The FQHC Question

By Monica E. Oss, Chief Executive Officer, OPEN MINDS

As executive teams of specialty provider organizations ponder how to prepare for a future of whole person care, partnering with or becoming a federally qualified health centers (FQHCs) is one of many options to consider. The question is whether this strategy is the right move.

There are many factors to consider, one of which is the very future and solvency of FQHCs. A recent article, Very, Very Financially Fragile: Vermont’s FQHCs Are Struggling, discussed the financial challenges of FQHCs in Vermont. The state’s 11 FQHCs ended their fiscal year in April with a combined operating deficit of $8.5 million on a collective budget of $264 million.

These deficits are driven by operational costs outpacing federal and state grant funding, combined with Medicaid and Medicare reimbursements that fall short of covering actual service delivery expenses. The impact has already been significant—North Star Health closed its Rockingham clinic in January, and Lamoille Health Partners shut down its Stowe primary care site in February, with both reporting losses exceeding $1.4 million in 2023.

The Vermont situation is not unusual. Nationally, nearly half of the centers had negative margins and overall net margins were 1.6 percent, the lowest level since 2020. Interestingly, rural FQHCs consistently had higher margins than urban facilities during this period, ranging from 3.2% to 15.3% in 2022. 

Nearly one-quarter of FQHC executives expect their financial stability to decrease in the next two years. This is due to uncertainty of pending federal policies, including cuts to Medicaid funding, which makes up around 42% of FQHC revenues. And the Health Resources and Services Administration (HRSA) organization that supports FQHC programs could be phased out as part of a larger departmental reorganization.

To get a first-hand perspective on becoming and managing an FQHC program, the session, So You Want To Become A FQHC? — The Cherokee Health Systems & Community Health Network Case Studies, was presented by Parinda Khatri, Ph.D., Chief Executive Officer, Cherokee Health Systems; and Penny Pabst, M.Ed., OHSS, Chief Administrative Officer, Community Health Network.

Founded in 1960 and designated an FQHC in 2000, Cherokee Health Systems (CHS) is a $77 million organization that operates 21 clinics, two mobile units, and over 20 telehealth sites serving 25 counties in eastern Tennessee—and provides nearly $14 million in uncompensated care. CHS served over 67,000 consumers in 2023 and provided $13 million in uncompensated care in 2024. Dr. Khatri shared that their FQHC journey was driven by consumer need: “We were watching our patients die… from diabetes, untreated heart disease, stroke, and COPD.”

The FQHC journey for Community Health Network (CHN) began under atypical circumstances. “Our health center was formed in 2008 to replace an FQHC that lost its federal funding,” Ms. Pabst said. The Stephen F. Austin Community Health Center, Inc. (dba) MyCHN is a Federally Qualified Health Center (FQHC) that has grown to 15 locations today, with expansion plans for four additional locations in the next two years. MyCHN served 40,000-plus consumers in 2023 (a 204% increase from 2019) and had 180,000-plus consumer encounters that year (a 241% increase from 2019). MyCHN’s payer mix is 28% private insurance, 22% Medicaid, 8% Medicare, and 47% uninsured.

For executive teams considering becoming an FQHC, Dr. Khatri and Ms. Pabst advise organizations to consider FQHC board governance requirements; understand fiscal compliance rules; and understand the reimbursement system to guide service line decisions.

The speakers noted that FQHC boards are formal entities tasked with creating and enforcing bylaws, ensuring regulatory compliance, and oversight of the FQHC’s chief executive officer or project director, and establishing policies for finances, consumer eligibility, personnel policies, and quality-of-care audit procedures. Requirements for the board’s composition include naming FQHC consumers to 51% of the board seats. The board must accurately represent the gender, race, and ethnicity of its community’s demographics. Board requirements are closely scrutinized during HRSA site visits that typically occur midway through the 3-year award period. In the session, the FQHC executives discussed the very complicated FQHC compliance rules. “There are so many compliance guidelines… If you are not compliant with Medicare and Medicaid, or if you are not following the guidelines, HRSA will pull your funding,” said Ms. Pabst. She discussed the challenges to managing organizational analytics and quality measurements.

“We have alignment in our data analytics team,” Dr. Khatri said. “They’re not just doing all the FQHC stuff. They help us with our value-based contracts and our value-based agreements with Medicare and TennCare Medicaid. So we don’t just use them for that. We use them for other really important functions that are critical from a revenue perspective.”

Dr. Khatri also noted that executives in FQHCs need to fully understand care delivery costs to guide service line decisions. “We look at being a good steward of our resources,” Dr. Khatri said. “I had our director of revenue integrity show me the reimbursement for one of our therapy visits, which was 84 cents. Why would we do that? It’s easier to put that consumer on our sliding scale and not file for reimbursement.” Both executives spoke to the opportunities and challenges in FQHCs: “I think more power to you for wanting to become an FQHC. If you do, it’s a powerful movement and it brings wonderful benefits to you. It also brings with it significant burdens,” Ms. Pabst said. “If you’re not mission-driven, if you don’t have the mission in you, you don’t last.”