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. 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. 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. 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.) IHS’s allocation of CHS funds has varied widely across IHS area offices, and IHS’s method of allocating CHS funds has maintained those funding differences. Moreover, the CHS Allocation Formula for determining program increases uses imprecise counts of CHS users. CHS funding varied widely across IHS area offices in fiscal year 2010. Total CHS funding for fiscal year 2010 ranged across the 12 area offices from nearly $17 million to more than $95 million. There were also substantial ranges in base funding, annual adjustments, and the program increase. For fiscal year 2010, base funding ranged from nearly $15 million to nearly $76 million, annual adjustments ranged from less than $1 million to more than $3 million, and the program increases ranged 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. 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. IHS has taken few steps to evaluate the funding variations within the CHS program. In addition, IHS’s ability to address funding variations is limited by statute. IHS has taken few steps to evaluate the funding variations within the CHS program. IHS officials told us that they have not evaluated the effectiveness of base funding and the CHS Allocation Formula in meeting the health care needs of American Indians and Alaska Natives across the IHS areas and they do not plan to do so with respect to the determination of base funding amounts. Without such assessments, IHS cannot determine the extent to which the current variation in CHS funding reflects variation in health care needs. According to Standards for Internal Controls in the Federal Government, agency managers should compare actual performance to planned or expected results throughout the organization and analyze significant differences. Further, the standards specify that activities need to be established to monitor performance measures and indicators. 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. 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. 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. In order to ensure an equitable allocation of CHS program funds, the Congress should consider requiring IHS to develop and use a new method to allocate all CHS program funds to account for variations across areas that would replace the existing base funding, annual adjustment, and program increase methodologies, notwithstanding any restrictions currently in federal law. To make IHS’s allocation of CHS program funds more equitable, we recommend that the Secretary of Health and Human Services direct the Director of the Indian Health Service to take the following three actions for any future allocation of CHS funds: require IHS to use actual counts of CHS users, rather than all IHS users, in any formula for allocating CHS funds that relies on the number of active users; require IHS to use variations in levels of available hospital services, rather than just the existence of a qualifying hospital, in any formula for allocating CHS funds that contains a hospital access component; and develop written policies and procedures to require area offices to notify IHS when changes are made to the allocations of funds to CHS programs. HHS reviewed a draft of this report and provided written comments, which are reprinted in appendix I. In its comments, HHS concurred with two of our recommendations and did not concur with one recommendation. HHS did not comment on our general findings or our conclusion that IHS’s use of the base funding methodology has led to long-standing inequities in the distribution of CHS funds. HHS concurred with our recommendation that IHS use variations in levels of available hospital services to allocate CHS funds. HHS noted that the IHS Director’s Workgroup on Improving CHS will review the formula and make recommendations in fiscal year 2013. HHS also concurred with our recommendation to develop written policies to require area offices to notify IHS when changes are made in the allocations of funds to CHS programs. HHS noted that guidance requiring areas to report these changes to IHS headquarters will be added to the CHS manual; however, the agency did not specify a date for doing so. HHS did not concur with our recommendation that it should require IHS to use actual counts of CHS users, rather than all IHS users, in any formula for allocating CHS funds that relies on the number of active users. HHS stated that IHS’s combined count of all users of IHS direct care services and CHS users is intended to reflect the health care needs of those eligible for CHS services. However, as we reported, IHS’s own Data/Technical Workgroup found that the current IHS active user count does not measure the number of people who are eligible for CHS services, in part because not all users of IHS direct care services are eligible for CHS services. Further, as HHS acknowledged in its comments, the current count of active users also does not reflect those who actually received CHS services. Because CHS program increases are intended to reflect variations in the numbers of CHS users among areas, we continue to believe that IHS should use counts of actual CHS users in determining program increases. 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. 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.

Summary: 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. 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. 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.