Financing a Tribal Health Program

A Health Director does not have to be an accountant, but a Health Director has to understand how the health program is financed.

The first lesson is simple:

Health care money is not all the same, and the Health Director does not control all of it.

A Tribal health program operates within the financial structure of Tribal government. Under P.L. 93-638 contracting or compacting, federal health program funds are received and administered by the Tribe. The Health Director is responsible for managing the health program within the authority, policies, and resources established by the Tribal government.

Understanding that relationship is essential.

Where the money comes from

A Tribal health program may have many sources of revenue, including:

Indian Health Service funding.
Medicaid.
Medicare.
Private insurance and other third-party revenue.
Grants and cooperative agreements.
Tribal appropriations.
Patient payments and other program revenue.

These sources do not necessarily have the same rules, restrictions, or purposes.

Some funds may be restricted to particular activities. Some require specific reporting. Some can support broad health-program operations. Others can only be used for particular services or purposes.

The Health Director needs to understand those differences.

The Health Director does not control all of the money

It is tempting to think of the Health Director as the person who controls the health program’s budget.

That is usually not quite right.

The Health Director manages the health program, but the Tribal government establishes the broader financial and administrative structure in which the program operates.

Human resources, finance, purchasing, legal services, information technology, facilities, and other central Tribal government functions may support the health program without being part of the health program’s own budget.

This distinction becomes especially important when discussing Contract Support Costs.

Contract Support Costs

Contract Support Costs are often misunderstood because they are sometimes described simply as additional money for the health program.

That is not quite the right way to think about them.

Contract Support Costs are intended to support the costs a Tribe incurs in carrying out a federal program under a self-determination or self-governance agreement. Some of those costs are associated with services provided by the Tribal government outside the health program itself.

For example, the Tribal government may provide:

Human resources.
Accounting and finance.
Legal services.
Information technology.
Purchasing.
Personnel administration.
Other central administrative or management functions.

Those functions have costs even though they may not appear as clinical services.

This is one reason Contract Support Costs should not simply be viewed as another pot of money that the Health Director can use for additional clinical services.

The Health Director may depend on those Tribal government services every day without controlling their budgets directly.

When I explained Contract Support Costs to Congressional staff, I sometimes described them in very simple terms:

“Think of it as indirect cost plus 20%.”

It was not a technical definition. It was a way of making the basic concept understandable: operating a federally supported Tribal program creates administrative and support costs beyond the direct cost of providing the service.

The important management point is that the health program and the Tribal government are financially interconnected.

Third-party revenue

Medicaid, Medicare, private insurance, and other third-party revenue are different from federal program funding.

Collecting third-party revenue requires infrastructure.

The program needs appropriate eligibility processes, registration, documentation, coding, billing, claims management, follow-up, and financial reporting.

A Tribal health program can therefore lose substantial revenue without anyone intentionally mismanaging money. A vacant billing position, inadequate information systems, poor documentation, or an eligibility problem can all affect collections.

Third-party revenue is also important because it can help expand the resources available to provide health services.

Revenue is not the same as profit

A Tribal health program is not a business whose objective is to maximize profit.

But financial sustainability still matters.

A program has to pay its employees, maintain facilities, purchase supplies and equipment, support information systems, meet administrative obligations, and provide services over time.

A program that spends more than it can sustainably support will eventually have to reduce services, seek additional Tribal support, or make other changes.

Financial management is therefore part of health-program management.

Fixed and variable costs

Health Directors should understand which costs are relatively fixed and which can change as services change.

Personnel costs, facilities, information systems, insurance, and other commitments may continue even when patient volume changes.

Other costs may increase when the program provides more services.

This matters when considering a new program or service.

Hiring one provider, for example, may create additional costs for support staff, space, equipment, supplies, billing, information systems, and administrative support.

The cost of a service is therefore usually more than the salary of the person providing it.

Financial information should support decisions

A Health Director should be able to answer basic questions:

What resources are available?
What are they intended to support?
What obligations has the program already taken on?
What services are costing more than expected?
Where is revenue being lost?
What services are growing?
What staffing commitments are sustainable?
What additional resources will a proposed service require?

These are management questions, not merely accounting questions.

The Health Director does not need to prepare every financial report. But the Health Director needs to understand what the reports mean well enough to make informed decisions.

The relationship with Tribal finance

The Health Director and Tribal finance staff have different responsibilities, but they need to work closely together.

Finance staff may be responsible for accounting, financial controls, reporting, and compliance.

The Health Director is responsible for understanding the health program’s operational needs and making decisions within the authority provided by Tribal government.

Problems occur when either side assumes the other is responsible for everything.

Good financial management requires both.

What Tribal Council should see

Tribal leadership needs financial information that is understandable and useful.

A budget document full of accounting terminology may satisfy a reporting requirement without helping Tribal leaders understand what is actually happening.

Tribal Council should be able to see:

What the health program receives.
What it spends.
What obligations it has.
What services those resources support.
Where major financial pressures are developing.
What additional resources may be needed.
What choices are available to the Tribe.

The purpose of financial reporting is not simply to demonstrate that money was spent correctly.

It should help Tribal leadership make decisions.

A practical management principle

A financially healthy Tribal health program is not necessarily the program with the most money.

It is a program that understands its resources, knows the purposes and restrictions attached to those resources, collects the revenue to which it is entitled, manages its obligations, and makes clear choices about what it can sustainably provide.

The Health Director’s job is to understand the financial environment well enough to manage the health program responsibly—and to explain its needs clearly to Tribal leadership.

Under P.L. 93-638 contracting or compacting, the health program does not exist financially apart from the Tribal government. It is part of the Tribal government.

Understanding that relationship is fundamental to managing a Tribal health program.

For the research behind this page, see the Indian Health Financing Series.

Further reading: The IHS-OMB Rate and FMAP explains the difference between what a program is paid for a Medicaid visit and who pays for it. Making Indian Health Financing Policy traces how Indian health financing policies get adopted, and includes a section on compliance and the compliance officer’s place in a Tribal health program.