Gary Lewins

Health systems can expand their primary care reach and reduce costs by collaborating with federally qualified health centers.

At a Glance  

  • New strategies are emerging to help health systems reduce overhead cost related to physician integration as the industry enters healthcare reform.
  • Community health centers (CHCs) will be expanding due to increased funding included in reform legislation.  
  • A health system-CHC collaboration agreement can achieve mutually beneficial goals, including expansion of primary care, reduction in operating expenses, and EHR development.  

The 2010 Affordable Care Act is challenging health systems to step up to a higher level of efficiency, improved integration of services, and a quality-based payment system. A major part of the service integration efforts in the reform legislation are focused on physician services, such as expansion of primary care services, development of electronic health records (EHRs), and improved patient transparency in healthcare delivery.

The healthcare reform legislation also provides $11 billion for community health centers (CHCs), which are operated as federally qualified health centers (FQHCs) for Medicare purposes. The funding level represents a 500 percent increase and is intended to be used to expand primary care services and support the FQHC mission of providing a "medical home" for uninsured patients. In addition, the Medicaid program administered through the states will be expanding to assist with coverage for the uninsured. These additional funding programs will provide resources to expand the FQHC network in many local healthcare communities.

Many health systems are reassessing their physician integration plan. The primary strategy has been physician employment by the health system. The FQHC network expansion creates an opportunity for health systems to achieve physician integration through a collaborative agreement. This opportunity can provide another option to achieve future expansion of primary care without the risk of increasing health system costs associated with physician employment.

FQHC and Provider-based Medicare Program Differences

Many health systems may have been reluctant to look in depth at the FQHC program as they developed their physician integration strategy. Medicare requires an FQHC to have a community-controlled board of directors. The provider-based clinic (PBC) and rural health clinic (RHC) programs do not include this requirement. This lack of formal control could raise concerns for health system leaders. A well-structured FQHC collaboration agreement can provide the desired integration goals and produce benefits for both organizations. These benefits are the result of bringing additional outside funding into the local healthcare service area and reduced recruitment and other operating costs.

FQHC program benefits that are not available to provider-based programs are as follows:

  • Higher reimbursement (FQHCs qualify for both Medicare and Medicaid per-visit reimbursement similar to an RHC but have higher per-visit limits. The Medicaid program will become a more important source of funding due to the expanded coverage for uninsured patients.)
  • Malpractice cost savings due to coverage through the Federal Tort Claims Act
  • Potential patient drug coverage through the 340B drug program
  • Eligibility to receive federal, state, and private grants for recruitment and other costs associated with providing clinic patient services

The FQHC program requirements include a health professional shortage area (HPSA) designation of an underserved area in a portion of the local area. Health systems should assess the Medicare PBC, RHC, and FQHC program options to get a better understanding of the reimbursement differences and the program requirements for each option.

Benefits to Health Systems from FQHC Collaboration

Having a contractual agreement in place simplifies both start-up and administration for a health system compared with a formal employment arrangement or legal entity relationship. Another benefit is having a referral and education program for uninsured and Medicaid patients receiving primary care treatable services in the emergency department (ED). This program can lower charity care and bad debt costs for the health system. The ED can redirect these patients to an FQHC "medical home." The FQHC provides patients with access to chronic disease management, mental health, and high-risk obstetrical and dental services. Health systems can then use a portion of this savings to fund FQHC case managers to administer the ED redirection and provide a financial subsidy to help the FQHC render services to the uninsured and Medicaid patients.

Costs associated with the collaboration program can be considered part of a not-for-profit health system's community benefit reporting requirement.

Additional benefits to health systems that collaborate with an FQHC include:

  • Potentially reducing or eliminating the need to add primary care employed physicians to expand primary care capacity
  • Collaborating to expand and improve integration of EHR development in the local service area

As reimbursement for services continues to decline, collaboration can help improve the efficiency of the local healthcare delivery system in the current era of healthcare reform.

Benefits to FQHCs from Health System Collaboration

FQHCs have generally had limited administrative depth due to the need to focus their resources on providing patient care services. Health systems could provide administrative support services that are already in place in the health system physician division at minimal additional cost. Examples of potential support include:

  • Recruitment assistance and coordination in the local service area
  • Support for the development or improvement of quality programs
  • Leadership and assistance with FQHC electronic medical record (EMR)/EHR development and integration effort
  • Improved patient referral service for specialists and hospital referrals
  • Assistance with board, physician, and administrative leadership education programs
  • Other services based on FQHC needs and health system capabilities

If an effort to redirect ED uninsured, nonurgent care to the FQHC "medical home" is undertaken, providing a computerized referral system can benefit both organizations.

