Indian Health Service: Action Needed to Ensure Equitable Allocation of Resources for the Contract Health Service Program
Released: 2012-06-15T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: IHS, an agency in the Department of Health and Human Services (HHS), provides health care to American Indians and Alaska Natives. When care at an IHS-funded facility is unavailable, IHS’s CHS program pays for care from non-IHS providers if the patient meets certain requirements and funding is available. The Patient Protection and Affordable Care Act requires GAO to study the administration of the CHS program, including a focus on the allocation of funds. IHS uses three primary methods to determine the allocation of CHS funds to the 12 IHS geographic area offices: base funding, which accounts for most of the allocation; annual adjustments; and program increases, which are provided to expand the CHS program. GAO examined (1) the extent to which IHS’s allocation of CHS funding varied across IHS areas, and (2) what steps IHS has taken to address funding variation within the CHS program. GAO analyzed IHS funding data, reviewed agency documents and interviewed IHS and area office officials.

section_title: What GAO Found
paragraphs: The Indian Health Service’s (IHS) allocation of contract health services (CHS) funds varied widely across the 12 IHS geographic areas. In fiscal year 2010, CHS funding ranged from nearly $17 million in one area to more than $95 million in another area. Per capita CHS funding for fiscal year 2010 also varied widely, ranging across the areas from $299 to $801 and was sometimes not related to the areas’ dependence on CHS inpatient services, as determined by the availability of IHS-funded hospitals. The allocation pattern of per capita CHS funds has been generally maintained from fiscal year 2001 through fiscal year 2010. This is due to the reliance on base funding—which incorporates all CHS funding from the prior year to establish a new base each year—and accounts for the majority of funding. In fiscal year 2010, when CHS had its largest program increase and base funding was the smallest proportion of funding for any year, base funding still accounted for 82 percent of total CHS funds allocated to areas. Further, allocations of program increase funds are largely dependent on an estimate of CHS service users that is imprecise. IHS counts all users who obtained at least one service either funded by CHS or provided directly from an IHS-funded facility during the preceding 3-year period. This count therefore includes an unknown number of individuals who received IHS direct care only and who had not received contract health services.

IHS has taken few steps to evaluate funding variation within the CHS program and IHS’s ability to address funding variations is limited by statute. IHS officials told GAO that the agency has not evaluated the effectiveness of base funding and the CHS Allocation Formula. Without such assessments, IHS cannot determine the extent to which the current variation in CHS funding accurately reflects variation in health care needs. While IHS has formed a workgroup to evaluate the existing formula for allocating program increases, the workgroup recommended, and the Director of IHS concurred, that the CHS Allocation Formula for distributing program increases would not be evaluated until at least 2013. The workgroup members maintained that the CHS program had only begun receiving substantial increases in fiscal years 2009 and 2010, and the full impact of these increases needed to be reviewed before making recommendations to change the formula. However, GAO found that IHS has used the formula to allocate program increases, at least in part, in 5 years since 2001. GAO also concluded that, because of the predominant influence of base funding and the relatively small contribution of program increases to overall CHS funding, it would take many years to achieve funding equity just by revising the methods for distributing CHS program increase funds. Further, federal law restricts IHS’s ability to reallocate funding, specifically limiting reductions in funding for certain tribally-operated programs, including some CHS programs, and imposing a congressional reporting requirement for proposed reductions in base funding of 5 percent or more. According to IHS officials, no such IHS proposal to reallocate base funding has ever been transmitted to the Congress.

section_title: What GAO Recommends
paragraphs: GAO suggests that Congress consider requiring IHS to develop and use a new method to allocate all CHS program funds to account for variations across areas, notwithstanding any restrictions now in federal law. GAO also recommends, among other things, IHS use actual counts of CHS users in methods for allocating CHS funds. HHS concurred with two of GAO’s recommendations, but did not concur with the recommendation to use actual counts of CHS users. GAO believes that its recommendation would provide a more accurate count of CHS users.

section_title: Letter
paragraphs: Adequate access to health care services for American Indians and Alaska  Natives, including equitable access to care for those living in different  geographic areas, has been a long-standing concern. The Indian Health  Service (IHS) within the Department of Health and Human Services  (HHS) is the federal agency overseeing health care services to  approximately 1.9 million American Indians and Alaska Natives. Direct  care services are those provided directly at hospitals, health centers, or  health stations that may be federally or tribally operated and are located  in 12 federally designated geographic areas overseen by IHS area  offices. When services are not accessible or available at an IHS or tribal  facility, IHS or the tribes may purchase them from other providers through  the Contract Health Services (CHS) program. The CHS program is  administered at the local level by individual CHS programs generally  affiliated with IHS-funded facilities in each area. These individual CHS  programs may be federally or tribally operated.

