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entitled 'Indian Health Service: Capping Payment Rates for Nonhospital 
Services Could Save Millions of Dollars for Contract Health Services' 
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United States Government Accountability Office: 
GAO: 

Report to Congressional Addressees: 

April 2013: 

Indian Health Service: 

Capping Payment Rates for Nonhospital Services Could Save Millions of 
Dollars for Contract Health Services: 

GAO-13-272: 

GAO Highlights: 

Highlights of GAO-13-272, a report to congressional addressees. 

Why GAO Did This Study: 

IHS provides health care to American Indians and Alaska Natives. When 
care at an IHS-funded facility is unavailable, IHS’s CHS program pays 
for care from external providers. Hospitals are required to accept 
Medicare rates from federal and tribal CHS programs, while physicians 
and other nonhospital providers are paid at either billed charges or 
negotiated, reduced rates. The Patient Protection and Affordable Care 
Act requires GAO to compare CHS program payment rates with those of 
other public and private payers. GAO examined (1) how payments to 
physicians by IHS’s federal CHS programs compare with what Medicare 
and private health insurers would have paid for the same services, (2) 
physicians’ perspectives about how a cap on payment rates could affect 
them, (3) hospitals’ perspectives about how the MLR requirement 
affected them, and (4) IHS and tribal officials’ perspectives about 
the MLR requirement and a potential cap on nonhospital services. GAO 
compared 2010 physician claims data for federal CHS programs with the 
Medicare Physician Fee Schedule and claims from private insurers. GAO 
also spoke to a nongeneralizable sample of 10 physicians and 9 
hospitals that interacted frequently with IHS and spoke to IHS and 
tribal officials where these providers practiced. 

What GAO Found: 

The Indian Health Service’s (IHS) federal contract health services 
(CHS) programs primarily paid physicians at their billed charges, 
which were significantly higher than what Medicare and private 
insurers would have paid for the same services. IHS’s policy states 
that federal CHS programs should purchase services from contracted 
providers at negotiated, reduced rates. However, of the almost $63 
million that the federal CHS programs paid for physician services 
provided in 2010, they paid about $51 million (81 percent) to 
physicians at billed charges and about $12 million (19 percent) to 
physicians at negotiated, reduced rates. Payments for other types of 
nonhospital services followed similar trends, with about $40 million 
out of $52 million (77 percent) paid at billed charges. GAO estimated 
that IHS’s federal CHS programs paid two times as much as what 
Medicare would have paid and about one and a quarter times as much as 
what private insurers would have paid for the same physician services 
provided in 2010. If federal CHS programs had paid Medicare rates for 
these services, they could have used an estimated $32 million in 
savings to pay for many of the services that IHS is unable to fund 
each year. Savings for the overall CHS program may be even higher, as 
this analysis does not include other types of nonhospital services or 
the CHS program funding that goes to tribal CHS programs, which the 
Department of Health and Human Services’ (HHS) Office of Inspector 
General found also paid for nonhospital care above Medicare rates. 

Although the 10 physicians GAO interviewed were among those most 
frequently paid by federal CHS programs, 8 said their CHS program 
payments constituted 10 percent or less of their total payments. Some 
physicians identified ways that capping CHS program payments for 
nonhospital services, including physician services, at Medicare rates 
could benefit the CHS program and physician practices. However, other 
physicians were concerned that reducing payment rates to Medicare 
levels could negatively affect their practices. 

Seven of nine hospitals GAO interviewed said the Medicare-like rates 
(MLR) required by statute had little negative effect, generally 
because they already had contracts with the CHS program to be paid 
Medicare rates. While two hospitals previously paid by the CHS program 
at or near billed charges said they were financially affected by the 
MLR requirement, both said it had not affected their delivery of care 
to CHS program patients. 

IHS and tribal officials GAO interviewed said the MLR requirement for 
hospital services generated savings that allowed CHS programs to 
expand access to health care. They said that a cap on nonhospital 
service payments, including physician services, could have benefits 
and challenges. Most IHS officials indicated that it was unlikely they 
could negotiate many more contracts. Some tribal officials said that 
some physicians might think Medicare rates were too low and decide to 
no longer accept tribal patients, although they agreed that a cap at 
these rates could save money. IHS officials noted, however, that they 
would not be able to implement a cap for nonhospital services, 
including physician services, unless the agency received explicit 
statutory authority to do so. 

HHS stated in its comments that it concurred with GAO’s conclusions 
and recommendation and added that imposing a cap at Medicare rates 
would allow IHS to fund additional services. 

What GAO Recommends: 

Congress should consider capping CHS program payments for nonhospital 
services, including physician services, at rates comparable to other 
federal programs. Should Congress cap payments, we recommend HHS 
direct IHS to monitor access to care. 

View [hyperlink, http://www.gao.gov/products/GAO-13-272]. For more 
information, contact Kathleen M. King at (202) 512-7114 or 
kingk@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

IHS's Federal CHS Program Primarily Paid Physicians at Their Billed 
Charges, Which Were Significantly Higher than What Medicare and 
Private Insurers Would Have Paid: 

Most Physicians We Interviewed Said CHS Program Payments Were a Small 
Part of Their Total Payments and Cited Both Advantages and Concerns 
about Capping Payments at Medicare Rates: 

Most Hospitals We Interviewed Indicated Little Negative Effect from 
the Current MLR Requirement, as They Already Had CHS Program Contracts 
to Be Paid at Medicare Rates: 

IHS and Tribal Officials Said the MLR Requirement Allowed Them to 
Expand Access and Said That a Similar Cap for Nonhospital Services 
Could Have Similar Benefits: 

Conclusions: 

Matter for Congressional Consideration: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

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

Appendix II: GAO Contact and Staff Acknowledgments: 

Table: 

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

Figures: 

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

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

Figure 3: Total Payments by IHS's Federal CHS Programs for Services 
Provided in 2010: 

Figure 4: Total Payments Made by IHS's Federal CHS Programs to 
Contracted and Noncontracted Physicians and All Other Nonhospital 
Providers for Services Provided in 2010: 

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

Figure 6: Comparison of Payments from IHS's Federal CHS Programs with 
Medicare Rates for Physician Services Provided in 2010: 

Figure 7: Comparison of Payments from IHS's Federal CHS Programs with 
Private Insurance Rates for Physician Services Provided in 2010: 

Abbreviations: 

BCBSNM: BlueCross BlueShield of New Mexico: 

CAH: critical access hospital: 

CHEF: Catastrophic Health Emergency Fund: 

CHS: contract health services: 

CHSDA: CHS Delivery Area: 

CMS: Centers for Medicare & Medicaid Services: 

DOD: Department of Defense: 

EMTALA: Emergency Medical Treatment and Active Labor Act: 

HHS: Department of Health and Human Services: 

IHS: Indian Health Service: 

MedPAC: Medicare Payment Advisory Commission: 

MLR: Medicare-like rates: 

OIG: Office of Inspector General: 

VA: Department of Veterans Affairs: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

April 11, 2013: 

Congressional Addressees: 

The Indian Health Service (IHS), an agency within the Department of 
Health and Human Services (HHS), is charged with providing health care 
services to the approximately 2.1 million American Indians and Alaska 
Natives who are members or descendants of federally recognized tribes. 
[Footnote 1] These services are provided through direct care at 
federally or tribally operated facilities--such as hospitals and 
health centers. When services are unavailable at these facilities, the 
facilities may use IHS contract health services (CHS) program funds to 
pay for patients to obtain services from external providers, including 
hospitals and office-based physicians. The CHS program at each 
individual facility may be federally or tribally operated and is 
responsible for managing program funds. However, our prior work has 
found that available CHS program funds have not been sufficient to 
ensure access to care for American Indians and Alaska Natives. 
[Footnote 2] In 2005, we reported that the CHS program was not able to 
pay for all eligible services, and that these gaps sometimes resulted 
in diagnosis and treatment delays that could exacerbate the severity 
of a patient's condition and thus the need for more intensive 
treatment.[Footnote 3] Since then, funding for the CHS program has 
increased from $498 million in fiscal year 2005 to almost $845 million 
in fiscal year 2012. However, we recently reported that the CHS 
programs at federal and tribal facilities continue to be unable to pay 
for all eligible services.[Footnote 4]

This inability to pay for all eligible care underscores the need for 
the agency to maximize its use of resources, and thus attention has 
been paid to the rates the CHS program pays external providers. 
Providers set billed charges--the amounts they bill before any 
negotiated rates are applied--but the payments they receive vary by 
payer. Historically, the CHS program paid providers for services at 
either their billed charges or at lower rates negotiated with the 
providers. In comparison, Medicare and private insurance are two of 
the largest sources of revenue for many providers.[Footnote 5] 
Medicare pays providers according to a formula that includes several 
factors, such as geographic location, and private insurers typically 
have contractual arrangements with providers under which they 
negotiate lower payment rates for services on behalf of their members 
or beneficiaries. In 1986, IHS issued a policy stating that it should 
not contract to pay more for services than other federal programs and 
that it would contract to purchase services only with providers that 
agreed to accept negotiated rates no higher than those paid by 
Medicare,[Footnote 6] which covered almost 49 million people in 2011. 
The policy also stated that it should only use noncontracted providers 
in certain situations. However, in 1999, HHS's Office of Inspector 
General (OIG) reported that the CHS program continued to pay most 
providers at rates that were higher than those paid by Medicare. 
[Footnote 7] It also reported that, because of the nature of care 
provided (often specialty or emergency services), IHS was not always 
able to consider costs when purchasing services from providers and 
that, because of the voluntary nature of the policy, many providers 
did not respond to IHS's requests to negotiate reduced rates.

In 2003, the Congress established a payment rate cap on CHS program 
payments for hospital services so the program could use the resulting 
savings to expand patient access to care. Specifically, the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 required 
that Medicare-participating hospitals accept patients of both 
federally and tribally operated CHS programs and accept payment at no 
more than Medicare rates--referred to as Medicare-like rates (MLR)--
for services provided.[Footnote 8] IHS implemented this MLR 
requirement in July 2007. This requirement did not apply to physician 
services, including those provided in hospitals, or to services by 
providers at other nonhospital service locations.[Footnote 9] For care 
in these other settings, physicians and other nonhospital providers 
would continue to be paid at either their billed charges or at 
negotiated rates below their billed charges.

In a September 2009 follow-up report, the OIG found that about 71 
percent of payments for nonhospital claims were paid at rates higher 
than the Medicare rates.[Footnote 10] It also reported that both 
federal and tribal CHS programs faced challenges trying to negotiate 
lower rates with providers, especially in rural areas with few 
providers. On the basis of these results, the OIG recommended that IHS 
seek legislative authority to cap CHS program payments for nonhospital 
providers. In a September 2009 study, IHS estimated that from fiscal 
years 2006 through 2008, federal CHS programs paid a total of about 
$195 million to nonhospital providers, which was about $85 million 
more than if these services had been paid at the Medicare rates. As of 
January 2013, IHS had not addressed the OIG's recommendation to seek 
legislative authority to cap CHS program payments to nonhospital 
providers.

The Patient Protection and Affordable Care Act requires GAO to study 
the amounts paid for health care furnished by providers under the CHS 
program, including a comparison with the rates paid by other public 
and private payers.[Footnote 11] To respond to this mandate, this 
report examines (1) how payments to physicians by IHS's federal CHS 
programs compare with what Medicare and private health insurers would 
have paid for the same services, (2) physicians' perspectives about 
how a federally required cap on payment rates could affect them, (3) 
hospitals' perspectives about how the MLR requirement has affected 
them, and (4) IHS and tribal perspectives about the effect of the MLR 
requirement on hospitals and the potential effect of a MLR requirement 
on nonhospital services.

