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entitled 'U.S. Insular Areas: Multiple Factors Affect Federal Health 
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Report to Congressional Requesters: 

United States Government Accountability Office: 

GAO: 

October 2005: 

U.S. Insular Areas: 

Multiple Factors Affect Federal Health Care Funding: 

GAO-06-75: 

GAO Highlights: 

Highlights of GAO-06-75, a report to congressional requesters: 

Why GAO Did This Study: 

Five insular areas of the United States—American Samoa, the 
Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto Rico, 
and the U.S. Virgin Islands—benefit from federal health care financing 
and grant programs that help fund health care services to their over 4 
million residents. However, notable differences exist in how the 
programs are funded or operate in the insular areas, such as statutory 
limits on federal Medicaid funding to the insular areas that do not 
apply in the states. To help understand these differences, GAO was 
asked to identify (1) the key sources of federal health care funding in 
the insular areas, (2) differences between insular areas and the states 
in the methods used to allocate these funds, and (3) differences in 
spending levels per individual between insular areas and the states. 

In commenting on a draft of this report, American Samoa, CNMI, and 
Puerto Rico suggested the need for additional information on certain 
issues, such as implications of statutory limits on federal Medicaid 
spending and a more comprehensive analysis of local circumstances that 
affect the availability and costs of health care services. 

What GAO Found: 

Multiple federal programs fund health care services in the insular 
areas. Federal health care financing programs—Medicare, Medicaid, and 
the State Children’s Health Insurance Program (SCHIP)—represented 
nearly 90 percent of the $2.2 billion in health care funding to these 
areas in fiscal year 2003, with Medicare alone representing over three-
quarters of total funding. The Departments of Health and Human Services 
(HHS) and the Interior (DOI) also provide grants to the insular areas. 
Significant variation exists among the insular areas in terms of the 
distribution of funds by these sources, largely due to the number of 
Medicare beneficiaries in each area. 

Key Federal Health Care Funding Sources to Five Insular Areas, by 
Percentage, Fiscal Year 2003: 

[See PDF for image] 

[End of figure] 

The methods used to allocate these federal funds to insular areas often 
differ from methods used in the states. For example, Medicare pays 
hospitals in most insular areas based on their costs rather than the 
prospective payment system used for most hospitals in the states. 
Similarly, federal funding for Medicaid and SCHIP is subject to 
statutory limits that do not apply to states, including minimum federal 
contributions and a cap on federal Medicaid payments. In addition, 
certain HHS grants use different rules to determine insular areas’ 
funding. 

Differences in allocation methods as well as other factors contribute 
to lower spending levels per individual in the insular areas compared 
to the states. For example, Medicare spending per beneficiary in the 
insular areas was less than half the amount it was in the states, due 
in part to differences in payment policies and to beneficiaries’ lower 
utilization of services. In addition, the statutory limits on federal 
Medicaid funding in these areas contributed to lower federal Medicaid 
per capita payments in the five insular areas compared to the national 
average. However, in light of limits on federal funding, the insular 
areas are not held accountable for covering all Medicaid benefit 
requirements, such as nursing facility services that represent nearly 
one-third of Medicaid expenditures in the states. Insular areas benefit 
from certain HHS grant allocation formulas that result in higher per 
capita payments to them than the states, on average. 

www.gao.gov/cgi-bin/getrpt?GAO-06-75. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kathryn G. Allen at (202) 
512-7118 or allenk@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Multiple Federal Agencies Fund Health Care Services in Insular Areas: 

Notable Differences Exist in Methods Used to Allocate Federal Health 
Care Funds in the Insular Areas Compared to the States: 

Multiple Factors Explain Differences in Individual Spending Levels in 
Insular Areas Compared to the States: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Changes in Insular Area Health Care Funding Proportions 
over Time: 

Appendix III: Characteristics of Insular Areas' Medicaid Programs: 

Appendix IV: Comments from the Department of the Interior: 

Appendix V: Comments from American Samoa: 

Appendix VI: Comments from the Commonwealth of the Northern Mariana 
Islands: 

Appendix VII: Comments from the Commonwealth of Puerto Rico: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Medicare-Certified Healthcare Providers and Hospital Beds in 
Insular Areas and States, January 2005: 

Table 2: Formula Components for CDC's Public Health Preparedness and 
Response for Bioterrorism Grant: 

Table 3: Mandatory Medicaid Services Covered by Insular Areas and 
States, Fiscal Year 2005: 

Table 4: Federal Health Care Spending for Five Insular Areas, Fiscal 
Years 1999 through 2003: 

Table 5: Federal Health Care Spending for American Samoa, Fiscal Years 
1999 through 2003: 

Table 6: Federal Health Care Spending for CNMI, Fiscal Years 1999 
through 2003: 

Table 7: Federal Health Care Spending for Guam, Fiscal Years 1999 
through 2003: 

Table 8: Federal Health Care Spending for Puerto Rico, Fiscal Years 
1999 through 2003: 

Table 9: Federal Health Care Spending for the Virgin Islands, Fiscal 
Years 1999 through 2003: 

Table 10: Comparison of Federal Medicaid Categorical and Income 
Eligibility Standards to Insular Area Standards, Fiscal Year 2004: 

Table 11: Summary of Certain Optional Medicaid Services Covered by 
Insular Areas and States, Fiscal Year 2005: 

Figures: 

Figure 1: Insular Areas and United States Demographics and Health 
Indicators: 

Figure 2: Key Federal Health Care Funding Sources for Five Insular 
Areas, Fiscal Year 2003: 

Figure 3: Key Federal Health Care Funding Sources by Insular Area, 
Fiscal Year 2003: 

Figure 4: Medicare Spending Per Beneficiary in Five Insular Areas 
Compared to the States, Fiscal Year 2003: 

Figure 5: Number of Medicare Part B Major Medical Procedures Per 1,000 
Beneficiaries in Selected States and Insular Areas, Calendar Year 2003: 

Figure 6: Federal Medicaid Per Capita Funding in Selected States and 
Insular Areas, Fiscal Year 2003: 

Figure 7: Per Capita Funding to Insular Areas and Selected States for 
CDC's Bioterrorism Grant, Fiscal Year 2003: 

Figure 8: Ratio of Federal Funding Sources for Five Insular Areas, 
Fiscal Years 1999 through 2003: 

Figure 9: Ratio of Federal Health Care Funding Sources for American 
Samoa, Fiscal Years 1999 through 2003: 

Figure 10: Ratio of Federal Health Care Funding Sources for CNMI, 
Fiscal Years 1999 through 2003: 

Figure 11: Ratio of Federal Health Care Funding Sources for Guam, 
Fiscal Years 1999 through 2003: 

Figure 12: Ratio of Federal Health Care Funding Sources for Puerto 
Rico, Fiscal Years 1999 through 2003: 

Figure 13: Ratio of Federal Health Care Funding Sources for the Virgin 
Islands, Fiscal Years 1999 through 2003: 

Abbreviations: 

AS: American Samoa: 
CDC: Centers for Disease Control and Prevention: 
CMS: Centers for Medicare & Medicaid Services: 
CNMI: Commonwealth of the Northern Mariana Islands: 
DOI: Department of the Interior: 
DSH: disproportionate share hospital: 
EPSDT: Early and Periodic Screening, Diagnostic, and Treatment: 
ESRD: end stage renal disease: 
FMAP: federal medical assistance percentage: 
FPL: federal poverty level: 
FQHC: federally qualified health center: 
GU: Guam: 
HHS: Department of Health and Human Services: 
HIV: human immunodeficiency virus: 
HIPAA: Health Insurance Portability and Accountability Act of 1996: 
HPSA: health professional shortage area: 
HRSA: Health Resources and Services Administration: 
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 
MUA: medically underserved areas: 
NF: nursing facility: 
NIH: National Institutes of Health: 
OIA: Office of Insular Affairs: 
PPS: prospective payment system: 
PR: Puerto Rico: 
PSA: physician scarcity areas: 
RHC: rural health clinic: 
SAMHSA: Substance Abuse and Mental Health Services Administration: 
SCHIP: State Children's Health Insurance Program: 
SSI: Supplemental Security Income: 
TAGGS: Tracking Accountability in Government Grants System: 
TEFRA: Tax Equity and Fiscal Responsibility Act of 1982: 
VI: Virgin Islands: 

United States Government Accountability Office: 

Washington, DC 20548: 

October 14, 2005: 

Congressional Requesters: 

The five largest insular areas of the United States--American Samoa, 
the Commonwealth of the Northern Mariana Islands (CNMI), Guam, Puerto 
Rico, and the U.S. Virgin Islands--and their more than 4 million 
residents have a unique relationship with the federal 
government.[Footnote 1] With the exception of American Samoa, those 
born in the insular areas are U.S. citizens; however, insular area 
residents are not afforded all of the rights of citizens residing in 
the 50 states.[Footnote 2],[Footnote 3] Although numerous federal 
health care financing and social programs--including Medicare, the 
federal health care program for the elderly and disabled, and Medicaid, 
the joint federal-state program that finances health care for certain 
low-income individuals--have been extended to insular area residents to 
varying degrees, notable differences exist in how these programs are 
funded or operate in the insular areas compared to the states. For 
example, the insular areas are subject to statutory limits on federal 
Medicaid funding that do not apply to the states. To help understand 
these differences, you asked us to identify (1) the key sources of 
federal health care funding in the insular areas, (2) the extent to 
which the methods used to allocate these sources of health funds differ 
from the methods used in the states, and (3) how spending levels per 
individual from these key sources differ between insular areas and the 
states. 

To identify key sources of health care funding to the insular areas, we 
reviewed the Census Bureau's Consolidated Federal Funds Report and 
interviewed officials at the Departments of Health and Human Services 
(HHS) and the Interior (DOI) as well as officials from each of the five 
insular areas. For the key sources identified, we obtained 
comprehensive health expenditure data for federal fiscal years 1999 
through 2003 from the respective agencies. To assess the reliability of 
HHS and DOI data, we discussed data quality control procedures and 
reviewed relevant documentation with officials. We determined the data 
were sufficiently reliable for the purposes of this report. 

To determine the extent to which methods used to allocate funds to the 
insular areas differ from those used in the states, we reviewed federal 
laws and guidance on this funding and interviewed agency and insular 
area officials. To determine the extent to which spending levels per 
individual from these key sources differ between insular areas and the 
states, we examined trends in program expenditures between states and 
insular areas. To assess the reliability of the program expenditure 
data, we reviewed relevant documentation, interviewed agency officials 
about the data, and conducted electronic data testing. We determined 
that the program expenditure data were sufficiently reliable for the 
purposes of this report. We conducted our work from October 2004 
through September 2005 in accordance with generally accepted government 
auditing standards. (For additional information on our methodology, see 
app. I.) 

Results in Brief: 

Multiple federal programs, such as federal health care financing 
programs and various HHS and DOI grant programs, fund health care 
services in the insular areas. In fiscal year 2003, funding from these 
sources to the five insular areas totaled $2.2 billion. Medicare was 
the single largest source of health care funding, representing over 
three-quarters of total funding. When funding from the other federal 
health care financing programs--Medicaid and the State Children's 
Health Insurance Program (SCHIP)--is added to the Medicare total, the 
federal health care financing programs represented nearly 9 of every 10 
federal dollars spent in the five insular areas. However, because 
Puerto Rico represents over 90 percent of the total insular area 
population, the aggregate spending numbers mask the often significant 
variation that exists in the sources of funding among the insular 
areas. Specifically, while the proportion of federal spending by source 
in Puerto Rico largely mirrored the aggregate numbers, health care 
grant funding represented a much larger proportion of health care 
funding in the other four insular areas, largely due to their 
comparatively smaller Medicare populations. For example, grant funding 
represented about 56 percent of total funding in American Samoa in 
fiscal year 2003 but only 11 percent of total funding in Puerto Rico. 
In addition, the extent to which the insular areas relied on grant 
funding often fluctuated significantly from year to year. For example, 
from fiscal years 1999 through 2001, DOI funding to CNMI grew from 2 to 
26 percent of total health care funding and fell back to 2 percent in 
2003. 

Notable differences exist in methods used to allocate federal health 
care funds in the insular areas compared to the states, and these 
differences are often statutory in nature. For example, while most 
hospitals in the states and Puerto Rico are paid under Medicare's 
inpatient prospective payment system (PPS),[Footnote 4] hospitals in 
the other insular areas are not included in the PPS statutory provision 
and are instead paid based on their costs. Similarly, under the new 
Medicare prescription drug benefit, to be implemented in January 2006, 
certain low-income beneficiaries in the insular areas will not receive 
direct subsidies to help pay for their premiums, deductibles, and 
copayments that are available to certain beneficiaries in the states. 
Instead, CMS will provide each insular area with an allotment, which 
they will then use to administer the program to low-income 
beneficiaries based on a locally developed plan. In addition, federal 
funding for the Medicaid and SCHIP programs in the insular areas is 
subject to statutory limits that do not apply to states. For example, 
the statutory formula used to calculate the federal share of a state's 
Medicaid expenditures, which results in a higher federal share of 
Medicaid expenditures in poorer states, does not apply to the insular 
areas. In contrast, the federal contribution to the insular areas is 
set by statute at the minimum rate available to states, although nearly 
all of the insular areas have a lower median household income than the 
poorest state. In addition, unlike the states, where there are no caps 
on the federal share of Medicaid funding as long as the state 
contributes its share of program expenditures, federal Medicaid funding 
in the insular areas is subject to an annual statutory cap. Although 
similar methods are used to allocate some HHS grants to states and 
insular areas, other grants use separate rules to determine funding 
amounts in the insular areas. 

Multiple factors, including differences in funding allocation methods, 
compliance with program requirements, and beneficiaries' use of program 
services, all contribute to differences in program spending per 
individual in insular areas compared to the states. For example, 
Medicare spending per beneficiary in the insular areas is less than 
half the amount it is in the states, due in part to differences in 
methods used to pay for certain services and beneficiaries' utilization 
of services. In addition, the statutory limits on federal Medicaid 
funding in the insular areas--particularly the minimum federal matching 
contribution and funding cap--contribute to federal Medicaid spending 
per capita levels in the insular areas that are significantly lower 
than in the states. However, insular areas are not required to meet all 
Medicaid eligibility requirements, and in light of limits on federal 
funding, CMS does not hold these areas accountable for covering all 
Medicaid benefit requirements, which may help explain lower per capita 
spending. For example, none of the insular areas provides full coverage 
for nursing facility services, which represented nearly one-third of 
Medicaid expenditures in the states in fiscal year 2003. In contrast, 
HHS grant funding per capita is higher in the insular areas than in the 
states due in part to allocation formulas that result in higher 
payments to them as well as to states with smaller populations. 

We received written comments on a draft of this report from DOI, 
American Samoa, CNMI, and Puerto Rico, and technical comments from HHS 
and Puerto Rico. DOI acknowledged that improving health care in the 
insular areas is a priority for both the agency and the insular areas 
and commented that the report identifies areas of disparity that may be 
reviewed for improvement. The three insular areas expressed concern 
that the report did not sufficiently address certain issues, such as 
implications of statutory limits on federal Medicaid spending and a 
more comprehensive analysis of local circumstances that affect the 
availability and costs of health care services. Where appropriate, we 
revised the report to include information about local circumstances 
that may affect the provision or cost of health care services. However, 
a more comprehensive analysis of insular areas' local contribution to 
total health care funding or their health care infrastructures was 
beyond the scope of this report. 