Funding for the CHS program increased from $498 million in fiscal year  2005 to $779 million in fiscal year 2010. CHS funds are allocated to each  of the 12 area offices, which then allocate those funds to about 66  individual federally administered CHS programs and about 177 individual  tribally operated CHS programs. IHS allocates the majority of CHS funds  to the IHS area offices as “base funding,” in which the IHS area offices  distribute to each individual CHS program the same amount of CHS funds  as they did in the previous year. Since the 1980s, we have reported that  IHS’s base funding method contributes to funding disparities and  inequities. For example, in 1982, we recommended that IHS abandon its  reliance on base funding in order to distribute its funds more equitably;  IHS did not agree with the recommendation. Similarly, in 1991, we  suggested that the Congress should consider requiring IHS to distribute  its funds with methods that give greater weight to measures of need; the  Congress has not acted on our suggestion.

We also found that IHS did not have accurate data on deferrals and denials for CHS  services from which to estimate funding needs for the CHS program. GAO, Indian Health  Service: Increased Oversight Needed to Ensure Accuracy of Data for Estimating Contract  Health Services, GAO-11-767 (Washington, D.C.: Sept. 23, 2011). resources, the Federal Disparity Index. The index is intended to estimate  health care resources available from all sources (including other sources  of health care funding such as private health insurance and Medicare or  Medicaid) and account for differences in health care needs across the  areas. In fiscal year 2010, the index estimated that resources available in  the most well-resourced of its 12 areas, relative to their need, were nearly  50 percent higher than in the least-resourced area and that the most well- resourced individual CHS programs had resources more than three times  greater than that of the programs with the least resources.

In 2001, the Director of IHS commissioned a CHS workgroup to develop a  CHS formula to allocate funding increases above base funding amounts  equitably across IHS areas according to variations in need (such as  health care costs and access to services) across individual CHS  programs. This workgroup reported a wide range in dependence on CHS  for IHS-funded medical services among IHS areas. It cited examples of  two areas in which CHS eligible patients were totally reliant on CHS for  inpatient care, and two additional areas where CHS eligible patients had  very limited direct care options for inpatient services. In contrast, IHS  officials reported that as few as 10 percent of potential CHS users  actually used CHS services in two other areas.

The Patient Protection and Affordable Care Act required GAO to examine  the administration of the CHS program, including the allocation of funds.

Based on discussions with the committees of jurisdiction, we agreed to  focus on IHS’s allocation of CHS program funds to IHS area offices. In  this report, we examined (1) the extent to which IHS’s allocation of CHS  funding varied across IHS areas, and (2) what steps IHS has taken to  address funding variation within the CHS program.

To determine the extent to which CHS funding changed over time, we  obtained and analyzed CHS allocation data from IHS for fiscal years 2001  through 2010. To determine the extent to which the IHS funding allocation  varied across IHS areas, we obtained and analyzed CHS and direct care  funding allocation data from IHS for fiscal years 2001 and 2010. For these  years, we also obtained IHS’s active user population estimates, which  IHS defines as all individuals who received at least one direct care or  contract care inpatient stay, outpatient, ambulatory, or dental care service  during the preceding 3-year period. We used these data to calculate per  capita CHS and direct care funding for each of the IHS areas. To examine  IHS efforts to address funding variations within the CHS program, we  reviewed IHS documents and interviewed IHS, area and tribal officials  familiar with IHS efforts to address CHS funding variations. To determine  the reliability of the data provided by IHS, we reviewed IHS summary  CHS allocation reports for fiscal years 2001 through 2010 and data on the  IHS user population used during fiscal years 2001 and 2010, and  examined consistency in terms of base funding and the application of  program increases. We also discussed the data with IHS officials, and  discussed CHS data with officials from six IHS area offices. We  determined that the IHS data were sufficiently reliable for our purposes.

To address the extent to which funding varied and what steps IHS has  taken to address that variation, we also reviewed IHS policies and  procedures in its Indian Health Manual for monitoring the allocation of  CHS program funds to area offices and then to individual CHS programs.  The Indian Health Manual is the reference for IHS employees regarding  IHS-specific policy and procedural instructions for the delivery of health   We compared  care services to American Indians and Alaska Natives. these policies and procedures to the standards described in Standards for  Internal Control in the Federal Government and Internal Control  Management and Evaluation Tool. We reviewed documents and  interviewed IHS headquarters officials about how base funding was  allocated to area offices and individual CHS programs for fiscal years  2001 through 2010, how the CHS Allocation Formula was applied, and  how IHS oversees the allocation of CHS funds. We also interviewed  officials from six selected area offices about their methods for allocating  CHS funds to individual CHS programs, oversight of allocations, and  reporting of final allocations to IHS.

We conducted this performance audit from December 2010 to June 2012  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Federal and tribal CHS programs in each of IHS’s 12 areas pay for  services from external providers if services are not available directly  through IHS-funded facilities, if patients meet certain requirements, and if  funds are available. IHS uses three primary methods—base funding,  annual adjustments, and program increases—to allocate CHS funds to  the area offices.
subsections: section_title: CHS Program Administration
paragraphs: IHS administers contract health services through 12 IHS area offices,  which include all or part of 35 states where many American Indian and  Alaska Natives reside. (See fig. 1.) IHS uses CHS funds to pay for  services from a variety of health care providers, including hospital- and  office-based providers. IHS, among other things, sets program policy for  and allocates CHS program funds to the area offices. The area offices  distribute funds to individual federally operated and tribally operated CHS  programs that purchase contract care services from outside providers.  There can be multiple individual CHS programs within an area. Tribes  currently administer 177 of the 243 (73 percent) individual CHS programs  and receive about 54 percent of IHS’s funding for CHS. In addition to  receiving federal funding through IHS, the tribes may provide  supplemental funds to the CHS programs they administer.

