SUBJECT: Mashantucket Pequot Tribal Nation,

Petitioner,

Indian Health Service

FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

The Indian Health Service (IHS) and the Mashantucket Pequot Tribal Nation (Nation, Tribe, MPTN) both timely appealed the March 10, 2006 Recommended Decision of Administrative Law Judge (ALJ) Andrew S. Pearlstein regarding IHS's partial declination of seven proposals by the Nation concerning pharmacy services provided under an existing Indian Self-Determination Act (ISDA) contract for the operation of an IHS health care program. IHS declined the portion of the proposals under which the Nation intended to extend pharmacy services to all beneficiaries of its health plans, including its non-Indian employees. The principal ground for the declinations was that the proposals included "activities that cannot lawfully be carried out by the contractor," one of the grounds for declination listed in the ISDA. After the Nation appealed the declinations, the parties [Page 2] each moved for summary judgment, maintaining that there were no material issues of fact in dispute and that 2they were entitled to judgment as a matter of law. A Special Master appointed by another ALJ formerly assigned to the case issued a report recommending that IHS's motion for summary judgment be granted and that the declinations be upheld. ALJ Pearlstein did not adopt the Special Master's report, however, and recommended instead that the Nation's motion for summary judgment be granted and that the declinations be reversed.

Any party may appeal the ALJ's recommended decision with respect to a declination by IHS to the Secretary of the Department of Health and Human Services (HHS) by filing written objections to the ALJ's recommended decision within 30 days after receiving it. 25 C.F.R. � 900.166. The Secretary has 20 days from the date of receipt of any timely objections to modify, adopt, or reverse the recommended decision. 25 C.F.R. � 900.167. On August 16, 1996, the Secretary delegated the authority to hear appeals to the Appellate Division of the Departmental Appeals Board. I have been designated as the deciding official in this case.

Both parties filed objections to the ALJ's recommended decision pursuant to 25 C.F.R. � 900.167. As discussed in detail below, I conclude that IHS has sustained its burden of clearly demonstrating the validity of the declinations. I therefore reverse the ALJ's recommendation to grant the Nation's motion for summary judgment and I uphold the declinations. See ISDA section 102(e)(1) (25 U.S.C. � 450f(e)(1)); 25 C.F.R. � 900.163.

Contrary to what the ALJ concluded, the proposed services for non-Indian employees are not contractible under the ISDA. First of all, the proposed services are not properly the subject of a program that the Secretary is authorized to administer for the benefit of Indians. This conclusion is supported by the fact referred to below that the Nation failed to comply with the Indian Health Care Improvement Act (IHCIA). In addition, rather than provide the type of benefit to tribal members that an ISDA contract for the provision of health care services is intended to provide, the provision of these services under the Nation's proposals would essentially function to provide a substantial fringe benefit to thousands of non-Indian employees of the Nation's commercial casino operations. Moreover, since the proposals do not meet the requirements of section 813(b)(1)(B) of the IHCIA, 25 U.S.C. � 1680c(b), for providing services to non-Indians under an ISDA contract, the proposals were unlawful. While that section provides an exception to the requirement that services be provided only to Indians and certain other individuals not otherwise eligible for IHS health services, the [Page 3] Nation did not qualify for the exception. Specifically, in determining whether to provide pharmacy services to its non-Indian employees, the Nation's Tribal Council failed to decide that there were no reasonable alternative pharmacy services available to meet these employees' health care needs. No such decision was made by the Nation's Tribal Council at any point, much less contemporaneously with the proposed AFAs. In any event, no reasonable person could conclude based on the undisputed facts that there were no reasonable alternative services available.

Moreover, section 900.32 of 25 C.F.R. does not provide an independent basis for reversing the declinations. Section 900.32 provides that an annual funding agreement (AFA) that is substantially the same as an AFA that has been approved for the prior year is not subject to the declination criteria. As the ALJ correctly observed, however, section 900.32 does not apply where there is no amount of funding at issue. Section 900.32 accordingly does not apply here since the Nation did not request any IHS funds for its pharmacy services. Furthermore, section 900.32 does not apply since the Nation did not satisfy the requirements of section 813(b)(1)(B) in proposing the AFAs and IHS could not approve an unlawful proposal.

This decision is based on the record before the ALJ, both parties' objections to the ALJ's recommended decision, their responses to each other's objections, and their replies to each other's responses. (The parties also supplied a document that was missing from the record transferred to me by the ALJ.) IHS submitted with its response to the Nation's objections excerpts of two depositions not submitted to the ALJ. The Nation asserts that these documents cannot properly be considered in this proceeding because the regulations at 25 C.F.R. � 900.167(b) require that my decision be based on the record before the ALJ. Regardless of whether the regulation bars new evidence, I am excluding these documents from the record since I would not consider new evidence without allowing the other party to submit evidence in response and there was insufficient time for such additional proceedings given the regulatory deadline for issuing this decision. In any event, the documents were submitted with respect to a disputed issue of fact that I need not resolve here.

Factual Background

The information in this section is presented to help the reader understand the context of the issues discussed later. Nothing in this section is intended to replace the undisputed facts set out in the ALJ's recommended decision (RD) at pages 4-13 and in the [Page 4] Special Master's report at pages 4-9 (which include the relevant citations to the record).

The Nation is a federally recognized Indian tribe of approximately 700 enrolled members. The Nation has approximately 12,000 employees (including some tribal members), most of whom work at the Foxwoods Resort and Casino, which was opened by the Nation in November 1992 and is one of the largest employers in the State of Connecticut. The Nation has a Family Health Benefit Plan (Family Plan) that covers tribal members and their families as well as an Employee Health Benefits Plan (EHBP) that covers its Indian and non-Indian employees and their families. The beneficiaries of these plans include approximately 1,000 Indians and 23,000 non-Indians. The plans cover pharmacy services, which are provided by the Pequot Pharmaceutical Network (PRxN) (which also acts as the administrator of the two health benefits plans). PRxN initially provided pharmaceuticals (drugs) on a contract basis through local providers. In November 1992, the Nation opened its own pharmacy located on the Tribal reservation. By 1993, PRxN had developed a network of outside pharmacies that could be used by the health plan beneficiaries. PRxN later opened a satellite pharmacy at the Foxwoods casino.