To examine how payments to physicians by IHS's federal CHS programs 
compare with what Medicare and private health insurers would have paid 
for the same services, we obtained paid federal CHS program claims 
from IHS for health care services provided in calendar year 2010, the 
most recent year for which the most complete data were available. 
These claims data did not include claims paid by tribal CHS programs. 
[Footnote 12] We examined payments for physician and other nonhospital 
services, which were not subject to the MLR requirement. We excluded 
services for which the patient had another form of insurance, because 
the CHS program is generally a payer of last resort and the federal 
CHS programs' payments would have reflected only the remaining 
balances after payments from the primary payers. There were 372,840 
nonhospital services where federal CHS programs were the primary 
payer; payments for these services constituted about 44 percent of 
total payments for all services provided by federal CHS programs in 
2010. From this group of nonhospital services, we isolated physician 
services. Specifically, we excluded nonhospital services that were not 
covered by the 2010 Medicare Physician Fee Schedule.[Footnote 13] We 
also excluded services provided by anesthesiologists because the 
information collected by IHS about these services did not contain all 
of the information necessary to determine comparable Medicare rates. 
There were 246,273 remaining physician services where federal CHS 
programs were the primary payer, constituting about 24 percent of 
total payments for all services provided by federal CHS programs in 
2010.[Footnote 14] For each physician service, we compared the CHS 
program payment amount to the corresponding rate on the 2010 Medicare 
Physician Fee Schedule. When determining the Medicare rates, we priced 
the services as they were identified in the CHS program claims and we 
did not independently verify the accuracy or completeness of the CHS 
program claim information.[Footnote 15] As Medicare does, we adjusted 
the payment rate for a given service according to the physician's 
geographic location and the service setting, such as whether the 
service was provided in a hospital or a physician's office.[Footnote 
16] We also compared the CHS program payments for physician services 
with those of private insurers. To estimate the rates that private 
insurers paid, we obtained the Truven Health Analytics MarketScan® 
Commercial Claims and Encounters Database, which contains claims paid 
by 100 insurers and includes enrollees located in 50 states in 2010. 
To account for any variation in payments due to geographic location, 
we compared only those physician services from the federal CHS program 
claims data that were provided in the same county as those in the 
private insurance claims data. Of the 246,273 total physician services 
in the federal CHS program claims data, we identified 231,099 (about 
94 percent) services that were paid for by private insurers in the 
same counties. For each county, we calculated an average rate paid by 
private insurers for a service and compared that average rate with the 
federal CHS programs' payment for that service. We priced the services 
as they were identified in the CHS program and private insurer claims 
and we did not independently verify the accuracy or completeness of 
either payer's claim information. We assessed the reliability of IHS's 
federal CHS program claims data, the Medicare Physician Fee Schedule 
data, and the Truven Health Analytics MarketScan® Commercial Claims 
and Encounters Database by reviewing documentation and discussing the 
database with knowledgeable officials. We also performed data 
reliability checks, such as examining the data for missing values and 
obvious errors, to test the internal consistency and reliability of 
the data. After taking these steps, we determined the data were 
sufficiently reliable for our purposes.

To examine physicians' perspectives about how a federally required cap 
on payment rates could affect them, we interviewed a sample of 10 
physicians paid by federal CHS programs for services provided in 
2010.[Footnote 17] To identify physicians located on or near 
reservations, we limited our selection to those physicians located in 
counties designated by IHS as CHS Delivery Areas (CHSDA).[Footnote 18] 
Of these, to ensure that our sample was geographically diverse and 
contained physicians who interacted frequently with federal CHS 
programs, we divided the physicians into groups according to their 
urban or rural location[Footnote 19] and identified the top 25 percent 
of physicians according to their volume of paid CHS program services 
provided in 2010. This gave us a list of 101 rural physicians and a 
list of 757 urban physicians who interacted the most frequently with 
federal CHS programs. From each list, we selected 4 rural physicians 
and 6 urban physicians, 2 of whom we selected from among the top 5 
percent of each list on the basis of their claims volume.[Footnote 20] 
The physicians we interviewed represented a range of specialties, 
including radiology, cardiology, ophthalmology, surgery, and primary 
care. Of the 10 physicians we selected, 5 worked in group practices, 3 
in solo practices, 1 was a rural health clinic, and 1 was a billing-
services company that provided those services to the selected 
physician and more than 60 other clients. Given the small number of 
physicians in our sample and our process for selecting them, the 
results from these interviews are not generalizable to all physicians 
interacting with the CHS program. We asked physicians a standard set 
of open-ended questions and did not independently validate their 
reported experiences.[Footnote 21]

To examine hospitals' perspectives about how the MLR requirement has 
affected them, we interviewed officials from a sample of 10 hospitals 
that were paid by federal CHS programs for services provided in 2010. 
As with our selection of physicians, we limited our selection to those 
hospitals located in CHSDAs and divided the hospitals into groups 
according to their urban or rural location.[Footnote 22] Then, we 
identified the top 25 percent of hospitals according to their volume 
of paid CHS program services provided in 2010. This gave us a list of 
27 rural hospitals and a list of 34 urban hospitals that interacted 
the most frequently with federal CHS programs. From each list, we 
selected 5 hospitals, 2 of which we selected from among the top 5 
percent of each list on the basis of their claims volume. At each 
hospital, we interviewed officials identified as knowledgeable about 
that hospital's finances and interactions with CHS programs. While we 
interviewed 10 hospitals, we reported on the perspectives of 9 because 
the officials at 1 hospital had limited experience with CHS programs. 
Given the small number of hospitals in our sample and our process for 
selecting them, the results from these interviews are not 
generalizable to all hospitals interacting with CHS programs. We asked 
hospitals a standard set of open-ended questions and did not 
independently validate their reported experiences.[Footnote 23]

To examine IHS and tribal perspectives about the effect of the MLR 
requirement on hospitals and the potential effect of a MLR requirement 
on nonhospital services, we interviewed IHS area office officials to 
obtain their perspectives on payment rates, patient access to care, 
and rate negotiation efforts. We selected the six area offices--
Aberdeen, Albuquerque, Bemidji, Billings, Navajo, and Oklahoma City--
from which our interviewed hospitals and physicians received payment 
for the majority of the services they provided to the federal CHS 
programs in 2010.[Footnote 24] These six area offices represented 84 
percent of payments by federal CHS programs in 2010. We also 
interviewed tribal officials, including representatives of tribal CHS 
programs, from several of these areas and the California area, where 
all CHS programs are tribally operated. Given the small number of 
tribal officials in our sample and our process for selecting them, the 
results from these interviews are not generalizable to all tribes 
interacting with CHS programs. We asked the tribal and IHS area office 
officials a standard set of open-ended questions and did not 
independently validate their reported experiences.

We conducted this performance audit from November 2011 to April 2013 
in accordance with generally accepted government auditing standards. 
Those standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe 
that the evidence obtained provides a reasonable basis for our 
findings and conclusions based on our audit objectives.

Background: 

IHS oversees the CHS program through 12 area offices. The federally 
and tribally operated facilities in each of these areas use CHS 
program funds to purchase health care services from external 
hospitals, physicians, and other providers. Medicare-participating 
hospitals are required to accept CHS program patients at rates no 
higher than the rates paid by the Centers for Medicare & Medicaid 
Services' (CMS) Medicare program, while federal and tribal CHS 
programs pay physicians and other nonhospital providers at either 
their billed charges or at reduced rates an IHS area office or tribal 
CHS program negotiates with them. Other federal health care programs--
administered by the Department of Defense (DOD) and the Department of 
Veterans Affairs (VA)--have adopted Medicare rates as the basis for 
their standard payment rate for both hospital and nonhospital services.

CHS Program Organization: 

IHS manages the CHS program through a decentralized system of 12 area 
offices, which oversee individual CHS programs in 35 states where many 
American Indian and Alaska Native communities are located. (See figure 
1 for a map of the counties IHS designates as CHSDAs. Residence in 
these counties is generally a requirement for obtaining contract 
health services.) About 46 percent of CHS program funds are 
distributed by IHS to federal CHS programs, and the other 54 percent 
to tribal CHS programs. Tribal CHS programs must meet the same 
statutory and regulatory requirements as federal CHS programs, but 
they are not generally subject to the same policies, procedures, and 
reporting requirements established for federal CHS programs.[Footnote 
25]

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

[Refer to PDF for image: illustrated U.S. map] 

Counties Designated as CHS Delivery Areas (CHSDA) in IHS Areas: 
Aberdeen; 
Alaska; 
Albuquerque; 
Bemidji; 
Billings; 
California; 
Nashville; 
Navajo; 
Oklahoma City; 
Phoenix; 
Portland; 
Tucson. 

Also depicted: 
Counties in both California and Phoenix; 
Counties in both Phoenix and Tucson; 
Counties in both Phoenix and Navajo; 
Counties in both Navajo and Albuquerque. 

Source: GAO analysis of IHS information.

Notes: While CHSDAs are typically counties, the city of Elton, 
Louisiana is also designated as a CHSDA in the Nashville area. 
Information is as of January 2013. 

[End of figure] 

Funds permitting, federal and tribal facilities use CHS program funds 
to pay for eligible patients to receive services from external 
providers if the services are not available at IHS-funded facilities. 
The services purchased include hospital, specialty physician, 
outpatient, laboratory, dental, radiology, pharmacy, and 
transportation services. Patients must meet certain requirements to 
have their services paid for by the CHS program. For example, patients 
must be members of federally recognized tribes and live in specific 
areas. If these requirements are met, CHS program committees at each 
federal or tribal facility evaluate the medical necessity of each 
patient case and assign it a priority level.[Footnote 26] Facilities 
first pay for the highest priority services. If there are other health 
care resources available to the patient, such as Medicare, Medicaid, 
or private health insurance, these resources must first be used to pay 
for services before the CHS program covers any remaining costs because 
the CHS program is generally the payer of last resort.[Footnote 27] 
For federal CHS programs, once the service has been approved and the 
care provided, providers obtain payment for CHS program services by 
sending their claims to IHS's fiscal intermediary, BlueCross 
BlueShield of New Mexico (BCBSNM). BCBSNM processes claims for all of 
the federal CHS programs. The tribal CHS programs process their own 
claims or contract with a fiscal intermediary of their choosing; a 
small number of tribal programs contract with BCBSNM.

CHS Program Payment Rates: 

The rate that a CHS program pays a provider is determined by several 
factors, including whether the provider is a hospital subject to MLR 
reimbursement or the provider has negotiated reduced payment rates 
with IHS or the tribe. (See figure 2.) CHS program payments for 
hospital services--inpatient and outpatient services provided in 
Medicare-participating hospitals--are subject to the MLR requirement. 
IHS generally calculates the MLR using the same methodology that 
Medicare uses to pay its claims, so the amount the CHS program pays 
for a service generally equals the amount that Medicare would pay the 
hospital for that same service. CHS program payments to providers for 
nonhospital services--including services provided by hospital-and 
office-based physicians--are not subject to the MLR requirement. 
[Footnote 28] Each CHS program pays these providers at their billed 
charges unless the IHS area office has negotiated with the provider 
for a reduced rate. Each IHS area office can negotiate contracts with 
the providers that serve the CHS programs in its geographic area. 
Tribally operated facilities are independent and may negotiate their 
own contracts with providers. However, IHS officials said that when 
they negotiate with providers, they may ask those providers to honor 
the negotiated rates when they interact with tribal CHS programs.

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

[End of figure: process map] 

Is the claim subject to the Medicare-like rate (MLR) requirement? 

Yes (Hospital claim): 
Has IHS negotiated a contract for a payment rate that is lower than 
MLR? 
Yes: Pay claim at the rate that is lower than MLR; 
No: Pay claim at MLR. 

No (Nonhospital claim): 
Has IHS negotiated a contract for a payment rate that is lower than 
billed charges? 
Yes: Pay claim at the negotiated reduced rate; 
No: Pay claim at billed charges. 

Source: GAO analysis IHS documents. 

[End of figure] 

In 1986, IHS issued a policy advising area offices to negotiate rates 
no higher than Medicare rates.[Footnote 29] In discussing the need for 
the policy, IHS noted that paying providers for CHS program services 
at billed charges resulted in a depletion of funding that often 
required the postponement of needed care for American Indians and 
Alaska Natives. The agency also noted that IHS should not pay more 
than other federal agencies for the same services. The agency 
recommended that area offices identify and prioritize high-volume 
providers with whom to negotiate lower rates.[Footnote 30] In 
addition, the agency indicated that contracts negotiated with 
providers for payments at rates higher than those paid by Medicare, 
such as a discount off billed charges or a percentage above Medicare 
rates, would be approved by IHS on a case-by-case basis. Further, the 
agency stated that CHS programs should only use providers that do not 
have a contract with the CHS program in two situations: if a patient 
needs emergency care and if the patient's health requires that the 
services be rendered by a noncontract provider. However, IHS has since 
stated it has not been possible to negotiate contracts with each of 
the providers that the CHS program uses because of limitations in area 
office contracting staff and some providers not being willing to enter 
into a contract.[Footnote 31]

Federal CHS Program Payments for Services Provided in 2010: 

For services provided in calendar year 2010, IHS's federal CHS 
programs paid $262.8 million to 6,113 providers for services for 
66,750 patients. Of these payments, federal CHS programs paid $104.0 
million (about 40 percent of total payments) for hospital services 
where the CHS program was the primary payer and about $114.7 million 
(about 44 percent of total payments) for nonhospital services where 
the CHS program was the primary payer.[Footnote 32] Of these payments 
for nonhospital services, the federal CHS programs paid $62.5 million 
(about 55 percent) for hospital-and office-based physician services. 
[Footnote 33] (See figure 3.) 

