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Health Tracking

TRENDS

The Financial Performance Of Community Health Centers, 1996–1999

Abstract

 
This paper presents recent financial health trends of community health centers (CHCs) between 1996 and 1999, a time characterized by fiscal and operating challenges. Results show that many individual CHCs have been subject to large changes in payer-mix among uninsured and Medicaid users. Troubling is the finding that more than half of all CHCs reported operating deficits in 1997, 1998 and 1999. CHCs experiencing large increases in the share of uninsured users and those participating in Medicaid managed care appear to have been disproportionately affected. The analyses presented support recommendations for enhanced data collection and for further monitoring of CHCs’ financial health.

To serve the special needs of their patients, many CHCs offer an expanded range of health and enabling services, including transportation, foreign language translation, health education and prevention, nutrition, social support, AIDS case management, HIV testing and counseling, mental health, and pharmacy.⁴ In addition, to ensure that centers are responsive to their communities’ health needs, federal regulations require that the majority of governing-board members be active center clients. This grassroots organizational structure fosters a culture of ownership and responsibility and empowers board members to develop creative solutions to serve local needs.

Although CHCs are a valued provider type, there is concern that the current health care environment threatens their financial viability.⁵ An Institute of Medicine (IOM) report released in 2000 found that CHCs’ ability to fulfill their commitment to serve all patients seeking care, regardless of ability to pay, has been affected by three factors: (1) a growing number of uninsured; (2) the proliferation of Medicaid managed care; and (3) an erosion of the subsidies used to cover the cost of providing charity care. Between 1988 and 1998 the number of uninsured nonelderly Americans increased by 30 percent to nearly forty-four million as a result of declines in both public and employer-sponsored coverage.⁶ As a consequence, CHCs are serving more uninsured patients. The problem is compounded when former Medicaid patients, whose care was previously reimbursed, now visit CHCs as uninsured patients.

The proliferation of Medicaid managed care has resulted in a multifaceted challenge for CHCs. CHCs with Medicaid managed care operating in their service areas face increased competition for Medicaid patients, which may result in a smaller paying patient base. In addition, CHCs participating in managed care must absorb the costs of meeting reporting and other administrative requirements.⁷ CHCs with capitation agreements may also be assuming a level of financial risk that they are ill prepared to manage.⁸

Finally, erosion of federal grant funding, used to cover the cost of serving the uninsured, directly affects CHCs’ annual revenues. Between 1990 and 1998 federal funding that included the Bureau of Primary Health Care (BPHC) grant remained constant at approximately $230 per uninsured user, even though operating costs increased.⁹ In fiscal year 1999, however, overall BPHC grant funding increased. Existing centers received $45 million to boost their base funding, with more reportedly going to centers that served the most uninsured persons.¹⁰ While support of CHCs has recently improved, it is unclear if this level of funding will be sufficient to enable more centers to remain financially viable, given the set of operational challenges they face.

The IOM report advised that the financial health of CHCs (and other core safety-net providers) be monitored to ensure that they continue to serve the health needs of uninsured and vulnerable patient populations.¹¹ This paper responds to that charge by first presenting payer-mix changes among uninsured and Medicaid CHC users from 1996 to 1999; then examining CHCs’ financial health, with a special emphasis on CHCs that have experienced payer-mix changes; and third, presenting trends in the amount of grant revenues received from both federal and other sources. Finally, the paper assesses CHCs’ provision of enabling services to determine if the array being offered has been adversely affected during this period of multiple fiscal challenges.

Data And Methods

Top Data And Methods Study Findings Conclusions And Policy... NOTES

 
Data from the Uniform Data System (UDS), as compiled by the BPHC annually from 1996 to 1999, are used to support the investigation of CHCs throughout the United States.¹² The UDS data are collected from reports filed by CHCs that are in at least their second year of operation. Although the UDS data are subject to review and cleaning, the information is self-reported and not audited. These data include detailed information on revenue sources, costs, services provided, and users.¹³ A total of 588 U.S.-based CHCs were included in the study in 1999.

