United States Supreme Court Skeptical of Federal Government’s Argument in Contract Support Cost Cases

On March 25, 2024, the Supreme Court of the United States (SCOTUS) heard oral arguments in Becerra v. San Carlos Apache Tribe and Becerra v. Northern Arapaho Tribe. The two cases were previously consolidated and were heard together at the oral argument (the consolidated case is Becerra v. San Carlos Apache Tribe 23-250). The issue of the case is whether the Indian Health Service (IHS) must pay contract support costs (CSC) not only to support IHS-funded activities but also to support the Tribe’s expenditure of income collected from third parties. Observers of the argument were generally optimistic that the Tribes’ case was well received by the Justices during the argument. The Court is expected to issue its decision in the case by June of this year. Continue below for an analysis of the proceedings.

WHY IT MATTERS: A favorable decision for the Tribes in this case could have major impacts on IHS funding. The government speculated that such a decision would require Congress to cut funding significantly from other sources to meet the additional CSC obligations, though it is impossible to say for sure where the cuts might come from. IHS, as often as it has requested additional funding, has not received even a fraction of the amount that it would need to fully fund Indian health care, much less a potential increase in CSC obligations. IHS relies largely on Congress for program funding. Congress will also decide if and where cuts would be needed to fund any additional CSC obligation. A decision in favor of the government would mean that Tribes would be responsible for any costs associated with expending program income through third party revenues, which Tribes are required to do by the contracts they have with IHS.

SCOTUS Oral Arguments

The federal government’s position focused on attacking the Tribes’ arguments rather than advancing their own. The government explained that a finding for the Tribes would upend the 35-year-old statutory scheme governing CSC. Next, the government pointed to unsubstantiated predictions that a judgment in favor of the Tribes could triple the CSC obligation of IHS. Finally, the government argued that the Tribes’ argument violates Congress’s directive that IHS reimburse expenses only for those directly attributable to the contract between IHS and the Tribes. In closing, the government listed several pending CSC cases where Tribes are asking for millions of dollars, to paint a picture of the appropriations impact that a finding for the Tribes could have.

Counsel for the Northern Arapaho Tribe focused his argument on the idea that the purpose of providing CSC to Tribes participating in self-determination contracts is to put them on equal footing with IHS, as if IHS was the entity operating the health program. Counsel also explained that the contracts require Tribes to spend third-party revenue they receive from Medicare, Medicaid, and private insurers to “further the general purposes of the contract.” In so doing, Tribes are limited to expending that revenue on expenses that are within the scope of the contract itself and not only unrelated expenses.

Counsel for the San Carlos Apache Tribe kept his argument brief and painted a picture of his client’s severely underfunded Emergency Medical Service program. Counsel explained that it was so severely underfunded that IHS demanded, in its contract with the Tribe, that the Tribe maintain an efficient billing system to collect third-party revenue. IHS included this requirement because the agency knows that such an operation is imperative to a program’s success since IHS is woefully underfunded itself and has relied on third-party revenue for years.

Justices Question Counsel

Justices Alito and Kavanaugh quickly made known their concerns about the implications of “ballooning” CSC obligations and what that would mean for future IHS appropriations. Counsel for the Tribes argued that their clients are required to spend third-party revenue by both the contracts and the statute. Therefore, Congress would have to act in some way to provide additional funding, though it would not necessarily have to take funding away from direct service Tribes. Counsel also pointed out that the government presented no evidence in the lower courts that supports their estimation for the “ballooning” of CSC obligations, meaning that the estimate is not properly before the Court. Justices Gorsuch and Sotomayor expressed deep concern over the state of health care in Indian country, with Justice Sotomayor citing that, on a per capita basis, spending on Indian health care is 1/3 of other non-Native federal healthcare programs. In light of this troubling fact, Justice Sotomayor quipped that, even if IHS were required to provide the requested CSC, it is not like Tribes would have the surplus in CSC funds for “luxury healthcare spas,” but maybe enough to achieve a minimal level of health care.

Chief Justice Roberts and Justice Kavanaugh were interested in learning about the association between CSC and a Tribe providing services to non-beneficiaries. The Justices focused their questions on how much of an increase in CSC obligations a Tribe can create by providing services to non-Natives, or non-beneficiaries. Counsel explained that, while the issue was not before the court in these cases, not every Tribe undertakes this practice and the ones that do, usually have extreme limitations. Further, any increase that a Tribe would create would be negligible. Counsel for Northern Arapaho pointed out that his client offers services to non-beneficiaries but only in the limited context of non-beneficiaries who are employed by the health program, thereby increasing CSC a fraction of a percentage. Counsel for the Tribes also explained that the issue could be litigated in a later case or that Congress could create a formula to reduce CSC to Tribes who offer such services.

