S.C. § 1395w-4(d). 
 

Page 33 GAO-13-272 IHS Contract Health Payments

When we asked physicians if they had any concerns unrelated to CHS 

program payment rates but that have had a financial effect on their 

practice, all 10 cited challenges processing their CHS program payment 

requests or receiving timely claims payment. The physicians said, for 

example, that to receive payment from the CHS program they spent a 

disproportionate amount of time, relative to other payers, gathering 

paperwork in support of payment requests or monitoring the progress of 

those requests. Specifically, 1 physician indicated that she received the 

same rates as Medicare for the CHS program, but her claims processing 

costs for the CHS program were significantly higher than for Medicare. 

Physicians’ concerns about claims administration echoed those that we 

heard from physicians as part of a 2011 report examining the CHS 

program.67

 

67GAO-11-767. 
 

Page 34 GAO-13-272 IHS Contract Health Payments

Officials from most of the nine hospitals that we interviewed indicated that 

the MLR requirement has had little or no financial effect on their 

hospital.68 They said the CHS program accounted for a small percentage 

of their total payments.69 Officials from eight of the nine hospitals said the 

program accounted for between 0.02 and 10 percent of their total 

payments;70

Officials from seven of the nine hospitals noted that the CHS program 

already paid them at Medicare rates prior to implementation of the MLR 

requirement.

officials from the other hospital said the CHS program 

accounted for about 14 percent of its total payments.

71

Officials from two hospitals indicated that the MLR requirement reduced 

their payment rate. Officials from one of these hospitals said that, prior to 

the implementation of the MLR requirement, the hospital had a contract to 

be paid by the CHS program at 90 percent of its billed charges; an official 

from the other hospital said the CHS program had paid it at 100 percent 

Of these seven, officials from five hospitals said the 

implementation of the MLR requirement has had little or no financial effect 

on their hospital. Officials from the other two of the seven hospitals did 

not experience a change in rates from the implementation of MLR, but 

they had concerns with Medicare payment rates in general, saying they 

do not cover their hospital’s costs of providing patient services. For each 

of the two hospitals, officials said that the Medicare program accounted 

for a larger portion of their payments than the CHS program—29 percent 

and 28 percent, while the CHS program accounted for 0.02 percent.

 

68We interviewed officials from 10 hospitals, but we are only discussing the views of 9. We 

excluded 1 hospital because the officials had little knowledge of the CHS program, the 

rates that it paid, or if it has contracted with IHS for negotiated rates. The officials from this 

hospital indicated that it receives less than 3 percent of its payments from the CHS 

program.

69In 2010, federal CHS programs paid these nine hospitals $12.5 million, which was 

$50.5 million less than their billed charges. Nationally, federal CHS programs paid 

$119.5 million for hospital services subject to MLR and these payments were 

$444.0 million less than the rate billed by hospitals.

70In comparison, four of the hospitals indicated that Medicare and Medicaid constituted 

the majority of their payments (53 to 70 percent), while these payers constituted 29 to 

46 percent of payments for the other five hospitals. Private insurance accounted for 

between 19 and 61 percent of total payments for all nine hospitals.

71This trend is similar to the overall CHS program, as, according to IHS officials, many 

hospitals were already being paid at or near Medicare rates prior to implementation of the 

MLR requirement. 

Most Hospitals We 

Interviewed Indicated 

Little Negative Effect 

from the Current MLR 

Requirement, as They 

Already Had CHS 

Program Contracts to 

Be Paid at Medicare 

Rates 
 

Page 35 GAO-13-272 IHS Contract Health Payments

of its billed charges. The official described these previous rates as 

“ridiculous” because no other payer they interacted with paid such high 

rates. Officials from both hospitals indicated that they are now paid at 

MLRs. Officials from both of these hospitals noted that they see most 

CHS program patients through the emergency room and their hospital 

has an obligation under the Emergency Medical Treatment and Active 

Labor Act (EMTALA) to treat them regardless of their ability to pay.72

Although officials from most hospitals we interviewed said the CHS 

program’s MLR payment rates generally matched the rates they received 

from Medicare, two hospitals designated as critical access hospitals 

(CAH) said there were differences.