Patients must meet certain eligibility, administrative, and medical priority  requirements to have their services paid for by the CHS program.  Generally, to be eligible to receive services through the CHS program,  patients must reside on a reservation or within a reservation’s federally  established CHS Delivery Areas and be members of a tribe or tribes  located on that reservation or maintain close economic and social ties  with that tribe or tribes. In addition, if there are alternate health care  resources available to a patient, such as Medicaid and Medicare, these  resources must pay for services first because the CHS program is  generally the payer of last resort. If a patient has met these  requirements, a program committee (often including medical staff), which  is part of the local CHS program, evaluates the medical necessity of the  service. IHS has established four broad medical priority levels of health   and each area office is required to  care services eligible for payment,establish priorities that are consistent with these medical priority levels.  Because IHS typically does not have enough funds to pay for all CHS  services requested, federal CHS programs pay first for emergency and  acutely urgent medical care to the extent funds are available. They may  then pay for all or only some of the lower-priority services they fund, funds  permitting. Tribal CHS programs must use medical priorities when making  funding decisions, but unlike federal CHS programs, they may develop a  system that differs from the set of priorities established by IHS.

There are two primary paths through which patients may have their care  paid for by the federal CHS program. First, a patient may obtain a  referral from a provider at an IHS-funded health care facility to receive  services from an external provider. That referral is submitted to the CHS  program for review. If the patient meets the requirements and the CHS  program has funding available, the services in the referral are approved  by the CHS program and a purchase order is issued to the external  provider and sent to IHS’s fiscal intermediary. Once the patient receives  the services from the external provider, that provider obtains payment for  the services in the approved referral by sending a claim to IHS’s fiscal  intermediary. Second, in the case of an emergency, the patient may seek  care from an external provider without first obtaining a referral. Once that  care is provided, the external provider must send the patient’s medical  records and a claim for payment to the CHS program. At that time, the  CHS program will determine if the patient met the necessary program  requirements and if CHS funding is available for a purchase order to be  issued and sent to the fiscal intermediary. As in the earlier instance, the  provider obtains payment by submitting a claim to IHS’s fiscal  intermediary.

In addition to funds appropriated annually for CHS, IHS also distributes  funds to individual CHS programs from the Indian Health Care  Improvement Fund, designed to reduce disparities and resource  deficiencies at the local level as measured by IHS’s Federal Disparity   However, because these funds may be used to pay for either  Index. contract care or direct care services, it is possible that they may not  finance contract care services in some programs. Further, this fund is  small compared to both CHS and direct care funding. For example, in  fiscal year 2010, funds distributed from the Indian Health Care  Improvement Fund equaled about 6 percent of the CHS funding level, or  about 2 percent of the funding level for direct care services. IHS has  reported on a number of data limitations related to the current formula  used to distribute funds from the Indian Health Care Improvement Fund.

section_title: Methodology for Allocating CHS Funds
paragraphs: IHS uses three primary methods—base funding, annual adjustments, and  program increases—to determine the allocation of CHS funds to the IHS  area offices, which then distribute the funds to individual CHS programs.(See fig. 2.) IHS uses these methods sequentially. Base funding is the  amount of CHS funds that equal the total amount of all CHS funds that  each area received in the prior fiscal year. When appropriations for CHS  are higher than the amount needed for base funding, IHS uses national  measurements of population growth and inflation to determine annual  funding adjustments. Each IHS area office receives the same percentage  increase for the annual adjustments. Since 2001, when IHS has also  received additional funding for what it refers to as “program increases,”  IHS has used the CHS Allocation Formula to determine how to allocate  those program increases to the 12 area offices. According to IHS officials,  IHS established the CHS Allocation Formula in part to ensure that  American Indians and Alaska Natives had equitable access to contract  health funds. The Allocation Formula is based on a combination of  factors, including variations in the number of people using health care  services, geographic differences in the costs of purchasing health care  services, and access to IHS or tribally operated hospitals.

Most CHS funding, which IHS refers to as “base funding,” is allocated  based on past funding history. Each year, each of the 12 IHS area offices  receives an allocation of base funding equal to the total amount of all  CHS funds they received the previous fiscal year. According to IHS, base  funding is intended to maintain existing levels of patient care services in  all areas. Because of adjustments or funding increases that are received  in most years, a new level of base funding is created in those years. IHS  officials have told us they do not know the exact origins of the base  funding policy, but that it dates back to the 1930s, when the health  programs were under the Bureau of Indian Affairs. In 1954, Congress  transferred responsibility for the maintenance and operation of hospitals  and health facilities for Indians from the Bureau of Indian Affairs in the  Department of the Interior to what is now IHS in HHS.