The UDS provides the most comprehensive data set of CHC organizational information at this time; the data reported by each CHC are representative of the centers’ entire scope of activities. Although only BPHC grantees with a CHC program are included in this study, many have additional programs: Migrant Health Center Program, Health Care for the Homeless Program, Outreach and Primary Health Services for Homeless Children, and Public Housing Primary Care Program. As a result, user, revenue, and cost data in the UDS do not always represent solely the operations of a CHC program.

It should be noted that from year to year CHCs might merge or cease operations. They also might receive funding or a grant increase to expand operations or the number of sites under their control. However, information indicating that such events have occurred is not included in the UDS. Because these and other underlying events may result in possibly influential changes, when aggregate trends are considered, the impact of outliers on the statistics reported were evaluated. Five percent trim means were calculated to assess the influence of potential outliers on all statistics reported here. Upon review, however, outliers did not appear to influence the values presented and, as a result, were included in all calculations.

Study Findings

Top Data And Methods Study Findings Conclusions And Policy... NOTES

 
Uninsured and Medicaid users. Between 1996 and 1999 the mean share of users by payer source reported by CHCs in the United States was relatively constant (Exhibit 1). Although the share of uninsured users increased while the share of Medicaid users decreased, the actual change did not reach two percentage points over the four years studied. In 1999 the mean shares of uninsured and Medicaid users were 41 percent and 29 percent, respectively. However, a closer examination shows that a minority of CHCs experienced large year-to-year changes in the share of uninsured or Medicaid users during 1996–1999 (Exhibit 2). In 1999 one in five CHCs reported a 10 percent increase in the share of uninsured users, and one in eight reported a 20 increase. In the case of Medicaid, one in four CHCs had a 10 percent decrease, and one in eight, a 20 percent decrease.

It has been proposed that CHCs operating in service areas with Medicaid managed care might experience a decrease in Medicaid users compared with CHCs without this exposure because of increased competition. Although the mean share of Medicaid users did decrease among CHCs participating in Medicaid managed care, the actual change was small (one percentage point) over the four years. In comparison, CHCs without Medicaid managed care patients had a decrease of four percentage points over this same period. Recently, however, CHCs with Medicaid managed care patients have been more likely to report large decreases in the share of Medicaid users compared with CHCs without such patients. Between 1998 and 1999, 15 percent of CHCs with Medicaid managed care patients experienced decreases of 20 percent or more in their share of Medicaid patients. Among CHCs that did not have Medicaid managed care patients, only 9 percent experienced comparable decreases.

Surplus and deficit. In each of the three years 1997–1999, more than half of CHCs reported having a deficit: 44.2 percent in 1996, 59.0 percent in 1997, 50.5 percent in 1998, and 52.6 percent in 1999. Most recently (in 1999), 53 percent of CHCs reported an operating deficit. However, the financial health of CHCs appears to be improving. The mean deficit among CHCs decreased from more than $200,000 in 1997 to just under $15,000 in 1999. The per encounter deficit dropped from $3.73 to $0.09.

In recent years CHCs with large increases in the ratio of uninsured users have had greater deficits per medical encounter than centers without these increases have had (Exhibit 3). Specifically, those CHCs that experienced at least a 20 percent increase in the share of uninsured in 1998–99 reported a mean deficit of nearly $2 per medical encounter. This compares to a surplus of $0.10 among CHCs that did not experience such a dramatic increase in the number of uninsured.

Enabling services. Among CHCs that were in operation in both 1996 and 1999, most reported a change in the total number of enabling service categories they offered. In contrast to anecdotal stories, 24 percent reported a net loss of enabling services in 1999 compared with 1996, while 38 percent reported a net gain. Centers that experienced a large increase in the number of uninsured clients in 1996–1999 were more likely to have added rather than discontinued enabling services over this period. Specifically, among centers that experienced at least a 25 percent increase in the ratio of uninsured clients, 44 percent reported a net gain in enabling services, and only 19 percent reported a net loss. An explanation may be that uninsured patients were attracted to CHCs that expanded rather than curtailed the types of enabling services they offered. Since enabling services are not explicitly reimbursed and may be discontinued in response to a need for cost cutting, gain-and-loss statistics also were evaluated by the number of deficit years (from zero to four) that centers reported. However, no relationships were found between the CHCs’ historical financial performance and their propensity to add or discontinue enabling services.