PRxN maintains two inventories of drugs: one purchased at managed care pricing, which is available to commercial clients (groups with which PRxN contracts), and one purchased through the Federal Supply Schedule (FSS) at about a 40% discount from the managed care price, which is available to plan beneficiaries. (An Indian tribe has access to federal sources of supply for the services it provides under an ISDA contract. See ISDA section 105k. IHS does not dispute on appeal that, in the event the proposed inclusion of non-Indian employees is contractible under an ISDA contract, this section would authorize a tribe to purchase drugs from the FSS for its non-Indian employees under the contract.)

PRxN provides drugs to beneficiaries of the Family Plan free of charge. PRxN provides drugs to beneficiaries of the EHBP free of charge if they obtain them directly from PRxN, and charges a co-pay, typically 30% of the managed care price, if the drugs are obtained from a network pharmacy. The Nation pays for all drugs dispensed to these beneficiaries with its own funds.

The PRxN business plan was adopted by Tribal Council resolution in July 1991 following the completion of a series of studies (which began in 1987) and activities intended to develop an improved health care program for tribal members and employees. One study expressed the Nation's goal to ensure linked drug utilization review (DUR) which would monitor prescriptions to [Page 5] prevent adverse reactions in patients taking multiple medications or subject to other medical conditions. (According to the Nation, in linked DUR, pharmacies communicate through a central computer to prevent such drug interactions. MPTN Response to IHS Objections, at 34). PRxN provides linked DUR, as do the pharmacies in its network.

At the Nation's request, IHS approved a January 1, 1992 modification to the Nation's ISDA contract to add pharmacy services. IHS approved annual contracts including pharmacy services through 1995. None of these contracts or any of the Nation's subsequent annual funding agreements (AFAs) provided for any IHS funds for pharmacy services. ⁽¹⁾ From 1996 to 1997, the reference to pharmacy services was not included in the Nation's proposed AFAs, although the Nation believed that pharmacy services were still covered. The Nation included the following language in its proposed AFA for fiscal year (FY) 1998:

The Nation agrees to provide all medically necessary pharmacy services for the Mashantucket Pequot Tribe, beneficiaries of the Tribe's health benefit plans, other tribe's [sic] that have a government to government relationship and their health benefit plans.

IHS approved the FY 1998 AFA as well as a FY 1999 AFA with language substantially similar to that quoted. The FY 1998 AFA also stated that, pursuant to a Tribal Council resolution which was dated March 24, 1998, the "Tribal Council has taken into account the health care and service needs of its membership, community and employees, and has determined that the provisions for such care and services will not result in a denial or diminution of health services to eligible Indians." The FY 1999 AFA referred to another Tribal Council resolution to the same effect.

The FY 1999 AFA was extended to September 2000 pending the outcome of an audit of the PRxN program being conducted by the HHS Office of the Inspector General (OIG). In August 2000, the OIG issued a report that found that the Nation had "extended eligibility for federally discounted drugs to its non-Indian employees without making the required determination that reasonable alternative drug service[s] were not available to these employees." The report identified several private [Page 6] pharmacies within 10 miles of the Nation's location, and stated that PRxN itself could serve the non-Indian employees with the commercial side of its operation. The report thus recommended that IHS direct the Nation "to discontinue its practice of providing FSS drugs to ineligible non-Indian employees."

On September 27, 2000, IHS partially declined any further extension of the approved FY 1999 AFA on the ground that the proposal included "activities that cannot lawfully be carried out by the contractor."

The Nation's proposed AFA for FY 2001 included the following language:

The Nation agrees to provide all medically necessary pharmacy services for members of the Mashantucket Pequot Nation and other persons eligible for health care under the eligibility regulations of the Indian Health Service and for persons eligible under section 813(b)(1)(B) of the Indian Health Care Improvement Act, including employees of the Nation provided health care under the Nation's employee benefit plans.

IHS declined the language in the proposed AFA for FY 2001 that referred to "persons eligible under section 813(b)(1)(B) of the Indian Health Care Improvement Act, including employees of the Nation . . ." on the same ground stated in the prior declination. The Nation proposed the same language in its proposed AFAs for fiscal years 2002, 2003, 2004 (extended to cover FY 2005), and 2006. IHS partially declined these proposed AFAs on essentially the same ground.

Both parties agree that these cases present no disputes of material fact. Appellee's Objections to the Recommended Decision of Administrative Law Judge Pearlstein, dated 4/12/06 (IHS Objections), at 13; MPTN's Response to Appellee's Objections to the Recommended Decision of Administrative Law Judge Pearlstein, dated 4/18/06 (MPTN Response to IHS Objections), at 4.

Below, I first explain why I sustain IHS's objection to the ALJ's conclusion that the Nation's proposal for pharmacy services was contractible under the ISDA. I then explain why I sustain IHS's objection to the ALJ's conclusion that the Nation met the requirements of section 813(b)(1)(B) of the IHCIA. In view of my disposition of these objections, I need not address IHS's other objections. Finally, I explain why I do not sustain the Nation's [Page 7] objection, the only one it raised, to the ALJ's conclusion that IHS was not precluded by 25 C.F.R. � 900.32 from declining the proposed AFAs.

I. The ALJ erred in concluding that the proposed AFAs for pharmacy services involved a federal health care program that was contractible under the ISDA since the services for non-Indian employees are not properly the subject of a program "which the Secretary is authorized to administer for the benefit of Indians."

A threshold issue raised by IHS in this case is whether the Nation's proposals for pharmacy services involved services which are not properly the subject of a self-determination contract under the ISDA. ⁽²⁾ IHS takes the position that the pharmacy services are not contractible because they are not specifically designed to benefit Indians. As relevant here, the ISDA directs the Secretary, "upon the request of an Indian tribe by tribal resolution," to enter into a self-determination contract "to plan, conduct, and administer federal health care programs or portions thereof"-

(B) which the Secretary is authorized to administer for the benefit of Indians under the Act of November 2, 1921 . . . (25 U.S.C. �13), and any Act subsequent thereto.