Officials from one of the hospitals that did not experience a decrease in 

rates also noted its EMTALA obligation in the context of access to care.

73 IHS officials explained that the CHS 

program, like Medicare, pays CAHs using service-delivery costs that 

hospitals report to CMS in completed cost reports. However, unlike IHS, 

CMS also considers interim cost reports submitted by hospitals in 

calculating its Medicare payments to hospitals. IHS officials said the 

completed cost reports may be 18 months out of date relative to the 

interim cost reports.74

 

72EMTALA requires most hospitals to provide an examination and needed stabilizing 

treatment, without consideration of insurance coverage or ability to pay, when a patient 

presents to an emergency room for attention to an emergency medical condition. See 

generally 42 U.S.C. § 1395dd.

Officials from these two CAHs indicated that 

because their most recent completed cost report may be several months 

out of date, they were generally paid less by the CHS program than by 

Medicare. One CAH official said the difference was usually a few 

percentage points; the other said the difference has averaged 8 percent. 

However, a CAH official said there was one year (2011) when the CHS 

program overpaid the hospital because it was using an outdated cost 

report. According to IHS officials, the CHS program must rely on the 

completed cost reports because the CHS program, unlike Medicare, does 

73Medicare designates some small, rural hospitals as CAHs, which allows them to be paid 

at higher rates under a different payment methodology.

74Medicare pays CAHs for inpatient and outpatient services at 101 percent of reasonable 

costs. Hospitals report these costs through the Medicare cost report. Because there is a 

delay between the start of a fiscal year and when that year’s cost report is audited and 

finalized, hospitals submit interim reports to update their costs.
 

Page 36 GAO-13-272 IHS Contract Health Payments

not have the funding flexibility to settle with hospitals if the interim report 

is later determined to need adjustment.75

While the implementation of the MLR requirement had little financial effect 

on most of the hospitals that we interviewed, officials from all nine 

hospitals cited other factors that affected the payments they received 

from the CHS program. For example, officials from seven hospitals said 

they experienced problems having claims paid in a timely way by the 

CHS program or that they spent more staff time processing CHS program 

claims than they did for other payers.76 Officials from two of these 

hospitals added that they were negatively affected when IHS made the 

decision to close the emergency room in local IHS facilities because this 

resulted in an increased patient load that placed greater pressure on their 

emergency rooms.77

 

75IHS requires the use of a closed or completed cost report available at the time services 

are provided as the basis for its payment rates to CAHs. IHS officials indicated that the 

CHS program does not use an interim cost report to set rates. The CHS program depletes 

its annual funding and IHS officials, therefore, indicated that the program is unable to 

retrospectively increase provider payments in response to a completed cost report 

updated for the year in which the services were provided. However, IHS does make 

retrospective adjustments to recover overpayments. See 42 C.F.R. §§ 136.30(c)(2), 

136.32(b).

76We previously reported that a selection of hospital and office-based providers described 

similar burdens resulting from their interactions with the CHS program, including 

challenges in determining patient eligibility for CHS payment of services, in obtaining CHS 

payment, and in receiving communications on CHS policies and procedures from IHS 

related to payment. See GAO-11-767. 

77IHS has also acknowledged that reductions in the availability of services at facilities 

operated by IHS increase the need for tribes to use the CHS program to purchase care 

from external providers. In its 2012 budget justification, IHS noted that due to insufficient 

workload or service populations, five hospitals operated through IHS funding had been or 

are planned to be replaced by ambulatory health centers with no inpatient services. As a 

result, tribes in these areas will be required to purchase inpatient care from external 

providers through the CHS program in order to maintain the same level of services.
 

Page 37 GAO-13-272 IHS Contract Health Payments

IHS and tribal officials we interviewed said that setting payments for 

hospital services at MLRs (as required by statute) allowed the CHS 

program to reduce payments and expand access to care. They also 

agreed that a cap on payments to nonhospital providers, including 

physicians, could have similar benefits, although some officials noted that 

these benefits may not be achieved by all CHS programs.

