IHS, an agency within the Department of Health and Human Services, is responsible for providing federal health services to an estimated 1.5 million American Indians and Alaska Natives. In fiscal year 1998, IHS received appropriations of about $1.8 billion to provide these services, with about $291 million of this amount for Alaska. To provide care to Alaska’s estimated 104,305 Natives, most of whom live in small and isolated villages, a three-tiered health care delivery system of local clinics, regional hospitals, and a comprehensive medical center was developed. (See table 1.) IHS’ mission is to provide a comprehensive health services system, while at the same time providing opportunity for maximum tribal involvement in developing and managing programs to meet their needs. The Indian Self-Determination Act gives Alaska Native communities, as well as Indian tribes throughout the United States, the option of replacing IHS as the manager and provider of health care services. To cover the costs of operating such systems on their own, the act authorizes IHS to contract with any of the recognized Alaska Native communities or other tribal organizations, such as regional or village corporations. In Alaska, IHS has established an order of precedence for recognizing various Native entities for purposes of self-determination contracting. In this order of precedence, an individual Native community has priority over an RHO in obtaining contract awards from IHS. If a contract is awarded to an organization that performs services benefiting more than one community, the approval of each community’s governing body (a resolution of support) is a prerequisite. Alaska Native communities that contract directly with IHS manage a relatively small share of health care services in Alaska. Thirty-four of Alaska’s 227 Native communities (15 percent)—which represents about 10 percent of the total Alaska Native population—have obtained funding in direct contracts from IHS to provide some of the health services they receive. (See table 2.) These 34 communities comprise two main groups—25 communities that decided at some point to separate from their RHO to obtain certain services, and 9 communities, mostly in the Cook Inlet area near Anchorage, that generally have not participated in an RHO. Because some communities have banded together for contracting purposes, the 34 communities are involved in a total of 21 contracts, which account for 6.5 percent of IHS’ total contract funding in Alaska under the Indian Self-Determination Act. Of those entities contracting with IHS, the 13 RHOs have the greatest capacity to deliver comprehensive inpatient and outpatient services. The RHOs vary considerably in size. The largest serves more than 20,000 Natives and has a budget of nearly $40 million; the four smallest serve fewer than 2,000 Natives each and have budgets of $2 million to $4 million. (See app. I for details on the 13 RHOs.) Six of the RHOs operate regional hospitals, and all 13 provide community health services to some outlying communities in their areas. Community health services usually include training and placement of community health aides, long-distance physician supervision for the village-based community health aides, itinerant physician and dental coverage, mental health and alcohol abuse programs, and a wide range of other health and social services. Historically, IHS has contracted with RHOs in Alaska because the RHOs were well established when the Indian Self-Determination Act became law in 1975 and because they were able to obtain resolutions of support from the Native communities they represented. However, a Native community has the option of withdrawing its resolution from an RHO and contracting directly with IHS to manage all or part of the health services that previously were provided by the RHO. Communities have pursued this option for a variety of reasons, including the belief that local control will improve the delivery of health services and help them attain self-determination goals. Under the Self-Determination Act, IHS’ authority to decline such community contract proposals is very limited. Twenty-five communities have decided to stop obtaining some services through RHOs and to contract directly with IHS. In total, there are 12 contractors that separated from RHOs because some contracts cover more than one community. These contracts are generally for a limited number of services—most often alcohol and mental health services, community health aides, community health representatives, and other community-based services. Ten of the contracts, for example, involve management of village community health aide clinics, often in conjunction with alcohol education, prevention, and counseling activities. The Native populations served by the 12 contracts range in size from fewer than 30 people to nearly 2,000, and contract awards range from about $100,000 to more than $3 million. (See app. II.) Although these communities, through direct contracting, manage some of their own health services, they most often remain part of the RHO network for other services, such as community health aide supervision and training, physician and dentist