ISDA section 102(a)(1) (25 U.S.C. � 450f(a)(1)). IHS may therefore contract only for programs or services under particular statutes that the Secretary (or IHS by delegation) is authorized to administer for the benefit of Indians.

The ALJ concluded that the services were contractible because the IHCIA, on which the Nation relies as authority for its proposals, is "as seen by its very name," a statute for the benefit of Indians within the meaning of section 102(a)(1)(B) of the ISDA and that "[a] program authorized under the IHCIA is therefore properly within the scope of an Indian self-determination contract under the ISDA . . . ." RD at 16. The ALJ also stated that "the facts show that the MPTN and its [Page 8] individual Indian members do receive significant benefits from the Tribe's extension of pharmacy services to the tribe's non-Indian employees." RD at 17. The ALJ stated in pertinent part:

The fact that the Nation's proposed program extends pharmacy services to a large proportion of non-Indian beneficiaries of its EHBP does not render the program one that could not lawfully be carried out by the contractor, or, indeed, by the IHS. As argued by the Nation, such an interpretation would essentially render �1680c(b)(1)(B) of the IHCIA a nullity. That section specifically allows either the IHS or a contracting Tribe to extend health services under its ISDA contract to non-Indians, provided certain requirements are met. The IHCIA is not inconsistent with the ISDA's focus on authorizing contracts for the benefit of Indians. The two statutes, construed in pari materia, to give effect to both of their purposes, indicate that Congress determined it would be for the benefit of Indians to allow the extension of health services to non-Indians in certain circumstances. There is nothing in the IHCIA or in any regulations promulgated under that act or the ISDA that limits the number or proportion of non-Indians, or the circumstances under which health services could be extended to non-Indians, as long as the statutory requirements are met.

Indeed, the facts show that the MPTN and its individual Indian members do receive significant benefits from the Tribe's extension of pharmacy services to the tribe's non-Indian employees. The extension of benefits to such Tribal employees increases PRxN's service population. This enables the Tribe to realize great economies of scale in the operation of its pharmacy program, including the ability to purchase large inventories of drugs on the discounted FSS price schedule. Tribal members further benefit from the pharmacy program indirectly, through the investment of the resulting savings in other Tribal health services.

Id.

IHS objects to the ALJ's conclusions on this issue. IHS Objections, at 20-23. I agree with IHS that the ALJ erred in concluding that the proposed services were contractible. The fact that the IHCIA is a statute that IHS is authorized to administer for the benefit of Indians does not make the services proposed by the Nation contractible because these services are not authorized by the IHCIA. Instead, the services cover thousands of non-Indians who are ineligible for IHS health [Page 9] services and who do not qualify for such services under the exception in section 813(b)(1)(B) of the IHCIA. ⁽³⁾

Section 813(b) is captioned "Health facilities providing health service." Section 813(b)(1) provides as follows:

(A) The Secretary is authorized to provide health services under this subsection through health facilities operated directly by the services to individuals who reside within the service area of a service unit and who are not eligible for such health services under any other subsection of this section or under any other provision of law if -

(i) the Indian tribe . . . served by each service unit requests such provision of health services to such individuals, and
(ii) the Secretary and the Indian tribe have jointly determined that -

(I) the provision of such health services will not result in a denial or diminution of health services to eligible Indians, and
(II) there is no reasonable alternative health facility or services, within or without the service area of such service unit, available to meet the health needs of such individuals.

(B) In the case of health facilities operated under a contract entered into under the Indian Self-Determination Act [25 U.S.C. �450f et seq.], the governing body of the Indian tribe or tribal organization providing health services under such contract is authorized to determine whether health services should be provided under such contract to individuals who are not eligible for such health services under any other subsection of this section or any other provision of law. In making such determinations, the governing body of the Indian tribe or tribal organization shall take into account the considerations described in subparagraph (A)(ii).

As I discuss in detail in the sections that follow, the undisputed facts do not show that the Nation complied with the requirements of section 813(b)(1)(B) in proposing to provide pharmacy services to thousands of non-Indian employees and their [Page 10] families, who may receive such services under an ISDA contract only pursuant to that section. Accordingly, the Nation was not proposing to carry out a program which the Secretary is authorized to administer for the benefit of Indians.

Even if the Nation's failure to comply with section 813(b)(1)(B) were not dispositive here (which it is), additional circumstances demonstrate that the services for non-Indian employees included in the proposed AFAs are not properly the subject of a program which the Secretary is authorized to administer for the benefit of Indians:

o The Nation is not using any of its IHS funding to fund the services provided by PRxN, and the AFAs are purely a discretionary part of the Nation's ISDA contract. Thus, the principal reason for including the non-Indian employees under the contract is to enable the Nation to provide the employees with a fringe benefit at a discounted cost to the Nation through the use of the FSS, which is available only for services provided under the ISDA contract. ⁽⁴⁾

o There is no reason why the Nation cannot provide this same fringe benefit through the commercial side of PRxN outside of the ISDA contract and still retain any economies of scale and other advantages of a large pharmacy program (as well as access to the FSS) for its tribal members.

o Most of the non-Indian employees work for the casino operated by the Nation rather than as health care practitioners critical to the performance of any aspect of the Nation's programs, functions, services and activities under its ISDA contract.

o Even if there were some health care benefit to the tribal members from the inclusion of pharmacy services to non-Indian employees under the ISDA contract, it is vastly outweighed by the benefit to the non-Indian employees since the number of tribal members is very small compared to the number of non-Indian employees.

[Page 11] Thus, the inclusion of services to non-Indian employees under the Nation's ISDA contract first and foremost accrues to the benefit of the Nation's non-Indian employees and to its commercial casino operations. The ALJ's recommended decision discounts the significance of the fact that the proposed AFAs benefit the Nation's non-Indian employees, stating that "[t]he Tribal Council members and directors of PRxN have all emphasized the importance of the Tribe's employees to the Tribe's continued progress" and that "[t]he Tribe considers them part of the Tribal family." RD at 18. The "progress" to which the ALJ refers is clearly the success of the casino operated by the Nation. Although the Nation's tribal members naturally benefit from the casino operations, this is not the type of benefit that an ISDA contract for the provision of health care services is intended to provide.