Justice Jackson’s participation in questioning counsel was primarily directed at the government. The Justice inquired whether the government’s interpretation of the statutes aligned with the Indian canon of construction, which requires ambiguous statutes to be read in a way that favors Tribes. Counsel for the government argued that the canon’s incorporation into the contracts need only be used if the Court finds the statutes to be ambiguous, while counsel for the Tribes argued that the Court must apply the canon from the outset. However, Counsel for the Tribes urged that the Court need not even apply the canon, as the statutes unambiguously require IHS to provide CSC under the facts of the cases.

Justice Barrett did not have much to ask of any of the parties. The Justice’s questions were limited to helping her better understand the parties’ interpretation of the statutes that permit the collection of CSC and the different types of CSC.

Ultimately, it seemed that a majority of the justices were understanding of the Tribes’ position and that they were not persuaded by the government’s closing argument that listed the millions of dollars Tribes are requesting in pending cases in federal court or the potential “ballooning” of CSC. SCOTUS will likely wait until the summer, likely the end of June, to release an opinion in this case.

What are Contract Support Costs?

IHS provides healthcare to Tribes under the Indian Health Care Improvement Act (IHCIA). Those programs are funded by both congressional appropriations and revenue that IHS collects from third-party payors, though the latter has not always been an available source of revenue. The Indian Self Determination and Education Assistance ACT (ISDEAA) requires IHS to contract with willing Tribes to transfer operation of the federal programs that IHS would otherwise administer under the IHCIA. IHS provides the contracting Tribe with the equivalent amount of appropriated funds IHS would have used to run the federal program. The appropriated funds that are given to the Tribe is called the “secretarial amount.”

On top of the secretarial amount, IHS provides CSC to Tribes participating in self-determination contracts. Tribes receive CSC for reasonable costs for activities a Tribe must carry on as a contractor to ensure compliance with the terms of the contract, but which:

normally are not carried on by [IHS] in [its] direct operation of the program; or
are provided by [IHS] in support of the contracted program from resources other than those under contract.

The CSC that are eligible costs for the purposes of receiving funding include the costs of reimbursing each tribal contractor for reasonable and allowable costs of:

direct program expenses for the operation of the federal program that is the subject of the contract; and
any additional administrative or other expense incurred by the governing body of the Indian Tribe or Tribal organization and any overhead expense incurred by the tribal contractor in connection with the operation of the Federal program, function, service, or activity pursuant to the contract.

25 U.S.C. § 5325(a). This statute is what is primarily at issue in the cases.

Why are Contract Support Costs at Issue in this Case?

The collection of third-party revenue (TPR), from sources like Medicare, Medicaid, and private insurers, has not always been an available source of program funding. Congress, in realizing how devastatingly underfunded IHS was, authorized the collection of TPR by IHS. Congress later authorized Tribes participating in Self-Determination contracts with IHS to collect and spend TPR, as it realized that Tribes were reducing program capacity on expenses that IHS normally did not incur. However, the federal government and Tribes disagree as to whether IHS is required to pay CSC on expenditures of TPR. Notably, Tribes are required by their contracts with IHS to spend TPR to further the general purpose of the contract.

The National Indian Health Board Submitted an Amicus Curiae Brief in the Case

On February 19, 2024, the National Indian Health Board (NIHB), joined by a number of Tribes and Tribal organizations, filed an Amicus Curiae (Latin for “friend of the court”) brief in Becerra v. San Carlos Apache Tribe. The resolution of this case hinges on two statutes that are fundamental to the delivery of health care in Indian Country – the Indian Health Care Improvement Act (IHCIA) and the Indian Self-Determination in Education and Assistance Act.

The NIHB has a proud history of advising the U.S. Congress, IHS and other federal agencies, and private foundations on the health care issues of AI/ANs. In this case, NIHB is advised the Supreme Court of the United States on the role of IHCIA through its brief. The NIHB brief advocated for a ruling that favors Tribes, as that is what IHCIA requires. The brief’s argument draws from the legislative history of IHCIA, it explains why the statute was enacted, why and how it has been amended, how it governs the delivery of health care in Indian Country, and it offers background to the disparities in Indian health care.