Figure 3: Total Payments by IHS's Federal CHS Programs for Services 
Provided in 2010: 

[Refer to PDF for image: pie-chart] 

IHS’s federal CHS program payments: 

Hospital and nonhospital services (CHS program is not the primary 
payer: $44.1 million; 

Hospital services (CHS program is the primary payer: $104.0 million; 

Nonhospital services (CHS program is the primary payer: $114.7 million: 
* Physician services: $62.5 million; 
* Other nonhospital services: $52.1 million. 

Source: GAO analysis of IHS data. 

Note: In the figure, the sum of the payments for the "other nonhospital 
services" and the "physician services" does not total to $114.7 million 
because of rounding. 

[End of figure] 

Access to Care through Other Federal Programs That Purchase Health 
Care at Medicare Rates: 

CMS uses Medicare payment methodologies that take many factors, such 
as the type and location of service delivery, into account when 
calculating hospital and physician payments for a given service. 
[Footnote 34] CMS periodically reassesses the specific Medicare 
payment rates to adjust for increases in the cost of delivering care. 
The Medicare Payment Advisory Commission (MedPAC) has stated that the 
goal of Medicare payment policy should be to keep payment rates low 
enough to ensure efficient use of taxpayer funds, but high enough to 
ensure that patient access to care is not negatively affected by 
reduced provider participation.[Footnote 35] Overall, CMS paid $549 
billion in 2011 for care provided to Medicare's almost 49 million 
beneficiaries.

Other federal health care programs also use these Medicare 
methodologies as the basis for the rates they pay providers. For 
example, reimbursement rates for civilian providers under TRICARE, 
DOD's health care program, are generally limited to Medicare rates. 
[Footnote 36] Beginning in fiscal year 1991, in an effort to control 
costs, the Congress directed DOD to gradually implement this 
methodology by lowering its reimbursement rates to Medicare amounts by 
no more than 15 percent each year, and current law requires DOD to use 
Medicare payment methodologies to the extent practicable.[Footnote 37] 
Prior to this, DOD payment rates were, on average, 50 percent higher 
than Medicare rates. In addition, VA has implemented a similar rate 
cap to lower costs for services from non-VA providers.[Footnote 38] VA 
pays for hospital and physician services at Medicare rates, and 
beginning in February 2011, in an effort to help contain costs, the 
agency required that Medicare rates be used to pay for other types of 
nonhospital services, such as laboratory, home health, and hospice 
services.[Footnote 39] VA anticipated that payment at Medicare rates 
for these other nonhospital services would save it more than 50 
percent relative to its current payments. In issuing the final rule 
describing this change,[Footnote 40] the agency indicated that a goal 
of the rate cap was to align its payment structure with Medicare, 
which VA described as the federal government's standard for purchasing 
care from private-sector providers.

We and MedPAC have reported that Medicare beneficiaries have generally 
experienced few problems accessing physician services, although access 
problems may exist in certain situations.[Footnote 41] For example, in 
2009, we reported that the percentage of Medicare beneficiaries who 
reported major difficulties accessing specialty care was the same for 
those living in urban areas and in rural areas in 2008--2.1 percent. 
We also noted that the number of physicians billing Medicare for 
services had increased between 2000 and 2007, suggesting that more 
physicians were generally willing to accept Medicare patients. Some 
studies have found that access-to-care problems may exist for certain 
types of Medicare beneficiaries, such as those in fair or poor health, 
racial minorities, or those living in the most remote areas.[Footnote 
42] However, studies have also suggested that factors other than 
payment rates, such as physician capacity to accept patients and 
travel time, are important influences on patient access to care. 
[Footnote 43] With respect to DOD's TRICARE program, we have reported 
that reimbursement rates and provider shortages in some locations have 
hindered access to care.[Footnote 44] Additional studies by DOD have 
cited reimbursement rates as the primary reason civilian providers may 
be unwilling to accept TRICARE beneficiaries as patients.

DOD and VA have each made modifications to their payment methodologies 
in an attempt to address concerns about access to care. For example, 
both agencies pay higher rates in Alaska because of concerns that 
providers would not accept their beneficiaries at Medicare rates. In 
contrast to the Medicare rates it pays elsewhere, in Alaska, VA and 
DOD pay providers using separate payment methodologies.[Footnote 45] 
In prior reviews of DOD's program, we have noted that there is little 
evidence these increased payments improved patient access to 
care.[Footnote 46] We noted that increased payment rates do little to 
address more systemic causes of limited access, such as scarcity of 
physicians and patient transportation difficulties.[Footnote 47]

We have also noted that the potential for payment rate changes to 
affect patient access to care points to the need to monitor 
beneficiary access.[Footnote 48] This type of monitoring is conducted 
by some federal agencies paying providers at Medicare rates. For 
example, as part of its monitoring, CMS conducts annual surveys of 
Medicare beneficiaries to assess their satisfaction with care and 
their ability to access health care. Additionally, in fiscal year 
2004, in response to concerns about certain TRICARE beneficiaries' 
access to care from civilian providers, the Congress directed DOD to 
monitor access through a survey of civilian providers.[Footnote 49] As 
these concerns continued, DOD was further directed in fiscal year 2008 
to conduct annual surveys of both beneficiaries and civilian providers 
to determine the adequacy of access to health care and mental health 
care providers for certain beneficiaries.[Footnote 50]

IHS's Federal CHS Program Primarily Paid Physicians at Their Billed 
Charges, Which Were Significantly Higher than What Medicare and 
Private Insurers Would Have Paid: 

More than 80 percent of IHS's federal CHS program payments to 
physicians for services provided in 2010 were paid to noncontracted 
physicians at billed charges, rather than to contracted physicians at 
negotiated, reduced rates. IHS's federal CHS program payments to these 
physicians were significantly higher than what we estimate Medicare 
and private insurers would have paid for these same services.

IHS's Federal CHS Program Paid More than 80 Percent of Total Payments 
to Physicians at Billed Charges for Services Provided in 2010: 

More than 80 percent of IHS's federal CHS program payments to 
physicians for services provided in 2010 were paid to noncontracted 
physicians at billed charges, rather than to contracted physicians at 
negotiated, reduced rates. With the exception of uninsured patients, 
who are expected to pay providers at billed charges, other public and 
private payers typically pay providers at lower rates.[Footnote 51] 
However, of the $62.5 million that federal CHS programs paid 
physicians, they paid about $50.5 million (about 81 percent) to 
noncontracted physicians at billed charges and about $12.1 million (19 
percent) to contracted physicians at negotiated, reduced rates. IHS's 
federal CHS program payments to other types of nonhospital providers 
for services provided in 2010 showed similar trends. Specifically, the 
federal CHS programs paid $40.3 million out of a total of $52.1 
million (77 percent) to other noncontracted nonhospital providers at 
billed charges and about $11.8 million (about 23 percent) to other 
contracted nonhospital providers at negotiated, reduced rates. (See 
figure 4.) 

Figure 4: Total Payments Made by IHS's Federal CHS Programs to 
Contracted and Noncontracted Physicians and All Other Nonhospital 
Providers for Services Provided in 2010: 

[Refer to PDF for image: pie-chart] 

IHS’s federal CHS program payments: 

Physicians: $62.5 million: 
* Contracted physicians: $12.1 million; 
* Noncontracted physicians: $50.5 million; 

All other nonhospital providers: $52.1 million: 
* All other contracted nonhospital providers: $11.8 million; 
* All other noncontracted nonhospital providers: $40.3 million. 

Source: GAO analysis of IHS data. 

Note: In the figure, the sum of the payments for contracted and 
noncontracted physicians does not total $62.5 million because of 
rounding. 

[End of figure] 

While IHS's policy states that CHS programs should purchase services 
from contracted providers in most situations, a significant majority 
of physicians paid by federal CHS programs for services provided in 
2010 did not have contracts. Specifically, of the 3,531 total 
physicians paid by federal CHS programs for services provided in 2010, 
3,085 were noncontracted physicians paid at billed charges and 516 
were contracted physicians paid at negotiated, reduced rates for at 
least some of their services.[Footnote 52] Although IHS's policy also 
states that contracting efforts should be focused on high-volume 
providers, the majority of these high-volume providers did not have 
contracts. For example, on the basis of the number of services 
provided, about 78 percent of the top 25 percent of physicians did not 
have contracts, nor did about 74 percent of the top 5 percent of 
physicians. In addition, an examination of the data by area office 
showed that noncontracted physicians constituted the majority of paid 
physicians in all IHS areas. Specifically, for each of the 10 IHS 
areas with federally operated CHS programs, noncontracted physicians 
constituted more than two-thirds of all physicians paid for services 
provided in 2010.[Footnote 53] (See figure 5.) For all other 
nonhospital providers, the numbers of contracted and noncontracted 
providers showed similar trends. Specifically, of the 3,590 other 
nonhospital providers paid for services provided in 2010, 3,145 other 
nonhospital providers did not have contracts and were paid at billed 
charges and 507 other nonhospital providers did have contracts and 
were paid at negotiated, reduced rates for at least some of their 
services.[Footnote 54]

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

[Refer to PDF for image: stacked vertical bar graph] 

IHS area office[A]: Nashville; 
Non-Contracted Physicians: 80; 
Contracted Physicians[B]: 27; 
Total: 107. 

IHS area office[A]: Bemidji; 
Non-Contracted Physicians: 119; 
Contracted Physicians[B]: 11; 
Total: 130. 

IHS area office[A]: Tucson; 
Non-Contracted Physicians: 121; 
Contracted Physicians[B]: 58; 
Total: 179. 

IHS area office[A]: Portland; 
Non-Contracted Physicians: 160; 
Contracted Physicians[B]: 18; 
Total: 178. 

IHS area office[A]: Albuquerque; 
Non-Contracted Physicians: 336; 
Contracted Physicians[B]: 33; 
Total: 369. 

IHS area office[A]: Navajo; 
Non-Contracted Physicians: 389; 
Contracted Physicians[B]: 38; 
Total: 427. 

IHS area office[A]: Aberdeen; 
Non-Contracted Physicians: 453; 
Contracted Physicians[B]: 59; 
Total: 512. 

IHS area office[A]: Billings; 
Non-Contracted Physicians: 519; 
Contracted Physicians[B]: 86; 
Total: 605. 

IHS area office[A]: Oklahoma City; 
Non-Contracted Physicians: 581; 
Contracted Physicians[B]: 206; 
Total: 787. 

IHS area office[A]: Phoenix; 
Non-Contracted Physicians: 779; 
Contracted Physicians[B]: 50; 
Total: 829. 

IHS area office[A]: All Areas; 
Non-Contracted Physicians: 3,085; 
Contracted Physicians[B]: 516; 
Total: 3,601. 

Source: GAO analysis of IHS data. 

[A] Fifty-nine contracted physicians and 376 noncontracted physicians 
were paid for services by more than one area office. For example, some 
physicians practiced in a geographic area that serves federal CHS 
programs in multiple IHS areas. The California and Alaska areas are not 
included in this figure because they include only tribally operated CHS 
programs.

[B] Seventy of the contracted physicians were also paid at billed 
charges for some services. For example, a physician may have negotiated 
with IHS to provide a specific service at a contracted rate, but all 
other services provided by the physician were paid at billed charges. 
These 70 physicians are included in the totals for both the contracted 
and noncontracted physicians. 