Accordingly, I conclude that the pharmacy services for the Nation's non-Indian employees proposed in the AFAs were not contractible.

II. The ALJ erred in concluding that the Nation's pharmacy services program met the requirements of section 813(b)(1)(B) and that the Nation could therefore lawfully carry out the activities under the ISDA.

The ALJ concluded that section 813(b)(1)(B)-

requires the Nation to actually take into account the availability of alternative services and any diminution of services to Indians in making its decision to provide services to non-Indians. The IHS, in reviewing the contract proposal, and this tribunal, as well as any reviewing appellate body, is limited to examining whether the tribe did so. A reviewing authority should take a "hard look" at that issue, but may not substitute its judgment for that of the Tribe.

RD at 28. ⁽⁵⁾ In its objections, IHS argues that section 813(b)(1)(B) is not properly interpreted as limiting IHS to reviewing whether the Nation actually took into account the availability of reasonable alternative pharmacy services for its non-Indian employees.

[Page 12] I conclude that the ALJ properly interpreted section 813(b)(1)(B) in this manner. The language of section 813(b)(1)(B) does not support IHS's view that IHS and the Indian tribe must make a joint determination to provide particular health services to non-Indians under an ISDA contract. See RD at 22. As the ALJ reasoned, the language of section 813(b)(1)(B) is distinctly different from the language in section 813(b)(1)(A), which expressly requires a joint determination in order for facilities operated by IHS to provide services to non-Indians. In addition, since the meaning of section 813(b)(1)(B) on this point is clear on its face, I do not have authority to consider whether this provision is invalid based on "constitutional principles" which, according to IHS, do not permit Congress to "shield tribal decisions" from Secretarial review. See IHS Objections at 19; see also id. at 24. In any event, the ALJ's interpretation of section 813(b)(1)(B) does not shield tribal decisions from Secretarial review. The declination and appeal process in the ISDA and the implementing regulations provide a mechanism for reviewing the Nation's compliance with section 813(b)(1)(B). If IHS determines that an Indian tribe proposing to provide services pursuant to section 813(b)(1)(B) did not actually take into account the considerations in section 813(b)(1)(A)(ii)(I) and (II), then the proposed AFA must be declined on the ground that it "includes activities that cannot lawfully be carried out by the contractor." ISDA section 102(a)(2)(E).

I therefore proceed to address below whether, as required by section 813(b)(1)(B), the Nation actually took into account the consideration in section 813(b)(1)(A)(ii)(II), that there are no reasonable alternative services available, in determining to provide services to its non-Indian employees under its ISDA contract.

A. The Nation did not comply with section 813(b)(1)(B) because there was no decision by its governing body contemporaneous with any of the proposed AFAs that there were no reasonable alternative services available.

The ALJ concluded that "the Nation did in fact actually evaluate the statutory factors of the diminution of services to Indians and the availability of reasonable alternative services to its non-Indian employees." RD at 27. ⁽⁶⁾ In particular, the ALJ viewed [Page 13] evidence "of the Tribe's various studies and activities in the late 1980's and early 1990's that culminated in the establishment of the PRxN program in 1991" as "sufficient to show that the Tribe took into account the availability of reasonable alternative services for its non-Indian employees." RD at 27. The ALJ also stated:

The record contains numerous documents, as well as declarations and testimony by the key personnel involved, indicating that the Nation did in fact consider various alternatives before arriving at the PRxN plan. The record also contains ample evidence showing that the Nation considered such factors as drug utilization review, cost, and convenience of access in arriving at its determination to provide pharmacy services to its non-Indian employees. . . . The proposed AFA's themselves explicitly mentioned the IHCIA, indicating by then, 1998, that the Tribe had fully undertaken to follow the requirement of the IHCIA.

RD at 26 (citations omitted).

In its objections, IHS disputes that the Nation had actually taken into account the availability of reasonable alternative pharmacy services for its non-Indian employees. IHS argues in part that it is unreasonable to view "a tribal determination made some 10 years earlier" as evidence that the Nation actually took this consideration into account. IHS Objections at 23 (quoting Special Master's report at 19). I agree that the ALJ erred in concluding that the Nation took this consideration into account.

The ALJ appears to suggest that the statute requires a tribe only to consider the availability of reasonable alternative services, not to reach a decision that no reasonable alternative services are available. That is not a proper reading of the statute. Section 813(b)(1)(B) requires that "the governing body of the Indian tribe or tribal organization" determine whether health services should be provided under the ISDA contract to non-Indians. The section further requires that "[i]n making such determinations, the governing body . . . take into account the [Page 14] considerations described in subparagraph (A)(ii)." The consideration in subparagraph (A)(ii)(II) is that "there is no reasonable alternative health facility or services . . . available . . . ." It is clear from this language that a tribe's governing body must not simply consider whether reasonable alternative services might be available but must also decide that no such services are available before taking this consideration into account in determining whether to provide services to non-Indians. Otherwise, the tribe's compliance could be a hollow exercise where the tribe merely looks at possible reasonable alternative services but makes a determination to provide services to non-Indians without concluding that no reasonable alternative services are available.

Here, the record does not show that the Nation's governing body, its Tribal Council, made a decision that there were no reasonable alternative services available before determining to provide pharmacy services to its non-Indian employees under the ISDA contract. First, as indicated above, the Nation relies on "studies and activities" performed over a period of years "that culminated in the establishment of the PRxN program in 1991" as showing that it complied with section 813(b)(1)(B). See RD at 27. These studies and activities undoubtedly examined many factors relevant to various possible alternative pharmacy services. However, there is no evidence that the Nation's Tribal Council then reached the specific conclusion required by section 813(b)(1)(A)(ii)(II) that "there is no reasonable alternative health facility or services, within or without the services area of such service unit, available to meet the health needs of such individuals." Even if something less than a formal determination was required, the undisputed facts fail to show that the Nation made a considered decision at any point in time that there were no reasonable alternative services available. ⁽⁷⁾ Indeed, it is unclear whether the Nation even had the statutory consideration in mind when it conducted the studies and activities on which it relies.