Background: 

Five insular areas--American Samoa, Guam, CNMI in the Pacific Ocean, 
and the Commonwealth of Puerto Rico and the Virgin Islands in the 
Caribbean Sea--represent the largest insular areas of the United 
States. More than 4 million U.S. citizens and nationals live in these 
insular areas under the sovereignty of the United States. These areas 
vary in terms of how they came under the sovereignty of the United 
States and also in terms of their demographics, such as median age and 
education levels. However, all of these insular areas participate in 
three major federal health care financing programs--Medicare, Medicaid, 
and SCHIP--and are eligible for a variety of federal health grant 
programs. 

Relationship to United States: 

These five areas have come under the sovereignty of the United States 
in various ways. Puerto Rico and Guam were ceded to the United States 
by treaty at the end of the Spanish-American War in 1898, and the 
Virgin Islands were purchased from Denmark in 1917. Following the 
renunciation by Great Britain and Germany of their claims to what is 
now American Samoa and the cession of these islands by the Samoan 
chiefs to the United States, the Congress ratified the instruments 
ceding the islands to the United States in 1929. The United States was 
responsible for administering the Northern Mariana Islands after World 
War II under a United Nations trusteeship agreement. In 1976, a 
covenant between the United States and the Northern Marianas 
established the islands as a commonwealth under the sovereignty of the 
United States. 

Each of these areas has its own government and maintains a unique 
diplomatic relationship with the United States. General federal 
administrative responsibility for all insular areas but Puerto Rico is 
vested in the Department of the Interior. All departments, agencies, 
and officials of the executive branch treat Puerto Rico 
administratively "as if it were a state;" any matters concerning the 
fundamentals of the U.S.-Puerto Rican relationship are referred to the 
Office of the President.[Footnote 5] 

People born in Puerto Rico, Guam, CNMI, or the Virgin Islands are 
American citizens; those born in American Samoa are American nationals. 
The residents of all five of these larger insular areas enjoy many of 
the rights enjoyed by U.S. citizens in the 50 states.[Footnote 6] But 
some rights that, under the Constitution, are reserved for citizens 
residing in the states, have not been extended to residents of the 
insular areas. For example, residents of the insular areas cannot vote 
in national elections, nor do they have voting representation in the 
final approval of legislation by the full Congress. 

Characteristics of the Insular Areas: 

The insular areas--particularly those in the Pacific--are 
geographically isolated from the United States. For example, Hawaii, 
which is the closest state to the Pacific insular areas, lies 3,300 to 
3,700 miles away, or up to 13 hours by air.[Footnote 7] In addition, 
when compared to the U.S. states and each other, the insular areas have 
unique demographic characteristics. For example, with the exception of 
Puerto Rico, the populations in the insular areas are small relative to 
the states, and with the exception of Guam, they are significantly 
poorer. For example, four of the insular areas have median incomes that 
range from about $14,000 to about $25,000, considerably lower than the 
two poorest states, Mississippi and West Virginia.[Footnote 8] In 
addition, the populations in the Pacific island areas--American Samoa, 
CNMI, and Guam--are younger than those of the states and Puerto Rico 
and the Virgin Islands. For example, nearly half of the population of 
American Samoa is under the age of 19 compared to about 27 percent in 
the United States. Similarly, while over 12 percent of the U.S. 
population is over 65, this age cohort represents only 1.5 to 5.3 
percent of the population in the three Pacific insular areas. In terms 
of available health indicators, the differences are not as clear. While 
the insular areas have a higher mortality rate than the U.S. for 
certain diseases, such as diabetes, their mortality rates for cancer 
are lower. (See fig. 1.) 

Figure 1: Insular Areas and United States Demographics and Health 
Indicators: 

[See PDF for image] 

*CDC determined that the data did not meet reliability standards 
because less than 20 cases were reported. 

[End of figure] 

Some insular areas do not have certain types of health care providers, 
and even when providers operate in these areas, their numbers per 
capita are lower, on average, than in the states. For example, most of 
the insular areas do not have Medicare-certified outpatient 
rehabilitation facilities, community mental health centers, or 
ambulatory surgical centers. In addition, none of the Pacific insular 
areas has a Medicare-certified, free-standing skilled nursing facility 
or a Medicare-certified hospice facility.[Footnote 9] Provider 
shortages in insular areas are often particularly acute for certain 
specialists.[Footnote 10] For example, although Guam has a cardiac 
catheterization lab, it is not used because there is no cardiac 
surgeon. Also, although its rate of diabetes death is high, American 
Samoa has no resident nephrologists. Instead, the nephrologist that 
serves the area is based at St. Francis Medical Center in Hawaii. When 
providers are present, the average number per capita is usually lower 
than in the states, although the differences between the states and 
Puerto Rico are less pronounced than the differences among the states 
and the other four insular areas. For example, the insular areas have 
significantly fewer skilled nursing facilities than do the states. One 
notable exception is that there are more end-stage renal facilities per 
capita in American Samoa, Guam, and the Virgin Islands when compared to 
the states, perhaps due to a higher prevalence of diabetes in these 
areas. (See table 1.) 

Table 1: Medicare-Certified Healthcare Providers and Hospital Beds in 
Insular Areas and States, January 2005: 

Providers (per 100,000): Ambulatory surgical center; 
Puerto Rico: 0.6; 
Average (four other insular areas): 0.3; 
States: 1.5. 

Providers (per 100,000): Comprehensive outpatient rehabilitation 
facility; 
Puerto Rico: 0.03; 
Average (four other insular areas): 0; 
States: 0.2. 

Providers (per 100,000): Community mental health center; 
Puerto Rico: 0.2; 
Average (four other insular areas): 0; 
States: 0.2. 

Providers (per 100,000): End stage renal disease facility; 
Puerto Rico: 1.0; 
Average (four other insular areas): 2.1; 
States: 1.6. 

Providers (per 100,000): Federally qualified health center; 
Puerto Rico: 0.2; 
Average (four other insular areas): 0.8; 
States: 1.0. 

Providers (per 100,000): Home health agency; 
Puerto Rico: 1.2; 
Average (four other insular areas): 1.3; 
States: 2.7. 

Providers (per 100,000): Hospice; 
Puerto Rico: 0.9; 
Average (four other insular areas): 0.3; 
States: 0.9. 

Providers (per 100,000): Skilled nursing facility; 
Puerto Rico: 0.2; 
Average (four other insular areas): 0.5; 
States: 5.3. 

Providers (per 100,000): Hospital beds; 
Puerto Rico: 321; 
Average (four other insular areas): 265; 
States: 416. 

Source: GAO analysis of Centers for Medicare & Medicaid Services (CMS) 
data. 

Note: Because Puerto Rico's population represents over 90 percent of 
the total population of the insular areas, we separately analyzed 
provider data from Puerto Rico and the other four insular areas to 
ensure that the higher prevalence of providers in Puerto Rico did not 
mask the more pronounced shortages of certain providers in the other 
insular areas. Provider figures for Guam, Puerto Rico, and the United 
States include some Department of Veterans Affairs and Department of 
Defense facilities. 

[End of table] 

Federal Health Care Financing and Grant Programs: 

Each insular area participates in three major federal health care 
financing programs--Medicare, Medicaid, and SCHIP. In addition, each 
area receives health-related grant funds from a variety of HHS agencies 
and four of the five areas receive health-related grant funds from DOI. 

Medicare covers a variety of health care services and items for more 
than 41 million beneficiaries--individuals who are 65 or older, have 
end-stage renal disease (ESRD), or are disabled--including about 
600,000 in the insular areas. Medicare includes separate components or 
"parts" that cover different types of services. Individuals who are 
eligible for Medicare automatically receive Hospital Insurance, known 
as Part A, which helps pay for inpatient hospital care, skilled nursing 
facility services following a hospital stay, certain home health 
services, and hospice care. Beneficiaries pay no premiums for Part A 
but are liable for required deductibles, coinsurance, and copayments. 
Medicare Part A is funded through the Medicare trust fund, which is 
financed by state and insular area employer and employee contributions. 
Medicare Part B Supplemental Medical Insurance helps pay for physician, 
outpatient hospital care, laboratory, and other services. Beneficiaries 
who opt for Part B coverage must pay a premium--about $78 per month in 
2005--and are responsible for deductibles, coinsurance, and 
copayments.[Footnote 11] 

Medicare's new prescription drug program, Part D, was authorized in 
December 2003, and the interim phase of the program began in June 2004. 
Under the interim phase, all beneficiaries in the states and the 
insular areas who choose to enroll pay a fee to receive a discount drug 
card, with an expected discount of 10 to 15 percent on covered 
drugs.[Footnote 12] In addition, certain low-income beneficiaries in 
the states are also entitled to assistance to subsidize drug costs in 
2004 and 2005, and the amount of assistance available to each 
individual is generally $600 per year. Under the permanent program, to 
be implemented in January 2006, beneficiaries in the states and the 
insular areas can choose to enroll in an optional prescription drug 
coverage program subject to an estimated average monthly premium of 
about $32. Like the interim program, certain low-income participants in 
the states will also receive subsidies to lower their monthly premiums, 
deductibles, and copayments. To help offset the costs of providing 
coverage to individuals eligible for both Medicare and Medicaid, states 
must pay the federal government an amount that is roughly equal to the 
amount they would have paid to provide outpatient prescription drug 
coverage to elderly and disabled individuals previously eligible for 
prescription drug benefits under their Medicaid programs. Part D is 
otherwise financed through beneficiary premiums and general revenues. 

Medicaid operates as a joint federal-state program to finance health 
care coverage for certain categories of low-income individuals, 
including children, pregnant women, and individuals who are elderly or 
disabled. Although state and insular area participation in Medicaid is 
voluntary, all states and insular areas currently participate in the 
program. To obtain federal matching funds, states and insular areas 
generally must comply with certain minimum federal requirements related 
to services and eligibility, including income and resource 
requirements. Within these broad federal guidelines and under federally 
approved plans, states and insular areas have great discretion in 
setting eligibility standards and provider payment rates; determining 
the amount, scope, and duration of covered benefits; and developing 
their own administrative structures. For example, while federal law 
requires Medicaid programs to offer coverage to children age 5 and 
under if their family incomes are at or below 133 percent of the 
federal poverty level and to children ages 6 to 18 if their family 
incomes are at or below the federal poverty level, a state may decide 
to increase the thresholds in order to offer coverage to more people. 
As a result, Medicaid essentially operates as 56 separate programs: 1 
in each of the 50 states, the District of Columbia, and each of the 5 
largest insular areas. The federal share of states' Medicaid programs, 
the Federal Medical Assistance Percentage (FMAP), is determined based 
on state per capita income in relation to the national per capita 
income, with poorer states receiving higher federal matching rates than 
wealthier states. In 2005, the FMAP ranged from 50 percent in wealthier 
states, such as New York and Connecticut, to about 77 percent in 
Mississippi. 

In 1997, the Congress enacted SCHIP to provide health care coverage to 
uninsured, low-income children living in families whose incomes exceed 
the eligibility limits for Medicaid.[Footnote 13] States and insular 
areas have three options in designing SCHIP: expand their Medicaid 
programs, develop separate child health programs that function 
independently of the Medicaid programs, or do a combination of both. 
States that implement SCHIP by expanding Medicaid must use their 
Medicaid enrollment and benefit structure. Although SCHIP is generally 
targeted to families with incomes at or below 200 percent of the 
federal poverty level, each state or insular area may set its own 
income eligibility limits within certain guidelines. The FMAP for SCHIP 
ranges from 65 percent for the wealthiest states to about 84 percent 
for the poorest states. 

Various HHS agencies also distribute health care grants to the insular 
areas. These grant funds--awarded by agencies such as the Centers for 
Disease Control and Prevention (CDC), the Health Resources and Services 
Administration (HRSA), and the Substance Abuse and Mental Health 
Services Administration (SAMHSA)--may be used to support health care 
services and outreach programs and are generally awarded to public 
health agencies. Similarly, DOI's Office of Insular Affairs (DOI-OIA) 
funds health infrastructure and provides technical assistance to all 
insular areas but Puerto Rico. DOI also provides the Pacific insular 
areas with funds to offset the cost of providing services to residents 
of the freely associated states.[Footnote 14] 

Multiple Federal Agencies Fund Health Care Services in Insular Areas: 

Each of the five insular areas receives funding for health care 
services from multiple federal sources. Federal health care financing 
programs--Medicare, Medicaid, and SCHIP--comprised 88 percent of 
aggregate federal health care funding in the insular areas in fiscal 
year 2003, with Medicare representing the single largest funding source 
(76 percent). The areas also received a significant amount of health 
care grant funding from certain HHS agencies and DOI. However, 
significant variation exists among the insular areas in terms of the 
distribution of funds by source, largely due to the number of Medicare 
beneficiaries residing in each area. For example, the Pacific insular 
areas have relatively young populations, and therefore receive less 
Medicare funding compared to other sources. From fiscal years 1999 
through 2003, total federal health care funding in the insular areas 
increased by 37 percent, although funding increases varied considerably 
among the insular areas. 

Medicare Represents the Majority of Federal Health Care Spending in 
Insular Areas: 

Federal health care financing programs--primarily Medicare--comprised 
the vast majority of the $2.2 billion in total federal health care 
spending in the five insular areas in fiscal year 2003.[Footnote 15] 
Medicare funds alone, which are generally paid directly to health care 
providers for services to beneficiaries rather than directly to the 
insular area government, represented 76 percent--about $1.68 billion-- 
of the aggregate funding to the insular areas. (See fig. 2.) The 
Medicaid program represented 10 percent of the total funding in the 
insular areas, about $226 million, and funding for the SCHIP program 
totaled about $33 million, 2 percent of total health care funding in 
these areas. Unlike Medicare, Medicaid and SCHIP funds are provided 
directly to the insular area governments. 

Figure 2: Key Federal Health Care Funding Sources for Five Insular 
Areas, Fiscal Year 2003: 

[See PDF for image] 

[End of figure] 

In addition to the federal health care financing programs, three HHS 
agencies--CDC, HRSA, and SAMHSA--provided health-related grants to 
public and private entities in the insular areas. These grants 
represented approximately 11 percent, more than $250 million, of total 
federal health care funding in the insular areas.[Footnote 16] In 2003, 
these agencies awarded grants from 87 different programs to the insular 
areas, with individual awards ranging from over $9,000 to nearly $39 
million. The funds may be used to support health care services and 
outreach programs. For example, HRSA provided grant funding to the 
insular areas for programs related to health care resources and 
services, including community health centers, human immunodeficiency 
virus (HIV) care and treatment, maternal and child health care, and 
bioterrorism preparedness. 

DOI also provided a number of health-related grants to the four insular 
areas that were eligible for these funds.[Footnote 17] In fiscal year 
2003, DOI grants to the insular areas totaled about $13.6 million, 1 
percent of federal health care funding in the insular areas. The grants 
had multiple purposes, including offsetting the costs of providing care 
to individuals from the freely associated states and supporting health- 
care-related activities, such as facility construction and information 
technology. 

From 1999 through 2003, total federal health care funding in the 
insular areas increased 37 percent--from over $1.6 billion to over $2.2 
billion. During this time, funding from all sources but SCHIP 
increased. For example, total Medicare funding increased by 41 percent, 
Medicaid by 21 percent, HHS grants by 73 percent, and DOI by 11 
percent. Although funds from HHS had the largest percentage increase 
over this time, the biggest increase in dollars was seen in Medicare, 
with an increase of over $485 million. 