[End of figure] 

For those physicians whom IHS's federal CHS programs paid under 
contracts for reduced rates, the programs achieved significant savings 
relative to the physicians' billed charges. Specifically, the federal 
CHS programs paid about $12.1 million for these services, which 
represented an estimated $16.7 million (58 percent) in savings, 
relative to the physicians' billed charges.[Footnote 55] The 
percentage of savings was fairly consistent across the IHS area 
offices. The savings attributed to physician contracts ranged from 
50.4 percent in the Aberdeen and Albuquerque Areas to 69.1 percent in 
the Phoenix Area. (See table 1.) IHS's federal CHS programs' savings 
from contracts with other nonhospital providers showed similar trends, 
achieving estimated savings of 68 percent, or $25.3 million, relative 
to billed charges.[Footnote 56]

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

Area office[A]: Aberdeen; 
For physicians paid under contract: 
Billed charges: $5,632,186; 
Amount paid: $2,793,323; 
Contract savings[B]: $2,838,863; 
Contract savings as a percentage of billed charges: 50.4%.

Area office[A]: Albuquerque; 
For physicians paid under contract: 
Billed charges: $2,437,173; 
Amount paid: $1,208,701; 
Contract savings[B]: $1,228,472; 
Contract savings as a percentage of billed charges: 50.4%.

Area office[A]: Bemidji; 
For physicians paid under contract: 
Billed charges: $229,611; 
Amount paid: $90,449; 
Contract savings[B]: $139,162; 
Contract savings as a percentage of billed charges: 60.6%.

Area office[A]: Billings; 
For physicians paid under contract: 
Billed charges: $5,786,494; 
Amount paid: $2,541,273; 
Contract savings[B]: $3,245,221; 
Contract savings as a percentage of billed charges: 56.1%.

Area office[A]: Nashville; 
For physicians paid under contract: 
Billed charges: $121,592; 
Amount paid: $48,460; 
Contract savings[B]: $73,132; 
Contract savings as a percentage of billed charges: 60.1%.

Area office[A]: Navajo; 
For physicians paid under contract: 
Billed charges: $2,441,217; 
Amount paid: $1,002,058; 
Contract savings[B]: $1,439,159; 
Contract savings as a percentage of billed charges: 59.0%.

Area office[A]: Oklahoma City; 
For physicians paid under contract: 
Billed charges: $7,894,724; 
Amount paid: $2,878,731; 
Contract savings[B]: $5,015,993; 
Contract savings as a percentage of billed charges: 63.5%.

Area office[A]: Phoenix; 
For physicians paid under contract: 
Billed charges: $1,887,211; 
Amount paid: $582,920; 
Contract savings[B]: $1,304,291; 
Contract savings as a percentage of billed charges: 69.1%.

Area office[A]: Portland; 
For physicians paid under contract: 
Billed charges: $487,192; 
Amount paid: $199,078; 
Contract savings[B]: $288,114; 
Contract savings as a percentage of billed charges: 59.1%.

Area office[A]: Tucson; 
For physicians paid under contract: 
Billed charges: $1,824,129; 
Amount paid: $732,603; 
Contract savings[B]: $1,091,526; 
Contract savings as a percentage of billed charges: 59.8%.

Area office[A]: Total; 
For physicians paid under contract: 
Billed charges: $28,741,530; 
Amount paid: $12,077,596; 
Contract savings[B]: $16,663,934; 
Contract savings as a percentage of billed charges: 58.0%.

Source: GAO analysis of IHS data.

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

[A] The California and Alaska areas are not included in this table 
because they include only tribally operated CHS programs.

[B] Officials from IHS's fiscal intermediary said that, to help them 
determine IHS's savings due to contracts, they encourage contracted 
physicians to bill federal CHS programs at their full billed charges 
and then the federal CHS programs pay the providers according to their 
contracted rates. However, some contracted physicians instead bill 
federal CHS programs according to their contracted rates. In the 2010 
claims data, 204 out of 516 contracted physicians billed the federal 
CHS programs at the same rate they were paid under their contract and 
received payments from IHS totaling $512,915. Therefore, our estimate 
of $16.7 million in physician contract savings, which is the 
difference between the physicians' billed charges and the payments 
received, may underestimate IHS's total savings due to contracts with 
physicians. 

[End of table] 

IHS's Federal CHS Programs Paid Physicians More than What Medicare and 
Private Health Insurers Would Have Paid for the Same Services: 

IHS's federal CHS program payments to physicians for services provided 
in 2010 were higher than what we estimate Medicare and private 
insurers would have paid for these same services. These higher 
payments resulted from payments federal CHS programs made to 
noncontracted physicians at billed charges, as the CHS program 
generally paid contracted physicians at rates similar to Medicare.

IHS's federal CHS programs paid, in total, two times what we estimate 
Medicare would have paid for the same physician services provided in 
2010. Specifically, of the $62.5 million in total payments for 
services provided in 2010, the federal CHS programs could have saved 
an estimated $31.7 million if they paid physicians what Medicare would 
have paid for the same services. The federal CHS programs could have 
used these savings to pay for more than double the number of physician 
services they provided in 2010--approximately 253,000 additional 
physician services (based on an average Medicare rate of $125 per IHS 
physician service). Further, savings for the overall CHS program may 
be even higher, as this analysis does not include payments for other 
types of nonhospital services paid by the federal CHS programs, as 
well as payments by tribally operated CHS programs, which receive over 
half of annual CHS program funding and have also been found to pay for 
nonhospital services above the Medicare rates.[Footnote 57] For 
example, a 2009 OIG report found that there was no difference between 
federally and tribally operated CHS programs in terms of the 
percentages of nonhospital claims paid above Medicare rates.[Footnote 
58] It estimated that federally and tribally operated CHS programs 
could have saved almost half of total spending on nonhospital services 
if nonhospital payments were capped at Medicare rates. This suggests 
that both federally and tribally operated CHS programs are likely to 
achieve significant savings if they paid physicians and other 
nonhospital providers according to what Medicare would have paid for 
the same services. The potential for savings is particularly 
significant in light of the CHS program's inability to pay for all 
needed services.

IHS's federal CHS programs paid physicians at rates that were higher 
than Medicare rates because they primarily paid physicians at their 
billed charges. Services provided by noncontracted physicians 
accounted for approximately $30.5 million of the $31.7 million in 
estimated total savings (96 percent) for the federal CHS programs. 
Specifically, the federal CHS programs paid noncontracted physicians a 
total of about $50.5 million at billed charges, which was two and a 
half times what we estimate Medicare would have paid for the same 
services (about $20 million). (See figure 6.) 

Most, but not all, payments to contracted physicians were similar to 
what Medicare would have paid.[Footnote 59] Federal CHS programs paid 
contracted physicians about $12.1 million for services provided in 
2010 and these payments to contracted physicians accounted for 
approximately $1.2 million of the $31.7 million in estimated total 
savings (about 4 percent). The federal CHS programs' contracts with 
physicians were sometimes for negotiated rates that exceeded what 
Medicare would have paid. Specifically, slightly over one-third of 
total payments to contracted physicians were higher than what we 
estimate Medicare would have paid. However, most payments to 
contracted physicians were equal to or lower than what we estimate 
Medicare would have paid.

Figure 6: Comparison of Payments from IHS's Federal CHS Programs with 
Medicare Rates for Physician Services Provided in 2010: 

[Refer to PDF for image: stacked vertical bar graph] 

CHS program payments: 
Payments at billed charges: $50.4 million; 
Payments under contract: $12.1 million; 
Total: $62.5 million. 

CHS program payments if based on Medicare rates: 
Payments at billed charges: $19.9 million; 
Payments under contract: $10.9 million; 
Total: $30.8 million. 

Difference: $31.7 million. 

Source: GAO analysis of IHS and CMS data. 

Notes: We analyzed IHS claims data and data from the Medicare Physician 
Fee Schedule. In the figure, the sum of the CHS program payments made 
under contract and at billed charges does not total $62.5 million 
because of rounding. 

[End of figure] 

IHS's federal CHS programs also paid more than what we estimate 
private insurers would have paid for the same physician services 
provided in 2010. Specifically, federal CHS programs paid about one 
and a quarter times what we estimate private insurers would have paid 
for the same services provided in 2010. Of those physician services 
for which comparable services were available at the county level in 
the private insurance data, the federal CHS programs paid about $51.5 
million and private insurers would have paid an estimated $41.5 
million, a difference of $10.0 million.[Footnote 60] (See figure 7) 
Similar to what we found in the Medicare comparison, most of this 
difference was attributable to those services for which the federal 
CHS programs paid noncontracted physicians at billed charges--rates 
that are higher than the rates paid by private insurers. Overall, 
these payments to noncontracted physicians totaled $41.2 million, 
which was more than one and a half times as much as the estimated 
$27.3 million that private insurers would have paid for these same 
services. However, in contrast to what we found in our Medicare 
comparison, when federal CHS programs were able to negotiate reduced 
rates with physicians, these rates were lower than what private 
insurers would have paid. Specifically, CHS program payments to 
contracted physicians totaled $10.3 million, while private insurers 
would have paid an estimated $14.2 million for these same services. 
This is because most of the federal CHS programs' payments to 
contracted physicians were paid at or below Medicare rates, which are 
typically lower than rates paid by private insurers.

Figure 7: Comparison of Payments from IHS's Federal CHS Programs with 
Private Insurance Rates for Physician Services Provided in 2010: 

[Refer to PDF for image: stacked vertical bar graph] 

CHS program payments: 
Payments at billed charges: $41.2 million; 
Payments under contract: $10.3 million; 
Total: $51.5 million. 

CHS program payments if based on private insurer rates: 
Payments at billed charges: $27.3 million; 
Payments under contract: $14.2 million; 
Total: $41.5 million. 

Difference: $10.0 million. 

Source: GAO analysis of IHS and CMS data. 

Note: To account for any variation in payments due to geographic 
location, we compared only those physician services from the federal 
CHS program claims data that were provided in the same county as those 
in the private insurance claims data. Therefore, of the 246,273 total 
physician services in the CHS program data, we identified 231,099 
(about 94 percent) services that were provided by private insurers in 
the same counties. We were unable to compare physician services for 
$11.0 million in payments from the federal CHS programs' claims to the 
private insurance claims because these services were not provided in 
the same county. 

[End of figure] 

Most Physicians We Interviewed Said CHS Program Payments Were a Small 
Part of Their Total Payments and Cited Both Advantages and Concerns 
about Capping Payments at Medicare Rates: 

Most of the 10 physicians whom we interviewed indicated that the CHS 
program represented a small portion of their practice and was not a 
significant source of revenue. The physicians identified advantages of 
capping CHS program payments for nonhospital services, including 
physician services, at Medicare rates, but also expressed concerns 
about the effect of such a cap on their finances.

Physicians We Interviewed Said CHS Program Payments Were Generally 
Less than 10 Percent of Their Total Practice Payments and Were Often 
at Medicare Rates: 

According to most of the 10 physicians whom we interviewed, the CHS 
program represented a small portion of their practice. All of the 
physicians we interviewed were among federal CHS programs' top 25 
percent of physicians in terms of their volume of paid services in 
2010. However, 8 of the 10 physicians said total CHS program payments 
constituted 10 percent or less of the total payments they received 
from all payers.[Footnote 61] The remaining 2 physicians said the CHS 
program accounted for a larger portion of their total payments. For 
example, payments from the CHS program constituted 39 percent of total 
payments for 1 physician who was located on a reservation. Payments 
from the CHS program to the other physician, who was located near 
three reservations, constituted 15 to 20 percent of total payments.

The 10 physicians we interviewed were divided between those who were 
paid above Medicare rates by the CHS program and those who were paid 
at or below Medicare rates. According to IHS 2010 claims data, federal 
CHS programs paid the 10 physicians we interviewed a total of about 
$990,000. Four of the 10 physicians had a contract with the CHS 
program and were paid at or below Medicare rates.[Footnote 62] These 
physicians' contracts with IHS saved the program about 60 percent 
relative to the physicians' billed charges, which is comparable to the 
federal CHS programs' percentage of estimated savings across all 
physician contracts in that year. The other 6 physicians were paid by 
the CHS program at billed charges that were higher than Medicare 
rates. For example, 1 physician said he was paid at 133 percent of 
Medicare rates and another said he was paid at 250 percent of Medicare 
rates.