services, inpatient care, and management of referrals for specialty services obtained from private providers (known as contract health care). One contractor that separated from an RHO—Ketchikan Indian Corporation (KIC)—has assumed the management of a much broader scope of services. KIC is the largest Native community contractor, serving a Native population of nearly 2,000 and with nearly $3.4 million in fiscal year 1998 funding—one quarter of the 6.5 percent share of Alaska self-determination contract funding received by community contractors. KIC manages a comprehensive primary care health center with a permanent staff of physicians, dentists, nurses, and a wide range of ancillary services, such as laboratory, X-ray, and pharmacy. KIC officials told us that the community decided to manage the health center itself because it was dissatisfied that the RHO did not provide information that it had agreed to provide, such as quarterly financial statements; did not attend KIC tribal council meetings; and had planned to replace the existing health center with a new one in the neighboring village of Saxman rather than on KIC property in Ketchikan. Nonetheless, Ketchikan continues to participate in the RHO and use the RHO’s hospital in Sitka for some inpatient care. Nine of the communities that contract directly with IHS present a somewhat different picture than the 25 communities that separated from an RHO in that they did not previously obtain the contracted services from an RHO. Most of these communities are located in the Cook Inlet (Anchorage) area, where they have access to the extensive resources of the Alaska Native Medical Center. Eight of these nine contractors serve one small Native community each, with populations ranging from 11 to 392. (See app. III.) The ninth contractor, Kenaitze, is exceptionally large, serving a resident population of more than 1,400 Alaska Natives on the Kenai Peninsula south of Anchorage. Kenaitze has administered a health services contract since 1983; its current contract—which is over $1.1 million—provides for a midlevel practitioner clinic with a dentist, a community health representative, and alcohol and mental health services. In addition to the Kenaitze clinic, two other contractors manage clinics with midlevel practitioners, and two manage community health aide clinics with some additional services. Two of the contracts, which were initiated in 1997, are especially limited: Chickaloon Village, which serves 11 Natives with $46,327 in fiscal year 1998 contract funding, and Knik Tribal Council, which serves 39 Natives with $53,079 in fiscal year 1998 contract funding. The Chickaloon and Knik contracts illustrate the extent to which IHS is bound to support village self-determination decisions. When IHS identified funding to open a new midlevel clinic in the Matanuska-Susitna Valley northeast of Anchorage, three Native organizations in that area submitted proposals to manage the clinic: Southcentral Foundation (an RHO), Chickaloon, and Knik. IHS approved Southcentral’s proposal to manage the clinic; in addition, IHS—under rules requiring IHS to approve any severable portion of a self-determination proposal—negotiated with Chickaloon and Knik regarding what services they could provide with their limited per-capita-based shares of the clinic funding. IHS and the villages agreed on transportation for village residents who need services in Anchorage, plus management of contract health care for Knik. Administrative costs are higher under individual community contracts than under contracts with RHOs. Under either contracting arrangement, the Native organization receives the same amount of funding for direct program costs, but IHS has determined that individual communities need more funding for administrative expenses—both to start up the contract and to administer it on an ongoing basis. The higher administrative costs generally reflect lost economies of scale that result from the smaller scope of most individual contracts. Under the Indian Self-Determination Act, an Indian tribe or Alaska Native community that chooses to contract with IHS is entitled to funding for both direct program costs and contract support costs (CSC) to cover administrative functions. In Alaska, these provisions apply both to contracts between IHS and RHOs and to contracts between IHS and individual Native communities. Direct program funding is the amount that IHS would have spent to operate the programs that were transferred to the contractors. CSC funding generally is an additional amount, not normally spent by IHS, that is needed to cover reasonable costs incurred by Native organizations to ensure compliance with the terms of the contracts and prudent management of the programs. Direct program costs are the same regardless of who manages the contracts—communities or RHOs. In contrast, CSC amounts may differ considerably. Determination of CSC needs is based on three cost categories: start-up costs, indirect costs, and direct costs. (See table 3.) The largest cost category is indirect costs, which include most ongoing overhead expenses. For most contracts, indirect costs account for over 80 percent of the recurring CSC funding needs.