Health Care Grants Represent Smaller Share of Federal Funding in Puerto 
Rico Compared to Other Insular Areas: 

Since Puerto Rico represents about 91 percent of total insular area 
population, the aggregate spending numbers obscure the often 
significant variation that exists in the sources of funding among the 
insular areas. For example, similar to aggregate numbers, Medicare 
spending represented 78 percent of spending in Puerto Rico in fiscal 
year 2003, whereas the Medicare share in the other areas was smaller, 
ranging from 29 percent in American Samoa to 63 percent in the Virgin 
Islands. (See fig. 3.) This variation is influenced by differences in 
the share of Medicare beneficiaries residing in each area relative to 
its overall population. For example, Medicare as a share of total 
spending was largest in both Puerto Rico and the Virgin Islands, whose 
populations of individuals 65 or older are comparatively larger than 
that of the Pacific insular areas and are more closely aligned with the 
U.S. average. Differences in the other federal health financing 
programs also varied, but to a lesser extent, with Medicaid and SCHIP 
funding combined representing between 12 and 21 percent of health care 
funding in each of the areas. 

Figure 3: Key Federal Health Care Funding Sources by Insular Area, 
Fiscal Year 2003: 

[See PDF for image] 

Note: Figures may not total to 100 percent due to rounding. 

[End of figure] 

In terms of health care grants from both HHS and DOI, significant 
variation existed in the share of health care funding they represented 
among the insular areas. For example, in fiscal year 2003, these grants 
represented 11 percent of total health care funding in Puerto Rico; 
however, they represented 25 to 56 percent of total funding in the 
other insular areas. Variation among the insular areas in terms of DOI 
health grants as a share of total federal funding was more pronounced 
than that of HHS grants during this time. While HHS grants represented 
roughly the same share of total health care funding in each insular 
area except Puerto Rico, DOI grants represented 2 percent of total 
health care funding in CNMI, 7 percent in Guam, and 37 percent in 
American Samoa. The Virgin Islands, although eligible for these funds, 
received none in fiscal year 2003. 

The availability of grant funds, and therefore the share they 
represented of health care funding, has fluctuated considerably in 
recent years. For example, DOI grants to CNMI, which represented 2 
percent of total health care funds in 1999, increased to 26 percent of 
total funding in 2001 and fell back to 2 percent in 2003.[Footnote 18] 
Similarly, HHS grants to the Virgin Islands represented 13 percent of 
total federal health funding in 1999, but grew to nearly one-third of 
total spending in 2002. (See app. II for a detailed description of 
trends in federal funding sources over time for each insular area.) 
Such year-to-year variability can make it difficult to establish long- 
range budgets and to develop, manage, and staff programs funded by 
grant awards. In addition, according to insular area officials, 
capturing and retaining HHS grant funds can be labor intensive. For 
example, for most of the grants we reviewed, agencies require insular 
areas and states to complete comprehensive applications with detailed 
budgets and program plans. Agencies may also require periodic data 
reporting or local cost sharing. 

When considered individually, each of the five insular areas 
experienced an overall increase in total federal health care funding 
from 1999 through 2003. Increases, however, varied considerably among 
the areas, ranging from 36 percent in Puerto Rico to 81 percent in 
CNMI.[Footnote 19] The variation was largely due to differences in the 
annual increases specific to Medicare and HHS grant awards. For 
example, Medicare funding increased in all areas, but most dramatically 
in CNMI, largely due to changes in the way its hospital reported costs 
to CMS. Similarly, total HHS grant funding increased in each area, 
although increases were more pronounced in certain areas, such as 
American Samoa and Guam, due in part to the introduction of new grants 
related to bioterrorism. 

Notable Differences Exist in Methods Used to Allocate Federal Health 
Care Funds in the Insular Areas Compared to the States: 

The methods used to allocate federal health care funds in the insular 
areas differ, in some cases, from those used in the states. Although 
Medicare payment policy does not differ for certain providers, such as 
physicians, notable differences exist in the policies used to pay 
hospitals and for the new Part D prescription drug benefit. Similarly, 
differences exist in how the Medicaid and SCHIP programs are funded in 
the insular areas. Unlike in the states, the federal share of Medicaid 
and SCHIP expenditures in the insular areas--the FMAP--is limited by 
statute, and federal Medicaid funding is capped. In addition, 
allocation methods used for certain HHS grants establish separate rules 
for the insular areas. 

Medicare Funds Are Allocated Differently for Parts A and D: 

The Medicare program operates similarly in the insular areas and the 
states in terms of eligibility for the program and beneficiaries' 
entitlement to benefits. For example, like their counterparts in the 
states, insular area residents who are eligible for Medicare are 
automatically enrolled in Part A and do not pay premiums for this 
coverage. Likewise, the policies used to determine payment for 
physicians under Part B are essentially the same. However, significant 
differences exist between the insular areas and the states regarding 
the methods used to determine payments to hospitals and the funding of 
the Medicare Part D benefit. 

Unlike the states and Puerto Rico, where hospitals are paid under 
Medicare's PPS, hospitals in the other insular areas are paid based on 
their costs.[Footnote 20] There are differences in the cost-based 
payment methods used in these areas. The hospitals in Guam and the 
Virgin Islands are paid using the methodology established under the Tax 
Equity and Fiscal Responsibility Act of 1982 (TEFRA) for classes of 
hospitals not included in the PPS. Payments to these hospitals are the 
lesser of their average cost per discharge or a specific target 
amount.[Footnote 21] Hospitals in American Samoa and CNMI are also paid 
based on their costs; however, they are not subject to target amounts 
or a national cap.[Footnote 22] We did not evaluate how payments under 
these cost-based methods compare to PPS payments to hospitals in the 
states. 

Although hospitals in Puerto Rico are paid under the PPS system, the 
formula that CMS uses to reimburse hospitals in Puerto Rico is distinct 
from that used for hospitals in the states. Each of the Puerto Rico PPS 
payment rates is a "blended rate," which is comprised of 75 percent of 
a national rate used for hospitals in the states and 25 percent of a 
local rate, which is lower than the national rate. The rates are 
further adjusted for each hospital using national and local cost 
factors. These adjustments account for the lower costs of providing 
hospital services in Puerto Rico compared to the states and for 
differing costs among hospitals within Puerto Rico. 

Differences also exist between the insular areas and the states 
regarding the methods used to fund Medicare's new Part D prescription 
drug benefit for low-income beneficiaries. For example, during the 
interim phase of the Part D program, certain low-income beneficiaries 
in the states who participate in the program are entitled to assistance 
to subsidize drug costs in 2004 and 2005, and the amount of assistance 
available to each individual is generally $600 per year. In contrast, 
low-income Medicare beneficiaries in the insular areas do not receive 
this direct subsidy. Instead, CMS provided each insular area with an 
allotment, which the insular areas typically used to subsidize 
prescription drug coverage to certain low-income Medicare 
beneficiaries.[Footnote 23] Similarly, although the permanent Part D 
program, scheduled to begin in January 2006, allows for identical 
coverage for most beneficiaries in the insular areas and states, 
however, low-income beneficiaries in the insular areas will not receive 
direct benefits to help subsidize their premiums, deductibles, and 
copayments available to Medicare and Medicaid dual eligible 
beneficiaries in the states. Instead, CMS will again provide each of 
the insular areas an allotment, which they will use to administer the 
program to low-income beneficiaries based on a locally-developed plan. 
The extent to which the benefits in the insular areas will mirror the 
federal program is not clear as none of the insular areas has finalized 
its plan for the administration of this program. 

Medicaid and SCHIP Federal Funding to the Insular Areas Is Limited by 
Statute: 

Like the states, each of the insular areas receives federal funding 
from the Medicaid and SCHIP programs. However, how federal funds for 
these programs are allocated to the insular areas differs, often 
significantly, from the states, and these differences are statutory in 
nature. For example, recognizing that states vary in their capacity to 
pay for Medicaid expenses, the statutory formula used to calculate the 
federal share of each state's expenditures--the FMAP--is based on a 
state's per capita income in relation to the national average per 
capita income. The FMAP ranges from 50 to no more than 83 percent of 
Medicaid expenditures, with poorer states receiving a higher federal 
matching rate than wealthier states.[Footnote 24] In contrast, the FMAP 
for the insular areas does not recognize their capacity to pay for 
Medicaid expenses; instead, the FMAP is set at the lowest rate--50 
percent--although all of the insular areas, except Guam, had a lower 
median household income than the poorest U.S. state. 

In addition, federal Medicaid funding in states is not limited, 
provided the states contribute their share of program expenditures for 
services provided. In contrast, federal Medicaid funding in each 
insular area is subject to a statutory cap, which is increased annually 
by the percentage increase in the medical care component of the 
Consumer Price Index for all urban consumers, which averaged about 4 
percent per year from 1999 through 2003.[Footnote 25] All five of the 
insular areas typically exhaust the Medicaid cap prior to the end of 
the fiscal year, and once the cap is exhausted, the insular areas 
assume the full costs of Medicaid.[Footnote 26] Due to insufficient 
local funds, once the Medicaid cap is met, some insular areas may 
suspend services or cease payments to providers until the next fiscal 
year.[Footnote 27] 

Federal statute and the Medicaid cap also affect the ability of insular 
areas to access certain sources of Medicaid funding. For example, 
insular areas are not included in the federal legislation that 
established the Medicaid disproportionate share hospital (DSH) program, 
which provides supplementary payments to hospitals that serve a large 
number of Medicaid and low-income uninsured patients.[Footnote 28] DSH 
is a key source of Medicaid funding for "safety net" hospitals in the 
states and totaled about 5 percent of all federal Medicaid funding to 
the states in fiscal year 2003. In addition, although states and the 
insular areas are eligible for other sources of Medicaid federal 
matching funds, CMS officials said the federal cap prevents the insular 
areas from accessing these funds. For example, none of the insular 
areas accessed available funding for the development of immunization 
registries or for the update of data systems to comply with provisions 
of the Health Insurance Portability and Accountability Act of 1996 
(HIPAA) because funds spent on these programs would count against the 
cap and thereby divert funds from the direct provision of care. For 
this same reason, none of the insular areas participates in the 
optional Breast and Cervical Cancer Prevention and Treatment program, 
which allows for expanded eligibility and an enhanced Medicaid match 
rate for treatment provided to women diagnosed with these cancers. All 
50 states and the District of Columbia have opted to cover women under 
this program. 

Whereas fundamental differences exist between insular areas and the 
states in terms of the allocation of federal Medicaid funds, the 
differences that exist in the funding of their SCHIP programs are less 
pronounced. For example, unlike Medicaid, where federal funding to the 
states is open-ended, annual SCHIP allotments to both the states and 
the insular areas are set in statute and function like a cap. The 
statute specified a total annual allotment for the states and insular 
areas for fiscal years 1998 through 2007, with the insular areas 
receiving 0.25 percent of the annual nationwide SCHIP allotment, which 
is divided among them based on statutorily set proportions.[Footnote 
29] The remainder of the allotment is allocated to states based on the 
population of low-income uninsured children. The Congress awarded 
additional funds to insular areas for fiscal years 1999 through 2007 
which, when combined with the original allotment, increased their 
portion of total SCHIP funding.[Footnote 30] 

Although SCHIP funding is limited for both states and insular areas, 
the FMAP for SCHIP, similar to Medicaid, does not consider the capacity 
of insular areas to pay for services. The statute provides for an 
"enhanced" FMAP, which is equal to each state and insular area's 
Medicaid matching rate plus 30 percent of the difference between the 
Medicaid match and 100 percent, not to exceed a federal share of 85 
percent. Thus, like states that receive the minimum 50 percent Medicaid 
match, the insular areas receive the minimum 65 percent match available 
under SCHIP. 

Certain HHS Grants Are Allocated Differently: 

Each HHS grant has a distinct funding allocation method, and although 
certain grants use identical allocation methods for the states and the 
insular areas, others treat some or all of the insular areas 
differently. For example, the method used to calculate HRSA's 
Consolidated Health Center grants, which are competitive awards made to 
individual qualifying health centers based upon proposed budgets and 
their capacity to compete for funds, is the same in the states as in 
the insular areas. In contrast, different allocation rates are used to 
determine funding levels for some insular areas under HRSA's Ryan White 
Title II HIV Care Formula grants to States and CDC's Public Health 
Preparedness and Response for Bioterrorism grant. The allocation 
formulas for these grants have two components--a base component, which 
is a set dollar amount, and a variable component, which is based on 
population or other factors. For example, funding levels for the Ryan 
White Title II grant are based largely on the prevalence of AIDS in 
individual states as well as in Puerto Rico and the Virgin Islands. In 
contrast, funding of this grant for the Pacific insular areas does not 
consider the prevalence of AIDS; instead, these insular areas receive a 
lower, standard base rate.[Footnote 31] Similarly, when compared to the 
states, the base and variable components for the CDC's Public Health 
Preparedness and Response to Bioterrorism grant is smaller for each of 
the insular areas except Puerto Rico. (See table 2.) 

Table 2: Formula Components for CDC's Public Health Preparedness and 
Response for Bioterrorism Grant: 

Grant program: Public Health Preparedness and Response for 
Bioterrorism: 

Recipients: All states and Puerto Rico; 
Base component: $3.915 million; 
Variable component (dollars per person): $2.03. 

Recipients: Washington, D.C; 
Base component: $10 million; 
Variable component (dollars per person): $2.03. 

Recipients: Chicago, Los Angeles County, and New York City; 
Base component: $5 million; 
Variable component (dollars per person): $2.03. 

Recipients: American Samoa, CNMI, Guam, the Virgin Islands, and the 
freely associated states; 
Base component: $391,500; 
Variable component (dollars per person): $0.79. 

Source: CDC. 

[End of table] 

CDC's Immunization and Vaccines for Children grant provides another 
example of where the method used to allocate funds differs in the 
insular areas compared to the states. In this case, grant amounts to 
the states are based on certain rules that consider characteristics of 
the population as well as funding history. In contrast, these rules are 
not used to determine the grant amounts for insular areas. Instead, the 
award amounts to insular areas are determined at the discretion of the 
agency's project officer.[Footnote 32] 

Multiple Factors Explain Differences in Individual Spending Levels in 
Insular Areas Compared to the States: 

Although most of the key sources of health care funding available in 
the insular areas are also available in the states, individual spending 
levels are often lower in the insular areas. For example, Medicare 
spending per beneficiary is significantly lower in the insular areas, 
due in part to differences in methods used to pay for certain services 
and in beneficiaries' utilization of services. In addition, statutory 
limits on Medicaid funding in the insular areas contribute to lower per 
capita spending. In light of these statutory limits, CMS does not hold 
insular areas accountable for providing all the mandatory Medicaid 
services, including nursing home care, which makes up nearly a third of 
Medicaid expenditures in the states. In contrast, HHS grant funding per 
capita is higher in the insular areas than in the states, due, in part, 
to allocation formulas that result in higher payments to them as well 
as to states with smaller populations. 

Lower Medicare Spending Per Beneficiary Explained by Payment Policy 
Differences and Lower Utilization: 

As in the insular areas, Medicare comprised the majority--over 60 
percent--of federal health care funding in the states in fiscal year 
2003 and, with limited exceptions, the program operates largely the 
same in the insular areas as in the states. However, Medicare spending 
per beneficiary in the insular areas in fiscal year 2003 was less than 
half of Medicare spending in the states--about $2,800 on average in the 
insular areas compared to $6,800 in the states.[Footnote 33] (See fig. 
4.) 

