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Converting Your Clinic to an FQHC

If your hospital’s financial results are negatively affected by outpatient clinics, an FQHC may provide potential benefits. Read on for details.
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Many hospitals have some variation of a physicians’ practice or an outpatient clinic under the direct operation of the hospital. Typically, these facilities are not distinct legal entities from the hospital and are run by the hospital to satisfy its mission statement to better serve the community at large. Unfortunately, it’s not uncommon for these operations to run at a loss, and since they are legally part of the hospital organization, these losses will detract from the hospital’s overall results on its financial statements. Due to several factors, including payor reimbursement trends and future outlook and physician compensation pressures, many hospitals have been accelerating efforts to address these operating losses. As a result, numerous hospitals are considering opportunities outside of traditional hospital operations. If your hospital’s financial results are being negatively impacted by its outpatient clinics, you may want to consider enhancing your hospital’s collaboration efforts with an FQHC, or potentially converting your outpatient clinic to an FQHC.

For starters, an FQHC—federally qualified health center otherwise known as a community health center (CHC)—is an outpatient provider that receives federal grant dollars from the Health Resources & Services Administration (HRSA) Health Center Program to provide primary care and other services in underserved areas. The FQHC program began in 1965, and over the last 55-plus years has grown into a national primary care network with nearly 1,400 health centers and more than 13,000 delivery sites serving nearly 30 million people a year in communities across the United States. Some of the comprehensive care that FQHCs provide includes preventive health services, mental health and substance abuse treatment, dental care, and a host of other services.

An FQHC has a few unique advantages. As mentioned earlier, FQHCs receive federal grant dollars from the HRSA Health Center Program to provide primary care to underserved areas. This funding is what’s known as the “330 Grant.” Upon formation, every FQHC receives an annual operating grant under Section 330 of the Public Health Service Act, which is discretionary funding from the government, and its amount is determined annually through the federal appropriations process. In addition, these health centers receive enhanced reimbursement compared to other outpatient facilities, particularly for Medicaid patients, which can allow them to better serve this patient population. FQHCs also are eligible to be enrolled in the 340B Drug Pricing Program. Created by the government in 1992, this program allows eligible facilities to purchase outpatient drugs at significantly reduced costs. These facilities are then able to pass the savings on to their patients through reduced drug prices and invest additional savings to expand access and improve overall health outcomes. Finally, FQHCs also have access to free professional liability coverage through the Federal Tort Claims Act (FTCA).

A hospital that collaborates with an FQHC, or even converts its outpatient clinics to an FQHC, reaps a number of benefits. One is that the FQHC is its own separate legal entity. This alleviates the aforementioned issue of having a financially unsuccessful clinic deteriorating your hospital’s financial performance. Although the hospital would no longer directly control the clinic operations, FQHCs can continue to fulfill the hospital’s mission to provide high-quality outpatient care under the hospital’s auspices. However, since the FQHC is its own distinct entity, with a separate management and board of directors, collaborating with a hospital also needs to make business sense for the FQHC. Many of the benefits mentioned previously help offset the FQHC’s cost of providing care at these clinics that often are not profitable within the hospital settings; however, additional funding sources may often be necessary. Certain examples of additional funding include a hospital providing an annual community benefit grant to an FQHC that can serve a dual purpose—help offset the FQHC’s costs for providing care for these patients and help with the hospital’s obligation to provide charity care. While the annual community benefit grant may be a cash outlay for the hospital, the overall bottom-line improvement could make it an advantageous opportunity. Some other examples of hospital and FQHC collaboration include:

  • Hospital provides workspace for FQHC outreach case managers in the emergency department to help place indigent patients with a medical home. This helps remove frequent fliers from the hospital’s emergency department, allowing them to care for more critical patients, and provides the patients with a medical home that may be better suited to meet their needs.
  • Hospitals and FQHCs can work together to operate a residency program for specialty physicians. As part of a physician’s residency, they need to have a rotation in an outpatient clinic in addition to their primary work in the hospital setting. For hospitals that have a relationship with an FQHC, the resident can rotate to the FQHC and stay within the auspices of that hospital, which can create significant benefits for both the hospital and the health center. In some cases, the health center can apply to become a teaching health center, which is another potential source of funding for health centers that have residency programs.

FQHCs do have some specific requirements that they must meet to maintain FQHC status. An FQHC must either be a nonprofit or public entity and cannot be owned, controlled, or operated by another entity. FQHCs also must be compliant with the Health Center Program requirements as described in the Health Center Program Compliance Manual and must provide 40 hours a week of primary care services, including other nonmedical services such as dental and behavioral health services. As mentioned earlier, an FQHC must be located in or provide services to patients of a medically underserved area/population and/or a health professional shortage area. Serving in these areas will often lead to having patients below the federal poverty level. As part of its operation, an FQHC must offer services on a sliding fee scale for any patient who is below 200% of the federal poverty level. In addition, an FQHC’s board of directors and employees also must meet certain criteria. An FQHC’s CEO must be directly employed by the health center, and at least 51% of the board of directors must be “users,” or patients, of the FQHC. This last criterion was put into place to help ensure that any protocol that requires board approval is being put into place with the intent of improving the FQHC through the eyes of the FQHC’s users.

As you can imagine, obtaining grant money is not always the simplest process, and especially since the COVID-19 pandemic, there has been limited opportunity available for organizations to apply to become an FQHC through the 330 Grant’s New Access Point grant funding. However, many organizations have turned to a similar designation to take advantage of many of the same benefits of a full 330 grantee, an “FQHC look-alike” (LAL). As defined by HRSA, a LAL is an HRSA-designated health center that provides comprehensive, culturally competent, quality primary healthcare services consistent with Health Center Program requirements, like HRSA-funded Health Center Program award recipients.

LALs, like FQHCs, were established to maximize access to primary care services for medically underserved individuals. The two types of organizations are similar in that they provide healthcare services to populations of people who are medically underserved regardless of their ability to pay, meet all Health Center Program requirements, receive HRSA-support training and technical assistance, are automatically eligible to enroll in the 340B Drug Pricing Program, have enhanced reimbursement for Medicaid and Medicare services provided, and obtain free vaccines for uninsured or underinsured children through the Vaccines for Children Program. FQHC LALs, however, do not receive the annual 330 Grant, do not have access to free FTCA medical malpractice insurance, and do not receive federal loan guarantees for capital improvements. For some organizations, these differences may not make it a viable solution to convert their clinics to a LAL. Once LAL status is obtained, organizations are able to apply to become a full FQHC grantee whenever a New Access Point opportunity becomes available; however, this is not guaranteed, and any decisions made should include all possible scenarios.

There are many factors to consider when contemplating whether your organization decides to enhance collaboration with existing FQHCs or LALs or transfer some of your outpatient clinic operations into a newly formed FQHC or LAL. Many hospitals could be concerned about losing control over these outpatient clinics, or the potential for negative downstream revenue impacts this could have on their operations. Your organization should consider a thorough analysis of your operations before making a decision. However, examples abound of partnerships that have been successful for both entities and the communities they serve.

If you have any questions or need assistance, please reach out to a professional at FORVIS or use the Contact Us form below.

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