When appropriations for CHS are above the previous fiscal year’s level,  IHS allocates each area office an additional amount to adjust for overall  population growth and inflation. The population growth funding  adjustment is based on national population increases determined by the  U.S. Census Bureau with annual adjustments made for changes based  on state birth and death data provided by the National Center for Health  Statistics. The inflation adjustment is based on the prevailing Bureau of  Labor Statistics’ Consumer Price Index for medical costs. IHS gives each  area the same percentage increase to its base funding regardless of any  population growth or cost-of-living differences among areas. IHS receives increases in CHS funding that are large enough that the  agency can allocate at least some for annual adjustments, even if not the  full amount. The funding adjustments for population growth and inflation  provided to the area offices are incorporated into the next year’s base  funding.

In fiscal year 2009, each individual CHS program received a 1.5 percent adjustment for  population growth and a 3.8 percent adjustment for inflation. In fiscal year 2010, those  adjustments were 1.5 percent and 3.3 percent, respectively.

3 years. This active user population is then used as a multiplier for the  cost adjustment and access to care factors.

The cost adjustment factor provides an adjustment to account for  geographic differences in the costs of purchasing health care  services. It is based on a price index derived from the American  Chamber of Commerce Researchers Association Regional Cost of  Living index, which provides regional comparative costs for inpatient  and outpatient services. The price index for each CHS program is  multiplied by the active user population for each program to determine  the value of the cost adjustment factor.

The access to care factor provides an additional increase only for  those individual CHS programs that do not have access to an IHS or  tribally operated hospital. IHS area officials determine if individual  CHS programs meet two qualifying criteria for this factor: (1) the  individual CHS program has no IHS or tribally operated hospital with  an average daily patient load of five or more, and (2) the individual  CHS program does not have an established referral pattern to an IHS  or tribally operated hospital within the area. These additional funds  are allocated to each program where there is no access to an IHS or  tribally operated hospital in an amount proportional to the cost  adjustment factor.

To allocate the program increase funding, IHS first designates 75 percent  of the funds for increases based on the cost adjustment factor at each  individual CHS program and 25 percent of the funds for the increases  based on the access to care factor at each individual CHS program. IHS  then totals the program increases for the individual CHS programs and  allocates that total amount to the IHS area offices. Program increases  allocated using the CHS Allocation Formula become part of the area  offices’ base funding for the next fiscal year.

IHS used the CHS Allocation Formula to allocate program increases in  fiscal years 2001, 2002, and 2008 through 2010. In each of those years,  IHS informed the IHS area offices of the total amounts of program  increase funds to be allocated to the offices and the dollar values that IHS  calculated under that formula for each individual CHS program in their  areas. To specifically address health care needs in local communities,  IHS permits area offices, in consultation with the tribes, to distribute  program increase funds to local CHS programs using criteria other than  the CHS Allocation Formula. Because these adjustments are made at the  individual CHS program level, they do not affect future base funding  which is determined at the area level.

section_title: Allocation of CHS Funds
paragraphs: Funds allocated to the IHS area offices through base funding, annual  adjustments, and program increases have increased substantially over  the past 10 years. In fiscal year 2001, area offices received just over   $386 million; in fiscal year 2010, they received just over $715 million in  CHS funds. (See fig. 3.)

section_title: IHS’s Allocation of CHS Funds Has Varied across IHS Areas
paragraphs: IHS’s allocation of CHS funds has varied widely across IHS area offices,  and IHS’s method of allocating CHS funds has maintained those funding  differences. Moreover, the CHS Allocation Formula for determining  program increases uses imprecise counts of CHS users.
subsections: section_title: IHS’s Allocation of CHS Funds Varied Widely across IHS Areas in Fiscal Year 2010
paragraphs: CHS funding varied widely across IHS area offices in fiscal year 2010.  Total CHS funding for fiscal year 2010 ranged across the 12 area offices  from nearly $17 million to more than $95 million. There were also  substantial ranges in base funding, annual adjustments, and the program  increase. For fiscal year 2010, base funding ranged from nearly   $15 million to nearly $76 million, annual adjustments ranged from less  than $1 million to more than $3 million, and the program increases ranged  from around $1.5 million to more than $16 million across the area offices.  (See table 1.)

Because total funding may reflect variations in the size of the population  of IHS areas, we also examined per capita funding for fiscal year 2010  using IHS’s count of active users from the most recent year for which data  were available. Per capita CHS funding for fiscal year 2010 varied  widely, ranging across the area offices from $299 to $801. In addition, per  capita CHS funding was sometimes not related to areas’ dependence on  CHS for the provision of IHS-funded inpatient services. For example,  California received a level of per capita funding that was in the lower half  of the range for all areas, while American Indians and Alaska Natives in  that area rely entirely on CHS for their IHS-funded inpatient services  because there are no IHS or tribally operated hospitals. Similarly, the  Bemidji area depends almost entirely on CHS for its IHS-funded inpatient  services, yet received levels of per capita CHS funding that were in the  lower half of the range of CHS funding for all areas.