Figure 4: Medicare Spending Per Beneficiary in Five Insular Areas 
Compared to the States, Fiscal Year 2003: 

[See PDF for image] 

[End of figure] 

Differences in payment policy help explain some of the disparity in 
Medicare per beneficiary spending in the insular areas compared to the 
states. For example, the PPS methodology used to determine payments to 
hospitals in Puerto Rico, which includes a lower local component, 
contributes to lower payments. Similarly, the method used to determine 
supplemental PPS payments for Medicare's DSH program results in lower 
payments to hospitals in Puerto Rico compared to the states.[Footnote 
34] To qualify for Medicare DSH payments, at least 15 percent of a 
hospital's patient days must be attributable to certain patients 
receiving either Supplemental Security Income (SSI) or Medicaid 
benefits (which combined serve as a measure of the number of low-income 
patients treated by any single hospital). Further, the actual DSH 
payment is based on the number of patient days attributable to these 
low-income patients. Because residents of Puerto Rico are statutorily 
ineligible for SSI payments regardless of whether or not they meet the 
income thresholds required for SSI eligibility, only SSI patients 
visiting from the states are included in the counts for DSH. We were 
informed that, as a result, it is more difficult for hospitals in 
Puerto Rico to meet the 15 percent threshold, and those hospitals 
meeting the threshold receive limited DSH payments because the low- 
income counts do not include some poor patients. 

Whether cost-based methods used to pay hospitals in the other insular 
areas similarly contribute to lower per beneficiary payments relative 
to the states is less clear. However, some of the variation in spending 
per beneficiary among the insular areas is likely due to the fact that 
statutory limits on Medicare payments apply to hospitals in some, but 
not all, insular areas. For example, hospital payments in CNMI are 
based on what the hospital claims as its actual costs. These costs are 
not limited, are not audited, and have increased dramatically in recent 
years. In contrast, under TEFRA, payments to hospitals in the Virgin 
Islands are limited, and according to officials with the Medicare 
fiscal intermediary serving the Virgin Islands, these payments may not 
be covering costs.[Footnote 35] The different methods used to pay these 
hospitals likely explain, in part, why Medicare payments per 
beneficiary in CNMI are significantly higher than in the Virgin 
Islands. 

Another factor that helps explain lower Medicare per beneficiary 
spending in the insular areas is the extent to which Medicare 
beneficiaries in the insular areas use certain covered services. For 
example, an analysis of Medicare utilization rates for major medical 
procedures[Footnote 36] shows that, on average, beneficiaries in the 
insular areas received far fewer of these services than beneficiaries 
in the states--rates in the insular areas ranged from 144 to 203 per 
thousand beneficiaries compared to 297 per thousand in the states. 
Rates were similarly low in Hawaii (172 per thousand), but not in other 
remote or poor states studied. (See fig. 5). 

Figure 5: Number of Medicare Part B Major Medical Procedures Per 1,000 
Beneficiaries in Selected States and Insular Areas, Calendar Year 2003: 

[See PDF for image] 

Notes: Utilization rates in CNMI may be understated due to hospital 
billing practices. According to CNMI officials, physicians in CNMI do 
not separately bill Medicare for services they provide in the hospital. 
Instead, the hospital captures these costs in its hospital cost report. 

States included in the analysis were selected based on their geographic 
remoteness or their lower income levels relative to the U.S. average. 

[End of figure] 

Several factors likely contribute to lower Medicare utilization, and 
therefore per beneficiary spending, in the insular areas. For example, 
limited access to certain specialty services, a lack of Medicare- 
certified physicians, and local cultural differences may contribute to 
lower Medicare utilization rates. A CMS official serving the Pacific 
insular areas reported that certain specialty services, such as 
chemotherapy, are not available in these areas, and it is often too 
expensive for beneficiaries to travel to receive such services off 
island. Lower utilization rates of physician services in American Samoa 
could also be attributable, in part, to a lack of Medicare-certified 
providers. According to a CMS official, many medical professionals in 
American Samoa who provide services to residents are not certified to 
receive payments under Medicare.[Footnote 37] Cultural differences may 
also contribute to lower utilization of Medicare services in the 
insular areas. For example, a CMS official said that some American 
Samoans are less likely to seek care in Medicare-certified facilities. 
Similarly, reliance on nursing facilities may be less prevalent in 
certain insular areas, as families assume primary care responsibility 
for individuals who might commonly receive care in these facilities in 
the states. 

Another factor contributing to lower per beneficiary spending is that 
the percentage of Medicare beneficiaries enrolled in Part B is 
significantly lower in most of the insular areas than in the states. On 
average, in 2003 about 77 percent of Medicare beneficiaries in the 
insular areas opted for Part B, compared to 95 percent in the 
states.[Footnote 38] Insular area officials provided a number of 
reasons to explain the enrollment differences. For example, Medicare 
beneficiaries in the states and all insular areas but Puerto Rico are 
automatically enrolled in Part B, typically around their 65th 
birthday.[Footnote 39] However, some insular area officials told us 
that their residents opt out of Part B coverage because they cannot 
afford its monthly premium, which was about $78 in 2005.[Footnote 
40],[Footnote 41] Also, beneficiaries in Puerto Rico must go to a local 
Social Security office to enroll in Part B,[Footnote 42] and according 
to CMS officials, this policy leads to lower enrollment. Similarly, 
American Samoa officials said that some of their Medicare beneficiaries 
may lack the incentive to purchase Part B coverage as they have access 
to free health coverage through the local hospital.[Footnote 43] 

Medicaid and SCHIP Individual Spending Levels in Insular Areas are 
Lower; Minimum Program Requirements Are Not Strictly Enforced: 

Federal Medicaid spending per capita was also lower in the insular 
areas compared to the states. In fiscal year 2003, federal Medicaid per 
capita spending in the states averaged $565 compared to between $33 and 
$65 for the insular areas. Poorer states with higher federal matching 
rates received as much as $813 in federal Medicaid per capita spending-
-more than 12 times the amount received by any insular area.[Footnote 
44] (See fig. 6.) 

Figure 6: Federal Medicaid Per Capita Funding in Selected States and 
Insular Areas, Fiscal Year 2003: 

[See PDF for image] 

Note: States included in the analysis were selected based on their 
geographic remoteness or their lower income levels relative to the U.S. 
average. 

[End of figure] 

The statutory limits on federal Medicaid funding in the insular areas-
-particularly the minimum federal matching contribution and payment 
cap--clearly contribute to lower federal per capita spending. However, 
insular areas are not required to meet all Medicaid eligibility 
requirements, and in light of the statutory limits on federal funding, 
CMS does not hold these areas accountable for covering all Medicaid 
benefit requirements.[Footnote 45] For example, Puerto Rico and the 
Virgin Islands have implemented eligibility criteria that are more 
restrictive than the federal standards, which have resulted in lower 
Medicaid enrollment than would otherwise be the case.[Footnote 46] In 
contrast, American Samoa, whose median household income is less than 
half that of the United States, neither uses specific categories to 
determine eligibility nor links eligibility to income levels that 
reflect local conditions. Instead, it considers every resident with an 
income at or below the federal poverty level--the majority of the 
population--as eligible for Medicaid. The different eligibility 
determination methods affect Medicaid enrollment in each insular area. 
While nationwide about 14 percent of the population is enrolled in 
Medicaid, Medicaid enrollment in the insular areas ranges from 12 
percent in CNMI to 65 percent in American Samoa. (See app. III for a 
summary of the characteristics of insular areas' Medicaid programs.) 

Another notable difference between states and the insular areas is the 
range of services covered by their respective Medicaid programs, and 
disparities in federal per capita spending should be considered in the 
context of these differences. For example, once states choose to 
participate in Medicaid, they are required to cover certain mandatory 
services, such as inpatient and outpatient hospital care; physician 
services; nursing facility care; and early and periodic screening, 
diagnostic, and treatment (EPSDT) services for children. With limited 
exceptions, all of the states cover each of the mandatory 
services.[Footnote 47] In contrast, none of the insular areas cover all 
mandatory services. For example, none of the insular areas provides 
full coverage for nursing facility services, which represented 32 
percent of Medicaid expenditures in the states in fiscal year 
2003.[Footnote 48] CMS is aware that the insular areas do not provide 
all mandatory Medicaid services. However, according to a CMS official, 
the agency does not have any guidance as to how it should ensure 
compliance with the federal Medicaid standards regarding mandatory 
services, especially in light of limits on federal funding in the 
insular areas. Over time, CMS has allowed the insular areas to 
determine which Medicaid services they provide to maximize their use of 
federal health care funds.[Footnote 49] (See table 3.) 

Table 3: Mandatory Medicaid Services Covered by Insular Areas and 
States, Fiscal Year 2005: 

Service: Inpatient hospital services; 
AS: service covered; 
CNMI: service covered; 
GU: service covered; 
PR: service covered; 
VI[A]: service covered; 
Number of states: 51. 

Service: Outpatient hospital services; 
AS: service covered; 
CNMI: service covered; 
GU: service covered; 
PR: service covered; 
VI[A]: service covered; 
Number of states: 51. 

Service: Physician's services; 
AS: service covered; 
CNMI: service covered; 
GU: service covered; 
PR: service covered; 
VI[A]: service covered; 
Number of states: 51. 

Service: Laboratory and x-ray services; 
AS: service covered; 
CNMI: service covered; 
GU: service covered; 
PR: service covered; 
VI[A]: service covered[B]; 
Number of states: 51. 

Service: Early and periodic screening, diagnostic, and treatment 
(EPSDT) services for individuals under 21; 
AS: service covered; 
CNMI: service covered; 
GU: service covered; 
PR: service covered; 
VI[A]: service covered; 
Number of states: 51. 

Service: Family planning services and supplies; 
AS: service covered; 
CNMI: service covered; 
GU: service covered; 
PR: service covered; 
VI[A]: service covered; 
Number of states: 51. 

Service: Transportation services; 
AS: service covered; 
CNMI: service covered; 
GU: service not covered; 
PR: service covered with limitations[C]; 
VI[A]: service covered with limitations[D]; 
Number of states: 51. 

Service: Certified nurse practitioner services; 
AS: service covered; 
CNMI: service not covered[E]; 
GU: service covered; 
PR: service not covered; 
VI[A]: service covered with limitations[F]; 
Number of states: 50[G]. 

Service: Home health services; 
AS: service covered with limitations[H]; 
CNMI: service covered; 
GU: service not covered; 
PR: service not covered; 
VI[A]: service covered; 
Number of states: 51. 

Service: Federally-qualified health center (FQHC) services; 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service covered; 
VI[A]: service covered; 
Number of states: 51. 

Service: Nursing facility (NF) services for individuals 21 or over; 
AS: service not covered; 
CNMI: service not covered[E]; 
GU: service covered with limitations[I]; 
PR: service not covered; 
VI[A]: service covered with limitations[J]; 
Number of states: 51. 

Service: Nurse midwife services; 
AS: service covered; 
CNMI: service not covered[E]; 
GU: service not covered; 
PR: service not covered; 
VI[A]: service not covered; 
Number of states: 50[K]. 

Service: Rural health clinic (RHC) services; 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service not covered; 
VI[A]: service not covered; 
Number of states: 48[L]. 

Sources: Insular area officials and The Kaiser Commission. 

Notes: Number of states includes Washington, D.C. 

The Kaiser Commission on Medicaid and the Uninsured. Medicaid Benefits: 
Online Database (The Henry J. Kaiser Family Foundation). 
http://www.kff.org/medicaid/benefits/index.jsp (downloaded Aug. 22, 
2005). 

[A] All services in the Virgin Islands must be provided in health 
department facilities (including FQHCs and referral facilities located 
off-island) that are pre-approved by the Medicaid program. 

[B] Laboratory and x-ray services require prior approval. 

[C] Ambulance services are covered when appropriate. Off-island 
transportation is not covered. 

[D] No transportation services are covered on-island; transportation 
off-island must be pre-approved. 

[E] Service not provided because of a lack of qualified local 
providers. However, these services are covered off-island when the 
patient is referred off-island to receive them. 

[F] Certified nurse practitioner services are not covered as a separate 
entity, but are covered if they are provided in a Medicaid-certified 
facility or program. 

[G] California does not cover nurse practitioner services. 

[H] Long-term or transitional care provided on a case-by-case basis in 
hospital wards. 

[I] Nursing facility care is available to Medicaid enrollees in a non- 
Medicaid certified facility. This coverage is a supplement to the 
Medicaid program and is paid for by Guam's Medically Indigent Program. 

[J] The Virgin Islands has one nursing facility with 80 beds, 20 of 
which are Medicaid certified. No other nursing facility services are 
available. 

[K] Illinois does not cover nurse midwife services. 

[L] Connecticut, D.C., and New Jersey do not cover rural health clinic 
services. 

[End of table] 

Mandatory services may not be provided in an insular area because 
qualified providers or facilities do not exist.[Footnote 50] For 
example, none of the Pacific insular areas have a Medicaid-certified, 
free-standing skilled nursing facility. In other cases, insular areas 
may not cover certain services although qualified providers are 
available. For example, Medicaid-qualified providers are available in 
Puerto Rico for nursing facility, home health, nurse midwife, and 
certified nurse practitioner services; however, because of the 
limitations of the Medicaid cap, the Medicaid program does not include 
them in its benefit package, according to a Puerto Rico Medicaid 
official. Similarly, an official associated with the Virgin Islands' 
Medicaid program said that although qualified providers are available, 
nurse midwife and nurse practitioner services are not covered due to 
their costs. However, the Medicaid programs of some insular areas incur 
additional costs that states may not. For example, several insular 
areas pay the costs associated with transporting enrollees off-island 
to receive services not available locally. The costs associated with 
transportation are typically high, particularly for the Pacific insular 
areas, and count against the Medicaid cap.[Footnote 51] In addition, 
each insular area has chosen to add benefits, such as coverage for 
outpatient prescription drugs, which are optional under the statute. 
(See app. III for a summary of these optional benefits.)[Footnote 52] 

Federal SCHIP individual spending levels were also lower in the insular 
areas compared to the states. In fiscal year 2003, federal SCHIP 
spending per child under age 19 averaged $24 in the insular areas 
(ranging from $14 in American Samoa to about $25 in Puerto Rico) 
compared to an average of $41 in the states. When compared to the 
states, the insular areas are poorer and have a higher proportion of 
children under 19 years of age. Therefore, the statutory SCHIP 
allotment, which distributes funds to the insular areas based on their 
proportion of total insular population versus number of uninsured 
children, contributes to this disparity. However, as is the case with 
the Medicaid program, the operation of the SCHIP program in most of the 
insular areas is fundamentally different than the states. For example, 
while nearly 6 million children were served through SCHIP state 
programs in fiscal year 2003,[Footnote 53] most of the insular areas do 
not have a unique SCHIP program that extends health insurance coverage 
to additional children. Instead, the insular areas primarily use SCHIP 
funds to continue to pay for services provided to children enrolled in 
the Medicaid program once the Medicaid cap is met. One exception is 
Puerto Rico, which uses SCHIP funding to extend Medicaid coverage to 
children with family incomes between 100 and 200 percent of its local 
poverty level.[Footnote 54] 

HHS Per Capita Grant Spending Is Higher in Insular Areas: 

In fiscal year 2003, total HHS per capita spending on health-related 
grants from three agencies--CDC, HRSA, and SAMHSA--was higher in the 
insular areas compared to the states. On average, these three agencies 
awarded about $60 per capita in the insular areas compared to about $48 
per capita in the states. Differences in per capita spending are due in 
part to the methods used to allocate grant funds. For example, the base 
rate formula used to calculate the CDC bioterrorism grant results in 
higher payments to all insular areas except Puerto Rico and to states 
with smaller populations. In the four smaller insular areas, awards per 
capita for this grant range from $5.20 in Guam to $11.37 in American 
Samoa, and in states with small populations, such as Alaska and 
Wyoming, awards were $10.62 and $12.06 respectively compared to $3.61 
in the states on average. (See fig 7.) 