IHS and tribal officials we interviewed said that the implementation of the 

MLR requirement in 2007 allowed the CHS program to reduce payments 

for hospital services. Although IHS officials told us that prior to the 

implementation of the MLR requirement, area offices had negotiated to 

pay many hospitals at Medicare rates, officials we interviewed from four 

of the six area offices noted that some hospitals were unwilling to 

negotiate reduced rates and therefore were paid at billed charges. The 

MLR requirement required these hospitals to accept Medicare rates. IHS 

officials noted that tribally operated CHS programs likely experienced 

more savings from the MLR requirement than federally operated CHS 

programs because tribally operated CHS programs were generally less 

successful at negotiating contracts with hospitals for reduced rates. 

Officials from three tribes, for example, told us that they had difficulty 

negotiating for reduced rates with hospitals and the MLR requirement 

enabled them to pay lower rates than they had been able to negotiate. 

Overall, the tribal officials we interviewed agreed that the MLR 

requirement benefited tribal programs by allowing them to achieve 

savings. IHS officials also indicated that the MLR requirement allowed 

them to devote less staff time to negotiating contracts for hospital 

services at lower rates.78

 

78Officials from three area offices indicated that they continue to enter into contracts with 

hospitals because these contracts have other benefits, such as helping to build 

relationships and share patient information, which improves patient care and payment 

processing.

One tribal official also noted that her tribe had 

already successfully contracted with hospitals for Medicare rates, but said 

IHS and Tribal 

Officials Said the MLR 

Requirement Allowed 

Them to Expand 

Access and Said That 

a Similar Cap for 

Nonhospital Services 

Could Have Similar 

Benefits 

IHS and Tribal Officials We 

Interviewed Said the MLR 

Requirement Allowed 

Them to Reduce Payments 

to Hospitals and Expand 

Access to Care
 

Page 38 GAO-13-272 IHS Contract Health Payments

that the MLR requirement allowed the tribe to save the time and staff 

resources it had spent negotiating contracts.

IHS and tribal officials indicated that reduced payments from the MLR 

requirement allowed the CHS program to expand access to care. For 

example, officials from two area offices said that the lower rates from the 

implementation of the MLR requirement have allowed some federal CHS 

programs that could previously only fund high-priority (priority level I) 

cases to now fund both priority level I and priority level II cases—cases 

that would have previously been deferred or denied.79 IHS officials 

indicated that the lower payment rates paid to providers under the MLR 

requirement have also allowed IHS to sustain the Catastrophic Health 

Emergency Fund (CHEF) longer than it could prior to the implementation 

of MLR because the higher payment rates would deplete the fund earlier 

in the fiscal year.80

IHS and tribal officials we interviewed did not identify any ongoing 

challenges with patient access to care related to implementation of the 

MLR requirement. Officials from three area offices said that they were not 

aware of any challenges resulting from the implementation of the MLR 

requirement, although officials from the other three area offices and some 

tribal officials said that there were some initial challenges. They said that 

some hospitals initially refused to accept the new rates, so CHS program 

staff may have had to spend time educating them about the new 

They said that IHS is now able to reimburse CHS 

programs for more high-cost medical cases under CHEF than it could 

prior to the implementation of the MLR requirement. In addition, IHS 

officials said that, prior to the implementation of the MLR requirement, 

hospitals were not required to accept IHS patients and would sometimes 

turn them away in nonemergency situations. As part of the MLR 

requirement, Medicare-participating hospitals are required to accept IHS 

patients at the MLR rates, which IHS officials said has expanded access 

to care for IHS patients.

 

79Priority level I services include emergent/acutely urgent care services, such as trauma 

care, acute/chronic renal replacement therapy, obstetrical delivery, and neonatal care. 

Priority level II includes preventive care services, such as preventive ambulatory care, 

routine prenatal care, and screening mammograms.

80CHEF is administered by IHS headquarters to reimburse federally and tribally operated 

facilities for their CHS program expenses from paying for the costs associated with 

treating catastrophic illness or victims of natural disasters.
 

