State Loses Bid To Cut FQHC Rates, Restructure Pay System

State officials earlier this year said they wanted to introduce a “new payment methodology” for federally qualified health centers and rural health clinics in California. Their plan included a funding cut of 10%, or about $100 million, to those centers. But Assembly and Senate budget subcommittees rejected the proposal last month, calling the plan unworkable.

Assembly budget subcommittee member Wesley Chesbro (D-Arcata) said cutting so much funding for FQHCs and rural clinics could push those community facilities to cut hours or close down altogether.

“It’s pretty clear that, for decades, in rural care the clinic system is the backbone of health care. And not just for low-income people, I might add. But due to budget cuts and delayed payments, many of them are on the brink of closure,” Chesbro said.

“Their reserves have been depleted, their credit has been exhausted, their creditors are demanding payment. And they’re maxed out,” Chesbro said.

He added, “So the question we need to ask ourselves is, ‘What will we do without them? And who will be there to treat patients when these clinics close their doors?'”

State Goals: Flexibility, Efficiency

According to Toby Douglas, director of the Department of Health Care Services, the state’s community clinics would have come out ahead financially if the Legislature had adopted the plan. At the Assembly hearing in April, Douglas painted a picture of a new landscape for FQHCs and rural clinics.

“Community health centers are restrained under certain federal rules,” Douglas said. “They can’t do phone-based medicine, home-based medicine; they’re restricted on telemedicine. What we want to do is to expand services in a way that relies on our community health centers, so that, come 2014, they can provide the needed access to care.”

Douglas proposed seeking federal approval — and enabling federal reimbursement — to pay for those more modern types of care.

“This gives them the ability to provide care in the most efficient way, and rewards them for being efficient,” Douglas said. “So we’re proposing a new payment methodology for our clinics that moves to a bundled payment, a capitated amount per member per month for each of the individuals who are enrolled in their clinic. Then all the rules would be waived on how they provide care. So they could now provide care in the most cost-effective manner, whether that is group-based visits or e-consults or phone-based.”

All of those innovations have one goal, Douglas said: better patient care. Clinics could make better use of their time, get reimbursed more and patients could get better and more efficient care, he said.

“And one of the added benefits is that it will reduce costs over time. So what we have proposed is this new payment methodology, with the understanding that it will lead to efficiencies and the reduction of the cost of care for our clinics,” Douglas said.

“We believe it will save about 10% [for community clinics], and that’s built into the payment methodology [with 10% cuts].”

Equation Didn’t Add Up

Legislators weren’t buying it. The promise of possible reimbursement additions offset by the rock-hard reality of losing 10% in funding was an equation that didn’t add up for Chesbro.

“Numerous studies have indicated that FQHCs and the fee-for-service system provide the most cost-efficient and quality care, and actually save taxpayers’ dollars now,” Chesbro told Douglas during the hearing. “It has been viewed as the way we’ve reduced the cost of care. So why do you want to replace a government program that has been demonstrated to work with an unproven system based on speculative assumptions?”

Douglas argued that the plan was for the good of FQHCs.

“Many of our community health centers have come to us over the years with concerns about the payment methodology and the way it constrains their ability to provide care in a more cost-effective way,” Douglas said. “So if we continue to provide payment methodology in [the current] way, then we’re going to constrain their ability to provide care in these ways, and we’re not going to be able to expand access.”

The issue for subcommittee member Toni Atkins (D-San Diego) was not expanding access as much as maintaining it.

“In terms of quantifying a 10% savings, what are those savings based on? What are your assumptions?” Atkins said. “And if your assumptions turn out to be wrong, what do we do then?”

Douglas said DHCS would monitor those potential savings carefully and could adjust the capitated rate to make sure community clinics stay afloat.

“So if we see that it needs to be adjusted upwards, if we see that the efficiencies are not panning out, then the rates would be going up,” Douglas said.

“This is our best estimate,” Douglas said in answer to Atkins’ questions. “I’ll be honest, we do not have any data within our Medi-Cal program of that level of reduction. We do know the systems that have moved to e-consults and other approaches … [and] what it’s created in terms of efficiency within their practice patterns,” he said. “It’s been more than 10%.” Medi-Cal is California’s Medicaid program.

In the wake of the subcommittees’ rejection, “DHCS is currently reaching out to stakeholders and evaluating its options,” according to DHCS spokesperson Norman Williams.

Too Much, Too Soon

Legislators also cringed at the timeline. The cuts, as well as innovations to spur greater efficiency, would have gone into effect July 1, the start of the budget year, Douglas said.

“It’s a difficult budget environment,” Douglas said. “In the best of times, we’d be taking a lot more time with this.”

“I’m really dubious,” Atkins said. “I’m very concerned our clinics are being asked to do more than they can do.”

One Assembly member has floated a different possibility.

“It would seem that what’s proposed here would be better ramped up in some kind of pilot program,” Bill Monning (D-Carmel) said. “Where you look at some clinics, serving different areas, and you see if this transition can be done. You could see if you’re realizing the savings without losing the services.”

Sean South, associate director of communications for the California Primary Care Association, which represents more than 800 not-for-profit clinics and health centers, said CPCA officials were encouraged by the subcommittee’s votes, but are still wary.

“We feel about as good as you can,” South said. “We appreciate the Legislature’s decision to reject the proposal, and we hope the governor doesn’t include some form of this in his May revise.

“If you remember, one of the reasons (DHCS) said they could cut (Medi-Cal) provider rates by 10% is because they had the FQHCs to fall back on,” South said. “So it’s difficult for us to be used as the case for cutting provider rates, and then have the same cuts proposed [for FQHCs]. A cut of that size is just too much. It was a significant cut, $100 million is a significant cut.”

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