Because CHS funds are used to purchase services not accessible or  available through the direct care program, we compared patterns of  funding for the direct care program and the CHS program across areas.  On average, areas were allocated about three times as much in per  capita direct care funding as they were in per capita CHS funding. We  also found that, in general, the areas that were allocated higher amounts  of per capita direct care funding were also allocated higher amounts of  per capita CHS funding, and those areas that were allocated lower  amounts of per capita direct care funding were also allocated lower  amounts of per capita CHS funding. The notable exceptions were Alaska,  which was allocated much more in per capita direct care funding than  average, and Portland and Tucson, which were allocated much less in  per capita direct care funding than average. Alaska was allocated per  capita direct care funding ($3,340) that was about six times more than its  per capita CHS funding ($548) and was the highest per capita direct care  funding of all the areas, nearly double that of the area with the second  highest per capita funding (Nashville, $1,869). Direct care funding for  Alaska reflects the unique health care challenges that Alaska faces due to  its remoteness and vast distances, which result in some of the highest  costs for health care services in the United States. In contrast, the lower  per capita direct care allocations to Tucson and Portland were somewhat  offset by relatively higher levels of per capita CHS funding. Tucson was  allocated the lowest per capita direct care funding ($1,324) but it received  the third highest per capita CHS funding ($664). Similarly, Portland’s per  capita direct care funding ($1566) was relatively low, but its per capita  CHS funding ($799), was the second highest.

In addition to variation in funding across IHS area offices, variation in  funding may exist among individual CHS programs within area offices of  which IHS headquarters is not aware. Some IHS area offices use  methods other than the CHS Allocation Formula to distribute CHS  program increases and IHS does not require the area offices to report  these variations to headquarters. As a result, IHS may not be able to  appropriately oversee agency operations. According to Standards for  Internal Controls in the Federal Government, agency managers should  establish appropriate and clear policies and procedures for internal  reporting relationships that effectively provide managers with the  information they need to carry out their job responsibilities. The standards  further state that an agency must have reliable and timely  communications relating to internal events to run and control its  operations. IHS allows area offices, in consultation with the tribes, to  distribute program increase funds to local CHS programs using different  criteria than the CHS Allocation Formula to meet health care needs in  local communities, but does not require that the areas inform IHS  headquarters. By not requiring area offices to report to IHS headquarters  about deviations in funding, IHS is not meeting internal control standards.  For example, IHS headquarters officials identified two area offices that  have used alternate methods to distribute CHS program increases to  local CHS programs. We identified a third area that used alternative  methods that IHS was not aware of, specifically using the count of actual  CHS users at each individual CHS program.

section_title: IHS’s Methods of Allocating CHS Funds Have Maintained Funding Differences
paragraphs: The allocation pattern of per capita CHS funds has been generally  maintained over the 10-year period that we examined. Those areas that  had the highest and the lowest levels of per capita CHS funding in fiscal  year 2001 generally also had the highest and lowest levels of per capita  CHS funding in fiscal year 2010. (See fig. 4.)

Base funding, which is based solely on funding from the prior year,  accounts for the great majority of CHS funds and therefore maintains any  funding variations. For example, in fiscal year 2010, the year in which IHS  received its largest program increase, base funding accounted for   82 percent of total CHS funds allocated to IHS area offices. (See fig. 5 for  the allocation of funds in fiscal year 2010.) Annual adjustments for  population growth and inflation are made as a percentage of base funding  that is the same for all areas and therefore do not affect funding  variations. Further, program increase funds allocated through the CHS  Allocation Formula are not large enough to alter funding variations  because they have been a relatively small proportion of the CHS funds  that area offices receive. For example, in fiscal year 2010, CHS Allocation  Formula funds amounted to about 14 percent of total CHS funding.  Therefore, any variations in the original base funding amounts allocated  to the areas are perpetuated since the occasional program increases are  not sufficiently large to be able to close that gap.

The CHS Allocation Formula IHS uses to allocate CHS program  increases to IHS area offices is largely dependent on an estimate of  active users that is imprecise, even though IHS considers population  estimates to be a critical factor in allocating CHS funds. In 2010, IHS’s  Data/Technical Workgroup noted that the active user population is not a  precise measure of American Indians and Alaska Natives eligible for CHS  services.of all users who had at least one direct care or contract care inpatient  stay, or obtained at least one outpatient, ambulatory, or dental service  during the preceding 3-year period. The active user estimates that IHS  used to allocate program increases therefore included an unknown  proportion of patients who had not received contract health services, but  rather had received only direct care services. IHS has acknowledged that  its method of counting active users for the CHS Allocation Formula does  not measure the number of people who actually received CHS services,  nor does it measure the number of people who are eligible for CHS  services. Because the active user population is used to determine   The CHS Allocation Formula allocates funds based on counts  program increases, any inaccuracies in that number potentially could  contribute to variation not linked to actual use of CHS services.

