FQHCs and Health Reform: Five Things Private Practice Physicians Absolutely Need to Know

Vol. 10 No. 3

Untitled Document

AuthorAuthorFederally qualified health centers (“FQHCs”) are a key player in healthcare reform and may become formidable competitors of private practice physicians and groups. The 2010 Patient Protection and Affordable Care Act (“PPACA”) aims to expand health insurance coverage for 32 million currently uninsured individuals.1 PPACA has allocated $11 billion to increase operating capacity at existing FQHCs and to fund the start-up costs of new FQHCs to expand access to primary care.2

FQHCs are nonprofit, community directed healthcare providers that offer comprehensive primary and preventative care services, including medical, oral, mental health, substance abuse and specialty services to medically underserved areas or populations (“MUPs”).3 Clinical services include outpatient diagnostic x-ray and lab, health screenings and immunizations, OB/GYN services, including prenatal, postnatal and well child care, and pharmacy. FQHCs also provide case management and counseling, follow-up and discharge planning, support for Medicaid enrollment, health education, transportation, translation and outreach.4

The benefits of FQHC provider status are significant and are not available to private practice physicians. Some FQHCs receive substantial funding apart from payment for services, such as loan guarantees and Section 330 Health Center Grants5 of up to $650,000 annually, with additional federal, state and private grant potential if a FQHC increases capacity or expands its service area. FQHCs receive higher per visit reimbursement for both Medicare and Medicaid patients. FQHCs realize cost savings from obtaining malpractice insurance coverage under the Federal Tort Claims Act.6 FQHCs have access to 340b drug pricing7 for pharmaceuticals. National Health Service Corp. primary care personnel8 can staff FQHCs. Finally, FQHCs have had a de facto franchise for their geographic service areas as a result of a statewide strategic planning process supported by the Health Resources and Services Administration (“HRSA”) and the National Association of Community Health Centers (“NACHC”).9


FQHCs pose a competitive challenge for private practice physicians. The very nature of FQHCs gives them an inherent advantage over private practice physicians in the provision of preventative and primary care services. FQHC services are comprehensive and include many services, items and goods that go beyond physician services and services incident to physician services. These comprehensive services, in fact, have given FQHCs a leg up in creating a patient centered medical home, with payment rates that factor the comprehensive supplemental services into account. In contrast, the a la carte nature of fee-for-service payment in private practice and the lack of additional funding sources to offset the expense of more comprehensive supplemental services have the effect of a “hard stop” on patient centered medical home development.


According to the National Ambulatory Medical Care Survey (“NAMCS”) 2006-2008, FQHCs performed better than private practice physicians on six measures and no differently on 11 measures.10 These impressive results are in spite of the greater complexity of patients served at FQHCs and the patients’ high poverty rates, low levels of education, chronic health conditions, non-compliance, non-English speakers, and other challenges. Studies like this and others that are sure to come will be used by legislators, PPACA policy makers, governmental and private payors to drive the incentives that will be used to develop new payment and delivery models. A wide array of pay-for-performance models have been developed to incent or reward providers for producing better outcomes at reduced costs. Between the spectrum of fee-for-service and full capitation accountable care organizations (“ACOs”) lie value based payment (“VBP”) demonstration projects including performance based fees for services, shared savings, risk sharing and medical home payment and delivery models.

Analysis of data from a 2011 Department of Health and Human Services (“HHS”) FQHC Advanced Primary Care Practice demonstration will evaluate how a patient centered medical home can improve quality of care, promote better health and lower costs. HHS provides technical assistance and pays FQHCs a monthly care management fee for each patient receiving primary care services in exchange for the FQHC’s achieving Level 3 PCMH recognition,11 helping patients manage chronic care conditions and making investments in infrastructure.12 PPACA also provides financial incentives for state Medicaid agencies to develop this model through the Centers for Medicare & Medicaid Services Innovation Center,13 with the expectation that they will become an essential element of ACOs. While the electronic medical record incentives (and penalties)14 are available to many providers, including private practice physicians, as is the Independence at Home Demonstration,15 the FQHC Advance Primary Care Practice Demonstration16 is limited to FQHCs. In addition to other perks enjoyed by FQHCs, this demonstration project revenue and support gives a boost to FQHC efforts to evolve with health reform initiatives in a manner that is not offered to private practice physicians.17 It may also result in FQHCs having a competitive advantage in ACO formation over private practice physicians.