Conclusions And Policy Implications

Top Data And Methods Study Findings Conclusions And Policy... NOTES

 
This study reveals that one must look beyond aggregate payer-mix trends to obtain a clear understanding of whether or not CHCs are being affected by changes in uninsured or Medicaid users. In focusing on individual CHCs, these analyses found that a substantial number have experienced large changes in payer-mix. When the financial health of centers with large increases in uninsured clients was examined, these CHCs were found to be comparatively worse off. This finding is troubling since it means that CHCs that suddenly find themselves providing more charity care are the same CHCs that are likely to have problems covering their operating costs.

Federal funding. CHCs that have adapted to serve Medicaid managed care patient populations also appear to be financially struggling. One in seven of these CHCs recently experienced a large decline in Medic-aid patients as a portion of their patient-mix. This is likely the result of greater competition for Medicaid patients as more providers accept Medicaid managed care. Disturbing is the finding that more than half of all centers reported a deficit in 1997, 1998, and 1999. Part of the reason for this is that federal grant revenues have failed to keep pace with the increase in the number of users. Since then, however, Congress has appropriated annual fiscal increases of $100 million (FY 1999), $94 million (FY 2000), and $150 million (FY 2001) to be used both to increase funding at existing health centers and to establish new centers.¹⁴ Specifically, $92 million of the latest increase will be used to fund uncompensated care, service expansions, and improvements at existing CHCs.¹⁵ The Bush administration appears to be continuing this trend, as its FY 2002 budget proposed an increase of $124 million to the CHC Program to finance an additional 100 CHC sites. Nonetheless, it remains to be seen whether these large funding increases are enough to enable CHCs to cover their costs or whether they will result in a greater number of financially troubled health centers.

Other funding sources. This study found that centers, during this period of uncertainty, appear to have turned to state, local, and private foundation grants as well as fund raising to supplement revenues. Rural centers have also experienced some recent success in tapping them. Although such resourcefulness should be encouraged, it is unreasonable to expect all CHCs, especially those that are small or isolated, to have the expertise and personnel needed to secure outside funding to supplement their revenue.

Provision of services. With the finding that poor financial health is widespread among CHCs, it seemed likely that reports of discontinued enabling services would be confirmed by this analysis. Instead, more centers had reportedly increased the number of enabling services they provided. However, given data limitations, this investigation was not able to measure either the volume of services provided or the number of staff dedicated to providing enabling services. While the scope of enabling services did not appear to have been reduced, it may be that the volume of services provided or staff dedicated to providing these services, or both, were reduced throughout the study period. It might also be, given stagnant federal funding, that much of the actual elimination of enabling services occurred before 1996. It makes sense that in periods of inadequate funding or fiscal shocks, centers would redirect undesignated funds to provide their core services, as has been reported.¹⁶ But if these services are valued, then adequate and consistent funding should be explicitly directed to pay for them, to assure that they are provided where and when needed in sufficient volume and with appropriate staffing levels.

Medicaid PPS. Recently, Congress established the Medicaid prospective payment system (PPS) for CHCs.¹⁷ Although not dictating a specific payment methodology, since that responsibility has been left to each state, it did impose an inflation-adjusted minimum Medicaid payment for each CHC. As a result, each CHC will have a cost per visit baseline calculated for this year and adjusted for inflation and changes in the center’s scope of service in future years. While the implementation of the PPS should have a positive impact on CHCs’ financial performance, the magnitude of its impact is not clear.