While IHS has an information technology system that could produce  actual counts of CHS users, IHS officials do not believe that the data in  the system are complete or that areas collect these data in the same way.  This system contains separate tabulations of users of direct care  services, contract care services, and dental care services. However, IHS  officials told us that they do not provide guidance to area offices on how  to record data on active CHS user counts. Nevertheless, officials from  one area told us that one of their statisticians separated out the CHS  users from the active user population count identified by IHS for 2 recent  years and found that the CHS user count is about half of the active user  population count. Without accurate data, it is not possible for IHS to know  if the proportion of actual CHS users is consistent across areas.

section_title: IHS Has Taken Few Steps to Address the Funding Variation within the CHS Program
paragraphs: IHS has taken few steps to evaluate the funding variations within the CHS  program. In addition, IHS’s ability to address funding variations is limited  by statute.
subsections: section_title: IHS Has Taken Few Steps to Evaluate the Funding Variations within the CHS Program
paragraphs: IHS has taken few steps to evaluate the funding variations within the CHS  program. IHS officials told us that they have not evaluated the  effectiveness of base funding and the CHS Allocation Formula in meeting  the health care needs of American Indians and Alaska Natives across the  IHS areas and they do not plan to do so with respect to the determination  of base funding amounts. Without such assessments, IHS cannot  determine the extent to which the current variation in CHS funding reflects  variation in health care needs. According to Standards for Internal  Controls in the Federal Government, agency managers should compare  actual performance to planned or expected results throughout the  organization and analyze significant differences. Further, the standards  specify that activities need to be established to monitor performance  measures and indicators. IHS has not developed policies and  procedures in the Indian Health Manual for its headquarters and field staff  employees on how to conduct assessments of the CHS program funding  methodologies, nor has it included goals, measures, and time frames for  assessing the CHS program funding allocation performance within areas,  which would potentially help IHS and the area offices identify and allocate  CHS program funds to areas and local CHS programs with the greatest  need.

In March 2010, the Director of IHS formed the Director’s Workgroup on  Improving CHS to review tribal input to improve the CHS program, to  evaluate the existing formula for allocating program increases using the  CHS Allocation Formula, and to recommend improvements in the way  CHS business operations are conducted. The workgroup members  agreed that their recommendations would apply only to program  increases and not to base funding. In February 2011, the Director of IHS  reported that she concurred with the four recommendations made by the  workgroup in October 2010.

The workgroup recommended that a technical subcommittee be  created and charged with calculating the current CHS need and  estimates of future CHS need. Such information would be essential to  understanding the variation in CHS funding. However, we previously  reported that IHS data on denials and deferrals that IHS used to  estimate program need are incomplete and inconsistent.

The workgroup recommended convening 12 Area Work Sessions to  review and make recommendations about current CHS policies and  procedures, which would then be used to revise the CHS chapter of  the Indian Health Manual, specifically relating to issues of evaluating  the cost of care and communication of CHS program requirements,  among others. These sessions have been completed and the  workgroup is developing a summary report.

The workgroup recommended that an evaluation of the current CHS  Allocation Formula be postponed until at least fiscal year 2013. The  workgroup members said that the CHS program had only begun  receiving substantial increases in fiscal years 2009 and 2010, and the  full impact of these increases needed to be reviewed before making  recommendations to change the formula. In contrast, we found that  IHS has used the formula to allocate program increases, at least in  part, in 5 years since 2001. Members of the workgroup we interviewed  told us that outcome measures for the evaluation have not yet been  defined. As part of this recommendation, they also suggested that a  subcommittee be created to review the CHS Allocation Formula for  equity across areas. An IHS representative to the workgroup told us  that the recommendations of the subcommittee will not be considered  by the full committee until the review of equity is complete.

The workgroup recommended that the inpatient and outpatient  components of the Consumer Price Index be used for any new CHS  program increases that IHS may receive for fiscal year 2013 and  beyond.

Members of the 2010 Director’s Workgroup we spoke with expressed  concern that the CHS Allocation Formula does not differentiate between  large and small hospitals when determining the access to care factor,  although the workgroup did not make a recommendation concerning this  issue. Specifically, programs with access to small hospitals with minimal  services do not receive an adjustment for access to care, and are  therefore treated similarly to programs with access to large medical  centers where a range of specialty care services may be available. As a  result, the CHS Allocation Formula does not equitably compensate for  limitations in hospital access. When the CHS Allocation Formula was  created in 2001, its developers noted that the access to care factor  should be refined to better reflect the complexities of the IHS system of  health care. IHS has neither refined nor made any change to the way that  access to care is defined.

section_title: IHS’s Ability to Address Funding Variations Is Limited by Statute
paragraphs: Federal law restricts IHS’s ability to reallocate funding should the agency  desire to do so. Specifically, IHS officials identified two statutory  provisions that limit IHS’s ability to adjust funding allocations. The Indian  Self-Determination and Education Assistance Act currently prohibits  reductions in funding for certain tribally operated programs, including  some CHS programs, except for limited circumstances. In addition, the  Indian Health Care Improvement Act imposes a congressional reporting  requirement for proposed reductions in base funding for any recurring  program, project, or activity of a service unit of 5 percent or more.officials told us that no such proposal to reallocate base funding has been  transmitted to the Congress.