Steps to Develop a Collaborative Agreement

Health systems that want to develop a collaborative agreement with an FQHC should take the following steps.

Understand FQHC operations. Health systems should have a good understanding of the components of an effective FQHC organization and verify that these components are in place.
To this end, the health system should:

  • Assess local support for an FQHC. A significant level of local support is needed to provide board leadership and potentially private and/or local government funding.
  • Establish a grant program. Considerable funding is available from Medicare, Medicaid, and private grants. A grant program should be structured and have staff to monitor grants that are becoming available, prepare grant applications, and administer the requirements of each grant awarded.
  • Determine the FQHC organization type. The two legal structures of FQHC organizations are an "FQHC look alike" and a Section 330 grant-funded FQHC. The latter structure allows the FQHC to apply for, receive, and administer grant funds.
  • Ensure the presence of representation by the state family practice association. These associations have numerous resources that can assist with the necessary components to operate a successful FQHC.

Understanding FQHC operations will help health systems better identify how they can develop mutually beneficial collaboration with the FQHC.

Start the discussion. Health systems that are interested in this strategy can start by contacting the FQHC in the service area if they do not have an established relationship. A good starting point for discussion is the respective organizational response plan related to healthcare reform, which can open the door to a discussion of the interest level in exploring areas of potential collaboration.

Learn about the emerging success stories. These stories, which can assist and focus the discussion, include both urban and rural successes. For example, the Milwaukee Health Care Partnership, a collaboration of five Milwaukee-based health systems and local FQHCs, focuses on identifying uninsured and Medicaid patients receiving primary care services in the ED. This population is then referred by FQHC case managers to an FQHC medical home. A portion of the health system cost savings is used to support the FQHC case manager staffing and the FQHC primary care services financial subsidy. (See the sidebar Milwaukee Health Care Partnership below).

Critical access hospitals (CAHs) and FQHCs have also developed successful collaborations. In April 2010, the U.S. Department of Health and Human Services Health Resources and Services Administration Office of Rural Health Policy released A Manual on Effective Collaboration Between Critical Access Hospitals and Federally Qualified Health Centers. The three collaborative programs examined realized $2,225,000 in direct grant or financial support from numerous programs and $1,083,000 in annual operating savings. Operating savings were generated mainly by sharing administrative resources. (See the sidebar Critical Access Hospital Collaboration with FQHCs below).

Brainstorm the opportunities. Health systems should develop the areas of mutual benefit. Some examples of collaboration include:

  • Developing and integrating EHRs
  • Improving response time and reducing FQHC administrative effort to refer to specialists and schedule hospital services
  • Collaborating to expand primary care physician services (This effort could include a health system that is interested in reducing its employed network by converting an existing health system clinic to the FQHC program.)

Develop the agreement. The collaboration agreement outlines the areas of interest, including a statement of the collaboration goal to be achieved. This agreement can range from simple to detailed based on the parties' needs. A benefit of collaborative agreements is their simplicity compared with physician employment or developing a formal legal entity. Although this type of agreement does not involve a legal structure, there still may be antitrust considerations. Agreements may be limited initially and expand over time as the parties identify additional areas of collaboration.

Develop an implementation plan. The next major step in the process is to develop the implementation plan for each area of collaboration included in the agreement. Each area can be developed and implemented following the basic steps for effective project management, which include assigning a project manager (owner), selecting of team members from each organization, developing a standard meeting schedule for team and leadership meetings, and setting the kickoff meeting date. At the kickoff meeting, the team(s) produce the written implementation plan(s), assign task owners, and identify a timeline for completion.

Driving Healthcare Reform

The healthcare reform legislation provides for insurance reform, expansion of primary care, and opportunities to improve quality and cost efficiency. Healthcare providers should drive healthcare reform in their local service areas. Initiatives that approach the current challenges with new solutions will be a key factor in driving successful local reform efforts.

The provider community will need to step up and initiate improvements that will make the healthcare system more efficient and improve the quality of care in communities across the country. A big part of the success of healthcare reform will be based on local efforts initiated by providers, such as collaboration with FQHCs.