FQHCs enjoy a light touch from regulators in comparison to private practice physicians under the Stark Law, the Anti-Kickback Statute (“AKS”) and state mini-Stark and AKS laws. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) specifically excludes from the reach of the AKS any remuneration between a FQHC and an individual or entity providing goods, items, services, donations, loans, or a combination thereof, to the health center pursuant to a contract, lease grant, loan, or other agreement, if such agreement contributes to the ability of the health center to maintain or increase the availability, or enhance the quality, of services provided to a MUP that is served by the FQHC.18 The AKS safe harbor enables FQHCs to receive remuneration in cash and in kind from other provider types, even though there is a referral relationship between them. Further, by virtue of their non-profit status, FQHCs are eligible for gifts and grants that for profit providers are not. As a result, FQHCs can obtain access to capital and other resources that are not at arm’s length or fair market value.


Collaboration agreements between hospitals and FQHCs enable hospitals to access a primary care network without having the need to employ, and bear the overhead costs, of primary care physicians, physician’s assistants or clinical nurse practitioners. Collaboration agreements between hospitals and FQHCs can reduce or eliminate the need for a hospital to directly employ primary care professionals, yet still meet hospital network requirements in the formation of ACOs. In addition to avoiding employment-related costs, hospitals have an alternative to purchasing physician practices and incurring the one-time asset or stock purchase costs of practice acquisition. Hospitals can lower charity care and bad debt costs arising from inappropriate use of hospital emergency departments for services that are best provided to patients in a FQHC medical home through appropriate collaboration agreements. Finally, given the large size of some FQHCs and their ability to offer a more comprehensive array of services than a hospital-employed primary care provider group can provide, consistent with antitrust strictures on the allocation of markets, hospitals can avoid having a FQHC compete with a hospital-employed primary care group. In this respect, hospitals might be able to avoid subsidizing primary care group costs in the face of a high demand for primary care professionals and/or low reimbursement or unfavorable payor mix.


To address current shortages in the primary care workforce and meet the needs of newly insured individuals under PPACA, additional primary care providers are needed, especially for underserved populations.19 PPACA created the Teaching Health Center Graduate for Medical Education (“THCGME”) program which provides direct funding to FQHCs to expand or establish new primary care graduate medical education (“GME”) programs.20 FQHCs can leverage hosting rotations of primary care residents or sponsor GME programs at FQHC practice locations to increase their physician capacity and expand the scope of services they offer to patients. The infusion of primary care residents and their supervising teaching physicians may be expected to bring fresh ideas and new technologies to the service of FQHCs, which may be expected to further increase their quality of care, speed their evolution as preferred patient centered medical homes of choice, and enhance their reputation in the marketplace and their attractiveness as potential ACO participants through accreditation standards and GME requirements, as compared to other primary care options, including private practice physicians and groups. From an economic standpoint, THCGME provides payments to FQHCs for both direct and indirect GME expenses, giving FQHCs yet another revenue source to supplement payments for professional services. From a resident’s standpoint, FQHC-based GME programs may be expected to appeal to individuals who seek a GME program with a well developed patient centered medical home delivery model, a collaborative practice with other types of allied health and other oral, medical and mental health professionals, and an opportunity to work with a diverse and underserved patient population. In short, a FQHC-based GME program may offer a competitive advantage over private practice primary care through increased clinical capacity, enhanced workforce satisfaction, quality measures, provider recruitment and retention. It may give them a leg up on meeting the goal of providing a medical home for patients.


FQHCs may be the nose in the tent of private practice as a competitive government subsidized primary care delivery system. Higher reimbursement and access to preferential governmental programs and resources may be a strong motivating factor behind the conversion of some qualifying independent, private primary care practices to FQHCs, or some hospitals spinning off employed primary care practices into freestanding FQHCs. Hospitals that lose money on primary care or in operating rural health clinics may wish to stabilize the primary care network in qualifying areas by divesting their practices to FQHCs to keep primary care available in the community but not through the vehicle of hospital employment or at hospital expense. FQHCs appeal to the recruitment and retention of some primary care professionals, not only because of potential student loan write offs, but because they can offer their patients access to dental, mental health, pharmacy programs, chronic disease management, case management and integrated, interdisciplinary patient care services. Qualified private primary care practitioners and hospitals employing primary care professionals or operating rural health clinics not currently associated with FQHCs may be well advised to review the pluses and minuses of FQHC status.