Page 39 GAO-13-272 IHS Contract Health Payments

requirement. They noted that the hospitals eventually accepted the 

required rates and it did not negatively affect patient access to care.

IHS and tribal officials said CHS programs experienced challenges 

contracting for negotiated rates with nonhospital providers. Five of the six 

IHS area offices that we interviewed acknowledged that they were 

unlikely to be able to negotiate with many additional providers.81 Officials 

from all six area offices described their efforts to contract with any known 

nonhospital providers, which included sending contract documentation to 

frequently used providers or new providers in their areas. However, 

officials from three area offices noted that many providers do not respond. 

Officials from two area offices said that there can be challenges 

negotiating contracts in rural areas served by a single physician who may 

have little incentive to negotiate a reduced rate. Area office officials also 

noted that certain physician subspecialties, such as those providing 

services for cancer or kidney disease, tend to be more resistant to 

negotiating contracts. The officials said that this could be because these 

physicians see fewer CHS program patients or because the physicians 

believe that the lower rate would not cover their cost of doing business. 

These challenges are not new for the CHS program. For example, in 

1991, IHS stated that it had not been possible for the program to contract 

with each of the 4,600 professionals that it used on a regular basis.82

Officials from all six of the area offices said that a cap on nonhospital 

services, including physician services, at Medicare rates would reduce 

payments to providers and they believed that the overall effect for the 

CHS program would be positive. Officials from all six area offices 

The 

agency noted that it had experienced difficulty negotiating contracts 

because many providers were unwilling to contract and the area offices 

lacked the resources necessary to negotiate contracts. Tribal officials 

described similar challenges related to contracting. In addition, some 

tribal officials noted that nonhospital providers are particularly hesitant to 

negotiate contracts because of a history of problems getting paid in a 

timely way by the CHS program.

 

81Officials from the other area office indicated that their goal is to contract with as many 

providers as is feasible, but did not address whether they would be able to expand their 

current efforts.

8256 Fed. Reg. 10,566 (Mar. 13, 1991).

IHS and Tribal Officials 

Described Challenges 

Contracting with 

Nonhospital Providers for 

Reduced Rates and Said 

That a Cap at Medicare 

Rates Could Be Beneficial, 

despite Certain Concerns
 

Page 40 GAO-13-272 IHS Contract Health Payments

specifically cited the resulting financial savings from the cap and indicated 

that this would allow the CHS programs to pay for more care. Officials

from four area offices noted that a cap would be particularly beneficial in 

lowering the cost of certain high-cost nonhospital services, such as 

cancer treatments, dialysis, and air ambulance services. Officials from 

some of these areas said that providers of these services have been less 

likely to negotiate contracts. IHS headquarters also identified these same 

services as high-volume and high-cost services that could benefit from a 

rate cap. Officials from two area offices added that a cap based on an 

established fee schedule would help standardize the rates that CHS 

programs pay physicians, which would make it easier for programs to 

estimate their spending.83 Officials from one area office indicated that it 

was time consuming to identify physicians and attempt to negotiate 

contracts for lower rates, and a cap would eliminate the need for these 

efforts.84

Although officials from all of the area offices we interviewed indicated that 

the overall effect of an MLR cap on nonhospital services, including 

physician services, would be positive, four of the area offices also 

identified potential concerns.

However, IHS headquarters officials told us that they would not 

be able to implement a cap for nonhospital services, including physician 

services, unless the agency received explicit statutory authority to do so, 

because the current law requiring MLRs is limited to hospital services.

85

 

83According to IHS officials, CHS programs are expected to actively manage their funds in 

order to maximize the care that can be purchased. They said that most CHS programs 

establish budgets as a way to help ensure that funds are available throughout the year.