Figure 7: Per Capita Funding to Insular Areas and Selected States for 
CDC's Bioterrorism Grant, Fiscal Year 2003: 

[See PDF for image] 

[End of figure] 

Agency Comments and Our Evaluation: 

We provided a draft of this report for comment to HHS, DOI, and key 
health officials in each of the five insular areas. We received written 
comments from DOI, American Samoa, CNMI, and Puerto Rico, which are 
included in appendixes IV, V, VI and VII, respectively. Although HHS 
provided no general comments, it did provide technical comments, as did 
Puerto Rico, which we incorporated as appropriate. 

DOI noted that improving health care in the insular areas is a priority 
for both the agency and the insular areas and commented that the report 
will help identify areas of disparity which may be reviewed for 
improvement. The insular areas expressed concern that the report did 
not sufficiently address certain issues, such as implications of 
statutory limits on federal Medicaid spending and a more comprehensive 
analysis of local circumstances that affect the availability and costs 
of health care services. The insular areas also provided a number of 
specific comments and suggestions. 

Specifically, CNMI and Puerto Rico commented that the statutory limits 
on federal Medicaid spending--the Medicaid cap and minimum FMAP--result 
in insufficient federal Medicaid payments to the insular areas and 
explain the significant differences in federal Medicaid payments 
between them and the states. For example, CNMI noted that one patient 
with an expensive medical condition, such as a baby with congenital 
heart disease or a child with leukemia, can consume a large portion of 
the available federal Medicaid contribution in a given year. CNMI also 
commented that the federal funding limits prevent its Medicaid program 
from providing all Medicaid mandatory services and suggested that the 
report implied that this was a "satisfactory state of affairs" because 
the federal government does not penalize insular areas for not 
providing these services. We did not intend to imply that this is a 
satisfactory condition; rather, our purpose was to describe mandatory 
Medicaid services that are not provided by insular areas and to explain 
that, in light of the limits on federal funding, CMS does not hold 
these areas accountable for providing these services. We revised the 
report to clarify this point. 

The three insular areas commented that the report did not adequately 
explore other implications of the statutory federal funding limits, 
including the impact on the local contribution to total health care 
costs and the local health care infrastructure. For example, Puerto 
Rico commented that as a result of the limits on federal Medicaid 
payments, it and other insular areas shoulder a larger share of 
financial responsibility for the Medicaid program than the states, and 
that the federal contribution to the program is far less than the 
minimum FMAP suggests. Similarly, CNMI commented that the report failed 
to discuss the effect of limited federal funding on health outcomes, 
physician recruitment and retention, and other necessary government 
services. American Samoa commented that the report minimized or omitted 
local circumstances that affect the costs of health care services and 
are major factors in the analysis of federal funding. For example, a 
local statute requires the American Samoan government to provide 
medical services to qualified citizens at no cost, and its only 
hospital, which the government owns and operates, is the sole provider 
of primary, secondary, and tertiary care. In combination, these factors 
have deterred the development of privately-owned health care facilities 
and providers, which can not compete with government-level charges, and 
this has limited the availability of services. Where appropriate, we 
revised the report to include information about these local 
circumstances and their effect on American Samoa's ability to provide 
health care services. A more comprehensive analysis of insular areas' 
local contribution to total health care funding or their health care 
infrastructures, however, was beyond the scope of this report. 

The insular areas also provided a number of specific comments or 
suggestions. For example, CNMI commented that the report implied that 
the availability of certain grant funds, including those provided to 
offset the cost of providing services to residents of the freely 
associated states, ameliorated the adverse effects of disparities in 
federal funding for the Medicare and Medicaid programs and added that 
grant funds are not enough to replace inadequate Medicaid funding. It 
was not our intent to imply that these grants are a substitute for 
other sources of federal health care funding. Rather, the report 
identifies major sources of federal health care funding in insular 
areas, of which grants are a significant portion. Puerto Rico also 
suggested that the report include a more thorough and substantive 
review of several issues it considers to be programmatic barriers to a 
balanced partnership between insular areas and the federal government, 
including the Medicaid cap, SCHIP allotment methods, and the level of 
the Medicare Part D low-income subsidy for insular areas. Such an 
analysis was beyond the scope of this report. 

Finally, CNMI commented the report should include recommendations to 
address what it characterizes as "the outright discrimination in 
federal health care funding" for the insular areas and suggested that 
specific recommendations could include eliminating the Medicaid cap, 
calculating the FMAP based on actual poverty rates, and providing 
additional Medicare Part D pharmacy benefits. We acknowledge CNMI's 
views on the adequacy of current levels of federal health care funding. 
However, we did not include recommendations in this report because it 
is the Congress's prerogative to set the overall design of the Medicaid 
program. Puerto Rico commented that this report describes many of the 
challenges and the imbalance affecting the federal and insular area 
health care partnership, such as the Medicaid cap, and provides the 
foundation for the Congress to address these issues. 

As arranged with your offices, unless you publicly announce the 
contents of this report earlier, we plan no further distribution of it 
until 30 days after its issuance date. At that time, we will send 
copies of this report to the Secretary of Health and Human Services, 
the Secretary of the Interior, and insular area governments. In 
addition, the report is available at no charge on GAO Web site at 
http://www.gao.gov. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7118 or allenk@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 VIII. 

Signed by: 

Kathryn G. Allen: 
Director, Health Care: 

List of Requesters: 

The Honorable Dan Burton: 
Chairman: 
Subcommittee on the Western Hemisphere: 
Committee on International Relations:
House of Representatives: 

The Honorable Neil Abercrombie: 
The Honorable Madeleine Z. Bordallo: 
The Honorable Ed Case:
The Honorable Donna Christensen: 
The Honorable Eni F.H. Faleomavaega: 
The Honorable Raúl Grijalva: 
The Honorable Michael M. Honda: 
The Honorable Robert Menendez: 
House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

To compare characteristics of the five largest insular areas--American 
Samoa, the Commonwealth of the Northern Mariana Islands (CNMI), Guam, 
Puerto Rico, and the Virgin Islands--we used demographic data from the 
Census Bureau and disease mortality data from the Centers for Disease 
Control and Prevention (CDC). Except for Puerto Rico, interim and 
supplemental censuses to the decennial census are not performed for the 
insular areas. Therefore, 2000 census data for all insular areas and 
states were used for consistency. Reliable data for the incidence of 
disease are not collected for all insular areas. CDC's 2002 natality 
and mortality report provided health indicator data except where the 
number of cases was too few to provide reliable estimates. 

To identify key federal sources of health care funding to the insular 
areas we reviewed the Census Bureau's Consolidated Federal Funds Report 
and conducted interviews with representatives from insular areas, six 
agencies of the Department of Health and Human Services (HHS),[Footnote 
55] the Department of the Interior's Office of Insular Affairs (DOI- 
OIA), and the White House Office of Intergovernmental Affairs. We 
defined health care funding as federal funds provided to support 
directly delivered health care, health data collection, disease 
prevention, and other health-related activities. On the basis of the 
discussions, we focused our work on the following key sources of 
funding: Medicare, Medicaid, and SCHIP, in addition to grants from 
three HHS agencies--CDC, the Health Resources and Services 
Administration (HRSA), and the Substance Abuse and Mental Health 
Services Administration (SAMHSA)--and DOI.[Footnote 56] 

We collected federal health expenditure data for the states and the 
insular areas. We selected five states for comparison to insular areas-
-Alaska, Hawaii, Mississippi, West Virginia, and Wyoming. States were 
selected on the basis of one or more criteria: geographic remoteness, 
low Medicare spending, and high federal Medicaid matching rate. 

We analyzed data provided by each agency and by the insular areas to 
identify the composition of federal health care funding to insular 
areas and growth in the awards from fiscal year 1999 through 2003. We 
compared insular area data with funding to the states as a whole, and 
to select individual states. We also analyzed expenditures per capita 
or by beneficiaries of respective programs, where available and 
consistent.[Footnote 57] 

Medicare: 

To calculate Medicare expenditures for beneficiaries residing in the 
insular areas, we used Medicare's 1999-2003 claims data.[Footnote 58] 
We supplemented the results with figures for inpatient and Part C 
expenditures calculated by the Centers for Medicare & Medicaid Services 
(CMS).[Footnote 59] Expenditures for the U.S. for fiscal year 2003 were 
obtained from CMS.[Footnote 60] Beneficiary figures for the insular 
areas and the U.S. were calculated using CMS's Denominator File, which 
contains enrollment data for Medicare beneficiaries.[Footnote 61] We 
used the Denominator File and CMS's National Claims History File for 
Physician and Supplier Claims Data to calculate Medicare Part B 
utilization by beneficiaries in the insular areas and select 
states.[Footnote 62] 

Medicaid: 

We obtained insular area and state Medicaid expenditure data from 
CMS.[Footnote 63] Medicaid enrollee figures were obtained directly from 
CMS and the insular areas, but were not consistently available from all 
insular areas in all years. 

SCHIP: 

SCHIP funding, including the initial allotments, supplementary 
allocations, and redistribution funds for the insular areas and states 
for fiscal years 1999 through 2003 were obtained from the Federal 
Register.[Footnote 64] SCHIP enrollee figures were not consistently 
available for insular areas. 

HHS grants: 

We obtained data from HHS's Tracking Accountability in Government 
Grants System for fiscal years 1999 through 2003.[Footnote 65] For the 
grants provided by three HHS agencies, we evaluated the annual total 
and per capita award to each insular area, as well as nationally and 
for the selected states. 

We totaled the award amounts for each grant in fiscal years 2002, 2003, 
and 2004 and identified eight individual grants whose 3-year aggregate 
comprised at least 5 percent of all HHS grant funding to any insular 
area and were awarded to at least three areas. We obtained the select 
grant award amounts from the agencies and computed the per capita award 
amounts for each of the insular areas, nationally, and for the selected 
states.[Footnote 66] 

For the select HHS grants, we obtained information about the 
application processes, allocation methods, and administrative 
requirements for insular areas and the states from the agencies. To 
identify differences in funding allocation methods, we reviewed 
relevant federal laws, regulations, and guidance. We augmented that 
work with interviews of officials at funding agencies to identify 
variations between programs for states and insular areas. 

Department of the Interior Grants: 

DOI-OIA provided us with the funding totals for health-related grants 
provided to insular areas. Grants included funds earmarked for health 
care infrastructure, technical assistance, and to offset the cost of 
providing services to residents of the freely associated states. 

Data Reliability: 

For the key sources identified, we obtained comprehensive health 
expenditure data for federal fiscal years 1999 through 2003 from the 
respective agencies. To assess the reliability of the program 
expenditure data, we reviewed relevant documentation, interviewed 
knowledgeable agency officials about the data, and conducted electronic 
data testing. To assess the reliability of HHS and DOI-OIA data, we 
talked with officials about data quality control procedures and 
reviewed relevant documentation. We determined the data were 
sufficiently reliable for the purposes of this report. 

We conducted our work from October 2004 through September 2005 in 
accordance with generally accepted government auditing standards. 

[End of section] 

Appendix II: Changes in Insular Area Health Care Funding Proportions 
over Time: 

When considered in the aggregate, health care funding in the five 
largest insular areas varied little in terms of the proportion of 
funding attributable to various sources for fiscal years 1999 through 
2003. For each of the years, Medicare represented about three-quarters 
of total funding, followed by Medicaid and HHS grants, which each 
represented about one-tenth of the total. Funding from SCHIP and DOI 
grants together represented 5 percent or less of total funding. 
However, Puerto Rico's comparatively large population masks much of the 
variation in funding sources that exists in the other insular areas. 
These areas, particularly those in the Pacific, are considerably more 
reliant upon grant funding, which can fluctuate from year to year. (See 
fig. 8 through 13 and tables 4 through 9.)[Footnote 67] 

Figure 8: Ratio of Federal Funding Sources for Five Insular Areas, 
Fiscal Years 1999 through 2003: 

[See PDF for image] 

[End of figure] 

Table 4: Federal Health Care Spending for Five Insular Areas, Fiscal 
Years 1999 through 2003: 

Medicare; 
1999: $1,192,327,998; 
2000: $1,266,268,455; 
2001: $1,399,127,443; 
2002: $1,548,352,782; 
2003: $1,677,804,491. 

Medicaid; 
1999: $187,080,000; 
2000: $193,630,000; 
2001: $201,160,000; 
2002: $210,430,000; 
2003: $226,181,000. 

SCHIP; 
1999: $72,283,085; 
2000: $68,055,124; 
2001: $63,252,222; 
2002: $39,822,486; 
2003: $33,075,000. 

HHS grants; 
1999: $144,420,702; 
2000: $166,695,857; 
2001: $189,640,591; 
2002: $257,142,673; 
2003: $250,283,171. 

DOI grants; 
1999: $12,230,000; 
2000: $13,584,790; 
2001: $17,002,352; 
2002: $12,085,000; 
2003: $13,565,894. 

Total; 
1999: $1,608,341,785; 
2000: $1,708,234,226; 
2001: $1,870,182,608; 
2002: $2,067,832,941; 
2003: $2,200,909,556. 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, 
grants from three HHS agencies, and DOI. 

[End of table] 

Figure 9: Ratio of Federal Health Care Funding Sources for American 
Samoa, Fiscal Years 1999 through 2003: 

[See PDF for image] 

Note: Figures may not total to 100 percent due to rounding. 

[End of figure] 

Table 5: Federal Health Care Spending for American Samoa, Fiscal Years 
1999 through 2003: 

Medicare; 
1999: $4,629,925; 
2000: $4,827,064; 
2001: $5,602,888; 
2002: $7,382,854; 
2003: $7,666,176. 

Medicaid; 
1999: $3,090,000; 
2000: $3,200,000; 
2001: $3,320,000; 
2002: $3,470,000; 
2003: $3,727,000. 

SCHIP; 
1999: $867,397; 
2000: $816,661; 
2001: $759,027; 
2002: $477,870; 
2003: $396,900. 

HHS grants; 
1999: $1,299,877; 
2000: $2,178,295; 
2001: $2,677,466; 
2002: $5,554,821; 
2003: $5,123,934. 

DOI grants; 
1999: $9,657,000; 
2000: $9,389,790; 
2001: $9,565,502; 
2002: $9,392,000; 
2003: $9,891,947. 

Total; 
1999: $19,544,199; 
2000: $20,411,810; 
2001: $21,924,883; 
2002: $26,277,545; 
2003: $26,805,957. 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, 
grants from three HHS agencies, and DOI. 

[End of table] 

Figure 10: Ratio of Federal Health Care Funding Sources for CNMI, 
Fiscal Years 1999 through 2003: 

[See PDF for image] 

Note: Figures may not total to 100 percent due to rounding. 

[End of figure] 

Table 6: Federal Health Care Spending for CNMI, Fiscal Years 1999 
through 2003: 

Medicare; 
1999: $3,109,803; 
2000: $4,947,156; 
2001: $7,498,466; 
2002: $7,050,130; 
2003: $6,586,360. 

Medicaid; 
1999: $1,860,000; 
2000: $1,930,000; 
2001: $2,010,000; 
2002: $2,100,000; 
2003: $2,255,000. 

SCHIP; 
1999: $795,113; 
2000: $748,606; 
2001: $695,775; 
2002: $438,047; 
2003: $363,825. 

HHS grants; 
1999: $1,102,221; 
2000: $1,090,134; 
2001: $1,385,892; 
2002: $1,489,705; 
2003: $3,305,777. 