Gary Lewins, FHFMA, is a principal, Health Consulting Partners, Green Bay, Wis., and a member of HFMA's Wisconsin Chapter (

Sidebar 1

Milwaukee Health Care Partnership  

The Milwaukee Health Care Partnership (MHP) was started in January 2007 by Milwaukee area health system CEOs who were concerned about the growing Medicaid and uninsured population, the overutilization of emergency department (ED) services, and the fragmented ED delivery system. The membership includes five health systems, four federally qualified health centers (FQHCs), the Medical College of Wisconsin, and representatives from state, county, and city health agencies.

The Milwaukee area has 350,000 Medicaid and uninsured patients. The area experienced more than 161,000 primary care treatable ED visits in 2008, of which 45 percent were by Medicaid patients and 16 percent were by uninsured patients. Ten area zip codes account for 60 percent of the visits. These zip codes have the highest poverty rate and lowest concentration of primary care in the area.

Goals and objectives of the MHP are to:

  • Connect target patients with medical homes, increasing the number of ED to FQHC referrals, FQHC appointments kept by patients, and patients returning for scheduled follow-up visits (stick rate)
  • Reduce avoidable ED visits, tests, procedures, and related inpatient admissions

Strategies include:

  • Expanding the FQHC capacity with grant funding and new government programs
  • Reducing avoidable ED utilization and related expenses, and using a portion of the savings to provide financial support to the local FQHCs
  • Implementing a health information exchange among the EDs and FQHCs, with patient history available in all areas with EDs to support clinical decision making and care coordination
  • Implementing a computerized real-time patient appointment system, allowing FQHC appointments to be scheduled from the ED 24/7
  • Educating patients about appropriate ED use, the value of a medical home, and the availability to access FQHC services for nonurgent care, medications, mental health, and dental services

Results achieved:

  • FQHCs experienced a 14 percent increase in Medicaid and uninsured patients served in 2009.
  • FQHCs received $5 million in one-time ARRA funding and a health system contribution of $1.6 million in 2009. 
  • For the four EDs and three FQHCs that participated in the 17-month pilot, referrals increased from 78 per month to an average of 352 referrals per month. The show rate for patient appointments increased from 27 percent to 42 percent. The rate of second appointment in six months kept by the patient increased to 61 percent.
  • Ten EDs and one FQHC are now linked and sharing patient care information.
  • For 2009, the ROI of the health information exchange was estimated at $865,000, using a return on community investment tool developed by Ascension Health Care. (This benefit is projected to increase to more than $10 million with future enhancements to the exchange.)

Source: Ascension Health Columbia Saint Mary's and the Milwaukee Healthcare Partnership Cultivating Outside Capitalize Goals Partnerships as a Way to Achieve Your Hospital's Community Benefit Goals, Association for Community Health Improvement Annual Conference Presentation, March 2010, Paul Westrick, Joy Tapper, and Christopher Palombo; Conference call Sept. 24, 2010, with Joy Tapper and Betty Ragalie to update the latest results.

Sidebar 2

Critical Access Hospital Collaboration with FQHCs  

A 2009 study of rural communities in Georgia showed that federally qualified health centers (FQHCs) in rural communities reduced emergency department (ED) use by the uninsured. Counties without FQHCs had a 33 percent higher rate of ED visits per 10,000 for the uninsured population.

 A study of three communities focused on collaboration between the hospital and the FQHC in its local service area. These communities were:

  • Minnie Hamilton Health System, Grantsville and Glenville, W.Va., which uses one governing and operating authority for both the critical access hospital (CAH) and FQHC
  • Fairview Hospital and Community Health Center of Berkshire South, Great Barrington, Mass.
  • Early Memorial Hospital and Primary Care of Southwest Georgia, Inc., Blakely, Ga.

As a result of the collaborative relationship, the hospitals realized $2.23 million in direct grant or financial support from numerous programs and $1.08 million in annual operating savings.

The collaboration also resulted in the following combined benefits for the FQHC:

  • Start-up cost assistance directly from the hospitals for service development ($75,000) > In-kind or community benefit contributions for start-up ($150,000)
  • Grants contingent upon collaboration with CAH ($2.04 million)
  • Reduced cost due to shared administrative staff and systems ($400,000)
  • Use of CAH physician recruitment and credentialing capacities
  • Medical leadership by the CAH medical director

The collaboration resulted in the following combined benefits for the CAH:

  • Reduced professional liability cost for ED, primary care, and OB/GYN ($500,000)
  • Grants contingent upon collaboration with FQHC ($183,000)
  • Reduced variable costs for ED services for the uninsured due to FQHC medical home
  • Improved physician retention due to reduced ED call responsibilities


Publication Date: Monday, January 03, 2011

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