1Department of Health and Human Services (“HHS”), Understanding the affordable care act: about the law. Washington D.C.: HHS, 2011.
2Centers for Medicare & Medicaid Services, Federally Qualified Health Center: Rural Health Fact Sheet Services, Washington D.C. HHS, 2011.
5Section 330(e) of the Public Health Service Act provides federal grant funding opportunities to community health centers that provide care to underserved populations, including the uninsured and low-income populations, regardless of ability to pay.
6Under Section 224 of the Public Health Services Act, the Federal Tort Claims Act, a deemed FQHC, its employees, and eligible contractors are considered federal employees immune from suit for medical malpractice claims while acting within the scope of their employment. A patient who alleges acts of medical malpractice by a deemed FQHC cannot sue the center or the provider directly, but must file the claim against the United States.
7Section 340B of the Public Health Services Act requires drug manufacturers to provide outpatient drugs to eligible healthcare organizations, such as FQHCs, at significantly reduced prices, enabling them to serve more patients and lowering medication costs for them. FQHCs can register, be enrolled and purchase discounted drugs through the 340B Program.

The National Health Service Corp. is a program intended to encourage more students to enter primary care residencies and commit to providing healthcare to underserved populations in Health Professional Shortage Areas (“HPSAs”) throughout the United States. Eligible applicants are those medical students in their last year of an allopathic or osteopathic program at an accredited U.S. medical school and planning to pursue a primary care residency. Individual awards can be up to $120,000 in exchange for three years of service at an approved NHSC-site, including FQHCs.

9PPACA contains a total of approximately $11 billion in new, dedicated funding for Section 330(e) funded health centers over five years. Nine and a half billion of this funding will allow health centers to expand their primary care capacity to eventually serve nearly 20 million new patients and to enhance their oral, behavioral health, and pharmacy capacity. The purpose of the statewise strategic planning process is to identify those strategic initiatives and corresponding resources within each state that support PPACA expansion targets.
10Federally Qualified Health Centers and Private Practice Performance on Ambulatory Care Measures, E. Goldman, et al., Am J. Prev. Med. 2012; 43(2): 143-149. Data analysis was completed in 2011. The measure that did not meet or exceed the performance of private practice physicians was diet counseling in at-risk adolescents.
11The National Committee for Quality Assurance’s (“NCQA”) Patient Care Medical Home (“PCMH”) Recognition Program evaluates the use of health information technology like electronic health records to capture patient information and ensure that all necessary providers have uninterrupted access to critical data so as to create a systematic, patient-centered and coordinated care management processes. Level 3 Recognition is the highest level of recognition achievable.
13The Innovation Center supports the development and testing of innovative healthcare payment and service delivery models.
14The Medicare and Medicaid electronic health records incentive program provides incentive payments to eligible professionals and eligible hospitals that demonstrate meaningful use of certified electronic health record technology. http://www.cms.gov/Regulations-and-Guidance/Legislation/EHRIncentivePrograms/index.html.

Under the Independence at Home Demonstration, the CMS Innovation Center will work with medical practices, including FQHCs, to test the effectiveness of delivering comprehensive primary care services at home and see if doing so improves care for Medicare beneficiaries with multiple chronic conditions. Additionally, the Demonstration will reward healthcare providers that provide high quality care while reducing costs.


16The Demonstration is designed to improve quality and efficiency of care of FQHC patients and to help avoid their preventable emergency and inpatient hospital care. http://www.cms.gov/Medicare/Demonstration-Projects/DemoProjectsEvalRpts/downloads/FQHC_DemoDescription.pdf.
17http://innovation.cms.gov/initiatives/independence-at-home/ However, many payors and trade associations are sponsoring patient centered medical home demonstration projects in which private practice physicians are eligible participants. http://www.iphca.org/Services/Clinical/PatientCenteredMedicalHome/LearningCommunity.aspx.

72 Fed. Reg. 192 (October 4, 2007).

19Teaching Health Centers: A New Paradigm in Graduate Medical Education Chen, Candice MD et al. Al. Academic Medicine: December 2012 - Volume 87 - Issue 12 - p 1752–1756.
20Patient Protection and Affordable Care Act, Pub L No. 111-148 (2010). Section 5508. Increasing Teaching Capacity. http://www.healthcare.gov/law/full/index.html.


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