In terms of other payers, most physicians we interviewed said they 
received the majority of their payments from Medicare and Medicaid. 
Eight of the 10 physicians said their payments from Medicare and 
Medicaid were close to 50 percent or more of their total payments, 
[Footnote 63] with private insurance and self-pay patients 
constituting most of their remaining payments. Two of these 8 said 
that, respectively, they received 50 percent and 75 percent of their 
total payments from Medicare alone. The remaining 2 of the 10 
physicians said they received the majority of their total payments 
from private insurance or self-pay patients. All 10 physicians 
reported that they are accepting new patients from all payers, 
including Medicare and the CHS program.[Footnote 64]

Physicians We Interviewed Identified Both Advantages and Concerns with 
Capping CHS Program Payments at Medicare Rates: 

The 10 physicians we interviewed identified advantages of capping CHS 
program payments for nonhospital services, including physician 
services, at Medicare rates, but also expressed concerns about the 
effect of such a cap on their finances. The 4 physicians who were 
already getting paid at or below Medicare rates, as well as 4 of the 
other physicians who were getting paid at higher billed charges, said 
such a cap would have little or no effect on their practices. Two of 
these physicians noted that there would be little effect because the 
CHS program is a small percentage of their practice. The remaining 2 
of these 10 physicians, who were paid at higher billed charges, cited 
concerns that a cap could affect their finances or patient access to 
care.

Six of the physicians we interviewed, three of whom were paid at or 
below Medicare rates, said they would support a cap on CHS program 
payments for nonhospital services, including physician services, at 
Medicare rates and provided various rationales for their support. For 
example, one physician said that capping CHS program payments for 
nonhospital services at the Medicare rates is a "good idea" that would 
save IHS money. This physician expected that capping the CHS program 
payments would allow him to substantially decrease the time his 
practice spends negotiating with different CHS programs, especially 
the numerous tribal CHS programs in his area. Others noted that 
Medicare rates are nearly universally accepted by physicians and, 
therefore, physicians are familiar with the Medicare Physician Fee 
Schedule. One of these physicians added that paying physicians 
according to Medicare rates would allow all physicians to receive 
payment under a consistent methodology. Another physician said he 
negotiated a contract with the CHS program for lower, Medicare rates 
because, in his opinion, IHS should not be paying physicians at billed 
charges that are higher than the rates paid by Medicare. A physician 
paid by the CHS program at billed charges higher than Medicare agreed 
that Medicare rates were appropriate. He said that he is already 
receiving Medicare rates for many patients because the majority of his 
work is done in a hospital and many patients needing his services are 
older. Further, one physician noted that such a cap could increase his 
practice's CHS program payment, as he currently receives Medicare 
Physician Fee Schedule rates from the CHS program, but a cap on 
payments for nonhospital services could allow him to be paid at the 
higher cost-based reimbursement that he receives from Medicare. 
[Footnote 65]

Four of the physicians we interviewed, three of whom said they were 
paid by the CHS program at billed charges higher than Medicare, did 
not support such a cap and expressed varying concerns about its effect 
on their finances and patient access to care. Specifically, two 
physicians noted that if their CHS program payments were capped at 
Medicare rates and Medicare rates were reduced in the future, this 
could have a significant adverse financial effect on their 
practices.[Footnote 66] One physician said that reducing his rates to 
Medicare levels would not allow him to cover his practice's costs, as 
his billed charges are 133 percent of Medicare rates and CHS program 
payments represented 39 percent of his practice. Two physicians also 
indicated that certain specialists might be particularly affected by a 
cap at Medicare rates. For example, one physician noted that there 
have been significant reductions in Medicare rates for certain 
cardiology services in recent years. The other physician said that an 
orthopedic practice in his area that had previously contracted with a 
CHS program decided to stop accepting tribal patients at Medicare 
rates. Two physicians also noted they use the higher payments from the 
CHS program and private payers to compensate for their payments from 
Medicare and Medicaid, which they indicated do not cover their costs 
for providing care.

Three physicians who did not support a cap on CHS program payments for 
nonhospital services, including physician services, at Medicare rates 
said they would support a rate cap set at a higher payment rate than 
Medicare but lower than billed charges. Two of the physicians 
suggested a cap set at a percent of their billed charges, while the 
third suggested a cap set at 125 to 133 percent of the Medicare rates.

When we asked physicians if they had any concerns unrelated to CHS 
program payment rates but that have had a financial effect on their 
practice, all 10 cited challenges processing their CHS program payment 
requests or receiving timely claims payment. The physicians said, for 
example, that to receive payment from the CHS program they spent a 
disproportionate amount of time, relative to other payers, gathering 
paperwork in support of payment requests or monitoring the progress of 
those requests. Specifically, 1 physician indicated that she received 
the same rates as Medicare for the CHS program, but her claims 
processing costs for the CHS program were significantly higher than 
for Medicare. Physicians' concerns about claims administration echoed 
those that we heard from physicians as part of a 2011 report examining 
the CHS program.[Footnote 67]

Most Hospitals We Interviewed Indicated Little Negative Effect from 
the Current MLR Requirement, as They Already Had CHS Program Contracts 
to Be Paid at Medicare Rates: 

Officials from most of the nine hospitals that we interviewed 
indicated that the MLR requirement has had little or no financial 
effect on their hospital.[Footnote 68] They said the CHS program 
accounted for a small percentage of their total payments.[Footnote 69] 
Officials from eight of the nine hospitals said the program accounted 
for between 0.02 and 10 percent of their total payments;[Footnote 70] 
officials from the other hospital said the CHS program accounted for 
about 14 percent of its total payments.

Officials from seven of the nine hospitals noted that the CHS program 
already paid them at Medicare rates prior to implementation of the MLR 
requirement.[Footnote 71] Of these seven, officials from five 
hospitals said the implementation of the MLR requirement has had 
little or no financial effect on their hospital. Officials from the 
other two of the seven hospitals did not experience a change in rates 
from the implementation of MLR, but they had concerns with Medicare 
payment rates in general, saying they do not cover their hospital's 
costs of providing patient services. For each of the two hospitals, 
officials said that the Medicare program accounted for a larger 
portion of their payments than the CHS program--29 percent and 28 
percent, while the CHS program accounted for 0.02 percent.

Officials from two hospitals indicated that the MLR requirement 
reduced their payment rate. Officials from one of these hospitals said 
that, prior to the implementation of the MLR requirement, the hospital 
had a contract to be paid by the CHS program at 90 percent of its 
billed charges; an official from the other hospital said the CHS 
program had paid it at 100 percent of its billed charges. The official 
described these previous rates as "ridiculous" because no other payer 
they interacted with paid such high rates. Officials from both 
hospitals indicated that they are now paid at MLRs. Officials from 
both of these hospitals noted that they see most CHS program patients 
through the emergency room and their hospital has an obligation under 
the Emergency Medical Treatment and Active Labor Act (EMTALA) to treat 
them regardless of their ability to pay.[Footnote 72] Officials from 
one of the hospitals that did not experience a decrease in rates also 
noted its EMTALA obligation in the context of access to care.

Although officials from most hospitals we interviewed said the CHS 
program's MLR payment rates generally matched the rates they received 
from Medicare, two hospitals designated as critical access hospitals 
(CAH) said there were differences.[Footnote 73] IHS officials 
explained that the CHS program, like Medicare, pays CAHs using service-
delivery costs that hospitals report to CMS in completed cost reports. 
However, unlike IHS, CMS also considers interim cost reports submitted 
by hospitals in calculating its Medicare payments to hospitals. IHS 
officials said the completed cost reports may be 18 months out of date 
relative to the interim cost reports.[Footnote 74] Officials from 
these two CAHs indicated that because their most recent completed cost 
report may be several months out of date, they were generally paid 
less by the CHS program than by Medicare. One CAH official said the 
difference was usually a few percentage points; the other said the 
difference has averaged 8 percent. However, a CAH official said there 
was one year (2011) when the CHS program overpaid the hospital because 
it was using an outdated cost report. According to IHS officials, the 
CHS program must rely on the completed cost reports because the CHS 
program, unlike Medicare, does not have the funding flexibility to 
settle with hospitals if the interim report is later determined to 
need adjustment.[Footnote 75]

While the implementation of the MLR requirement had little financial 
effect on most of the hospitals that we interviewed, officials from 
all nine hospitals cited other factors that affected the payments they 
received from the CHS program. For example, officials from seven 
hospitals said they experienced problems having claims paid in a 
timely way by the CHS program or that they spent more staff time 
processing CHS program claims than they did for other payers.[Footnote 
76] Officials from two of these hospitals added that they were 
negatively affected when IHS made the decision to close the emergency 
room in local IHS facilities because this resulted in an increased 
patient load that placed greater pressure on their emergency rooms. 
[Footnote 77]

IHS and Tribal Officials Said the MLR Requirement Allowed Them to 
Expand Access and Said That a Similar Cap for Nonhospital Services 
Could Have Similar Benefits: 

IHS and tribal officials we interviewed said that setting payments for 
hospital services at MLRs (as required by statute) allowed the CHS 
program to reduce payments and expand access to care. They also agreed 
that a cap on payments to nonhospital providers, including physicians, 
could have similar benefits, although some officials noted that these 
benefits may not be achieved by all CHS programs.

IHS and Tribal Officials We Interviewed Said the MLR Requirement 
Allowed Them to Reduce Payments to Hospitals and Expand Access to Care: 

IHS and tribal officials we interviewed said that the implementation 
of the MLR requirement in 2007 allowed the CHS program to reduce 
payments for hospital services. Although IHS officials told us that 
prior to the implementation of the MLR requirement, area offices had 
negotiated to pay many hospitals at Medicare rates, officials we 
interviewed from four of the six area offices noted that some 
hospitals were unwilling to negotiate reduced rates and therefore were 
paid at billed charges. The MLR requirement required these hospitals 
to accept Medicare rates. IHS officials noted that tribally operated 
CHS programs likely experienced more savings from the MLR requirement 
than federally operated CHS programs because tribally operated CHS 
programs were generally less successful at negotiating contracts with 
hospitals for reduced rates. Officials from three tribes, for example, 
told us that they had difficulty negotiating for reduced rates with 
hospitals and the MLR requirement enabled them to pay lower rates than 
they had been able to negotiate. Overall, the tribal officials we 
interviewed agreed that the MLR requirement benefited tribal programs 
by allowing them to achieve savings. IHS officials also indicated that 
the MLR requirement allowed them to devote less staff time to 
negotiating contracts for hospital services at lower rates.[Footnote 
78] One tribal official also noted that her tribe had already 
successfully contracted with hospitals for Medicare rates, but said 
that the MLR requirement allowed the tribe to save the time and staff 
resources it had spent negotiating contracts.

IHS and tribal officials indicated that reduced payments from the MLR 
requirement allowed the CHS program to expand access to care. For 
example, officials from two area offices said that the lower rates 
from the implementation of the MLR requirement have allowed some 
federal CHS programs that could previously only fund high-priority 
(priority level I) cases to now fund both priority level I and 
priority level II cases--cases that would have previously been 
deferred or denied.[Footnote 79] IHS officials indicated that the 
lower payment rates paid to providers under the MLR requirement have 
also allowed IHS to sustain the Catastrophic Health Emergency Fund 
(CHEF) longer than it could prior to the implementation of MLR because 
the higher payment rates would deplete the fund earlier in the fiscal 
year.[Footnote 80] They said that IHS is now able to reimburse CHS 
programs for more high-cost medical cases under CHEF than it could 
prior to the implementation of the MLR requirement. In addition, IHS 
officials said that, prior to the implementation of the MLR 
requirement, hospitals were not required to accept IHS patients and 
would sometimes turn them away in nonemergency situations. As part of 
the MLR requirement, Medicare-participating hospitals are required to 
accept IHS patients at the MLR rates, which IHS officials said has 
expanded access to care for IHS patients.

IHS and tribal officials we interviewed did not identify any ongoing 
challenges with patient access to care related to implementation of 
the MLR requirement. Officials from three area offices said that they 
were not aware of any challenges resulting from the implementation of 
the MLR requirement, although officials from the other three area 
offices and some tribal officials said that there were some initial 
challenges. They said that some hospitals initially refused to accept 
the new rates, so CHS program staff may have had to spend time 
educating them about the new requirement. They noted that the 
hospitals eventually accepted the required rates and it did not 
negatively affect patient access to care.

