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Report: Payment Reforms for Community Health Centers Worth Supporting


A new report looks at how Medicaid in states that expanded the program are pursuing alternative payment models in order to better respond to the complex health and social needs of beneficiaries.

Community health centers represent a major source of primary healthcare for Medicaid beneficiaries. Because the Federally Qualified Health Centers (FQHC) payment system is encounter based, health centers and Medicaid agencies in states that have expanded Medicaid are undertaking payment reforms that will enable health centers to adopt strategies that can better respond to the complex health and social needs of people served by FQHCs, and the huge volume of patients being cared for.

A new report by the RCHN Community Health Foundation on Medicaid payment reforms and Medicaid’s FQHCs explains the flexibility available under federal law, which permits states and health centers to develop alternative payment methods. As of 2015, active negotiations were under way in 5 Medicaid-expansion states (California, Colorado, Minnesota, New York, and Oregon), and Washington State Medicaid is now pursuing alternative payment options as well.

The current FQHC payment method, the prospective payment system (PPS), ties health center payments to the cost of providing covered services to Medicaid patients. Payments are bundled into an all-inclusive encounter rate, and health center physicians, dentists, psychologists, and allied healthcare professionals bill for services they furnish. For health centers that participate in managed care plans, the plans may administer PPS on behalf of a state and are paid additional funds beyond the managed care capitation rate to do so. The PPS payment system sets a federal floor approximating the cost of treating Medicaid patients, but federal law does allow states and health centers to negotiate an alternative payment method that allows FQHCs to test alternative payment approaches that do not depend on encounter-based billing, and therefore offer the centers greater flexibility in how their clinical staff provide care. Federal law requires that alternative payment methods produce the same amount of revenue in relation to patients served that the basic PPS encounter-based system would produce. If this requirement is met, health centers are able to move away from encounter billing and states can introduce value-based payment methods.

The payment reforms examined by this report, such as global payments, link payment to performance while ensuring that the FQHC hold-harmless standard is met and that the total revenues do not fall below the FQHC floor. These alternative payment approaches allow FQHCs to try out new strategies to address patients’ needs and also enable state agencies to align these strategies more closely with broader payment reform efforts.

“We learned that these states are moving toward alternative payment models that can satisfy the FQHC rule while still improving efficiency and achieving greater integration of value-based payment principles such as global payment and the use of performance measures,” the authors noted.

The report found that these alternatives may enable health centers to move toward a system that enables a more fundamental transformation in how healthcare for medically underserved populations is practiced.

“Alternative FQHC payments models are evolving slowly but these efforts are worth encouraging,” the authors wrote. “In our view, the time is right for the Centers for Medicare and Medicaid Services to provide funding and technical support in Medicaid expansion states to help Medicaid and community health centers save money while improving care.”

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