DOI grants; 
1999: $153,000; 
2000: $10,000; 
2001: $4,152,100; 
2002: -; 
2003: $230,000. 

Total; 
1999: $7,020,137; 
2000: $8,725,896; 
2001: $15,742,233; 
2002: $11,077,882; 
2003: $12,740,962. 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, 
grants from three HHS agencies, and DOI. 

[End of table] 

Figure 11: Ratio of Federal Health Care Funding Sources for Guam, 
Fiscal Years 1999 through 2003: 

[See PDF for image] 

Note: Figures may not total to 100 percent due to rounding. 

[End of figure] 

Table 7: Federal Health Care Spending for Guam, Fiscal Years 1999 
through 2003: 

Medicare; 
1999: $15,265,639; 
2000: $16,994,396; 
2001: $18,636,429; 
2002: $22,728,513; 
2003: $26,832,745. 

Medicaid; 
1999: $5,230,000; 
2000: $5,410,000; 
2001: $5,620,000; 
2002: $5,880,000; 
2003: $6,321,000. 

SCHIP; 
1999: $2,529,909; 
2000: $2,381,930; 
2001: $2,213,827; 
2002: $1,393,787; 
2003: $1,157,625. 

HHS grants; 
1999: $2,859,071; 
2000: $5,795,473; 
2001: $7,020,535; 
2002: $9,108,189; 
2003: $10,495,714. 

DOI grants; 
1999: $2,420,000; 
2000: $4,185,000; 
2001: $2,855,000; 
2002: $2,633,000; 
2003: $3,443,947. 

Total; 
1999: $28,304,619; 
2000: $34,766,799; 
2001: $36,345,791; 
2002: $41,743,489; 
2003: $48,251,031. 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, 
grants from three HHS agencies, and DOI. 

[End of table] 

Figure 12: Ratio of Federal Health Care Funding Sources for Puerto 
Rico, Fiscal Years 1999 through 2003: 

[See PDF for image] 

Note: Figures may not total to 100 percent due to rounding. 

[End of figure] 

Table 8: Federal Health Care Spending for Puerto Rico, Fiscal Years 
1999 through 2003: 

Medicare; 
1999: $1,141,552,210; 
2000: $1,209,959,203; 
2001: $1,337,114,946; 
2002: $1,476,738,502; 
2003: $1,599,351,575. 

Medicaid; 
1999: $171,500,000; 
2000: $177,500,000; 
2001: $184,400,000; 
2002: $192,900,000; 
2003: $207,341,000. 

SCHIP; 
1999: $66,211,306; 
2000: $62,338,494; 
2001: $57,939,035; 
2002: $36,477,397; 
2003: $30,296,700. 

HHS grants; 
1999: $133,820,563; 
2000: $149,657,652; 
2001: $168,783,855; 
2002: $221,260,544; 
2003: $216,598,403. 

DOI grants; 
1999: -; 
2000: -; 
2001: -; 
2002: -; 
2003: -. 

Total; 
1999: $1,513,084,079; 
2000: $1,599,455,349; 
2001: $1,748,237,836; 
2002: $1,921,376,443; 
2003: $2,053,587,678. 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, 
grants from three HHS agencies, and DOI. 

[End of table] 

Figure 13: Ratio of Federal Health Care Funding Sources for the Virgin 
Islands, Fiscal Years 1999 through 2003: 

[See PDF for image] 

Note: Figures may not total to 100 percent due to rounding. 

[End of figure] 

Table 9: Federal Health Care Spending for the Virgin Islands, Fiscal 
Years 1999 through 2003: 

Medicare; 
1999: $27,770,421; 
2000: $29,540,636; 
2001: $30,274,714; 
2002: $34,452,783; 
2003: $37,367,635. 

Medicaid; 
1999: $5,400,000; 
2000: $5,590,000; 
2001: $5,810,000; 
2002: $6,080,000; 
2003: $6,537,000. 

SCHIP; 
1999: $1,879,360; 
2000: $1,769,433; 
2001: $1,644,558; 
2002: $1,035,385; 
2003: $859,950. 

HHS grants; 
1999: $5,338,970; 
2000: $7,974,303; 
2001: $9,772,843; 
2002: $19,729,414; 
2003: $14,759,343. 

DOI grants; 
1999: -; 
2000: -; 
2001: $429,750; 
2002: $60,000; 
2003: -. 

Total; 
1999: $40,388,751; 
2000: $44,874,372; 
2001: $47,931,865; 
2002: $61,357,582; 
2003: $59,523,928. 

Source: GAO analysis of funding data from Medicare, Medicaid, SCHIP, 
grants from three HHS agencies, and DOI. 

[End of table] 

[End of section] 

Appendix III: Characteristics of Insular Areas' Medicaid Programs: 

To obtain Medicaid federal matching funds, state and insular area 
programs are to meet broad criteria related to eligibility, including 
categorical, income, and resource requirements. However, the insular 
areas vary in the extent to which their eligibility standards comply 
with the federal standards. For example, Guam, Puerto Rico, and the 
Virgin Islands use the same broad federal categories established in 
statute; however, the levels two of these areas use to determine income 
eligibility are based on locally established poverty levels rather than 
the federal poverty level (FPL). Table 10 compares the federal 
categorical and income eligibility standards to those in the insular 
areas. 

Table 10: Comparison of Federal Medicaid Categorical and Income 
Eligibility Standards to Insular Area Standards, Fiscal Year 2004: 

Federal eligibility standards: States; 
Categories: Five federal categories[A]; 
Income level in relation to FPL: Varies by category, ranges between 
100% to 185% of FPL for low income children to 133% to 185% of FPL for 
pregnant women; 
Number of enrollees (percentage of total population): 41.9 million 
(14%). 

Federal eligibility standards: American Samoa; 
Categories: No specific categories; 
Income level in relation to FPL: At or below FPL; 
Number of enrollees (percentage of total population): 37,504 (65%). 

Federal eligibility standards: CNMI; 
Categories: Individuals whose total income does not exceed 150% of the 
SSI federal benefit amount and allowable resource limit; 
Income level in relation to FPL: The federal benefit rate is $10,152 
per year for an individual and allowable resource limit of $2,000 per 
year for an individual; 
Number of enrollees (percentage of total population): 9,758 (12%). 

Federal eligibility standards: Guam; 
Categories: Five federal categories[A]; 
Income level in relation to FPL: Below FPL; 
Number of enrollees (percentage of total population): 25,529 (15%). 

Federal eligibility standards: Puerto Rico; 
Categories: Five federal categories[A]; 
Income level in relation to FPL: At or below local poverty level, which 
was $4,800 per year for an individual; 
Number of enrollees (percentage of total population): 938,266 (24%). 

Federal eligibility standards: Virgin Islands; 
Categories: Five federal categories[A]; 
Income level in relation to FPL: At or below local poverty level, which 
was about $5,500 per year for an individual; 
Number of enrollees (percentage of total population): 16,125 (15%). 

Source: GAO analysis of data from CMS, Kaiser Family Health Foundation, 
and insular area officials. 

Note: In 2004, 100 percent of FPL for an individual was $9,310 per 
year, 133 percent of the FPL was $12,382 per year, and 185 percent of 
the FPL was $17,224 per year. 

[A] The five federal categories are children, pregnant women, adults in 
families with children, elderly, and individuals with disabilities. 

[End of table] 

In addition to eligibility requirements, Medicaid mandates coverage for 
certain services. However, as shown in table 3, none of the insular 
areas provides coverage for all the mandatory services. Nonetheless, 
each insular area, like the states, has chosen to add optional benefits 
under the statute, with most providing coverage for outpatient 
prescription drugs, clinic services, dental and eye care, and physical 
therapy. (See table 11.) 

Table 11: Summary of Certain Optional Medicaid Services Covered by 
Insular Areas and States, Fiscal Year 2005: 

Service: Outpatient prescription drugs; 
AS: service covered; 
CNMI: service covered[A]; 
GU: service covered; 
PR: service covered; 
VI: service covered[B]; 
Number of states: 51. 

Service: Dental services; 
AS: service covered; 
CNMI: service covered with limitations[C]; 
GU: service covered; 
PR: service covered; 
VI: service covered; 
Number of states: 45. 

Service: Clinic services; 
AS: service not covered; 
CNMI: service covered; 
GU: service covered; 
PR: service covered; 
VI: service covered; 
Number of states: 47. 

Service: Prosthetic devices, eyeglasses; 
AS: service covered; 
CNMI: service covered[D]; 
GU: service covered; 
PR: service not covered; 
VI: service covered with limitations[E]; 
Number of states: 48 and 41. 

Service: Physical therapy and related services; 
AS: service covered; 
CNMI: service covered; 
GU: service not covered; 
PR: service covered; 
VI: service not covered; 
Number of states: 34. 

Service: Inpatient psychiatric hospital services for individuals under 
age 21; 
AS: service covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service not covered; 
VI: service not covered; 
Number of states: 48. 

Service: Personal care services; 
AS: service not covered; 
CNMI: service covered; 
GU: service not covered; 
PR: service not covered; 
VI: service not covered; 
Number of states: 31. 

Service: Diagnostic, screening, preventive, and rehabilitative 
services; 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service covered; 
VI: service not covered; 
Number of states: 35. 

Service: Intermediate care facility for individuals with mental 
retardation (ICF/MR) services; 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service not covered; 
VI: service not covered; 
Number of states: 51. 

Service: Targeted case management services (home and community health); 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service not covered; 
VI: service not covered; 
Number of states: 50. 

Service: Hospice care; 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service not covered; 
VI: service not covered; 
Number of states: 48. 

Service: Inpatient hospital and nursing facility services for 
individuals 65 or over in an institution for mental diseases (IMD); 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service not covered; 
VI: service not covered; 
Number of states: 44. 

Service: Private duty nursing services; 
AS: service not covered; 
CNMI: service not covered; 
GU: service not covered; 
PR: service not covered; 
VI: service not covered; 
Number of states: 23. 

Sources: Insular area officials and The Kaiser Commission. 

Notes: Number of states includes Washington, D.C. 

The Kaiser Commission on Medicaid and the Uninsured. Medicaid Benefits: 
Online Database (The Henry J. Kaiser Family Foundation). 
http://www.kff.org/medicaid/benefits/index.jsp (downloaded Aug. 22, 
2005). 

[A] Drug coverage is limited to a 30-day supply unless a larger 
quantity is required for off-island travel. Any quantity larger than 
the 30-day supply must be pre-approved. 

[B] Prior approval required for prescriptions that cost more than $200. 

[C] Most dental services are covered, including fillings and 
extractions, and dentures are covered subject to prior approval. 
Orthodontics, prosthetics, and root canals are specifically not 
covered, and oral surgery is limited to emergencies. 

[D] Prior authorization is required for prosthetic devices and 
eyeglasses. 

[E] Eye clinic care provided to children only. 

[End of table] 

[End of section] 

Appendix IV: Comments from the Department of the Interior: 

United States Department of the Interior: 

OFFICE OF THE ASSISTANT SECRETARY POLICY, MANAGEMENT AND BUDGET: 

Washington, DC 20240: 

SEP 16 2005: 

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

Dear Ms. Allen: 

Thank you for the opportunity to respond to the U.S. Office of 
Government Accountability (GAO) draft report entitled, "U.S. INSULAR 
AREAS: Multiple Factors Affect Federal Health Care Funding" (GAO-05- 
969). 

We strongly support the purpose of this report and look forward to 
receiving it in its final form. Improving health care in the insular 
areas is a priority of both the insular area governments and the 
Department of the Interior. Although the report draws no conclusions 
and makes no recommendations, the information will help identify areas 
of disparities which may be reviewed for improvement. 

If you wish to discuss the report, please contact David B. Cohen, 
Deputy Assistant Secretary for Insular Affairs, or Nikolao Pula, 
Director of the Office of Insular Affairs at (202) 208-4736. 

Sincerely, 

Signed by: 

P. Lynn Scarlett: 
Assistant Secretary Policy, Management and Budget: 

[End of section] 

Appendix V: Comments from American Samoa: 

LBJ Tropical Medical Center: 
P.O. Box LBJ:
Pago Pago, American Samoa 96799: 
Office of the Chief Executive Officer: 

"Commitment to Healthcare Excellence" 

September 9, 2005: 

Serial#: 142-05: 

Ms. Kathryn G. Allen: 
Director, Health Care: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

Dear Ms. Allen, 

Per your communiqué, the LBJ Tropical Medical Center has conducted a 
review of the Draft Report to Congress entitled, "U.S. Insular Areas, 
Multiple Factors Affect Federal Health Care Funding". We thank you for 
the opportunity afforded to review and comment on the draft report. 

The GAO report offers a "bird's eye view" of funding by the federal 
government to the Insular Areas. This perspective provides a context 
which can and does skew the information and its implications at a 
jurisdictional level. The LBJ Tropical Medical Center is concerned that 
the overview does not provide an accurate representation of primary, 
secondary and tertiary medical services costs and revenues, and 
furthermore, minimizes or omits local circumstances that in our opinion 
are major factors in the analysis of costs versus revenues and the 
allocation of federal funding thereof. 

Omissions and Oversights: 

Due to the report's overview nature, statutory or regulatory barriers 
that are of enormous impact to the healthcare services and the costs of 
healthcare services in American Samoa are Either minimized or neglected 
altogether in its analysis. We feel that in order for the report to 
provide a more accurate representation, the following factors need 
delineation and emphasis: 

* In American Samoa, a local "statute" prescribes that medical 
attention will be provided "free of cost" by the government to all 
citizens qualified under the law. This provision precludes the LBJ 
Tropical Medical Center from charging patients professional physician 
or technician, or technologist fees. The provision further stipulates 
conditional parameters that severely hamper the hospital's ability to 
recapture costs via overhead charges. By extension, because this law 
directs the provision of socialized medicine, it acts a barrier to the 
development of privately owned and operated healthcare services for the 
simple reason that they cannot operate on a competitive basis with low 
cost care provided by the government for "all legal residents". 

Nowhere in the report is it mentioned that for the Pacific Insular 
areas, the major hospitals are government owned and operated. In many 
cases, certainly for American Samoa, government owned and operated 
hospitals are the sole providers of primary, secondary and tertiary 
health care in the islands. This market condition has a large impact on 
the availability of services and the inability to develop private 
healthcare interests in the territory. There are no nursing care 
homes/facilities in the American Samoa because 1) the LBJ Tropical 
Medical Center provides long term care as part of its in-patient 
services; 2) this deters private interests from developing independent 
services due to the inability to compete with government level charges. 

* The report cites that American Samoa has a sizable dialysis facility 
yet does not have a Nephrologist. This is an erroneous statement. The 
LBJTMC has since it began dialysis services nearly 20 years, maintained 
a consultant contract with a qualified Nephrologist at the St. Francis 
Medical Center. This contractor provides regular patient contact and 
treatment orders for all the dialysis patients in the territory on a 
frequency and manner that has met and will continue to meet quality of 
care standards of the Centers for Medicaid and Medicare Services, U.S. 
Department of Health and Human Services. 

Again we appreciate the opportunity to review the draft report and hope 
that our comments assist you in providing a report of meaning and 
substance to Congress. 