IHS and Tribal Officials Described Challenges Contracting with 
Nonhospital Providers for Reduced Rates and Said That a Cap at 
Medicare Rates Could Be Beneficial, despite Certain Concerns: 

IHS and tribal officials said CHS programs experienced challenges 
contracting for negotiated rates with nonhospital providers. Five of 
the six IHS area offices that we interviewed acknowledged that they 
were unlikely to be able to negotiate with many additional providers. 
[Footnote 81] Officials from all six area offices described their 
efforts to contract with any known nonhospital providers, which 
included sending contract documentation to frequently used providers 
or new providers in their areas. However, officials from three area 
offices noted that many providers do not respond. Officials from two 
area offices said that there can be challenges negotiating contracts 
in rural areas served by a single physician who may have little 
incentive to negotiate a reduced rate. Area office officials also 
noted that certain physician subspecialties, such as those providing 
services for cancer or kidney disease, tend to be more resistant to 
negotiating contracts. The officials said that this could be because 
these physicians see fewer CHS program patients or because the 
physicians believe that the lower rate would not cover their cost of 
doing business. These challenges are not new for the CHS program. For 
example, in 1991, IHS stated that it had not been possible for the 
program to contract with each of the 4,600 professionals that it used 
on a regular basis.[Footnote 82] The agency noted that it had 
experienced difficulty negotiating contracts because many providers 
were unwilling to contract and the area offices lacked the resources 
necessary to negotiate contracts. Tribal officials described similar 
challenges related to contracting. In addition, some tribal officials 
noted that nonhospital providers are particularly hesitant to 
negotiate contracts because of a history of problems getting paid in a 
timely way by the CHS program.

Officials from all six of the area offices said that a cap on 
nonhospital services, including physician services, at Medicare rates 
would reduce payments to providers and they believed that the overall 
effect for the CHS program would be positive. Officials from all six 
area offices specifically cited the resulting financial savings from 
the cap and indicated that this would allow the CHS programs to pay 
for more care. Officials from four area offices noted that a cap would 
be particularly beneficial in lowering the cost of certain high-cost 
nonhospital services, such as cancer treatments, dialysis, and air 
ambulance services. Officials from some of these areas said that 
providers of these services have been less likely to negotiate 
contracts. IHS headquarters also identified these same services as 
high-volume and high-cost services that could benefit from a rate cap. 
Officials from two area offices added that a cap based on an 
established fee schedule would help standardize the rates that CHS 
programs pay physicians, which would make it easier for programs to 
estimate their spending.[Footnote 83] Officials from one area office 
indicated that it was time consuming to identify physicians and 
attempt to negotiate contracts for lower rates, and a cap would 
eliminate the need for these efforts.[Footnote 84] However, IHS 
headquarters officials told us that they would not be able to 
implement a cap for nonhospital services, including physician 
services, unless the agency received explicit statutory authority to 
do so, because the current law requiring MLRs is limited to hospital 
services.

Although officials from all of the area offices we interviewed 
indicated that the overall effect of an MLR cap on nonhospital 
services, including physician services, would be positive, four of the 
area offices also identified potential concerns.[Footnote 85] For 
example, four area offices noted that some rural areas have a limited 
supply of providers and these providers may not consider Medicare 
payment rates to be adequate, which could contribute to reduced 
patient access to care if those providers stopped seeing patients at 
Medicare rates. Officials from one of these area offices also noted 
that a nonhospital payment cap based on Medicare rates could create 
added expense and complexity for the CHS program because IHS's fiscal 
intermediary, BCBSNM, would need to calculate Medicare payment rates 
using the different payment methodologies used by CMS. BCSBNM 
officials also noted that a cap on nonhospital providers would require 
them to implement changes to their payment system to track and collect 
additional claims data.[Footnote 86] Officials from one area office 
noted that the added complexity could be especially challenging for 
tribal CHS programs that do not contract with a fiscal intermediary to 
process their claims. Similarly, officials from one tribal area 
indicated that it was difficult for some tribes to learn how to 
calculate hospital rates when the MLR requirement was implemented, and 
they expected that calculating rates for nonhospital services would be 
more challenging.

The tribal officials that we interviewed agreed that a cap on payments 
for nonhospital services, including physician services, could reduce 
CHS program payments to providers and achieve savings, although some 
officials noted that these benefits may not be achieved by all CHS 
programs. Some tribal officials indicated that a cap on nonhospital 
services at Medicare rates could save them money. For example, 
officials from one tribe said that, because individual providers had 
been unwilling to contract with them, they contract with a private 
insurer to utilize the rates that insurer has negotiated with 
providers. However, the tribal officials noted that the insurer's 
negotiated rates are still higher than Medicare rates, so capping CHS 
program payments for nonhospital services at Medicare rates would 
allow the tribe to further lower its rates without having to contract 
with the private insurer. They indicated that these savings would 
allow them to expand patient access to care. However, officials from 
some tribes worried that a cap could result in access-to-care problems 
if physicians decided to stop seeing CHS program patients because of 
the lower payment rates. For example, tribal officials from one area 
noted that, while a cap could be beneficial for the general CHS 
program, it could lead to problems for certain tribes. They said that 
some physicians serving a large, rural tribe in their area had already 
chosen not to participate in Medicare because of the low payment 
rates. IHS headquarters officials noted that they had heard similar 
concerns during their discussions with tribal officials, although the 
tribal officials had generally been supportive of a cap to reduce CHS 
program payments for nonhospital services, including physician services.

IHS officials indicated that it would be important to monitor patient 
access to care if CHS program payment rates for nonhospital services 
were changed. The officials said that IHS currently tracks the number 
of individuals who are unable to have care funded by the CHS program 
because, for example, of a lack of funding. However, it does not have 
a mechanism, such as a survey, to obtain information about patient 
access to care and physicians' willingness to accept CHS program 
payments. They said that IHS would likely be able to monitor these 
issues if mechanisms were put in place prior to any changes in payment 
rates.

Conclusions: 

IHS's CHS program serves as an important resource for American Indian 
and Alaska Native patients who need health care services that are not 
available in federal and tribal facilities. However, most federally 
and tribally operated CHS programs are unable to pay for all needed 
services, which underscores the need for them to maximize the care 
they can purchase within available funding. The 2007 implementation of 
the MLR requirement for hospitals allowed IHS and tribes to reduce the 
cost of hospital services and use those savings to pay for more care. 
Nonhospital services, including physician services, were not included 
in the scope of the MLR requirement, and the CHS program continues to 
rely on the ability of area offices to negotiate contracts with 
individual providers for reduced rates that are lower than billed 
charges. Since 1986, IHS policy has stated that area offices should 
attempt to negotiate with providers at rates that are no higher than 
Medicare rates, and IHS officials we interviewed described time-
consuming efforts to establish such contracts. However, in 2010, IHS 
still primarily paid nonhospital providers, including physicians, at 
their billed charges. Our findings, which indicate that IHS could have 
saved an estimated $32 million out of the $62.5 million that federally 
operated CHS programs spent on physician services provided in 2010, 
are consistent with a 2009 OIG report and a 2009 internal IHS study. 
If trends in payments for other types of nonhospital services and the 
tribal CHS programs are similar to the payments for the federal CHS 
program physician services that we examined, we estimate that savings 
from capping all nonhospital services paid by federal and tribal CHS 
programs at Medicare rates could be significantly higher. These 
savings could be used to pay for some of the many services that the 
CHS program is unable to fund each year.

As a steward of public resources, IHS is responsible and accountable 
for using taxpayer funds efficiently and effectively. Despite the 
OIG's 2009 recommendation that IHS seek legislative authority to cap 
CHS program payments for nonhospital providers, including physicians, 
the agency has not pursued that authority. As a consequence, while 
other major federal health care payers have based their payment 
methodologies on Medicare, IHS still pays significantly higher billed 
charges for many services. Setting CHS program physician and other 
nonhospital payments at rates consistent with Medicare and the rates 
of these other federal agencies would enable IHS to achieve needed 
savings that could be used to expand patient access to health care. 
Moreover, given the possibility that a change in payment rates could 
affect access to care in certain areas, it is important that IHS put 
mechanisms in place to monitor patient access to care to assess how 
new payment rates may benefit or impede the availability of care.

Matter for Congressional Consideration: 

Congress should consider imposing a cap on payments for physician and 
other nonhospital services made through IHS's CHS program that is 
consistent with the rates paid by other federal agencies.

Recommendation for Executive Action: 

Should the Congress decide to cap payments for physician and other 
nonhospital services made through IHS's CHS program, we recommend that 
the Secretary of Health and Human Services direct the Director of IHS 
to monitor CHS program patient access to physician and other 
nonhospital care in order to assess how any new payment rates may 
benefit or impede the availability of care.

Agency Comments and Our Evaluation: 

We provided a draft of this report to HHS for review and received 
written comments, which are reprinted in appendix I. HHS agreed with 
our conclusions and our recommendation. Specifically, HHS indicated 
that implementing a cap on CHS program payments to physicians and 
other nonhospital services at Medicare rates would enable the CHS 
program to fund additional services. HHS also indicated that 
monitoring patient access to care in light of any payment changes is 
essential to providing high-quality health care to American Indians 
and Alaska Natives.

We are sending copies of this report to the Secretary of Health and 
Human Services and other interested parties. In addition, the report 
is available at no charge on the GAO website at [hyperlink, 
http://www.gao.gov].

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

Signed by: 

Kathleen M. King: 
Director, Health Care: 

List of Addressees: 

The Honorable Maria Cantwell: 
Chairman: 
The Honorable John Barrasso: 
Ranking Member: 
Committee on Indian Affairs: 
United States Senate: 

The Honorable Don Young: 
Chairman: 
The Honorable Colleen Hanabusa: 
Ranking Member: 
Subcommittee on Indian and Alaska Native Affairs: 
Committee on Natural Resources: 
House of Representatives: 

Tim Johnson: 
United States Senate: 

Lisa Murkowski: 
United States Senate: 

John Thune: 
United States Senate: 

[End of section] 

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

Department Of Health & Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

March 30, 2013: 

Kathleen King: 
Director, Health Care: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. King: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) report entitled, "Indian Health Service: Capping Payment Rates 
for Nonhospital Services Could Save Millions for Contract Health 
Services" (GAO-13-272). 

The Department appreciates the opportunity to review this report prior 
to publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

General Comments Of The Department Of Health And Human Services (HHS) 
On The Government Accountability Office's (GAO) Draft Report Entitled, 
"Indian Health Service: Capping Payment Rates For Nonhospital Services 
Could Save Millions For Contract Health Services" (GA0-13-272): 

The Department appreciates the opportunity to comment on this draft 
report. 

HHS is committed to improving the Indian Health Service's (IHS) 
Contract Health Services (CHS) program and has developed the following 
response to the GAO recommendation for executive action. 

Recommendation: 

Should the Congress decide to cap payments for physician and other 
nonhospital services made through IHS's CHS program, we recommend that 
the Secretary of Health and Human Services direct the Director of IHS 
to monitor CHS program patient access to physician and other 
nonhospital care in order to assess how any new payment rates may 
benefit or impede the availability of care. 

HHS Response: 

We concur with GAO's conclusions and recommendation. Implementing CHS 
program payments for physician and nonhospital services that are 
consistent with Medicare will enable the CHS program to fund 
additional needed services, However, CHS programs at the federal and 
tribal facilities will continue to be unable to pay for all eligible 
services despite increases in CHS program appropriated funds and the 
potential to provide additional services, as detailed in this report. 
Monitoring patient access to care as a result of any changes to 
payment rates is essential to providing quality health care to 
American Indian and Alaska Native patients.

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

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

Staff Acknowledgments: 

In addition to the contact name above, Catina Bradley, Assistant 
Director; Julianne Flowers; William Hadley; Sarah-Lynn McGrath; Lisa 
Motley; Laurie Pachter; and Michael Rose made key contributions to 
this report.

[End of section] 

Footnotes: 

[1] IHS defines an Indian tribe as any Indian tribe, band, nation, 
group, Pueblo, or community, including any Alaska Native village or 
Native group, which is federally recognized as eligible for the 
programs and services provided by the United States to Indians because 
of their status as Indians.

[2] The CHS program is funded through the annual appropriations 
process and must operate within the limits of its appropriations. 
Appropriations to IHS for the CHS program are apportioned by the 
Office of Management and Budget, allotted to area office directors, 
and further distributed through allowances to federal CHS programs or 
payments to tribal CHS programs.

[3] GAO, Indian Health Service: Health Care Services Are Not Always 
Available to Native Americans, [hyperlink, 
http://www.gao.gov/products/GAO-05-789] (Washington, D.C.: Aug. 31, 
2005).

[4] GAO, Indian Health Service: Increased Oversight Needed to Ensure 
Accuracy of Data Used for Estimating Contract Health Service Need, 
[hyperlink, http://www.gao.gov/products/GAO-11-767] (Washington, D.C.: 
Sept. 23, 2011).