The trend analyses presented here provide clear evidence that many CHCs are on the brink of financial insolvency. Timely and accurate monitoring of CHCs’ financial health is difficult and demands better data than those now available. Consideration should be given to the usefulness of the data being collected and whether more applicable information could be ascertained and audited, resulting in greater consistency and accuracy. However, until data collection is improved, regulators and health policy analysts need to use available information to monitor CHCs, given their present state of financial fragility and their mission to serve the poor, the uninsured, and those with special health care needs.

Editor's Notes

 
John McAlearney is a health services researcher/consultant based in Columbus, Ohio. He received his doctorate in health policy from Harvard University in June 2001.

The author thanks Joseph Newhouse, Katherine Swartz , and Jack Needleman, all members of his dissertation committee, for their guidance and helpful comments supporting this research.

NOTES

Top Data And Methods Study Findings Conclusions And Policy... NOTES

 

1. U.S. General Accounting Office, Community Health Centers: Adapting to Changing Health Care Environment Key to Continued Success, Pub. no. GAO/HEHS-00-39 (Washington: GAO, 2000).
2. D.R. Lewis-Idema et al., "FQHC: Harnessing the Incentives of Cost Reimbursement," Journal of Ambulatory Care Management 21, no. 2 (1998): 58–75.
3. M.E. Stewart et al., "Patient-Mix Differences among Ambulatory Care Providers and Their Effects on Utilization and Payments for Maryland Medicaid Users," Medical Care 31, no. 12 (1993): 1119–1137[Medline]; R. Abrams et al., "Performance of Community Health Centers under Managed Care," Journal of Ambulatory Care Management 18, no. 3 (1995): 77–88; and D.J. Lipson et al., "Effects of Health System Changes on Safety-Net Providers," Health Affairs (Summer 1996): 33–48.
4. GAO, Community Health Centers: Challenges in Transitioning to Prepaid Managed Care, Pub. no. HEHS-95-143 (Washington: GAO, 1995).
5. M.E. Lewin and S. Altman, eds., America’s Health Care Safety Net (Washington: National Academy Press, 2000).
6. Ibid.; P. Fronstin, Both Job-Based Health Coverage and Uninsured Continue to Rise, EBRI Notes 20, no. 2 (Washington: Employee Benefit Research Institute, 1999); and P. Fronstin, Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 1999 Current Population Survey, EBRI Issue Brief no. 217 (Washington: EBRI, 2000).
7. Abrams et al., "Performance of Community Health Centers"; and Health Resources and Services Administration, What Challenges Are C/MHCs Facing within Managed Care?, no date, <bphc.hrsa.gov/oppd/what_challenges_are_c.htm> (24 January 2002).
8. GAO, Community Health Centers: Challenges in Transitioning.
9. Lewin and Altman, eds., America’s Health Care Safety Net.
10. GAO, Community Health Centers: Adapting to Changing Health Care Environment.
11. Lewin and Altman, eds., America’s Health Care Safety Net.
12. CHCs are also located in Commonwealth and Trust Territories. Only CHCs in the United States and the District of Columbia are included in this study population.
13. The UDS revenue data are reported on a cash basis or during the period when the cash was received. In contrast, costs are reported on an accrual basis or during the period in which the expenses were incurred.
14. National Association of Community Health Centers, "Health Centers Win: Congress Approves Safety Net Preservation Act and $150 Million Increase," 18 December 2000, and "President Makes Rescissions in HRSA Programs," 28 January 2000, <www.nachc.com/federal_affairs/frame/leg_policy.htm> (27 March 2001); and GAO, Community Health Centers: Adapting to Changing Health Care Environment.
15. Bureau of Primary Health Care, "Spending Plan for the Increases Appropriated for Fiscal Year 2001 for Programs Funded under the Consolidated Health Center Authority," Program Assistance Letter 2001-12 (Washington: BPHC, 2001).
16. GAO, Community Health Centers: Adapting to Changing Health Care Environment.
17. NACHC, "Explanation of the New Medicaid Prospective Payment System for Existing Health Centers," no date, <www.nachc.org/Federal_Affairs/Frame/new_PPS.htm> (30 September 2001).

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