Sincerely, 

Signed by: 

Taufete'e John Faumuina: 
Chief Executive Officer: 

[End of section] 

Appendix VI: Comments from the Commonwealth of the Northern Mariana 
Islands: 

Commonwealth of the Northern Mariana Islands: 
Office of the Attorney General: 
CIVIL DIVISION: 

September 16, 2005 (Mainland Date): 

Kathryn G. Allen, Director, Health Care: 
Susan T. Anthony, Assistant Director: 
US Government Accountability Office: 
Washington, DC 20548: 

Via Email: allenk@gao.gov; anthonys@gao.gov: 

Re: Draft Report Entitled U.S. Insular Areas: Multiple Factors Affect 
Federal Health Care Funding (GAO-05-969): 

Dear Ms. Allen and Ms. Anthony: 

I appreciate the opportunity to respond to GAO's draft report. Please 
forgive me if I am too direct, but I don't know any other way to talk 
about these matters. 

This is an important report but a disappointing one because it fails to 
recommend anything to right the terrible wrong of the outright 
discrimination in federal health care funding against Pacific Islanders 
and other minorities in the insular areas. 

Buried on page 30 of the report is the most important statement of fact 
in the report: 

Federal Medicaid spending per capita was also lower in the insular 
areas compared to the states. In fiscal year 2003, federal Medicaid per 
capita spending in the states averaged $565 compared to between $33 and 
$65 for the insular areas. Poorer states with higher federal matching 
rates received as much as $813 in federal Medicaid per capita spending- 
more than 12 times the amount received by any insular area. 

The accompanying chart on page 31 shows what the CNMI received in 2003 
in federal funding as compared to its sister states with the same high 
rates of poverty: CNMI received $33 per capita, as compared to $805 for 
Mississippi and $813 for West Virginia. That means CNMI Medicaid 
patients 4% of what Mississippi and West Virginia Medicaid patients got 
in federal funding. The difference is not 12 times. It is 25 times 
greater in Mississippi and West Virginia than in the CNMI though all 
have roughly the same percentage of poor people. 

Shockingly absent from the GAO report is the commonsense recommendation 
[NOTE 1] to stop the discrimination and treat Pacific Islanders and 
other insular minorities equally to other Americans by: 

1) eliminating the Medicaid cap, 

2) applying the FMAP based on actual poverty rates as in the states, 3) 
adjusting SCHIP and DSH payments, and, 

4) providing additional pharmacy funds that mirror the amount of 
Medicare Part D drug benefits. 

Because of the Medicaid cap and the FMAP rate, the entire federal 
contribution to the CNMI Medicaid program can be and usually is wiped 
out every year by the off island care costs of one baby with congenital 
heart disease or a child with leukemia, along with outpatient drug 
costs, including very expensive medications for hemophiliac patients. 
Nothing then remains to assist with preventative care and the other 
direct medical care costs of the many thousands of other poor, sick, 
elderly, and disabled Pacific Islanders. 

Absent from the report is any discussion from the literature about the 
negative health outcomes that result when people (any people) do not 
receive basic, primary health care and preventative health services. 

Absent is any mention of the difficulty of recruiting and retaining 
qualified physicians and other health care workers when the pay is so 
low, modern equipment and consulting specialists are generally 
unavailable, and the workload is so great, all due to lack of adequate 
federal funding for health care. 

There is no discussion of the impact on other necessary government 
services when so much of local funds must go for health care services 
covered by the federal government elsewhere. What happens to schools 
and social services and roads and public safety when so much is drained 
from local sources to pay the federal government's share of health care 
costs? 

The report notes that nursing home and transportation services [NOTE 2] 
are not provided in most if not all of the insular areas as Medicaid 
benefits, though they are mandatory Medicaid services. The report then 
suggests that this may be a satisfactory state of affairs because the 
federal government does not penalize the territories for not providing 
them, or maybe they aren't provided because there are no providers, or 
maybe they do not exist because of "cultural differences." The truth is 
that they don't exist because there is no money to fund them due to the 
Medicaid cap and the low FMAP rate. Nursing home and transportation 
services are important and that is why they are mandatory services 
under Medicaid. However, there are no funds to provide them. Likewise 
home health care services, hospice, psychiatric care for children, 
intermediate care facility services for the mentally disabled, and 
other Medicaid benefits routinely available in the states are similarly 
important for good health, but they can't be provided without federal 
participation. 

The report seems to suggest that absence of equal federal funding 
should be excused because some insular areas (like the CNMI) have 
chosen to use Medicaid funds for an optional service, i.e. outpatient 
prescription drugs. However, the report fails to say that such benefits 
are covered by Medicaid in every state and in the District of Columbia 
because they are critical to health. Not to cover them would be 
inconsistent with the purposes of the Medicaid Act, increase other 
health care costs, and undermine the effectiveness of other Medicaid 
services. 

There are references to Compact Impact and other grant funds (such as 
bio-terrorism funds) and it is implied that these grants somehow 
ameliorate the adverse health effects of the discrimination in the 
Medicaid and Medicare [NOTE 3] programs. However, the adequacy of these 
funds to actually cover all the needs for services caused by the 
migration of people from the Freely Associated States is not examined. 
Further, though grant funds are very important and much appreciated, 
they are simply are not enough to replace ongoing primary care cost 
reimbursement for thousands of Medicaid eligible people. [NOTE 4] Bio-
terrorism funds, for example, are used for preparedness and capacity 
building, not direct patient care. 

So, I ask that you revise your report to address these issues and most 
importantly, that the report adopt the recommendations listed above. 

Yours truly, 

Signed by: 

Debra Knapp, Assistant Attorney General: 

Cc: CNMI Secretary of Public Health: Dr. James U. Hofschneider: 

NOTES: 

[1] This report contains no recommendations. Other GAO reports are 
replete with recommendations. 

[2] The cost of transporting a Medicaid patient from the CNMI to a 
Hawaii or California referral center, and housing costs there, are very 
expensive, averaging $2,000 per patient for airfare and $80 per day for 
housing. 

[3] The report also states that Medicare spends roughly half per 
recipient in the insular areas than it does in the states. 

[4] 12% of the people in the CNMI receive Medicaid benefits, though it 
has a much higher than average poverty rate. The national average is 
14% of the population receiving Medicaid benefits. 

[End of section] 

Appendix VII: Comments from the Commonwealth of Puerto Rico: 

COMMONWEALTH OF PUERTO RICO: 

ANIBAL ACEVEDO VILA: 
GOVERNOR: 

September 26, 2005: 

Mr. David M. Walker:
Comptroller General of the United States: 
U.S. Government Accountability Office: 
441 G Street NW:
Washington, DC 20548: 

Dear Mr. Walker: 

As Governor of the Commonwealth of Puerto Rico, I am concerned about 
the federal healthcare resources available to over 4 million U.S. 
citizens on the Island. My advisors have carefully reviewed the draft 
report Healthcare Funding in Insular Areas (GAO 05-969). Enclosed 
please find detailed comments. Yet, I would like to highlight the 
following points: 

First, while the report describes Federal healthcare support, it is 
also important to review the relationship between the Federal and 
Commonwealth healthcare resources, and compare it to the relationship 
between the states and the Federal government. This is critical 
information in order to understand Federal healthcare policies related 
to Puerto Rico. 

In FY `03 the Federal and Commonwealth governments invested $3.3 
billion in Medicare, Medicaid and the S-Chip programs in Puerto Rico. 
Of this amount, the Commonwealth expended $1.3 billion or a 43 per cent 
share of the $3 billion. Nationwide, states and the Federal government 
expended $758 billion for the same programs with the states 
contributing $238 billion or just 29 per cent of the total expenditure. 

The $2 billion of Federal healthcare funds invested in Puerto Rico is 
critical, and as a result the current Federal/Commonwealth healthcare 
partnership results in a 43 percent contribution by the Commonwealth 
for these three important programs while states on average contribute 
29 percent The difference between the Federal government's 71 per cent 
contribution to the states and 58 percent contribution to the 
Commonwealth is a gap that is not stagnant but that grows each year. 
The impact of this gap creates significant quality of care and 
financial pressures on the Puerto Rico healthcare system. 

Second, there are critical programmatic barriers to a balanced 
healthcare partnership. There are essentially four Federal policies 
which GAO highlights in the report that are the barriers to a more 
balanced partnership that would more closely resemble the current 
Federal/state partnership. These include: 

A. Medicaid cap. The Medicaid statute calls for the Commonwealth and 
Federal government to share eligible expenses 50-50; however, because 
of the Medicaid cap the Commonwealth cannot receive more than $219 
million for Medicaid expenses. The effect of the cap is that the 
Commonwealth finances over 80 of Medicaid costs and the Federal 
government supports 20 percent If the Medicaid cap which was 
established in 1968 had been authorized to grow at the same rate as the 
Medicaid program, the cap would now approximate $1.7 billion as opposed 
to $219 million. The cap has effectively kept Federal per capita 
support for Medicaid in Puerto Rico to $50 per year as reported by GAO, 
and it has forced the Commonwealth to take on financial responsibility 
to a much greater extent than any state. Testimony has been provided to 
the Senate and House Committees of jurisdiction and the Department of 
Health and Human Services (HHS) Medicaid Commission outlining a plan 
for rebalancing Commonwealth/Federal healthcare partnership and a key 
element to address that imbalance is by authorizing critical 
expenditures outside of the current cap. 

B. S-Chip Allocation. States receive S-Chip allocations based upon a 
formulation that predicts the relative number of children who need 
health insurance. The Commonwealth does not receive its funds based 
upon this formulation but receives a "seaside" that equates to less 
than one quarter of one percent of the funds available. However, the 
Commonwealth has 1.5 percent of children under 17 in the U.S. which 
over 50 percent of these children living in poverty received less than 
one-quarter of one percent of the S-Chip allocation. A significant step 
in rebalancing the overall Commonwealth/Federal partnership would be to 
include the Commonwealth in the statutory allocation of funds as 
opposed to the set-aside process. 

C. Medicare DSH and DRG. While workers and employers pay the same 
Medicare taxes as other workers in the US, hospitals in Puerto Rico are 
not eligible to receive disproportion share payments and the DRG 
reimbursement rate is calculated differently than for hospitals in the 
states. These two critical differences in the reimbursement structure 
for Puerto Rico hospitals undermine the capitalization and financial 
vitality of hospitals and create additional barriers to providing 
quality healthcare services to the island's elderly. 

Third, there are critical regulatory barriers to a balanced healthcare 
partnership. Currently, several Federal regulatory standards are 
imposed by a variety of agencies to states that receive some financial 
assistance through Medicaid. I recognize that CMS has attempted to be 
flexible in its enforcement of Medicaid regulatory standards --as 
indicated in the report--because of the Medicaid cap in Puerto Rico. 
Fortunately, CMS recognizes that an attempt to mandate significant 
additional Federal requirements when the Commonwealth is already 
financing 80 percent of Medicaid is not an adequate policy. 

However, I am surprised that other agencies of the Federal government 
within the jurisdiction of the Secretary of Health and Human Services 
have not adopted similar policies. For example: 

* the Commonwealth Medicaid program is required to meet the standards 
of the Health Insurance Portability and Accountability Act (HIPPA) but 
with no additional Federal support. 

* the Health Resources and Services Administration (HRSA) has supported 
legal action instituted by community health care centers in Puerto Rico 
to see additional Medicaid reimbursements. 

* the Administration for Children and Families requires the 
Commonwealth to meet various requirements under the Temporary 
Assistance for Needy Families (TANF) program, but the Medicaid cap 
prevents CMS from providing persons leaving welfare in Puerto Rico to 
go to work with transitional medical assistance, a program used by 
every state. 

In addition, it is quite troubling that there are other Federal 
agencies which have instituted legal action to force the Commonwealth 
to spend Commonwealth funds on Medicaid eligible expenses. For example, 
on April 21, 1999, the U.S. Justice Department filed action which 
resulted in the Commonwealth of Puerto Rico signing a consent decree to 
implement provisions of the Olmstead decision. States have authority to 
receive additional Medicaid reimbursement for Olmstead related 
expenses, but the Medicaid cap precludes the additional Federal support 
for Puerto Rico. 

A major contribution to rebalancing the Commonwealth/Federal healthcare 
partnership would be to align Federal policies so that regulatory 
requirements are more consistent with the programmatic and financial 
policies of the Federal government. 

The GAO report provides the foundation for Congress to move forward in 
addressing the imbalance in the Federal/Commonwealth healthcare 
partnership. The report describes many of the challenges that have 
created the current imbalance in this partnership, such as the Medicaid 
cap. The efforts of the GAO in moving forward with this report are 
greatly appreciated and will be of great assistance to the Commonwealth 
in working with Congress to address the inequity of this critical 
healthcare partnership. 

Sincerely, 

Signed by: 

Anibal Acevedo Vila: 

[End of section] 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kathryn G. Allen (202) 512-7118 or allenk@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Susan T. Anthony, Assistant 
Director, Gerardine Brennan, Richard Lipinski, Michaela M. Monaghan, 
Mary Reich, and Margaret J. Weber made key contributions to this 
report. 

FOOTNOTES 

[1] These five insular areas are the subject of this report. Nine 
smaller insular areas of the United States, which are not included in 
the scope of this report, are Navassa Island in the Caribbean Sea, and 
Baker Island, Howland Island, Kingman Reef, Jarvis Island, Johnston 
Atoll, Midway Atoll, Palmyra Atoll, and Wake Island in the Pacific 
Ocean. 

[2] Throughout this report, the term states refers to the 50 states and 
the District of Columbia. 

[3] Those born in American Samoa are considered to be American 
nationals of the United States. An American national is either a 
citizen or someone who "owes permanent allegiance to the United 
States." 8 U.S.C. § 1101(a)(21), (22) (2000). While American nationals 
are not entitled to all the benefits for which only citizens qualify, 
they are not aliens and therefore cannot be expelled or deported. 

[4] Since 1984, Medicare payments to most hospitals have been based on 
PPS instead of on their allowable incurred costs, which was the 
previous practice. Under PPS, each hospital receives a standard rate 
for each discharge related to a specific diagnosis, which is adjusted 
based on local costs and the delivery setting. 

[5] Memorandum of the President, Nov. 30, 1992, 57 Fed. Reg. 57,093 
(1992). For a more thorough discussion of the applicability of the 
provisions of the Constitution to the five insular areas, see GAO, U.S. 
Insular Areas: Application of the U.S. Constitution, GAO/OGC-98-5 
(Washington, D.C.: Nov. 7, 1997). 

[6] The Territorial Clause of the Constitution authorizes the Congress 
to "make all needful Rules and Regulations respecting the Territory or 
other Property" of the United States. U.S. Const. art. IV, § 3, cl. 2. 
Relying on the Territorial Clause, the Congress has enacted legislation 
making some provisions of the Constitution explicitly applicable in the 
insular areas. In addition to this congressional action, courts from 
time to time have ruled on the application of constitutional provisions 
to one or more of the insular areas. 

[7] By comparison, the nearest state to Hawaii is California at 2,400 
miles away. The distance from Anchorage, Alaska, to Seattle, 
Washington, is approximately 1,400 miles. Puerto Rico and the Virgin 
Islands are located in the Caribbean and are both about 1,000 miles 
from Florida. 

[8] The 1999 median household income for Mississippi and West Virginia 
was $31,330 and $29,696 respectively. 

[9] Federally Qualified Health Centers (FQHC) are entities that receive 
federal grants as community health centers under section 330 of the 
Public Health Service Act and typically provide a variety of services, 
including physicians' services and services provided by physician 
assistants and nurse practitioners. (Codified at 42 U.S.C. § 254b 
(2000)). 