[5] Medicare is the federal government's health insurance program for 
individuals aged 65 and older and for individuals with certain 
disabilities or end-stage renal disease.

[6] 51 Fed. Reg. 23,540 (June 30, 1986). The policy stated that while 
tribal programs were encouraged to adopt cost-containment measures, 
the policy applied only to federal CHS programs.

[7] Department of Health and Human Services, Office of Inspector 
General, Review of the Indian Health Service's Contract Health 
Services Program (Washington, D.C.: Jan. 21, 1999).

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

[9] Other nonhospital providers, for which the MLR requirement does 
not apply, include independent laboratories, ambulatory surgical 
centers, and independent ambulance providers.

[10] Department of Health and Human Services, Office of Inspector 
General, IHS Contract Health Services Program: Overpayments and 
Potential Savings (Washington, D.C.: September 2009).

[11] This work was also identified in a March 2009 request from the 
Senate Committee on Indian Affairs and individual members prior to the 
enactment of the Patient Protection and Affordable Care Act, which 
provided for the enactment of the Indian Health Care Improvement 
Reauthorization and Extension Act of 2009. See Pub. L. No. 111-148, § 
10221, 124 Stat. 119, 935 (2010) (enacting S. 1790, as reported by the 
Committee on Indian Affairs in the Senate in December 2009, into law 
with amendments); S. 1790, 111th Cong. § 199 (2009).

[12] The federal CHS programs account for approximately 46 percent of 
total CHS program payments, and their claims are administered by a 
single fiscal intermediary that contracts with IHS. We did not examine 
claims data from the tribal CHS programs, which account for the 
remaining 54 percent of total CHS program payments. Tribal CHS 
programs operate their programs independently and do not use a single 
fiscal intermediary.

[13] The Medicare Physician Fee Schedule contains fees for each of 
over 7,000 physician services, such as office visits, surgical 
procedures, and tests. Each service is identified by a single billing 
code from the Healthcare Common Procedure Coding System, which is a 
standardized coding system that physicians use to bill for procedures 
provided in the delivery of health care. A single claim may contain 
multiple services. Other nonhospital services, such as ambulatory 
surgical center services, are priced by Medicare using different 
methodologies.

[14] These physician services comprised about 55 percent of the 
nonhospital services for which the CHS program was the primary payer.

[15] In addition, when pricing these services, we applied Medicare 
payment modifiers that were also used by IHS's fiscal intermediary 
when paying contracted physicians at Medicare rates. These modifiers 
included modifiers for the technical and professional components, as 
well as modifiers for assistant at surgery, bilateral surgery, and co-
surgeon. In addition, we applied Medicare's diagnostic imaging 
adjustment, which requires that payment for certain imaging services 
under the Medicare Physician Fee Schedule not exceed what Medicare 
pays for these services performed in hospital outpatient departments. 
We did not apply Medicare policies that aim to reduce inappropriate 
payments, such as those developed by the National Correct Coding 
Initiative, Medicare incentive payments, such as bonuses for services 
provided in a Health Professional Shortage Area, or Medicare coverage 
policies, such as national coverage determinations.

[16] IHS's claims processing system does not collect the information 
necessary for us to determine whether a physician service should be 
paid at facility (such as a hospital) or nonfacility (such as a 
physician's office) Medicare rates. When paying contracted physicians 
at Medicare rates, IHS categorizes all physician claims as 
nonfacility, even if they were provided in a facility. Therefore, we 
used a combination of other variables to approximate whether the 
service was provided in a facility. This methodology may not have 
identified all facility claims. Since Medicare generally pays less for 
services provided in a facility, our estimate of what Medicare would 
have paid for these same services may be higher than we would have 
estimated if this information were available.

[17] For the purpose of these interviews, the term "physician" refers 
to an entity, rather than an individual. The entities that we selected 
using CHS program claims data could have been a single physician or a 
physician group. After we initially contacted the selected entity, we 
were directed to the most appropriate individual to interview about 
payment issues. These identified individuals included the physician, 
the physician's billing staff, or administrative staff.

[18] Residence in a CHSDA is generally a requirement for individuals 
to have their services paid through the CHS program. (See figure 1 for 
a map of counties designated by IHS as CHSDAs.)

[19] We identified counties as urban or rural according to the U.S. 
Department of Agriculture's rural-urban continuum coding system. 
Specifically, we defined urban counties as those with a population of 
20,000 or more. We defined rural counties as those with a population 
of less than 20,000.

[20] We planned to select 5 physicians from each list. Because of a 
low response rate among rural physicians, we ultimately interviewed 4 
rural physicians and 6 urban physicians.

[21] Although these physicians were selected on the basis of their 
interactions with federally operated CHS programs, their comments 
could pertain to either federal or tribal CHS programs, as some 
physicians interacted with both types of programs and we did not ask 
them to differentiate between program type during the interviews.

[22] We identified counties as urban or rural according to the U.S. 
Department of Agriculture's rural-urban continuum coding system. 
Specifically, we defined urban counties as those with a population of 
20,000 or more. We defined rural counties as those with a population 
of less than 20,000.

[23] Although these hospitals were selected on the basis of their 
interactions with federally operated CHS programs, their comments 
could pertain to either federal or tribal CHS programs, as some 
hospitals interacted with both types of programs and we did not ask 
them to differentiate between program type during the interviews.

[24] IHS's 12 area offices are Aberdeen, Alaska, Albuquerque, Bemidji, 
Billings, California, Nashville, Navajo, Oklahoma City, Phoenix, 
Portland, and Tucson.

[25] Under the Indian Self-Determination and Education Assistance Act, 
as amended, federally recognized Indian tribes can enter into self-
determination contracts or self-governance compacts with the Secretary 
of Health and Human Services to take over administration of IHS 
programs for Indians because of their status as Indians previously 
administered by IHS on their behalf. Self-governance compacts allow 
tribes to consolidate and assume administration of all programs, 
services, activities, and competitive grants administered throughout 
IHS, or portions thereof, that are carried out for the benefit of 
Indians because of their status as Indians. Self-determination 
contracts allow tribes to assume administration of a program, 
programs, or portions thereof. See 25 U.S.C. §§ 450f(a) (self-
determination contracts), 458aaa-4(b)(1) (self-governance compacts).

[26] IHS has established four broad medical priority levels of health 
care services eligible for payment and a fifth for excluded services 
that cannot be paid for with CHS program funds. Priority level I 
services are the highest priority services and include 
emergent/acutely urgent care services, such as trauma care, 
acute/chronic renal replacement therapy, obstetrical delivery, and 
neonatal care.

[27] See 25 U.S.C. §§ 1621e, 1623; 42 C.F.R. § 136.61. There are 
certain exemptions to the CHS program's designation as a payer of last 
resort. For example, certain tribally funded insurance plans are not 
considered alternate resources and the CHS program must pay for care 
before billing the tribally funded insurance plan. The CHS program 
must also pay for care provided to eligible American Indians and 
Alaska Natives before the crime victim compensation program, a federal 
program that provides compensation to victims and survivors of 
criminal violence.

[28] Other types of nonhospital services include those provided by 
independent laboratories, free-standing ambulatory surgical centers, 
and independent ambulance providers.

[29] 51 Fed. Reg. 23,540 (June 30, 1986).

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

[31] 56 Fed. Reg. 10,566 (Mar. 13, 1991).

[32] Federal CHS programs paid the remaining $44.1 million (about 17 
percent of total payments) for hospital and nonhospital services where 
the CHS program was not the primary payer. CHS program patients may 
qualify for other forms of insurance and, as the CHS program is the 
payer of last resort, the program is sometimes not the primary payer. 
However, the majority of payments from federal CHS programs to 
providers are for services for which the CHS program is the primary 
payer.

[33] We isolated physician services by excluding other nonhospital 
services that were not covered by the 2010 Medicare Physician Fee 
Schedule. We also excluded services provided by anesthesiologists.

[34] About one-quarter of Medicare beneficiaries are covered by 
Medicare Advantage, rather than the traditional Medicare program. 
Under Medicare Advantage, CMS provides private insurance plans with a 
monthly amount per beneficiary that is adjusted to reflect beneficiary 
health status.

[35] Medicare Payment Advisory Commission, Report to the Congress: 
Medicare Payment Policy (Washington, D.C.: March 2012).

[36] In fiscal year 2010, DOD offered health care to over 9.5 million 
eligible beneficiaries through TRICARE. Under TRICARE, eligible 
beneficiaries may obtain care either from military hospitals and 
clinics, referred to as military treatment facilities, or from 
civilian providers.

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

[38] See 38 C.F.R. § 17.56. VA spent approximately $45 billion in 
fiscal year 2010 to provide health care to about 5 million veterans. 
Of this, approximately $4 billion was paid to non-VA providers, 
generally for services that were not available at VA facilities.

[39] Prior to this change, VA paid Medicare rates for hospital 
services and physician services covered by rates listed on the 
Medicare Physician Fee Schedule for participating physicians. The 
agency now pays Medicare rates for nonhospital services covered by 
other Medicare payment methodologies, such as Ambulatory Surgical 
Center Payment and the Clinical Laboratory Fee Schedule. If VA has 
negotiated a specific amount with a provider, VA will pay that amount 
instead of Medicare rates.

[40] 75 Fed. Reg. 78,901 (Dec. 17, 2010) (amending 38 C.F.R. §§ 17.52, 
17.56).

[41] See, for example, GAO, Medicare Physician Services: Utilization 
Trends Indicate Sustained Beneficiary Access with High and Growing 
Levels of Access in Some Areas of the Nation, [hyperlink, 
http://www.gao.gov/products/GAO-09-559] (Washington, D.C.: Aug. 28, 
2009); GAO, Medicare Physician Services: Use of Services Increasing 
Nationwide and Relatively Few Beneficiaries Report Major Access 
Problems, [hyperlink, http://www.gao.gov/products/GAO-06-704] 
(Washington, D.C.: July 21, 2006); and Medicare Payment Advisory 
Commission, Report to the Congress: Medicare and the Health Care 
Delivery System (Washington, D.C.: June 2012).

[42] See, for example, [hyperlink, 
http://www.gao.gov/products/GAO-06-704] and Medicare Payment Advisory 
Commission, Report to the Congress: Medicare and in Rural America 
(Washington, D.C.: June 2001).

[43] Medicare Payment Advisory Commission, Report to the Congress: 
Medicare and in Rural America and Center for Studying Health System 
Change, Physician Acceptance of New Medicare Patients Stabilized in 
2004-05 (Washington, D.C.: January 2006).

[44] See, for example, GAO, Defense Health Care: TRICARE Multiyear 
Surveys Indicate Problems with Access to Care for Nonenrolled 
Beneficiaries, [hyperlink, http://www.gao.gov/products/GAO-13-364] 
(Washington, D.C.: April 2, 2013); GAO, Defense Health Care: Access to 
Civilian Providers under TRICARE Standard and Extra, [hyperlink, 
http://www.gao.gov/products/GAO-11-500] (Washington, D.C.: June 2, 
2011) and Defense Health Care: Across-the-Board Physician Rate 
Increases Would be Costly and Unnecessary, [hyperlink, 
http://www.gao.gov/products/GAO-01-620] (Washington, D.C.: May 24, 
2001).

[45] Under the VA Alaska Fee Schedule the amount paid in Alaska for 
each service is 90 percent of the average amount VA actually paid in 
Alaska for the same services in fiscal year 2003, adjusted annually 
for inflation. In 2003, VA had been paying providers in Alaska at 
about 75 percent of their billed charges. DOD calculated that, on 
average in 2006, VA reimbursement rates in Alaska were 35 percent 
higher than DOD rates and 73 percent higher than Medicare rates. 
Therefore, in 2007, DOD increased its payment rates in Alaska to bring 
them in line with those paid by VA.

[46] [hyperlink, http://www.gao.gov/products/GAO-11-500] and 
[hyperlink, http://www.gao.gov/products/GAO-01-620].

[47] In recognition of these challenges, a task force consisting of 
members from several agencies--including DOD, VA, CMS, and IHS--has 
examined how federal agencies with responsibility for health care 
services in Alaska are meeting the needs of Alaskans. In September 
2010, the task force issued its report recommending that, among other 
things, federal agencies should support the development of a uniform 
provider payment rate for similar services for Medicare, DOD, and VA. 
See Report to Congress of the Interagency Access to Health Care in 
Alaska Task Force (Sept. 17, 2010).