Second, I conclude that the studies and activities performed in 1987 through 1991 were too far removed in time to be relevant to the proposed AFAs at issue here, which covered a period ranging from the end of September 2000 through FY 2006. Section 813(b)(1)(B) does not specify when the governing body must decide [Page 15] that no reasonable alternative services are available. However, all discretionary terms of an ISDA contract, i.e., those not included in the model agreement, must be approved as part of an annual funding agreement. See ISDA section 108(c), paragraph (f) of model agreement. The pharmacy services in the proposed AFAs are discretionary terms. Since such services must be approved on an annual basis, it follows that a proposal to provide such services to non-Indians must be based on a decision regarding the consideration in section 813(b)(1)(A)(ii)(II) which is made on a contemporaneous basis with respect to each AFA that is proposed. IHS may have discretion to accept a decision that is separated in time by a few years from the contract period; however, the time difference here of approximately nine to fifteen years (from the time PRxN was established to the time of the AFA proposals) is such that there is no assurance that the Nation would be complying with what the statute requires, i.e., that a tribe take into account whether any reasonable alternative services would actually exist at the time the contract proposal would be executed.

The ALJ's recommended decision states that "the facts here indicate that the Nation did at least reaffirm on an annual basis its 1991 determination to extend PRxN services to its employees, through its successive AFA proposals, approved by Tribal resolution, to continue to provide these services." RD at 29. However, the mere act of approving a proposed AFA by tribal resolution does not evidence that the Nation in fact took the required step of deciding that there are no reasonable alternative services available. Moreover, the studies and activities relied on by the Nation do not establish that the Tribal Council even decided in the first instance that there were no reasonable alternative services available.

The ALJ's recommended decision also states that "[t]he IHS has not argued specifically that changed circumstances concerning the availability of alternative services should constitute the basis for a declination in subsequent years, after an initial IHCIA determination by a contracting tribe." RD at 29. Contrary to what this suggests, nothing in section 813(b)(1)(B) indicates that a tribe is excused from deciding whether no reasonable alternative services are available if circumstances have not changed following an initial conclusion that no such services are available. A governing body must still ascertain on a contemporaneous basis that its prior conclusion regarding the availability of reasonable alternative services remains valid. In any event, the planning actions on which the Nation relies do not establish that the Nation ever decided that no such services were available.

[Page 16] The Nation argues that the ALJ properly concluded that section 813(b)(1)(B) does not require taking into account the consideration in section 813(b)(1)(A)(ii)(II) on an annual basis, asserting that--

[a]n annual determination requirement could deter tribes from providing such services in the first place . . . . since tribes would risk having to discontinue the services (with loss of the revenue from those services, and of their investment in equipment and manpower to provide those services) as soon as other providers could provide reasonable services.

MPTN Response to IHS Objections, at 32. ⁽⁸⁾ While a tribe may reasonably take into account the difficulties in changing programs that have already been set up, however, that cannot be an excuse for never re-visiting the statutory considerations once the tribe has taken them into account (which the Nation failed to do here even in the first instance). The Nation's argument would allow it to ignore whether there are reasonable alternative services available if it had concluded in an earlier year that no such services were available, even where there are demonstrably changed circumstances. Moreover, it appears that in this case, the mechanism set up by the Nation to provide pharmacy services to its non-Indian employees would not be difficult to dismantle since the Nation could continue to provide pharmacy services for its non-Indian employees through PRxN's commercial side outside of its ISDA contract.

Accordingly, I conclude that the Nation failed to take into account the consideration in section 813(b)(1)(A)(ii)(II) since its governing body did not make a decision at any point in time, much less contemporaneously with the proposed AFAs at issue here, that there were no reasonable alternative services available.

[Page 17] B. The Nation did not comply with section 813(b)(1)(B) because no reasonable person could conclude that there were no reasonable alternative services available.

Even if the Nation's Tribal Council had made a decision contemporaneous with each of the proposed AFAs that no reasonable alternative pharmacy services were available, I would not be able to conclude that the Nation complied with section 813(b)(1)(B) if no reasonable person would agree with the Nation's decision. In concluding that the Nation actually took into account the availability of reasonable alternative pharmacy services, the ALJ noted that IHS and the Special Master--

take the position that the existence of several commercial pharmacies located within 10 miles of the MPTN reservation, plus the PRxN network of pharmacies and the commercial side of PRxN itself, constitute reasonable alternative services available to the Tribal employees. Thus, they assert, the Nation could not properly have considered this factor in reaching the determination to extend its own PRxN program to its non-Indian employees. However, this amounts to substituting their judgment for that of the Nation. The Nation articulated the reasons why, when it made the decision in 1991, those were not reasonable alternatives from its perspective. The private pharmacies did not provide DUR. Their costs were much higher, and their access was not as convenient. The fact that other pharmacies were and are available in the area does not alone constitute a basis to find that the Nation did not follow the IHCIA requirement that it take into account the availability of reasonable alternative services.

RD at 27.

In its objections, IHS maintains that the Nation could not have taken into account the consideration in question, stating:

Here, danger[] signals abound that the Nation failed to take a hard look at whether there were reasonable alternatives available for its health plan beneficiaries. The Nation agrees: (1) that the Nation's pharmacy, PRxN, maintains a non-FSS inventory available for non-Indian employees, (2) that there are five pharmacies within the PRxN network within 10 miles of the Nation, and (3) that every pharmacy in the state of Connecticut is unreasonable under the Nation's "DUR" standard.

IHS Objections at 26.