[10] To varying degrees, each of the insular areas qualifies for one or 
more federal designations that are used to indicate areas with a 
shortage of providers--Health Professional Shortage Areas (HPSA), 
physician scarcity areas (PSA), and Medically Underserved Areas (MUA)-
-which may help them qualify for certain grants or for increased 
Medicare payments. A HPSA is computed based on factors including 
primary care physician ratio, poverty rates, and infant mortality rate, 
and is used as a qualifying criterion for certain federal grants and a 
10 percent increase in payment rates for Medicare providers. A PSA is 
computed based on the ratio of primary care physicians to Medicare 
beneficiaries and is used to qualify Medicare providers for a 5 percent 
increase in payments. Providers in areas that are designated as both 
HPSA and PSA qualify for both payment increases. A MUA is computed 
based on factors including the ratio of primary care providers to the 
population, the percentage of the population over 65, and the poverty 
level, and is used as a qualifying criterion for certain federal 
grants. 

[11] Traditionally, Medicare has paid for covered services on a fee- 
for-service basis. Medicare Advantage, known as Part C, encompasses 
private managed care plans that provide Medicare-covered benefits to 
enrollees. Beneficiaries who opt for Medicare Advantage plans must pay 
the Part B premium. 

[12] This fee is waived for certain low-income beneficiaries in the 
states. For more details on the savings provided by the discount drug 
card, see GAO, Prescription Drug Discount Cards: Savings Depend on 
Pharmacy and Type of Card Used, GAO-03-912 (Washington, D.C.: Sept. 3, 
2003). 

[13] The Balanced Budget Act of 1997 established SCHIP as Title XXI of 
the Social Security Act. Pub. L. No. 105-33, § 4901, 111 Stat. 251, 552-
574. SCHIP is set out at 42 U.S.C. § 1397aa et seq. (2000). 

[14] Through agreements with the U.S. government, residents of the 
freely associated states--the Federated States of Micronesia, the 
Republic of the Marshall Islands, and the Republic of Palau--may enter 
the United States to live and work without limitations on their length 
of stay. Visitors from these areas are eligible for public services, 
such as health care and education. 

[15] The estimate for total federal health spending in the insular 
areas is limited to spending from key sources, as identified in 
appendix II. 

[16] Other HHS agencies, such as the Agency for Healthcare Research and 
Quality (AHRQ), CMS, and the National Institutes of Health (NIH), also 
awarded grants to the insular areas during this time. However, we did 
not include grants from these agencies for a number of reasons. For 
example, grants from AHRQ and NIH were targeted exclusively to 
research. Grants from CMS, apart from Medicaid and SCHIP funding, 
represented less than 1 percent of HHS grant funding to the insular 
areas from fiscal years 1999 through 2003. 

[17] DOI does not have jurisdiction over Puerto Rico; therefore, the 
island is not eligible for DOI grants. 

[18] DOI grants are generally large awards of short duration--1 to 5 
years--and targeted to address specific needs, thus creating 
significant year-to-year fluctuation. For example, the large increase 
in CNMI in 2001 was due to an influx of funding earmarked for specific 
construction projects. 

[19] By comparison, federal health care funding in the states increased 
by 39.5 percent from fiscal years 1999 through 2003. 

[20] When Medicare's inpatient PPS was implemented in 1984, it did not 
include hospitals in the insular areas. Hospitals in Puerto Rico 
lobbied to be included in the PPS and were transitioned into the system 
in 1987. 

[21] TEFRA established this payment methodology for classes of 
hospitals not included in PPS. The target amount is the PPS-exempt 
provider's Medicare-allowable costs per patient stay in a designated 
base year, inflated to the current year by an annual update factor. 
Pub. L. No. 97-248, § 101(a)(1), 96 Stat. 324, 331-333. 

[22] Hospitals in American Samoa and CNMI are not subject to the TEFRA 
payment methodology because they do not have the capacity to complete 
the full cost report required by this methodology. 

[23] The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) provided the insular areas with $35 million, which was to 
be allocated among them based on their Medicare enrollment as of July 
1, 2003, to assist Part D eligible individuals (as outlined in 1935(e)) 
with the purchase of prescription drugs. Pub. L. No. 108-173, §101, 117 
Stat. 2066, 2146 (amending 42 U.S.C. § 1395w-141(j)). CMS provides 
these funds to the insular areas in the form of an enhanced allotment 
to their Medicaid program funds. 

[24] Alaska and the District of Columbia have matching percentages that 
are higher than what would be calculated under the FMAP formula. 
Alaska's higher matching rate, which is about 58 percent, was 
authorized by the Medicare, Medicaid, and SCHIP Benefits Improvement 
and Protection Act of 2000. Pub. L. No. 106-554, App. F, § 706, 114 
Stat. 2763, 2763A-577. The District of Columbia's higher matching rate, 
which is currently 70 percent, was authorized by the Balanced Budget 
Act of 1997. Pub. L. No. 105-33, § 4725 and tit. XI, 111 Stat. 251, 518 
and 712. 

[25] 42 U.S.C. § 1308(a), (f) (2000). As a result, payments in insular 
areas increased about 21 percent during fiscal years 1999 through 2003, 
while the increase in the states, bound only by state contributions to 
the Medicaid program, was about 49 percent. 

[26] For example, a CNMI official told us that a single patient 
requiring expensive off-island care, such as a baby with congenital 
heart disease or a child with leukemia, can consume a large portion of 
the available federal Medicaid contribution. 

[27] For example, CMS officials told us that each year, the Virgin 
Islands Medicaid program becomes further in arrears with providers and 
must use current cap allotments to cover past due payments to 
providers. 

[28] See 42 U. S. C. § 1396r-4 (2000). Similarly, the Social Security 
Act provides for a shorter extension of transitional medical assistance 
eligibility for Medicaid beneficiaries who lose eligibility due to 
increased resources or hours of work in the insular areas, as opposed 
to the states. In these circumstances, beneficiaries in the insular 
areas are provided up to a 4 month extension of eligibility (42 U.S.C. 
§ 1396a(e)(1)(A)) while beneficiaries in the states are provided up to 
a 12 month extension of eligibility (42 U.S.C. § 1396r-6(a), (b)). 

[29] The disbursement proportions for the SCHIP allotment for insular 
areas are as follows: Puerto Rico-91.6 percent; Guam-3.5 percent; the 
Virgin Islands-2.6 percent; American Samoa-1.2 percent; and CNMI-1.1 
percent. 

[30] As a result, the insular areas received about 1 percent of the 
total SCHIP allotment. The Congress did not provide similar, 
supplemental SCHIP funds to states. In addition, for fiscal years 1998 
through 2002, all the insular areas also received redistribution funds, 
which are available SCHIP funds not expended by states within the prior 
3-year period. Insular areas are eligible for 1.05 percent of the total 
redistribution funds, which are allocated among them according to the 
percentages of the initial allotment. The amount of SCHIP funds 
available for redistribution has declined over time. For example, while 
these funds increased the insular areas' share of the total SCHIP 
allotment by 0.7 percent in 1999, they added only about 0.2 percent of 
the total SCHIP allotment in 2002. 

[31] The Pacific Insular areas receive a base amount of $50,000 while 
Puerto Rico and the Virgin Islands are treated like states in the 
determination of grant funding. States with more than 90 living AIDS 
cases receive a base amount of $500,000; those with 90 or fewer AIDS 
cases receive a base rate of $200,000. 

[32] HHS officials stated that the Vaccines for Children grant is 
allocated differently to the insular areas because their public health 
infrastructures are so much different than the states. Therefore, the 
agency tailors funding to these areas to ensure that the program 
fulfills its statutory requirement of providing vaccines to eligible 
children. 

[33] A small portion of the gap is attributable to cost of living 
differences in the insular areas compared to the states. However, even 
when adjusting Medicare payment rates to account for differences in the 
cost of providing health care in different locations, the gap in per 
beneficiary spending in the states versus the insular areas remained 
significant. 

[34] The Medicare DSH program provides supplementary payments to 
hospitals that serve a large number of low-income and uninsured 
patients. DSH payments are only available to hospitals that are paid 
based on the PPS; therefore, hospitals in the other insular areas are 
not eligible for these payments. 

[35] Under TEFRA, the payments to hospitals in the Virgin Islands are 
the Medicare-allowable costs per patient stay in a designated base 
year, inflated to the current year by an annual update factor. A fiscal 
intermediary is a private company that has a contract with the Medicare 
program to pay Part A and some Part B bills. Cooperativa de Seguros de 
Vida de Puerto Rico, the fiscal intermediary serving the Virgin 
Islands, believes that the base-year cost estimates for facilities in 
the Virgin Islands may be understated, leading to costs that exceed 
Medicare payments. 

[36] For this analysis, major medical procedures are services 
classified as such by the Berenson-Eggers Type of Service codes, which 
were developed by CMS primarily for analyzing growth in Medicare 
expenditures for services, including major cardiovascular procedures 
such as angioplasty, pacemaker insertion, and bypass surgery. 

[37] Medicare does not pay for services provided by noncertified 
providers and such services would not be captured in the Medicare data 
we analyzed. 

[38] The percentage of Medicare beneficiaries enrolled in Part B in 
July 2003 ranged from 68 to 79 percent in all insular areas but the 
Virgin Islands, where enrollment was 91 percent. 

[39] Approximately 3 months prior to their 65th birthdays, eligible 
individuals receive Part A enrollment information and an enrollment 
card for Part B. To opt out of Part B coverage, individuals must return 
the Part B card to the CMS contractor handling claims for services in 
their area. 

[40] Individuals who do not enroll in Part B when they are first 
eligible may sign up for coverage during specified open enrollment 
periods. However, in most cases, the Part B premium increases 10 
percent for each 12-month period that an individual could have had Part 
B but did not select it. 

[41] State Medicaid agencies provide cost-sharing assistance to certain 
low-income Medicare beneficiaries. However, because of the statutory 
cap on federal Medicaid funding, most of the insular areas do not 
participate in these assistance programs, although some insular areas 
pay for the Part B premiums for select Medicare beneficiaries. 

[42] The 1972 amendments to the Social Security Act, which created 
automatic enrollment procedures for Part B, specifically exempted 
residents of Puerto Rico. 42 U.S.C. § 1395p(f),(g). 

[43] Local law requires American Samoa to provide health care free of 
cost to all residents, which is funded by both federal and local 
sources. According to an American Samoa official, this law precludes 
the government owned and operated hospital from charging patients 
adequate physician fees and also deters the development of private 
health care services as private facilities can not compete with the 
subsidized care provided by the government. 

[44] Even when adjusting for differences in costs of living, the gap in 
per capita spending remains. Using Medicare geographic indices to 
account for differences in the cost of providing health care in 
different locations, per capita spending in the states was eight times 
that in the insular areas. 

[45] Section 1902(j) of the Social Security Act allows the Secretary of 
HHS to waive or modify Medicaid requirements with respect to American 
Samoa and CNMI, except for the Medicaid cap, the statutorily set FMAP, 
and payment for Medicaid services described in section 1905(a), which 
includes all of Medicaid's mandatory services. 

[46] Puerto Rico and the Virgin Islands determine Medicaid eligibility 
based on locally established poverty levels, which, at less than the 
federal poverty level, are more restrictive in terms of enrollment. 
According to officials in these areas, restricting eligibility allows 
them to target Medicaid services to fewer, albeit needier, individuals. 

[47] Rural health clinics (RHC) are clinics located in areas designated 
by the Bureau of Census as rural and by the Secretary of HHS as 
medically underserved or having an insufficient number of physicians. 
In order to be certified as a RHC, requirements under 42 C.F.R. § 491et 
seq. must be met. As of June 2004, Connecticut, Delaware, D.C., 
Maryland, Massachusetts, New Jersey, and Rhode Island did not have RHCs 
that met these criteria. See GAO, Health Centers and Rural Clinics: 
State and Federal Implementation Issues for Medicaid's New Payment 
System, GAO-05-452 (Washington, D.C.: June 17, 2005). 

[48] According to an American Samoa official, no free-standing nursing 
facilities exist in American Samoa because its only major hospital, 
which is government owned and operated, provides long-term care as part 
of its inpatient services. The availability of these services within 
the hospital has deterred private interests from developing nursing 
facilities because they can not compete with government-provided care. 

[49] Officials from Puerto Rico pointed out that although CMS has not 
enforced the provision of mandatory Medicaid services, other federal 
entities, including the U.S. Department of Justice and HRSA, have 
successfully taken or encouraged enforcement actions against Puerto 
Rico regarding certain Medicaid-eligible expenses. 

[50] According to a CNMI official, the federal cap on Medicaid funding 
has contributed to its difficulties in recruiting and retaining 
qualified physicians and other health care providers. 

[51] For purposes of this report, we consider transportation to be a 
mandatory Medicaid service. Although coverage for transportation is not 
explicitly required under the federal Medicaid statute, several 
regulations indicate that states must provide transportation services 
as part of their Medicaid programs. 42 C.F.R. § 431.53 requires state 
Medicaid programs to ensure necessary transportation for beneficiaries 
to and from providers. 42 C.F.R. § 440.170 (a) defines transportation 
to include expenses for transportation and other related travel 
expenses determined to be necessary by the agency to secure treatment 
for a beneficiary. 42 C.F.R. § 441.62 requires the EPSDT program to 
offer assistance with transportation to program beneficiaries. 

[52] Although state Medicaid programs must generally allow recipients 
freedom of choice among health care providers participating in 
Medicaid, the insular areas are exempt from this requirement. 

[53] An SCHIP Medicaid expansion must use Medicaid's enrollment 
structures, benefit packages, and provider networks, whereas SCHIP 
programs separate from Medicaid have greater flexibility in design and 
may introduce limited cost sharing or offer different benefit 
packages. 

[54] When SCHIP funding first became available, Guam used some of these 
funds to pay for services provided to a group of children who 
previously received services through Guam's Medically Indigent Program. 
Remaining SCHIP funds are used to pay for services provided to children 
enrolled in Medicaid once the cap has been met. 

[55] These agencies were the Agency for Healthcare Research and 
Quality, CDC, the Centers for Medicare & Medicaid Services (CMS), 
Health Resources and Services Administration (HRSA), National 
Institutes of Health, and the Substance Abuse and Mental Health 
Services Administration (SAMHSA). 

[56] Grants to the insular areas from other HHS agencies, such as the 
Agency for Healthcare Research and Quality (AHRQ) and the National 
Institutes of Health (NIH), were excluded from our analyses because 
they were targeted exclusively to research. Grants from CMS, apart from 
Medicaid and SCHIP funding, were also excluded as they represented less 
than 1 percent of HHS grant funding to the insular areas from fiscal 
years 1999 through 2003. 

[57] Any per capita analysis is based on population from the 2000 
Census. 

[58] Expenditure data for the insular areas was computed using the 
Standard Analytic Files for institutional claims and the National 
Claims History File for Physician and Supplier Claims Data, extracted 
January 2005. Beneficiary computations used the CMS Denominator File, 
extracted May 2005. 

[59] We received Part C expenditures for the insular areas from CMS for 
January 2005 and inpatient expenditures for the insular areas as of 
June 2005. 

[60] National Health Expenditure data was calculated for the fiscal 
year and based on the 2005 Trustees' Report. 

[61] Beneficiary computations used the CMS Denominator file, extracted 
May 2005. 

[62] Extracted January 2005. 

[63] State-reported Medicaid Form 64 data, available on the CMS Web 
site, were used for state expenditures. 

[64] Insular area data came from Federal Register announcements of 
insular area SCHIP allocations and redistribution amounts. 

[65] Data for the insular areas received December 2004, data for the 
states received January 2005. 

[66] Any per capita analysis is based on population from the 2000 
Census. 

[67] Fiscal year 2003 does not include SCHIP redistribution funds, 
which are available SCHIP funds not expended by states within the prior 
3-year period. 

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