For example, four area offices noted that 

some rural areas have a limited supply of providers and these providers 

may not consider Medicare payment rates to be adequate, which could 

contribute to reduced patient access to care if those providers stopped 

seeing patients at Medicare rates. Officials from one of these area offices 

also noted that a nonhospital payment cap based on Medicare rates 

could create added expense and complexity for the CHS program 

because IHS’s fiscal intermediary, BCBSNM, would need to calculate 

84Officials from the other five area offices cited nonfinancial benefits of having contracts 

with providers, including increased continuity of care arising from the ability to refer a 

patient to the same facility as often as necessary; the opportunity to investigate, pursuant 

to contractual provisions, whether adequate and appropriate care and customer service 

was provided; and the ability to specify the CHS program’s requirements for payment.

85The other two area offices indicated that they did not expect a cap on nonhospital 

services to create any problems with patient access to care.
 

Page 41 GAO-13-272 IHS Contract Health Payments

Medicare payment rates using the different payment methodologies used 

by CMS. BCSBNM officials also noted that a cap on nonhospital 

providers would require them to implement changes to their payment 

system to track and collect additional claims data.86

The tribal officials that we interviewed agreed that a cap on payments for 

nonhospital services, including physician services, could reduce CHS 

program payments to providers and achieve savings, although some 

officials noted that these benefits may not be achieved by all CHS 

programs. Some tribal officials indicated that a cap on nonhospital 

services at Medicare rates could save them money. For example, officials 

from one tribe said that, because individual providers had been unwilling 

to contract with them, they contract with a private insurer to utilize the

rates that insurer has negotiated with providers. However, the tribal 

officials noted that the insurer’s negotiated rates are still higher than 

Medicare rates, so capping CHS program payments for nonhospital 

services at Medicare rates would allow the tribe to further lower its rates 

without having to contract with the private insurer. They indicated that 

these savings would allow them to expand patient access to care. 

However, officials from some tribes worried that a cap could result in 

access-to-care problems if physicians decided to stop seeing CHS 

program patients because of the lower payment rates. For example, tribal 

officials from one area noted that, while a cap could be beneficial for the 

general CHS program, it could lead to problems for certain tribes. They 

said that some physicians serving a large, rural tribe in their area had 

already chosen not to participate in Medicare because of the low payment 

rates. IHS headquarters officials noted that they had heard similar 

concerns during their discussions with tribal officials, although the tribal 

Officials from one 

area office noted that the added complexity could be especially 

challenging for tribal CHS programs that do not contract with a fiscal 

intermediary to process their claims. Similarly, officials from one tribal 

area indicated that it was difficult for some tribes to learn how to calculate 

hospital rates when the MLR requirement was implemented, and they 

expected that calculating rates for nonhospital services would be more 

challenging.

 

86BCBSNM officials noted, for example, that because they currently pay few nonhospital 

claims at Medicare rates, they generally process such claims manually. If all nonhospital 

claims were required to be paid at Medicare rates, they would have to update their system 

to capture the claims data necessary to automatically process these claims.
 

Page 42 GAO-13-272 IHS Contract Health Payments

officials had generally been supportive of a cap to reduce CHS program 

payments for nonhospital services, including physician services.

IHS officials indicated that it would be important to monitor patient access 

to care if CHS program payment rates for nonhospital services were 

changed. The officials said that IHS currently tracks the number of 

individuals who are unable to have care funded by the CHS program 

because, for example, of a lack of funding. However, it does not have a 

mechanism, such as a survey, to obtain information about patient access 

to care and physicians’ willingness to accept CHS program payments. 

They said that IHS would likely be able to monitor these issues if 

mechanisms were put in place prior to any changes in payment rates.

IHS’s CHS program serves as an important resource for American Indian 

and Alaska Native patients who need health care services that are not 

available in federal and tribal facilities. However, most federally and 

tribally operated CHS programs are unable to pay for all needed services, 

which underscores the need for them to maximize the care they can 

purchase within available funding. The 2007 implementation of the MLR 

requirement for hospitals allowed IHS and tribes to reduce the cost of 

hospital services and use those savings to pay for more care. Nonhospital 

services, including physician services, were not included in the scope of 

the MLR requirement, and the CHS program continues to rely on the 

ability of area offices to negotiate contracts with individual providers for 

reduced rates that are lower than billed charges. Since 1986, IHS policy 

has stated that area offices should attempt to negotiate with providers at 

rates that are no higher than Medicare rates, and IHS officials we 

interviewed described time-consuming efforts to establish such contracts. 