[Page 18] In essence, IHS takes the position that the ALJ erred in relying entirely on the Nation's perspective that there were no reasonable alternative services available. Instead, in IHS's view, whether the requirement to "take into account" the availability of reasonable alternative services has been met must be assessed from the perspective of whether a reasonable person could conclude that there were no reasonable alternative services available. I agree. If an Indian tribe's conclusion that no reasonable alternative services are available is not subject to this type of review, then the statutory requirement would be meaningless since the tribe would be free to ignore the existence of reasonable alternative services. Reviewing a tribal governing body's conclusion from the perspective of a reasonable person does not have the potential for simply substituting IHS's or the administrative tribunal's judgment for that of the tribe. Clearly, deciding whether reasonable alternative services are available involves the exercise of discretion. Thus, deference should be accorded to a tribe's conclusion that there are no such services available except where no reasonable person could agree with the tribe's conclusion. ⁽⁹⁾

It is particularly appropriate to review the Nation's asserted conclusion that there were no reasonable alternative services available from the perspective of a reasonable person in light of the particular circumstances here, i.e., that providing the pharmacy services under its ISDA contract would allow the Nation to advance its business interests by giving its non-Indian employees a substantial benefit at a substantially reduced cost [Page 19] to itself. Thus, the Nation may have had a motive to not fully analyze whether there were reasonable alternative services available in this instance.

Applying the reasonable person standard, I conclude that the Nation failed to actually take into account the consideration in section 813(b)(1)(A)(ii)(II) because no reasonable person could conclude based on the undisputed facts in this case that there were no reasonable alternative services available. First, as IHS argues and as the Special Master found, the Nation's own pharmacy, PRxN, qualifies as a reasonable alternative to serve the Nation's non-Indian employees. PRxN operates in part as a commercial pharmacy and maintains an inventory purchased at managed care pricing as well as an inventory purchased at FSS pricing. Special Master's report at 19, citing MPTN Unc. Facts, � 102. PRxN is located on the reservation and performs linked DUR. Id., citing MPTN Unc. Facts, �� 34 and 89. The Nation identified convenience of access and the availability of linked DUR, both of which were provided by PRxN's commercial side, as important factors in determining whether there were reasonable alternative services available. RD at 27.

The Nation argues that the commercial side of PRxN should nevertheless not be considered a reasonable alternative. According to the Nation, section 813(b)(1)(A)(ii)(II)--

refers to an alternative to care by the tribal facility, not to whether the tribe could provide the service without doing so under its ISDA contract. A tribe could always provide services to non-Indians without invoking its ISDA contract. That was not what Congress intended, and it is not the way the IHS has construed Section 813.

MPTN Response to IHS Objections, at 40. The Nation claims that in some other cases, tribal resolutions pertaining to ISDA contracts for the provision of services to non-Indians contain no mention of whether the tribe can provide the services outside of invoking the ISDA contract. Id., n.38. It is true that the possibility always exists that a tribe could provide services to non-Indians outside of its ISDA contract. In this case, however, the Nation had for several years been operating a commercially viable pharmacy, the commercial side of PRxN, that provided pharmacy services to non-Indians. The Nation does not assert that PRxN could not continue to be commercially viable and operationally feasible if the Nation placed its non-Indian employees in the commercial side of PRxN. This is not a situation where a tribe that had intended to fund all pharmacy services with IHS funds is now being asked to provide the [Page 20] services to non-Indians by using tribal funds in addition to IHS funds. Here, the Nation has proposed to fund all pharmacy services both for tribal members and non-Indian employees without using any IHS funds. The Nation has not argued that it could not fund any shortfall from the loss of the FSS discount with an employee co-pay requirement and/or with income from its casino.

The only respect in which the services provided by PRxN's commercial side differ from the services proposed under the ISDA contract is with respect to cost. While the drugs provided by PRxN's commercial side are clearly more expensive, it is unlikely that any commercial pharmacy can compete with the discounted prices of drugs purchased by a tribe from the FSS. Relying on such a cost comparison as the basis for finding that PRxN (or any other commercial pharmacy) is not a reasonable alternative is inappropriate under the circumstances here, where 1) the discount would arise only because the services are provided under the ISDA contract and 2) the Nation is not using IHS funds to provide the services but rather provides them in the context of a commercial enterprise which generates income to cover the cost of the services.

Based solely on the existence of PRxN's commercial side, no reasonable person could conclude that there were no reasonable alternative services available; however, as IHS indicates, other reasonable alternative services were available as well. The Special Master found there are five pharmacies within the PRxN network within 10 miles of the Foxwoods casino (where most of the non-Indians covered by the proposed AFAs were employed). Special Master's report at 19, citing MPTN's Responses to Appellee's Request for Admissions at 1-3. ⁽¹⁰⁾ Each of these pharmacies performs linked DUR when a prescription is filled. Id., citing MPTN Unc. Facts, � 89. As indicated above, the fact that the cost of drugs dispensed by these pharmacies is higher than the cost of the drugs available from PRxN at FSS prices is not a relevant factor for purposes of determining whether reasonable alternative services are available.

It is also unreasonable to base a determination as to whether reasonable alternative services are available on the fact that the non-Indian employees may have had more convenient access to the PRxN pharmacy on the reservation or the satellite pharmacy at the casino. The statute itself provides for consideration of [Page 21] whether there are reasonable alternative health services "within or without the service area." Section 813(b)(1)(A)(ii)(II) (emphasis added). While services provided outside the service area might not be as convenient as services provided by the tribe in the service area, this language shows that Congress intended that the former be considered in determining whether reasonable alternative services existed. In addition, as the ALJ stated, the legislative history of the IHCIA "indicates that Congress intended the IHCIA to apply primarily in isolated, rural areas, where reasonable alternative health care facilities may not be available to non-Indians." RD at 23, citing S. Rep. 100-508, at 3 (1988), reprinted in 1988 U.S.C.C.A.N. 6183, 6185. The ALJ did not accord this statement any weight since the statement does not "directly address" the language in section 813(b)(1)(B) (RD at 23); however, the statement appears to reflect a concern about meeting health care needs in areas which lack any health facilities or services other than those provided by IHS or an Indian tribe, not a concern about convenience of access (at least within a relatively short distance). Thus, no reasonable person could find that a commercial pharmacy ten miles distant is not a reasonable alternative.

The Nation nevertheless argues that IHS "has the burden of proof in these appeals" and "has not proffered its own evidence supporting a contrary conclusion . . . ." MPTN Response to IHS Objections, at 39. IHS need not proffer any evidence beyond the undisputed facts set out above in order to prevail, however. These facts show that there are other pharmacies co-located with or in close proximity to PRxN that offer the same services as PRxN. IHS's reliance on these undisputed facts is sufficient to shift the burden to the Nation to show that reasonable alternative services are not available through these other pharmacies. As discussed above, however, the Nation provided no basis on which a reasonable person could conclude that these pharmacies were not available to provide such services.