IHS officials have told us that areas and tribes have resisted changes to  the current funding allocation methods, particularly base funding, as  consistent funding allows the areas and tribes to plan and manage their  resources. However, minutes from a 2010 session of the Director’s  workgroup show that not all tribes agree with the CHS Allocation Formula  and that some workgroup members said that the current CHS Allocation  Formula was not sufficiently equitable. Concerns about IHS’s funding  methods are longstanding. For example, in 1982, we concluded that  IHS’s practice of funding programs based on the previous year’s funding  level caused funding inequities and that IHS did not distribute funds to the  neediest programs in fiscal year 1981.

section_title: Conclusions
paragraphs: There are wide variations in CHS funding across the 12 IHS areas, and  these variations are largely maintained by IHS’s long-standing use of the  base funding methodology. IHS officials are unable to link variations in  funding levels to any assessment of health care need. As we have  reported in the past and found once again in this evaluation, IHS’s  continued use of the base funding methodology undermines the equitable  allocation of IHS funding to meet the health care needs of American  Indians and Alaska Natives. Program increases for the CHS program  over the years have not significantly altered variations across the areas,  primarily because they are too small to have a strong impact on overall  funding. Funds from the Indian Health Care Improvement Fund, designed  to reduce funding disparities, also have had little impact because they are  relatively small and not targeted solely for the CHS program. Further,  federal law restricts IHS’s ability to reallocate funding, principally by  prohibiting reductions for certain tribally operated CHS programs, which  account for more than half of total CHS funding. IHS also may be  unaware of additional variation in funding across individual CHS  programs because it does not require that area offices notify IHS  headquarters when they choose different funding methodologies than  those suggested by headquarters.

IHS can improve the equity of how it allocates program increase funds to  areas through improvements in its implementation of the CHS Allocation  Formula, primarily by using counts of actual CHS users rather than by  using the current method of estimating the number of overall IHS users,  which now includes patients who never used a CHS service, and by  refining the access to care factor to account for differences in available  health care services at IHS and tribally operated facilities. However,  because of the predominant influence of base funding and the relatively  small contribution of program increases to overall CHS funding, it would  take many years to achieve funding equity just by revising the methods  for distributing CHS program increase funds.

section_title: Matter for Congressional Consideration
paragraphs: In order to ensure an equitable allocation of CHS program funds, the  Congress should consider requiring IHS to develop and use a new  method to allocate all CHS program funds to account for variations across  areas that would replace the existing base funding, annual adjustment,  and program increase methodologies, notwithstanding any restrictions  currently in federal law.

section_title: Recommendations for Executive Action
paragraphs: To make IHS’s allocation of CHS program funds more equitable, we  recommend that the Secretary of Health and Human Services direct the  Director of the Indian Health Service to take the following three actions for  any future allocation of CHS funds:  require IHS to use actual counts of CHS users, rather than all IHS  users, in any formula for allocating CHS funds that relies on the  number of active users;  require IHS to use variations in levels of available hospital services,  rather than just the existence of a qualifying hospital, in any formula  for allocating CHS funds that contains a hospital access component;  and develop written policies and procedures to require area offices to  notify IHS when changes are made to the allocations of funds to CHS  programs.

section_title: Agency Comments and Our Evaluation
paragraphs: HHS reviewed a draft of this report and provided written comments, which  are reprinted in appendix I. In its comments, HHS concurred with two of  our recommendations and did not concur with one recommendation. HHS  did not comment on our general findings or our conclusion that IHS’s use  of the base funding methodology has led to long-standing inequities in the  distribution of CHS funds.

HHS concurred with our recommendation that IHS use variations in levels  of available hospital services to allocate CHS funds. HHS noted that the  IHS Director’s Workgroup on Improving CHS will review the formula and  make recommendations in fiscal year 2013. HHS also concurred with our  recommendation to develop written policies to require area offices to  notify IHS when changes are made in the allocations of funds to CHS  programs. HHS noted that guidance requiring areas to report these  changes to IHS headquarters will be added to the CHS manual; however,  the agency did not specify a date for doing so.

HHS did not concur with our recommendation that it should require IHS to  use actual counts of CHS users, rather than all IHS users, in any formula  for allocating CHS funds that relies on the number of active users. HHS  stated that IHS’s combined count of all users of IHS direct care services  and CHS users is intended to reflect the health care needs of those  eligible for CHS services. However, as we reported, IHS’s own  Data/Technical Workgroup found that the current IHS active user count  does not measure the number of people who are eligible for CHS  services, in part because not all users of IHS direct care services are  eligible for CHS services. Further, as HHS acknowledged in its  comments, the current count of active users also does not reflect those  who actually received CHS services. Because CHS program increases  are intended to reflect variations in the numbers of CHS users among  areas, we continue to believe that IHS should use counts of actual CHS  users in determining program increases.

We are sending copies of this report to the Secretary of Health and  Human Services, Director of the Indian Health Service, appropriate  congressional committees, and other interested parties. In addition, the  report is available at no charge on the GAO website at  http//www.gao.gov.

If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of the report. GAO staff who made major contributions to this report are  listed in appendix II.

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

section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Martin T. Gahart (Assistant  Director), George Bogart, Carolyn Feis Korman, and Laurie Pachter made  key contributions to this report.