[48] [hyperlink, http://www.gao.gov/products/GAO-09-559] and GAO, End-
Stage Renal Disease: CHS Should Monitor Access to and Quality of 
Dialysis Care Promptly after Implementation of New Bundled Payment 
System, [hyperlink, http://www.gao.gov/products/GAO-10-295] 
(Washington, D.C.: Mar. 31, 2010).

[49] See Pub. L. No. 108-136, § 723, 117 Stat. 1392, 1532-34 (2003), 
and S. Rep. No. 108-46, at 330 (2003).

[50] See Pub. L. No. 110-181, § 711(a), 122 Stat. 3, 190-191 (2008). 
DOD was directed to conduct these annual surveys from fiscal year 2008 
through 2011. The agency has since been directed to continue these 
annual surveys of beneficiaries and civilian providers through 2015. 
See Pub. L. No. 112-81, § 721(a), 125 Stat. 1298, 1479 (2011).

[51] Some research indicates that uninsured patients rarely pay billed 
charges, and amounts charged to them may be heavily discounted based 
on charity care or other reduced payment programs. See GAO, Health 
Care Price Transparency: Meaningful Price Information Is Difficult for 
Consumers to Obtain Prior to Receiving Care, [hyperlink, 
http://www.gao.gov/products/GAO-11-791] (Washington, D.C.: Sept. 23, 
2011) and Mark Merlis, "Health Care Price Transparency and Price 
Competition," National Health Policy Forum (Mar. 28, 2007).

[52] The total number of unique physicians is 3,531. However, 70 
contracted physicians were also paid at billed charges for some 
services and are included in the totals for both the contracted and 
noncontracted physicians. For example, a physician may have negotiated 
with IHS to provide a specific service at a contracted rate, but all 
other services provided by the physician were paid at billed charges.

[53] Fifty-nine contracted physicians and 376 noncontracted physicians 
were paid for services by more than one area office. For example, some 
physicians practiced in a geographic area that serves federal CHS 
programs in multiple IHS areas.

[54] The total number of unique other nonhospital providers was 3,590. 
However, 62 contracted providers were also paid at billed charges for 
some services and are included in the totals for both the contracted 
and noncontracted providers. For example, a provider may have 
negotiated with IHS to provide a specific service at a contracted 
rate, but all other services provided by the provider were paid at 
billed charges. In addition, 1,833 of the 3,590 providers of other 
nonhospital services also provided physician services that were 
covered by the Medicare Physician Fee Schedule. These providers are 
therefore also included in the total number of physicians.

[55] Officials from IHS's fiscal intermediary said that, to help them 
determine IHS's savings due to contracts, they encourage contracted 
physicians to bill federal CHS programs at their full billed charges, 
and then the federal CHS programs pay the providers according to their 
contracted rates. However, some contracted physicians instead bill 
federal CHS programs according to their contracted rates. In the 2010 
claims data, 204 out of 516 contracted physicians billed the federal 
CHS programs at the same rate they were paid under their contract and 
received payments from IHS totaling $512,915.Therefore, our estimate 
of $16.7 million in physician contract savings, which is the 
difference between the physicians' billed charges and the payments 
received, may underestimate IHS's total savings due to contracts with 
physicians.

[56] Officials from IHS's fiscal intermediary said that, to help them 
determine IHS's savings due to contracts, they encourage other 
nonhospital providers with contracts to bill federal CHS programs at 
their full billed charges and then the federal CHS programs pay the 
nonhospital providers according to their contracted rates. However, 
some nonhospital providers with contracts instead bill federal CHS 
programs according to their contracted rates. In the 2010 claims data, 
164 out of 507 contracted nonhospital providers billed the federal CHS 
programs at the same rate they were paid under their contract and 
received payments from IHS totaling $4,160,153. Therefore, our 
estimate of $25.3 million in nonhospital provider contract savings, 
which is the difference between the providers' billed charges and the 
payments received, may underestimate IHS's total savings due to 
contracts with other types of nonhospital providers.

[57] The proportion of payments for other types of nonhospital 
services that were paid at billed charges was similar to physician 
services. Although we did not compare payments for other types of 
nonhospital services to Medicare rates, if we assume payment trends 
for these services are similar to physician services, we estimate that 
federal CHS programs could have saved an additional $26.4 million for 
services provided in 2010. In addition, tribal CHS programs receive 
about 54 percent of CHS program funds and IHS officials have indicated 
that tribes have been less likely than federal CHS programs to 
contract with providers for reduced rates. If we assume that 
contracting and payment trends for tribal CHS programs are similar to 
federal CHS programs, we estimate that tribal CHS programs could have 
saved an additional $68.2 million for services provided in 2010 if 
their physician and other nonhospital services were paid at Medicare 
rates. Therefore, we estimate that federal and tribal CHS programs 
could have saved a total of about $126.4 million if all physician and 
other nonhospital services provided in 2010 were paid at Medicare rates.

[58] See Department of Health and Human Services, Office of Inspector 
General, IHS Contract Health Services Program: Overpayments and 
Potential Savings (September 2009).

[59] We considered IHS payment amounts that were within 10 percent of 
the Medicare rates to be similar to the Medicare rates.

[60] To account for any variation in payments due to geographic 
location, we compared only those physician services from the federal 
CHS program claims data that were provided in the same county as those 
in the private insurance claims data. Therefore, of the 246,273 total 
physician services in the CHS program data, we identified 231,099 
(about 94 percent) services that were provided by private insurers in 
the same counties. We were unable to compare physician services for 
$11.0 million in payments from the federal CHS programs' claims to the 
private insurance claims because these services were not provided in 
the same county.

[61] CHS program-eligible patients may have constituted a greater 
proportion of physicians' patient mix than patients whose services 
were paid for by the CHS program, as some CHS program patients have 
other forms of insurance, including Medicare, Medicaid, and private 
insurance, which would have served as the primary payer.

[62] Of the four physicians who contracted with IHS to be paid at or 
below Medicare rates, some provided a small number of services that 
were paid by the CHS program at billed charges.

[63] Medicaid physician fees vary by state, but are generally less 
than the fees paid by Medicare in that state. See Stephen Zuckerman, 
Aimee Williams, and Karen Stockley, "Trends in Medicaid Physician 
Fees, 2003-2008," Health Affairs, vol. 28, no. 3 (2009).

[64] This is consistent with findings from MedPAC that most physicians 
are accepting new patients, although fewer physicians are accepting 
new Medicaid patients than Medicare and privately insured patients. In 
addition, MedPAC reported that physicians in rural areas were more 
likely than those in urban areas to accept new patients of all 
insurance types and physicians who classified themselves in surgical 
or medical specialties were more likely than primary care physicians 
to accept new Medicare and privately insured patients. Medicare 
Payment Advisory Commission, Report to the Congress: Medicare Payment 
Policy.

[65] This physician said he provides care in rural health clinics, 
which are paid by Medicare on the basis of their costs. The physician 
said these cost-based payments are three times higher than the 
Medicare Physician Fee Schedule payments he receives from the CHS 
program.

[66] The Medicare Physician Fee Schedule is updated annually under the 
sustainable growth rate system, with the intent of limiting the total 
growth in Medicare spending for physician services over time. Because 
of rapid growth in Medicare spending for physician services, the 
sustainable growth rate has called for fee reductions since 2002. 
However, the Congress has averted such fee reductions for 2003 through 
2013. Under current law, Medicare's fees to physicians are scheduled 
to be reduced by about 27 percent in 2014. See 42 U.S.C. § 1395w-4(d).

[67] [hyperlink, http://www.gao.gov/products/GAO-11-767].

[68] We interviewed officials from 10 hospitals, but we are only 
discussing the views of 9. We excluded 1 hospital because the 
officials had little knowledge of the CHS program, the rates that it 
paid, or if it has contracted with IHS for negotiated rates. The 
officials from this hospital indicated that it receives less than 3 
percent of its payments from the CHS program.

[69] In 2010, federal CHS programs paid these nine hospitals $12.5 
million, which was $50.5 million less than their billed charges. 
Nationally, federal CHS programs paid $119.5 million for hospital 
services subject to MLR and these payments were $444.0 million less 
than the rate billed by hospitals.

[70] In comparison, four of the hospitals indicated that Medicare and 
Medicaid constituted the majority of their payments (53 to 70 
percent), while these payers constituted 29 to 46 percent of payments 
for the other five hospitals. Private insurance accounted for between 
19 and 61 percent of total payments for all nine hospitals.

[71] This trend is similar to the overall CHS program, as, according 
to IHS officials, many hospitals were already being paid at or near 
Medicare rates prior to implementation of the MLR requirement. 

[72] EMTALA requires most hospitals to provide an examination and 
needed stabilizing treatment, without consideration of insurance 
coverage or ability to pay, when a patient presents to an emergency 
room for attention to an emergency medical condition. See generally 42 
U.S.C. § 1395dd.

[73] Medicare designates some small, rural hospitals as CAHs, which 
allows them to be paid at higher rates under a different payment 
methodology.

[74] Medicare pays CAHs for inpatient and outpatient services at 101 
percent of reasonable costs. Hospitals report these costs through the 
Medicare cost report. Because there is a delay between the start of a 
fiscal year and when that year's cost report is audited and finalized, 
hospitals submit interim reports to update their costs.

[75] IHS requires the use of a closed or completed cost report 
available at the time services are provided as the basis for its 
payment rates to CAHs. IHS officials indicated that the CHS program 
does not use an interim cost report to set rates. The CHS program 
depletes its annual funding and IHS officials, therefore, indicated 
that the program is unable to retrospectively increase provider 
payments in response to a completed cost report updated for the year 
in which the services were provided. However, IHS does make 
retrospective adjustments to recover overpayments. See 42 C.F.R. §§ 
136.30(c)(2), 136.32(b).

[76] We previously reported that a selection of hospital and office-
based providers described similar burdens resulting from their 
interactions with the CHS program, including challenges in determining 
patient eligibility for CHS payment of services, in obtaining CHS 
payment, and in receiving communications on CHS policies and 
procedures from IHS related to payment. See [hyperlink, 
http://www.gao.gov/products/GAO-11-767].

[77] IHS has also acknowledged that reductions in the availability of 
services at facilities operated by IHS increase the need for tribes to 
use the CHS program to purchase care from external providers. In its 
2012 budget justification, IHS noted that due to insufficient workload 
or service populations, five hospitals operated through IHS funding 
had been or are planned to be replaced by ambulatory health centers 
with no inpatient services. As a result, tribes in these areas will be 
required to purchase inpatient care from external providers through 
the CHS program in order to maintain the same level of services.

[78] Officials from three area offices indicated that they continue to 
enter into contracts with hospitals because these contracts have other 
benefits, such as helping to build relationships and share patient 
information, which improves patient care and payment processing.

[79] Priority level I services include emergent/acutely urgent care 
services, such as trauma care, acute/chronic renal replacement 
therapy, obstetrical delivery, and neonatal care. Priority level II 
includes preventive care services, such as preventive ambulatory care, 
routine prenatal care, and screening mammograms.

[80] CHEF is administered by IHS headquarters to reimburse federally 
and tribally operated facilities for their CHS program expenses from 
paying for the costs associated with treating catastrophic illness or 
victims of natural disasters.

[81] Officials from the other area office indicated that their goal is 
to contract with as many providers as is feasible, but did not address 
whether they would be able to expand their current efforts.

[82] 56 Fed. Reg. 10,566 (Mar. 13, 1991).

[83] According to IHS officials, CHS programs are expected to actively 
manage their funds in order to maximize the care that can be 
purchased. They said that most CHS programs establish budgets as a way 
to help ensure that funds are available throughout the year.

[84] Officials from the other five area offices cited nonfinancial 
benefits of having contracts with providers, including increased 
continuity of care arising from the ability to refer a patient to the 
same facility as often as necessary; the opportunity to investigate, 
pursuant to contractual provisions, whether adequate and appropriate 
care and customer service was provided; and the ability to specify the 
CHS program's requirements for payment.

[85] The other two area offices indicated that they did not expect a 
cap on nonhospital services to create any problems with patient access 
to care.

[86] BCBSNM officials noted, for example, that because they currently 
pay few nonhospital claims at Medicare rates, they generally process 
such claims manually. If all nonhospital claims were required to be 
paid at Medicare rates, they would have to update their system to 
capture the claims data necessary to automatically process these claims.

[End of section] 

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