Since no reasonable person could conclude, based on the undisputed facts, that reasonable alternative pharmacy services were not available to the Nation's non-Indian employees, the Nation failed to actually take into account the consideration in section 813(b)(1)(A)(ii)(II). In addition, as discussed earlier, the Nation failed to actually take this consideration into account since its governing body did not make a decision at any point in time, much less contemporaneously with any of the proposed AFAs, that there were no reasonable alternative services available.

[Page 22] Since the Nation did not comply with the requirements in section 813(b)(1)(B) for providing services to non-Indians under an ISDA contract, I conclude that the Nation's proposals to provide pharmacy services to its non-Indian employees were unlawful.

III. Section 900.32 does not provide an independent basis for reversing the declinations.

The Nation argued below that the regulation at 25 C.F.R. � 900.32 provides an independent basis for reversing the declinations. That section states in pertinent part that if an Indian tribe's proposed successor annual funding agreement--

is substantially the same as the prior annual funding agreement (except for funding increases included in appropriations acts or funding reductions as provided in section 106(b) of the Act) . . . , the Secretary shall approve and add to the contract the full amount of funds to which the contractor is entitled, and may not decline, any portion of a successor annual funding agreement. Any portion of an annual funding agreement which is not substantially the same as that which was funded previously (e.g., a redesign proposal, waiver proposal; different proposed funding amount; or different program, service, function, or activity) . . . is subject to the declination criteria and procedures[.]

According to the Nation, pursuant to this section, IHS was required to approve the FY 2001 AFA (as well as subsequent AFAs) since IHS approved the FY 1999 AFA, which contained language identical to the language in the FY 2001 AFA. (As indicated previously, there was no separate AFA for FY 2000 since the FY 1999 AFA was extended to September 2000.)

The ALJ rejected the Nation's argument (although he noted that his ruling on this issue was not necessary). The ALJ stated:

In its full context, . . . this regulation is directed at the amount of funds provided under the contract from one year to the next. In this case the particular program declined was not funded at all by IHS, or not "funded previously" within the meaning of �900.32. Although included in an AFA under an ISDA contract, the pharmacy service is self-funded by the Tribe.

RD at 31. The ALJ also stated that the intervening issuance of the HHS Office of Inspector General report questioning the inclusion of the services in the Nation's ISDA contract "rendered [Page 23] the successor AFA not the same as it was previously viewed by IHS." RD at 31-32. The ALJ concluded that "in the full context of the ISDA and its regulations, the IHS could procedurally properly decline the successor AFA's in these circumstances, despite the provisions of 25 CFR �900.32." RD at 32.

The Nation objects to the ALJ's conclusion on this issue. MPTN's Objections to Recommended Decision of Administrative Law Judge Pearlstein (MPTN Objections), dated April 12, 2006. The Nation argues that the ALJ ignored the plain language of the regulation in limiting its application to proposed funding amounts. According to the Nation, the reference to "any portion of" a successor AFA is not limited to the funding provisions of a successor AFA. The Nation also argues that, to the extent that there is any ambiguity in the regulation, the ambiguity should be construed in the Nation's favor. In addition, the Nation cites my decision in Susanville Indian Rancheria, DAB No. 1813 (2002), as supporting its reading of the regulation.

I conclude that the ALJ did not err in reading section 900.32 as applying only to proposed funding amounts. I note first that the Nation's reliance on Susanville is misplaced. While I stated in that decision that section 900.32 "is not limited to reductions in funding" (Susanville at 9), that statement must be read in context. In Susanville, IHS partially declined the tribe's proposal on the basis that the amount proposed for the Headquarters share, as well as the amount proposed for the Area Office share, was in excess of the amount required by section 106(a) of the ISDA for each of those funding categories. IHS argued that section 900.32 was inapplicable because there was no reduction in total funding. IHS pointed out that the total amount paid to the tribe for the year in question was greater than the total for the prior year due to an increase in base funding as well as the payment of non-recurring funds. I held that section 900.32 prohibits IHS from declining any portion of a proposed successor AFA that is substantially the same as the AFA for the prior year even if the aggregate funding is not reduced. Thus, Susanville does not stand for the proposition that section 900.32 may preclude a declination even where there is no reduction in funding, because in that case IHS did reduce the proposed funding for two discrete categories of funding in the proposed contract.

That the regulation precludes the Secretary from declining a proposed AFA only when the effect would be to reduce a funding amount is clear from the language in the regulation requiring the Secretary to "add to the contract the full amount of funds to which the contractor is entitled" where a proposed successor AFA [Page 24] is substantially the same as the prior AFA. This language would be unnecessary if the effect of a prohibited declination were not to reduce funding.

Nor do I agree with the Nation's argument that reading section 900.32 to preclude only reductions in funding would render the phrase "and may not decline, any portion of a successor annual funding agreement" in the first complete sentence of the regulation "a nullity." See MPTN Objections at 4. The second complete sentence in the regulation refers to "[a]ny portion of an annual funding agreement proposal which is not substantially the same as that which was funded previously . . . ." The phrase "that which was funded previously" refers back to "any portion." Thus, "any portion" means any category of funding specified in the proposed AFA. Accordingly, in order for a tribe to invoke section 900.32, the portion of the proposed AFA at issue must be associated with a funding amount. ⁽¹¹⁾

This reading of the regulation is consistent with the purpose of section 106(b)(2) of the ISDA (the statutory provision that it implements) to "protect[] contract funding levels provided to tribes" and "provide year-to-year stability for tribal contractors[.]" See S. Rep. 100-274, at 30 (1987), reprinted in 1988 U.S.C.C.A.N. 2620, 2649, cited in IHS Response to MPTN Objections, dated 4/18/06, at 9. I see no reason why a tribe should have any expectation that IHS would continue to approve a discretionary provision that the tribe has included in its ISDA contract but for which it requested no IHS funds. Although there is express authority in the ISDA for a tribe to include a provision for self-funded services in its contract, ⁽¹²⁾ such a [Page 25] provision would likely be subject to less scrutiny by IHS than one for which IHS funds are requested. ⁽¹³⁾ Thus, IHS should not be precluded from declining such a provision merely because IHS previously approved it, where, as here, the statutory requirements for including it in an ISDA contract have not been met.