However, in 2010, IHS still primarily paid nonhospital providers, including 

physicians, at their billed charges. Our findings, which indicate that IHS 

could have saved an estimated $32 million out of the $62.5 million that 

federally operated CHS programs spent on physician services provided in 

2010, are consistent with a 2009 OIG report and a 2009 internal IHS 

study. If trends in payments for other types of nonhospital services and 

the tribal CHS programs are similar to the payments for the federal CHS 

program physician services that we examined, we estimate that savings 

from capping all nonhospital services paid by federal and tribal CHS 

programs at Medicare rates could be significantly higher. These savings 

could be used to pay for some of the many services that the CHS 

program is unable to fund each year.

Conclusions 
 

Page 43 GAO-13-272 IHS Contract Health Payments

As a steward of public resources, IHS is responsible and accountable for 

using taxpayer funds efficiently and effectively. Despite the OIG’s 2009 

recommendation that IHS seek legislative authority to cap CHS program 

payments for nonhospital providers, including physicians, the agency has 

not pursued that authority. As a consequence, while other major federal 

health care payers have based their payment methodologies on 

Medicare, IHS still pays significantly higher billed charges for many 

services. Setting CHS program physician and other nonhospital payments 

at rates consistent with Medicare and the rates of these other federal 

agencies would enable IHS to achieve needed savings that could be used 

to expand patient access to health care. Moreover, given the possibility 

that a change in payment rates could affect access to care in certain 

areas, it is important that IHS put mechanisms in place to monitor patient 

access to care to assess how new payment rates may benefit or impede 

the availability of care.

Congress should consider imposing a cap on payments for physician and 

other nonhospital services made through IHS’s CHS program that is 

consistent with the rates paid by other federal agencies.

Should the Congress decide to cap payments for physician and other 

nonhospital services made through IHS’s CHS program, we recommend 

that the Secretary of Health and Human Services direct the Director of 

IHS to monitor CHS program patient access to physician and other 

nonhospital care in order to assess how any new payment rates may 

benefit or impede the availability of care.

We provided a draft of this report to HHS for review and received written 

comments, which are reprinted in appendix I. HHS agreed with our 

conclusions and our recommendation. Specifically, HHS indicated that 

implementing a cap on CHS program payments to physicians and other 

nonhospital services at Medicare rates would enable the CHS program to 

fund additional services. HHS also indicated that monitoring patient 

access to care in light of any payment changes is essential to providing 

high-quality health care to American Indians and Alaska Natives.

Matter for 

Congressional 

Consideration 

Recommendation for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 44 GAO-13-272 IHS Contract Health Payments

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

Human Services and other interested parties. In addition, the report is 

available at no charge on the GAO website at http://www.gao.gov. 

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

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

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

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

listed in appendix II. 

Kathleen M. King

Director, Health Care
Page 45 GAO-13-272 IHS Contract Health Payments

List of Addressees

The Honorable Maria Cantwell

Chairman

The Honorable John Barrasso

Ranking Member

Committee on Indian Affairs

United States Senate

The Honorable Don Young

Chairman

The Honorable Colleen Hanabusa

Ranking Member

Subcommittee on Indian and Alaska Native Affairs

Committee on Natural Resources

House of Representatives

Tim Johnson

United States Senate

Lisa Murkowski

United States Senate

John Thune

United States Senate
Appendix I: Comments from the Department of 

Health and Human Services

Page 46 GAO-13-272 IHS Contract Health Payments

Appendix I: Comments from the Department 

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

Health and Human Services

Page 47 GAO-13-272 IHS Contract Health Payments
Appendix II: GAO Contact and Staff 

Acknowledgments

Page 48 GAO-13-272 IHS Contract Health Payments

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

In addition to the contact name above, Catina Bradley, Assistant Director; 

Julianne Flowers; William Hadley; Sarah-Lynn McGrath; Lisa Motley; 

Laurie Pachter; and Michael Rose made key contributions to this report.

Appendix II: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(290991)
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