Question-summary annotations: questions: question: How did the IHS allocate CHS funds?
answer: The Indian Health Service’s (IHS) allocation of contract health services (CHS) funds varied widely across the 12 IHS geographic areas.
child_questions: question: What was the range of funding variations for areas?
answer: In fiscal year 2010, CHS funding ranged from nearly $17 million in one area to more than $95 million in another area.

question: What was the range of per capita funding variations for areas?
answer: Per capita CHS funding for fiscal year 2010 also varied widely, ranging across the areas from $299 to $801 and was sometimes not related to the areas’ dependence on CHS inpatient services, as determined by the availability of IHS-funded hospitals.
child_questions: question: How has the allocation of this per capita funding changed FY2001 to FY2010?
answer: The allocation pattern of per capita CHS funds has been generally maintained from fiscal year 2001 through fiscal year 2010.

question: Why has allocation been maintained through many years?
answer: This is due to the reliance on base funding—which incorporates all CHS funding from the prior year to establish a new base each year—and accounts for the majority of funding.
child_questions: question: How has this method been ineffective?
answer: In fiscal year 2010, when CHS had its largest program increase and base funding was the smallest proportion of funding for any year, base funding still accounted for 82 percent of total CHS funds allocated to areas.

question: What else maintains the allocation patterns?
answer: Further, allocations of program increase funds are largely dependent on an estimate of CHS service users that is imprecise.
child_questions: question: How are IHS counts imprecise?
answer: IHS counts all users who obtained at least one service either funded by CHS or provided directly from an IHS-funded facility during the preceding 3-year period. This count therefore includes an unknown number of individuals who received IHS direct care only and who had not received contract health services.

questions: question: How has the IHS handled funding?
answer: IHS has taken few steps to evaluate funding variation within the CHS program and IHS’s ability to address funding variations is limited by statute.

question: What did the IHS comment on their evaluations of funding?
answer: IHS officials told GAO that the agency has not evaluated the effectiveness of base funding and the CHS Allocation Formula.
child_questions: question: Why does the IHS need these assessments?
answer: Without such assessments, IHS cannot determine the extent to which the current variation in CHS funding accurately reflects variation in health care needs.

question: How will the CHS Allocation Formula be evaluated?
answer: While IHS has formed a workgroup to evaluate the existing formula for allocating program increases, the workgroup recommended, and the Director of IHS concurred, that the CHS Allocation Formula for distributing program increases would not be evaluated until at least 2013.
child_questions: question: How was the later evaluation justified by the workgroup?
answer: The workgroup members maintained that the CHS program had only begun receiving substantial increases in fiscal years 2009 and 2010, and the full impact of these increases needed to be reviewed before making recommendations to change the formula.
child_questions: question: What did the GAO find contradicting this argument?
answer: However, GAO found that IHS has used the formula to allocate program increases, at least in part, in 5 years since 2001.

question: Why does the GAO find the evaluation of the CHS Allocation Formula to be inefficient?
answer: GAO also concluded that, because of the predominant influence of base funding and the relatively small contribution of program increases to overall CHS funding, it would take many years to achieve funding equity just by revising the methods for distributing CHS program increase funds.
child_questions: question: What are additional reasons the revisions are less effective?
answer: Further, federal law restricts IHS’s ability to reallocate funding, specifically limiting reductions in funding for certain tribally-operated programs, including some CHS programs, and imposing a congressional reporting requirement for proposed reductions in base funding of 5 percent or more. According to IHS officials, no such IHS proposal to reallocate base funding has ever been transmitted to the Congress.

questions: question: What does the IHS provide?
answer: IHS, an agency in the Department of Health and Human Services (HHS), provides health care to American Indians and Alaska Natives.

question: How does the IHS perform when their facilities are full?
answer: When care at an IHS-funded facility is unavailable, IHS’s CHS program pays for care from non-IHS providers if the patient meets certain requirements and funding is available.

question: Why must the GAO study the CHS program?
answer: The Patient Protection and Affordable Care Act requires GAO to study the administration of the CHS program, including a focus on the allocation of funds.

question: How does the IHS determine allocation of CHS funds?
answer: IHS uses three primary methods to determine the allocation of CHS funds to the 12 IHS geographic area offices: base funding, which accounts for most of the allocation; annual adjustments; and program increases, which are provided to expand the CHS program.

question: What did the GAO examine?
answer: GAO examined (1) the extent to which IHS’s allocation of CHS funding varied across IHS areas, and (2) what steps IHS has taken to address funding variation within the CHS program.
child_questions: question: What did the GAO review for this report?
answer: GAO analyzed IHS funding data, reviewed agency documents and interviewed IHS and area office officials.

questions: question: Why does the GAO recommend new allocation methods for CHS funds?
answer: GAO suggests that Congress consider requiring IHS to develop and use a new method to allocate all CHS program funds to account for variations across areas, notwithstanding any restrictions now in federal law.

question: How does the GAO recommend the IHS change their data collection?
answer: GAO also recommends, among other things, IHS use actual counts of CHS users in methods for allocating CHS funds.

question: How did the HHS respond to GAO recommendations?
answer: HHS concurred with two of GAO’s recommendations, but did not concur with the recommendation to use actual counts of CHS users.
child_questions: question: Why does the GAO back the third recommendation?
answer: GAO believes that its recommendation would provide a more accurate count of CHS users.