Indeed, section 900.32 should never be applied where, as here, a proposal is for an activity that cannot lawfully be carried out. The Nation's interpretation of the regulation would operate here to sanction activities that are unlawful because they do not involve a federal health care program which the Secretary is authorized to administer for the benefit of Indians as well as because they do not meet the requirements in section 813(b)(1)(B) of the IHCIA, which is the only authority under which services to non-Indians may be provided under an ISDA contract. IHS is, therefore, required to decline the proposed AFAs pursuant to section 102(a)(2)(E) of the ISDA.

I also agree with the ALJ that the successor AFA here was not "substantially the same" as the prior year AFA. As discussed earlier, section 813(b)(1)(B) requires that a tribe's governing body make a contemporaneous decision that no reasonable alternative services for non-Indians are available. Thus, each proposal can be viewed as substantively different from the prior proposal since each proposal is necessarily based on a different decision. ⁽¹⁴⁾ Moreover, the OIG report raised legal issues [Page 26] concerning the proposal which might not have been apparent to IHS when it approved the FY 1999 AFA.

Accordingly, I conclude that section 900.32 does not provide an independent basis for reversing the declinations.

Conclusion

For the foregoing reasons, I conclude that IHS has sustained its burden of clearly demonstrating the validity of the declinations of the proposed AFAs at issue. I therefore grant IHS's motion for summary judgment, deny the Nation's motion for summary judgment and uphold the declinations.

This is the final decision of the Department of Health and Human Services.

Donald F. Garrett
Board Member

1. Beginning in 1996, the terms of the AFAs were incorporated by reference in the Nation's Model Agreement with IHS.

2. Before the Special Master, IHS argued for the same reasons that the appeals should be dismissed for lack of jurisdiction. The ALJ adopted the Special Master's conclusion, which IHS did not challenge, that this was not a proper basis for dismissal. RD at 14-15. IHS does not object to this conclusion on appeal.

3. Section 813(a) also makes "eligible for all health services provided by [IHS]" certain "individuals not otherwise eligible." That section is not at issue here.

4. IHS asserts, and the Nation does not deny, that the Nation was also entitled to receive liability coverage under the Federal Tort Claims Act for its activities under the ISDA contract. Thus, the inclusion of the non-Indian employees had the additional advantage of carrying very little risk.

5. The ALJ derived this test from Vermont Yankee Nuclear Power Plant v. Natural Resources Defense Council, 435 U.S. 519 (1978) "and similar holdings." RD at 28. See also RD at 22, quoting Hickory Neighborhood Defense League v. Skinner, 893 F.2d 58, 61 (4^th Cir. 1990).

6. IHS does not object to the ALJ's conclusion that the Nation took into account the consideration in section 813(b)(1)(A)(ii)(I) regarding diminution of services to Indians, a consideration which is addressed in the Tribal Council resolutions referred to in the proposed AFAs beginning in FY 1998. The Nation does not argue on appeal that these resolutions addressed the consideration in section 813(b)(1)(A)(ii)(II), nor would there be any basis for such an argument.

7. I therefore need not address IHS's objection to the ALJ's conclusion that section 813(b)(1)(B) does not require a "formal determination." See IHS Objections at 20, citing RD at 22.

8. The ALJ actually concluded that there is no requirement for a "wholesale annual review" once a tribe initially complies with section 813(b)(1)(B). RD at 29. This is consistent with my conclusion that a governing body could simply ascertain on a contemporaneous basis that its prior conclusion regarding the availability of reasonable alternative services is still valid.

9. The Nation suggests that the appropriate inquiry is instead whether the Nation looked at all the relevant factors in concluding that there were no reasonable alternative services available. Response to IHS Objections at 19, n.15, citing Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416 (1971); Strycker's Bay Neighborhood Council v. Carlen, 444 U.S. 223,228 (1980); and Turri v. INS, 997 F.2d 1306, 1008-09 (10^th Cir. 1993) Applying this standard does not avail the Nation, however. As my analysis in this decision makes clear, even if the Nation looked at all relevant factors, the Nation failed to actually take into account the consideration in section 813(b)(1)(A)(ii)(II) because its Tribal Council did not decide at any point that there were no reasonable alternative services available and because no reasonable person could conclude based on the undisputed facts here that no such services were available.

10. There is no indication in the Special Master's report that these five pharmacies were not available throughout the period covered by the proposed AFAs.

11. The Nation also points out that the Interior Board of Indian Appeals has applied to provisions other than funding provisions a regulation limiting the ability of IHS and the Bureau of Indian Affairs to decline renewals of "term" ISDA contracts. MPTN Objection at 5, citing 25 C.F.R. � 900.33. Unlike section 900.32, however, that regulation addresses the situation "where no material and substantial change to the scope or funding of a program, functions, services, or activities has been proposed . . . ."

12. Paragraph (f) of the model agreement in section 108(c) of the ISDA provides that the AFA may include "a brief description of the programs, services, functions, and activities to be performed (including those supported by financial resources other than those provided by the Secretary) . . . ."

13. The parties disagree concerning whether IHS knew when it approved the FY 1999 AFA that the Nation intended to provide services to non-Indians. The meaning of the regulation does not depend on the facts of a particular case, however.

14. IHS also argues that section 900.32 does not apply here because there was no successor AFA within the meaning of the regulation. According to IHS, the approved AFA for FY 1999 ended September 27, 2000 and was followed by IHS's denial of the Nation's request for a six-day extension. IHS Response to MPTN Objections, dated 4/18/06, at 6-8. The Nation argues that the approved FY 1999 AFA ended September 30 and that there was no signed AFA for the six-day period. MPTN Reply to IHS Response to MPTN Objections, dated 4/21/06, at 2. I need not address this matter in view of my conclusions above.